broadstuff

You know you always suspected this, but now you know (from Psychology Today0:

Last week, the Sunday Times published an article with the headline “Blonde women born to be warrior princesses.” The article reported that “Researchers claim that blondes are more likely to display a “warlike” streak because they attract more attention than other women and are used to getting their own way – the so-called “princess effect.”” The Times article quotes the evolutionary psychologist at the University of California – Santa Barbara, Aaron Sell, and his findings are purportedly published in his article in the Proceedings of the National Academy of Sciences, written with the two Deans of Modern Evolutionary Psychology, Leda Cosmides and John Tooby.

Except that....

As it turns out, however, none of this is true, as Sell explains in his angry letter to the Times. He and his coauthors do not mention blondes at all in their paper and they don’t even have hair color in their data. The supplementary analyses that Sell performed after the publication of the paper, as a personal favor to the Times reporter, show the exact opposite of what the Times article claims. After he presumably listened to Sell explain all of this on the phone, the Times reporter nonetheless made up the whole thing, and attributed it to Sell.

I remember reading this and thinking it was total bollocks, and that was from my reading of evolutionary biology and psychology, which is "intelligent layman" at best.

But this is part of the Meedja's problem - by going for the quick hit of lightweight fame (the lure of the link economy is similar in the online world) I think they give away long term trust, and thus value. Little by little it seeps away.

And the problem is, just digitizing this sort of ersatz journalism doesn't help - the Huffington Post and the Onion have the market covered

Hutch Carpenter has an interesting post on the evolution of social capital:

In a recent interview with EMC’s Stu Miniman about the future of the web, I predicted that in 20 years, we’ll all have online reputation scores. Little badges, numbers that communicate our level of authority, this sort of thing. And these reputations will have tangible impact.

He visualises these trends in the diagram above. In summary they are:

Rate performance of businesses

eBay, which went public back in 1998, played an important role in socializing the concept of people providing online ratings for online sellers. After we receive our purchase, we rate the seller. The collective wisdom identifies top sellers. Got your eye in that Donkey Kong game? Who are you most likely to trust…?


Migration of transparent work and information online

I found this recent Kaiser Family Foundation study fascinating. The amount of time kids spend online – smart phone, computer, television or other electronic device – is now at an all-time high. There’s no denying this: future workers are going to be more accustomed to online engagement and information-seeking than any generation before.


Rely on social media for information

An emerging trend is the transition of where we seek information. Remember libraries, magazines and microfiche? Then the 1.0 websites where we got information? Then the portals that aggregated information from major media sites? Then search augmented all this information consumption?


Putting this all together

It’s that last trend, still early in its cycle, that really points toward the development of formal, online reputations. When we started transacting online with complete strangers or small businesses we never knew, we needed a basis for understanding their credibility. It turns out, crowdsourced ratings are excellent indicators of quality. It also causes small businesses to be aware of the quality of their products and services.

In the years ahead, expect increased usage of social media for getting information and sourcing people, products and services.

I think this is very succinctly argued and broadly agree with it. The question of course is how is this reputation going to be mediated. Hutch quotes Google's Amit Singhal:

“You earn reputation, and then you give reputation. If lots of people follow you, and then you follow someone–then even though this [new person] does not have lots of followers,” his tweet is deemed valuable because his followers are themselves followed widely, Singhal says. It is “definitely, definitely” more than a popularity contest, he adds.

Now this is where I start to get worried - this is describing the Link Economy as it is today, but the way it works is that its a semi Feudal system where the rich get richer and the "new follower" 's best strategy is to suck up to the popular ones to get that all important link (you can see this behaviour on Twitter) - and woe betide someone who falls out of favour and the lynchmob get them.. Not only that, the Link Economy chooses for popularity not quality, for ephemera and not , for following the fashion rather than the facts. We see it with this blog - write a long high quality article and you get ourr normal traffic and a few intelligent people commenting - write a witty, snarky but lightweight post (aka linkbait) on the ephemera of the day, comments flood in and the traffic goes through the roof. Guess which one the Link Economy rewards?

Now to be fair, these systems are in their infancy and no doubt there will be a lot of development to build ways to mediate them. But when you consider it took Europe 700 years and many bloody wars to get rid of its Feudal systems, it gives you an indication of how vested interests like these are if they are allowed to take root. And you only have to read Animal Farm to see how any system gets perverted.

Now this may sound a bit far fetched, but the original novel on Digital Social Capital (Cory Doctorow's Down and Out in the Magic Kingdom) was Dystopian, not Utopian - yet ironically today much of the the writing on Whuffie (the social media currency in Doctorow's novel) is Utopian.

(Update - I didn't realise it, but there is a whole Social Media thingy - #davossocial on Twitter - going on at Davos World Economic Forum this week, Davos is that place where, as the BBC put it, "All the people who got the world into the sh*t its in go". Now, if I were a conspiracy theorist..... )

Bill Gates did a rather good Mark Antony impression with his recent discussion about Google, market dominance and China. NYT Interview:

Is Google a monopolist? “I wouldn’t call anyone a monopolist,” replied Mr. Gates, who has frequently been the target of that epithet over the years. He went on to say that historically companies that become “hyper-successful” invite government antitrust scrutiny, and he placed Google in that small, elite group of technology companies: AT&T, I.B.M. and Microsoft. Welcome to the club, Google. “If governments don’t care, that’s a bad sign,” Mr. Gates said.

And on That China Thing.....

Mr. Gates declared himself unimpressed and a bit perplexed by Google’s recent threat to drop its search business in China to protest Chinese censorship of search after attacks apparently intended to spy on Gmail accounts of human-rights activists. “They’ve done nothing and gotten a lot of credit for it,” Mr. Gates said.

One may or may not agree with the laws in China, he said, but nearly all countries have some controversial laws or policies, including the United States. “What point are they making?” Mr. Gates asked. “Now, if Google ever chooses to pull out of the United States, then I’d give them credit.”

Mr Gates still moonlighting as Chief Microsoftie

You are probably aware of the Dunbar number - Prof Robin Dunbar calculates that we find it very hard to handle more than about 150 functioning relationships with other people. I recall discussing this with J P Rangaswami, whether the lowering of transaction costs on Social Networks, and the ability to electronically manage a social network could increase it. We both though it probably could.

However, Prof Dunbar has done some research on social networks and found the 150 number still holds:

Dunbar is now studying social networking websites to see if the “Facebook effect” has stretched the size of social groupings. Preliminary results suggest it has not.

“The interesting thing is that you can have 1,500 friends but when you actually look at traffic on sites, you see people maintain the same inner circle of around 150 people that we observe in the real world,” said Dunbar.

“People obviously like the kudos of having hundreds of friends but the reality is that they’re unlikely to be bigger than anyone else’s.

“There is a big sex difference though ... girls are much better at maintaining relationships just by talking to each other. Boys need to do physical stuff together.”
I was initially scratching my head - how can you not have an increase in a Dunbar number with reduced transaction costs? Then I worked out what was happening (I think). Reduced transaction costs allow you to recruit new friends very rapidly, but the social networking software on its own does not help manage them, the brain needs algorithms that augment it in automating management of a larger social circle - for example by say flagging when you haven't spoken to someone in say 2 months so send a message, etc etc. I am sure it will be a fairly fruitful area of research going forward.

All we have to do is work out how the girls do it and build an expert system to automate that

I tried posting a comment on Mashable's post about 4 "Major Trends in Technology" but its one of those sites where you have to log in to comment, so I took my comment and posted it here instead

Anyway, the article posits 4 trends. But, while these look like "no brainer" trends, I'm afraid that they are falling into the classic trap of just assuming that what has happened in the immediate past will thus predict the future. I can think of a number of forces pushing against them - in brief, per trend these are:

1. Web accessible everywhere - requires infrastructure buildout, that's not cheap, and ROI is a diminishing returns game. Ignores developing world economic issues.

2. Web access not in the computer - in reality, you need computer power to make the Web more than barely usable (see Mobile phones, failure of till iPhone), and you keep on needing more - it's more accurate to say the computer will not always be in the computer anymore?

3. Web being Mediacentric - well, in the sense that it is all media, sure. But if you mean video as opposed to text I think that is less likely - for so many applications, text can be parsed far faster. And Time is the non renewable resource. In many ways time spent consuming video media is what we do with our "junk" - ie low value time. Follow the money.

4. Social Media will be its largest component - bah humbug - the "killer app" of the internet - apart from Porn - is that people just want to talk to each other. The current bottle this old wine is in is called "Social Media", in a few years time it will have morphed as the technology shifts. And of course email is dead, not

And then there are the "known" and "unknown" unknowns, where:

- "known" equal predictable surprise shifts that you can see coming, eg what happens when today's smartphone power is a $5 commodity and the size of a peppermint (Moore's law redux); and

-"unknown are, well, unknown, But try this one - in the last c 150 years, a totally revolutionary comms medium has been invented about every 30 years (Telegraph, Radio, Cinema, TV, Internet). The 'Net is 40 years old, the Web is 20.

What's Next?

The error here is a common one in pop-punditry - look at the last 10 years or so and assume the next 10 will be the same, just more so - the trick is to look at the last 100 years or so and see the patterns and waveforms. As Santayana said, those that forget the past are doomed to repeat it.

We've been keeping a lofty distance from the unseemly cr*pfest that is the speculation about the Apple Tablet, or iSlate or whatever. We do do market intelligence for products that have yet to be invented, in markets that don't exist - but only for real clients who pay money that does exist

Anyway, when I saw this from Crunchgear called "The Killer App fo Apple's Tablet is gaming" I decided to withhold on this no longer, and join the sordid multitude mud-wrestling in the Breughelian ooze of the Apple fanboi blogosphere.

And if one is going to be sordid, one might as well be more sordid-than-thou.

Now, as you know:

(i) The internet is for Porn, (see the Avenue Q YouTube song above) and the Apple Tablet is the perfect size and design for - ahem - "appreciating" dirty pictures.

(ii) Porn as an early adopter market has often driven adoption of one end-user device over another, and this is a crowded field with tablets, high end e-Books, new smartphones et al. Whoever gets an early rise from porn (as it were) gets better production economics, and may well take the market

And its easy to use - just wipe the iSlate clean, as it were.

This is a public service announcement. It is to be taken as an antidote to Tablet Hype with a tongue in cheek (wanna see the pictures....) and a pinch of salt.

Quite a bunfight about Web Metrics this weekend, I read it first in SAI:

Comscore is changing its web ratings methodology to include site-side server tracking. In connection with this change, it is charging all sites who want to be measured with the new methodology a $5,000 "set-up" fee ($10,000 for a year's access to the data).

Comscore's logic here is that the new site-side tracking costs money, so sites should pay. We disagree with this. The site-side tracking is a cost required to improve Comscore's product. The change will likely boost traffic for sites that participate, so Comscore is effectively waving the threat of relatively poor traffic metrics in the face of every company that chooses not to pay. We see that as blackmail.

Yesterday, Jason Calacanis called for an industry-wide boycott of Comscore. Comscore investor Fred Wilson and CMO Linda Abraham defended the company. The argument has gotten heated and personal, and many of the points being made have gotten away from whether the setup fee is fair.

Techcrunch and various others weighed in too. Now some of our clients use ComScore, and there is also Alexa, Hitwise, Google Analytics, various server-side packages, Neilsen etc etc. And they all disagree with each other!

Our view is that no system is "accurate" yet. You have to cross correlate across them all at the moment to get a "fix" on one site vs its competitors, and its relative and not absolute. Two years ago Will McInness kicked off MeasurementCamp in London because so many of us were finding this problem - and in fact one of the things we quickly wondered about was are they even measuring the right things, never mind measuring things right. It is a b it frustrating that 2 years later not much more light has dawned.

But its not surprising. This is an industry in its adolescence, still trying to work out the right way to look at itself. Television went through this decades ago and it took a while for enough empirical evidence to come through as to the best rules of thumb. And liek all adolescents growing up, we expect to see histrionics every so often

As to whether Comscore is right to charge for server-side monitoring, two thoughts:

(i) The market will ultimately decide whether paying $5,000 for a different number to the one you get for free is better.
(ii) If it becomes clear that companies who pay for server side monitoring have higher reported traffic than those that don't, ComScore risks tarnishing its currency, or at least having to report those who are and aren't server side.

With the bigger websites, you can sort of calibrate them against each other anyway, and I would argue thats as good an approach as any right now - ie its pointless trying to talk about 2 decimal place output when the input is a finger in the air.

Nice article from Chris Dixon on the areas where the Internet can disrupt the financial services industries (He is responding to Sarah Lacy's original article where she wonders how come the 'Net hasn't disrupted the Financial Services industry yet). He has a number of areas of retail banking, but I want to focus on where the real material differences are - the merchant banking functions:

Credit cards. Charging 20% interest rates (banks) and skimming pennies off every transaction (Visa and Mastercard) is a very profitable business. Starting a new payment company that doesn’t depend on the existing banks and credit card companies could be disruptive. Paypal seems to have come the closest to doing this.

I agree, this is an area ripe for lower cost competitors. Paypal is not loved by a lot of people, but there must be someone who can build a better online alternative.

Proprietary trading. A big trend over the last decade is for more of big banks’ profits to come from “proprietary trading” – which basically means operating big hedge funds inside banks (this trend is one of the main causes of the financial crisis and why the new “Volcker rule” is potentially a very good thing).

...........

Given that the stock market was flat over the last decade and hedge funds made boatloads of money, the loser in this game are mostly unsophisticated investors (e.g. my parents in Ohio).

As Chris notes, they use powerful algorithms to out-trade less well equipped people (read The Predictors about how this all started). It occurs to me that with the power of computers today, and social media, it may be possible to give small traders technology that matched them. Failing that, education. As Chris notes;

Any website that encourages unsophisticated investors to buy specific stocks is helping Wall Street. Regular people should buy some treasury bonds or maybe an S&P 500 ETF and be done with it. That would be a huge blow to Wall Street.

And how better to spread good practice than via social media. A similar process could be applied to Trading

Trading. The more you trade stocks, the more Wall Street makes money. The obvious beneficiaries are the exchanges – NYSE, NASDAQ etc...... ....But the real beneficiaries aren’t the people who charge you explicit fees; it’s the people who make money on your trading in other ways. For example, the hot thing on Wall Street is right now is high frequency “micro structure” trading strategies, which is basically a way to skim money off the “bid-ask spread” from trades made by less sophisticated investors.

As for the above case, it must surely be possible to give ordinary users technology of similar power today.

Investment banking. .... ....Regarding mergers, there have been endless studies showing that big mergers only enrich CEOs and bankers, yet they continue unabated. This is part of the massive agency problem on Wall Street and can probably only change with a complete regulatory overhaul.

The best thing ordinary shareholders can do is use social media to become active shareholders - I wonder what would happen if more people started to become far more active pressure groups on the activities of their own retirement funds, as Chris points out:

Mutual fund management. Endless studies have shown that paying fees to mutual funds is a waste of money. Maybe websites that let your peers help you invest will disrupt these guys. I think a much better way to disrupt them is to either not invest in the stock market or just buy an ETF that gives you a low-fee way to buy the S&P 500 index.

But I think We The People could do two other things right now:

- Use social media to pressure bankers, politicians etc to behave ethically and get the banking reforms done. Right now there is another asset bubble happening as public money is poured into the banking system (just look at how the stock markets ave jumped) but teh banks are behaving exactly the same ways they did to cause The Crunch - so there will be another one unless things change, and things will only change if the vox populi clamoure s for it.

- Start pulling money out of areas that don't favour them, and where they can't (Penasion funds) satart to pressure them. I also feel there has to be a role for co-operative style independent advice using modern technologies. I like things like Stocktwits as its using real time discussion that any user can access.

The other issue that needs solving is to tear down the artificial barriers that raise entry costs in so many of these areas, allowing them to charge hig prices as there is so little competition. Social action has worked in other areas.

Sadly, the average Facebook or Twitter user is far more likely to show support for a discontinued chocolate bar, or join a Twitter freedom of speech in Iran campaign or similar, than take part in mass action for sorting out the disgraceful behaviour of the people managing their hard earned savings, Until that changes, nothing will change.

Partly its education, but partly its will.

Anil Dash is the latest to call for the service layer to be as failure proof as the infrastructure layer on the Internet, rather than be concentrated in a few companies (see Don't let Twitter, Facebook, Google be the only game in town) over here. He writes:

There's no reason that organizations or individuals who want to use the Web to relay critical information have to rely on Twitter or Facebook or Google or any other giant of the technology industry in the first place. We've just forgotten a bit about how the Internet was supposed to work.

Rescue organizations and charities should simply be able to use the Web sites they already have to deliver those messages.

And wasn't that the promise of the Web in the first place? Weren't we going to stop relying on individual companies as gatekeepers for communication? When blogs took off a few years ago, wasn't it with the promise that we'd all be able to share our voices without having to ask any company for permission? Why did we give that up?

So why can't we have Open Social Networks, like we have Open ISPs. Why can't I just pay an addendum to my ISP and get my SocNet stuff, which interfaces to your SocNet stuff over open standards? As Anil points out, we have been here before:

Ten years ago, otherwise-sensible companies were paying millions of dollars to America Online to buy "AOL keywords." These were shortcuts to parts of the AOL service, which dominated U.S. Internet access at the time. In fact, many of us have allowed companies to become intermediaries to all our communications, whether it was AOL 10 years ago or Facebook today.
.....

Think how ludicrous it would seem for someone to decide, say, to offer emergency services as an AOL keyword called "911" instead of having people just dial their phones?

Imagine having to have an address for my company - or myself - on Twitter, Facebook, Gmail etc. Ludicrous! His point as to the "why" they've stitched it up today applied to how it was done in the early days:

Maybe it's because they made it look so easy.

I think thats a big part - take any major Open Source project, what you will find is everyone likes to the interesting, fun stuff. No one likes to do the Nth iteration on the blah-button on page 234-b to get it working just that little bit better. Its a sad but true fact that Open Source User Experienes and Interfaces usually suck a lot more than commercial ones. It took quite a few years (it needed Mr Andreessen et al, not just Sir Tim) before even mainstream Geeks could run with the Open Internet.

Also, at 3am on a Sunday morning, Open Source guys by and large don't want to fix a bug in some sap's application becuase its gone doewn, Sh*tty jobs like that give no kudos. So O/S SLAs are crap, you either need to have in-house resource or have a big guy guarantee it (Linux only really took off when Red Hat etc.

But these are not insurmountable issues. Why can't an Open Source world build an Open Social Network for everyone to use? Its technically feasible, and imagind the benefits:

- Communications systems that favour open connections, not walled gardens
- Privacy rules that favour users, not advertisers and dataminers
- A rich application ecosystem

Can't be that hard - get an OS Social Media system, run it up on Amazon, get some NFP funding to pay people to run it and write a useable UI....

It could be a service that is as ubiquitous as email, you get it when you sign up to your ISP. You would pay for it as part of your monthly fee. In the early days it may be a Not-For-Profit that sets it up but you could soon federate/franchise it to other qualified bodies to run.

Paul Kedrosky and Fred Wilson have been in furious agreement - it seemed to me - about the restructuring of the VC industry. Last year they both opined that the VC industry was too big - Paul came at it from the angle of lousy returns over the decade implying that the industry was economically ineffective, Fred noted that the industry was chasing too few good deals with too much money.

Today the both wrote new posts on the topic (Paul's here and Fred's here)

Fred's worry is that silly money is coming back in:

My concern is that investing went up in the second half of the year to a $5bn/quarter rate, which is $20bn run rate, a bit above the number that I think is optimal for the industry's returns.

2010 will be an interesting year. If VC investments go back up to $25bn to $30bn per year, then the diet didn't stick and we are back to an overfunded industry that will produce subpar returns on average.

Paul's take is that VC may just be broken more than that now.

Finally, is it possible that venture is just so badly broken that we have no idea what the right amount of capital is? Yes, it is possible that we could see 10x as many startups and find that it is a distribution with many local maxima, some of which are much more attractive than the current level of investing. To be honest, I would love it if that were true, because it would be wonderful for the economy, and this assuredly isn't physics -- annual outlays is not fixed like Avogadro's constant. Good luck making that case, however, to burned limited partners who have just watched an expanded venture industry deliver the worst returns in its history.

Its at this point that people like me wot do strategy and game theory and system dynamics and all that stuff start to get interested in What Happens Next - what is the system dynamic of the VC industry? Instead of using my own brain I asked Google, and found the model I posted above (from a rather nice little paper by Carlos Yepez, Carlton University, Ottawa).

For those who are not familiar with system dynamics, the trick is to look at the model and find out where the postive and negative feedback loops are. When this model works well, these loops are all positive - Great Entrepreneurs give VC's great opportunities (right hand loop), which allows them to create great exits (bottom left) which then informs the market for investors (top left)

So, eyeballing this you can see the following is happening:

Firstly, if all systems are positive then the overall system grows - but at some point it hits a limit. I agree with Carlos that the limit is the appetite for great exits by the public markets. This has now dried up, so they are now looking at trade sales, which by and large have lower exit values. At this point Carlos's model shows the bubble starts to unravel. But it takes time because...

Secondly, the system is not self - regulating. Just because the Great Exit loop is stopping does not mean the Entrepreneur or Investor loops do - in fact I'd guess they are picking up old information about Great Exits so they are actually accelerating - more Greedy Investors and more Eager Entrepreneurs flock into the system. The VC matchmaking market expands on the money flooding in and then increasingly desperately has to find places for the money to go, so eventually has to start to fund the Entrepreneur Supply Market itself. Enter Incubators etc etc.

Thirdly, that increases the velocity of supply of Eager Entrepreneurs, but that means that the success ratio of Great Companies available falls, so you start seeing much more investment by the Didn't Get VCs in the Me-Too companies (aka the Dumb Money).

Fourthly, this Dumb Money phenomenon happens because at this point the lower values of (trade) exits means the VC's need higher volumes to keep net surplusses the same, but this is impossible so the VC's ROI drops. And the optimistic belief is that the next one just may be The Next Google. This is still not a problem so long as the Eager Investors think there is still a great return.

I think this is where we were in the cycle till about a year ago. Today, the Startup Promotion Engine is still in full gear (TechCrunch 50's and all the rest are GO!), but the public markets are by and large closed, and the trade market is slowing - even Google can't buy everything.

So the big question is what are the Investors doing now? Eager Investors are of course herd animals, so the last of the herd is still rushing in where the Angels are scared to tread. But at some point they must decide that this is not the best game in town and the herd reverses. If that happens then supply of money dries up and you get a bust - which is what Carlos' model shows happens (He assumes a 36 month lag before the light dawns, but Paul's data implies it may be far longer).
And as you may know, busts typically overcorrect themselves after bubbles.

So what happens next?

Firstly, I think Carlos's model of 36 months lag is too low for the Investor Herd - so the bust may take longer to materialise. There is the Great Recession factor, ie some Investors have reached their funding limits, but - in my humble opinion - this collapse will tail off slowly over a number of years and could be further ameliorated by schemes for governments to "cultivate innovation as a national priority", and tax breaks for funding startups etc etc. I expect to see lots of calls for all that over the next few years

Then, if you follow the model the VC industry shrinks, but the supply of Entrepreneurs doesn't immediately. Now, if the average funding per Entrepreneur goes down (and there are a lot of signs that they need less money, for software services anyway) so the No. of deals reduces by less - but as there is less surplus in the chain the VC's have to do simpler deals to make margin, and there is likely to be massive consolidation to get operating synergies. (There is an issue here about how good VC's are at picking winners - statistically its not great, so they have to keep on with wide portfolios - but you can expect less of the obvious lemons to be funded)

One option to mitigate this is for the VC industry to manage its own decline (which is why Paul floated the Cartel word methinks) but I think it will do so in a more Darwinian manner.

The other option is to exit 'Net Tech and find cycles where the ROI stays higher - hence the rush for the GreenTech/CleanTech bubble but this too will pop. (I see Vinod Khosla recently started to talk about agriculture - does he know merchant banks were buying Ukrainian farms just before The Crunch?).

But those options require big capital investments and people who are really good at getting things right, ie the weak VCs will die but the good ones will win, and the industry will rebuild. In about 10 years time.

And then the system dynamic predicts the next bubble