Thursday, November 19. 2015
Nemo's Dory - Boundless optimism, no memory. Essential characteristics for the Bubbletime
Today was Square IPO's, after re-valuing its business from $15 to $9 a share. As of 3 pm on Day 1 its trading at about 40% above $9, and the Silicon Valley press is positively bubbling over in praise
"Hang on" I hear you ask "didn't they just take a massive haircut last week to go out the gate? They were valued at $15+ last round, that's at least 70% above $9?"
You are right, dear reader, but this is Silicon Valley in the Bubbletime, and that de-valuation was so last week. What is important is that an IPO must "pop" up bigtime, so the hype machine can crank up to full volume. Details like the above de-valuation are forgotten, Dory-fish like, in the great game of finding Alpha
Given that most Unicorns are way overvalued (the rest are just overvalued), for the bubbling to continue, first must come the bath. Of course, this screws the employees and later investors without ratchets and preference shares, but hey that's the breaks, right?
Update - Bloomberg reports that everyone made money but for the Series D (late, un-ratcheted) its a close call - and they put in the largest lump of the money (40% +) pre IPO - probably not unique to this Unicorn
Saturday, November 14. 2015
As followers of this blog may know, we have been watching the current Tech Bubble inflate from 2011 (see our Bubblewatch series of posts), yesterday the Grauniad asked us if we thought some of the current high profile de-valuations (Fidelity writing down its Snapchat investment 25% this week, Square's IPO next Monday repriced 30% lower) signalled an end to the current bubble.
It's an interesting question, I made a few rough notes for the chat and thought I may as well turn them into a blog post.
There have been mixed messages about Unicorn pricing for a few months, but that's on the back of a period of extraordinary frothing (Silicon Valley does not like the term bubble ). There were about 10 or so "Unicorns" (venture backed private companies, without real revenue streams or profits) during the dotcom heyday, there are now c 140, an order of magnitude increase . The dollar has devalued in the intervening 15 years, the digital sector has grown, but not to the level where economic fundamentals explain such a profusion of a once-rare creature vs the dotcom number created, if you recall, in the heights of irrational exuberance.
All bubbles are different in detail, but they follow roughly the same path at the meta level (see diagram above), a number of fairly well defined phases:
Stage 1: Displacement - all bubbles start with some basis in reality. A technology shift that creates an advantage, or some other change in "Business as usual". Early adopters and investors are active in this stage
Stage 2: Boom - Once a bubble starts, a convincing narrative gains traction and the narrative becomes self-reinforcing. Fundamental analysis that seeks to establish how underlying values are reflected in prices is put aside, the keys to any bubble is to loosen up lending.
Stage 3: Euphoria - In the euphoria phase, everyone becomes aware that they can make money by buying into certain stocks/companies, early investors have made a lot of money. This is the period where the "This time it's different" trope is wheeled out, with all the fanfare. The details differ each time, but the siren song remains the same. This is also time when the "weird" becomes the new normal, for example:
- We get 140 privately funded companies, privately valued at over $1bn each, and call them "Unicorns" and everything thinks that is normal, and still think it's normal when only a few months later they are talking Decacorns.
And then there are the more prosaic measures one can use, from looking at what has come before:
- The growing total valuation of the Unicorns / Decacorns / Megacorns et al looks suspiciously like a steep vertical rise, a hallmark signal of the Euphoric phase
Stage 4: Crisis - At the transition to the crisis phase, the insiders originally involved start to sell. For example, loads of dot-com insiders dumped their stocks while retail investors piled into companies that (eventually) went bust.
So where are we now?
By our reckoning this market is starting the transition from Euphoria to Crisis, signalled by the "smart money" starting to attempt exit or at least stabilise their positions. But values still keep on going up for a while in the crisis phase (for about a year in the dotcom era), even as the "smart money" is exiting - typically this is because (i) there is huge industry now dedicated to inflating the bubble and it's not going to stop that momentum suddenly, and (ii) "greater fools" (traditionally the small investor - the apocryphal shoe-shine boy giving investment tips) finally get let into the game.
The interesting thing about this time round is that all these companies are still private, which gives three interesting dilemmas for the "smart money" flow.
- These are still essentially illiquid assets.
This also explains the multiplicity of ratchets and preference shares being used in the later-stage Unicorn funding deals by the way, so that if it all goes down the plug those Investors get first dibs on whats left. In fact, arguably this also drove the bubbletime valuation - if you are not going to lose money, who cares what you value it at.....until you find there is no way it will sell to many companies except Google or Facebook, nor can one IPO at those values, and there are no greater fools in sight...(yet - one thing to watch for now is the attempts to find them - watch your 40K fund managers like hawks, folks)
(Update - our apologies, we were behind the curve here in 2 ways
- on October 30 2015 the SEC allowed non-specialist invetors (aka YOU! to buy shares in private companies via crowdfunding)
And don't believe the soothing words about deflating slowly - historically, so far anyway, bubbles have always popped.
As to harbingers of the Crisis, arguably the shoeshine boy this time around is a spotty wannabe entrepreneur with their own startup (you laugh...read here, about 1/3 down below the AOL picture).
But in our observation, there has to be an "insanity event" that triggers the crisis of confidence - something so incredible even by the standards of the bubbletime, that it wakes everyone up from the spell and starts the rush for the exits. In the dotcom crash it was the AOL acquisition of Time Warner, and this hasn't happened yet.
Still, its all for the greater good - if you look at Carlota Perez' theory of bubbles, their purpose is to build a wave of capital that washes away the old so the new can take it's place. In the wake of the wave receding is left the speculative assets are left at bargain basement prices that allow the New Economy to be built on them (the railways, the datacentres and networks after the dotcom era). It marks the transition from the “installation period”, one of exploration and exuberance, to the second, or “deployment”, period - is a much more boring affair as all the quick bucks have been made, so investors prefer to put their money into the real economy.
The transition to Perez's second phase is marked by the bubble popping. The emphasis is no longer on raw technology, but on how to make it easy to use, reliable and secure. Later, this period is also the “golden age” of a technology, which now penetrates all parts of society. The start of this complete value collapse marked by the last phase in Minsky's model :
Stage 5: Revulsion - Where the press used to write only positive stories about the bubble, suddenly journalists notice the fraud, embezzlement, and abuse that was always there and write about it. Investors who have lost money look for scapegoats and blame others rather than themselves for participating in bubbles. Assets fall to irrationally low prices.
The fun now is speculating on what the event that closes out the Unicorn Bubble will be....and what it will be called. The Unibomb?
If it is the Square IPO that is the event, then that's the bubble popping with a whimper, not a bang.
2 day later update - this is interesting - VC Union Square Ventures' Fred Wilson has just noted this on his blog that "It’s interesting and noteworthy that when the private capital markets got the benefit of large pools of capital coming in, that came with increasing transparency. Of course it did. We just didn’t realize that was going to happen"
Friday, November 13. 2015
...the best possible thing, in this best of all possible worlds
I was prompted to write this post after reading Gideon Lichfield's useful article on all the different types of systems jumbled up in the term "Digital Economy" and the muddy thinking about it that results. To summarise Gideon first, these are the different types of systems operating up in this new economy, and the reality behind the hype - the expurgation is mine:
Read Gideon's full article for the satirical asides and pointing out that We Have Seen All This Before notes
But what this summary really made clear to me is that all these "Next Economies" (possibly with the exception of a Bottom Up collaborative system) is that they like to use the impressive (and more neutral) term "Economy" whereas in reality they are just good old Markets - either simple ones flogging something, or two sided markets matching a buyer and a seller via a mediator.
What has apparently changed is a new mediator (the "Digital Platform") has seemingly been invented in the last few years (I know, I know....). Now there is no question that digital technology reduces transaction costs, makes it easier to find buyers and sellers, will allow new entrants, threaten incumbents, shift market power etc etc - but this is hardly "new". Yes, in the chatty social media world, it's far easier for markets to be conversations. And Blockchain woo will hopefully make it easier to pay and harder to be cheated.
But they are all still, at the end of the day, just markets. And this is hardly a new feature of the digital age (I am reminded that many "vertical markets" and "e-market" dotcoms were proto-Unicorns until the dotcom crash, and its hardly as if the last 15 years haven't seen a lot of new digital markets emerge).
In reality, much of the extra benefit of this "New Economy" over the last few years so far seems to have come from new providers arbitraging the regulatory costs of existing labour, financial, safety and consumer protection laws and "capturing the surplus" (aka pocketing the difference), but once everyone is on the same playing field (either via re- or de- regulation) those advantages will be gone - and in many of these markets (taxis, renting spare rooms, delivering food et al) there is precious little barrier to entry - or margins, for that matter.
(An aside here - there is a whole related issue to this "New Economy", about the "Future of Work" - both are driven by the same digital technologies, and there is also a lot of muddling of the two effects, but in my view so far the biggest discernable impact of the New Economy on the Future of Work has been the more efficient exploitation of low paid people (or "peers", to note the Newspeak) but that is for another post - though here is a first shot)
How this simple and millenia old function (the oldest human profession?) has acquired all these various "new economy" terms, never mind a lot of the idealistic hype (see picture at top of article) that surrounds it all, is the mystifying bit. I guess "e-Markets" is a bit passe, and you can't tack on a whole lot of utopian dreams, nor justify the valuations of a crop of Unicorns who are flogging the same old stuff mankind has bought since forever, on old bottle labels.
Time to decant the same old wine into new bottles.....
Monday, November 9. 2015
Twitter has replaced it's "favourite this twt" star icon with a heart - which is odd, as it shows Twitter fundamentally misunderstands how people use the system. Which is also odd, as it wouldn't have taken more than a cursory glance at their own system to work that out, this is not some deeply hidden arcanity. People use "star" to log stuff that looks useful/important/etc, not just because they "love" it.
But the "heart" fiasco points to a deeper malaise, in my view that started when Twitter started a scorched earth policy with its own developer ecosystem a few years back. But then, when you have a management that changes more often than a comic-book Banana Republic government, its not entirely surprising it doesn't really understand how it's service creates value to it's users, nor have a longer strategy to create value apart from trying new ways to flog Ads to people that don't want them.
Speculation is that the main reason for the ongoing silliness is investor pressure to produce more growth - it "only" has 300 m users - nor real profit (it still loses $2 for every $ of revenue) But this is again odd, the point of a bloody big IPO like Twitter had is to give it the runway to sort its business model out without resorting to short term desperation tactics. Twitter is not Facebook, it's eventual business model will not be "Facebook Lite".
Now in recent months its started to be a bit more reasonable in its treatment of its own ecosystem, which is a Good Thing, as nearly all the real innovation on Twitter since the original concept has come from that community. What emerges succesfully from the developer Darwinian Soup is far more likely to help the service grow and expand than any internal brainwaves like replacing a "star" with a "heart".
When Twitter IPO'd, we opined that the service had far more long term potential than Facebook, but Twitter's revolving-door management structure was its weakness, as compared to the ruthless determination of the Facebook team. Now, let's see how fast Twitter can U-turn on this mistake. That will be an acid test of it's ability to succeed going forward.
Update - we tweeted this post, as we always do - and got a few favourites, with stars again. There is hope yet...
Update 24 hours later:
(i) The hearts are there now
(ii) Twitter, after barely 1 week of hearts operation, claims they have a higher uptake with hearts than stars. Bit early I'd think....
Wednesday, October 7. 2015
This is a summary of my more detailed article on the Agile Elephant blog
I was at the IOM Conference in Cologne last week, which is mainly concerned with the "Human" side of the Future of Work that the Digital Transformation will bring. The focus is really on how white collar, mainly fairly knowledge oriented workers, will do their work in future. It's all about improving human potential - expanding knowledge, increasing collaboration, co-ordination, engaging, enthusing, a move from hierarchy to flat organisations and teams. It's an optimistic vision, a Human-centric model. What's not to like?
But here's the rub - The Humanist, People-Centric approach is just one exposition of possible "Futures of Work" currently ongoing. You don't have to go far before you find three other very different futures being created as well as this Human-centric view of the Future of Work:
The people impacted by these worlds are going to have a very different experience from the happy human-centric vision painted in the Human-centric model
But what is interesting - reading all these various sources - is that there is very little intersectioning or consideration of the other models by any one of these models, the pundits & thinkers of each all seem to operate in Silos (Silos being something they all decry in the Current Ways of Working, ironically).
In essence the answer to the question "What is the Future of Work" is "All of them" - but in different combinations depending on industry, location, role and time. I put more detailed analysis in the other post, if anyone wants to look at Value Chain Analysis and Product/Process matrices, but in essence history suggests a hybrid will occur in most cases (just as manufacturing best practice today incorporates offshoring. lean production & worker cells, automation and elements of business process re-engineering).
For the Human-centred fans, there is the second rub - a lot of those impacted will be those people that thought they were slated for the happy, hierarchy-free world of work. How so? Well, if your job can be:
The Future of Work, in short, may not have you (or me) in it. And that is something less often mentioned - the Future of No Work.
The discussion about how the next shift will play out politically, economically socially is also not considered by many enthusiasts, but - for now - a quick look at the Industrial Revolution is instructive in thinking about the next 50 years. During the Revolution, while it is true that the changes created new jobs, better lifestyles and a better world for those countries that went through industrialsiation, it was not an easy transition:
Interesting times, and we are now living in them
Friday, October 2. 2015
The 72 hour brouhaha over Peeple has been fascinating to watch, in that everyone seems to hate the idea of being rated by others online.
And yet most of these selfsame people are being rated, every day and in every way, by a myriad of apps and websights and bots for all sorts of aspects of their online activity - financial, reputational, physical, attitudinal, activities....
Wake up people - Peeple is just the obvious endgame of what is being done already all over, every day.
Update - just had to add this quoute by @fakeBaldur re all the hoo-ha
"The #peeple law: a badly thought out app startup will be indistinguishable from performance art."
Friday, September 25. 2015
Fascinating snippet from the Grauniad about how Jeremy Corbyn's campaign used online tech to outmanouevre les autres:
Soffa [Corbyn campaign digital operatiomns head] created an app – using the American political organising software NationBuilder – that allowed volunteers to make calls to potential supporters from their own homes. The app provided information about an individual’s Labour membership, which constituency they lived in and its electoral history. Volunteers would follow a series of questions, with the answers fed back to Soffa’s team through the app.
If you ever read Nate Silver's book on predicting the last US presidential election (Silver got it right, many didn't), or the results of the post mortem of the last UK election polling, you will know that the critical thing is to know what voters are really thinking, not what they tell pollsters etc. Corbyn had an early insight.
Knowledge is power.....
The £3 thing was blindingly obvious - in hindsight, of course
Another thing we picked up was that the overdone and increasingly frantic attacks on Corbyn by the supporters (including those in the mainstream media) of the Blairite/Tory Lite wing of the party had the opposite effect to what was intended, they were increasingly lampooned on social media and in fact created sympathy for Corbyn among neutrals, as well as fulfilling the Wildean maxim that the only thing worse than being talked about was not being talked about.
Thursday, September 24. 2015
Image courtesy Bloomberg
To no one's great surprise, there is much less to the online Ad industry than meets the eye. A new Bloomberg report puts into black and white what we have suspected for a while - some quotes:
Digital’s return on investment was around 2 to 1, a $2 increase in revenue for every $1 of ad spending, compared with at least 6 to 1 for TV. The most startling finding: Only 20 percent of the campaign’s “ad impressions”—ads that appear on a computer or smartphone screen—were even seen by actual people.
There is a certain delicious irony in that Ads - fake content if ever there was - are being sent to fake people, but what to do for the Ad supported businesses out there?
As in all things, quality costs - if you want humans to see Ads, it costs money (see chart above).
This will also become yet another move in the Ad Industry Arms Race, one can imagine bot scrubbers and audience checkers etc, but all they really serve to do is add more friction to a system that is already corrupted, the temptation to use bots won't go away easily or quickly.
Thursday, September 17. 2015
There seems to be a lot more harrumphing about Ad Blocking these days by those whose business models are impacted by it, even though a minority of people (c 20% globally) use them. Today there is more wailing than usual as Apple released 2 Ad Blockers for the new iOS 9 that shot to the top od Apple Apps hit parade - re/code:
After the inaugural day of Apple’s latest operating system version, which permits new extensions for blocking content in Safari browsers, two apps that do just that shot to the top of the paid downloads.
The big panic is this means Ad blocking is now possible on Apple phones and Tablets - Mobile up to now has been Adspamzone supreme.
It doesn't hurt sites like Facebook that place Ads in their own streams but it may hurt Google (who pays for its Ads to show through AdBlock Plus). It’s not clear if Google has worked out a similar "fix" for these new iOS apps.
Anyway, there is great wailing and rending and gnashing by the Ad industry, and ever more ludicrous suggestions of what the advertised-to customers need to do to help keep those Ads rolling past their eyeballs - I saw one today that suggested people run Adblockers disabled by default, requiring them to blacklist the bad plays instead of "punishing the entire web".
The fundamental problem with Advertising as a business model thoiugh, is that customers don't like it unless it is very unobtrusive, and the industry is largely incapable of self control in that respect (did you know that most people install Ad blockers due to worry about use of their data to "personalise" them). It is a "tragedy of the commons" problem in that it is always to the advantage of the "ad-overgrazer", so cheaters prosper - so it's always just easier to assume the endgame, i.e. they are all acting in bad faith - and block the lot.
A more useful model would be spam killers, who do the work themselves, but of course that would require the Ad industry to do something else - be reasonable about it's advertising - which so far it has never been able to do since Pop Ups 15 years ago, hence Ad-Blockers in the first place (see Tragedy of Commans Game theory above).
Or maybe a whitelisting system - a certificate that says one conforms to a "minimum obtrusivneness" standard, and then Adblockers let it through. Odds of 1:2 though that it won't be 6 months before the lobbying and other attempts to expand the definition of "minimum unobtrusiveness" reaches "untrustworthy" status, and up go the shields again.
Interestingly, its better educated (aka wealthier) people who are the heavier users of Adblockers today, but use is growing rapidly (41% last year) so the Advertiised-to total spend will devcline faster than the number of people seeing Ads.
Anyway the current system dynamic is an Arms Race game - more and more intrusive Ads breeds more and more people trying to evade them, and ever better Ad Blockers. It's a Zero Sum game, in that the sum of revenue falls to near zero at game end.
Update - 1 day later, and the best selling Ad Blocker has been pulled from the Apple Store by its Maker:
Peace [the App] required that all ads be treated the same — all-or-nothing enforcement for decisions that aren’t black and white. This approach is too blunt, and Ghostery and I have both decided that it doesn’t serve our goals or beliefs well enough
What he doesn't say in his post was that a social media sh*tstorm was waged against him, I'd bet you can only see the half of the pressure on the public channels too. I suppose that's one way of winning the Arms Race - unleash a social media campaign and force the Adblockers off the market - but its short term, if one person can make one, and there is a demand, guess what....
Wednesday, September 16. 2015
Twitter full of the perils of downvoting. Facebook says that's not what it's for, it's to "express empathy"
Perish the thought that people could use Emojis or even Smileys, an old and well loved tech, to emote.
Aha! I hear you call - People used to use smileye to like things - the point of the Like button is for FB to track transaction reactions, and right now FB can't track any sentiments except "Like" very easily. So why does FB want to record stuff other than likes? Added granularity for Ad-serving is my starter for 10
BTW - re Dislike as Mob Rule Tool, it'll all be in the execution, haterz love to find new aways to hate.
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