Category Archives: Business / Economics

"Traffic," Tom Vanderbilt

This is a good compendium. Nothing too ground-breaking here, but Vanderbilt does cover a lot of ground.

I especially liked that Vanderbilt addressed self-driving cars. Traffic was published in 2009; I didn't expect then that producers would have made as much progress towards autonomous vehicles as they have in the last four years. I am more optimistic about overcoming regulatory hurdles than I was then, but I still believe those will be bigger obstacles than any technological difficulties.

Traffic: Why We Drive the Way We Do (and What It Says About Us), Tom Vanderbilt
Traffic: Why We Drive the Way We Do (and What It Says About Us), Tom Vanderbilt

I find any serious discussion of congestion, mass transit, electric vehicles, hybrids, land use, urban planning, fuel usage, carbon emissions, etc. pretty pointless if it doesn't consider the transformative effects of autonomous vehicles. Planning a new highway or commuter rail line that's supposed to be useful for the next fifty years without considering robo-cars feels like some 1897 Jules Verne-esque proto-steampunk fantasy that predicts the next century will look just like the last one except it will have more telegraphs and longer steam trains. You might as well be sitting around in a top hat and frock coat micromanaging where you'll be putting all the stables and coal bunkers for the next five generations, oblivious to Messrs Benz, Daimler, Peugeot et al. motoring around on your lawn.

I think you can wrap most of the problems of traffic congestion up into several short, unimpeachable statements:

  1. Costs can take the form of both money and time.
  2. Lowering the cost of something means people will do more of it, ceteris paribus.
  3. Reducing traffic congestion reduces the time-cost of driving.
  4. The reduced cost of driving causes people to want to drive more, raising traffic congestion again.

Unless someone can show me one of those four statements is incorrect, I'm comfortable concluding that traffic is here to stay for the foreseeable future.

Plenty people think they have the cure for congestion: roundabouts, light rail, "livable communities," bike sharing, HOV lanes, high-density residences, abolishing free parking, mileage fees, congestion fees, etc. Some of these are good ideas, and some aren't. But I'm not taking anyone who claims to solve (or even alleviate) the traffic problem seriously unless they can address how their solution interacts with #1-4 above.

For some of the proposals the resolution is simple: they lower the time-cost but explicitly raise the monetary cost (e.g. congestion pricing, market-based rates for parking). Others don't have such an easy time of it. But either way, I'd like people to at least be able to address how they would break out of this feedback loop.

PS I once sat through an hour-long keynote by an eminent professor from MIT Sloan on modeling market penetration of alternative fuel vehicles. Half of his talk ended up being about gas shortages, both in the 1970s and after Hurricane Sandy. At no point in those thirty minutes did he once mention the word "price"! Everything I had heard about the distinction between freshwater and saltwater economics snapped into focus.

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Crowdfunding vs angels vs VCs

ESR has some good analysis of how crowdfunding will interact with the existing angel-investor/VC process.

Armed & Dangerous :: Eric S Raymond :: What does crowdfunding replace or displace?

I think he's on the right track, but I wonder how willing will people be to contribute to crowdfunded projects by established firms? It seems like people are more willing to contribute to the (imagined?) plucky tinkerer in his garage than to an existing small-medium firm who is just looking for lower cost of capital.

In my view Kickstarter is just busking, especially now that they've moved to discourage people from using it as a platform for prepayment. Are you really going to be willing to keep chipping in money to fund projects from existing companies with a track record of product releases?

Maybe there are simply too many Scots in my ancestry for me to get so loose with the purse strings, or maybe I've just been living on a grad student's budget for too long, but crowdfunding doesn't have much appeal to me either way. (Unless it's just a pre-order system.) I'm glad it exists, and I'm glad other people are getting utility from it, but it's not for me. Not until I can get some equity out of the deal.

PS Sort of related — The Economist: Babbage :: After the Crowd Leaves

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Moneyness :: JP Koning :: Ripple, or Bills of Exchange 2.0

Here's some interesting news. Ripple is finally being implemented.

What is Ripple? Ripple is an open source P2P credit system dreamt up by Ryan Fugger in 2004. Its mission is to provide a non-banking payments alternative by decentralizing the process of creating and circulating highly liquid IOUs. Put differently, Ripple offers an environment in which individuals can be their own credit-issuing and credit-accepting banks. Ripple has always remained conceptual. But now a team of developers lead by Jed McCaleb, founder of MtGox, the world's largest bitcoin exchange, are implementing a living breathing Ripple network.

Ripple might seem to be unprecedented, but the decentralized credit system it envisions existed centuries ago in the form of the historical bills of exchange system. ...

This is a fascinating system. Koning's post has a good intro to Ripple and some good background on Renaissance-era banking.

I'm a little concerned about one thing with Ripple though: who am I supposed to endorse? The people I trust the most are very close friends and family members, so they'd be the obvious choice. But there's a reason it's a bad idea to go into business with friends and family: any monetary disputes have an extra layer of difficulty.

It makes most sense for me to endorse a Ripple of a close friend, but in a way those are the people for whom it is hardest to collect on an IOU from. This may sound cynical, but in every clique of friends I've ever seen there is a set of perpetually out-standing small debts. You know you can be delinquent in returning that drill, or suitcase, or $40 from from the time you forgot to hit the ATM before dinner and Dave spotted you your share, because there's a whole history of positive associations to balance out the other side of the ledger. Dave is not going to scuttle your entire relationship because you still haven't paid your share of the gas from the road trip you too took back in 2010. In limited quantities perhaps this perpetually-outstanding debt thing is actually a strength of a system like Ripple, but I'm not putting money into a system unless I have some high confidence I'll actually be able to settle up my accounts at some point of my choosing.

Bill of Exchange, 1779
Bill of Exchange, 1779

Here's my other concern: how public will it be who you've endorsed? Specifically, if a deadbeat cousin or flaky co-worker endorses your Ripples, will you face social opprobrium for not reciprocating? Because that's the dynamic most social networks have evolved to. Will someone with the upper hand in a combined business/social setting, like your boss or landlord, be able to turn that to their advantage in terms of pressuring people into Ripple endorsements?

Maybe I'm thinking about this on too personal of a basis. Does this kind of system make more sense if you're using it like the original bills of exchange, i.e. endorsing the debts of your clients, suppliers, business partners, etc? Koning's recent post on Bitcoin has at least convinced me that Ripple makes a lot more sense than Bitcoin does.

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An Untold Stories Tax?

Carnivale - Season 2HBO canceled Carnivàle, a serial show with deep mythology, after two of a planned six seasons. The remainder of Creator Daniel Knauf's story was never told.

The AV Club :: Daniel Knauf tells us his plan for the end of Carnivàle

AVC: Have you ever considered trying to do it as a novel or a comic book [of the remaining story line]?

DK: Constantly. Yeah. Marvel, we had it all set up. At one point, they wanted to go forward and do a series of graphic novels, and they just couldn’t turn the corner with HBO. Since then, yeah, I’ve considered it. But one of the things that makes me a little crazy about Hollywood is, they’re idiots when it comes to their contractual stuff. If I write a novel, it’s like Random House publishes the novel, copyrights it, but when you do business in Hollywood, they say, “Everything in this thing, in all forms, in all potential forms invented and uninvented…” The language is draconian! “…throughout the universe. We own everything in your head. We own everything.” And it’s like, “If you own everything, at least exploit those rights, please. Could you please exploit the rights? And if you’re not going to exploit the rights, can I at least have them back, so I can exploit them?” It’s just a silly way of doing business. [...]

It didn’t make sense to spend $3.5 million an episode. So let’s do a graphic novel. Let’s tell the story!” But they’re on to other toys now. It’s like doing business with that kid down the street whose parents give him really bitchin’ toys, and he’d just leave them broken in the backyard. It makes me crazy, Hollywood.

I think you could make an analogy to Georgist taxation here, or perhaps more generally Gobry's argument in favor of the French wealth tax.

If property ultimately derives from mixing your labor with things, it's not unreasonable to suggest that people have an ongoing responsibility to continue doing so. If you hold some property, most especially land, you may have a responsibility to society to put it to productive use. (We're talking about theory here, not practice. The arbitration of what counts as responsible, productive use is nearly impossible in practice and so even if you had such a responsibility in theory it is likely best if that responsibility is never legislated into reality.) Gobry's argument is, briefly, that capital gains taxes discourage people to put their resources to use, while wealth taxes do the opposite. In essence, capital gains taxes makes it more expensive to put your resources to work, so people do less of that. OTOH if you're going to loose %1 of your accumulated resources anyway to a wealth tax that gives you reason to put your resources out in the world to try to get them to grow more than the amount you'll lose.

If a studio owns the rights to further adaptations in other media, do they have a responsibility to society to actually use those rights? Land may be a special case of property, because people aren't making any more of it. Or so I gather the Georgists, the Diggers, etc. would say. But people aren't making any more Carnivàle either. That idea can only be invented once, only to be owned by one person, just like a particular acre of land. Does that put an extra responsibility on HBO to do something with it? If an owner of arable land has a onus to see it cultivated, does the owner of fecund IP have a similar onus to see it reified?

I have absolutely no idea how you would actually structure this as a policy. Doing so in a way that wouldn't put the actual tax burden on the creators rather than studios would be harder yet. Even so, I think it's an interesting way to look at the ethical responsibility of content owners, if not a way to structure their legal responsibility.

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Google is shutting down the Google Reader service, as you may have heard.

I am not happy about this, but I'm also not throwing fits about it. I spent more time in my Reader tab than any other by a huge margin. I'm sure there's some other service out there that will fill the void. Google is also being pretty considerate about this: they're giving users several months warning and they've made tools available to export your subscription data.

RWCG has had a couple of posts taking the wind out the sails of all the people who are tearing out their hair and rending their garments and casting the evil eye towards Mountain View. Overall I think he's on the right track, but this post doesn't quite line up for me:

RWCG | Crimson Reach | Google Reader: The end of the ‘free’ era

How dare Google shut down a service I made heavy use of for years and years and paid nothing whatsoever for! [...] I wonder if this event marks the end of the ‘free’ era. You know the free era, it’s the era where this was the prevailing business philosophy:

1. Drive competing services out of business with a free service (subsidized by a profitable product).
2. Cancel free service.
3. ???

Actually no, that’s still snarky. It’s more like this:

1. Company gives away something for free.
2. People like it and use it.
3. This makes people think the company is cool. Their friend.
4. When it goes public, they buy its stock, cuz it’s so cool, and everyone they know uses and likes it. Surely that’s gotta mean something, stock-wise.
5. People continue to use the free thing and come to not only rely on it but expect it as their birthright.
6. ...
7. Profit?

According to this philosophy, giving away cool stuff for free was the wave of the future. It’s what all smart, cool companies did. Only backward knuckle-dragging idiots couldn’t figure out how this added up to a business model. Economic realities were no longer reality.

I think he's short-changing the business potential of a product ("product"?) like Google Reader. There's no direct line between "make Reader & give it away free" and "profit," but this approach still has some uses.

1. Yes, it makes people think you're cool and friendly and not-evil. Many firms do things for that reason alone. They spend billions on things way outside their core competencies just so people think they're cool and friendly. Isn't that the entire point of the "Corporate Social Responsibility" fad?

Google paying its employees to create Reader is in it's wheelhouse; it makes sense. Far more sense than, for example, Chrysler paying its employees to lay bathroom tile in poor neighborhoods.

2. Providing services like Reader makes Google look cool to people generally, but more importantly it makes them look cool to geeks. It's a punchline that a firm's number one asset is it's people, but that's pretty true about Google. They can do what they do because they get the pick of the litter of hackers.

I went to career fair my CS department sponsored a month or so ago. The line for the Google table was literally out the door. Most people in my graduate program are angling for academic jobs. Google is one of maybe four private companies that people will be impressed you're interviewing with.

3. Projects like Reader not only motivate applicants, they motivate employees.

Talent and productivity are extremely unevenly distributed in coders. The best are many orders of magnitude better than the median; the bottom decile (conservatively) have negative productivity. You usually don't get the best by offering them orders of magnitude more money, you get them by giving them cool problems to work on.

If you're excited about spending some time developing X, there's a good chance Google will let you do that. (At least in comparison to if you were working at Initech.) What's more, there's a chance Google will roll out X to millions of people, like they did with Reader. I can't stress enough how big of a motivator that can be.

4. Google's strategy for a while has been that anything they do to make people want to use the internet more is good for them, because they capture a dominant slice of the ad revenue online. More people spending more time online is better for Google, period. Reader fits into that. That's not a strategy that will work forever, or for many (any?) other companies. It can also be used to justify a lot of wasted "investments." But it's also true.

5. Google lives and dies off of data. Reader could have been generating that for them. I have no idea how much they actually learned from people's reading habits, if anything, but it had the potential to be a goldmine.

If you can predict people's age, race, religion, political party and drug use only using publicly available "likes" on Facebook, what could you do with my online reading habits? (Answer: sooooo much.)

I have no idea if it was a good idea or a bad one for Google to shut off Reader. I'm skeptical, but I realize I have none of the facts. I can't imagine it would cost that much to keep it running as is, especially compared to their other projects. I'm not sure what better use they have for the resources they're redeploying. I'm curious that they didn't even try to make it ad supported. Hell, I would have even paid directly to keep using it, and I pay for approximately zero online subscriptions.

Again, I don't know what they know. But I do know that "there's no revenue from this free product; let's shut it down" should not be the beginning and end of this decision making.

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Armen Alchian & Unnecessary Mathematical Fireworks

Cato Daily Podcast :: Remembering Armen Alchian

Don Boudreaux discussing Armen Alchian's preference for clear prose over "mathematical pyrotechnics" reminded me of a few neural networks researchers I know. I won't name names, because it wasn't a favorable comparison. There's far too much equation-based whizz-bangery going on in some papers.

I use to think the problem was insufficient sophistication in my own math background, but I've recently heard independently from two very smart people in our Applied Math/Scientific Computing program that they also find the math in a lot of these papers to be more of an obfuscating smoke screen than a clarifying explication. If they find it hard to follow I've got good reason to believe the problem isn't just me.

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Netflix, again: HBR misses the point

I don't intend for this blog to be nothing but commentary about Netflix. I promise. But this is the intersection of business and technology and art, so it's got my attention.

HBR :: Grant McCracken :: Will Netflix Flourish Where Hollywood Failed?

So does Netflix have an edge? Is there any reason to think they can flourish where so many have failed? The apparent answer is data. Netflix has lots and lots of data. They know what we watch, when we watch, where we stop watching, where we repeat a scene, where we reach for the fast-forward button, and most critically, when we break off and move on. They know which movies sell well at 8:00 on a Friday night and which ones we like to watch on Sunday afternoon. They can surmise which directors, writers, and stars produce the most watchable entertainment. They have magnificent data.

(1) Yes, data is their edge. (2) They don't need to make better content than everyone else. They just need to make content good enough to give them bargaining chips when they strike deals with other content makers and distributors.

And that's a tragedy. Netflix has so much data that they are going to be tempted to climb into the creative tent and start offering "advice."

This is almost exactly wrong. Or not wrong, but useless. Producers are constantly offering "advice." The difference is that Netflix's advice will be based on numbers, while other producers' advice is based on sophistry and illusion. ("Does it contain any abstract reasoning concerning quantity or number? No. Does it contain any experimental reasoning concerning matter of fact and existence? No. Consign it then to the flames: For it can contain nothing but sophistry and illusion.")

They can claim to know exactly what works and what does not. Well, sorry, no. Knowing that something works leaves us a long way from knowing why something works. And this leaves us a long way from knowing how to reproduce it in another movie. The only thing this data can be absolutely sure to produce is arrogance. We have seen this mistake before.

Yes, they can claim to know exactly what works and what does not and why. Or they could not. There's nothing inherent in a quantitative approach that rules out epistemic humility. In fact, there's much to quantitative reasoning that makes it more humble. When's the last time you saw someone run a t-test on an executive's intuitions or gut feelings?

This means that whatever the data say, Netflix cannot tell a director, "We need a fight scene here." And it really can't say, "We need a fight scene at the 14-minute mark." Doing so, will not only drive creatives away, but viewers as well. As Henry Jenkins has said, viewers are newly sophisticated and critical. They can see formula a long way off. They can see plot mechanics the second they hit the screen. And the moment this happens, they are off.

Hold on a minute. Why would you assume that Netflix's results would be more formulaic than the traditional Hollywood approach? Humans can only sort out cause and effect when there are a couple of moving pieces. Computerized pattern recognition can do so in much more complicated environments. Doesn't it stand to reason that Netflix's discovered patterns will be more complex, and therefore less formulaic and noticeable, than the patterns that intuition- and tradition-guided producers hew to?

Netflix, therefore, will have to temper their itch to intervene. Naturally, we are not talking carte blanche here. We are not saying that we take any artist and turn them loose. Because we know a great deal of capital has been squandered by creatives keen to prove how artistic and avant garde they are. No, what we need are culture producers who are — in the language of Goldilocks — "just right." They need to be able to tell a story and obey some of the story-telling conventions even as they do new and interesting things to break and bend those conventions. Only then will painters paint and patrons watch.

The advice in this post true for every company producing creative output. It's masquerading as being specifically about Netflix. It's not only more general than it's made out to be, it's arguably less applicable to Netflix than to their competitors.

I'm also more than a little weary of critiques being made against numerical decision making without any consideration of the faults of the non-numeric decision making it's displacing.

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Netflix Marathon

Tyler Cowen :: Will marathon viewing become the TV norm?

On Friday, Netflix will release a drama expressly designed to be consumed in one sitting: “House of Cards,” a political thriller starring Kevin Spacey and Robin Wright. Rather than introducing one episode a week, as distributors have done since the days of black-and-white TVs, all 13 episodes will be streamed at the same time. “Our goal is to shut down a portion of America for a whole day,” the producer Beau Willimon said with a laugh.

Ad-financed shows — still a clear majority of viewing — may prefer to have impressions from the ads spread out over weeks and months rather than concentrated in one long marathon sitting.

On the other hand, when watching an hour long show — or even a half-hour — I routinely see the same ad multiple times. Not ads for the same product or service, but the very same advertisement. I am sure there is a lot of literature about the trade-offs between repetition and staleness to doing this. (Note to self: ask about this at the next marketing quant lunch.)


Cowen continues:

Furthermore the show itself relies more heavily on an effective and immediate burst of concentrated marketing, with little room to build word of mouth and roll out a campaign with stages.

Yes, you lose word-of-mouth, but you also lose the inevitable week-to-week decay as people drop out of the viewership pool. Most TV shows show a remarkably consistent exponential decay in viewership. It's not at all clear to me that the gaining from WOM and the losing from audience decay is preferable to having neither.

This is being framed as a contest between watching 13 episodes in one day and watching them over four months. My wife and I have been watching one episode of "House of Cards" every day or so. I think this middle ground may be a better solution than either extreme. A two week roll-out keeps viewers focused and concentrates marketing, but doesn't roll the dice on one big push.

Note that Netflix has an advantage that other outlets don't: they can continue to advertise the show for free through their service. This won't drive new members to subscribe, but I think they benefit even when existing members watch the show. True, it doesn't boost revenue, but racking up higher viewership both makes it easier for them to create high-quality shows in the future, and it strengthens their in-house productions as a bargaining chip when negotiating with other content producers and distributors, which I think is the real value of "House of Cards."

One media market which is still highly serialized and has clearly not come to grips with the implications of that is comics. Here is just one recent piece about this. People have been fretting over the serialization-vs-collection transition and the friction it causes since I started reading comics six years ago, and they don't seem any closer to resolving the tension.

PS "House of Cards" is very highly recommended. I haven't had a show I was this excited about binge-watching in a couple of years.

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