Category Archives: Media

Centralized network computing will win

Posted on March 24, 2001 | Leave a comment

I know it’s a big debate right now, but centralized network computing will win in the end.

Centralized network computing is the term used to describe a system of networked web servers (or a single web server) that provides integrated applications and storage for multiple users who can access the system through distributed terminals. The system can be geographically distributed or not, but will share a common (integrated) network of applications, probably using a software interface standard to encourage and enable multiple independent application development teams.

Centralized networks are inevitable because of self-reinforcing competitive advantages. Economies of scale and market forces will lead to substantial change in the way we compute, and the systems we use now are simply the seeds that will grow into (and merge together to form) global centralized information service providers. There are already some very strong indicators that this trend is happening, and the potential points to this trend being a very long one.

  1. There are economies of scale in processing Load balancing can optimize processor utilization and provide both faster interactivity and reduced hardware investment.
  2. There are competitive advantages in information and application aggregation Integrations can break down the walls between programs, improving functionality through better integration and data sharing. You can analyze data in more dimensions and with more flexibility. Development rates can improve as it becomes possible to support separation of more software components and the people that work on them.
  3. Load balancing improves transmissions Transfer rates improve because fewer nodes are required and data traffic can be optimized. Information served to you from a server on your edge is more reliable and fast than information sent to you from another server through your edge.
  4. End-user transparency The front-end possibilities under centralized computing are not limited beyond that of other systems. This implies that there will not be a selection bias away from centralized systems because end-users will not prefer or recognize the difference between systems. That is not to say that they will all be the same – only that they all could be. The opportunity set in one system is available in the other.
  5. The outsourced storage industry exists This implies that there is a willingness to adopt on the part of the owners of data.

You can see the markets already rewarding companies that are moving to take advantage of this trend. Many of these companies are providing application services along with ISP connectivity, and they are capturing traffic. This traffic is investing time and thought into signaling their own preferences. Some examples include personalizing page layout and content — often even using system-wide wallets and e-mail. Giving users what they prefer is a huge competitive advantage. The time it takes to personalize a competing system is a high transaction cost – especially relative to the low cost of inertia.

Eventually, you will be using only a browser. All your computing will occur on a centralized system and be sent to your browser for translation into your interface. All of your applications will be centrally hosted, so your profile and applications – essentially everything you do on your computer – will be available to you from any machine, at any time.

Multiple systems will compete for scale, reducing marginal costs and creating meaningful and irreproducible competitive advantages. This race will likely be won permanently by 2050. Before that time, ASP services will consolidate rapidly along with economic cycles. the early players will rely on loss leader models to attract user bases, and will transition to profitability as the scale reaches the tipping point. The companies that make it to profitability first and reinvest in their technology platform will improve their integration, breadth, and quality to further support their competitive advantages.

In the first decade or two of this trend, there will probably be dozens of smaller companies that are able to enter and gain market share against their larger competitors. These companies will have competitive advantages most likely based on data storage, traditional media integration, wireless adoption, software platform architecture, applications suite integrations, and possibly international comparative advantage. After 20 years, the marginal advantages possible from these characteristics will not pose a meaningful threat to the aggregation and scale advantages of the top few market participants.

Consolidate or die will be the mantra of information companies.

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Posted in Brain in a jar, Early Stage, Investment, Just for fun, Media, Science, Tech, The Future

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Competition in the information age

Posted on February 22, 2001 | Leave a comment

Consolidation is the result of economies of scale – essentially horizontal integration, vertical integration, and resource sharing. These methods create competitive advantages in powerful ways that make it difficult for smaller players to compete in the same markets. There is nothing necessarily wrong with this trend, but it creates large barriers to entry and often leads to larger profit margins than would be otherwise possible.

In the information age – yes, now – this effect is greatly increased, and the limitations of transportation and capacity have been eliminated. The ability to integrate and share resources is much easier, and new extra-strength synergies are created. For example, if a website allows you to shop for both books and music, then it is possible to tailor your music shopping experience based on your book purchasing preferences. This is a very simple example of a much more powerful trend. It may be impossible to enter into any sort of competition with large information companies after the next 20 years.

You can already see it beginning to happen: Yahoo builds from scratch any web business that seems to make sense. Then because of its existing market coverage, and the ability to integrate new businesses with existing businesses and data, Yahoo is able to capture so much synergistic value that they gain an insurmountable competitive advantage. In this way, I think that Yahoo and the other major aggregators and integrators are great companies.

There are risks. Big ones. And the FTC may not be able to do anything about it.

It may be inevitable that the consolidation will lead to a stable equilibrium under monopoly – where there would be no reason to be a competitor because the types of services being provided rely on historical information and broad business integration that is impossible to recreate or beat. Then this monopolist would have virtually limitless pricing discretion, and the ability to manipulate markets and cultures in unprecedented ways. Humanity, in many ways, would be at the mercy of the monopolist. (I hope that its leaders are benevolent democrats with philosophically sound motivations and long time horizons – but what if they are not?)

The only way to eliminate this market dynamic is to eliminate the factors that make it possible, namely, the opportunity to use your market dominance in one field to create dominance in another field. More specifically, eliminate the competitive advantage created by archival data. This can be accomplished by sharing archival data freely. But what about my privacy? Good question. We have a big problem here. The private information about you and your preferences plays a large role in creating the value that leads to this consolidation. If you want to eliminate this competitive advantage, then you either eliminate the value or you share private information.

There is another way.

What if users owned their own archival data? Amazon could still track my click streams, and do whatever they wanted with them. But I would also be tracking my own use, and have control over my own preferences and historically available data. Amazon would quickly learn that the personalization algorithms produce much more valuable customization using the users’ data than the Amazon archives. Market entry for this standard benefits from this implication. Now what happens if you go to a small competitor – one with little history, but better value than the others? They would be able to provide you with services that took advantage of your archival data, just as the monopolist would have. Competition is restored, and the advantages for humanity are regained as well.

Somebody should create a standard – probably using an XML document editable from within your browser. I’d love to help. Somebody has to do it eventually, and the sooner the better for all of us (except the monopolist, of course!)

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Posted in Early Stage, Economics, Freakonomics, Investment, Media, Public Policy, Science, Stocks, Tech, The Future

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Intellectual property protection is important

Posted on February 13, 2001 | Leave a comment

Imagine there are two worlds: One with freely flowing information, and the other with intellectual property rights retained. What would these worlds look like?

What are the implications of free distribution? Whatever they are, that world is still available to the people in the world with information rights. The individuals with rights would just be foregoing their rights, an option that is often exercised today. It’s obvious; some information is worth more than others. Being able to price and transact for money is a basic financial tool that has been developed to make trade and specialization possible. Would we really want to eliminate this important dynamic in the next cycle of business evolution? What would be the implications of that loss? There would be no direct incentive to create valuable information; originators could benefit from the marketing effects of popularly reproduced content, but this is not the same. Clearly, an important part of the economy in the coming century will be based on software companies, media companies, research companies, and other producers of intellectual properties. Eliminating the financial viability of their products would eliminate the incentives for these companies to exist.

Allowing trade is always good. If it weren’t the preference of both parties, then the trade wouldn’t take place. Licensing intellectual property is similar: If you were willing to pay for it, it was because it was worth at least that much to you. Anticipating the value you would assign to their work, the producers invest their time and resources into a better product. What quality of intellectual property would you rather live with?

In which world would you rather live?

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Posted in Economics, Investment, Law, Media, Public Policy, Tech

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Global economic downturns are amplified by global communications and consolidation of media

Posted on January 31, 2001 | Leave a comment

Economic downturns are the result of coincident reductions in financial investments. They are marked by larger numbers of companies cutting back on their budgets, and by large numbers of investors who perceive value to be falling. When one individual makes a decision, it has negligible impact on the market (unless it’s Buffet!), but when large numbers of individuals act at the same time, the market moves. The more people are making the same decision at the same time, the equilibrium is shocked by more, too. In other words, the invisible hand becomes an invisible linebacker; pushing harder.

This means that when larger groups of people are influenced in the same ways by the same media, then the market and the economy are going to swing with greater magnitude.

Social inconsistency provides a healthy dissonance in the economic markets. Different consumer confidence levels and uncorrelated investment views ensure that the economic growth remains relatively stable. Just like many stocks in an index reduce the volatility of the index relative to the average volatility of the index components.

So, ironically, by improving the communications tools that make our economy function better, we are also increasing the magnitude and danger of economic downturns.

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Posted in Economics, Freakonomics, Investment, Media, Psychology, Public Policy, Stocks, The FED, The Future

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Musical Collaboration by Opt-in and Mass Beat Channels

Posted on September 5, 2000 | Leave a comment

There could be channels for each beat/tempo, and an unlimited number of contibutors could participate in the creation of music within each channel. Any listener could select the combination of contributors and listen to the mixed track. Popular and preset groups could simplify selection, and descriptive fields for contributors could help improve custom selections. Contributor-defined sub-channels could branch off from the public ones. This system would allow unlimited musical collaboration in a way that provides compatibility and flexibility on a global scale.

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Posted in Early Stage, Media, Personal, Tech, The Future

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