Wednesday, February 27, 2008

When Humans are Removed

Ars Technica has an interesting report on a recent music industry conference. What struck me as interesting was an exec of a music label on a panel justifying their existence of labels by the work of "finding" music. To quote:

"anyone who has spent an hour or a day listening to demos understands the labels' place in the food chain"

The iLike CEO pointed out that this is no longer the case. That a label only need to look for musicians with 50,000 friends on MySpace.

What is interesting is how MySpace, iLike et al have turned finding new music from a costly human based activity to a software program. I'm not sure many people in the industry (whether the labels or companies like iLike) realise what is happening. The best analog is what Google did with advertising as Chris Anderson pointed out in his recent article in Wired:
"When Google turned advertising into a software application, a classic services business formerly based on human economics (things get more expensive each year) switched to software economics (things get cheaper)"

Did Google realise what would happen by turning advertising in a software application? Probably not. Just as Google unleashed value that was otherwise tied up as costs, so to will a software application(s) for finding new music unleash value otherwise tied up as costs. Music is going to shift back from being a package product to being an experience.

Tags: freenomics, Google, disruption, economics, iLike, chris+anderson, music

Tuesday, February 26, 2008

Use a Time Slot Method for Train Travel

News comes today about First Great Western agreeing to a remedial plan to, well, operate a dependable train service. Rail franchises create a government granted monopoly on a rail line in exchange for meeting certain conditions. It is how the UK government decide to privatise rail travel.

I think rail franchises are the wrong way to organise the delivery of train services. Instead rail lines should be divided into time slots that a company bid for. Obviously lucrative spots would be bid higher and less lucrative spots would be less expensive. The idea is to create system like landing slots at airports. This would allow various train companies to compete on the same line which would drive prices lower and also increase the number of services.

Part of rail franchises sometimes includes revamping railway stations. This could still be done using with time slots by directing the money from the auction of the slots into track and station improvements and/or also charge a "standing fee" for each train.

Monopolies are a bad way to deliver a service. Competition will do more to improve train service particularly if the slots are auction for periods of between 1 to 5 years and any single company cannot by two (three?) consecutive slots so that a user has a choice of waiting for the next train.

The main hurdle to slot base method is the management of arrivals. Systems will need to be in place for dealing with late trains - perhaps by moving them off into holding points until a slot is free.

Tags: Rail Franchise, Rail, UK, Transport

Monday, February 25, 2008

Google's achillies heel - Customer Service

Google's rise and rise has created a continued air breathless wonder that can the company do no wrong? Google smacks the ball well and even if their products don't always rocket to a six they rarely have a dot ball. Microhoo! is a reactive move against Google's strength.

But is that really necessary. Time and again customer service keeps coming back to haunt Google. Take Christopher Dawson's attempts to reactive his Gmail account. The action was neither prompt nor informative as to what happened. Nor was Google forth coming about providing basic information on the Christopher's account usage. Information provided by many other service providers.

So is this Google's Achillies heel? It could be. Customer service is going to be more and more important as Google's products move beyond mainstream. So too will be letting users access their own service and usage information. Of course both issues are fixable. The question is will Google put the effort into backing up their services with proper conversation with their users and decent customer service or will the continue to use a man behind a curtin and hope no one pulls the curtin back?

Tags: Google, Gmail

Saturday, February 23, 2008

Using transparency to regulate business

For a while I've regarded the use of transparency as a better way to regulate than brute force of law. In an interesting piece on lateral thinking in economics Ross Gittins, discusses the work of Dr Guren of Lateral Economics.

Many of the ideas proposed by Dr. Guren are not really new or innovative, if you've been following economics and the open movement. Taxing "bads" as opposed to "goods" are known as Pigovian Taxes. What I did find interesting was Dr. Guren's idea around improving health & safety in the workplace by this method:

Most workers care about workplace safety, but typically lack information about it when applying for a job. Yet the workers' compensation premiums paid by firms provide a good proxy for their past occupational health and safety performance.

We should publish them, Dr Gruen says, and require that existing and prospective employees are provided with information on how they compare with economy-wide and industry-wide average performance.

I already think that salaries should be published by each company. Publishing the salaries and benefits across the organisation, will promote competition between companies for labour. One of the key problems with the labour market has moved beyond flexibility, to information asymmetry. A real market can't exist with this asymmetry whether a market is flexible or not.

But the idea of publishing H&S premiums has got me wondering what other internal information should be published to make companies more transparent and so reduce the amount of regulation and enforcement action needed in the economy?

Off the top of my head I can think of:

  • Number of harassment claims filed
  • Amount of energy KWh used by the company
The more simple and available the information the easier it is to counter arguments about cost and burden. The use of open information would have a profound effect on the economy and the regulation of business.

Tags: Open Source, Policy

Friday, February 22, 2008

What will be the effect of an Open Xohm platform?

Sprint has announced the opening of the Xohm as a platform through APIs and an SDK. Ostensibly it will allow device manufacturers, application developers and 3rd party service providers to build items which take advantage of the Xohm networks in ways that are difficult and expensive currently.

It is, perhaps, the first example of a telco taking advantage of it's relationship with it's customers or put another way following the Telco2 strategy. It will also allow applications and services to be developed that are mere dreams (if they have been drempt at all) currently. Think games or VoIP services that ask for better quality service for the duration of usage rather than all the time or buying or buying something by snapping a barcode where the bill is attached to your access bill and delivered to your address by Amazon's fulfilment service from an address supplied by Sprint.

It is the next logical step from Google's push for open access to devices and applications for 700Mhz. This could have a rather interesting effect on wireless/mobile market direction. It is hard to compete against open with closed.

I foresee this changing the dynamics of the 700Mhz spectrum usage as well. The 700Mhz was important as it was nationwide and provided better in-door coverage. The in-door coverage, I think, is really a non-starter as by the time the 700Mhz network is established, short range WiMax access points will be fairly well distributed and many in-door areas will be able to roam from WiFi to WiMax. Femtocells and devices that can roam across different wireless networks will also be in abundance.

Sprint's move has made it very likely that who ever the owner of the 700Mhz spectrum is, they are going to have to follow the open access provisions and even go the same distanced to providing an open platform. Now wouldn't it be interesting if Google has won and decided to use the 700Mhz for a WiMax network that follows the Sprint Xohm platform strategy? Makes Sprint a likely candidate for building out Google's network if they have won.

Tags: Sprint, Xohm, Google, 700Mhz, Wireless, WiMax, Disruption, Telco2

Meddling polies should focus on what matters

I understand the need for regulation and laws, but it annoys me when polies meddle in areas for the sake of being seen to do some thing. The UK government is threatening legislation to penalise ISPs for not blocking privacy. The really idiotic thing is the UK government has already said their idea falls afoul of UK and EU data privacy laws. So what's going to happen? The government will pass the law, the ISPs will challenge in the UK and EU and the law will be rule illegal. So back to drawing board with the only accomplished is a lot of money spent on lawyers and the government been seen to do something.

Beyond the technical hurdles, there is also the political fallout from the law being overturned plus the damage this will do to a government tettering on the brink. I wonder if this new push has arisen when someone pointed out wholesale kicking off of downloaders is likely to lose Labour votes.

To me, this is massive over-reaction to a relative minor problem. Stopping downloading of content is not going to be a saviour of society nor cure its ills. There are far more pressing problems in the economy that WILL do massive amount of damage to peoples lives - credit crisis, stagflation, deep recession - that the government should be worrying about. Protecting an outdated business model is NOT the governments job.

This legislation has the air of desperation. Of a government looking down a yawing canyon of irrelevance and trying deperately to be seen to be doing something, anything.

Fiddling while Rome(London) burns.

Tags: UK Government, UK, ISPs, Policy

Driving Real Change at Microsoft - Get Rid of Win32

Microsoft announced yesterday that it was releasing API and Client/Server interoperability details. Coming on the heals of the Microhoo! deal and Bill Gates publicly saying Microsoft is after the Yahoo engineers it must seem like Microsoft is going all open and friendly. But that misses a big point. Changing culture, particularly one ingrained and strong as Microsoft's, is not going to be as easy as publishing specs and adding a load of Yahoo engineers.

It is possible to change the culture for the better and the Yahoo engineers can play a big role, but they can't do it on their own.

The catalyst for the change is dropping the Win32 kernal and going with a Linux/BSD kernal. The Yahoo engineers then become evanglists and mentors for the adoption of the open-source kernal. The combination of the two provides a greater probability for success than either on its own. In a previous post I looked at why using a Linux/BSD kernal was a good idea so I won't go into the details. The difference between now and then is that having the Yahoo engineers makes the probabilty of sucess so much greater and faster.

Dropping the W32 kernal would be at least as radical shift in corporate strategy as Microsoft's turn around in the late 1990s to the web. We know the company can do radical strategy shifts and this would be the most radical and risky. But without doing something like this Microsoft is always going to struggle in a networked world.

I would honestly like to see this happen. It would be the single biggest threat to Google's dominance by stripping away the competitive advantage that open source provides the company.

Tags: Microsoft, Google, Yahoo, OS, Open Source, Strategy, Disruption

Wednesday, February 20, 2008

Fighting Inflation in Australia using Super

Australia is one of the few nations in the world where the interest rates are rising and rising hard. Commodities boom, over indulgent consumption and 35 year lows in employment have pushed the economy to the limits of capacity.

The debate in Australia is about how to fight the inflation and the recurrent need for the RBA to raise interest rates to combat inflation now outside its 2-3% band. The Rudd Government has brought back fiscal policy to try and help fight inflation by aiming for a surplus of 1.5 to 2% and avoid the RBA rasing interest rates further (unlikely). Although given that for the past 5 years or so the budget surplus has always come in higher that the forecasted 1% its hard to see how a measly 1.5 to 2% is going to make much of difference. It probably needs to be 2.5 to 3%.

The otherside of the debate is how raising interest rates is a blunt policy instrument for fighting inflation, only effects third of households etc. What is missing from the debate is discussion on what other levers that could be provided to the RBA to manage the economy. In many economies there probably aren't many other levers that central banks could use. But Australia has compulsory super for a majority of employed people. The issue is to remove spending from the economy or put another way to increase savings and reducing consumption. Giving the RBA the ability to manage the percentage of income that is paid into super would give the RBA another lever to pull.

The advantages I see in using super contributions this way are;

  • It increases the savings rate across a very large majority of households
  • It does not directly effect the price of business investment the way interest rates do
  • It is spread more evenly across the economy rather than concetrated in the 1/3 of households with morgages
  • Individuals don't lose the money, it is simply redistribute to return in the future
The biggest problem I see is the mechanics of actually performing the changes. However, this is a solvable problem as it could rolled into financial packages that most if not all businesses use.

Another possible lever is to allow the RBA to change tax percentages about a median point. But I see that being an even tougher operation and also more politically hazardous. It could be a rather useful tool to have in the back pocket though.

Tags: Superannuation, Inflation, Australia

Tuesday, February 19, 2008

Incentives cause the [financial] rot

Umair has a new post about the financial meltdown and in particular how the very people at the centre of the meltdown are walking away with massive payments. I think there is a lot about how the very incentive system used by financial institutions are at the very core of the problem.

The incentive systems are probably the single biggest cause of the problems. These systems are designed to maximise profit - which is not the same as wealth creation. The assumption that serves as the foundation of incentive systems is that the "agents" interests need to be aligned with the "owners". An assumption that I now believe is totally invalid.

The incentive systems need to promote wealth creation and not alignment of the interests. Otherwise why will an executive take a risk that has a long term payoff but will hit short-term profitability?

So how do you fix something so broken. The first is to ditch the assumption of aligning the "agents" interest with the "owners" interest. The second is to ditch the idea that a single person at the level of CEO has much effect on the overall profitability of a company. Suddenly it gets hard to justify paying ANYONE 100m salary. Indeed, CEOs make a mockery of their own job - if the share price goes down its due to the market, but if it goes up its due to the skill of the CEO. Spot the paradox?

Can the market sort this out itself? Probably not. Too much self-interest. This leads to the requirement of regulation. The key is to regulate well but lightly. Some regulation will require the out-right banning of current practices, while others are about increasing transparancy and market efficiency.

Golden parachutes need to be banned. Why a CEO should receive money to leave a job is beyond me. The sub-prime crisis has shown this for the rort it is. Which does lead to the second requirement of having all senior management and possibly contracts above a certain value requiring the agreement of a quorum of shareholders. The current negogiation world is far to cosy.

In terms of increasing transparancy, the renumeration and contracts of senior management should be published. This works fine but it helps to have this put in perspective of the how well the company is paying its employees. So companies should be required to publish the various renumeration bands, the requirements for bonuses at these bands and the number of employees per band.

But perhaps the biggest change is to remove incentive schemes that promote short-term profit over long-term wealth creation. Most of the current methods can and are easily gamed. Whether it is EPS, dividends, profit, revenue or share price increase. Most of these items are reflective of things beyond the senior managements control. So the first step is to only use measures that are effected by senior management actions. More important is only use actions that promote wealth creation (as opposed to profit).

So what measures could be used?

  • Employee productivity per unit cost
  • Throughput per unit cost
  • Employee statisfaction
  • Revenue growth per unit of productivty
  • Productivity growth per employee
And there are more. Most of these measures are harder to game but they are all measuring changes that change the long term wealth creation of the company. Funnily enough, most of these would reduce the awards of financial executives.

Incentive systems and the spiralling cost of financial executives is something that needs to be addressed. Otherwise you run the risk of societal unrest. Perhaps more importantly these spiralling costs are also a distortion of the market causing the mis-allocation of resources and dragging down GDP growth.

Wednesday, February 06, 2008

Throwing money at problems

One of my bug bears is people insisting that throwing money at a problem will solve it. Health is a big example. Well want to know what happens when you throw pots of cash at a problem? Just look at the outcomes of the NHS. Despite all the money thrown at the NHS in recent years there has not been a corresponding significant improvement in quality or delivery of care.

There is no point in throwing pots of money at a system until you know that its processes are correct. To steal Umair's terminology, the DNA of the system has to be right. In the case of the NHS, its not. Which simply results in the money going into the system going to waste. This is not an argument about whether health care should be funded publicly or privately, only in how health care is delivered. The processes required to deliver health care. How its funded is a very small secondary issue that is more philosophical than anything else.

You have to fix the fundamental processes, the DNA, of a system before there is any hope of making improvements. This goes for companies, software or government services. In fact every system. Throwing money does little to do this.

And in the case of health care, to re-write the DNA we have to question the basic principles of health care delivery. Is the concept of Doctors, Nurses and health centres really the best method for delivering health care? Do we need Doctors? What for? Should they be the only ones to do diagnosis? Should health care rely on God-like pronouncements of what is wrong. What about Nurses? Could paramedics be made more useful?

Everything we know about health care needs to be questioned. Only then can we begin to build the framework for the effective delivery of health care.

Tags: Health, Operations, Bubblegeneration