Wednesday, December 19, 2007

Early Indications December 2007: Prediction Scorecard

How did we do?

Last December I wrote that "we see a collision between systems based
on old and new models of regulation, remuneration, protection,
privacy, and so forth. At base, we are having to redefine some of the
core systems that make the world work: money, contracts, civil rights
and civic responsibilities, identity, possession, and others. This
year, I believe that several of these collisions will reach new
heights of unexpectedness, expense, and impact."

Prediction 1:
"This year, look for a still grander failure of data protection
[relative to the VA], either in one highly visible episode or a
cumulative increase."

Result: Hit
The British Ministry of Revenue and Customs loss of 25 million names
is truly spectacular: it's roughly half of England's population, and
sensitive information included naming 350 people in witness protection
programs. The costs and risks of providing new identities for those
affected could be extreme. The TJX breach, meanwhile, was initially
reported to have involved 46 million records but according to a recent
court filing could have exposed 94 million credit card-holders -
nobody can say for sure, but the affected banks and the retailer are
said to have settled. The amount of the settlement was undisclosed,
but the company, which books about $18 billion in annual revenue, set
aside over $100 million for litigation settlement.

Prediction 2
"YouTube and related content distribution mechanisms will push the
envelope too hard, with a high-profile episode of unauthorized copy
distribution prompting legislation, litigation, and potentially
business failure."

Result: Too early
Litigation, yes, courtesy of Viacom, business failure, no.

It's also worth watching a court case in the adult entertainment
industry, since that sector is often a forerunner of changes in the
wider business environment. According to the Los Angeles Times, on
December 10 "Vivid Entertainment Group filed [a] lawsuit in Los
Angeles federal court against PornoTube and its parent, Data
Conversions Inc., which does business in Charlotte, N.C., as AEBN
Inc." The YouTube-like web business is said to be posting copyrighted
material, costing one of Vivid's competitors 35% in revenues,
according to the article.

Prediction 3
"Some new activity - whether job referrals, recipe swapping,
rotisserie baseball, genealogy, Christian evangelism, or something
similarly below radar - will break through using a Google-like
monetization model and approach the growth rate we saw for video in

Result: Hit
Facebook was clearly the big story of 2007, but even as early as June,
it was reported that digg had passed Facebook in number of unique
visitors, having grown 1400% in one year. May 2007 data from Compete
show digg with 22.6 Million unique visitors, while Facebook had 20.2
Million. It's important to note, however, that people spend far more
time on Facebook. Fantasy [American] football has about 12 million
players, up 33% since 2005; overall, fantasy sports are a $2 billion
industry, or about 13 times Facebook's estimated 2007 revenues.

Prediction 4
"For all their amazing capabilities, communications and computing
systems still can't cheat physics. 2007 will see the so-called virtual
world continue to encounter the physical environment in important
ways. A few examples suggest the breadth of the issue:
*Data centers are beginning to scale up to the size of factories and
even foundries in their energy consumption."

Result: Hit
So-called "green" computing is indeed front-page news. Google's data
centers are setting the pace as 40-70 megawatt facilities are coming
on line. Large single points of failure in any system increase the
potential scope of damage if an outage were to occur.

Prediction 5
"A different facet of the energy and transportation systems relates to
automobiles. While Chevrolet just introduced a good-looking electric
car, the Volt, that anticipates developments in battery technology,
Tesla Motors will ship over 200 Roadsters at $100,000 apiece that
out-accelerate a Porsche 911 and achieve the equivalent of 135 miles
per gallon fuel efficiency. [The enthusiasm for ethanol will continue,
despite severe limitations.] How politics and markets react to rising
oil prices, from a systems-of-systems perspective, will determine
quite a bit about the shape of the next 10-20 years."

Result: On hold
Tesla found car-building more complicated than the founders thought,
and slipped its ship date again. The Volt is being touted as a signal
of rejuvenation at GM under Bob Lutz, while Honda announced a major
commitment to less expensive hybrid engine technology. Ethanol mania
seems to be subsiding slightly. A huge oil discovery off Brazil must
be countered by growing political instability in many oil-rich
regions, and high prices reflect a combination of that political risk
with booming demand in the developing world.

Prediction 6
"2006 did not see a major disruption to the world's transportation and
communication systems. Such good fortune cannot last indefinitely, yet
readiness for the unexpected remains lower than it could be."

Result: Glancing blow
Yahoo's merchant servers melted down on "Cyber-Monday," leaving many
of its 40,000 businesses searching for new commerce providers after
seven hours of outage and another five of slow performance. Air
travel is suffering both meltdowns both macro and micro (as at LAX in
August, when one bad network card shut down the airport and stranded
about 20,000 fliers, or when JetBlue infamously mismanaged weather
delays in February), but we saw nothing that qualified as a major

Prediction 7
Paradoxically, even as people and devices grow more connected, with
access to more information, the need for intermediaries evolves rather
than disappear.

Result: Hit
Apple's iPhone was clearly one of the year's big stories, as were
YouTube, Facebook, Amazon (particularly its Kindle reader, but also
Mechanical Turk's role in the Steve Fossett search) and Google's
unrelenting command of search and advertising. All are
intermediaries, or filters. As Facebook discovered, matching
advertising to audiences in return for money is very appealing in its
revenue potential, but hard to do and easy to get wrong. Microsoft
just announced a major ad placement deal with Viacom. Along with its
Facebook investment, this puts Microsoft in excellent position to
learn at the front-ish edge of ad serving and measurement,
realistically behind Google and perhaps Yahoo. The biggest noise of
the year was made by the social networking model, which is such a
powerful filter we have yet to devise cogent models or names for what
might be possible: the filtering and sheer time-consumption of
MySpace, Flickr, LinkedIn, and the rest may finally have driven the
final nail into the 1990's mantra of disintermediation.

Overall, it was a decent showing as no assertion fell wildly off the
mark, and another several areas appear to be unfolding in line with
the prediction, just not quite in this calendar year.

I hope every reader finds joy and peace in the holiday season, and
we'll start the new year off with an