Saturday, December 01, 2012

Early Indications November 2012: How will TV be disrupted?

No sector has been more transformed by the internet than audience aggregators. These content companies, through various means, make money from assembling viewers, readers, and listeners for artifacts that in the past 20 years have increasingly become digital rather than analog. Whether it is Kindle with books, iTunes for music, Google news vs. newspapers, or Netflix for movies, Internet-based content has disrupted whole sectors, eliminating such brands as Borders, Newsweek, Tower Records, Blockbuster, and Virgin Megastores.

The pattern seems to be based on relative simultaneity: Columbia sold more than 100 million copies of Michael Jackson's Thriller LP/CD, but that audience doesn't all listen at the same time. The New York Times company moves many copies of its flagship newspaper, and while readers will pick it up to read their selected articles during the day it's distributed, again, the audience is asynchronous. Harry Potter books are even more distributed in time than printed news. Television, by contrast, assembles mass audiences at a particular time: more than 100 million US viewers saw the 2011 Super Bowl, the vast majority of them in real time. But: every content bundling model, from the record album to financial advising/stock purchasing to the newspaper, has come under attack in the Internet era. (University degrees might be next, a topic for another time.)

A number of signals are suggesting that TV's time of reckoning is coming. Tablet sales are soaring: 20% of US adults now own the devices only two years after launch, and the intimacy of the tablet form changes viewing habits: social interaction, for example, is facilitated in ways that traditional TV does not allow. Time shifting, whether through Hulu, BitTorrent, or DVR, is becoming predominant among those in their 20s. Games, online shopping, social networking, and other new tasks threaten to shrink the staggering five hours per day the average American spends watching TV, if Nielsen's numbers are to be believed. Bottom line: as the Wall Street Journal put it on November 30,

"Television viewership is declining across the board. Although CBS remains the most-watched network in prime time, its average overall audience of 11.5 million in that time period is down 10% in the fall season so far, compared with the same time the year before, according to Nielsen. Its audience among 18-to-49-year-olds, the demographic most prized by advertisers, has tumbled 20%."

Two questions thus emerge: what will Internet video look like in terms of markets, business models, and financial attractiveness, and how will today's incumbents respond?

I use the term "Internet video" deliberately: just as all sparrows are birds but not all birds are sparrows, television is just one of many categories of Internet video. Without the constraints of 30-minute multiples, we are seeing a proliferation of new content forms. TED talks, for example, have been viewed about a billion times, and many of those are presumably in front of room-size audiences. YouTube served eight million simultaneous streams of Felix Baumgartner's Red Bull space jump, something no earthly TV network could have done, given the global composition of the audience. Jerry Seinfeld's Web series, "Comedians in Cars Getting Coffee," focuses on exactly that scenario, but episodes are only as long as they are: 7 minutes, 13 minutes, whatever. TV ads, particularly global ones pulled out of context to fascinating effect, have long been prime YouTube material.

Going forward, every aspect of the video experience may be contested. Apple TV, whatever it turns out to be, should improve on the remote by substituting a tablet/smartphone for the dumb infrared devices we all currently use. As for the viewing device, a big smartphone is only slightly smaller than a small tablet. As the fates of Sharp, Panasonic, and Sony illustrate, global consumers aren't as infatuated with 3D television and other innovations as they are with these smaller devices: Panasonic lost $9 billion -- $9 billion -- in its last quarter. Transport, meanwhile, is "obviously" over cable, but as mobile bandwidth gets faster and faster (is 4G as fast as we can go? There's no reason to believe so), that wire infrastructure may no longer be a monopoly. Finally, content creation used to be the private province of a small number of studios, but barriers to entry have dropped so literally anyone can produce viewable material, which then of course costs precisely zero to distribute.

In the current model for TV, big audiences equate to big ad revenues and big salaries: last season Ashton Kutcher earned $24 million for his role on "Two and a Half Men." Apart from sports, however, "big" is smaller than it used to be. Because of channel proliferation, audience fragmentation, and other factors, the top-rated non-sports shows currently running -- "60 Minutes" and "NCIS" -- earned only an 8.0 and 10.5 rating respectively (depending on week), meaning 8-11% of households are watching. Compare today's picture to that of past decades, when "I Love Lucy" pulled numbers in the 60s; the farewell episode of M*A*S*H in 1983 also drew 60.2% of households.

On one hand, the fragmentation of cable that spawns such critical successes as "Mad Men," "The Sopranos," "Breaking Bad," and "Homeland" is extending into web video. That is, quality work with niche audiences might be better addressed via YouTube or other distribution models, particularly because interactive advertising can be measured so much more precisely than broadcast or even cable numbers. At the same time, the networks' cost structure has already been reset, beginning about 15 years ago: reality and other non-scripted programming proved to be a convenient way around the Hollywood writers' strike in 2007 and also kept talent costs to a minimum. Even today, such shows as American Idol, X Factor, Survivor, and Dancing with the Stars score well while being relatively cheap to produce.

The energy drink/adventure sports sector has discovered this fact of online behavior and exploited it aggressively. Ken Block's driving stunts, the aforementioned Red Bull oeuvre (including non-ad programming such as "Jackson's Hole"), and Monster (with more than 34 million views) offer programming that would be ill-suited for even niche cable channels but perfectly situated for viral distribution, repeated viewing, and powerful branding opportunities.

Because of the sheer volume of material -- 72 hours of YouTube video are uploaded every MINUTE -- viewers confront a classic long-tail scenario: every niche of interest, taste, culture, and video quality is addressed, including some that haven't been invented yet. Cable television solves this problem with brand identity: viewers who tune in to HGTV, Food Network, or Fox Soccer Channel have a pretty good idea of what they'll see. While YouTube, TED, and other outlets have adopted some variation of the "channel" philosophy, it doesn't scale. Neither does search work very well: if you didn't know what Gangnam Style was, how on earth could you phrase the search to find that video?  Social networking is, to date, the best option for finding this stuff, raising the prospect of more formal varieties of trusted filters who watch thousands of hours of bad video to snare the treasures.

To give just one example of such valuable artifacts, there are a multitude of black-and-white clips of musical, stand-up comedy, and other performances from the 1950s and '60s. Seeing Thelonius Monk on Swedish television can be wonderful, surreal, and dazzling all at the same time. Again, television, even of the cable variety, is a poor distribution mechanism for such work, but the planet's artistic inheritance is far richer than it was just a decade ago: it's one thing to dust off a Wes Montgomery LP and play it for the budding musician and something else entirely for her to see the genius himself, often explaining the music between takes. There are doubtless thousands of other examples (university lectures are one - reading Richard Feynman and seeing him are two very different experiences).

How will the incumbents respond to these and the many other changes ahead? Hulu is trying to impose cable economics on web video, and it might be able to do so for a few years. As cable subscription prices rise relentlessly, however, cord-cutting will increase, I predict. The fact that cable operators control the majority of high-speed home connections complicates this switchover somewhat, but as mentioned above, wireless broadband and tablets could lead to a different economic model in the future. At what point could AT&T/Verizon supplant Comcast?

Sports, particularly football, appear to be immune to time-shifting, so much so that multi-billion dollar bets are being made on this assumption. ESPN paid $1.1 billion in 2010 for 18 games of Monday Night Football; the rate nearly doubles, to $1.9 billion, only three years later. The Big Ten cable network (half owned by Fox) generated $7 million per school in 2009; Maryland joined the conference last month in part because the school was reportedly promised $43 million (along with all other members) in 2017.

Big Ten commissioner Jim Delany is reported to be a student of demographics, and the athletic conference's core states in the Rust Belt are indeed losing population to the American West and South. But Delany is, I believe, falling victim to linear projections of cable access fees paid by households that, in the main, are not seeing big jumps in income. As the NFL, college football, the Olympics, the World Cup, and other sports bodies continue to rely on heavier funding from their television partners, this technological sea change threatens to undermine that rising tide of non-advertising revenue. When might the golden goose stop laying so many eggs? Delany's math is reminiscent of that of the financial industry in 2005-6, when it was believed that housing prices could never go down.

What might happen next? Pay-as-you-go for cable channels may become a reality at some point, the global audiences for web video could become a factor in ways broadcast cannot reach, and new advertising technologies could alter the landscape. Might brand loyalists get more, better ads, and subsidized cable subscriptions, for example? Will overlays, quizzes, games, and even biological sensors augment the 30-second spot?

Who should we be watching for signs of business model change? Clearly the current rights holders are not standing still, and ventures such as Hulu will evolve. Given Apple's past relationships with Hollywood content companies, iTunes could turn into a new kind of cable TV experience.  Startups such as GetGlue, Showyou, Vimeo, and Yahoo's IntoNow provide a variety of social layers for video production, distribution, and consumption. Amazon has lots of digital assets, a hardware platform in the Kindle Fire, and a history of surprise moves.

Whatever its future, broadcast TV had a good run, and will of course deliver value in certain circumstances in the future. But the monopoly that television has had over video audience aggregation for the past 70 years is being broken. As a result, the possibilities for the future are both exciting (for content producers and consumers) and potentially expensive for incumbents. In any case, creativity should flourish as it has in every other technology revolution that empowered artists, whether printing, paint chemistry, or photography.

Thursday, November 01, 2012

Early Indications October 2012: The State of Mobile Payment (U.S. market)

With so many powerful players getting involved, some more standing on the sidelines, and a few wild-card startups, the smartphone-as-wallet market is truly compelling business theater. Far more is unknown than certain right now, so rather than speculate, I'll lay out some of the knowns then concentrate on the relevant questions that must be sorted out.

What we know

Multiple projections suggest that consumers will use smartphones as wallets more and more frequently in the next five years. In addition, Japan and Kenya, among other markets, provide useful precedents for mobile payment behavior. Even so, U.S. adoption is likely to be unique for a variety of reasons.

Smartphones are being adopted extremely rapidly, and they possess some important characteristics that make them well suited to be used in commercial transactions:

     *They can be configured with extra-secure memory and other hardware features to increase confidence of consumers whose money and/or information might be lost.

     *They have cameras that can serve as scanners of bar codes and other physical hyperlinks.

     *The cameras and displays can also facilitate biometric identification in the form of face recognition, either algorithmic or by humans.

     *They can be configured with a radio devoted to secure payment at close range.

     *They are pretty reliably carried on one's person and thus can replicate some roles of a wallet.

Who has entered the arena

Competition in mobile payment is already intense. As the list of active players illustrates, however, different entrants may have differing strategic endgames. To say that the U.S. market does not need smartphone-based wallets because of the mature credit-card reader infrastructure may be true, but does not negate the potential impact of couponing, loyalty cards, location-sensitive promotions, and ad placement: smartphones in the U.S. market may never get the functionality of a Safaricom M-pesa account in Kenya, but plenty of other interesting scenarios are nonetheless possible.

Mobile carriers: Sprint is the only carrier to support Google Wallet. AT&T, T-Mobile, and Verizon comprise the ISIS consortium. Isis is running trials.

Credit cards: Visa has PayWave while MasterCard launched PayPass. For its part, American Express has Serve, which is pre-paid rather than a credit service like the other two. Discover has announced an alliance with PayPal (see below).

Merchants: Announced in August, the Merchant Customer Exchange is led by Best Buy, CVS, Shell, Target, and Wal-Mart among others.

Google: Google Wallet currently runs only on a few Sprint phones. A sticker with an embedded chip can bring smart wallet features to Android phones that do not meet carrier standards for NFC (near field communications) in the hardware layer, but these do not appear to be widely available and/or adopted.

Square: The mobile payment startup founded by Jack Dorsey of Twitter fame (he works 8 hours a day at each company) does not require NFC chips and interfaces neatly with the company's merchant solutions which attempt to disrupt the Verisign-dominated credit card terminal market.

PayPal + Discover card: PayPal announced the credit card partnership in August and expects to process $10 billion in mobile phone transactions this year. This appears to be the first mover with competitive advantage, in the early going.

It is difficult to believe that Amazon and Apple (which currently supports non-payment wallet functionality) will stay out of this market.

The questions:

1) Hardware vs software

While the Google Wallet and Isis solutions rely on a hardware component -- the NFC chip in the phone and accompanying reader at point of sale -- PayPal and Square employ more of a software play. By way of comparison, in Japan, the prepaid cards used to pay train fares use contactless hardware, while in Kenya the popular M-pesa service runs on SMS.

In the U.S., wireless carriers control access to the secure memory area that is required for Google Wallet, and that access has not been widely agreed to thus far. Alternatively, cloud-based solutions move consumer information off of the handset, obviating the need for carrier-controlled access to the so-called secure element. In addition, they do not require new point-of-sale infrastructure at the merchant, as in the case of NFC. In the long run, the Isis solution appears to be the most likely NFC-based scenario, if any take hold, while Google recently announced it is moving to a cloud approach possibly in parallel; the fate of the hardware-resident Google Wallet is unclear. Apple has yet to include NFC chips on iPhones.

2) Payment vs promotion

Even though the rubric is to speak of mobile payment, because the US has such a broad credit card reader network, the promotional aspects of mobile wallets will be a critical factor for user uptake. This opens the possibility of an arbitrage app, to sort through a consumer's competing offers, point systems, privacy compromises, and time constraints. Do I buy gas at Shell on MCX or at Sunoco with Isis today? What about next week's offers? How close am I to Gold standing in a given reward program? Who do I trust to maintain multiple account information? Apple has Passbook, an iOS app for ticketing and loyalty but not (as of yet) payment. Google Wallet does many of the same things.

3) Multi-home vs single-home

These terms derive from the economic literature on platforms. Many "multihoming" people carry both Mastercard and Visa. Some electronic game titles are available for both Xbox and Playstation. At the same time, very few people maintain both Facebook and MySpace identities, or checkbooks from consumer accounts at two different banks. Right now Visa in particular works with many other digital wallets. The homing question will be interesting to follow: will consumers maintain simultaneous Starbucks, Visa, Isis, and MCX accounts, their high degree of overlap notwithstanding? Will reward systems interoperate, or will they be more like frequent flier miles, which are expensive to convert across carriers? In short, will there be a few huge winners or many players of varying scales?

4) Sweet spot (transaction amount)

In the U.S., credit cards are fast and easy, but not widely used for purchases under $10 or so. Retail foodservice establishments, meanwhile, process millions of transactions a day under $25, and the experience of making change is slow, error-ridden, and inconvenient. Given the power of the U.S. penny lobby, we still use the copper coins even though it likely costs more to spend the extra time for a McDonalds clerk to make exact change for 47 cents rather than 45 or 50. Thus a wave-and-go payment solution for fast food and other outlets (where customer throughput is a key profitability metric) makes a lot of sense. Burger King does not really "average" 500 (or whatever) customers per hour, but instead deals with large spikes in demand at lunch time, when big events let out, and so on. Decreasing transaction time will pay off quickly for these merchants, and if they do not need to invest in new reader infrastructure, so much the better. Thus if mobile payment can fill in a niche at the low end of the market rather than compete with plastic cards, it could expand rather than only cannibalize the existing market.

5) Pre-pay/credit/mobile bill

What will be the preferred source of funds in the digital wallet(s)? Visa and Mastercard can easily extend their credit model to new payment modalities. Pre-paid plans work well for mobile carriers and do not require credit checks and other risks. Wireless carriers already have credit ratings, home addresses, and locality information for their customers. Each of three models could catch on for some population (mass transit passes for school kids in cities, meal plans for college campuses, gift cards for retail shoppers, and the list goes on); it may not be a winner-take-all scenario.

6) Global vs national

A credit card can currently be used nearly anywhere. If NFC or other hardware solutions prove popular in a given geography, how widely will any particular technology take hold? Is a variety of local technologies the long-term scenario? Most likely not.

7) Killer app(s)

To unseat the incumbents (cash money and plastic money), mobile money will need to be secure, easy, widely accepted, and deliver additional benefits. In Kenya, one killer app was processing expatriate payments from abroad without a trip to Western Union. In Japan, train fares at rush hour are processed much faster with mobile money than with other forms, thus easing workflow. In the US, mass transit is not widely used, but coupons and loyalty programs are. Somewhat weirdly, many demo videos for various smart wallet solutions all focus on one merchant scenario: coffee shops. This segment doesn't feel sufficiently substantial to stand as the cornerstone of a new shopping paradigm, however.

The corporate heft of the various competitors suggests a sumo-like contest to win consumer affection. What's the payoff? Consumers love discounts, and smartphones can geoposition those offers to current place and time. On the platform owner's end of the transaction, meanwhile, the prospect of terabytes of consumer data piling up from offers at various price levels or under different conditions (25% off versus "buy three get 1 free") with the location tracking aspect presents a "big data" scenario of staggering proportions. It's clear to see the prize -- consumer data at unprecedented scale -- but the value proposition to wallet-carriers remains unclear.

8) Wild cards

What happens when some segment of the infrastructure (power, wireless data, terminals) goes down?

Who pays to retrofit millions of vending machines, arcade games, and other devices that currently take cash and coins? What about merchant terminals?

What happens when data is compromised?

What do I do when my phone/wallet is lost or stolen?

Who bears what risk?

What happens when my battery dies?

What happens with competing standards or entities? Can merchants "jam" competing offers? If Shell sees I'm gassing up at Citgo, do I get coupons? Cut off? Slower service next time I pull into Shell?

What if public backlash at RFID extends to NFC, an RFID variant?

Will anyone understand the privacy agreements they sign?

Sunday, September 30, 2012

Early Indications September 2012: Party platform comparison

It should be stated explicitly that all views are my own and do not represent official policy or any other attribute of my employers. Politics is always delicate territory and I have tried both to critique and respect both parties in my analysis.
Given the stubbornly high un- and under-employment numbers, the rapidly diverging fates of the very rich and everyone else, and the increasing speed of technological change, it appears that the U.S. economy is in the midst of some fundamental transitions. Consider the evidence:

*Apple, with a trillion-dollar valuation in range, employs fewer than 50,000 U.S. workers, not counting retail store personnel. Facebook, said by Wall Street to be worth $100 billion at one point, employs only about  3,000. Not only are their overall numbers small, these highly-prized jobs create very few "multiplier" jobs for lower- and middle-class workers the way the automobile did. Where will large numbers of new jobs come from? In most cases the old ones are not coming back.

*Municipalities in multiple states are declaring bankruptcy, and unlike the 1994 Orange County precedent, these are likely to be followed by more. It is also likely that a U.S. state will have to declare bankruptcy, or something similar. Between direct hiring of employees as well as support of homebuilding (through the mortgage interest deduction and deep involvement in mortgage markets) and public works, government-fueled employment has helped counter a long-running loss of manufacturing jobs. As the wave of government hiring from the last 65 years bequeaths us its total costs -- in extremely generous health care and retirement benefits -- how can we afford the past hiring at the federal, state, and local levels, much less the governments of the future?

*A college education historically contributes to higher earning histories, but the price of that education is also growing at an unsustainable rate. According to the College Board, the average cost of a 4-year public college education has more than quadrupled since 1981, after counting the effects of inflation. Student loans are available to cover this ever-increasing sum (thus creating a moral hazard for the universities?), with the result that student loan debt has crossed a trillion dollars. Insofar as student loans are not able to be discharged by bankruptcy, and given that requiring high credit scores along with a large down payment is now standard practice in the mortgage industry, many of the students who leave college with these loans will not be buying houses any time soon. How can we educate students in tomorrow's skills without saddling them with excessive debt?

Given these interconnected forces, the role of elected officials in encouraging job creation is limited: governments are shedding police officers, fire fighters, and teachers. Much as every president loves a construction boom, most housing markets are still digesting excess capacity built in the 2003-2006 period even as they are more boomer home-sellers than there are Gen Y couples to buy real estate. Even though the benefit of more education used to be axiomatic, honest discussions of student aptitude and projected debt should be a factor in college choice in more and more cases.

Thus I believe that the nation is at a crossroads, a historical moment when new approaches are necessary. What can voters look forward to? Rather than try to decode the speeches of the presidential candidates, I examined the two parties' platform documents. Sadly, there is little indication that either party is approaching today's unique challenges with an adequate arsenal of ideas.

The Democratic platform is long on punchlines: "We see an America that out-educates, out-builds, and out-innovates the rest of the world," it repeats at several junctures. The next American economy needs to be built "from the middle out," not from the top down. The proposals in this vein have the overall whiff of a free lunch: middle-class tax cuts, refinancing options for mortgages under water, "accessible, affordable, high quality health care," and a promise that "we will find a solution to protect Social Security for future generations." How will this last goal be accomplished? Later retirement, higher taxes, and/or lower benefits are not mentioned as the only ways out. The document is short on the necessity of sacrifice.

As for education, the Democratic platform focuses more on teachers than on students. While "Democrats believe that getting an education is the surest path to the middle class," the cost of bad teachers for tax payers and students alike is never addressed. Instead, in a nod to union resistance to removing underperformers, "We also believe in carefully crafted evaluation systems that give struggling teachers a chance to succeed and protect due process if another teacher has to be put in the classroom." For every "struggling" teacher, however, hundreds of students are denied an adequate education, but they are not mentioned.

This commitment to public-sector unions appears in another passage, one that implies that high-paying government jobs have no discernible price. Compared to the labor-management strife that fueled the big industrial unions, teachers' and police officers' economic interests are opposed not to bosses but to taxpayers: the teachers' neighbors. Nevertheless, "we will fight for collective bargaining rights for police officers, nurses, firefighters, emergency medical technicians, teachers, and other public sector workers -- jobs that are a proven path to the middle class for millions of Americans." But who pays that bill? In France, the government (followed by the post office) is the largest employer and the top marginal tax rate is 75%. Such an end-game feels unsustainable in a country as large as the US.

In the transportation domain, it's hard to see anything encouraging. In addition to the "all-of-the-above energy policy" and encouragements for investment in clean energy, the "Democratic Party supports a broad-based strategy to further strengthen an American renaissance in manufacturing," including "incentives to build advanced vehicles in the United States." The particulars (what's an "advanced vehicle"? The Chevy Volt from Government Motors?) are nowhere to be found.

In sum, much of the Democratic platform document is given over not to specifics, as we have seen, but to fear-mongering about what a Romney presidency might entail. For what is ostensibly a policy document, the Democratic platform could have done far better.

Which brings us to the other ticket. Richer in specifics, the Republican platform is so dominated by trickle-down ideology that job creation and economic recovery at the scale necessary seem extremely unlikely: the document looks into an idealized rear-view mirror on an America that never existed in the first place -- then apparently wants to bring it back, never mind the actual forces at work both then and now. Tax cuts, reductions in regulation (particularly the environmental variety), and hot-button social issues (immigration, firearms, Judeo-Christian religion, gay unions, the gold standard) dominate. Just as with the Democratic document, the Republican platform spends a lot of time name-calling, rather than constructively moving forward. Part of this behavior is the nature of our times, I realize, but I persist in believing the majority of the American people are sick of partisan bickering.

The second sentence of the Republican document begins with a bold assertion: "Prosperity is the product of self-discipline, work, savings, and investment by individual Americans." The converse is clearly implied: lack of prosperity is the product of weak moral fiber, laziness, careless spending, and short-sightedness by individual Americans. The rich are rich because they existentially deserve their wealth, and taxation is thus a form of theft on behalf of those who are not prosperous, presumably because of the aforementioned factors.

The problem is that many who are wealthy inherited their fortune (what Warren Buffet calls the "lucky sperm club"), while still others had the good fortune to be in the right place at the right time. And luck works both ways. Most restaurants fail, notwithstanding chefs' 80-hour weeks. People pick economically unfortunate college majors or slow-track entry-level jobs. Factories close. Jobs get outsourced. Illness happens. Across geographic and ethnic lines, family units vary in size, strength, and respect for education; unfortunately, children can't pick their parents. Can anyone say these individuals are less morally worthy than the fortunate few wealthy? This resistance to acknowledge the role of luck -- alongside intelligence, prudence, and effort, I hasten to add -- in people's lives contributes to the overall tenor of the Republican economic plan.

Furthermore, the document is counterfactual at several points. Despite the sluggish economic performance of the decade during which the Bush tax cuts were in force, the Republican platform nonetheless asserts that "lowering taxes promotes substantial economic growth" and later bemoans the current federal budget rules' refusal "to recognize the beneficial budgetary impact of lower tax rates." Similarly, the party of creationism and of politicized redactions to climate research in the Bush White House states that "We must restore scientific integrity to our public research institutions."

In addition to denying the relevant past, the party document gives the ability of the market system to create positive outcomes undue credit: infrastructure, paid for with public tax dollars, should be privatized even though the track record for such projects, such as various toll roads, is mixed. Likewise, mortgages, student loans, and Social Security should be subject to the free market of financial services firms. Health care, too, can be fixed with more free market dynamics. Even schools -- choice via vouchers -- can be repaired with market mechanisms. Following the money may be useful here: who stands to gain under each scenario? Will the nation be stronger overall? Consider that in health insurance, rational behavior for the insurers, whose CEOs earn handsome salaries, is to deny as much care as possible. Somehow, maximizing shareholder return does not seem to be the overall point of this particular exercise.

Despite serious issues with their overall vision, give the Republicans credit for specificity. The platform contains some economic ideas that definitely should be tested further:

-workforce retraining programs should be modernized

-the tax code should be simplified

-immigrant innovators should be welcomed rather than turned away

-the Telecom Act of 1996 is "woefully out of date"

-the 130-year old Civil Service system should be reformed

-tort reform should deliver measurable benefits to both health care costs and physician service in rural areas, which are often underserved

-new systems of learning and new models for life-long skills refreshment should be a priority.

If the Democratic drift is toward free lunches without sacrifice, the Republican platform venerates wealth but says little about not-wealth: the sick, the aged, those left behind by economic change. Similarly, while Democrats were criticized for not mentioning God in their platform, from a policy standpoint the Republican refusal to acknowledge climate change is more worrisome.

Okay, the reader may reasonably ask, so it's easy to poke holes. What would you offer that's better? Fair question. Here are five big proposals that could be adequate to the times we face and, more important, recognize that the status quo is inadequate: we, and especially our children, deserve better. Looking back in 20 years, will we honestly be able to say we did the best we could? Just as important, the rest of the world is looking for leadership amidst tremendous potential and instability. Will they find it here?

1) Invest in our nation and in our future: initiate national service for 18-19 year olds. Make it compulsory and universal. Mormons back from their mission and Israelis who serve in the defense forces both are more skilled and more mature than 20-somethings without the experience. From the nation's perspective, national service should increase the skills base, reduce welfare and similar payments, and create roads, parks, libraries, literacy programs, broadband networks, and other projects of lasting value. Giving potential college students a taste of the work world should either a) make them more motivated students or b) convince them they're better suited for trade craft or other non-college work. Letting teens earn some of their future tuition could help address student loan debt too.

2) Stop paying for so much waste in health care delivery. a) If we spent less on insurance processing, and yes less on tort-driven behaviors as per the Republican platform, quality of care should go up while costs drop. I'm not pretending to know what combination of single-payer, health savings accounts, and/or lifestyle change would be required, but addressing the problem is imperative. b) A vastly disproportional share of health care expense is incurred at the end of life. We as a culture need to stop trying to "beat" death and start acknowledging the life that was lived and comforting the individuals in transition. Physicians need to feel, and be allowed to feel, human and neither like gods nor life-extension technicians in such moments.

3) Increase funding for DARPA. Given stealth aviation technology, GPS, and of course the Internet, this agency has paid for itself many times over. Their current emphasis on robots is going to be similarly game-changing, I predict.

4) Fix the trademark and patent system. Intellectual property law is a disaster in that those without rights can profitably stall progress while those with certain rights are protected for far too long.

5) Attack the obesity epidemic with the same vigor of putting a man on the moon. Diet, exercise, mental health care, workplace arrangements, incentives and disincentives -- the problem can and should be fought on many fronts. Given the Olympic success of this great nation, it is clear that we can devise physical and related programs so that no adult and especially no child should lose quality of life or overload the healthcare system with preventable weight gain. While such measures could be read as intrusions into individual liberty, the precedent of smoking is relevant, I believe.

Saturday, July 28, 2012

Early Indications July 2012: The Media Beast

Those of you who have read this newsletter for a while know that it
has, nominally anyway, a technology focus. While the current number
may not feel like it delivers a tech message, that is in fact where
the argument is heading.

The recent events at Penn State raise a broad range of questions, from
"how can humans be so evil?" to "what were those men thinking?" to
"who was the client for Louis Freeh's report?" to "what was the NCAA's
agenda in the sanctions?"  Many of these questions remain extremely
loaded with emotional and legal baggage, and I will tread lightly
around them, speaking only as a private citizen and not in any
University capacity.

My purpose is somewhat more macroscopic. Think back to some sports
heroes of the 1990s. All of these individuals have, to some extent,
been disgraced and fallen from their pedestals.

In alphabetical order,

Barry Bonds
Michael Irvin
Allen Iverson
Marion Jones
Bob Knight
Mark McGwire
Joe Paterno
Rick Pitino
Tiger Woods

Lance Armstrong could well be next.

Each of these individuals boasts a Hall of Fame resume. Each at some
point transcended his or her sport, becoming an icon in some larger
arena. But each at some point, having been made larger than life, fell
hard from the extra-human heights to which he or she had ascended.
Without mass media, I will argue, these individuals could not have
soared to such cultural visibility, but many people's cognitive and
emotional apparatus may not be well suited for life at such a scale,
setting the stage for subsequent disappointment.

Accordingly, I'd like to explore the role of technology in this
process of creating and then questioning heroes, using the Penn State
experience as an example close at hand. My proximity to the story is
recent: I moved here in late 2005 from Boston. The Paterno statue had
already been erected four years earlier, but I immediately noticed
that State College felt different. My grad work was done at Michigan,
home of the winningest college football program in history, both by
wins and winning percentage. My undergrad years were spent at Duke,
though Coach K mania can hardly be said to have hit in that era: while
his first three years' record was 38 wins and 47 losses, home
basketball games at Cameron had already became one of the great
experiences in all of sports. So I came from academic institutions
where sports Mattered.

While geography is certainly a factor (State College, for those who
haven't visited, is said to be equally inaccessible from everywhere),
part of the State College difference is architectural. The football
stadium, which is enormous, has a presence beyond mere mass: Michigan
Stadium, the "Big House," seated more people when I was there in the
1980s, but it's a giant hole in the ground. Driving by it in Ann
Arbor, there was little in the pre-skybox days to announce its
vastness, so walking inside was a wonderful experience to grasp the
scale from the top row of seats. (At graduation, we got to walk out
onto the field level through the tunnel the players used, though there
was no M Go Blue banner to leap up and touch.) Beaver Stadium, by
contrast, is all above ground. Given that it was added to in sections
as Coach Paterno's success generated interest, it looks like an ad-hoc
spaceship, with spindly underpinnings and bolted-on exterior ramps and
walkways. (Here's a view that shows that tendency) Contrast the
Rose Bowl, or even the Horseshoe at the state university to the west,
and unlike Beaver Stadium, they were designed from their origins to be

The last of the renovations was completed in 2001, when seating
capacity, which had doubled in stages from 46,000 in 1960 to 95,000 in
1991, was increased to 107,000. The move seemed justified as the 1990s
were heady days for the program. Penn State joined the Big 10
conference in 1993, and immediately delivered strong results,
including three top-10 national rankings in seven years, top-20
rankings every year, and an undefeated season in 1994. The statistical
rankings become relevant in a moment.

1993   10-2

1994   12-0  (#70 in total defense; #1 in scoring offense (48
points/game); #1 total offense)

1995   9-3  (#50 in total defense)

1996   11-2 (#41 in total defense)

1997   9-3   (#86 in total defense)

1998   9-3   (#12 in total defense)

1999   10-3  (#27 in total defense)

2001, when the current stadium was completed, was also the year when
the statue of Paterno was installed, and a year when success was hard
to come by. Before the wins were vacated by the NCAA, here was the

2000   5-7   (#55 in total defense)

2001   5-6   (#98 in total defense)

2002   9-4   (#27 in total defense)

2003   3-9   (#49 in total defense)

2004   4-7   (#10 in total defense)

So consider the context for the 2001 decision to cover up the Sandusky
abuse, which is what is alleged to have happened:

-The football team was in the midst of a run that would get most major
college coaches fired: only one bowl game (a loss) in five years.

-The Paterno years had been remarkably consistent until that time. The
program was the 6th most winning program of the 1970s, the 1980s, and
the 1990s. Only Nebraska could join Penn State in the top 6 all three
decades: Oklahoma did it twice, while Alabama, Florida, Florida State,
Miami, and Michigan did it once apiece. LSU, Ohio State, Texas, and
USC did not make the top 6 in any of the three decades.

-The losing streak coincided with the retirement of Sandusky, a
respected defensive coordinator, though the statistically best
defenses did not always translate to winning seasons. Penn State's
reputation as "Linebacker U" derives from Sandusky (and continues
under Ron Vanderlinden, who has roughly a half-dozen linebackers/pass
rushers currently in the NFL).

-Penn State basketball has rarely made Big 10 hoops royalty very
nervous. Since 1983, the program's conference record is .317. Thus
football must generate sufficient revenue to support many non-revenue
sports, several of which -- wrestling, and men's and women's
volleyball -- win national championships.

Looking back, the turn of the millennium seems to have seen a changing
of the guard. Paterno turned 75 at the end of the 2001 season. The
game, and his university, had changed dramatically over his career.
To take the latter first, Penn State's average SAT scores went up a
relatively modest 67 points between 1966 and 2006 (LSU's dropped 110;
Virginia's increased 141). I cannot find a list of federal research
expenditures by university from 1970, but Penn State has risen to rank
in the top 15 in total research dollars received. Like the University
of Washington, the Penn State undergrad ranking is not selective (tied
with UW at 184), but both schools are top-tier research universities,
standing in the top 20 institutions in PhDs granted and other key
measures. Like Duke, Arizona State, and other institutions, Penn
State's academic reputation has risen considerably over the years
during which Paterno was coaching. He claimed, plausibly, that he had
raised $1 billion for the university, money that had helped academics
gain in stature.

How did football change in the Paterno era? In 1966, his first year,
ABC was the only network to broadcast regular-season college football
games. With a Supreme Court decision in 1984 ruling that the NCAA
television plan violated anti-trust law (the University of Oklahoma
and the University of Georgia were the lead plaintiffs), the number of
televised games spiked from 89 to roughly 200 in just one year. Rights
to college football became truly big business: the Longhorn Network
joint venture at the University of Texas is potentially a $1 billion
enterprise over 20 years, and the deal contributed to the near-demise
of the Big XII conference of which Texas is a member.

ESPN, which began broadcasting in 1979 when only about 20% of US
households had cable, seized on college football after the Supreme
Court decision with a 48-game package in 1984. As the 1958 NFL
championship game proved, television and football are a potent
combination, and ESPN's rise is intertwined with that of college
football. College GameDay began broadcasting in 1987, but became a
major part of campus life in 1993 when it went to its current live
remote packaging. (ESPN was originally an investment of Getty Oil and
. . . Nabisco, which later sold its stake to Hearst, which still holds
it: Disney only acquired 80% of ESPN in the Cap Cities/ABC acquisition
in 1996.)

Other aspects of the game changed over Paterno's career. Modern
athletic departments can be $100 million operations, with commensurate
losses when times are bad. The athletic directors prepared for
business at that scale are rare; in Paterno's era, many football
coaches (including Joe himself) were ADs either during or after their
coaching career. University of Florida president Bernie Machen has
said the ESPN money means that athletic departments become
semi-autonomous entities outside university control. Thursday night
football games, for example, often result in class cancellations and
other academic accommodations to the networks. Television exposure, in
turn, generates student applications for admission: Duke's increase in
selectivity coincides closely with the Coach K era.

Coaches can become millionaires. While it is said that John Wooden,
probably the greatest college coach in American history, never made
more than $35,000 in salary, today the head football coach at Wyoming
earns $1,000,000 in a complex package, not counting a car and cell
phone. The head man at University of South Florida pulls in $2 million
a year. Life at the top of the ranks is a $5 million/year proposition.
That's a lot of money for a coach to lose if the program goes south.

So cable sports television was one major change in sports life. What
does that have to do with the list of disgraced figures with which we
began? The pressure of 24-hour media takes a toll. For all the sports
figures in the limelight who stumbled, there are entertainers who
responded even more tragically: Kurt Cobain, Whitney Houston, Elvis
Presley, Michael Jackson. In sports, the pressure to win, and then win
AGAIN, can become enormous. The urge to cheat is one temptation (as at
the University of Connecticut under Jim Calhoun, currently banned from
the NCAA basketball tournament), as is steroid and related drug use.
But the human cost of life in the mass media spotlight is complex:
even Duke's Coach K, he of the military discipline, solid family, and
ideal circumstances, had to reset his life in 1995 when his wife
staged a full-scale intervention amidst his physical and emotional

The pressures are both subtle and obvious. Coach Charlie Weis at New
England and later Notre Dame and Kansas has a serious weight issue for
which he had gastric bypass surgery; Rex Ryan of the New York Jets had
similar surgery to help lose more than 100 pounds off a high of about
350. Urban Meyer at Florida found himself reacting to the stress
differently, 35 years Paterno's junior and even more recently
successful and therefore powerful (two national championships in his
first four years in Gainesville). Meyer reported feeling physical
symptoms of stress and exhaustion, and quit then unquit coaching. The
age of the Internet, however, created an alternate news channel where
rumors spread that Meyer had followed the Bobby Petrino/Rick
Pitino/Tiger Woods road of temptation, with a UF student. That's
another way the game has changed: 24-hour/52-week news coverage, talk
radio where spleneticism equals ratings, and message boards where
fandom has no fact check.

Technology will always shape sport. As I write, NBC is refusing to air
live coverage of the Olympic games so Twitter is providing a rough
facsimile of the pomp and pageantry that I will later refuse to watch
in prime time. Fan interest in statistics is growing annually, to the
point where the NBA just signed a deal to use SAP's powerful HANA
analytics tool to power a basketball stats website. Cellphone cameras
can document any moment, as Michael Phelps discovered the hard way
after the 2008 games as he relaxed with some weed. The interplay
between athletic drama, success, power, and personal identity has
grown more complex with television and later the web, mobility, and
social media.

When Joe Paterno rebuffed his president's "suggestion" to retire after
the losses mounted in 2004, he proved he effectively reported to no
one but himself.  Paterno helped build Penn State to what it is today,
and televised football both helped create the Paterno mystique and the
events that dismantled it: Paterno's weak replies in 2008 to an ESPN reporter asking about his players' formidable arrest record, vividly contrasting with the "Grand Experiment" rhetoric he helped propagate, are some of the defining moments of the last decade of his long
career.  Paterno famously eschewed cell phones, e-mail, and text messages. At the same time, he championed video replay of officiating calls, and vigorously supported
the Penn State libraries, home to a multitude of electronic databases
and other learning tools. Once again, technology was a two-sided coin.

The power of broadcast media to aggregate enormous audiences, and the
simultaneous need of the technology for drama sufficient to the stage,
creates the possibility of truly super-human figures. When mere humans
feel small compared to their projected selves, bad things can often
happen. Other times, when people feel their media image has changed
their off-the-field life so rules don't apply, we can get the sexual
assault ugliness of Kobe Bryant, Ben Rothlisberger, and others.
Either way, aligning human existence with life in the athletic
spotlight (and cellphone lens, and Twitter stream, and Facebook
profile) has never been more challenging.

Saturday, June 30, 2012

Early Indications May 2012: The limits of consumerism

In 1968, a young reporter named Joe McGinnis covered the presidential
campaign of eventual winner Richard Nixon. Nixon was determined to
overcome the liabilities that were thought to have contributed to his
loss in 1960 to John F. Kennedy. At the Kennedy-Nixon debates, for
example, Nixon's skin tone, choice of suit color, and physical
awkwardness contrasted with his verbal command of the material: radio
listeners voted Nixon the debate winner, but Kennedy was viewed as the
winner by the TV audience. In 1968, a television producer named Roger
Ailes took charge of managing the Nixon campaign to avoid any such
missteps. McGinness's chronicle of the campaign, The Selling of the
, put McGinniss on the map as a political observer, and Ailes
has continued to shape American political debate as well.

Fast-forward to 2012. The selling techniques for a television
candidate are blunderbusses in the age of Internet marketing. The term
of art is "microtargeting," and both the Obama and Romney campaigns
are expending considerable sums of money and expertise on the analysis
of sub-segments of the electorate. At base, political campaigns
overlap consumer products branding. In fact, to see how political
intensiveness and likelihood to vote map against soft drink
preferences, television viewing, and automobile ownership, I urge you
to take a look at the charts published in The Atlantic or the New York Times.

One widely reported microtargeting effort occurred in 2004 when the
Bush campaign neutralized a segment of the traditionally Democratic
coalition: socially conservative black voters responded particularly
strongly to anti-gay marriage messages. In the runup to the 2008
campaign, and to some degree in response to Bush's 2004 success,
Hilary Clinton's pollster and chief campaign strategist Mark Penn
published a book on microtrends that illustrated the blurred line
between his job at a public relations firm and his work on the
campaign. (In 2009, the conflict of interest resurfaced as firms
affiliated with Penn won nearly $6 million in stimulus spending.)

Very few people understand how web advertising works. Rather than try
to explain it here, I can include a few references:

- The Atlantic, 2/29/12

- Wall Street Journal

- Penn professor Joseph Turow's new book, The Daily You

Such data-rich customer -- er, voter -- profiling means that political
ads will be triggered by seemingly apolitical searches or site visits,
and persist across one's web travels. Both the Obama and Romney
campaigns mine Facebook data from individual voters, who repeatedly
say in surveys that they are uncomfortable with behavioral tracking,
to the limited extent they understand it. Microsoft's decision to
limit tracking in the new Internet Explorer browser is not well
received by advertisers.

As any good marketing executive knows, integrated marketing can amount
to more than the sum of its parts. Microtargeted online ads, e-mail
campaigns, negative TV ads, positive radio spots, statesman-like
thought pieces, friendly voices on the Sunday morning pundit shows,
billboards, direct mail -- campaign marketing has become a complex
beast indeed. And for all the sophisticated microtargeting that is
possible, the power of the brand - Hope, in 2008 for example -
dictates many of the other possibilities. As usual, we are witnessing
the fights to define the brands in the post-primary, pre-election
doldrums. Will Mitt Romney be equated to a wealthy, out-of-touch
business executive or a can-do manager? Especially in light of weak
job numbers, does President Obama get to boast of his foreign policy
record or defend the limited impact on employment of hundreds of
billions of borrowed stimulus dollars?

I'm very sensitive about romanticizing the past. The good old days are
seldom as good as selective memory can portray them. Nevertheless, I
am concerned that developing political campaigns as just another
consumer preference has definite limits: it ignores the necessity for
sacrifice.  David Brooks made this point nicely in a New York Times
piece on May 17: in contrast to the limits on popular sentiment
engineered by the Founding Fathers (Madison most notably), "Leaders
today do not believe their job is to restrain popular will. Their job
is to flatter and satisfy it. A gigantic polling apparatus has
developed to help leaders anticipate and respond to popular whims.
Democratic politicians adopt the mind-set of marketing executives.
Give the customer what he wants. The customer is always right."

But the customer/voter's self-interest, even when it might be
enlightened, will not solve hard problems, of which there is no

-Public pension funds continue to budget for 8% investment returns
even though the reality is far less rosy than that. Thus the shortfall
in public pensions will be far larger than predicted. (WSJ story here.)
Even aggressive, expensive investments such as hedge funds are not
making up the slack. According to author Simon Lack, cited in the Economist , "Indeed, since 1998, the effective return to hedge-fund  clients has only been 2.1% a year, half the return they could have
achieved by investing in boring old Treasury bills." Social security is only the
tip of an underfunded iceberg among elders that we can see from afar
yet pretty much ignore.

-Student loans are being taken by naive families, to finance
educations with low or uncertain returns, at an unsustainable rate.
Total student loan debt is roughly $1 trillion, and rose 8% this year.
At the same time, college graduates are the majority of the
unemployed, and the institutions must change their form, incentives,
and content to address a new world. So far that is not happening on a
wide basis.

-The cost of the wars in Afghanistan and Iraq can never be completely
calculated, extending as it does probably six decades out in veterans'
health care costs. Amputations and concussion ramifications will cost
billions to address. More urgent still is the need for mental health treatment adequate to the need: far more veterans of those wars have
committed suicide after mustering out than were killed by combat

The limits of politics as consumer preference are being played out
everywhere from France, to Italy, to Mexico, to Greece, to the U.S. As
the planet encounters physical and other limits to infinite growth on
multiple axes -- the nexus of aging, health care, and pensions, along
with carbon, petroleum, animal protein, and others -- the question is
no longer only or primarily "what do I want?"

At base, the fallacy of the consumer hypothesis is deeper than
politics. As research from scholars including Barry Schwartz, Daniel
Gilbert, Shawn Achor, and many others is showing, material stuff,
money, and success do not make people happy. (Excesses of the same
ruin lives, whether of lottery winners, Elvis Presley, Kurt Cobain,
Michael Jackson, Tiger Woods, Whitney Houston, Bobby Petrino, and many
others.) Meaning, purpose, community -- these old-fashioned notions
run counter to the consumerism mythology. When will politics be forced
and/or ready to embrace civic values that acknowledge shared sacrifice
rather than endlessly finance subsidies with a tax on the future?

The answer may lie on the web, with hints coming from the likes of
Kickstarter,, and Ushahidi, rather than from the promised
algorithmic paradise of the Big Data political analysts that, probably
earnestly, try to bring to American elections the same mechanics that
have made Wall Street what it is today.

Early Indications June 2012 Review essay: Daniel Kahneman, Thinking Fast and Slow

In his masterful reframing of the history of science, The Structure of Scientific Revolutions, Thomas Kuhn introduced the notion of a paradigm shift. These shifts begin when what he called "normal science," the use of an accepted theory of the era in a given field, was confronted by a sufficiently large number of anomalies the theory couldn't explain. If the sun revolves around the earth, for example, then how can earth's night, day, and position relative to other non-solar heavenly bodies  be explained? The process of theory-building followed by anomaly accretion helps explain many pivotal moments in the history of science, which does not, Kuhn found, progress by steady addition to existing theory.

Daniel Kahneman won a Nobel prize in economics in 2002, despite not being an economist, for work done with his late collaborator Amos Tversky on numerous departures of observed human behavior from the tenets of neoclassical economics: briefly, that economic agents act independently on the basis of full and relevant information, that all actors seek always to maximize their utility, and that people have rational preferences among identifiable outcomes. Kahneman's new book, Thinking Fast and Slow, furthers this mission, but also does much more.

Kahneman begins the book by recounting a series of stories about the extraordinarily rich collaboration he enjoyed with Tversky, who died in 1996. The output of their professional and personal partnership continues to redefine the world's understandings of human choice, possibility, and self-deception.  As a personal tribute, this section is warm and affecting, but I believe Kahneman is building another layer of argument as well, to which we will return presently.

Humans pose (and face) a series of three paradoxes, embodied in the architecture of the book. The first of these, the contrast between quick intuitive judgments and considered calculation, is fascinating to observe and ponder: humans display a persistent habit of using cognitive shortcuts known as heuristics when confronted by new questions. A troublesome feature of the interplay between these two systems of thought is substituting an answerable, easier nearby question for a difficult one. "Is political candidate A qualified to govern a complex democracy?" is a hard question. On the other hand, "Is candidate A well dressed and carefully spoken?" is readily answered, so we frequently act on the false understanding that we have answered the tough, original question. In the search for easier questions, humans will conflate loudness with accuracy, or the first number at hand with a realistic estimate.

The second paradox exists between economic man and humans, who can be counted on to value fairness, for example, rather than reliably maximize utility at every opportunity. What Richard Thaler of the University of Chicago refers to as "econs" (the theoretical creatures) are rational and selfish, with persistent tastes that do not change, in contrary to "humans," who of course have limited information, change their mind, and are often generous. Experiment after experiment has shown patterns of preference and behavior that violate the neoclassical assumptions that continue to dominate economic orthodoxy, and the many examples in the book are fascinating, if unsettling: in Kuhnian fashion, Kahneman and his colleagues have built a mountain of anomalies.

Finally, Kahneman differentiates between the remembering self and the experiencing self. This set of insights draws in part on experiments involving colonoscopies and other unpleasant procedures as well as vacations and similar peak experiences.  Tellingly, if asked whether they would take a dream vacation under the condition that they would take an amnesiac drug and be denied all photos afterward, most people refused the vacation. In many instances, it appears we live for the future memory of the moment rather than for the moment itself. As elsewhere in the book, the implications of one single insight are momentous.

Within the extreme richness of Thinking Fast and Slow, the nuances and surprises embedded in these three discussions are far too numerous to summarize. Several insights struck me as illustrating the broad implications of this book. Certainly investing and business decisions need be examined in a new light, and policy choices should be informed as well. But unlike most examples of Kuhn's paradigm shifts, I believe Kahneman seeks also to improve individual human existence as well. Three examples follow:

-People are extremely deft at telling stories to explain the past: the Allies were confident of the ability to win World War II; the rich deserve their wealth as reward for hard work, moral worth, or other factors; the U.S. had a manifest destiny to subdue the American west and the various nations with prior claims thereto. Life is lived forward, however, and human foresight is demonstrably poor. Nevertheless, we as a species persist in overconfidence in our predictions in multiple domains.

-In contrast to hindsight narrative or overconfident foresight, an underappreciated proportion of existence derives from luck. A corollary of this fact is that reward structures at the top (CEOs) and bottom (the unemployed and disabled) of an income pyramid should probably be rethought.

-The mere fact of focusing on something artificially raises its profile: "Nothing is as important as we think it is as we are thinking about it."

Psychology is commonly defined as the study of the mind, singular. What Kahneman implies with Thinking Fast and Slow is perhaps the most profound legacy of his friendship with his longtime collaborator: by calling on people "around water coolers" to hold each other accountable for watching themselves think and for spotting each other's potential self-deception, Kahneman turns psychology -- and perhaps thinking itself -- into a communal enterprise. Bigger than prospect theory, heuristics, and the other theoretical breakthroughs of this one man's brilliant career, the potential of a renewed collective discourse could be the farthest reaching paradigm shift of all generated by what Kahneman and Tversky thought about together, at whatever speed. 

Wednesday, May 02, 2012

April 2012 Early Indications: The Robotic Moment

Everywhere I look, it seems, all I see are robots. Not literally, but while the Apple narrative consumes lots of headline space, there's an incredible surge in innovation in the field of "unboxed computing." If we take the analogy of computers as brains VERY loosely, then the body metaphor is being built out: hydraulics, motors, and actuators as muscles, with sensors as eyes and ears. A robot can be thought of as a computer moving in three dimensions and interacting with the world through more than a keyboard and mouse.

Many of these developments have been in the works for a long time; Boston Dynamics (about which more in a moment) was founded 20 years ago. At the same time, the pace of progress can be dizzying: the DARPA autonomous vehicle grand challenge in 2004 saw only minimal, partial success, while in 2005 5 vehicles completed the course and now only 6-plus years later, Google's self-driving cars are pushing 200,000 miles of testing on public roads. I think these individual stories coalesce into something very big indeed:

-Self-driving cars got a lot of attention as Google turned up the publicity engine last fall. Nevada even has a distinctive license plate for such vehicles, and the Department of Defense has committed to using autonomous vehicles on land, under the sea, and in the air. In fact, the critical role of drone aircraft in the Obama administration's foreign policy -- without much public debate or legal clarity -- may be one of the signature facts of this presidency.

-Amazon first bought Zappos, one of Kiva Robotics' major customers, in 2009, then earlier this year, purchased the MIT spinout itself for $775 million. Jeff Bezos has been called many things, but "slow" and "clueless" aren't usually on the list.

-Medical robotics is a huge area all by itself. Stock-watchers know about Intuitive Surgical's otherworldly share price given the robust market for its operating room systems, but mind-operated prosthetics, for example, will also likely become increasingly common, particularly given how many military amputees are young and otherwise strong.

-One promising development is the advancement of the Robot Operating System, an open-source effort. The University of Washington has shipped seven identical Raven surgical robots across the country to serve as a common research platform. And at Willow Garage in Palo Alto, the Personal Robot 2 uses the same ROS to build robots as teaching platforms for universities and other research entities around the world to build on another shared platform. The PR2 is truly amazing: scroll to the bottom of the page and watch it play billiards.

-Robots for personal care are advancing rapidly. Just as they do with Roomba vacuum cleaners, people can get deeply engaged with an inanimate device. Sherry Turkle of MIT talks with valid concern about how "we expect more from technology and less from each other" in her recent work and robots serve as fascinating screens for human projection.

-Another strand of work is aimed at teaching robots more about those human cues. Heather Knight is an MIT Media Lab alum now affiliated with Carnegie Mellon, and her "social roboticism" includes a humanoid robot that tells jokes and otherwise interacts with its audience.

 -Robots are not just an "it," they can be plural. The GRASP lab at the University of Pennsylvania has done impressive work with swarms of flying bots that can maintain formation, compensating for the loss of a squadron member by resetting formations on the fly, as it were.

-A common theme is many of these efforts is the future of warfare. It's one thing for an iRobot PackBot to safely disarm explosives, but what happen when bots become suicide bombers? Boston Dynamics has created some incredible machines, largely in the DARPA orbit, including an 18-mph 4-legged cheetah-like creature that may haunt your dreams. As always in the complexity of war, offensive and defensive capabilities could easily become indistinguishable in a given circumstance. Do drone pilots on American soil, or packbots, enjoy Geneva Convention or other status? What happens when a robot is deployed as an instrument of torture?

One implication of this collection of activities is the solidification of DARPA as potentially the company's pre-eminent innovation engine. After the era of Bell Labs, Xerox PARC, and other corporate R&D centers, only IBM labs remains as a US industry-based research investment at scale. DARPA, meanwhile, had the Internet explode in public impact about 25 years after launching the ARPAnet in 1969, then saw GPS migrate into invisible ubiquity in everyday life somewhat faster. DARPA's impact through robotics will make a powerful trifecta.

Saturday, March 31, 2012

March 2012 Early Indications II: The new tech landscape

First things first: I'm pleased to announce that John Wiley has just published my book, Information, Technology, and Innovation.

The topics will be familiar to readers of this newsletter as many chapters began life here. It's available in hardcover and e-book formats at Amazon and Barnes & Noble.

Now to the new tech landscape:

Who's winning in the current consumer technology market, and why? Who's best positioned going forward? A disclaimer: some names that used to figure in this discussion are missing. Dell (which last week dropped the smartphones that no one knew they sold), HP, IBM, Oracle, and SAP compete on different capabilities and attributes in the enterprise market, which I'll leave for another day.

Let's take a quick look at 1) macro trends, 2) levels of engagement between vendors and customers, 3) competitive dynamics, and 4) looking ahead to some factors that could determine future success. The main focus here will be on eight companies (rough revenue estimates in parentheses):

Amazon ($48 billion)
Apple ($110 billion)
AT&T ($125 billion)
Facebook ($4 billion)
Google ($37 billion)
Microsoft ($75 billion)
Samsung Electronics ($135 billion)
Verizon ($110 billion)

1) Three macro trends are in play to shape the environment, and they overlap.

*First, at the content layer, the document Internet or the World Wide Web is being joined by both the "Internet of things" (sensors and such) and the social Internet: Facebook, Twitter, LinkedIn, Quora, Tumblr, YouTube, Blogger, and so forth.

*Second, Steve Jobs' vision of a "post-PC world" is coming to fruition at the hardware level: in the US, smartphone sales of roughly 95 million in 2011 are growing, while PC purchases were down 5%, to 71 million. Tablet sales are growing even faster, at roughly 20 million units.

*Finally, networking is changing as the fixed Internet is being replaced, especially outside the US, by mobile broadband.

Thus, an increasingly pervasive computing scenario involves a person using a mobile device to interact with or through a social network, rather than looking up information, and definitely not using a "productivity" application in Microsoft Office. In addition, the future of the mobile web is still being fought out: will an open standard (some version of HTML) or a closed but optimized app catalog dominate?

2) As computing grows increasingly personalized in this world, knowing what your customers are doing becomes highly advantageous. Not only can that knowledge increase engagement but it also helps pre-empt competition. In the same alphabetical order, here are rough and entirely subjective "engagement" scores for the eight companies:

Amazon (9 out of 10) holds browsing and purchase history, physical address, credit card data, reviews and wish list, and the address book of gift purchases

Apple (9) owns music and entertainment transaction data in great detail, physical location, and credit card info, and serves customers through both physical and virtual storefronts

AT&T (6) has an advantage in that it has customers' credit ratings, but addresses little mine-able behavioral data: even though the company knows my movements and important pieces of my family/friend/colleague network, the business model does little with this data -- except protect privacy better than other companies, which may be important going forward

Facebook (8) scores highest on deep social network understanding and ad reactions, but to date collects little financial data

At Google (7), while search is not always intent, it does provide key signals, and Android is serving up location and app data. Still, the company has no financial relationship with much of the consumer base.

Microsoft (5) collects software license data, has a weak mobile presence to date, but does gather gaming data on the Xbox segment

Samsung scores a 0: once devices enter the channel (Best Buy or Verizon stores), Samsung loses visibility. This structural distance could be risky, for Nokia as well.

Verizon: see AT&T

3) If we look at the big four players that dictate the state of play (Amazon, Apple, Facebook, and Google), the competitive dynamics are fascinating:

-Both Apple and Amazon move physical stuff, and use truly excellent supply chain management both to achieve their market leadership and to pre-empt competition. In contrast, Best Buy's store closures and other moves this week highlight the price of slow inventory turns and underutilized real estate.

-Amazon, Apple, Facebook, and Google are all building gargantuan data centers to support a cloud-based model of the future, a future that has few "best practices" thus far. Each is no doubt excelling at some facets while lagging in others, but such details are closely held.

-Because they are funded by direct customer revenue rather than ads, Amazon and Apple appear to raise fewer privacy concerns than Facebook and Google, whose businesses lose substantial value without their masses of personal data. Here's a great story on how creepy things can get in an app called Girls Around Me.

-The U.S. wireless carriers are former monopolies, now playing second fiddle to the smartphone operating system duopoly. AT&T is making a major push to get Windows 7 established among its employees (who have to trade in their current iPhone or Android device to get the Nokiasoft device) because it cannot thrive as "the iPhone company." It seems impossible that the former bully boys from Redmond are now looked on as the savior of carrier profitability, but such is Apple's current leverage.

-Google faces substantial competitive pressures: in an app-centric, social environment, crawling and organizing the document web does not confer the same advantage it did 5 years ago. Thus Google is apparently trying to crawl people's personal data to build the same kind of algorithmic model of reality that it can sell to advertisers. This of course raises privacy issues, which the company is encountering on a regular basis. Google+ is not taking off, it doesn't appear, while Google Play represents an attempt to catch up in the acquisition of credit card and personal purchase data.

-Even when they do view document links (an article, for example), people who get there via Facebook or Twitter might bypass Google entirely. Search still matters, of course, but it is no longer a navigational monopoly.

-Why was Samsung on the list? As the biggest company (by revenues) on the list, it is in some ways in the toughest situation. Amazon can beat Samsung up on TV pricing and grows stronger as physical retailers (Best Buy) are retrenching. At the same time, Google's pending acquisition of Motorola threatens Samsung's smartphone business. Even with the current Android arrangement, Samsung cannot capitalize on customer engagement. Should Google/Motorola become the "reference platform" for Android, Samsung could be the #1 mover of units but lag in operating system quality and features. Building an OS from scratch is both hard and risky (ask Nokia), so maybe Samsung will revisit HP's Palm webOS. AT&T and Verizon would be thrilled to have a third or maybe fourth viable OS, meanwhile, given that Research in Motion -- which, let us recall, invented the modern smartphone -- seems to be slipping beneath the waves before our very eyes.

4) What might we look forward to?

-Microsoft really needs to get traction in mobility, or it could be marginalized for a long time, so this week's mega-launch of the Lumia 900 on AT&T ("bigger than the iPhone") will bear watching. Tablets will be a similarly high priority.

-Will Facebook align with any carrier, OS, or device-maker more strongly than the others, or does it play Switzerland?

-Will regulators in the US and/or the EU constrain Google's crawling and organizing of personal data? Will a meaningful number of consumers rebel by defecting to Bing, other mail providers, and maybe iOS?

-Tech ecosystems can make for odd revenue flows. Just as Microsoft made lots of money off of Apple back in the day with Office for Mac, Google now makes more off Apple's iOS than Android even though the latter leads in market share. How long will that hold true?

-What will happen to the smartphone business model? Nobody bought a $500 PC from AT&T for $49, with the remainder of the purchase price covered by the monthly subscription revenue. Why should consumers buy smartphones differently? Today's mobile devices, tablets even more so, are closer to PCs than cell phones, the name notwithstanding.

-While 2 years seemed like a logical time frame for replacing a relatively cheap mobile phone, will people learn to hang onto today's more capable, more expensive smartphones longer? If so, what would this mean for handset manufacturers, app sales, and carriers? Will the secondary market for cellular-network devices become more visible? For understandable reasons, the carriers did little to encourage the purchase of used phones, but that could change.

If one takes price/earning ratio as a rough indicator of market confidence in a company's future prospects, it's currently a weird story (data from 30 March):

Amazon 148
Apple 17
AT&T 47
Facebook n/a
Google 22
Microsoft 12
Samsung 14
Verizon 45

Given that the smartphone market will eventually saturate in many countries when most everyone who wants one will have one, as we saw with cell phones, where will revenue growth come from after device sales slow in a few years?

Amazon will likely have success selling more stuff to more people, but the macro-level economic dynamics are worrisome here: with middle-class wage growth so flat, with student loan debt at record levels and getting higher every year, and with an aging Western population having many years to live after retirement, will consumption patterns shift? That said, Prime is a powerful tool for locking in buyers and driving instinctual purchase activity; no other company on the list has anything similarly powerful at the behavioral level.

How long can Apple retail the Midas touch with device design and marketing? Just this week a CNBC survey found that 51% of U.S. households owned at least one Apple device, with the average total being three. 10% of the non-owning households plan to buy an Apple device this year.

Network providers (AT&T and Verizon) can count on annuity revenue streams, but raising ARPU (average revenue per user) can be difficult, especially when the effort is coupled with expensive infrastructure build-outs: bandwidth costs money. Still, the market's future assessment as measured by P/E is far rosier for the carriers than for Apple.

Will personal stalking and invidious comparisons ever go out of fashion at Facebook? Many stories support people being happier after they quit feeling inferior to the site's glut of manicured on-line personas.

How long can Google ride the advertising train, particularly as the post-PC world reduces the impact of document search? What happens to the company's profitability once Motorola is folded in, given that Moto's revenues per employee are less than one third of Google's?

Investors apparently see little to inspire confidence in Microsoft's future, given such a low P/E ratio in the face of robust cash flows (recall from the list above that its revenues are twice Google's).

In addition to being vulnerable to a Google-Moto Android smartphone offering, Samsung's tablets are not positioned to grow fast enough to replace televisions' contribution to the overall revenue picture as global TV purchases are down for the first time in recent memory.

What's the biggest question mark for the future of the smartphone? It might be mobile payments. What is necessary for success in that market? Ease of use and trust, among other factors. Who's best positioned to lead on these dimensions? In a recent study by Entrepreneur magazine, Amazon and Apple both scored well on trust, and both companies have demonstrated outstanding achievements in usability. Google has been highly admired in the past but perceptions might be shifting. While their track records of protecting privacy might be relatively strong, meanwhile, wireless carriers have public perceptions still informed by decades of monopoly behavior. Perceptions can be changed, however, and here might be an opportunity for the carriers to claw back some ground from the handset companies.

Overall, all I can see are questions, with few answers. It would appear that privacy and trust will become more important as the intimacy of a really personal computer becomes more and more commonplace. Capitalizing on trust will be an exercise in paradoxes, one made more visible by the same social media environment that can spread bad news, proven or merely rumored, phenomenally quickly (cf. slime, pink, or Martin, Trayvon). Latitude for corporate screw-ups might be narrower than ever before, even as the stakes -- personal identity, not just a parcel or a transaction -- are higher.

Wednesday, March 07, 2012

March 2012 Early Indications I: Financial oddities of tech companies

Three data points start this exploration:

1) According to Thomson Reuters, Apple is moving the entire S&P 500: "the fourth-quarter earnings growth rate for the S&P 500 is running at 8.4%, or 5.3% if Apple’s results are excluded.” Apple, one stock among 500, accounts for 4% of the entire index by market cap and 35% of all earnings growth.

2) Apple alone is larger, by market cap, than the entire materials, telecoms, and utilities sectors of the S&P 500; that single company would be the eighth largest sector of a broad market index. The Dow Jones Industrial Average, a price-weighted basket of 30 stocks that is widely used shorthand for large-cap stock health, can't include Apple (or Google, for that matter) because their over-$500 share prices would skew the DJIA, whose components have an average share price of only $57. That means a 10% slide in one of the Godzillas would be equivalent to a 3M or Alcoa falling off the map. (See Jeff Reeves, "What Would Life Be Like Without Apple?" InvestorPlace, February 28, 2012)

3) Apple, at $542 as I write, has a price/earnings ratio of only 15.5, relatively low for a tech stock with strong growth prospects (the company does, however, have an astonishing $100 billion in cash). For comparison, has a P/E ratio of 6,431 according to Wolfram Alpha -- it earned 2 cents a share with a stock price greater than $140. More relevantly, Amazon's P/E ratio is a stunning 130, or about 9 times greater than Apple's even though Amazon's prospects intuitively feel riskier, less global, and more limited by physical inventory channels. In contrast, I'm told the Big 3 U.S. automakers all used to trade in a very tight window between 5 and 10 times earnings.

These connected facts raise a number of questions. Among these are some obvious ones: First, how can the DJIA reflect -- in popular discourse, if not among professional money managers -- the U.S. equities market without including such powerful outliers? Second, how long can Apple's run last? Third, what will Apple do with that cash? These are such good questions, I will leave all of them for others to address.

Instead, our concern here will be with the apparently distinctive characteristic of tech companies to be "sectors of one": why is it that IBM and Microsoft (in the past), Google, Apple, and Amazon (in the present), and Facebook (sometime soon) each built a business that for some period had no direct peers?

This isn't a scientific methodology, but in no other sector could I find consistent behavior like that noted above: pharmaceuticals is downright crowded. Airlines are problematic in terms of profitability, but there are still four major domestic carriers plus Southwest. Automaking has the semi-American Big Three, plus major market-share winners from Germany, France, Japan, and Korea. Boeing competes intensely with Airbus, Walmart is counterbalanced by Target, and AT&T has Verizon. NBC, CBS, and ABC were joined by Fox and a plethora of specialty channels. Even after all the mega-mergers, Bank of America is hardly a sector of one. The same goes for ExxonMobil in energy. As a diversified conglomerate, GE encounters Rolls Royce in power generation, Siemens in medical electronics, and a Caterpillar subsidiary in locomotives -- each competitor a heavyweight -- not to mention all manner of financial services companies that duel with GE Capital.

Looking at the present day (Amazon, Apple, Facebook, and Google) plus Microsoft in its period of dominance, it turns out that the companies that are so big and so minimally overlapping have a variety of explanations. There are also some fascinating tidbits that can't be causal but are surely more than coincidence.

1) I'll start with the tidbit, which may not be insignificant. Apple, Microsoft, Amazon, Google, and Facebook all share a common trait: they were led by their founders as CEO or the equivalent for the decisive period in their march to dominance. I think it's also significant that what the companies eventually became known for (with the exception of Facebook, possibly) is not what they set out to do initially. Thus the founders built great companies that successfully navigated paths of sometimes substantial change in both market scale and type.

2) Tech dominance is not synonymous with monopoly: Microsoft was sufficiently monopolistic to attract antitrust litigation; Amazon and Apple are anything but. Google might be an ad monopoly but not a smartphone one; Facebook appears to be headed for monopoly status for some period.

3) Each company navigated the open/closed platform decision successfully. Microsoft gained enormous market share but never built "delightful" devices; Apple locked most everything down but presents a coherent user experience. Google is sort of open with Android but the core search-business moneymaker is a black box. Amazon's inner workings are tightly closed but the cloud operations and retail businesses (including Zappos) exhibit creative innovations in openness. Facebook is a garden with walls even higher than AOL built in its glory years. This point of reference raises a significant question: leaders in one generation rarely lead the next. Sports Illustrated did not found ESPN. Microsoft didn't win search or social networking. Sony succeeded in neither MP3 players nor online music distribution. EA did not build Farmville. AOL was well positioned to build something like Facebook, it would seem.

4) Network effects are key in many tech businesses, and here Facebook and Microsoft are the big winners. Amazon, Apple, and Google benefit somewhat less: if my sister is on Facebook and I'm not, that matters. If she's on Word and I'm not and we want to share documents, it matters. If we have differences with regard to search engines, or Amazon Prime, or iPhones versus Androids, it's not a big deal. Thus the emergence of a dominant company in a sector does not mean that strong network dynamics are necessarily an intrinsic property of the market.

5) User experience is no predictor of dominance. Apple is obviously a star here; Facebook is widely disliked by its users and the mobile experience, in particular, is frustrating. Google's search bar could not be much more straightforward, but its other ventures have not been characterized by the same clean, direct simplicity. Microsoft has never been known to delight its many users: looking for the "start" button to shut the system down is but one example of its counter-intuitive execution.

6) Perhaps related to the fact that founders kept these companies at least somewhat agile (think of Bill Gates' "Pearl Harbor" speech in response to Netscape), few seem to have been driven by the increasingly problematic* pursuit of "shareholder value." Each founder, instead, worked to instantiate a vision of great, breakthrough products rather than to meet quarterly earnings targets. Amazon's Jeff Bezos' actions speak loudly here, frustrating shareholders who want the stock to behave predictably (as a recent Economist article illustrates). In fact, Bezos set expectations in his first annual shareholder letter, which he reprints annually: he openly declared a long-term rather than quarterly focus, so sharebuyer beware. Steve Jobs focused relentlessly on great products, not quarterly numbers. Google's pre-IPO document explicitly told potential shareholders not to expect traditional quarterly guidance on revenue targets, or other shareholder accommodations.
*This may sound heretical, so let me explain. The average share of stock on the New York Stock Exchange used to be held as long as a decade (in the 1930s), but that time is now less than a year. That's an average, and averages are deceiving in information-rich environments. Given the incredible volumes generated by algorithmic trading (in which some firms hold a share for a reported average of 11 seconds), that 1-year figure is essentially meaningless, offset as it is with grandmothers holding stock for decades.

Thus the holding period for a share of stock is getting extremely short, though exactly how short nobody really knows. In addition, shareholding is increasingly indirect: hedge funds, mutual funds, professional money managers, and an individual share-owner all have different expectations of a given equity. As a result, for corporate managers to tie the fate of a company to the buying behaviors of today's markets, measured as they are in seconds or months, not years, makes little sense: few shareholders are betting on the long-term prospects of the company, the way its management, employees, and possibly customers must. The CEOs we're discussing here have that long-term view in mind, and in the process generate substantial stakeholder value for a broader range of people than only the stock-holding entities, whoever they may be at this moment.

What are the preferred ways to create shareholder value? Pay dividends and downsize, in the manner of many private equity investments, now so much in the news. What has made the tech giants great? Retaining earnings and reinvesting profits. Thus the current debate over Apple's cash position serves as a skirmish in this long-running debate. (For some academic context, see William Lazonick and Mary O'Sullivan, "Maximizing shareholder value: a new ideology for corporate governance," Economy and Society, v 29 (2000) pp. 13-35 )
In summary, what are the financial oddities of tech companies?

-Hypergrowth, with hockey sticks seen in no other markets
-The possibility of sectors of one, with no direct competitors
-Resistance to the tenets of the shareholder value school of management

Where might we look for such behavior next? I'll have some suggestions in another newsletter.

Monday, February 06, 2012

Early Indications February 2012 I: Thoughts on video and pedagogy

It's been fascinating to see how fast the phrase "flipping the classroom" has come into discussion after Sal Khan used it in his TED talk from last year. But what does YouTube et al really mean in educational practice? For all the richness of the video resources we are being given, using them in teaching is far from straightforward. (If you've not seen it, here is the link: pedagogical theory notwithstanding -- about which more later -- I'm still incredibly impressed with Khan, and a lot of what follows won't make sense if you don't share the context.)

Insofar as I don't teach primary grades, and don't teach techniques such as linear programming or stochastic inventory mapping, Khan’s methods don't apply to my classroom. However, when people need to review basic concepts (what's a standard deviation? how do you calculate a net present value?), I send them to with usually good results.

Even though Kahn Academy doesn't work for my courses, I've been using online videos for the past 5 years, beginning (if I recall correctly) with Hans Rosling's spellbinding original Gapminder talk:

I'm lucky in that for my courses, there are many talks from many places addressing applicable material such as long tails, algorithms, the Internet of Things, and why people do what they do. Jesse Schell and Dan Pink (with help from the RSA's whiteboard wizard) did particularly noteworthy performances on the latter topic:



In some cases, people who have written books give particularly effective presentations of their ideas. Clay Shirky, for one, has several talks in his portfolio that explain key ideas for my classes; Dan Gilbert and Barry Schwartz have also given persuasive talks that should sell some more of their books.




Behavioral economics also has a great lineup: Dan Ariely, Nobel winner Daniel Kahneman, and Chicago's Richard Thaler begin a long list of stars in the field. Far from the land of cognitive bias, finding and watching all of the good computer science lectures on line can be a full-time occupation: in alphabetical order, such hard-core programs as UC-Berkeley, Carnegie Mellon, MIT, Penn, Stanford, and Washington cover both basic and edge-of-practice topics. Google has captured its share of computational
authorities with videos of guest speakers to the Plex, of course, but the collection also holds lots of surprises: Stephen Pinker's talk has more views than Hillary Clinton, but they both seriously lag David Beckham, Conan O'Brien, and Christopher Hitchens. Noam Chomsky outdraws Tina Fey. And so on.

Google Talks:

Universities and other non-TED institutions are also getting serious about video. To give just a sample, Columbia has lectures on global development from Jeffrey Sachs; Harvard has a full, well-regarded course on Chinese history online as well as lectures on justice from noted political philosopher Michael Sandel; Yale has a great professor
teaching the American civil war in captivating fashion. MIT's video library features some open courseware (lots of courses "only" have lecture notes) but also Benoit Mandelbrot himself teaching fractals. Microsoft posted the Feynman Messenger Lectures from Cornell in 1964.





If you think about sports rather than just watch, the resources are incredible. John Wooden, a national treasure, gave a powerful TED talk in 2001 that will live long after his death. Coach K explains in fascinating detail, at a Milken Institute meeting, how he managed the 2008 Olympic gold medal basketball team. MIT hosts an annual sports analytics conference, basically "life after Moneyball," that features hours and hours of great talks.


Coach K:

MIT sports analytics:

This semester I've taken to playing music videos before class both to get me energized and also to break that awkward silence, especially early in the semester and early in the morning. Students apparently don't know quite what to make of the extreme eclecticism: Stevie Wonder (age 12), Kings of Leon, the Black Keys, and Allison Krauss have made appearances so far. If I can keep the students guessing that's probably a good thing.

Comic relief is readily available. Parodies, fail videos (Boom goes the dynamite), and old-school fashion (read "mullets") can usually draw a chuckle. The Barack roll/Rick roll is still inspired 4 years on. At the other end of the levity spectrum, security threats can be brought home vividly: surveillance video of an unsuccessful suicide bomber in Sri Lanka, Ed Felten's cracking of a Diebold voting machine, and the Bic pen attack on bike locks just can't be duplicated in lectures. If students need perspective or inspiration, that's out there too: Randy Pausch, Steve Jobs, and many others can make a room weepy; students actually cheered for Sal Khan. For exhilaration, Ken Block's stunt driving, wingsuit flying, or sports highlights get the job done.

Wii Fit parody:

Boom goes the dynamite:

Barack roll:



Jobs at Stanford:

Ken Block:


So there's no doubt the content is good and getting even better. The question at some point, becomes "what is our cultural inheritance?" Bob Beamon's amazing long jump from the Mexico City Olympics is now public property, not distant memory. Apple's 1984 ad is remarkably undated. Bruce Springsteen's epic version of Rosalita from 1975 is vivid proof of greatness as it emerges. The solitary figure facing down the tank in Tiananmen Square is still incredible. James Brown's genius and stage presence pop off the screen, even in black and white footage. Just how good were Bo Jackson, Michael Jordan, Larry Bird? Take a look. Recent American presidential history can be deftly illustrated by the Saturday Night Live impressions of everyone from Gerald Ford to Sarah Palin. More good, even essential, footage gets uploaded every day.

As a matter of perspective, it's quickly getting to the point where I'm no longer delighted when some rare piece of archival footage is up, but disappointed when it's not. Given such plenty, the question then becomes, how do these rich resources get integrated into a classroom experience?

It's difficult to draw sweeping conclusions, but probably useful to note that four issues complicate matters:

1) A 30 minute video is 30 minutes long
That is to say, video is a linear medium and slicing up a TED talk into an abbreviated version is beyond most people's level of both technical skill and cognitive capacity. Thus the online video takes as long as it takes, unless you cut it off early, which I sometimes do. Skipping to multiple time marks doesn't usually work too well.

2) Bandwidth is not an inalienable right
Even on a high-speed campus network, I have seen sometimes crippling slowdowns. Local copies of streamed videos on USB drives are usually not practical, as often as I've been tempted. As I let class out early those days, the frustration provokes big questions about cloud computing's critical reliance on the network layer.

3) Students are conditioned to watch passively
At one level, it's TV, but in a classroom. So students sit back and relax. Especially without some coaching from the podium, the tools of critical inquiry, not exactly robust with regard to print, are notably weak in a real-time, visually driven environment. Even though many of my videos are stand-up talks rather than Bergman or Scorsese, I notice few students who know how to approach a video as a text for analysis and interpretation. Maybe I should recruit a communications professor to introduce notions of visual reading early in the term.

4) What is the relation of the visiting expert to the resident instructor?
This issue is squarely on my shoulders: once I let this third voice into the classroom conversation, what can or should I DO with it? Sometimes I stop the video and underline something; maybe more of that is indicated. Sometimes I critique the presenter; people can say dumb things on camera, so I point that out from the safety of posterity. Sometimes I basically genuflect, letting the expert have the floor without challenge or elaboration.

Because business students are generally more accustomed to memorization and problem-solving than to interpretation of sometimes indeterminate issues, I'm often at a loss as to how to run discussion of the videos. Sometimes I try to give context: what event is it that we're watching, who is this woman, how did she get this speaking slot, who is this person she seems to be picking a fight with? Other times, the video is shown first, as a springboard to my lecture. In the past, by contrast, I used the videos as dessert, but getting the timing right could be tough. I also felt bad about the lack of class discussion of the videos, but now realize that probably had more to do with the critical viewing skills (or the professor's facilitation skills) than the timing.

Beyond that, I haven't found hard-and-fast rules that always work for weaving video into classroom experience. Now that web video is about 5 years old, one challenge is balancing the evergreen (I never tire of watching Hans Rosling) with the faddish or otherwise temporary (Web 2.0 is getting a bit long in the tooth). Finally, there's the matter of proximity: Facebook and mobile phones are the oxygen we all breathe, and getting analytical leverage on the current technology landscape can be a bit of a challenge. (A great exception that proves the rule is Michael Wesch's anthropological introduction to YouTube, available on YouTube.) This isn't a video issue per se, but it points to the larger question of perspective: when is video a primary source, a piece of original evidence, and when can a video stand outside the phenomenon it analyzes?


These questions won't be solved any time soon, but the great part of this job is that every class is another chance to experiment, to listen to both spoken comments and unspoken body language, and to learn.