Musings Report #24 6-15-13 Internet Trends: Onward and Upward
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For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Internet Trends: Onward and Upward
If you're like me and you've never heard of Jawbone or Waze, this 117-slide presentation from venture capital giant Kleiner Perkins Caufield Byers is worth a look.
Here is the table of contents:
There are any number of interesting conclusions one can draw from this somewhat breathless report ("isn't it wonderful and oh my, we're all going to get filthy rich!"); here are a few of my initial takeaways:
1. Smart phones are the long-imagined convergence of mobile telephony and computing. I vividly recall a bus stop kiosk in Switzerland, circa summer 2000, sporting an advert hyping G3 mobile service. Unfortunately, at the time, the network wasn't ready for prime-time, and the rollout was a grave disappointment to customers and the telecoms.
(For context: I also spent a number of weeks in China that same summer, in Shanghai, Hangzhou and Suzhou. The Motorola phones were highly desirable, and everyone of any importance (or not) was constantly on their mobile. The majority of autos on the already-jammed roadways of Shanghai were Volkswagen Santanas, which were the default choice for taxicabs. In that distant past, Volkswagen had a lock on auto production in China. Yes, things have certainly changed in the past 13 years...)
The jump from conventional 3G mobile phones to smart phones is a quantum leap; as the digital processing power of phones has soared, so have their capabilities. Now that 4G networks are available to many subscribers, smart phones are computers that have this neat trick of receiving phone calls.
This increase in processing power and bandwidth has launched Web 2.0, an explosion of software and applications aimed at the mobile market, which is expanding at rates similiar to the initial spread of web connections to desktop computers.
Back in 1999, we were one of the first customers of @Home, the first broadband provider in Northern California. I saw the first advert and ordered service that day. I am rarely an early adopter, but the advantages of broadband were so obvious and the price differential between slow and fast data so modest, it was an easy decision.
Many people feel the same about smart phones.
This has launched a crazy-energy, Gold Rush-type frenzy for mobile apps and advert schemes, because technology types have learned from previous Internet Gold Rushes that the first apps and companies to dominate a space typically build an unbeatable lead over competitors. This can be summed up as "firstest with the mostest."
Another school of thought holds that the real pioneers in the space end up making critical mistakes (being under-capitalized, making fatally toxic alliances, choosing a weak technology that is soon bypassed, etc.), leaving their bleached bones beside the trail; domination is grabbed by the second wave of innovators who learn enough from the failed pioneers to fashion a scalable, adaptable model and technology.
The young San Francisco couch-surfers coding the next cool app at 2 a.m. have no desire to stick around long enough to fail; their plan is to sell their app for millions to some large tech company like Google or Yahoo. This is not a false hope; Google makes dozens of acquisitions every year, often spending a few million dollars (and up) to secure a mere dozen engineers. I have read accounts of companies with only four lead software engineers being snapped up to acquire their expertise and app.
2. The VC (venture capital) and corporate crowd are focused on generating revenues from this expanding pie of smart telephony. But the real economic value lies in the social innovations enabled by crowd-sourced information and networks.
Waze, for example, is a digital backbone served by apps that crowd-sources traffic conditions. This is a sort of self-organizing, emergent-intelligence system that will speed up traffic flows without relying on centralized command-control. If we were to place a value on the time saved by this self-organizing system, its economic value would be considerable.
Jawbone UP is a wristband-sensor and a smart-phone app that tracks your movement, meals and sleep with the goal being better management of your health. On the one hand, this seems like yet more self-indulgent navel-gazing by Bobos (French slang for yuppies), but on the other hand, this sort of thing might actually improve individual's health by providing objective feedback.
MyFitnessPal is a similiar idea that exploits the processing power of mobile phones and wearable technologies.
Social innovations--crowd-sourced intelligence, crowd-funded enterprises, etc.-- are intrinsically empowering and democratizing. These mobile technologies increase decentralization, transparency, connectivity, access to information and knowledge, and lower a variety of costs. We are likely in the early stages of social innovation enabled by mobile/wearable technology.
3. Although one cannot say this without being accused of triumphalism, the fact remains that the core innovations powering the mobile computing revolution (software and design) are largely originating in America. Top tablet: iPad, by an overwhelming margin. Top smart-phone operating systems, Android and Apple. This is quite a change from just a few years ago. I suspect the space is changing too rapidly to offer much useful data, but there seems little doubt that America is the leading source of mobile computing apps and social media innovations.
This report highlights a number of high-value, globally applicable innovations originating in China, so it can't be dismissed as U.S.-centric.
The point is that the explosion of innovation is occurring outside the control of centralized planning. Even in a command-economy like China's, the innovations are coming from the margins, and then migrating to the core of the economy as they become ubiquitous.
4. Nobody can yet tell which of the thousands of apps being developed and distributed will establish dominance.
5. The mobile computing revolution is the latest wave of disruptive technology emerging from the marriage of digital processing and the web. The big difference is cost: as the cost of digital processing, screens and bandwidth decline, computing becomes affordable to hundreds of millions of people who could not have afforded the computing and bandwidth costs of 2005. The steady decline in cost will enable these people to empower themselves in ways we are just beginning to grasp.
Market Musings
Volatility rules, and that's a feature of tops and bottoms. I went long the SPX on Tuesday but didn't take a profit, went short Wednesday and took a profit on that trade and then went long that afternoon, bailing on that position on Thursday afternoon for a nice gain.
These markets more or less force you to day-trade, as profits vanish within hours or days.
This suggests a jagged topping process has been playing out since the May 22 top. The recent action (lower highs and higher lows) is forming a triangle/wedge that will break up or down soon. Perhaps The Fed's minutes on Wednesday will be the catalyst. Based on bearish sentiment and recent lows in the NYMO (McClellan Oscillator), I expect another thrust higher in the SPX before the trend finally reverses. Given the reduction in liquidity being experienced in various markets, I anticipate the downturn could gather speed rather quickly.
A mini-crash this summer would not be unusual; rather, that has been the pattern for the past several years.
Various tea leaves (COT short positions in gold are near multi-year lows, for example) are suggesting gold and the U.S. dollar may be bottoming. As you probably know, I view the supposed correlation of the USD and gold as a myth--one look at the two charts reveals no correlation. Both the USD and gold have been hammered to lows, and a rebound can be expected--perhaps this next week, perhaps in the first week of July.
Interestingly, producer prices rose more than expected. Many observers insist inflation is impossible in an economy with a surplus of labor; perhaps, but then a decline in purchasing power is equivalent to inflation. If one's labor buys fewer goods and services, then saying inflation doesn't exist is merely a semantic victory.
I continue to see the possibility of a secular rotation out of equities and bonds into US dollars and commodities.
The best thing that happened to me this week
Aengus Anderson, a young audio-journalist, interviewed me for his long-format audio program, The Conversation. We spoke for over four hours, covering a vast range of topics from teleology to transhumanism. It was great fun to trade ideas with someone who is well-informed and who has interviewed dozens of visionary thinkers. Meeting a young person who is following Emerson's dictim to "do the thing and you shall have the power" reinforces my optimism.
From Left Field
Duke Grad Student Secretly Lived In a Van to Escape Loan Debt (via CNF) I considered living out of a van when I was working my way through university, too, and even had some secret parking spots lined up. I also considered buying a small boat, as slip/mooring fees at Ala Wai Harbor were modest back then. But I had such a cheap studio ($125/month in the most expensive city in the US) I decided to stay put...
Larry Ellison's Fantasy Island--Ellison's plans for Lana'i. Some of you might know I lived on Lana'i 1969-70 (junior year of high school) and picked pineapples on the same crew as Butch Gima, who is quoted in the article (we were also both on the basketball team). One of my oldest friend's brother figures prominently in the story as well. I hope Ellison's sustainability plans actually come to fruition.
Companies seek to create a market for rental ebooks-- right now Amazon Prime members can borrow many Kindle ebooks for free. These companies are hoping to expand that model to everyone with a web connection.
"Physicist Geoffrey West has found that simple, mathematical laws govern the properties of cities -- that wealth, crime rate, walking speed and many other aspects of a city can be deduced from a single number: the city's population."
When failure becomes invisible, the difference between failure and success may also become invisible.
Thanks for reading--
charles
