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The Stock Market is about to crash, soon.
If you think that this won’t affect the mini tech bubble, get ready for your adsense revenues to halve in the six months following.
I suspect, however, that this crash will be bad enough to make things like that mere ‘trifles’.
FSU Editorial: “2007 Market Crash” by Greg Silberman 07/26/2007
Web businesses will succeed based upon their competitive advantage in acquisition of the finite resource of attention.
The quantitative measure of this will be the cost per bit, where the cost is the acquisition cost per user divided by the amount of time and therefore the number of potential transmittable ‘bits’ the users’ attention is captured for.
Traditional economics is based upon the notion of scarcity. But this scarcity tends to be relevant only in the production, not the consumption of things.
This is because the cost per unit of consumable energy, or more generally, information - the bits consumed per bit delivered is usually very high.
As an example, the number of bits of information in the atoms that make up a book is much higher than the atoms that store the book in digital form on a computer.
Because of this, the cost of duplicating a computer file is much less than a scribe written bible or even a printed book - so much so that scarcity seems to disappear and the cost of distributing things like a song goes to zero.
Because the supply side was so choked, the symmetry in the scarcity of both production and consumption was invisible. But it exists , there are a finite number of people on earth and a finite number of hours that people can spend listening to songs.
As the scarcity of production drops the scarcity of consumption - the attention scarcity becomes the limiting factor.
The competitive advantage for the manufacturing industries of the Industrial Revolution was in economies of scale in production. For internet companies, competitive advantage is in capturing people’s attention.
Not if, but when, will Google be bigger than Microsoft?
Google has grown 400% over the last 3ish years, while Microsoft has basically flatlined.
If the current trend continues, then Google will be bigger than Microsoft before the end of 2008. In many ways that doesn’t seem unrealistic - Microsoft may be more like IBM and Google more like the fictitious Tyrell corp.
Some other interesting things have happened in the tech rebound. Apple, which is less than half the size of Google, is now worth more than the entire gaggle of Internet behemoths other than Google (Amazon, Ebay and Yahoo), put together.
And some things haven’t changed. Oracle is also worth about the same as Amazon, Ebay and Yahoo.
Since Web2.0 largely runs on open source DBMS unlike the original Oracle powered dotcoms, this might come as some surprise. But one can never underestimate the value of enterprise and small business software. Its what is keeping Microsoft in suspended animation, and what has accounted for the largest acquisitions this time round, in ‘Sillycon’ Valley.
In other words, web2.0 is Google and they buy cheap or enterprise or develop in-house. Maybe that’s why web2.0 investors and entrepreneurs alike are such Facebook evangelists. A Facebook IPO may be the last vestige for their hopes and dreams.
Here’s an idea that has been bugging me for a while: what if the Tit for Tat game theory strategy is not successful in the real world, ever?
Here’s why - Tit for Tat works because it creates a (technically unstable) equilibrium. In models of reward/retribution between two players Tit for Tat is always the best option.
But we know that in the real world there are rarely two systems that are isolated, and grievances are normally propagated down generations when retribution is against a different individual that has been strereo-typed as having similar characteristics. This creates a potentially infinite cycle of violence, even when Tit for Tat is used as a strategy by every actor.
I believe this could be modeled very simply by creating a 3 party risk/reward game where a certain percentage of plays from a -> b would randomly affect party c (but the players would not know about this random variation). This is a better simulation of real-life and I believe would show that Tit for Tat does not work without a more altruistic dampening affect.
1. US loses control of middle east foreign policy.
Israel says will use Nuclear tipped warheads to attack Iran’s nuclear facilities, unless the US attacks.
Saudi Arabia says will invade Iraq to protect Sunni Iraqis if the US pulls out.
The president has a mandate for neither of the options allowed to him, domestically.
2. Recession signs.
Weather related losses, over leveraged debt, house price declines a weak dollar and middle east political instability. The sooner the inevitable recession comes, the quicker and milder it will be, 2007 if we are lucky, but probably 2008.
3. Global warming hits reinsurance.
Insurance has traditionally been a guaranteed money maker, you asses the risk and take a premium while the government pays to mitigate much of that risk, with things like the police and fire services and the military. But the weather is different, and the weather will play a bigger factor than ever in Insurance and nobody will have the correct risk model. At the top of this house of cards is re-insurance. Only the biggest will be able to survive and 2007 may see the first collapses.
4. Fox news fires O’Reilly.
Rupert Murdoch is not a Republican. He is someone who produces what people want to hear. Less people will want to hear people like O’Reilly so he will be canned and Fox will move away from the embarrassing failure of neo-conservatism.
5. First web 2.0 flameouts, although bubble keeps growing.
Who will be the new Boo.com. There are too many stupid web 2.0 companies and there will be a die off starting this year, even if the mini bubble continues for another year or so.
6. Microsoft flatlines after initial vista hype wears off.
Microsoft used to own the command line. Now Google do. Millions of dollars of promotional spend on Vista will wear off quickly, a Microsoft ’s stock price will start a long slow decline.
7. Socialists win French presidential elections.
Arguable France needs Sarkozy like the UK needed Thatcher in the late 70’s, but they won’t get him.
8. Bush betrayed by the right. Bush’s fate is controlled by his own people, not the Dems. Somewhere there is probably a piece of paper that proves that he lied to go to war in Iraq. If someone decides to slide that to a reporter across a car park floor in DC, then his last days in office will not be the stalemate that the Democrats have in store for him.
9. Gordon brown becomes uk prime minister.
But does win the next election.
10. Democrats make choice between socially liberal fiscally conservative libartarianism and Lou Dobbs style perochial neo-fascism.
Lets hope that the Dobsians don’t derail things.
The Apple Revolution. Hasta la Vista Microsoft.
JMP securities suggest that Microsoft may lose Windows Vista users to OSX.
How could an operating system, such as OSX, with such a tiny market share gain dominance without a fundamental change in computers as big as the one that replaced mini computers with desktop PCs?
There is an elephant in the room. The change has already happened and people just haven’t noticed.
The elephant is the laptop. Laptops have been around for ages, but several factors, have recently conspired to make them the primary computing tool.
The reason this is fundamentally different is that a laptop is a very personal thing, its as different a computer as a PC was to a room sized Vax.
A laptop is a truly personal computer, one that connects to business data when needed, but which should naturally be yours. You may not own your office furniture or your desktop PC, but owning your laptop will be as natural as owning your briefcase while your company still owns the documents inside.
A truly personal computer does personal things like manage your photos and music. Only one company has an operating system that does this well.
A truly personal computer is an object that says something about your personality like the clothes you wear and the car you drive. Amazingly, only one company makes computers that are not butt ugly.
A truly personal computer should be easier to maintain, less prone to infection and able to link to the businessy stuff when needed. One company shines here.
The PC revolution was the Microsoft revolution. The laptop revolution may be Apple’s.
Apple shares hit new high as analysts say Mac OS X may beat Vista - Mac - Macworld UK
Table of inflation adjusted (dec 2005 prices) oil prices. Today’s shutdown of the US’s biggest and most geopolitically stable oil source puts oil at $77 a barrel. It is still more than 10% cheaper than in 1980 - but the climate and the political climate is much more unstable. At this point, a recession is innevitable, and is probably the least of our worries for anyone who has read a history book.
Technology:
1. Digg gets acquired.
2. Google releases Google Calendar and Google Micropayments and OEMs Google maps as a UI for portable iPod like GPS handhelds. Click spam becomes a real worry.
3. Microsoft does a $10billion plus acquisition.
4. Apple takes on Tivo with a Mac Mini style product with Front Row built in.
5. Energy scares and middle east politics dampen the economy such that 2006 is not like 1999 for Web 2.0.
Not technology:
6. US switches foreign policy away from direct military involvement to insurgency funding in Venezuela and ups anti-Chavez rhetoric.
7. Castro dies and Chavez threatens to stick his nose into Cuba.
8. Cracks appear in the Saud’s control over Arabia and information leaks suggesting that Ghawar oil field is water logged.
9. Natural gas prices spiral, US house prices cool and plans for renewed US nuclear power push are drawn up.
10. The first signs of long term problems between the US and China appear over disagreements over Iran.
When IBM approached little Microsoft to supply them with an OS to service a market for computers that individuals owned, they did not see the lock in that would mean that Microsoft would soon be telling IBM what to do.
The combined hubris and stupidity of the record labels is repeating this game of switch with Apple. The music guys thought that they could test the waters with electronic delivery with an also ran like Apple and use tight DRM to make sure that they weren’t fueling the file sharing networks.
As this excellent piece in brainwash points out, AFF’s Brainwash :: The recording industry’s new clothes, they have created the Microsoft of music.
Apple now owns the customer, even if you have most of your music as MP3s on an iPod but a few songs you have bought from the iTunes music store, you have a real dollar value switching cost. I wonder how many of the increasingly ubiquitous iPod users even know that they can’t easily take their songs to a non-Apple product.
I expect that before long there will be court cases for Apple to display disclaimers on their products saying that they cannot move songs to a non-Apple environment, or cases to legitimize software that bypasses Apple’s DRM and converts songs to regular MP3.
By the time that these have dragged through the courts, Apple will have won. But the real irony is that it won’t be file sharing advocates pushing these cases, but the recording industry.
Apple holds the cards precisely because it and not the recording industry, controlls the DRM.
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