:: The Park Paradigm ::

Markets for the Digital Generation

Here is a story (from efinancialnews.com) that caught my eye: “Electricity shortage stalls IT development”

Complex trading strategies have fuelled an explosion in market data that algorithms crunch to enable traders to pounce on every market opportunity. But, while chips offer more processing power than before, Wall Street is experiencing a technology challenge: finding enough electricity to feed and cool power-hungry servers crammed in overheated data centres.

For Cristóbal Conde, chief executive of financial services group SunGard, this poses big problems. He said: “Data centres were designed with a ratio of power consumption versus square foot. With the power requirements of the new hardware, these ratios are no longer valid.

“Some data centres operate at only 70% capacity because there isn’t enough power.”

Bringing enough power to a Wall Street tower housing a financial group’s data centre creates structural problems, as huge cables must be safely fitted into buildings that are not designed for powerful wiring.

According to sources, extreme data crunching can raise the temperature at the back of a server rack by 10 degrees compared with the front box facing a cooling unit, creating operational risk. The faster the chip, the hotter the room, and the more electricity is needed which is difficult to accommodate.

I don’t want to overthink this but longer term, what does this portend for location and real-estate trends for trading hubs? Do you really want to be in the middle of a big hot city? Where is the tipping point between the (human) network effect of clustered competencies and the (machine) need for big and cool?
Will hedge funds and exchanges migrate north? Will McKenzie Brothers be the quant-driven investment bank for the 21st century? Based in Newfoundland to take advantage of the cool weather and being 30min ahead of New York - so they can see the future first of course…)

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I have to apologize to regular readers for the erratic and low volume of posts recently. I currently have 12 posts in draft unpublished state and probably 20+ more in proto-draft state (ie electronic sticky note to myself with a couple of bullet points and/or links.) Lots of reasons this raw material isn’t making it to your screen - travel, work, kids and one in particular that ties into my interest in climate change, and will give you insight as to how I manage(d) to maintain a blog while leading an extremely busy life besides.

Typically, throughout the day as ideas, articles, links would come to my attention in the course of my daily routine, I would either make quick note of them (a virtual scratchpad) or quickly draft the skeletal outlines of a post. In the evening and / or on the weekend I would edit these, scrapping those that weren’t as interesting or germane as I thought at first blush and cleaning up those that were. (Now I know that there are several schools of blogging, many who would say that I should just publish the ‘raw’ stream of consciousness and that the editing process that I go through is not true to the blogging ethos. My view is that there are a number of different styles of blogs none of which is intrinsically superior; all have their purpose and, like most things in life, if executed well and adapted to that purpose are equally good or valuable.)

But in the last 3 weeks or so, the scorching heat of tropical London has made my normal routine impossible. Why? Well the interior temperature at my house has been between 35-40 degrees most evenings and my lovely iMac G5 can’t hack it! Even with a desk fan inches away on high the heat is too much and after anything from 2min to 20 seconds of use it puts itself to sleep. Drives you nuts and it is clearly impossible to work on that basis. I resisted the temptation to rush down to Homebase and buy a portable airconditioning unit, they are probably sold out in any event. But it did drive home how reliant we (I?) am on being connected. (Betfair market on 100F or higher being the highest recorded temperature in Mainland UK this summer:)

I guess I should have hedged my lost productivity…

If you’ve seen An Inconvenient Truth or Al Gore’s live presentation (have only as yet seen the trailer of the former, you can see the latter courtesy of BMW and TED as a podcast), and live on this planet you won’t be surprised when you read that the Weather Risk Management Association (WMRA) reports that the notional value of weather risk management contracts transacted in the year ending March 2006 has increased by a factor of 5 (from $9.7bn to $45.2bn) year-on-year. And as well as growing, the market is broadening as well (from the IFR reporting on the joint PWC/WMRA survey:)

“…Whereas energy sector companies represented about 69% of the potential end users inquiring about weather instruments in 2004-2005, they represented 48% this time around. Queries from potential clients from the agricultural, transportation, retail and construction sectors have also increased, the study found.”

I know weather derivatives aren’t new. But their time has come. Watch this space as the power law kicks in and the market mirrors the growth paths of interest rate or credit derivatives to become a multi-trillion dollar market over the next 5-10 years.

(* for those of you too young, old, non-North American to have been raised on the pablum of US network television and the advertising that paid for it, an explanation of ‘Where’s the beef?’, as the headline of this post meaning - ‘Where’s the posts?’ Of course updated to 2006, this tagline would most probably be translated as ‘Where are the snakes?” To which the answer of course is…‘on a plane.’)

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Last chance to enter New Skin contest!

I’ve been thinking about changing the skin on the Park Paradigm since…oh about two weeks after I started publishing. Not being a CSS / HTML etc. maestro, and being very time challenged as well, this has never gotten anywhere near the top of my to-do list.

Anyhow since there seem to be several thousand regular (or occasional) readers out there, I thought I’d put my money where my mouth was and solicit ideas from the wise crowd as to what skin, what design my blog should have.

Harness the power of community.

To get the ideas flowing, a few blogs who’s design I like are Stephen Johnson, JP, and of course Tara. Hmmm just realized these are all ‘clean’ and ‘white’…

Have had a few entries, all good. Thanks! One is currently in pole position. Next Thursday (July 27th) I will close the competition!!! Hurry hurry hurry!

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Is it darkest before the dawn? Will someone go get the baby that just got thrown out with the bathwater?

The recent house vote on

eBay v PayPal?

In what appears to be a conflict of interest, eBay and its subsidiary PayPal seem to be taking opposing stances in relation to the pending congressional restrictions on Internet gambling in the US.

As recently as February, PayPal Europe has been resurfacing relations within online gambling through its partnership with Betfair, whilst its owner eBay has put itself firmly on the side of those looking to ban online gambling in the US.

eBay’s backing of the proposed bill would appear to make it very difficult for its subsidiary to continue its business relationships with online gambling entities based in Europe. This would seem to point to the online auctioning company’s long-term desire for a global ban on Internet gambling, which when considering the unison between PayPal and Betfair, seems a strange move.

from breakingviews.com

Ebay: At the Allen & Co. conference in Sun Valley, Idaho this past week, Ebay boss Meg Whitman delivered a colorful presentation about the online auctioneer’s business. One slide not on display was that showing its sinking stock price - Ebay is down 40% this year. There could be more bad news when the company releases second-quarter earnings Wednesday.

It will take time to sort out Ebay’s many challenges. Not least of these is what to do with Skype. Investors haven’t warmed to last fall’s $2.6bn takeover of the internet telephone firm. This business faces increasing competition and has yet to produce meaningful returns.

Meanwhile, Ebay’s core auction business is slowing. Revenue growth fell to a new low of 28 percent in the first quarter. That has had a knock-on effect on its PayPal payments system, which also faces renewed competition from Google.

But with the stock selling for 15 times estimated 2007 ebitda, Wall Street already has priced in much of the bad news. That presents Whitman with an opportunity. Ebay’s balance sheet is strong. It sports about $3bn in net cash - enough to buy back almost a tenth of its shares.

Since Ebay throws off some $2.5bn in cash annually, it could continue returning cash to shareholders in years to come. To Sun Valley’s assembled moguls Ms. Whitman referred to Ebay’s purchase, payment and communications businesses as the Power of Three. But to score, Ebay needs to touch four bases. A buyback would do the trick.

Meanwhile, it was interesting to see that Betfair - as predicted here - has actually helped ‘grow the pie’ in Australia:

Rather than stealing their lunch, Betfair actually boosted the TABs.

As the graphic shows, on July 1 — the last pre-Betfair Saturday — the three TABs held $6.1 million for the win on the eight races at Flemington. Last Saturday — ‘Betfair day’ — their holdings jumped 18 per cent to $7.2 million. Again, on a very similar eight races in very similar conditions at the same Flemington.

Interestingly, the increases in win tote holdings on the Queensland, Northern Territory and South Australia Unitab and the Victorian, Western Australian, Tasmanian and Australian Capital Territory Supertab were a similar 12 per cent or so.

But holdings on the NSW TAB leapt 30 per cent — perhaps suggesting that state really is the home of the big punters.

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Somewhat tangential to the normal subject matter of this particular soapbox (and I swore I’d never blog about blogging) but… (you knew there would be a ‘but’!)

I get a email newsletter from a web consultancy firm called Bowen Craggs that focusses on highlighting good (and sometimes bad) practice on (mostly) corporate websites. Sometimes it is a bit banal but other times there are some really interesting ideas highlighted and the format is nice and tight so no wasted time plowing through too much information.

Today I read this article discussing their take on Web 2.0 and how they saw it (and Mr. O’Reilly) as being too dogmatic as a framework to be of use in shaping how the net is or should be used. Without going into a critique of the article here, I wanted to make a couple of comments as a response - one of which was ‘Why isn’t your newsletter a blog?’ (not from a zealot’s point of view, but genuinely because I think it would suit their objectives better) - and to my chagrin, ironically there is no way to reply on the page! No way to ‘comment’. Other than sending an email via the generic ‘contact us’ button.

And so I am forced to ‘comment’ here in the hope that perhaps someone over at Bowen Craggs will stumble on to this. (Yes I know I could email them the comment or the link but I like this way better.)

I’m not suggesting that you need to be some kind of Web2.0 / new new new thing moonie to be an effective website consultant, but (again the ‘but’) I would think you would want to make damn sure your own website and use of technology was snakes-on-the-plane good. No?

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If you haven’t seen it you’ve got to watch the Daily Show take on Congress and net neutrality and online gambling. He didn’t use Mr. Magoo but Grandpa Simpson isn’t a bad likeness either!

It has been linked to I’m sure a million times before but Jon Stewart is a ray of hope.

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If you are not familiar with the term ‘edglings’, read Stowe here and here. An exerpt:

As power moves from the center to the edge the “Centroids” — those that hold with the centralized power of an industrial era — will scream about all the negatives that they perceive in the out-of-control future that threatens the basis of their worldview. But the Edglings will find it liberating to get out of the stranglehold on information, communication, and the marketplace that centralized organizations attempt to impose.

Just as importantly, I think that Edglings share a common base of perceptions about the world and our place in it that transcend the media market, and form what I think of as the basis for a future metaphysics, or, at the least, a new worldview. I have written about the central propositions of web culture before (see Rebooting, and The Rise of Web Culture and Its Enemies, for example), and I believe that the rise of web culture is perhaps the greatest hope that humanity has for a better, or at least survivable, future.

People like Dave Morin, his peers, his friends - his generation - are edglings. He calls it the “Hand-me-up Generation”.

Whatever label you put on them however, the key underlying behavioral and cultural frame they share is to look to each other for answers, for services, for jobs. Their default setting is not to defer to the center, to the perceived or received authority. At least not unthinkingly. They lack that conditioning. Now don’t get me wrong, they are not against these institutions per se or as a matter of principle. Their approach is altogether more pragmatic - if the service or product offered is excellent and relevant to their needs and desires they are happy to transact. Thus the success of a company like Apple which for all its cool and fashion factor, is the antithesis of open or edge.

This is important for anyone involved in financial services. Many of the reasons why big is better (scale, liquidity) remain and are perhaps even reinforced in this digital age. However other countervailing forces - cultural and technological - are emerging that do not favor the incumbents. Financial exchanges are the ultimate hubs in a hub-and-spoke model, watch out for the continued rise of peer-to-peer trading paradigms. Today’s industry is predicated on the consumer outsourcing their wealth (to banks, fund managers, Wall Street and City pundits, etc.), watch out to the continued rise of the self-directed investor. They aren’t going to be very impressed with much of the pablum currently served up as convention wisdom; I’m probably too harsh but the financial services industry is not adapting their value proposition very quickly from one that historically was predicated on their absolute primacy in terms of information and knowledge. Any 10 year old with a broadband connection now has more information at her fingertips than a $1 million / year master-of-the-universe Wall Street trader had 10 years ago, and the gap today is narrowing fast. Indeed many professionals on Wall Street and in the city use simple tools like Google and Yahoo Finance to quickly find information they need on a day-to-day basis.

The hand-me-up generation will ‘consume’ financial products differently from the Baby Boomers. There is a huge opportunity for firms - both new and existing - that adapt to this new paradigm.

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“It’s a series of tubes.”

Hmmmm…..Are Senator Stevens and Mr. Magoo actually one and the same person!?!?

Shocking. (via JP)

**Update**
More commentary on net neutrality and Ted Stevens from the Daily Show.

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from the BBC online:

Betfair is capable of opening up a market on anything people are willing to bet on. The current summer heatwave has attracted 2,000 wagers on the highest temperature to be recorded on the UK mainland.

Here’s the price history on hottest day being over 100F:

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Here’s an interesting story from Australia. ‘Retail’ (ie on-course) bookmakers in Tasmania are having a tough time as the number of customers on-course is falling - thus reducing the liquidity of their market - while at the same time they are banned (by obsolete regulation) from accessing the ‘wholesale’ market or ‘exchange’ (in this case Betfair) and the liquidity available there. Making it worse, the same does not hold true for their customers (in fact it does, but with mobile access it is effectively unenforceable.)

Ironically regulation is hurting those it is meant to protect. This is going to happen in more and more industries and more and more countries as innovation in the economy outstrips the ability of legislation to keep up. Especially as incumbents being disrupted wield disproportionate (ie backward looking) influence on government and regulators.

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