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Intelligence can be infused into how we manufacture and sell… move goods, people and money…
The world is ready for a smarter planet.
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If you would rather avoid wading through the inevitable corporate speak on IBM’s website, a good place to find out about what they are doing and how they are thinking is this recent article “IBM’s Grand Plan to Save the Planet” from Fortune:
In the parlance of the information technology industry, these situations all represent “dumb network” problems. The term sounds pejorative, but it simply means that we don’t truly understand commuter traffic or electricity flow or the inner workings of the cacao genome, and as a result our highways, utility grids, and cash crops are not managed as effectively as they could be.
The good news is that we now have the technology to convert these analog distribution systems into multidirectional “smart” networks. Readily available sensor technologies like RFID chips and digital video can track movements in granular detail. Cheap data storage, powerful analytics software, and abundant computing capacity give us the ability to warehouse and make sense of all that information. With the knowledge we’re gaining, we can remake our world in a more efficient way…
…So Palmisano is encouraging his employees to think even bigger, to scout out any dumb network that can be made smarter. Because, as any self-respecting capitalist knows, in great pain lies dormant profit. “We are looking at huge problems that couldn’t be solved before. We can solve congestion and pollution. We can make the grids more efficient,” he says. “And quite honestly, it creates a big business opportunity.”
By now, you probably understand why this resonated with me; there is significant congruence with the themes explored here and that underpin the foundations of out investment thesis at Nauiokas Park. In particular applying the amazingly powerful computing technologies that exist today to make sense of highly complex systems and networks, and of course to analyze and extract meaning from enormous and growing data sets. (Of course it’s also nice that they seem to have been inspired by our logo when designing their icon for ‘Smarter Money’!) On their website, IBM describes the opportunity they see for Smarter Money for a Smarter Planet:
Money, in other words, has been reduced to zeros and ones. It’s intangible, invisible. It’s information. Which is central both to the problem we face and to its solution.
Without question, the replacement of physical money with electronic money — and the spectrum of financial innovations that have accompanied it — have helped the world’s economy grow and prosper. But our technical and management systems haven’t kept pace. They couldn’t provide warning signals of risk concentrations, over-leveraging or underpricing. Banks could repackage risk and sell it, but they couldn’t value an individual loan in order to unwind the debt when needed. However, the same digitisation that has helped create this challenge is starting to provide the means to solve it. Intelligence is being infused into the way the world works, including our financial systems.
We’re all aware of advances like online banking, but the transformation happening underneath is far more profound.
Unprecedented computing power and advanced analytics can turn oceans of ones and zeros into insights, in realtime. Which means we could potentially have a more transparent, predictable and intelligent financial system for a smarter planet.
While it is very exciting to see a giant like IBM get behind such an intelligent and forward thinking strategy, I must admit I was a little disappointed not to find more substance on the Smarter Planet websites. It’s not that I suspect this is just a nice marketing campaign, rather that the communications department needs to work a bit harder to plug in to the projects and ideas IBM is working on in the trenches so to speak to make this vision a reality. And I think they could do more to engage a wider community through their Smarter Planet Blog and/or other social communication tools. Again as it is now it seems a bit sterile and very much a one-way broadcast, as opposed to a two-way dialog. Indeed one of the things I’ve tried to do – both through this blog and with our company – is to help to build a community of people interested in debating and shaping the future of financial services and markets. I think we have had some success, however I have nothing like the reach or resources of a giant like IBM and so it would be fantastic if they were to join the conversation and amplify it far beyond our modest community.
The Fortune article concludes:
Leadership positions, as the company knows all too well, come and go. But with luck, the tone of “Smarter planet” will remain. The message – that technology can be deployed to greater ends than creating the next fetishized cellphone – is bigger than any single company. And so, too, is Palmisano’s epiphany. He deftly led IBM out of the dotcom doldrums. Perhaps more important, he has revealed a model for monetizing scientific research in a way that benefits humanity.
Sure, not everyone can afford $6 billion a year for R&D. But real innovation rarely comes from big, rich companies. With luck, IBM’s ad campaign, coupled with its blowout 2008, will call scientists and entrepreneurs to arms. They’ll see our archaic global shipping infrastructure, a dilapidated educational system, disappearing honeybees, the fraud on Wall Street, and think, I know how to fix that. And I can make a killing doing it.
A couple years ago I saw a great presentation (on climate change and business) that pointed out that while in every other country in the world ‘sex’ was the most common search term on Google, in the United Kingdom it was ‘weather’. And ‘property’ isn’t far behind (source: Google Trends):
(compare to results for ‘All Regions’:)
So you can understand why we invested in Weatherbill and Zoopla… (There were a few other considerations as well, but this makes for a more fun story.)
So where was I…? Oh, that’s right, I just wanted to draw attention to Zoopla’s nifty new property value widgets and what a great addition they would make to any website targeting a British audience. The great thing is that it’s not just UK or England or even London prices you can track but areas and postcodes. Local is the new global. (Or something like that.) Write a blog for hedge fund managers? Keep the readers coming back with a nifty NW8 price tracking widget for example:
Or appeal to their bonus envy with this cheeky London Dream Homes listings widget:
I’d be willing to bet it has more pulling power than showing the latest price on the FTSE100 index…
A few weeks ago, I issued a call to action with respect to creating a W3C working group focused on advancing the implementation of semantic web technologies and approaches in the financial services domain. Chris kindly responded, and in particular took issue with the usefulness/appropriateness of using (the existing) semantic web toolkit (RDF triples, OWL, etc.) due to their innate complexity. He writes:
At the moment though it seems that you have a problem if you need somebody that understands derivatives OR XML schema, and a real headache if you want somebody that understands derivatives AND XML schema.
Two thoughts. Firstly, I’m not a developer and so my enthusiasm for any particular solution or outcome with respect to software and code is necessarily (due to my lack of knowledge) more conceptual than practical: ie it is hard for me to have a robust opinion on the underlying path taken to achieve a certain result. What excites me and I think is important, is to build on the technologies of the web and ultra-cheap storage and bandwidth, to create rich, linked, open data and metadata sets in finance. Much of course already exists as Chris correctly points out, but so much more remains to be done. Secondly, it might be ‘a real headache’ but what 21st century finance needs is exactly people that understand derivatives and XML schemas.* I’m sorry but it isn’t that hard to develop these kind of people, and in a nutshell encapsulated the vision we had for Digital Markets at DrKW several years ago. I suspect that many Digital Generation finance professionals already (or could easily) fit this criterea. (The barriers however are cultural. When we built Digital Markets, while I knew there would be many challenges, I completely underestimated just how threatening such a vision was to the status quo: in particular, the very idea of calling into question the distinction between front and back office staff, even if just a subtle blurring of the line for a few dozen employees, caused the corporate anti-bodies to go on full alert. Removing the distinction between star-belly and plain-belly Sneetches was not something the organization was ready to condone.)
Indeed one of the most important and valuable objectives of setting up such a working group (whether or not it is under the auspices of W3C, although I lean toward not reinventing the wheel and building on the existing infrastructure of such a collaborative industry forum and think there is a better cultural fit with the objectives of such a project at W3C than say at any financial sector industry association…) is to create a focal point – not a gatekeeper (!) – for the community to innovate around a common theme and purpose. Another is to cultivate a shared respect for and understanding of the value of open standards, something that is taken for granted in many other industries but is still anathema on Wall Street and in the City. Of course there are glimmers of light to be seen in things like the FIX Protocol, but even here the underlying cultural mindset was more Microsoft than Unix… Way back in 2003-ish (?), when I was running syndicate at DrKW, we published (on the web) an XML schema describing a new bond issue, with the goal being to help others create e-bookbuilding platforms that would be able to communicate with ours. (I tried to find the link but was unable, any current DKIB folks know if it is still live?) Pretty tame stuff right? Well suffice to say the reaction of our/my peers was various combinations of:
what the hell is XML and what are you guys on about?
you guys have the best e-bookbuilding platform, why on earth would you give away your data structure???
is this some kind of trojan horse? what are you trying to pull?
I no longer work day to day in a big institutional banking environment, so it’s hard for me to judge how much, if at all, these attitudes have evolved over the past couple years. I may be naive but I don’t see why we assume finance and derivative professionals can understand (and apply) concepts like convexity, but balk at expecting them to understand ontology and its implications. I thought these folks were supposed to be clever. In my view it’s about leadership. If the folks in the corner office think ontology is important, so will the rank and file.
So maybe semantic web tools aren’t the only – or even the most important – path to enabling my vision; I’d still think it would be useful to catalyze a more formal community of interest around creating a truly rich set of linked data in financial services and markets. And I hope Chris, and others like him, would be keen to get involved.
* If a few more of these kind of people had populated the top of securitization groups of the last several years, we may have avoided some of the worst excesses; securitization is nothing but managing vast and complex sets of (inter-related) data. Data quality is more important than credit quality: garbage in, garbage out…
As you know, one of the key fundamental foundation pillars of our investment thesis here at Nauiokas Park is the migration of value in many (most?) markets from transactions (matching, broking) to data. Quick and dirty: technology is driving the marginal cost of matching buyers and sellers to zero, and is driving the ability to collect, store and analyze previously unimaginable amounts of data and metadata to a different dimension. The value (and creativity and innovation from a business model point of view) now lies in thinking up ways to harness this new ability to good effect. The possibilities seem vast to us and we love discovering clever entrepreneurs and technologists who identify opportunities along this vector.
If you are a data geek, (or just a wannabe/groupie like me) you need to add Joshua Reich’s i2pi blog to your RSS feed. Not only does he know alot about data and technology, but he can leverage that knowledge through his excellent and lucid understanding of markets and business:
The premise that led us to this mess was that with only a modicum of data and some threadbare models trading would be the final arbiter of value and the collective intelligence of efficient markets would result in fundamentally sound pricing. Now that liquidity has gone from the markets, traders of these illiquid instruments are bulking up their data and models to try and better their understanding of fundamental value. And so it is that when markets are liquid the market relies on trading to assimilate the information of individual agents. Without this method of price discovery these agents need to gather their own data as the market no longer performs the role of grand aggregator. Data trades inversely to liquidity.
And he gives great math lessons too (which is great for those of us having mid-life worries about having forgotten more than they’ve remembered…) He’s just (re)started his consulting business i2pi, but I’ve got my eye on him for my new bank so if you are interested in his services, you better move quickly!
The mission of the Semantic Web Health Care and Life Sciences Interest Group, part of the Semantic Web Activity, is to develop, advocate for, and support the use of Semantic Web technologies for biological science, translational medicine and health care. These domains stand to gain tremendous benefit by adoption of Semantic Web technologies, as they depend on the interoperability of information from many domains and processes for efficient decision support.
The group will:
Document use cases to aid individuals in understanding the business and technical benefits of using Semantic Web technologies.
Document guidelines to accelerate the adoption of the technology.
Implement a selection of the use cases as proof-of-concept demonstrations.
Explore the possibility of developing high level vocabularies.
Disseminate information about the group’s work at government, industry, and academic events.
Now if I were 20 years younger, I might well be diving feet first into the realm of data, meta-data, and the semantic web. In 1990, there was a lot of opportunity and value to extract if you were skillful and comfortable understanding and manipulating cashflows; being a bond or interest rate swap trader was both financially and intellectually rewarding. That time has passed. (Although this didn’t stop the banks from flogging the horse until well after it was dead and decomposing…) In the 2010′s (the teens?), I suspect an analogous opportunity will exist for those that have mastered the art of managing or “trading” data. Hal Varian at Google articulates this well:
I keep saying the sexy job in the next ten years will be statisticians. People think I’m joking, but who would’ve guessed that computer engineers would’ve been the sexy job of the 1990s? The ability to take data—to be able to understand it, to process it, to extract value from it, to visualize it, to communicate it—that’s going to be a hugely important skill in the next decades, not only at the professional level but even at the educational level for elementary school kids, for high school kids, for college kids. Because now we really do have essentially free and ubiquitous data. So the complimentary scarce factor is the ability to understand that data and extract value from it.
I think statisticians are part of it, but it’s just a part. You also want to be able to visualize the data, communicate the data, and utilize it effectively. But I do think those skills—of being able to access, understand, and communicate the insights you get from data analysis—are going to be extremely important. Managers need to be able to access and understand the data themselves.
I may no longer be young enough to master a completely new domain like this, but I think I’m wise enough to spot something important when I see it. And the semantic web and financial markets were made for one another. But even if I had the time, I don’t have the knowledge or the skills to get a Financial Services and Markets Interest Group up and running, even though the mission statement is pretty much a cut and paste from the one above. But I am fairly confident that amongst the very clever readers of the Park Paradigm and beyond – amongst your network of friends and colleagues – there is the Ocean’s 11 dream team needed to make this happen. And I’d be thrilled just to ‘hang around the edges’ shouting out ideas from the peanut gallery and pouring coffee so to speak.
This is big. This is important. President Obama calls for transparency in financial markets (hallelujah!): the financial semantic web is an important piece in that puzzle. Perhaps Secretary Geithner and the President’s Working Group on Financial Markets can lend moral and financial support to this project?
Zoopla.co.uk is a unique property website offering users information and tools to help them make better-informed property decisions. Our aim is to provide the most comprehensive source of residential property market information in the UK to help buyers, sellers, owners and estate agents alike and give them an advantage in the property market…
…We have started by providing FREE value estimates, sold prices and local information as well as letting users add content by editing information and uploading photos. We are the UK’s fastest growing property website and by far the largest and most active property community in the UK, with over a million user contributions to our website in 2008 alone…
…Our value estimates are calculated using a proprietary algorithm (a secret formula) that we have developed by analysing millions of data points relating to property sales and home characteristics throughout the UK. The algorithm works by comparing relationships between home prices, economic trends and property characteristics in given geographic areas. Our estimates are constantly refined, using the most recent data available and a variety of statistical methodologies, in order to provide the most current information on any home.
We are still testing and improving our features and tools and recognise that things aren’t perfect yet…
So what’s so interesting about Zoopla!? Or perhaps more specifically, how does Zoopla fit into Nauiokas Park’s investment universe? Two words: rich data.
In Zoopla, Alex and Simon Kain (co-founder and CTO), have leveraged the web to feed intelligent algorithms that allow them to bootstrap basic, publicly available data, into an increasingly more robust, accurate, rich and granular dataset of UK residential property.
They have built the site in a way that naturally compels visitors to improve and enrich the dataset. This user-generated data is not only very valuable but is itself subject to Metcalfe’s Law and so adds tremendously to the sustainable advantage of the site and their database. This is not trivial. When I was running a Credit Trading business, complex-data quality issues were absolutely critical to running the business efficiently and having effective risk management. We, like other banks, were plagued with bad quality (inconsistent, out-of-date, missing, etc. etc.) data. As a part of the ‘web-ification’ of our business (pre Digital Markets stuff), one of the single most effective things we did was to expose our various data structures to broad populations of users within the bank and allow users to correct and enhance the data on an ad hoc basis. Of course the ‘data priests’ were aghast…but it worked. Really I think it’s just applying a variation of Linus’ Law: “given enough eyeballs, all bugs are shallow.”
But how does a unique, rich, ever-improving, granular, transparent, database of UK property prices fit with Nauiokas Park’s focus on disruptive business models and technologies in financial services and markets? Well, we think Zoopla is ideally positioned to drive and benefit from a fundamental shift in the economic structure underlying the property markets. (This is a theme regular readers will recognise,) ie the shift from a market predicated on information scarcity to one build on information abundance. And you don’t even have to be particularly clever to work out how this is likely to play out, as property is the ith market in a series of [N] markets to have this thrust upon them. I don’t want to give too much away, but for the City types out there just think back to the bond markets of 1990. (For Wall Street types you only have to think back to oh about, 2004…) All other things being equal, as this “phase change” occurs in an industry, value moves away from transactions (matching) to data. (Think Merrill Lynch vs. Bloomberg LP over the past few years as a reasonable pair trade in this vein. Or all investment banks vs. Markit Group…)
Post-2008, even the proverbial man-in-the-street knows there was a data… how would you say… “issue”… when it came to the intersection of residential property and finance… Now I’m not suggesting (not quite anyways) that had Zoopla existed and been well-established globally years ago that the sub-crimeprime crisis would not have occurred (stupid is as stupid does)…but having easy access to the kind of readily “digestable” data available from Zoopla would clearly have been a boon to any responsible mortgage underwriter or securitization professional. In fact, I’d go so far as to say that today were I an institutional investor in UK RMBS, I would require that the underwriters/originators of the pools provide me with a FTP feed of the individual Zoopla data of every property in the pool. And if I were running say a big UK mortgage book and/or originator, I would certainly be interested in having an independent automated external mark-to-market run at least monthly, probably weekly…you get the idea.
And finally, whenever you have good, digital, reproduce-able data, well there my friend you have the makings of a myriad of listed and OTC markets in that underlying. Think Case-Shiller only better.
We are truly excited by the myriad of business opportunities available to Zoopla as it continues to grow and improve its core database and builds products and services on top, but perhaps most exciting is being able to participate once again at the early stages of a company that is set to play a key role in transforming an important and large marketplace, reducing friction and creating an entirely new value paradigm. Even reminds me a little of another UK start-up you might have heard of called Betfair… And we can’t wait to see what Alex and the team will achieve in the next few years and look forward to helping them in any way we can.
So, if you live in the UK, what are you waiting for? Go Zoopla! your home, claim it, enhance the data and presto, you now have effectively a pretty good proxy ticker-tape for (probably) the most important asset you own.
Last week, Eric Schmidt – the CEO of Google – gave a talk on the future of technology at the offices of Bloomberg in New York. For many readers of this blog, much (most) of what he says is old hat, and indeed I’ve been evangelizing on many of these same points for many years. But of course I’m me, and Eric is well…CEO of Google. So I suspect that if you are trying to convince your management, your colleagues, your peers of some of these points of view, citing Eric Schmidt will be more powerful than a reference to the Park Paradigm!
For those of you who can’t spare the time to watch this, here are a few of my favorite quotes:
Everyone has a thirst for information.
(The) web is about speed and access and quick manipulation.
Set no limits to your platform strategy. Take the biggest risk you can to get the most reach for every single idea you have.
The notion of restricting access to information doesn’t work anymore.
Better decisions are made by teams that see all the information.
The internet is shifting power in a really really fundamental way: it’s shifting from institutions to individuals. And it’s not going away.
For readers who have yet to be seduced by the charms of Facebook, this Business 2.0 article and JP’s series of posts are good places to get a better understanding of the platform and what makes it interesting (for the over-30 crowd!)
Many, many column inches have been written of late on the subject of Facebook, to the point that people who haven’t taken the time to try it out and migrate some of their (real-world) social networks to the platform are understandably cynical and wonder how the site can possibly live up to the hype. I’m not suggesting that this suspicion is entirely misplaced but I would however suggest that the fundamental enthusiasm surrounding Facebook is based on the real value it provides as a medium through which you can easily organize your networks online.
So what’s the Park Paradigm angle? Well, I would say that it is the closest online simulation of a trading floor environment that I have ever come across. I’m not talking about the content – although if you put all the people on a given trading floor on Facebook, you’d have that too – no, I’m talking about the connectedness, the interactivity, the multi-threaded narratives, the buzz… It’s not easy to describe, but anyone who has spent anytime working on a trading floor would identify with the energy that is generated on a good* trading floor. (* Some trading floors don’t work. If you don’t get the balance, acoustics, spacing, etc. right you can end up with a glorified wired reading room…) This is the same energy that can be harvested, seemingly effortlessly, by building a network of friends and applications on Facebook. Of course this is potentially interesting and useful in thousands of different contexts but let’s come back to markets. And trading floors.
Anyone who has worked in capital markets is likely to be familiar with the ubiquitous Bloomberg terminal. And notwithstanding the myriad of excellent analytical and trading applications available on Bloomberg, the ‘killer app’ – the secret of Mike’s success – was Bloomberg’s private instant messaging. Yes: IM with credentials, with context. Yes, “chat” is the main reason why Mayor Bloomberg is one of the wealthiest men in the world. (Remember the rise of Bloomberg in the world’s trading floors was long before ICQ was dreamed up. And once they hit the tipping point, Metcalf’s Law just took over.) There is no irony intended. Getting this right – providing this service – was of huge importance and benefit to people and firms working in global capital markets. Why? For the same reason the first modern stock market emerged out of conversations between trusted acquaitances in the coffee houses of the City of London:(in the words of my friend Patrick, “the essence of markets like most essences of civilization centers upon community.” (from The Exchange Manifesto, page 12)
Indeed, a heretic might say that the investment bank of the 21st century, the capital markets of the digital generation might not be built on a Bloomberg platform but on a Facebook (or other yet to be invented?) platform. (A heretic. Not me.) The irony of a number of investment banks banning Facebook access from work is abundant. So how will Bloomberg and Facebook compare in 2015? Of course by then, Mike will be President, and Mark may be Mayor of New York. Stranger things have happened. And as for my friend Dave (pictured above), well maybe he’ll stick around and run FB while Mark runs Manhattan.
A good post over at Accidental Light on an idea that is dear to me and something I have discussed on and off with various colleagues and partners over the past few years: the idea that there is a substantial opportunity in creating a de facto market standard for reference data for (institutional) counterparties in financial markets. Some would maintain that some fragments of this exist today. While there are a myriad of partial solutions and every financial institution maintains its own proprietary data – aside from the enormous duplication and lack of scale this engenders – it causes havoc and the need for complicated work-arounds for any collaborative and multi-party transaction management.
This idea is not new, and I am not unique in any sense of the word in having identified it (although I think you will find the discussion rarely reaches the ‘front office’ in most financial institutions,) however what I think is new are the tools and approach potentially available to build an efficient and workable solution and an ever-increasing (implicit) pull from the front office due to the rise and rise of peer-to-peer multi-party transactions. Watch this space.
By now, you probably understand why this resonated with me; there is significant congruence with the themes explored here and that underpin the foundations of out investment thesis at Nauiokas Park. In particular applying the amazingly powerful computing technologies that exist today to make sense of highly complex systems and networks, and of course to analyze and extract meaning from enormous and growing data sets. (Of course it’s also nice that they seem to have been inspired by our logo when designing their icon for ‘Smarter Money’!) On their website, IBM describes the opportunity they see for Smarter Money for a Smarter Planet:![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=854c3cc5-9621-4020-a308-66b6d1ecc635)
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