A phrase popularized by the late Charlton Heston in his crusading role as the poster boy for the NRA. But I’m surprised it hasn’t yet been officially adopted by more old economy industry groups as a rallying cry to marshall support to save and protect their dying business models. To the bitter end.
An Ontario court has shut the door on attempts to create new web sites to repackage real estate listings using data from the Multiple Listings Service system.
In a ruling released Monday, Mr. Justice David Brown of the Ontario Superior Court said Toronto real estate broker Fraser Beach did not have the right to provide broad public access to MLS data through a web site he helped create while working for BCE Inc. division Bell New Ventures in 2007.
The decision comes after the Toronto Real Estate Board (TREB) shut down several attempts in recent years to create new web sites allowing members of the public to sort MLS data – including an operation started by Mr. Beach.
That the Canadian Real Estate Association would want to protect its MLS data is entirely reasonable, indeed it is a very valuable dataset. However one would hope that they would take this as a wake-up call and start thinking very hard about developing a new business model around this data. One that reflects the modern realities of a fully connected, digitized economy. Perhaps they are. To be honest I have no idea. So acknowledging that this is pure unadulterated speculation, I suspect they aren’t. I suspect like the newspaper, music, bookselling, banking, etc. sectors before them, the main focal point of their efforts is to keep the bloody genie in the bottle. At least for long enough for the old hands to ride off into the sunset and let the next generation deal with it.
It’s a shame really, because on paper – as for most incumbents – not only do they have the most (everything) to lose when the paradigm shifts, but they are also by far the best positioned to maintain a leadership position so long as they adapt (in time.) Inertia, installed base and brand recognition take care of that. Basically they’ve got a strong hand. But time and time again it seems that these kinds of companies and institutions can’t help themselves but to overplay it. Taking another card while holding two Jacks kind of thing. Admittedly it would be hard work for someone to build up a competitive offering to the MLS from scratch, but I suspect not impossible. I don’t know what the public information access laws are like in Canada but if they are similar to those in the UK for instance, a smart entrepreneur might mimic the route taken by Zoopla and bootstrap prices starting from public sales records. And even if they do manage to maintain a data monopoly, they and their member agents will be faced with an increasingly angry client base who won’t readily accept being held hostage by secretive data trolls.
If I were a Canadian real-estate broker, I would be leading the charge to flip the MLS and traditional broker roles on their heads. Having read this excellent post on the future of my profession, I would understand that my customers are (mostly) not looking to do away with me but to get real value from my services and insights and conversely will become annoyed and resentful if they get the feeling they’re just paying a toll to a glorified data monkey.
The way a broker creates value in a world of abundance (vs a world of scarcity) is fundamentally different. Someone forgot to tell the record companies. Let’s not make the same mistake again. Save a real estate broker: free the data.
A couple years ago, I had just decided to try to build what would become Nauiokas Park. I wasn’t entirely sure exactly how I was going to go about it but I had a vision of what it might look like and I knew the market opportunity – to develop technology-enabled disruptive business models in financial services and markets – was vast. Also, Saul and Reshma’s inaugural seedcamp had given me an excuse (or a push) to stop ‘mulling it over’ and ‘get started’ even if I didn’t exactly know what ‘it’ was yet.
One of the first things I did was to start building a database of startups and private growth companies that I thought fell into my embryonic firm’s new investment universe, and one of the first companies I added (on August 29th, 2007 to be exact) was Mint.com. I had first heard of them early that year when they were raising a Series A round and the concept had always appealed to me (and I had always wondered why banks had been so oblivious to it.) I had definitely hoped to be able to take a closer look once I had raised outside investment capital (they were already past the seed stage where I could have contemplated trying to play as an angel) and so it was one of the first companies on our internal ‘radar screen’. Well as they say in the start-up game, it always takes longer than you expect and here we are – one giant financial crisis later – in the fall of 2009 and Mint will now be coming off our radar screen (into our archives) having gone and gotten itself acquired by Intuit for $170mn.
On the one hand, it is exciting to see innovation in the space we are calling our own, succeed and be rewarded. And although I’ve never had the pleasure of meeting Aaron, I would like to congratulate him and wish him continued success with Mint and Intuit. Who knows, perhaps I’ll get to meet him in the future. Maybe when he’s contemplating his next venture? On the other hand, I can’t help but wonder if they sold too soon. I have to insert a disclaimer here – I have absolutely no idea what Mint’s financials looked like – so my view is entirely speculative, but I can’t shake the suspicion that if they had enough traction to get $170mn from Intuit, they had already hit and passed the inflection point and could have aimed at becoming (at least) a billion dollar company and owned the space.
Bittersweet? Well partly for not having invested as an angel but that’s just back-trading, so not really. Mainly it’s because – if the company was for sale – I would have really liked to have been in a position to run our slide-rule over it and, if it made sense, put in a bid, either alone or as part of a club deal with one or two private equity peers. If they have attained critical mass – which it looks like they may well have – it doesn’t take too much imagination (if you live in the sixth paradigm) to see them developing into a multi-billion dollar business over the next 5 years or so. Don’t get me wrong, I understand why management, the angels and the VCs, might find this exit attractive, especially given events of the past 24 months, but I can’t help thinking they’d done the hardest part and instead of letting a winner run, took their profits too soon.
PS If anyone knows where I can find Mint’s financials and projections, I’d love to have a look.
We can make our world smarter.
Intelligence can be infused into how we manufacture and sell… move goods, people and money…
The world is ready for a smarter planet.
Find out how to build it together.
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.
Carlota Perez is one of my heroes. Her fantastic articulation (in Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages) of how technological revolutions mark turning points in long economic cycles, building on the work of Schumpeter and Hayek, is in my opinion an incredible lens through which to understand long term economic growth and its effect on financial markets. Her approach is a key foundational pillar for our investment thesis, and is why we feel confident that it is possible to generate excess returns by catching the long term secular economic waves that ultimately govern capital markets. (Think of it as the polar opposite of day trading.)
In her thesis, each successive long wave of the economic cycle is initially catalyzed by a technological revolution, usually only visible in hindsight:
My suspicion is that we are living through a “phase change” now (be careful, “now” in this context means a period of a few years, not “today” or “this quarter”…) – and so I’ve been wondering what will come to be seen as the foundational technological revolution of the sixth paradigm. The previous five, as defined by Perez, are below:
There are many possibilities, but I’m starting to think that the transition to cloud computing (enhanced by ubiquitous wireless connectivity) just might be it. And for the sake of taking a punt on what might be a good symbolic starting point for this revolution, how about the launch of Amazon‘s S3 and EC2 in 2006?
Amazon today said it would bring web-scale computing power for use in workloads such as web indexing and data mining to just about anyone. The bookseller now offers MapReduce (a programming model created by Google to help deal with incredibly large data sets) using Hadoop on Amazon’s Elastic Compute Cloud and Simple Storage Service. This allows AWS customers to access the power of a Google- or Yahoo-style server and programming infrastructure to model business decisions and analyze huges sets of customer or corporate data without having to invest in thousands of servers (as well as dozens of programmers). Dana Gardner over at ZDNet says one could think of it as having access to a personal supercomputer.
Just as Intel’s 4004 microprocessor was the catalyst for a wave of creative destruction in the 70s and 80s, will AWS prove the same for the 00s and 10s? Probably. We’re seeing it already. And it’s going to disrupt the hell out of the mastodons of industry across most sectors of the economy. Why? Because their cultures and leaders are entirely ill-equipped to face such a fundamental paradigm shift. They know how to play by the old rules. The strategic competitive advantages they built up over decades risk suddenly – poof! – to become obsolete. (from Dan Gardner:)
Think of it as having your own tuned supercomputer that you can plug gigantic data sets into and ask questions that will determine the course of your businesses for the next decade. Oh, and you can pay for the pleasure on a credit card.
This high-end BI value has pretty much been the sole purview of large, skilled and deep-pocketed enterprises. But there are plenty of people, researchers, government agencies, academics, small to medium enterprises, venture capitalists and the like that would hugely benefit from sussing out important trends and findings from the growing reams of raw data generated by modern businesses and societies. Talk about metadata on steroids!
“This high-end BI value has pretty much been the sole purview of large, skilled and deep-pocketed enterprises.” Not anymore… Think about that for a moment.
Size used to be an advantage in almost any industry…now? Not so much. New rules, new winners.
Thought experiment: Let’s take, oh say…banking. Which would you rather run (if say your life depended on success, which I know these days is a bit far-fetched but humor me…)?
A greenfield start-from-scratch-bank (assuming you had access to sufficient capital to get started, say $100 million or so)? Or,
[insert favorite megabank here] (assuming you had access to sufficient capital to not be immediately insolvent, say $100 billion or so)?
Well unless you are a sociopath as per Hughand see the key metric of success being how many people report to you and whether or not global political leaders will take your call, I think the answer is pretty bloody obvious.
So what does all this mean? Well, for us it means investing in companies that are positioned to ride this wave (not build a levee against it, hoping it won’t break.) Some – like cohesiveFT are right in the heart of the technology facilitating this new paradigm. Others, like our most recent investments Zoopla and FX Capital Group, are building new business models adapted to the new technological landscape that will allow them to disrupt and extend existing markets. But it also means remembering that you can be right (about the future) but still not come out on top:
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?
If I had a billion dollars. (If I had a billion dollars.)
Well I would buy you a Skype. (I would buy you a Skype.)
I would buy a Twitter for your Skype (so you could tweet and chat and call all your friends.)
The news has left many in the industry wondering if eBay will put Skype, which it paid a hefty $2.6 billion to buy in 2005, on the auction block. Donahoe had said last year that eBay would consider selling the business unit if it couldn’t be integrated with its auction or PayPal payment system.
And according to statements made during the conference call, it looks like Donahoe doesn’t think there is much the Skype technology can do to help eBay’s other businesses. When asked what eBay was doing to add shareholder value to Skype, Donahoe admitted that “the synergies between Skype and the other parts of our portfolio are minimal,” the paper said.
Well if it were up to me, I’d sell eBay – maybe Ken Lewis at BoA might be interested, would look innovative and might distract the federales from the Afghanistan that is the Merrill acquisition – and keep Skype. eBay could have been the Betfair of consumer goods, instead it became the Microsoft of marketplaces…
Anyhow, I’d buy Skype. Maybe not for $2 billion, but I think it is potentially a very valuable asset and I’m convinced that it is not even scratching the surface of its potential. The problem is that they seem to be trapped in linear thinking with respect to their business model. Selling minutes and add-value telco services. A telco. An alternative and innovative telco. But a telco. Nothing wrong (well you know what I mean…) with telcos but if you want to buy a telco, buy BT – its a lot cheaper. And its not just management (that can’t think out of the box) – it’s the press, analysts etc:
So an acquirer would likely be buying Skype for its 370 million registered users, which is nothing to sneeze at. But the big question is how much money can be made from these users? Sure, people love using Skype’s free services, but most of its revenue is made from a small portion of its users. Skype generates most of its revenue from its SkypeOut service, which charges users to make calls from the Skype service to regular landline phones and cell phones.
The SkypeOut revenue stream is sufficient to sustain Skype’s business model today, but as IP networks are deployed throughout the world and all communications becomes IP-enabled, there will be fewer opportunities to make money from connecting Skype calls to the regular phone network. What’s more, as Skype adds more subscribers, those users are more likely to talk to one another over the free Skype-to-Skype network rather than paying to call these friends and family on regular phones. Of course, it will likely take years for this scenario to play out, but this fact could color a potential acquirer’s willingness to pay a premium for the service.
“As more people adopt Skype, there’s potential for the asset to peak in value,” Friedland said. “It won’t likely happen for another five to eight years. And unless Skype comes up with a new meaningful revenue driver, it could start to decline.”
370 million registered users. Three hundred and freakin’ seventy million. And growing. Fast. And more people joining is a bad thing?!?
Let’s just pause here for a moment. So Mr. Friedland, if Skype ended up having say one or two billion – BILLION – registered users and so like became the de facto communications substrate for the vast majority of the connected citizens of the planet, that would be…ummmm…bad?
There are a hundred and one ways to bootstrap amazing, profitable, cash generative businesses off of Skype’s brilliant platform and installed base, and they are all in my new book: Managing Skype for Dummies. Actually, I didn’t write it. And it’s usual title is the Cluetrain Manifesto but still…
1. Markets are conversations.
I don’t know what Meg was thinking (those of you who listened to the eBay analyst webcast and pored over the accompanying presentation the day eBay announced it was buying Skype will surely remember that at the end of both you were even more confused than at the beginning…) But even if it was by accident, she was on to something (admittedly she did get a bit punchy with the pricing, although if she had paid in paper instead of cash…) It’s just that that something wasn’t being able to call EvilRabbit467 and haggle over the price of an iPod nano to ‘close the deal’…
Seriously if I was the captain of some vast private investment capital pool, I would be sitting around with my partners and a handful of clever young associates and putting together a plan for Skype. But if I were Donahoe, I’d spin Skype out to my shareholders as a separate listing, this would create value and possibly more importantly, especially in these interesting times, give Skype an explicit valuation and an acquisition currency. Then it gets interesting.
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.
Information technology, more specifically the development of parallel processing, “gigabit-terabit-petabit” bandwidth and networking logic, is changing the way we conduct our lives today. While jet-setting executives (or policymakers) of this decade can be present in more places in less time than any predecessor, corporate information, corporate processes and corporate controls can now be shared around the world in real time via information superhighways. These advances in information technology are catalyzing the globalization of business and finance in ways far more important to global central banks than something as basic as physical transportation. These advances are driving the age of financial networking, and what has been described by some as leading to the vastly narrowing ecologies of finance.
Basically what I’ve been thinking for coming on a decade and evangelizing for the past 5 years or so, and now a defining part of the thesis underlying my new business.
The first phase of this “age of financial networking” has unsurprisingly driven the creation of a very tightly coupled system, with a relatively small number of very large, very important nodes or hubs (the global financial services mega-fauna*), in effect create a “scale-free network”, which has a number of advantages (played out nicely from 1987-2007 in financial services) but also some key – potentially fatal – vulnerabilities. John Robb (someone everyone involved in senior policy and management decisions should read) describes it better than anyone:
A scale-free network is one that obeys a power law distribution in the number of connections between nodes on the network. Some few nodes exhibit extremely high connectivity (essentially scale-free) while the vast majority are relatively poorly connected. The reason that scale-free networks emerge, as opposed to evenly distributed random networks, is due to these factors:
Rapid growth confers preference to early entrants. The longer a node has been in place the greater the number of links to it. First mover advantage is very important.
In an environment of too much information people link to nodes that are easier to find. This preferential linking reinforces itself by making the easier to find nodes even more easy to find.
The greater the capacity of the hub (bandwidth, work ethic, etc.) the faster its growth.
The Strength and Weaknesses of Scale-Free Networks
The proliferation of scale-free networks and our increasing dependence on them (particularly given their prevalence in energy, transportation, and communications systems) begs the question: how reliable are these networks? Here’s some insight into this:
Scale-free networks are extremely tolerant of random failures. In a random network, a small number of random failures can collapse the network. A scale-free network can absorb random failures up to 80% of its nodes before it collapses. The reason for this is the inhomogeneity of the nodes on the network — failures are much more likely to occur on relatively small nodes.
Scale-free networks are extremely vulnerable to intentional attacks on their hubs. Attacks that simultaneously eliminate as few as 5-15% of a scale-free network’s hubs can collapse the network. Simultaneity of an attack on hubs is important. Scale-free networks can heal themselves rapidly if an insufficient number of hubs necessary for a systemic collapse are removed.
Scale-free networks are extremely vulnerable to epidemics. In random networks, epidemics need to surpass a critical threshold (a number of nodes infected) before it propogates system-wide. Below the threshold, the epidemic dies out. Above the threshold, the epidemic spreads exponentially. Recent evidence indicates that the threshold for epidemics on scale-free networks is zero.
…the networks of our global superinfrastructure are tightly “coupled”—so tightly interconnected, that is, that any change in one has a nearly instantaneous effect on the others. Attacking one network is like knocking over the first domino in a series: it leads to cascades of failure through a variety of connected networks, faster than human managers can respond.
“Recent evidence indicates that the threshold for epidemics on scale-free networks is zero.” “…leads to cascades of failure through a variety of connected networks, faster than human managers can respond.”
And so Bear Stearns (and others) are caught out. But they could not fail. Nor can Fannie and Freddie. Given this understanding of the current global financial system as a tightly-coupled, scale-free network, the effects of stupid and fraudulent mortgage lending in Las Vegas mushrooming into generalized system-wide distress is easier to understand…
Loose coupling describes a resilient relationship between two or more systems or organizations with some kind of exchange relationship. Each end of the transaction makes its requirements explicit and makes few assumptions about the other end.
The risks inherent in this mode of organization are clearly unsustainable. The world’s financial network will need to adapt. (The same is true of many other critical infrastructures: telecoms, utilities, transportation…where progress in this direction is already starting, to emerge.) We need to (and I believe we will inevitably do so) move towards a more robust, loosely coupled financial system: and the beauty is by adopting and adapting lessons computing and networking technology (which ironically underpinned and drove the creation of today’s brittle financial system) we already have a roadmap (and some of the tools) to do so.
Furthermore, these ideas aren’t new. John Hagel (another person anyone running a large corporation needs to have read**) wrote about this in 2002 (!):
A good working definition: loosely coupled is an attribute of systems, referring to an approach to designing interfaces across modules to reduce the interdependencies across modules or components – in particular, reducing the risk that changes within one module will create unanticipated changes within other modules. This approach specifically seeks to increase flexibility in adding modules, replacing modules and changing operations within individual modules. (Note: if any of you have come across a better definition of loosely coupled, please let me know – I’d like to follow up on this in a future blog.)
Three things stand out from this definition. First, it assumes a modular approach to design. Second, it values flexibility. Third, it seeks to increase flexibility by focusing on design of interface.
…The desire for flexibility is a powerful force driving the move towards loosely coupled systems, but there’s an even more powerful reason to adopt loosely coupled systems. It has to do with experimentation, learning and performance improvement. Within well-designed, loosely coupled systems, there’s a lot more room for experimentation…
He goes on to make the point that this move towards loosely coupled systems in business will fundamentally change the way we manage and organize our corporations:
Rather than traditional hierarchies driven by command and control management styles, we are likely to see relatively independent organizational modules brought together to perform one set of processes and then different arrangements of modules to perform other processes. Some of these modules will belong to the same enterprise, but modules from other enterprises may be brought in to perform specific tasks on an as needed basis…Conventional business strategy approaches emphasize the need to develop a detailed strategic blueprint and then tightly couple operational initiatives to execute the blueprint. As uncertainty grows in business environments, these hard-wired approaches to business strategies are becoming less and less viable.
Reading Robb and Hagel, I hope it is as obvious to you as it is to me that: (a) the global financial system clearly not loosely coupled, and (b) would be infinitely more resiliant if it were. I don’t expect these changes to happen overnight. Given the human factor, I suspect it will occur alongside the generational shift over the next 10-20 years. That said, the opportunities for those that ‘get it’ and adapt sooner rather than later are enormous: this sort of discontinuity is one of the only occasions where it is possible to completely alter the competitive landscape, and is particularly perilous for ‘incumbents’ (everything to lose.) Furthermore, given the critical importance of the financial system to our globel economy and societies, and its manifest vulnerability in the current regime, some of this change needs to happen quickly (more quickly than is comfortable) if we are to avoid a potentially very bad outcome. I guess you could say that one of the good things about having swung to the fear side of the fear/greed pendulum is that change – albeit painfully and begrudgingly – is seen as unavoidable.
We are deliberately going to build our new business to align with this new paradigm, so no matter how successful we may be, expect our ‘ecosystem’ to grow exponentially in size and complexity in comparison to our actual firm. For better or worse, we will never be ‘too big to fail’…
* spent 15 minutes searching the web for a list of the world’s largest financial institutions by assets with no joy…a bit surprised, something for freebase?
** I often wonder about the paradox that our most powerful and important corporate and political leaders – the very people who need to be the most widely read and open to new ideas – are by the inevitable constraints and conventions of their position, are probably unable to do so. Think about it, how likely is it that the CEO of a giant corporation will be allowed to block out 4 hours in his diary on Wednesday afternoon to read and think? For the good ones this must be incredibly frustrating. As for the others, well let’s just say I would question the robustness of the process that got them there in the first place…
. But I’m surprised it hasn’t yet been officially adopted by more old economy industry groups as a rallying cry to marshall support to save and protect their dying business models. To the bitter end.
. At least for long enough for the old hands to ride off into the sunset and let the next generation deal with it.![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=c99fc638-7d94-4f07-b4b7-5629eae60dca)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=3ac5bce9-4638-4415-8241-6aaf1b899be5)
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 ![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=854c3cc5-9621-4020-a308-66b6d1ecc635)
) of how technological revolutions mark turning points in long economic cycles, building on the work of 
and see the key metric of success being how many people report to you and whether or not global political leaders will take your call, I think the answer is pretty bloody obvious.![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=0e4d6283-247a-4d74-8a5d-9f8244eac084)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=679f1b6d-a78c-4d93-9609-101503dab1ad)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=59fc3b0c-f8ac-4f7f-aa00-ccb5bc29cbaf)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=d5113276-ad3b-476d-bf15-f6e83989a7b3)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=bad496b8-49f7-43f4-9dac-b3f7ea3894c0)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=b0484492-0056-4e6c-81d4-0f2c91935683)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=9124a053-802a-4407-b9fd-5322e240f5bb)
