Sean Park Portrait
Quote of The Day Title
The notion of restricting access to information doesn't work anymore.
- Eric Schmidt, Google

Articles tagged 'networks'

If I had one two mbillion dollars…

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.)

(…with apologies to those great Canadians – Barenaked Ladies)

CNET asks “Is Skype for Sale?”

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.

Image representing Skype as depicted in CrunchBase
Image via CrunchBase

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.

Let’s talk.

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Averting (financial) ecological disasters.

Paul McCulley (MD Pimco) (via The Big Picture):

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.

and on tightly coupled systems:

…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…

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Giant opportunity: Emergent ICT-enabled empowerment

My desert island business tool would have to be my netvibes homepage: by allowing my to efficiently follow and ingest over a hundred different feeds covering the entire breadth of my varied (and some would say eclectic) interests it has become the substrate upon which much of my work is done. It’s my deck.* Themes emerge and disappear, are reinforced, modified, diverted, consolidated. And sometimes enough interesting pieces of the puzzle emerge, pushing me to anchor them in my thoughts by writing a post here.

I’ve written a number of times on the potential for mobile telephony to shift the paradigm in Africa, but post the Safaricom IPO this is perhaps more of a mainstream view today and needs less repeating.

What is perhaps less talked about is the potential to combine increasing mobile and broadband penetration with robust and inexpensive local networks to transform outcomes even in the most remote environments. One of the major challenges facing the African continent is building out mobile coverage outside of urban areas and increasing access to broadband internet pretty much everywhere. White African frames the problem eloquently here:

While it’s good to talk about mobile phone penetration, I was a lot more interested in seeing the discussion going on around mobile broadband internet and how that is the next big move in Africa for the operators. Passing data, not just voice, is the battleground of the future in Africa – and all the carriers are fighting to position themselves to win.

This is important and I think the tipping point has (or is about to be) passed, but for a variety of economic, political and regulatory reasons it is difficult to predict how and when a more robust and ubiquitous broadband access will be available to most Africans. In the mean time, it would seem to me that a great opportunity exists to build (tens of) thousands of small, local, ‘community’ networks using a combination of technologies such as wireless mesh and femtocells connecting mobile phones and sturdy “appliance computers” (via Emeka):

Aleutia’s currently working to integrate ZigBee into our desktops, a new wireless mesh-networking technology that doesn’t drain batteries like Wi-Fi does and has a range of up to 1km. In areas where connectivity is expensive and hard to obtain, this would allow one computer to share its Internet connection with hundreds of others, and, in areas without Internet connectivity, would enable free email, file transfer, and messaging over an enormous geographic area.

All powered by renewable (solar, wind, micro-hydro) local power sources, which besides being more robust and sustainable (in the economic sense), should also help underwrite the capital costs of building the network through sales of imputed carbon credits.

These networks would be valuable on their own – providing an information and communications backbone for education, health and markets for the local community – but also would serve as excellent platforms (in terms of building knowledge and acceptance of these tools) ahead of the local network being tied into the rest of the world via broadband internet when the infrastructure and pricing permits. In fact, by building up the network infrastructure in this way – ie by creating a network of networks – Africa has a chance to actually create a more robust infrastructure than currently exists in most of the developed world, without the need to re-engineer; another leapfrogging opportunity…As John Robb continues to powerfully argue, “smart local networks” are crucial to creating a more resilient societal infrastructure, tolerant to faults, accidents and attacks – black and white swans alike:

Most of the local loops (from telco fiber to cable company coaxial) currently in place and/or being installed in the US are dumb (I suspect it is the same globally). They simply route data from local customers to regionally clustered corporate server farms and then outwards/back. This means that any disconnection (physical or logical fault) between local customers and these remote systems will result in a complete cessation of service. To correct this deficiency, communities need to start to think more like a corporation: security of data services are considered central to a company’s survival. So, as part of future negotiations with cable/telcos, communities should request that companies allow them to piggyback on their “dumb” networks to create a smart local loops.

Just the sort of infrastructure that is needed in the all too often hostile (political and natural) environments in which these networks need to operate. And it ties in well with the idea of a resurgent localism, a theme that motivated Stowe to create a new blog, /Ground:

One of the most salient trends — one that I think trumps others — will be the rise of localism. As nation states increasingly falter, and lose relevance we will see people shifting their sense of belonging away from mass organizations and political constructs, like nationalism and global religions.

Layer on top (of these networks) the best that Web2.0 has to offer in terms of social software (wikis, twitter, blogs, freebase, etc .), along with solutions unique to Africa (FrontlineSMS, Ushahidi, etc.); mix in the strong culture of communal and family identity and… voila! You have a potentially very powerful and transformational piece of kit. Alpha this, beta this, build, iterate, build again… and I’m pretty sure that once you’ve industrialized the process, you will have a very exportable proposition: a turn-key solution for installing a smart (and green) local network.

In fact, I think this is a very real and interesting commercial opportunity. Maybe even a candidate for an X-prize in Global Entrepreneurship? I’d love to find a credible, motivated team that has the skills and the vision to make this happen and take us one step closer to the sixth paradigm. Looking forward to seeing the business plan!



*Cyberspace Deck: Also called a “deck” for short, it is used to access the virtual representation of the matrix. The deck is connected to a tiara-like device that operates by using electrodes to stimulate the user’s brain while drowning out other external stimulation. As Case describes them, decks are basically simplified simstim units. Another way to think about it might be like a lineman’s telephone—a tool used to actively maneuver through cyberspace rather than to passively perceive pre-recorded physical and emotional sensations (like a simstim unit).

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Mobile computing will fundamentally change the economy.

The new Apple iPhone
Image by Victor Svensson via Flickr

I’ve been mulling this over for years, but with the release of the iPhone 18 months ago, it became easier to start to imagine the outlines of this future.

Broad reaching changes will emerge from the bottom up – this recent article from Macworld illustrates some possible examples:

…there’s incredible power in a device that knows where it is and that can purchase stuff based on its location…We already have an example of this power in the form of iPhone-friendly Starbucks outlets. Walk into such a Starbucks and a new Starbucks entry appears within the phone’s iTunes application. Tap it and you can learn what’s recently been played in the store and then purchase one of these tracks simply by tapping a Buy button…

It’s 11 a.m. and time for your coffee break. Leave the office and stroll the 14 steps to the café next door. Your iPhone vibrates and asks if you’d like the usual double-wet cappuccino. Of course you do, so you tap Yes. Within a minute your name is called and you have your caffeine-rich libation in hand. Again, no cash or credit card necessary because your iPhone automatically picked up the tab.

It’s not (yet) as sophisticated, but the success of mobile-based payment systems like M-Pesa in Kenya is not only very exciting but is a precurser to much much more. (I first wrote about M-Pesa in November 2006; seeing opportunities like this with no way to ‘participate’ was a significant motivator in developing my current venture.)

(from the CGAP technology blog:)

Since its introduction in March of 2007, the M-PESA application has had great success all over Kenya. There are currently over 2.3 million registered users. Over 18 Billion Ksh had been moved through the system, via person-to-person transfers.

Some of the work that I have been doing makes several arguments as to why M-PESA has become so popular. Firstly, it is the young, male, urban migrants who are driving the uptake of services – customer adoption. These migrants are what innovation researchers call ‘early adopters’ of a technology. They are usually better educated and earn higher incomes than those in the village. Because these migrants are the senders, they can choose the channel for money transfer…

…Despite these cash float problems, the majority of customers in both the urban and rural areas assert that they prefer M-PESA over other money transfer services. This means that M-PESA must be offering them some kind of substantial benefit. In Bukura, this benefit comes in the form of savings on transport. Customers do not need to travel into Kakamega, the nearest town, to access the service. One elderly farmer commented that “I can just walk from my shamba (farm) and get money. I don’t have to spend and go into town. If the agent does not have cash today, then I will come back tomorrow. It is cheaper to wait”. Finding strategies to manage the cash float problem will undoubtedly be one of the greatest challenges for Safaricom. For now, however, it seems like customers are willing to accept the inefficiencies of the service. It is, after all, cheaper to wait.

One of the revelations (to me at least) of this year’s Supernova conference was Ken Banks of kiwanja.net. For anyone interested in the innovative use of mobile communications in developing markets, his essay “Mobiles in Africa: A Travellers Perspective” is a must read. (Sadly, I didn’t get the chance to meet him as I had to rush off but hopefully I will get a future opportunity.) An exerpt:

When it comes to mobile innovation, the gap between developed and developing countries is not much of a gap at all. Mobile innovation in the West, largely technology-lead, sits in contrast to that in the developing world where combating the geographic, economic and cultural constraints of users is considered a more sensible way to go. This explains the emergence of the torch phone, for users who live in areas with little or no regular light, or multiple phone books for users who share their phones with family members. On the heavyweight side, a plethora of financial applications have hit the streets, with Safaricom’s m-Pesa service getting by far the biggest press to date…

…Innovation is not always as official or formalised as this, however. People in developing countries are rarely simple, passive recipients of a technology, and rarely wait for outsiders to provide solutions to their problems. The entrepreneurial spirit is alive and well, evident by the masses of thriving small businesses you find on the street corners of every village, town and city.

Many developing countries for all intents and purposes have ‘skipped’ the fixed-line telephony paradigm. Wanna bet that they ‘skip’ the branch banking/atm paradigm in retail financial services?

I know it’s not their typical market target, but I’d love to see Apple (or RIM) develop a ‘rugged’ iPhone (analogous to ‘rugged’ mobile hard drives), targeting emerging markets. Not as a competitor / replacement for existing mobile phones, but as a substitute to personal computers: effectively giving traders and business people an effective web appliance (ideally with Skype pre-loaded!)

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Peer to peer banking

I haven’t written about these new person to person banking exchanges before, but a recent article in the Economist is as good an excuse as any.

Zopa in the UK and the new Prosper Marketplace in the US are variations on the eBay/Betfair person-to-person business model focussed on lending and borrowing. Zopa likens their business to microfinance only using the internet to create the networks of lenders and syndication of risk needed to make this a viable and attractive proposition. Interestingly on Zopa, you can only lend (I imagine borrow as well but haven’t read the terms) if you are not a “a credit broker or lend money to other persons in the course of any business. “ I can imagine where this idea came from but over time I wonder why an exchange would want to limit or restrict the types of participants on them. Indeed, institutional players can be key liquidity providers with the long tail of individuals setting the marginal price. Betfair is a lot more robust as a marketplace for instance for having a heterogeneous base of users.

Zopa do a very interesting market update however.

Prosper Marketplace has added an additional angle which is to allow customers to form groups of affiliated borrowers that can (in theory) harness their collective trust / reliability to achieve lower borrowing rates – similar to the idea of the traditional credit union or the more modern social network (a la Friendster or LinkedIn.)

It will be interesting to see how these networks develop, but weaved into the tissue of the connected web, it is possible to imagine a day when such exchanges become ubiquitous and the preferred method of dynamically managing credit for millions or billions of users – retail and wholesale – around the world. Clearly there are many many obstacles to overcome but imagine the day when a hedge fund can trade on Betfair using leverage provided by Zopa using PayPal as a payments system…all dynamically managed in real time.

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