Embracing Chaos

The way I see it, there’s no compelling reason to buy a heavy laptop.  Light laptops are great because they’re portable.  Their processors might be a little slower, but local processing power rarely limits what you can do with a computer these days.  And unless you get a really tiny laptop they’re hardly slower.  If you do get a tiny one then you’re trading reduced HCI-bandwidth for increased access to that bandwidth, which is often worthwhile.  Today I’d probably argue that iPhone or iPod Touch is a pareto-optimal choice (sweet-spot) in this trade-off, beating out things like OQO and FlipStart.

But think about the longevity of these devices.  Computers always slow down.  In a few years, any laptop is going to feel really slow, no matter how fast it feels today.  But if it’s a light, small laptop, then you’ll have something which is slow, but at least nice and portable.  Some of my friends’ house has this ancient Pentium II Viao laptop kicking around the living room — it barely runs a browser.  But it’s so small and portable that it’s still a reasonable computing device today.  If your laptop is heavy to start with, then in a few years when it slows down you’re stuck with a heavy, slow laptop, which nobody nobody wants.

I caved.  I took a job with Google as a Product Manager.  I start today.  I’m down in Mountain View all week to have kool-aid forcibly injected intravenously.  Make note of this day and see if you can sense a shift in tone of my posts as time continues.  We’ll see when I start thinking and posting about Google in first person.  This change is important to you my dear readers for a couple of other reasons. 

Most significantly is around intellectual property.  Google’s IP policy for its employees can be effectively summarized as "All your base are belong to us."  It’s a fairly standard employment agreement — anything I do or think of on Google’s time or using Google’s equipment belongs to Google.  The only exception is if I do something entirely on my own that is not related to Google’s current or reasonably foreseeable future business.  I’m not a lawyer, but California and Washington laws both read about the same.  The thing with Google is that essentially nothing in technology is outside of that scope.  Designing juggling balls or running shoes might be.  This was a concern for me in considering the position.  But in the end I couldn’t resist.

I suspect this means I won’t be able to post as much about what the industry needs to be doing.  On the flip-side, hopefully I’ll be in a position to be getting the industry to do these things.  People often ask me what I’ll be working on, and I always answer honestly that I don’t know.  As a Product Manager I’ll be working on products but not writing code — this is similar to a PM role in other companies, but there are very few at Google and their relationship is much more of a peer than in some companies.  As to products, I think everybody has to work on ads as a kind of penance.  But hopefully when I get my feet on the ground I’ll be working on all the things I’ve been posting about here.

Personally this means I’m going to be extremely busy for a while as I finish up a full quarter at school and start up a new job.  I’ll also be a cross-bridge commuter heading into Kirkland most days which I’m really unexcited about.  But the opportunity to work with lots of brilliant people and have a huge impact on the world makes up for it.  I’m pretty excited!

After months of rumors about companies trying to buy Facebook, yesterday a deal was announced.  In a sense the deal is quite small because Facebook sold just a 1.6% equity stake to Microsoft.  But by paying $240 million, the deal values Facebook at about $15 billion!  What’s going on here?  This surely can’t be based on rational economics, can it?  Let’s analyze how these deals should be valued and take a few steps back through recent internet acquisition history for context. In trying to keep this post focused, I wrote a separate article about why mergers and acquisitions rarely work.

Economically, companies should be valued at the present value of their free cash flows.  That is to say, project forward all the possible ways the company might behave, and take a probability-weighted average (expectation value) of the total dividends the company would pay in each of these scenarios.  Discount these cash flows by an appropriate discount rate and you’ll get a fair market value for the company.  This is called fundamental analysis.

Now anybody who’s tried their hand at such financial calculations will know there’s a lot of judgement calls involved.  Small differences in numbers like discount rate or growth rates have huge effects on the results, and these numbers are hard to judge.  So it’s definitely possible to come up with a believable (by some) model of future cash flows that will value any currently successful company at whatever huge valuation you want.  But that doesn’t make it correct.  Is Facebook worth $300 per user?  It’s not possible for me to click on a $10 CPM ad every day for 100 years, but maybe they can add more users to grow into that?  Maybe?  It sure seems high.  I think there’s something else going on.

For context, think back to March of 2005 when Yahoo bought Flickr.  IMHO that made Google feel bad because Picassa wasn’t doing so well.  I think they saw this as a big missed opportunity to help organize the world’s photos.  I think this was big on their minds when they paid too much for YouTube.  And Google is still very far from monetizing this investment.  But they now control the dominant way that videos are communicated on the net.  This has to help them feel good about getting closer to their corporate mission of organizing the world’s information.  Since it’s not clear right now how they’re going to achieve that goal for photos.

Now consider Facebook.  Left and right, Facebook’s internal applications are surpassing total usage of th best dedicated net applications.  Their invitation app gets many times more usage than evite, and I believe their photos app is actually well beyond flickr in terms of usage too.  I don’t know where they stand for videos right now.  But it’s clear that they are a force to be reckoned with.  As I’ve written before, their application platform is potentially game-changing because it’s very attractive for information service developers and democratizes the process of product development in a novel and powerful way. 

For all these reasons, I think Facebook has the potential to dislodge Google as king of the hill.  No, Facebook isn’t going to become the dominant search engine, or even the dominant deliverer of internet advertising.  But I think Facebook could become the dominant way the humans communicate with each other using computers.  This could be the leverage they need to claim the crown of innovative thought leader on the internet.  If I were running Google, I’d be concerned about this possibility.  If I were running Microsoft, I’d be excited to get a piece of this.  Any piece.  Because even a tiny piece (like <2%) means that Google can’t take control of Facebook.  And yesterday, Microsoft got their foot in that door.  So, the game is on.  It’s gonna be fun.

When thinking about the recent Microsoft, Facebook deal, I couldn’t help but talk about mergers generally.  So are some general thoughts about what makes mergers work or not.

Research consistently shows that most corporate mergers are unsuccessful.
That is to say, when two companies combine the value of the merged
company rarely even equals what the individual companies were doing by
themselves.  The reasons for this are numerous.  Organizations face
diseconomies of scale as they grow.  A simple example of such a
diseconomy of scale is increasing communications overhead — the number
of possible communication paths grows as N^2 for the number of people
in an organization, so if there is any cost associated with such paths
then the org will become less efficient as it grows past a certain
point.  A typical example of this cost would be in trying to find the
right (best) person to handle a specific issue or task.  At some point
finding the best person becomes too costly and workers instead choose
to duplicate the effort or work with a sub-optimal colleague.  For
these and many other less quantitative reasons like cultural mismatch,
merged companies are generally less efficient.

So why do they keep happening?  There’s an agency problem in upper management.
Everybody involved in this kind of M&A deal is personally
incentivized to see the deal go through.  Investment bankers of course
want to see their commissions.  But the bigger problem is that senior
management is typically compensated based not just on the economic
success of their organization, but also based on its pure size.  That
is to say, the CEO of a company with 10,000 employees and a 5% ROE
(return on equity) will probably get paid more than the CEO of a
company with 5,000 employees and a 7% ROE.  The 7% ROE company is
better run, more efficient, and doing better for its investors.  But executives
have this perverse motivation to decrease the economic effectiveness of
their organizations in order to grow their empires.  It’s a classic
agency problem whereby managers have a conflict between their personal
interests and their responsibilities as agents for stockholders.

Mergers only make sense when there is synergy.  This term gets thrown around loosely quite often but it has a specific meaning.  It refers to one company being able to make more effective use of its own resources when combined with resources from the other merged company.  For example one
company has a product that they don’t have enough manufacturing
capacity to meet demand for, and the other company has excess
manufacturing capacity.  Or one company has a new product that can be
sold more effectively at minimal marginal cost through an established
distribution channel that the other company has.  In these rare cases, mergers make fundamental economic sense.

Stay tuned for more specific thoughts on the big players buying bits of each other…

At long last, the world’s best digital music system has fixed a glaring UI hole.  With today’s release of v2.5 of their software, Sonos controllers (both hardware remotes and PC/Mac based software) can search for music by artist, composer, album, or track.  This feature works within your own local library or within music services such as Rhapsody. 

Up until now if you wanted to listen to an artist in Rhapsody that you hadn’t previously bookmarked, you would need to guess what top-level genre they were categorized under and then scroll through an enormous list to try to find the artist.  How many times have I scratched my head asking questions like "Is Pink Floyd Rock/Pop or Alternative/Punk?"  Much easier was to find a web browser, pull up http://www.rhapsody.com/pinkfloyd and bookmark music into your library.  That human-writable URL scheme is still one of my favorite accomplishments in the last several years.

I started beta testing this release last week.  As always, the update was fast, easy and works flawlessly.  My biggest complaint is that the search is not interactive.  Considering how fast results typically come back, I would much prefer to have a type-ahead style search where results start to appear as you type.  This would be especially useful considering the somewhat painful scroll-wheel-alphabet typing interface they provide.

Sonos is a great company that makes fabulous products.  They continue to advance the state-of-the-art in digital music systems.  By adding Napster support they have taken another step to commoditize Rhapsody’s music subscription product.  They’ve also released a new product called a ZoneBridge which acts as a WiFi range extender which would address one of my biggest complaints about the system.

Every time we sign up for a new service on the net, we have to make a new account and pick a password to go with this account.  We’re going to be stuck like this until something like OpenID becomes dominant which is going to take years.  Until then we’re stuck remembering which password goes with which site, which is an age-old problem.  I think very few of us actually use a unique password for every account we have.  For sanity’s sake, we re-use passwords, or at least password themes.  Personally, a couple of times I’ve had throw-away passwords get used in so many places that I realize they are actually now quite important because they grant access to many services.  Some of these services seemed stupid at first so I created an account with a throw-away password and then they became important to me later.

The problem that’s bothering me today is that I have no idea what the new site is going to do with the password I give it.  Few things irk me more than seeing one of my good passwords sent to me in plain-text, say in a password reminder mail.  Why are you storing my password in plaintext!?  Some of my most valuable passwords I’ve never even seen written out, and the first time I do see them say in a username field it’s a little surprising and I feel like they’re a bit compromised.

I’d like to see sites post their password handling policies.  I’m going to start doing this on my own sites.  Here are some examples of levels of security to consider:

• Your password is stored in plaintext
  • Forgotten passwords will be emailed to you in plaintext
• Your password is stored using a one-way cryptographic hash form
  • Forgotten passwords cannot be recovered.  If you forget your
    password you will have to create a new password after we verify your
    identity.
  • using MD5 (not considered very strong cryptographically anymore)
  • using SHA1 (better)
• Your password is stored using a strong hash with a salt
  • Without a salt, somebody looking through the password database could see that two users have the same password since they hash to the same value.  Obtaining one password thus grants access to the other account.
• Your password is never transmitted or stored in the clear. 
  • All auth events happen over SSL
  • Your password will not appear in any server logs.  (Rails devs take note.)
• Your password is never stored in any form in a browser cookie.
  • Some sites might see it fitting to store a hashed password in a cookie for re-auth.  Ugh.

Responsible sites will follow the last three rules.  We could come up with a simplified grading system that explains in simple terms whether you can use a valuable password here or not.  We know we can trust the smart folks to do that.  But with so many features being launched as stand-alone sites, understanding these policies is important.

I logged onto Google Calendar this evening, and it asked me if I wanted to allow Google gears to access this website.  Wow!  This is gonna be great.  I’m actually not all that excited about offline access, which is valuable but increasingly less important as time goes on.  I’m very excited about the faster UI we’ll get from not having to send packets round-trip to Mountain View to make any content changes.

I haven’t seen anything work differently yet.  But that’s really the way it should be.  The Google Reader implementation of gears where you need to explicitly tell it when you’re online vs offline isn’t an ideal experience.  And the Gears API doesn’t require apps to be written that way either — it’s just easier.

I tried unplugging from the net and nothing interesting happened.  I couldn’t update my calendar.  I couldn’t load my calendar — I was hoping maybe they’re just caching the javascript in gears which would be a nice step.  But it doesn’t appear to actually be doing much yet.

It’s just a matter of time.  I predicted first half of 2008 and I’m sticking to that.

A warning to Verizon Wireless customers: if you don’t call them to "opt out" they will start selling records of every phone call you make to partners.  It looks to me like these "CPNI" data don’t include anything about location, like which tower you were connected to, based on the description that it’s all the information in your phone bill.  But it wouldn’t surprise me if they are in fact recording it and selling it too.  Location-based advertising is very hot, so these data would be very valuable.  In any case, if you’re a Verizon Wireless subscriber and you don’t want them selling your call records, follow these steps:

1. Call 1-800-333-9956
2. Enter your 10-digit mobile number
3. Enter your 5-digit billing zip-code.  (This one threw me for a loop, since Verizon thinks I live in South Dakota.  Long story.)
4. Enter the last 4 digits of your SSN
5. Press 9 to opt out

I’m rebroadcasting a post from Ars Technica.
Normally I don’t like blogging unless I have something interesting and
useful to add, (and the blabber about location-based advertising hardly counts as insightful original analysis) but this one’s annoying and timely enough that I thought it would be useful to repeat it.

Update: The cellfish blog also has a nice article about this Verizon problem.

Okay, not quite a full ton.  The Lilypod only needs 1,500 lbs of dissolved epsom salt to make the water dense enough that you can float on it.  In 250 gallons of water that gives the solution a density of about 1.7, which makes it quite easy to float on.  Heat it to about 99 degrees Fahrenheit, put in ear plugs, turn out all the lights, and concentrate on your breathing.   It’s a great recipe for some deep relaxation.  I’m looking forward to borrowing some time on it, hoping it will be a good way to help focus my mind.

I’m talking about my good friend Barry’s new float tank.  It’s called the Lilypod for hopefully obvious reasons.  Setting this thing up and maintaining it is sure to be an adventure.  And adventures deserve blogs.  This one’s lives at http://thelilypod.blogspot.com/

Please excuse a bit of rambling, but I’ve got a seedling of an idea I’d like to publicly explore.  The classic definition of economics concerns the allocation of finite resources to unlimited desires.  Resources here are physical goods and services that people buy or trade.  There’s only so much stuff in the world that people might want.  If you add up what everybody wants, it’s more than the amount of stuff available to go around — classically it’s infinite.  Economic systems manage this discrepancy.

I increasingly find myself facing a related problem: trying to allocate my finite time to seemingly unlimited desires to do stuff.  As I grow and learn there seems to be no limit to what I want to do.  Similarly, as I grow and learn and the world evolves around me, I seem to be genuinely able to accomplish more things in given amounts of time.  I think this feeds into my desires. 

How can I balance my time between all the professional goals, intellectual challenges, social activities, physical adventures, artistic pursuits, etc. that interest me?  The realization of this parallel between personal economics and classical economics gives me a hint that there are systems out there.  I’m going to think about market-based systems for allocating my time towards achieving my goals.  I wonder if I can do this without explicitly stating and prioritizing them.

Another tool that might be useful include meditation.  These unlimited desires often give me a short-attention span, maybe even A.D.D.  My good buddy Mez suggested some basic meditation as a way to help focus the brain.  I’ve been trying it for the last few days and I can already see some benefits.