Monday, February 8, 2016

Can Artificial Intelligence, Robots, 3D printing and Digital Innovation Drive Growth?

Comments about economist Robert J. Gordon’s recently published book "The Rise and Fall of American Growth” include: 

  • Peter Thiel (entrepreneur, investor) -” If we're going to create more wealth in the future instead of arguing about dividing a shrinking pie, we have to read and understand this book”,
  • Larry Summers (Harvard University) - “Gordon makes a compelling case that the golden age of growth is over. Anyone concerned with our economic future needs to carefully consider his argument" 
  • Robert Samuelson, (Washington Post) - “What Gordon has provided is not a rejection of technology but a sobering reminder of its limits."
Excerpts from the book:
  • “Will artificial intelligence, robots3D printing and other offspring of the digital revolution do for economic growth what the second industrial revolution did between 1920 and 1970? The techno-optimist school of economics says yes. I disagree.  The rise in the U.S. standard of living from 1870 to 1970 was a special century -- and won't likely be repeated"
  • "The good news is that the economy will be able to maintain relatively full employment as the fruits of computerization cause work to evolve slowly, rather than in a great rush. I'm optimistic that job growth will continue and that new jobs will appear as rapidly as technology destroys old ones.” 
  • “True, innovation continues. Almost weekly, the stock market rewards new companies with initial public offering valuations of a billion dollars or more. But it's important to distinguish between the pace of innovation and the impact of innovation on productivity.”
  • The problem created by the computer age isn't mass unemployment but the gradual disappearance of good, steady, mid-level jobs that have been lost to robots and algorithms and also to globalization and outsourcingEmployment growth is also concentrated in routine, manual jobs that offer relatively low wagesSlower productivity growth and low-wage jobs are leading to the unequal distribution of productivity gains. Those are the real headwinds that America faces.”

  • Gordon's research, which focuses on factors driving historical growth trends, makes many good points.
  • We should remember that productivity improvements and population growth, rather than the pace of innovation, are fundamental drivers of economic growth.
  • Hopefully, Gordon’s views can provide a constructive framework for policy makersbusiness leaders and citizens as they consider their strategies for the future.

Sunday, November 29, 2015

Bill Gates, Pope Francis and the Challenge of Climate Change

  • This week, at a climate change summit in Paris,  Bill Gates will announce a multibillion-dollar fund to support clean energy research and development (+130  global leaders will attend including Barack Obama - U.S, Xi Jinping - China, Angela Merkel - Germany and David Cameron - U.K.)
  • Gates said in a July blog post, “I think this issue is especially important because, of all the people who will be affected by climate change, those in poor countries will suffer the mostHigher temperatures and less-predictable weather would hurt poor farmers, most of whom live on the edge and can be devastated by a single bad crop. Food supplies could decline. Hunger and malnutrition could rise. It would be a terrible injustice to let climate change undo any of the past half-century’s progress against poverty and disease—and doubly unfair because the people who will be hurt the most are the ones doing the least to cause the problem.“
  • Separately, Pope Francis said the Paris summit “represents an important stage in the process of developing a new energy system which depends on a minimal use of fossil fuels, aims at energy efficiency and makes use of energy sources with little or no carbon content … It would be sad, and I dare say even catastrophic, were particular interests to prevail over the common good … we are confronted with a choice which cannot be ignored: either to improve or destroy the environment."
  • Note: the National Oceanic and Atmospheric Administration recently reported that, “the first 10 months of 2015 comprised the warmest such period on record across the world's land and ocean surfaces.” 
  • Climate change summits often result in watered-down resolutions or unmet objectives, but Gates' funding effort (which puts his money where his mouth is) could drive improved momentum for sustainable solutions.
  • While many climate change efforts focus on energy alternatives such as windsolar and geothermal, addressing the challenges of fossil fuels will likely require 1) advances in new technologies (lithium batteryhydrogen fuel cell, etc.), 2) reconsidering the nuclear power option and 3) various forms of carbon taxes.
  • Given the broad use (and economic appeal) of fossil fuels, climate change efforts will continue to confront many challenges - including differentiating between "feel good projects" and projects that make sense.  

Sunday, November 22, 2015

As Growth and Regulation of Drones in the U.S. Increase

  • Last week, Intel Corp. senior vice president for new technology Joshua Walden provided testimony to the U.S House Energy and Commerce Subcommittee on Commerce, Manufacturing and Trade that included “It has become increasingly clear to us that UAVs [Unmanned Aircraft Vehicles], like cars and watches, are a computing platform of the future. Applications and services enabled by this new connected UAV ecosystem will spur significant economic growth and will be driven by innovations in UAV technology … [however] a federal government approach that is overly prescriptive regarding the deployment of new hardware and software will deter the private sector’s ability to invent and compete in the marketplace.”
  • Testimony by Association for Unmanned Vehicle Systems International CEO Brian Wynne included "[Unmanned Aircraft Systems] will have a significant impact on our economy, as the industry is poised to be one of the fastest-growing in American history. Our economic impact study found that during the first decade following UAS integration into the National Airspace System, the industry will create more than 100,000 high-paying jobs and provide more than $82 billion in positive impact to the nation’s economy. Under the right regulatory environment, there’s no question these numbers could go even higher.”
  • Finally, a Federal Aviation Administration (FAA) task force submitted recommendations for registering drones that could help manage the increase in drone usage in U.S. air space.
  • With drone growth expected to exceed 1 million units sold in the United States this year, the FAA and other regulators will likely face many challenges as they seek to manage the growth of commercial and recreational drone operator, while minimizing the potential of collisions and privacy violations.
  • Many new solutions will leverage robotic, augmented reality, geospatial and communication technologies – this process will likely drive a convergence among “smart” land, air and sea transportation services.
  • Because many new drone purchasers will have minimal aviation experience, there will be many post-sales business opportunities including training and repair/maintenance services.

Sunday, November 8, 2015

The Reality of Virtual Reality

  • Last week, as the New York Times launched its virtual reality application NYT VRmagazine editor-in-chief Jake Silverstein said, "By creating a 360-degree environment that encircles the viewer, virtual reality creates the experience of being present within distant worlds, making it uniquely suited to projects … that speak to our senses of empathy and community." (Note: the content was developed using Immersion Media’s IM360 platform and is accessible via the websmartphones and the Google Cardboard viewer.
  • Separately, when announcing a virtual reality collaborationAssociated Press Director of Interactive and Digital News Production Paul Cheung said, "Virtual reality is an intimate platform that allows the audience to experience the journalist's unique perspective of the story” and RYOT Chief Operating Officer Molly Swenson said, "We see the future of news as immersive and action-oriented. Philosophically and technologically, virtual reality is the best tool we've found for helping people really understand and connect with the headlines they read every day.” (Note: RYOT's media efforts include creating documentary-style virtual reality films.)
  • In addition, while discussing corporate earnings, Facebook CEO Mark Zuckerberg said, “Virtual reality has the potential to be the next computing platform that changes all of our lives. It's important also to recognize that this is going to grow slowly, like computers and mobile phones when they first arrived. So we're committed to Oculus and virtual reality for the long-term … and with Oculus, we're in a great position to begin delivering a new generation of shared immersive experiences, we plan to ship the Rift headset early next year” 
  • and Nvidia Corp. CEO Jen-Hsun Huang said, "We built the premier platform for VR for both PC gaming as well as professional graphics. As far as financial is concerned, realize that the shipment hasn't really started yet and I think it's prudent to wait and see. But my expectation long-term is that VR is going to be a very powerful growth driver for us."
  • Virtual reality technology often is associated with computer games, will increasingly be applied in many other areas including educationentertainmentscientific research and communication.
  • The complex nature of developing and delivering virtual reality content will require new types of hardwaresoftware and content creation skills – some are in limited supply, some do not exist yet.
  • While Facebook’s Zuckerberg and Nvidia’s Huang suggested that initial growth may be slow, the business opportunities are likely significant – and will attract many investors and innovators.     

Sunday, November 1, 2015

The City of San Francisco and the "Internet of Things"

  • Last week, the City of San Francisco announced a one-year pilot project with France-based SIGFOX to deploy a low-cost, low power Internet of Things (IoT) network.  This environment should connect various devices (streetlightssmoke detectorsparking meters, etc.) to the Internet and allow them to communicate with each other.
  • San Francisco Mayor Ed Lee said, “Creating a network of this kind, the City will be able to attract new startup companies, strengthen existing businesses and provide more jobs, economic growth and continuing prosperity for our residents.”
  • San Francisco chief information officer and executive director of the Department of Technology Miguel A. GamiƱo Jr., said, “We’ve built a citywide network that’s intended for IoT applications, but it’s not driven by a specific use case. Our approach is to build the environment, a living, breathing, IoT-ready city that can then be taken advantage of by really great creative minds that are working in this area.”
  • San Francisco’s chief innovation officer Jay Nath, said “The pilot is two-fold: One is for the city government to understand how this technology can be incorporated. Two, is this a great tool for entrepreneurs? Are they able to build new products and services? Those are the two things we'll be looking at.”
  • Note: SIGFOX’s technology, which is extensively used in France and Spain, is expected to be deployed in New YorkBostonLos AngelesChicagoAustinHoustonAtlantaDallas and San Jose in the coming months
  • As the Internet expands beyond a mix of desktop/laptop computerssmartphones and tablets accessing webstreaming and other cloud based services, there will be many new types of applications (addressing agriculturehealthsecuritylogistics, etc.)  which will incorporate many new devices.
  • Connecting these new IoT devices (home appliancestransportation vehiclescomponents on the energy grid, etc.) will likely raise concerns about privacy - the “Big Brother” effect, cost effective network management and data security.
  • Bottom line – IoT innovation will likely be brisk and the biggest challenge may simply be keeping up with the pace of change.  

Saturday, October 24, 2015

Taming the Commercial and Recreational Drone Market

  • Last week, the U.S. Department of Transportation and the Federal Aviation Administration (FAA) announced the creation of a task force to develop recommendations for a registration process for Unmanned Aircraft Systems (UAS) aka “drones” and said, “Pilot sightings of UAS doubled between 2014 and 2015.  The reports ranged from incidents at major sporting events and flights near manned aircraft, to interference with wildfire operations.”
  • FAA Administrator Michael Huerta said “These reports signal a troubling trend … registration will help make sure that operators know the rules and remain accountable to the public for flying their unmanned aircraft responsibly.  When they don’t fly safely, they’ll know there will be consequences.” 
  • Transportation Secretary AnthonY Foxx said “Registering unmanned aircraft will help build a culture of accountability and responsibility, especially with new users who have no experience operating in the U.S. aviation system … It will help protect public safety in the air and on the ground.” Note: Between April 2014 and August 2015, the FAA said that passenger planes have reported 891 violations of FAA rules by drone operators.
  • Senator Dianne Feinstein of California said “The FAA’s decision to require registration is a key step, but the agency should have additional authorities to require safety features and set rules on when and where drones can fly. Congress must pass the Consumer Drone Safety Act to ensure drone safety is addressed in a comprehensive way.” 
  • Note: 1) Feinstein, along with Senator Charles Schumer of New York, is sponsoring of the Consumer Drone Safety Act and 2) California has the highest number of FAA drone violations with 189 sightings.
  • Regarding the drone taskforce – Given the increasing number of violations, there is a great need for education and oversight, to manage the pace of market growth as commercial firms and do-it-yourself (DIY) players introduce new products.
  • Regarding Feinstein’s efforts – Because of the significant use of drones in California, the state will likely be a legal trendsetter in the drone market. For example, the state recently passed a law addressing invasion of privacy when a drone knowingly enters the airspace above another person.  
  • Bottom line – Dronesrobots and hybrid devices will create 1) new market opportunities, 2) novel legal disputes and 3) regulatory oversight challenges

Sunday, October 18, 2015

The Continuing Challenges of Cyber-Security

  • Last week, the Wall Street Journal’s article “Cataloging the World’s Cyberforces” said, “More than 60 countries have or are developing tools for computer espionage and attacks. The world is shrouded in secrecy, and the hackers involved are notoriously difficult to track, making certainty and comprehensiveness impossible … [some] have formal military or intelligence units dedicated to offensive cyberefforts … [some] have bought off-the-shelf hacking software … {most] use cybertools for surveillance, either domestically or internationally.” 
  • Separately, the Washington Post cited an Oct. 15, 2015 report by which said “Our results indicate 32 countries where at least one government entity is likely using the [FinFisher} spyware suite, and we are further able to identify 10 entities by name [Bangladesh, Egypt, Indonesia, Italy, Kenya, Mongolia, Morocco, Nigeria and Serbia] … FinFisher is a sophisticated computer spyware suite and ...  [is] sold exclusively to governments for intelligence and law enforcement purposes.  Although marketed as a tool for fighting crime, the spyware has been involved in a number of high-profile surveillance abuses.  Between 2010 and 2012, Bahrain’s government used FinFisher to monitor some of the country’s top law firms, journalists, activists, and opposition political leaders. Ethiopian dissidents in exile in the United Kingdom and the United States have also been infected with FinFisher spyware.”
  • In addition, the Computer & Communications Industry Association (whose members include AmazonGoogleFacebookNetflixMicrosoftPayPalRedhatT-Mobile and Yahoo) said “The Cybersecurity Information Sharing Act (CISA) is again due for consideration in the Senate in the coming weeks.  The bill primarily aims to facilitate the timely sharing of cyber threat indicators between and among the private sector and government, with the goal of improving overall domestic Internet and infrastructure security … However, CCIA is unable to support CISA as it is currently written. CISA’s prescribed mechanism for sharing of cyber threat information does not sufficiently protect users’ privacy or appropriately limit the permissible uses of information shared with the government.  In addition, the bill authorizes entities to employ network defense measures that might cause collateral harm to the systems of innocent third parties."


  • Regarding cybeforces – As hackers increasingly access personal data on corporate services, the comments by the Wall Street Journal and the Washington Post / are reminders that cyber efforts include the participation of governments of all sizes.
  • Regarding the views of the CCIA – In the post Edward Snowden era, concerns about how governments use personal data remain high.
  • Bottom line – Regardless of the outcome of debates about how personal data is shared, a broad set of physical and digital assets will continue to be compromised by cybercrime and cyberespionage.  

Sunday, October 4, 2015

As Renewables Transform the Energy Market

  • Last week, as G-20 energy ministers met in IstanbulFatih Birol, Executive Director of the International Energy Agency (IEA) said "We expect 2015 global oil investments to be 20% less than 2014 … this is the biggest decline in oil history” and “In 2014 the renewable energy investment in China was bigger than the investments in the U.S. plus all European countries all put together … Governments must remove the question marks over renewables if these technologies are to achieve their full potential and put our energy system on a more secure, sustainable path.”
  • IEA also released its Renewable Energy - Market Analysis and Forecasts to 2020 report, which said, “renewables are expected to be the largest source of net additions to power capacity over the medium term … Onshore wind leads the global renewable growth, accounting for over one-third of the renewable capacity and generation increase. Solar PV is the second-largest source of new capacity, another third of deployment. Hydropower accounts for one-fifth of new renewable additions.”
  • Separately, Former Vice President Al Gore, at the Washington Ideas Forum, said "The most exciting source of hope is that the engineers and scientists and business investors have come up with a stunning cost-down curve for electricity from solar energy."
  • Finally, Solar City CEO Lyndon Rive, at a product introduction in New York City, said the firm was introducing the “Most Efficient Rooftop Panel on Earth." 
  • Regarding oil investments – Oil price declines have negatively impacted a broad ecosystem of businessescommunities and investors involved with in the energy sector and it is unclear how long the “market rebalancing” process will take. (Note: the oil prices are driven by a complex mix of economic AND geopolitical dynamics.
  • Regarding demand for renewable energy – Successful deployments will be driven by providing better economics than incumbent energy sources,  as well as alignment with environmentally friendly initiatives – which may be supported with government subsidies.
  • Regarding Gore’s comments – Innovation should drive down costs and broaden adoption – but depressed oil prices may present headwinds for renewable adoption.
  • Regarding Solar City – It is unclear if their “efficient" product is also a “cost effective” product.The firm will likely continue to use panels from providers such as Canadian SolarTrina Solar and Yingli Green Energy.

Sunday, September 20, 2015

As Global Cross-Currents Increase... Part 2

  • Last week, after the U.S. Federal Reserve announced it would not increase interest rates in September, Chair Janet Yellen said ”the [U.S.] economy has been performing well and we expect it to continue to do so … The outlook abroad appears to have become more uncertain of late and heightened concerns about growth in China and other emerging market economies have led to volatility in financial markets … There are "very high levels of part-time, involuntary employment and labor force participation suggests that at least to some extent the standard on employment rate understates the degree of slack in the labor market.” 
  • Separately, as Hewlett-Packard announced plans to cut another 25,000 to 30,000 jobs, CEO Meg Whitman said this action will "enable a more competitive, sustainable cost structure." In addition, about 60% of the firm’s U.S. and Western Europe services staff will be replaced by workers in Costa RicaManila, the Philippines; Sofia, Bulgaria; and Bangalore and Chennai in India by 2018.
  • As Qualcomm cut 1,314 jobs in San Diego and hundreds elsewhere because of slowing smartphone growthPresident Derek Aberle said “A workforce reduction is never easy …The company is providing [support] for those employees affected during this difficult time.” Note: Qualcomm plans to cut its 31,300 global workforce by 15 % over the next year.  
  • As Union Pacific Railroad began to cut several hundred jobs in Omaha and other locations, CEO Lance Fritz said “this is an extremely difficult decision to make because of the impact it will have on all our employees … However, for our company’s long-term success we must take these painful actions to balance workforce levels with today’s business demands.”
  • Regarding China – Yellen’s comments about China surprised some market observers (because the Fed has historically not publicly commented about other governments); but her concerns validate the view that global markets are increasingly interconnected.
  • Regarding a slack labor market – Confronted with weak economic growth, business managers continue to increase profitability by replacing “high cost” staff with outsourced and/or automated alternatives – a process that can result in stagnant wage growth and continued income inequality.
  • Regarding maintaining low interest rates – The global economy remains fragile, expect more market volatility.

Sunday, September 13, 2015

As Global Cross-Currents Increase ...

  • Last week, in the Washington Post article “Why the Fed must stand still on rates”, former U.S. treasury secretary Larry Summers said, “the data flow suggests a slowing in the U.S. and global economies and reduced inflationary pressuresEmployment growth appears to have slowed downcommodity prices have fallen further, and the general data flow has been on the soft side … when people argue that a 0.25 % hike will have little impact … my head spins a bit … I believe that conventional wisdom substantially underestimates the risks in the current moment. It bears emphasis that not a single postwar recession was predicted a year in advance by the Fed, the federal government, the International Monetary Fund or a consensus of forecasters … now is the time for the Fed to do what is often hardest for policymakers. Stand still.”  
  • Citibank chief global economist Willem Buiter said “We consider China to be at high and rapidly rising risk of a cyclical hard landing … should China enter recession – and with Russia and Brazil already in recession – we believe that many other emerging markets, already weakened, will follow, driven in part by the effects of China’s downturn on the demand for their exports, and, for the commodity exporters, on commodity prices … We believe that a moderate global recession scenario has become the most likely global macroeconomic scenario for the next two years or so.”  
  • As Standard & Poor’s cut Brazil’s investment grade credit rating to junk, it said   “We find that the ongoing investigations of corruption allegations against high-profile individuals and companies — in both the private and public sectors and across political parties — have led to increased near-term political uncertainty.” 
  • Regarding Summers’ comments – There has been significant debate about how an interest rate increase by the U.S. Federal Reserve would affect the economy. Historically, there is little evidence that a rate increase would avoid at least some market turbulence.  
  • Regarding Buiter’s comments – With global markets increasingly interconnectedweakness in any major economy will likely have broad global impact.
  • Regarding Brazil’s downgrade – In recent years, improving economic trends in the BRIC countries (BrazilRussiaIndia and China) attracted significant investment capital. Today's economic challenges in emerging markets suggest pursuing more prudent investment approaches.

Sunday, August 30, 2015

Volatility and the Debate about Market Direction

  • Last week, asset prices around the world had broad swings, with strong declines in equities and commodities on Monday, followed by positive moves later in the week.
  • The S&P 500 Volatility Index (VIX) rose to 53.29 on Monday – its highest level since the 2008-2009 financial crisis.  By Friday, the VIX dropped to 26.  Note: The VIX is a measure of uncertainty and higher values suggest broad positive and negative price swings.
  • Market commentary included - Esther George, President of Kansas City Federal Reserve President, during a Bloomberg interview: “We should expect volatility, I think, from time to time, we are in a period of some uncertainty – [there are] questions about China, questions about global growth …  What it means for monetary policy I think is not yet clear. It’s a complication, it’s something we watch.”
  • Graham Secker and Matthew Garman of Morgan Stanley’s Research strategy team: “We do not believe that the ongoing economic weakness in EM and China will significantly drag down the European economy. Consequently, we feel that the current volatility in equity markets is likely to be temporary rather than the start of a long and painful bear market.” 
  • Andrew Lapthorne, Head of Quantitative Equity Research at Societe Generale: “Quality is now essentially price momentum and vice versa, and history tells us when these two strategies collide the omens are not usually good, as it is a phenomena usually associated with equity markets turning bearish.”
  • With only 147 stocks in the S&P 500 trading about their 200 day moving average, investors are likely “crowding” into stocks with positive price momentum such as GoogleFacebookAmazonJP Morgan, VisaMasterCardStarbuckPriceline and Netflix – a process that may support Andrew Lapthorne’s view.
  • In addition, while the prices of many commodities (and related stocks) had a strong positive reversal last weekstability in these assets is likely needed to avoid additional market volatility.
  • Finally, many factors drive market direction but the increased use of automated systems by both high frequency traders and longer term institutional investors is likely increasing the speed of overall market action.

Sunday, November 30, 2014

As Oil Prices Fall, What Happens Next?

  • Last week, the Organization of the Petroleum Exporting Countries (OPEC)announced that, while global oil supply may be exceeding demand, it would not cut production.
  • The news triggered a significant decline in the price of oil, dropping over 12% last week and down over 30% for 2014. The news also negatively affected the stocks and bonds of a broad set of global energy players.
  • Leonid Fedun, vice president and board member at OAO Lukoil in Russiasaid, “The [U.S] shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish” and “in 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,”
  • Note: OPEC (whose members include IraqKuwaitIranSaudi Arabia,United Arab Emerites and Venezuela) accounts for about 40% of global oil production.
  • The price of oil is driven by a complex mix of geopolitical and economic dynamics.
  • It is likely that OPEC (led by Saudi Arabia) has several objectives for driving oil prices down including 1) the desire to cripple U.S. shale/ fracking production efforts, 2) punishing Russia, whose economy is very sensitive to the price of oil for its invasive efforts in Ukraine, and 3) destabilizing ISIS, which finances much of its operations from the sale of oil.
  • Lower oil prices will likely have a negative impact on U.S. oil-producing states such as Texas and North Dakota, and other oil dependent economies such as ColombiaVenezuela and Norway.
  • However, declining oil prices can lead to lower gasoline prices and provide an economic boost to many consumers and lower input costs for products that include oil based components
  • Bottom line – a prolonged period of depressed oil prices may increase stress on energy sector business models (including alternative energy) and lead to industry restructuringUnexpected collateral damage may also occur

Sunday, November 23, 2014

The NSA, the Freedom Act and Privacy Rights

  • Last week, the U.S. Senate voted 58-42 for the Freedom Act (60 votes were needed for the bill to pass).  The act’s intent is to 1) end the National Security Agency’s efforts to collect the phone records of millions of Americans not suspected of a crime, 2) require government disclosure of the number of people whose data have been collected and report how many were American citizens and 3) create a panel of privacy and civil liberties advocates to review spying requests submitted to the Foreign Intelligence Surveillance Court.
  • Supporters of the bill included the Obama administration and technology companies such as Apple, Dropbox, Facebook, Google, LinkedIn, Microsoft, Twitter and Yahoo
  • Senate Judiciary Committee Chairman Patrick Leahy (and co-sponsor of the bill) said, after its defeat "If we do not protect our Constitution, we do not protect our country and we do not deserve to be in this body."
  • Senate Minority Leader Mitch McConnell said "At a moment when the United States is conducting a military campaign to disrupt, dismantle and defeat (the Islamic State), now is not the time to be considering legislation that takes away the exact tools we need to combat (the Islamic State)."
  • Senator Marco Rubio said "As the rise of ISIL has demonstrated, the world is as dangerous as ever, and extremists are being cultivated and recruited right here at home…This legislation would significantly weaken and, in some cases, entirely do away with some of the most important counter-terrorism capabilities at our disposal, which is why I will not support it.”
  • While the bill was weaker than most supporters had hoped for, its passage would have been the first time a law was in place to curb the NSA’s spying activities.
  • It is likely that many technology companies, U.S. citizens and global trading partners will continue to be concerned about the NSA’s reach. This will likely also drive demand for encryption and other privacy related solutions.

Sunday, November 16, 2014

Hey, Whose Internet is it Anyway?

  • Last week, U.S. President Obama said, “An open Internet is essential to the American economy, and increasingly to our very way of life. By lowering the cost of launching a new idea, igniting new political movements, and bringing communities closer together, it has been one of the most significant democratizing influences the world has ever known.”  In addition, “the time has come for the FCC to recognize that broadband service is of the same importance and must carry the same obligations as so many of the other vital services do. To do that, I believe the FCC should reclassify consumer broadband service under Title II of the Telecommunications Act.” 
  • In response, AT&T’s CEO  Randall Stephenson said it would slow down its investments in high-speed fiber-optic broadband networks and “We can’t go out and invest that kind of money deploying fiber to 100 cities not knowing under what rules those investments will be governed.” Comcast CEO Brian Roberts said, "We're trying to work with the FCC, Congress and the administration to forge an outcome all stakeholders can live with and doesn't harm the innovation cycle." Cisco System CEO John Chambers "It would be a very disappointing end result if we moved back to regulation of the Internet like we did voice many decades ago…If [Internet Service providers] can't make money on broadband, they won't build it out." 
  • The lack of satisfaction with U.S.  Internet service providers and the diminishing competition in this market has triggered significant debates and, among other things, led to the popular video “Last Week Tonight with John Oliver: Net Neutrality (HBO)” 
  • It is likely that oversight under Title II will be more benign than its supporters and detractors predict. 
  • While the Internet’s origins come from U.S. government funded projects, the road ahead will likely be driven by business interests - unless there is either increased consumer activism or a major disruption of service that would increase pressure for government intervention.

Sunday, October 12, 2014

As Ebola Concerns Increase

  • In 1994, Richard Preston’s best-selling book “The Hot Zone: The Terrifying True Story of the Origins of the Ebola Virus” increased awareness of this highly infectious and deadly virus that first appeared in a central African rain forest.
  • From 1976 (when Ebola was first identified) through 2013, the World Health Organization reported 1,716 total cases.
  • The 2014 West African Ebola outbreak, which is affecting GuineaSierra Leone and Liberia has resulted in over 8,000 cases and about 4,000 deaths.
  • Last week, Tom Frieden, director of the Centers for Disease Control and Prevention said "In my 30 years in public health, the only thing that has been like this is AIDS," and "We have to work now so that this is not the world's next AIDS."
  • Jim Yong Kim, President of the World Bank Group said, “With Ebola’s potential to inflict massive economic costs on Guinea, Liberia, and Sierra Leone and the rest of their neighbors in West Africa, the international community must find ways to get past logistical roadblocks and bring in more doctors and trained medical staff, more hospital beds, and more health and development support to help stop Ebola in its tracks.”
  • Note: A World Bank report (Oct. 9, 2014) said, “If … the epidemic spreads into neighboring countries, some of which have much larger economies, the cumulative two-year impact could reach US$32.6 billion by the end of 2015 – almost 2.5 times the combined 2013 GDP of the core three countries. “
  • While there are many factors enabling the spread of Ebola including 1) a lack of medical infrastructure in the initially affected countries, 2) risky burial practices and 3) insufficient monitor of the virus, early stage responses by the international community have been insufficient.
  • Let’s hope the recent calls to action will be quick and effective.

Sunday, September 28, 2014

Is your Software too Secure, or not Secure Enough?

  • Last week, it was reported that a significant software vulnerability exists on many computing and communication devices around the world. The problem, called “Shell Shock”, is associated with software originally written in 1987 and is today a part of variations of the UNIX operating system, including Apple’s operating system for desktop and laptop computers, smart phones using Google’s Android and many Internet web servers.  A U.S. Department of Homeland Security alert said the vulnerability was rated as “High” on impact (scoring 10 out of 10) and “Low” on complexity, which means hackers can easily take advantage of the problem and control a computer. Note: the problem does not affect Apple's iOS on the iPhone and iPad, or systems running Microsoft Windows.
  • Separately, FBI Director James B. Comey is concerned about  Apple's and Google’s recent efforts to provide encryption technology on their smart phones that will increase the difficulty of accessing data.  He said  "I like and believe very much that we should have to obtain a warrant from an independent judge to be able to take the content of anyone's closet or their smart phone,” but "The notion that someone would market a closet that could never be opened — even if it involves a case involving a child kidnapper and a court order — to me does not make any sense."
  • Regarding “Shell Shock” - because the vulnerability has been in the market for over 20 years, it is likely that there has already been damage.  However, many technology savvy organizations will  address this problem quickly, but it is likely many devices and systems subject to less stringent security oversight will remain vulnerable to hacker attaches for years to come.
  • Regarding Comey’s comments – As law enforcement groups continue to face the increased lack of trust resulting from the NSA’s aggressive data gathering efforts, it is likely that the use of encryption technology will expand across many forms of computing infrastructures in the future.  

Sunday, September 21, 2014

Life after the Alibaba IPO

  • Jack Ma, a former English teacher, founded Alibaba Group Holding with a $60,000 investment in 1999 and started out in his one bedroom Hangzhou apartment . Today, Alibaba is the world’s largest e-commerce company.  After a global road show to share the firm’s story with investors, the company priced its shares in an initial public offering (IPO) at $68 this past Thursday. On Friday, the shares began trading on the New York Stock exchange at $92.70, and closed up 38% for the day.  The price values the company at $231 billion and made Jack Ma, the richest person in China, worth about $17 billion.
  • Alibaba’s on-line retail sites Taobao MarketplaceTmall, and Juhuasuan account for about 83% of revenue.  Other services include, China’s largest global online wholesale marketplace and AliExpress, a global consumer marketplace that provides cloud-computing services.
  • Its partnerships include Alipay (payment and escrow services); Zhejiang Cainiao Supply Chain Management Co., Ltd. (shipping and logistics services), UCWeb (developer of a mobile web browser). Alibaba investments include $202 million investment in Shoprunner (U.S. shipping services similar to Amazon Prime), $217 million in 1stDibs (on-line luxury ecommerce site) and Lyft (ride sharing service)
  • With the upside for the Alibaba story dependent on expansion both within China, (Internet penetration within the country is less than 50%) and abroad, it is likely that some of that potential is factored into Friday’s 38% price increase.
  • At the same time, the firm’s global aspirations will likely increase completion with smaller players such as AmazonBaiduEBay and Tencent.
  • The most significant risk for the firm is likely that economic growth in China slows down.
  • Bottom Line: In addition to building the world’s largest internet franchise, Jack Ma may also turn out to be one of the best market-timers of all time as well.

Sunday, September 7, 2014

The Disruptive Force of Uber

  • As online transportation company Uber expands globallyconflicts with some regulatorscompetitorsunionized workers and drivers have increased.  Concerns include: 1) Uber is operating without the same licensing and insurance as traditional taxis services, 2) it is trying to lure drivers away from alternative services, such as Lyft, 3) it is changing the terms for drivers operating on its platform and 4) it is placing and then canceling pick-up requests with competitors to disrupt their service.  
  • In addition, last week, as the German government sought to limit Uber’s activities, Anja Floetenmeyer, a representative for Taxi Deutschland, said, “Uber has never observed German law. This is Wild West capitalism without consumer rights.”
  • Some background Uber started in San Francisco during 2009 to provide an alternative to the city’s mediocre taxi service.  Unlike many taxi services, Uber does not own any vehicles. Its platform includes a smartphone app to connect users with drivers, a navigation system and a fare collection and payment system.  Passengers payUber, and Uber pays its drivers about 80% of the fare (there is no requirement to tip the driver). Drivers must pass a background check, provide their own vehicle and comply with service commitment levels, such as the minimum hours per week that they will drive. Estimates vary about the firm’s net revenue (possibly greater than $1 billion), but CEO Travis Kalanick said revenue is doubling every 6 months.
  • Uber, and similar services, provide a refreshing alternative to many mainstream taxi offerings.
  • Its positive business momentum and investor support, has allowed the firm to broaden its services and establish partnerships with organizations such as OpenTableUnited AirlinesStarbucks,TripAdvisor, and Hyatt Hotels
  • With regulatory oversight increasing, compliance with new rules is becoming a business requirement. Also, the interaction with unions (in the U.S. the Teamsters and AFL-CIO are becoming more involved), will likely affect the cost structure of these services. 
  • While Uber's growth may slow and conflicts with drivers may increase, passengers will likely continue to benefit from this disruptive business model.  

Sunday, August 31, 2014

As Apple Approaches the Mobile Payments Market

  • Last week, several media sources reported that Apple would introduce mobile payment services when it launches the iPhone 6 on September 9. The device could support near-field communication (NFC), which supports payment transactions by passing the device near registers that support NFC.
  • In recent years, Apple’s U.S. Patent and Trademark Office filings have included many areas within payments and consumer purchasing, including an iWallet.
  • Note: Nokia introduced the first phone to support NFC in 2006, and firms such as SamsungSony and LG Electronics have provided NFC support for several years. To date, the technology has had positive momentum in EuropeChina and Japan, but has been less successful in the U.S. 
  • Success in the mobile payment market will likely requires solutions that are secure, user-friendly, and interact with varied transaction networks.
  • If Apple does introduce a payment service on September 9, it will leverage a 1) a broad portfolio of patents, 2) over 800 million iTunes users and 3) its tight integration of hardware and software. Competition will likely drive innovation from players including AmazonGooglePayPalSquareAlibabaTen-cent, mobile telecom providers and Bitcoin and digital currency offerings.
  • The battle for market share will likely be protracted with advantage driven by: 1) providing a solid customer experience, 2) leveraging a preexisting customer base and 3) supporting a diverse set of technology platforms. 

Sunday, August 10, 2014

Making Bubbles and Income Inequality - According to Two Central Bankers

  •  Last week, during a CNBC interview, Dennis Lockhart, President & CEO of the Federal Reserve Bank of Atlanta responding to a question about increasing income inequality in the U.S. and economic gains flowing to the 1% said -  “as a monetary policy maker, monetary policy can deal with the expansion of the pie, but can’t do much about the distribution of the pie…I’m concerned as a citizen that the trends that we have seen now literally over decades have seen income more concentrated in the top 10% of income earners and even within the 10%, income concentrated in the top 1%.  To the extent, those trends continue, and they could affect the economy by weakening the consumer… I am concerned.  But it is not something as a policy maker that I can easily address.”   
  • Separately, in a July 16 speech at the University of Southern CaliforniaRichard W. Fisher, President and CEO of Federal Reserve Bank of Dallas said, “I believe we are experiencing financial excess that is of our own making” and “the money we have printed has not been as properly circulated as we had hoped. Too much of it has gone toward corrupting or, more appropriately stated, corrosive speculation.”  Fisher also quoted a New York Times article by Neil Irwin that said, “Around the world, nearly every asset class is expensive by historical standards. Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals.”

  • Regarding Lockhart – His comments reinforce the view that the actions by the Federal Reserve address the needs of the financial sector and Wall Street, rather than Main Street and the broader U.S. population.
  • Regarding Fisher – Justifiably, he continues to believe that the Federal Reserve's actions have been too aggressive and may have moved beyond the point of diminishing returns.
  • Regarding market bubbles – valuations many be extended, but investor demand for positive returns could drive markets higher.  However, signs of a weakening consumer or increased global conflicts could result in continued market volatility.