Comments on Friends without Benefits

Daniel Lyons wrote an interesting article on the impact of young Silicon Valley start-ups. In the article, he compares young Facebook, Twitter and Zynga with titan HP, Intel and Cisco. Because young companies are so focused on making a quick profit and not on solving hard science problems, Lyons believes that they are walking down a wrong path -- not focusing on hard science limits their ability to create value for the humanity.

I disagree with Lyons. On the surface, web sites like Facebook and Twitter seem insignificant -- how much does a "like" button really matter when comparing to the invention of semi-conductors. But, we can't discredit these young companies' innovation solely based on their business model. Technologies like cloud computing and virtualization didn't really exist a decade ago. While some academics had speculated about these ideas back the days, but there was no real market for such kind of technology deployment. Because of a growing popularity of social networks, there is a paradigm shift in the fundamental design of computing infrastructure. Cloud computing and virtualization are elements of this evolution. New technologies like these generated billions of revenues for businesses and created thousands of jobs.

Lyons also complained about too few start-ups care to invest in the alternative energy market. He worried that if this trend continues, it will hinder the economic growth of this country. I completely agree. But, this is a problem for the lawmakers and not the entrepreneurs. It's politicians' job to set the right policy so that the economy can grow in the right direction. I'm confident that if the government provides sufficient support to encourage alternative energy development, young people will come to Silicon Valley to build the business.

Chinese workers deserve better

Recent worker unrest in China is a sign of time. The Chinese manufacturing industry has been exploiting cheap labor for decades. Given that there are billions of people in China and millions of them are still in poverty, a shortage of cheap labor was never a big concern to investors and business owners. Now the unlikely problem becomes a reality. If the situation doesn't change soon, today's worker unrest could lead to a greater social and political problem.

I don't believe all manufacturing companies in China are treating their workers like robots or slaves. But, there is no doubt that the benefits they are receiving are far less generous than what the companies could have provided.

A key problem in China is income unbalance. Factory workers often made significant less money than the skilled office workers in cities like Shanghai and Beijing. As the Chinese economy grows rapidly, people's desire for a better quality of life increases. It's understandable that the low-income workers, often come from rural areas, are upset when their purchasing power grows at a significantly slower rate than the wealthier city people.

I'm a believer of capitalism. While businesses are about profits and growth, but they mustn't forget to take care of their employees. Chinese manufacturing companies should take the news about Honda worker strikes and overworked Foxconn employees as an opportunity to re-evaluate their worker treatments. Better working conditions and benefits means happier workers. Happy workers often means an increase of productivity.

The Economist on world economy

In this issue of The Economist, it paints a rather cautious outlook of the world economy. Recent economic data shows signs of the world economy could be in a recovery. But, that could be an illusion, the article warns.

Among many tricky issues, reading economic data is always difficult. Even if the economy is on its way to a recovery, the path is going to long and painful. During this recovery period, we will likely to see multiple up-and-downs in the market.

History doesn't repeat itself, but it does rhyme.

... between 1929 and 1932, the Dow Jones Industrial Average soared by more than 20% four times, only to fall back below its previous lows. Today’s crisis has seen five separate rallies in which share prices rose more than 10% only to subside again.

Why is it important for us to be cautious?

"... optimism contains two traps, one obvious, the other more subtle. The obvious trap is that confidence proves misplaced—that the glimmers of hope are misinterpreted as the beginnings of a strong recovery when all they really show is that the rate of decline is slowing. The subtler trap, particularly for politicians, is that confidence and better news create ruinous complacency".

I think the article is a good read. It gives a good overview of the current world economic conditions and intricate relationships between the government financial polices and macro- and micro-economics.

While the economy looks grim, but I have hope. The world's economy will eventually bounce back. In between now and then, there are many good investment opportunities. Individual investors need to be patient and cautious. The Economist article is a friendly warning that "those who try to time the market is a fool".

World Economy, Business

ABC Nightline on Netflix

ABC's Nightline recently featured a short story on Netflix. It takes you to behind the scene of the "red envelopes": how DVD's are handled in the distribution sites, the giant machines that process millions of DVDs and the workers that checks received DVD for damage at 3 o'clock in the morning.

Do you know Netflix spends $300 million in postage every year?

Watch the ABC Nightline segment



Technorati Tags: Netflix

LinkedIn opens its app network

LinkedIn launches a new feature that allow business partners to create applications for LinkedIn. Service providers like Amazon, Wordpress and SlideShare can develop custom applications to link data and profiles from theirs sites to users's LinkedIn profiles.

This idea is nothing new. Many social networking websites provide similar functions. But, I think this idea makes great sense for LinkedIn's business model. LinkedIn's business goal to increase revenue by attracting more users and traffics. I think this new feature is right on the spot.

Read more on ZDNet 

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Credit crisis hits Silicon Valley

The Silicon Valley is the heartland of technology innovation. New services and products are usually developed with venture capital funding. In news: credit crisis may be hitting start-up companies.

The heart of the Valley's success is, of course, its ecosystem of start-up companies. Many claim that ecosystem remains healthy, thanks to the lessons learned and prudence gained from the dot.com crash.

Nevertheless, a dense fog of anxiety has settled over the land.

"Funding will tighten up. We are certainly going to see some ripple effects," said Ron Conway, a prominent angel investor who has invested in hundreds of Web start-ups over the last decade.

Yet nonstop economic gloom in other parts of the economy seems to have frayed even the nerves of the Valley's sublimely confident denizens. The economic crisis dominates conversations. In the technology blogosphere, prescriptions for riding out the crisis - and what percentage of start-ups are destined to fail - are the subject of intense debates.

According to a quarterly survey by the University of San Francisco Entrepreneurship Program, the confidence of venture capitalists has plummeted to the lowest level since the survey began in 2004.

There is no doubt that the current economic crisis is serious. But, it's also naive to believe that all business and technology innovation will collapse. Not all investors are cash dry -- Warrent Buffet still has a lot of cash. Because technology innovation is important to the survival of human race, investors will find money to fund start-ups and create new business opportunities. The rules of the game haven't changed, just the competition for fundings is getting tougher.

On the US Government massive bailout plan

The US financial market is in a state of extreme stress. Triggered by a sub-prime mortgage market collapse, banking institutions, both investment banks and traditional banks, are having trouble raising cash and afraid of leading money. Recently the US Government steps up its action to calm the market by issuing a massive bailout plans to save troubled financial institutions.

A constant reporting of these news events in different media streams can create confusion. It's important that we keep our head straight in order to make sound decisions for our financial futures.

Important questions that people should know are as follows:

1. Why does the US Government want to bailout troubled financial institutions?


2. How will government actions affect an individual's personal finance?


3. What actions should we take to protect and secure our financial future?

A1: The US Government is very concerned about the current crisis. It worries that if a significant number of financial institutions are to close doors within a short period time, a series of chain reactions will destroy any potential for the US economy to recover in the near future.

A2: US taxpayers should expect greater inflation and higher taxes in the near future. The government's bailout plan will require a large amount of government-back bonds to be issued. Most likely that they will be sold to foreign countries. The effect of this is equivalent to printing cash, which will lead to inflation. Greater national debts will reduce foreign investors' confidence in the US-dollar-backed investments. To reduce the national debts, unless the government finds others way to fund it's current operations, it will raise taxes.

A3: Don't panic. We're in a tough situation, but it's not the end of the world. The best way to protect our financial future is to diversify our investments. Diversify means putting your money into different vehicles of financial instruments. If you have money to invest and don't yet own a home. Go buy a house -- if you plan on staying at the same place for years and enjoy maintaining your own home. Remember to invest in retirement funds. In a down market, increase your investment funding if you can. Find ways to reduce your income taxes. Owning a home and invest in qualified retirement plans (401K and IRA) can reduce your income taxes.

When it comes the US economy, I'm an optimist. I believe that the US has the best governing system in the world (though imperfect) and with a culture that will allow a fast market correction and recovery. Most of the world's countries are in a deep financial crisis. My belief is that the US will be the first to come out of the woods. The question is when.

Additional Reading: Wall Street Bailout Plan

Can America keep its innovative edge?

The United States of America has been the powerhouse of technology innovation for the past half century. One question that many people ask is can the US keep its edge? An Economist.com article overviews the inner structure of technology innovation and key problems that the US must address if it wants to keep the lead.

What's damaging the US's ability to innovate?

• Lacking a clear government policy to sustain technology innovation.


• The US education system is broken.


• Complex immigration issues discourage talents to stay in the US.

Why has the US been so successful in innovation?

• A country's ability to innovate is depended on a "venturesome" culture. The US has it.


• Countries that tried to replace a "venturesome" culture with central planning have failed.


• Building a "venturesome" culture and economy is difficult and takes time.

Read the full story -- Can America keep its innovative edge?

When will the oil price comes down?

Until it stops going up. Based on my understanding, the uptrend of oil price is mainly caused by speculative trading on the market.

If you’re looking for evidence oil’s surge is the result of a speculative bubble, look at the astronomical trading statistics on energy exchanges. Bill Stone, PNC’s chief investment strategist, notes today that the average daily trading volume in energy futures so far this year is $138.3 billion. That’s a 61.6% increase from 2007 and a 3,000% increase from 1997.

I would note that much of this increase might be the result of technology rather than evidence of a bubble: Sophisticated computerized trading systems make it much easier to try to squeeze out extra profits by buying and selling contracts rapidly throughout the day.

What can we do? Nothing. Just sit tight until the price comes down.

Except the commodities, everything else looks cheap. Given that the economy is kind of under the weather, I think it's an excellent time to invest.

Here is my logic: the future of our economy can only either go up or go down. It has only two possible outcomes. If it goes up, then start investing today will give you a better return in the future. If it goes down, your money in the bank probably won't worth much anyway -- the purchasing power of your savings would be reduced due to inflation.

When everyone is scared, it's time to be greedy.

Blu-ray wins the high definition DVD war

Many consumers stayed on the sideline when it comes to purchasing a high definition DVD player. The battle between Toshiba and Sony, HD DVD vs. Blu-ray, is coming to an end.

Sony wins. Blu-ray beats HD DVD.

Toshiba, the main force behind HD DVD, is expected to drop it's HD DVD production in the near future. This IHT article gives a quick overview of the situation and offers few interesting facts.

• It only took 2 years for Toshiba to "give up" on the standard that it tries to push. In the past video tape format battle, Sony waited 10+ years before abandoning its Betamax format.


• Blu-ray accounted for 93 percent of next-generation DVD hardware sales in North America (reported in January 2008).


• Toshiba may have lost the battle. But, some analysts embrace the company's quick move to adopt a winning standard, and upgrade the company's stock rating to "buy/high risk" from "hold/high risk."

Can Mozilla survive beyond 2008

Mozilla Foundation announced its 2006 revenue: $66,840,8550. This result represents a 26 percent increase from its 2005 revenue. The financial state of the Foundation looks bright in the short-term. However, some analysts have concerns about it's long-term outlook.

Here is the problem. In 2005, about 85% of the organization's revenue comes from Google, which pays royalty fees to have Google search services integrated in the open source Firefox browser. Google's contract with the Mozilla Foundation is to expire in November 2008. So far, no words from Google whether it wants to renew the contract. Analysts worried that Google may abundant the relationship and go on to implement its own browser strategies independent from Firefox. As a result, Mozilla could face a big drop in its revenue after 2008.

I think Mozilla can live well beyond 2008. First, if Google decides to end its contract in Nov. 2008, there is simply other potential clients to replace Google, e.g., Yahoo! and Ask. Second, Firefox can offer other kinds of royalty licensing to web business, such as EBay, Netflix, and Amazon. The Web is an important computing platform. It's definitely worth paying to have your business displayed in the default page of the worlds' second most popular web browser. Third, if Mozilla Foundation does run out of cash to operate, I'm sure some Silicon Valley VC will be happy to take over the organization and run it, perhaps, under a different business model.

Mozilla is here to stay, either with or without Google.

Self-branding in the age of Google, YouTube and Facebook

The concept of self-branding is nothing new. Politicians brand themselves to get voted; movie stars brand themselves to get public attention. In the age of Google, YouTube and Facebook, self-branding is an important skill that every career-driven individuals must pay attention to.

I came across this concept twice in the past few days. First time, when reading the bookmark "The World is Flat" by Thomas L. Friedman. Second time, when reading the article "Creating Brand You" by Diane Brady in the BusinessWeek magazine. What has gotten my attention is that in the age of Internet, self-branding is a strategy that is no longer exclusive for the rich and powerful, but also is available to anyone who has an Internet connection and knows how to use a mouse and a keyboard.

What is Self-Branding?

Think yourself as a product. Self-branding is to use branding tools (e.g., strategies, tactics, communication messages, blogs, photos and videos) to maximize your own image. "Brand You" defines who you are, how you are great and why you should be sought out. Self-branding is to create your reputation in a targeted population -- which may be your colleagues, potential clients, future employers etc.

Why is Self-Branding Important?

The ultimatum game

Do people always say yes to free money no matter how small it is? The ultimatum game is designed to answer this question. Economists often believe that any financial gain, however small, is worth having. Psychologists, on the other hand, disagree with this presumption. So who is right?

Dr. Terence Burnham of Harvard University recently gathered a group of students of microeconomists and ask them to play a modified version of the ultimatum game. A theory that this study tries to prove is that people often reject free money in order to prevent their competitors from getting ahead. This rejectionist strategy is not irrational, but differently rational.

Why Google succeed and Yahoo! failed

Both Google and Yahoo! went through the millennium bubble burst. However, years after, the business of those companies seem to have gone into two different directions. Google's stock price has risen more than 500%, and the price of Yahoo!'s stocks is nearly unchanged.

So what business discussions have contributed to the success of Google and the failure of Yahoo!? Conrad de Aenlle in this IHT article explains...

The strength of Google has been to take complicated technology - a superb Internet search engine - and build an uncomplicated business around it: selling advertising aimed at consumers based on Google's understanding of their needs and wants, gleaned from their search patterns.

Yahoo is a jack of all trades - a communication medium, aggregator and distributor of news and entertainment - and it has not mastered many of them, Weiner said. "Yahoo is attempting to become a broadcasting platform, creating original content, cutting deals with film studios and TV networks," he said. "None of that has really panned out.

A simple answer to the question is this...

It takes more than great technology to make a great technology company.

When it comes to building a successful technology company, while technology and innovations are important, but the company's operation and execution are even more important.

Source: Why Yahoo! came up short

Social media business models

VTT Technical Research Centre of Finland recently published a technical report on social media and its business models. In this report, the authors surveyed several social media companies and products, and concluded that while online advertisements, e.g., via Google AdSense and Yahoo! Publisher Network, continue to be the most popular business model for social media companies, there are alternative business models for making money.

I highly recommend this report to readers who are interested in the business aspect of social media. It did a good job in explaining social media concepts and its relationship with Web 2.0 and other technology derivatives (e.g., swarm intelligence and mash-ups). Key issues associated social media are also discussed, which includes user behaviors (active v.s. passive), user identity, copyright, mobility, trust and spams.

In the rest of this post, I highlight the existing and emerging social media business models that are discussed in this report.

Mozilla business

Mozilla Foundation is a non-profit organization. It depends on people donations and contracts to operate it's daily business -- pay for developers, marketings etc. Since 2004, with the success of its Firefox browser, Mozilla has grown into a very successful open source organization, and a very profitable one.

The revenue of Mozilla Foundation increased from $6 million in 2004 to $52 million in 2005. A large portion of this increase is due to a special agreement with Google. The company pays Mozilla more than $100 million to have Firefox's default page to display the Google search page.

In 2005, a new for-profit Mozilla organization is created, which is called Mozilla Corp. A key task of the new organization is to manage tax and other issues related to the Google contract.

Here are couple interesting questions to think about:

1. When the survival of an open source organization (e.g., Mozilla) is depended on special arrangements and agreements with a for-profit company (e.g., Google), can it continue to function independently without being influenced by any business objectives of the for-profit company?


2. Should Mozilla share wealth with thousands of people who have contributed to its open source projects? If so, how?

Source: Firefox faces the costs of success

Rich investors and poor consumers

These days investors of the stock market are happy because the Dow is at its all time high. However, US consumers are not very happy because of rising energy costs, grim housing markets and possible inflation and stagflation crisis.

This situation looks odd to many people. If the US economy is doing well, shouldn't it benefit both investors and consumers (remember the age of dot-com)? If the US economy is not doing well, how is it possible for many companies to report record earnings?

Answers to these questions can be found in Robert Reich's podcast -- Wall Street's up, Main Street's down.

Harvard Business Online

Harvard Business Online launched a new web site that is full of useful management and business analysis resources. An official announcement can be found here.

Items on Harvard Business Online that I enjoy:

• HBR IdeaCast: breakthrough ideas and commentary from leading thinkers in business and management


• Innovation & Entrepreneurship: sub-topics includes disruptive innovations, disruptive technologies, entrepreneurship and innovation
  


• Discussion Leaders: blog posts by leading thinkers in business and innovation (Tom Davenport, Tammy Erickson, Eric McNulty, Larry Prusak, Michael Watkins, Bob Sutton and Gillian Corkindale)

Source: Bob Sutton

Fusing Swarovski crystal with Philips technology

Technology is cheap. Massive produced technology products are now selling for a dirt cheap price. Lower product price means lower profit margin. In order to survive, companies must try new strategies that will allow them to sell technology with high profit margin.

Philips, the consumer electronics giant, and Swarovski, the cut-crystal company, are teaming up to create "fashionable" technology that could sell for a high profit margin. This new line of products will be branded under the name "Active Crystals", targeting women age between 20 to 40.

The first two fashion products from the Philips-Swarovski collection are a flash drive and headphones, to be introduced in April. Others will follow this year, executives said without elaborating. De Jong's unit is responsible for products like remote controls, Web cameras, headphones, batteries, DVDs, CDs and burners, speakers and cables.

The Philips-Swarovski peripherals will carry a modest price premium, executives indicated. The price range over the whole product line will be €40 to €250 , they said. "We didn't want to price it so that women think it is not for them," de Jong said.

Source: Geeky gadgets get a shot of high-fashion bling, IHT.

What can we learn from this new business model?

Renting out your stocks as an investment strategy

Monex, a Japanse online broker, now offers a new service that will pay fees to customers who are willing to "rent" out their stock shares. This business model allows the broker to borrow a large number of shares, which they don't really own, for short-selling or for covering trades.

This news comes to me as a big surprise. As it described in this IHT article, there are usually only two types of income associated with stocks: dividends and stock appreciation. This new service offered by Monex opens the door to a third type of income: "rental" fees.