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Our biggest fear is Raj was found not guilty
—Lee S. Ainslie III, managing partner of Maverick Capital: via WSJ
The expert network brand has been severely damaged. Most insider-trading investigations to date have more to do with direct, corrupt relationships between insiders and their investment brethren. But these became synonymous with the handful of exchanges alleged to have been facilitated by the likes of Guidepoint Global and Primary Global. Through a failure of analysis, insider trading and expert networks became one and the same.
Whether it was Rajat Gupta and Raj Rajratanam or the alleged extracurricular activities of various attorneys and accountants accused of passing along material nonpublic information to a scurrilous group of investors in search of an edge, though they weren’t facilitated by a network, they certainly stained the networks. The consequences will be pervasive and persistent for the industry, and we can already see a handful of changes – among them, compliance, consolidation and repositioning. Nonetheless, the consequences will be good, and they will reinforce the benefits of expert networks. Read the rest of this entry »
When I was an analyst, I used build my own network. I’d spot names in magazines where someone was quoted about a company and call them — that’s part of doing fundamental research.
—Dan Chung, CEO, Fred Alger, remarking on how, back in his day, they didn’t rely on expert networks or outside consultants. No, they called people quoted in trade magazines themselves, asked all those probing questions, and walked uphill, in the snow, to school, both ways. Chung is the son-in-law of the gentleman behind the eponymous firm: via Marketwatch
Steve Cohen has had among the highest returns in the industry….Insiders in the business for a long time suspected that his special sources amounted to privileged information. The debate amongst insiders was, “Was the special information on the right side of legality or the wrong side?” But I think it was a pretty common view that it was close to the edge….
When you have somebody who doesn’t appear to have that readily identifiable edge, who nonetheless makes much higher returns than other people, you wonder.
—Sebastian Mallaby, author of More Money Than God. He went on to share that “in the past, successful investors constructed their own expert networks,” just like Dan Chung, which he attributed to the master networking skills of those such as Julian Robertson, when who you knew was the currency, and those that were known were former executives and outside of the circle of those normally considered insiders. So if what Julian did was ok, why won’t Mallaby afford Steve Cohen the same safe-harbor? Is it any different than a service which will connect anyone else to former executives and others outside of the circle of those normally considered insiders? After all, it’s hard to see a difference in kind between what Julian and Steve are described as having done. The interview merely insinuates. It does not specify: via LA Times update – this was also posted as a comment on the LA Times blog-piece, but they seem to have removed it.
The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore. They were wrong.
—Robert S. Khuzami, enforcement director for the SEC, commenting on a specific insider trading scandal involving the general misbehavior of consultants at Deloitte who misappropriated and tipped material non-public information to trade for their and their relatives benefit: via NYT
The whole concept of expert networks is a bit of a smokescreen here because if you think about it, it’s impossible to be an analyst on Wall Street unless you have an expert network.
—James Kinnucan, Broadband Research, remarking on the media’s association of expert networks with an expanded insider trading investigation by the SEC: Interview by David Faber on CNBC. Kinnucan, of the fresh faced eager beaver fame.
Doc Searls frames danah boyd’s recent talk on privacy at SXSW as a loss of control. The internet’s applications and engagement with society have resulted in a loss of control over one’s privacy. But this is misleading. It suggests that one might have had control in a more personal setting – that an in-person meeting might charter one’s ability to shut another up, impounding the information forever. Did we ever have that level of control? No.
But Searls has tapped into something. It stems from a fundamental disquiet around the social contract that Eben Moglen describes in Freedom in the Cloud with Facebook, among other social networks: “I will give you free web hosting and some PHP doodads and you get spying for free all the time.” He’s tapped into the disquiet around actual control over the architecture of social interactions. It’s control, not the lack thereof, that is startling.
The architecture of social interactions, to be sure, is a loaded phrase. For our purposes, it can be simplified and thought of along three dimensions. First, it reflects the conditions under which one might share information. One might share a status update with Friends on Facebook or tell a colleague of a weekend about town over coffee. Second, it speaks to how another might absorb the information – ranging from listening carefully to surveillance of Friend’s wall on Facebook. Third, it is shaped by how people think about their audience. Are these systems for addressing individuals or groups? A person or a public? boyd’s talk glances upon this, but does not tease out its underlying influence on sharing and surveying.
It would be wrong to say that we ever fully controlled sharing or surveillance in any of the real world interactions of which boyd speaks wistfully. These encapsulate a flexible, mutable set of considerations and circumstances that one might make or be subject to with each interaction. Should I tell so and so? Is this the right place for it? Will someone overhear? What will they do with the information once they have it? We can edit ourselves, choose the conditions of how we share information. But we have to make compromises. We can make judgments around the setting and the person. We might even influence how they treat the information. But we don’t control what they do with that information. We may be careful, but we don’t really control any of it.
Social networks and interactions on the internet, however, introduce actual control over how we share with and survey one another. Control amounts to the easy ability to publicize what boyd calls personally identifiable information and personally embarrassing information. There are two parts to this: the ability to share more effectively and pervasively; and the ability to listen and survey more broadly. It’s not that we are giving up control, as boyd says. We didn’t have it in the first place. It’s that we’re seeing it for the first time. Control is over publicity, not privacy, and it sits with whomever or whatever has the information.
A discrete email might feel selective and appear to impound the information forever, but it can just as easily be circulated to another and another and another. That email or Facebook photo or blog post, unlike hearsay and the slow erosion from memory of a coffee-shop confession with a close acquaintance, can circulate with alarming ease and absolute fidelity to the initial confession. Indeed, systems on the internet don’t so much impart control over privacy, but over publicity. In a matter of keystrokes, damaging, embarrassing or otherwise hilarious information can be shared, surveyed, and shared again – increasingly open to the deliberate or serendipitous surveillance of many more people than might otherwise be intended. Each digital footprint stirs with potential energy.
The rising claim that privacy is dead, boyd suggests, imbues these systems with a prejudice for publicity. Fulfilling Moglen’s social contract, social networks design their systems to increase the velocity of sharing and improve the powers of surveillance. The obvious example comprises the PHP doodads from Moglen’s quote, but the counterpart is how social networks change how people present themselves and the information they share. It’s a change that shifts participation toward publicity.
Social networks orient one’s sharing and surveying toward groups, not individuals. The orientation levels one’s relationships according to various categories of access. One group can see only your public profile. Another, your entire wall and collection of embarrassing photos. But everyone is addressed in the same way through status updates, postings: each according to their clearance, and without regard for who they are individually. A user wrestles with the idea of the public, not the idea of a friendship.
boyd characterizes Twitter accordingly and starts to draw a distinction from Facebook. She suggests Twitter “evolved to be primarily about those seeking an audience and those seeking to follow or contribute to a public in some way.” Users invent a persona and participate in a system designed for publicity. She argues that Facebook, however, is “still fundamentally about communicating with a specific set of people who are, by and large, your friends.” But suburban Facebook’s engineering, through likes, posts, zombies, encourages addressing a group, a public, not an individual — even before the recent changes in privacy policies that accidentally may have led to some over-sharing by unsuspecting users.
Sharing with a public, surveying a public – these activities engage the public. They not only depend on the public, they drive publicity. boyd warns us with a distinction, “there’s a big difference between something being publicly available and being publicized.” But the shift toward control in the architecture of social interactions erases the difference between publicly available information and publicized information. Public information is publicized information.
The shift that we’re observing is one toward greater control, not less. Enhancements to one’s ability to share and survey information introduce massively distributed control and gear the engines of publicity. With each individual arranged as a node in the network, equipped to survey and share as they wish, oriented to an ever changing public, we are seeing a shift toward control, not away. And with it, the realization that more control means more publicity.
The PEW Project for excellence in journalism recently published its annual survey on the state of the news media. The report framed readers of online news media as mysterious strangers with dubious habits and few loyalties. They read promiscuously. They spend little time with the news online. And they are quick to abandon any site that might ask for compensation. Online journalism is in trouble.
The business of connectivity, however, is thriving. Both video and internet access, whether it’s through Verizon or Comcast or another, continue to increase penetration and, seemingly, price, and the FCC’s 100 Squared initiative will spread access wider and push it deeper than before. But the PEW project pits an underfunded online news media against the mysterious stranger who doesn’t seem to recognize or care for their impact on or the consequences for the media or perhaps the higher goals of journalism itself.
How can the fate of internet access and online media be so divergent? They’re actually intertwined. It’s not that we’re not paying for news. We are. Internet access bundles the full array of sites, services, and entertainment online with the physical connection, just like cable. But unlike cable, it doesn’t pay for the privilege.
Cable and the internet are a lot a like. Both are networks. Both distribute entertaining and educational programs and services. Both are actually bundles. But unlike the cable bill, which must pay out to the various networks, the internet bill doesn’t pay the panoply of sites across the internet. It pays only the ISP.
Cable bundles content in a way that’s immediately obvious. The guide shows a raft of networks, and with digital cable, many of these programs are available on-demand. Cable permissions the content, pays the rights-holders, and distributes it over a proprietary network — all for a monthly fee. These networks and programs are the complement to the cable network.
The internet portion of the bill, whether it’s from the telecom company or the cable company, appears to do none of that. It’s billed as pure connectivity that terminates in an ethernet connection. The ISP may market tiered levels of access, so an online gamer can experience a faster connection and lower latency than someone who only needs to check their email and stream The Daily Show. Everything about how it’s billed, marketed and promoted would suggest it has only priced connectivity, but it’s not just selling connectivity. It’s selling a bundle, just like the cable side of the bill, and that bundle includes the manifold benefits of all the sites, services, and entertainment of the internet.
Bundles solve one very important problem for companies – pricing. Not every customer will value any one product or service in the same way. A price for one customer might be too high; for another, too low. One could price each good or service to suit each customer, but price discrimination on this order is inefficient and becomes costly with each transaction. Over an entire portfolio of products or services, however, variances in customer perception begin to even out. No customer may value any one product or service, but taken as a the whole, the bundle may be valued similarly by all. Erik Brynjolfsson argues that bundles provide greater pricing efficiency and higher profits, and with digital information goods — the internet — the bigger the bundle the better. This is the power of the bundle.
The ISP bundles connectivity and its network of complements in the form of sites, services, and entertainment available online. The internet bundle, however, is distinguished in one important way – market power. The ISP wields market power in two ways. It’s not only a means to maintain and perhaps increase pricing with the consumer. It is also through the lack of market power inherent in the network of complements that constitute the sites, services and entertainment available online.
Market power starts with an explanation. Economists assume that within a perfectly competitive market no one competitor would have the power to raise prices for a particular good or service. If they did, customers would switch to a ready substitute at a lower price. These are the conditions of pure competition, in which a particular good or service is a commodity. Experience would suggest, however, that markets aren’t always perfectly competitive. What characterizes this divergence? Market power. In those cases, the company has the power to raise prices without losing customers to competition. At the extreme, market power may manifest as monopoly.
The market power of an ISP that has captured most of our attention faces the customer. It starts with the high barriers to entry associated with having laid the local loop in the form of copper lines, cable plant, and now fiber. These barriers limit competition, often to a maximum of two players in any particular area: a telco, such as Verizon, and a cable company, such as Comcast. Indeed, the FCC’s 100 Squared initiative admits 85% of markets have only one player, and in the remaining 15% markets much of the legacy telco infrastructure has not kept pace with the cable offering, so there is effectively one player. As the Berkman Center’s Next Generation Connectivity report suggests, these are regional monopolies and duopolies that have enormous market power over the consumer. Yochai Benkler’s recent op-ed in the New York Times, for example, drew stark parallels between the generous service offerings driven by regulated markets internationally than the relatively stingy offerings in the US.
What has drawn less attention is the effective market power ISPs have over the sites, services, and entertainment online. It’s this condition that allows ISPs to sell the bundle but keep the money.
The ISP operates as a broker and bundler between the user and the Internet. While selling the connection to the customer, the ISP also effectively provides access to the sites, services and entertainment available on the internet. Similar to a cable package, these are the complement to internet access, but unlike a cable package, the ISP doesn’t have to pay retransmission rights. Access is free, ostensibly. Who set the price? Who has market power? The ISP.
The Pew Project for Excellence in Journalism follows the thread all the way to the end customer and dismal results. Some 82% of customers are likely to go somewhere else if their favorite news site were to begin charging for access, and only 35% even have a favorite news site. To customers on the internet, substitutes may be so pervasive and available that it often does not even merit a respondent’s identifying a single one. Taken literally, only 7% of online readers would pay for access to their favorite news site.
Does that mean that customers aren’t paying for news? No. Customers are paying for news. The internet bill isn’t just for connectivity. They’re paying for the bundle – news, among other sites, services and entertainment online. The service would hardly be a worthwhile transaction for as many people as it is at $40 a month without youtube, The New York Times, Amazon. But the ISP’s market power conveys the proceeds of the internet access bill to the ISP, not the media.
4 March 2010 in Uncategorized | Tags: benjamin cardozo, control, economics, facebook, facts, internet, jump the shark, marketplace of ideas, markets, metaphors, privacy, ronald coase, social networks | 1 comment
this push towards things becoming more open is probably the most powerful and transformative social change… We may be the company that really leads this movement….It’s not clear that anyone else is going to manage it correctly.
—Mark Zuckerberg, outlining the steady erosion of the concept of privacy in our time: WSJ
Jessica Vascellaro’s cover-story in the WSJ seats Facebook in a tension between going public and Zuckerberg’s remarkable ability to “delay gratification” and take a seat in “a long queue of tech barons with grand ambitions.” The real story, however, may be in her subtle jibes at one who might become “world’s richest twenty-something.” More than a thinly veiled personal attack, Vascellaro may be hinting at something more substantial: that the question of privacy in the 21st century will be meaningfully shaped by an ambiguous and controlling figure. Read the rest of this entry »
A friend recently directed me to an argument that flared up between Graham Hill and Doc Searls on the subject of Vendor Relationship Management (VRM) and Doc Searls’ VRM Project. Graham’s critique is essentially existential. He claims that VRM can’t exist, and if it does exist, it’s irrelevant and a giant step back for commerce and the consumer.
Graham makes a compelling case by dint of its organization. He outlines a dichotomy between CRM and VRM. Either customers own the data or companies own the data. If customers own the data, it would be subject to four claims. And he strings up VRM as a straw man to be invariably dismissed. Unfortunately, the dichotomy is false and the claims don’t match subject — VRM.
But that’s not so much the issue. Instead, it reveals two implicit claims: consumers have no interest in their consumption; consumers and their vendors would not benefit from the tools to organize and act on that interest.
Let’s start with the dichotomy – the existential question. Is VRM impossible?
Rather than companies owning huge databases of customer transaction data which they can mine for their own advantage, customers should take control of their own transaction data and selectively release it to companies when they want something from them.
For a customer to take control of their own transaction data doesn’t require companies to give up control. Isn’t this what ERP systems do when they manage and help negotiate with suppliers? That relieves us of the either/or. Lo — VRM can exist, and it can exist if we have the tools to harvest transaction data, understand it and act on it.
Moving to the fallacies. First, the data is already out there. I receive credit card statements, mobile phone bills, and other statements that give me the data. Second, of course people want control of the marketing sent to them. Does that mean that they don’t want the transaction data? No. Third and fourth, these arguments could be parsed as non sequiturs, bundled in a false dichotomy and finished by begging the question.
Starting with the position that VRM can’t exist, Graham proceeds to say, if it were to exist, it wouldn’t have access to data. If it did have access to data, people wouldn’t want it. And if VRM cleared these hurdles, it would do nothing less than attempt to supplant the free market system by way of managed markets and the principled dissolution of Apple as we know it.
The distillation proves extreme, but it’s revealing. It uncovers the two claims driving Graham’s post: consumers have no interest in their consumption; consumers and their vendors would not benefit from the tools to organize and act on that interest. VRM is a bet that these are both false. If they are, there’s interest and an economy, and that could be a business.
First, consumption. People are passionate, particular, and opinionated about the stuff they buy. We call those people enthusiasts, and we can find them in the Makers Mark Ambassadors program, Ducati owner groups, and even fanboy sites for the media they consume. They might obsess over any one step in the process: finding, acquiring, managing or consuming — or, all of the above. But people are interested in their consumption.
Second, organization, or VRM. Consumers benefit from tools to manage their vendors. Cellartracker.com comes to mind, and the Mint / Wasabi effort looks like an early attempt to better understand spending through parsing credit card data. The problem with these is that they may or may not make money.
So yes, the bet is right, but the question remains: does it make money?