Not to understand the market’s operations

No federal or state regulator has market oversight responsibilities or regulatory powers governing the over-the-counter derivatives market or indeed has even sufficient information to understand the market’s operations. The market is totally opaque and is now popularly referred to as “the dark market.” It is enormous -- the reported size of the market as of last June exceeded $680 trillion dollars of notional value, more than ten times the amount of the gross national product of all the countries in the world.

From what Brooksley Born had to say on her accepting the 2009 Profile in Courage Award, May 18, 2009.

Just think of the leverage!

Einladung zum Update

Wir haben den Microessay Öffentliches Gut - Öffentlicher Wert überarbeitet und hoffentlich klarer, verständlicher und richtiger gemacht.

Wir hoffen inständig, dass uns nicht das passiert ist, was derzeit dem Apfel mit dem Schneeleoparden und dem Mikroweich mit Fenster N°7 passiert.

Aber, das was wir hier tun, ist ja auch viel einfacher, als ein Betriebssystem weiter zu entwickeln. Kinderzeug geradezu.

The Third Time

For the third time in 25 years PC sales have gone down. On a very high level though. In a higher percentage than before yet. What does that mean?

It means the PC industry is fighting with the actual consumation and investment crisis.

The diagram also nicely show us that 1994 was the real year of world wide PC revolution. Incidently we believe the Internet revolution at large started in that year.

It might also mean the rather unworkable CPU and memory performance up vs. OS and other software consuming the effects of Moore's Law is getting one hickup or the other. Small Wonder. Embedded has long since overtaken PC in terms of sheer number of processing units. Let's look at that another day.

Mass Media, a problematic business architecture

On last Friday a competent third party drew our attention to two things. Quoting Peter Drucker with "The purpose of a business is to create a customer." was a reminder.
The pointer to Dealing With Darwin by Geoffery Moore was a new one . DWD is a relatively new and interesting business economics pattern book published in 2005.

Let us just mention that we agree with Mr. Drucker in the assertion quoted, with its stress on create a customer*.

Before you determine to buy this book go on its website. You'll get some pretty valuable promotion material there.

Mr. Moore in this book suggests there are two different basic business model architectures for successfully handling innovation and the task of creating and keeping customers, calling them the Complex Systems Model and the Volume Operations Model Mr. More also recommends to not mix these architectures.

The two cannot and should not mix, or share best practices. Businesses with one architecture should not covet the benefits of the other.


A First Line Explanation

Volume operations customers, like individuals buying coffee, sports ware, mobile music players or enterprise units bying furniture, multipurpose office software or cars, require an easy-touch, a few-sizes-fit-all approach, where customization, if available at all, is in DIY or small business personal services form.

Volume operations start with a base technology. This creates a portfolio of offerings which spread through a continuum of channel operations to a potentially huge base of customers. If the potential is reached then the buyers generate the cashflow as trickles of small transactions that unite to a mighty river at the supply side. Sony, Volkswagen, Apple Records, Apple Computer, Microsoft and many regional food, say for example local cheese, companies are good examples for this business model.

Complex systems customers on the other hand, like, for example, an enterprise buying a new IT architecture and implementation of their business processes (say Allianz) or a multinational buying cross-country, cross-media, cross-targetgroup promotion (say Coca Cola) or individuals buying a new home for their family, require an intense-touch, high-customization approach.

As we can see in Mr. Moore's diagram, the complex systems model necessitate a solutions model which involves an integration platform over legacy infrastructure elements, all bunched and connected by a technical architecture layer, a mixture of own and third party modules, a second architecture layer that maps the bottom of the system to the customer’s needs and tastes. The complexity of this alone is often too much for the customer and this open the opportunity to offer consulting and integration services as an icing on the cake.

NASA, CapGemini, Siemens, WPP and many local business technology integrators are good examples for this architecture. The model does not scale infinitely but does so pretty well.

A common business constraint

Everybody knows, companies have to be profitable to stay in business. We now need to return to Drucker as an unsuspicious source for the assertion that profit is not the goal of business, which is to “create and keep a customer”. Profitability is a constraint. It is needed to manage risk, crisis and survival.

Differences emanating from relationships

Concerning the cost and pay constraint: In complex systems revenue and margin are dominated by complex and rather intransparent cost structure, large gross margins and slow turnover. In volume operations profit is achieved by lean and transparent cost structures, narrow margins and fast turnover.

Concerning innovation handling: In volume operations technological innovation generates revolutionary changes in the business model. In complex systems disruptive technology is most often a direct driver.

Concerning the marketing of the offer: Volume customers and complex system customers have very different sympathies and prejudices and therefor generate very different necessities in marketing. Sales cycles and revenue balance between first buy and post-sale are near completely different in the two models. Complex systems architecture must orchestrate coalitions of associates to make solutions work. Subtle reputation and collective positioning is a key to this. In volume operations branding and stand-alone segment positioning is a key to working image and brand value and opposed to collective positioning.


A preliminary conclusion

We can now start to see why Mr. Moore so adamantly discourages the mixing of both business architectures. We could give lots of examples, positive and negative. Lets be content with 3 or 4. After 25 years in the business and great successes IBM got rid of its PC products. Siemens never succeed in electronic volume operations products. Oracle was never once able to develop ship or sell mass customer products. Both though they tried hard. The other way round was rarely tried.


Mass Media, a violation of principle

Now traditionally, mass media, as the name suggests and on the product side, found themselves quite naturally in the volume architecture. (The production side never quite made it there.)

All customers of a newspaper read the same newspaper that evening and the next day. All viewers of a movie or television entertainment program watched the same story unfold on the silver or phosporized screen.

Once physical production machinery and transport were efficient enough, low implementation and distribution cost expanded the market to practically the limits of language comprehension. In entertainement, without the need of speed in news content this was even better. Translation and overdubbing enlarged markets to culture comprehension sizes.

But. But from the start of the mass media business model in about the middle of the 19th century to this very day there has been a complication in the creation and satisfaction of the customer. This complication is set by two further classes of paying customers.

The first of these classes is a strange mix of product promoting companies and their advisers, a sector which the media companies call the advertisement industry. The product these customers want to buy is complex. Though it is constructed of rather uniform and simple mass available byproduct elements of mass media, the form and set into which these elements are combined ever more is complex. Those customers and the associated offers belong to the complex systems architecture.

The second class of buying customers of course is the political elite. Quite a lot of investigation has been directed at the contradictions created by the often differing interests and tastes of these two complex customers groups.

The troubles generated by the two different business architectures on the other side can be thoroughly felt every day but have been largely overlooked as far as I can see. The troubles also have been smeared over a bit by the fact that large intermediate groups act in the field with a near perfect pretension to be able to reconcile those needs and tastes.


A preliminary diagnosis

Let us pause here by asserting that mass media companies, by their double basic business model architecture fundamentally violate the above mentioned rule (do not mix) by Geoffrey Moore.

*Some philosophical clarifications:
We agree with the opinion of Peter Drucker on the purpose of business. We also agree with his statements indicating that innovation and marketing are the only two functions that are really important to reach this goal. This agreement is given inside a fictional agreement that business is a good and important thing to do.

The last assertion has to be called a fictional agreement, because a practical acknowledgement that business is a field and form of action that needs to be handled under the given circumstances does not provide for inner appreciation and full recognition.

We also believe that there a many things people can do and did do that are stupider and more outdated than doing business. The comparison with those things still makes business look like a good thing to pursue. It also makes suggestions of past and present leaders to carry on with it and do ever more of it look like a sound suggestion.

Correctly understood, that comparison only ascertains that business is a better thing to do than many other things. It does not sufficiently ensure that business is a real good form and field to realize the human potential for interaction. Better simply does not mean Good.

Quotes Collection Websites normally carry other Peter Drucker sayings like "Management is doing things right; leadership is doing the right things. " and "Most of what we call management consists of making it difficult for people to get their work done."

We agree with these two statements. At this point the frameworks for deciding what the right things to do and what the wrong things to do come into play. These are really hard to tackle. Nevertheless, for the time being, business is a field of action that, as we said, has to be handled. Seriously.

How to Overcome the Dilemma

The digital world has brought about lots and lots of hollow discussions on disruptive technology, creative destruction, management strategy, markets as conversations, losers, winners and finally good and bad.

These discussions have misled many a would be inventor, business student and investor. It is important to not just know a piece of 3 to 4 concepts each, but to understand some fundamentals.

To be able for example, to understand that good management and listening to customers is important but not a help in any case.

It is also important to understand the difference between disruptive and radical innovation.

V. Rao takes the opportunity of the tenth anniversary of the publication of Mr. Clayton Christensen's influential book "The Innovator’s Dilemma" to give a good hint at how incumbent organizations, if they still have a nerve, can do anything at all.

How to Overcome the Dilemma

Customers and investors are able to punish/reward companies to stay away from disruptive innovation because mature companies are structurally set up to feel the pain. Christenson concludes that the only way for an incumbent to pursue a disruptive idea is to separate the new business completely from the culture, processes and market pressures of its old one. This was what worked for the IBM PC. I haven’t yet seen a counter-example to this principle yet.

As we have repeated so often before and at the risk of being crude we like to remind you one more time how important the IBM PC was to save the personal affordable real computer, as invented and put in the world by Bill Mensch, Chuck Peddle, Frederico Faggin, Masatoshi Shima and Steve Wozniak from the grips of management and marketing. The credits for this have to go to Don Estridge and boss William Lowe.

Expanding Emission sizes

Just google the words "carbon footprint" and you've added seven grams of carbon dioxide to the atmosphere, say Harvard researchers. Google disputes this number, but there's little doubt the IT industry is becoming one of the biggest contributors to global warming. The industry now accounts for 2 percent of worldwide emissions- comparable to the annual total for airplanes.

Christopher Werth vom amerikaninschen Wochenmagazin Newsweek hat sich beim Titeln sehr angestrengt:

Green Clouds in Northern Climes

Aber tatsächlich ist in der Zwischenzeit nicht mehr der Takt oder der von Neumann Flaschenhals oder die Software-Krise das Ding in der IKT. Das Ding ist der Stromverbrauch.

Ist 2 Prozent viel? 2 Prozent ist scheißviel.
Ist der Carbon Footprint das richtige Maß?
Nein, aber das macht nichts. Er erinnert uns an viele Sachen.

Shrinking Market Sizes

The German

• Ringtones market is 300 million, down from 600 million in the early 2000s
• Music sales market ist 1,65 billion, down from 2,7 billion in the late 90ies
• Fashion market is 24 billion, down from 36 billion in the mid 90ies
• Telecommunications market is 65 billion and pretty stable
• Car market will be 73 billion in 2009 and 52 billion presumably in 2010.

The times are changing and so is identity or at least appears to be.