It’s the What’sUpApp-Economy, Stupid!

I don’t have  a problem with anybody receiving some outrageous monies for his work. 19 billion USD might seem a bit over the top for a mom and pop pseudo-SMS operator. But it’s Mark Elliot Zuckerberg billions, so I don’t care if he spends them on platinum popsicles or a piece of heavily used software.

Unfortunately, the deal points to a pattern. That’s what Robert Reich is pointing out, first on his Tumblr (sold for 1.1 bn USD), then at Salon. It might be an occupational hazard that the former secretary of labor under President Bill Clinton is keeping an eye on he job market. But his diagnosis is pretty spot on:

The winners here are truly big winners. WhatsApp’s fifty-five employees are now enormously rich. Its two founders are now billionaires. And the partners of the venture capital firm that financed it have also reaped a fortune.

And the rest of us? We’re winners in the sense that we have an even more efficient way to connect with each other.

But we’re not getting more jobs.

Cars don't buy cars.
Where’s the money? Messages don’t buy cars.

It’s the core problem of our networked digital economy (just ask Jaron Lanier). And it’s a reiteration of the pitfalls of productivity, which lead Henry Ford to his famous statement “cars don’t buy cars”.
Back then, the problem was a bit more in the open. Pay your workers well, and the humming economy will pay you back with interest.

But, as Reich states: our new economies have a different problem. It’s not that the WhatsApp-workers are impoverished human beings, wrought out in the treadmills of late stage capitalism.
The problem is: they’re hardly needed anymore. Look at a traditional telco like Sprint Nextel. Their market cap is just 50% higher. Now look at the employment numbers:
– WhatsApp: 55
– Sprint Nextel: 79,000

That’s right. Merge the app team into the telco, and it disappears as a mere rounding error.

 

Can productivity be the problem? Hm. In the first electrified trains, a mandatory stoker had to be on the train. This approach may have solved one family’s bread and butter problem, but reeks of institutionalized madness.

So maybe it’s more about the distribution of the productivity gains? Let’s have a look at the wealth creators of the last years: Facebook, Twitter, AirBnB, Uber, Soundcloud, and now, WhatsApp. Great services all of them, highly successful as well. I prefer (almost) any AirBnB accommodation over  a run of the mill business hotel. Me likes Twitter. Facebook. You name it.

All those services share one thing: they are highly centralized. In terms of the service, and in terms of the wealth they created. I tweet and become a participating member of the attention economy. But the intrinsic value of the tweet is absorbed somewhere else. I rent out my place. But the listing service receives a huge percentage.

In terms of the value distribution, the chain looks like that

  1. founders and early investors
  2. later stage investors
  3. early employees
  4. service providers to the company
  5. employees on the payroll
  6. eventually: outsourced service providers (Uber drivers, AirBnB hosts, …)

You may rent out to peers. But the value distribution is definitely not peer to peer.
Producing value as in content usually is valued as zilch. Look at Medium as a new publishing model. All words are meant to be free. Not as in speech. But as in freebie.

Don’t get me wrong. Founders and early investors should get a big chunk. They’re taking an oversized risk (I know what I’m talking about). But it might be the right time to look at different models of value creation and distribution.

As I’ve been annoying everybody in the last couple of months with my harping on crypto currencies, you might know what’s coming. Yes. Let’s talk about crypto currencies.

Crypto currencies may look a bit weird. But they have some serious implications.
Just try this thought game:
– A crypto coin like Bitcoin is a token of ownership.
– Ownership always comes with increased interest (as nicely described in the endowment effect).
– Ownership of a crypto coin makes you a stakeholder in a crypto economy.

Now look at this: crypto coins like Bitcoin are basically programmable money. You can build economic entities which practically run themselves (like WhatsApp). But those new entities can share the created financial values between all stakeholders. 

How can this look alike? David Johnston’s paper on Decentralized Applications is taking a very good lead here. One of his examples would be a Meshcoin: a crypto system to run a decentralized network of meshed WiFi hubs, which is not based on donations or the “hey, we could sell some ads”-model, but offers economic incentives to run and mesh up your hub with many others. Which could look like a FON on steroids.
Because, don’t forget: routers don’t buy routers and jobless Tweeters do not need any ads.

 

 

Ban Bitcoin! (demands VISA)

Loose lobby talks at the G8 UK Summit 2013.
Lobby laughs, lobby talks, lobby cries: at the G8 UK Summit 2013.

There’s a paper handed around between Bitcoin-friends which has the potential to scare the bejesus out of the cryptocurrency world. In June 2013, Newsdesk Media published a colorful magazine called G8 The UK Summit: Lough Erne. The esteemed list of authors include French president François Hollande, the president of the European Commission José Manuel Barroso, Barack Obama, and here we go, James Lyons, CEO of the International Cyber Security Protection Alliance (ICSPA). His rallying cry, allegedly to protect digital economies from cybercrime: ban alternative payment mechanisms, such as Bitcoin. Because they can enable criminal and terrorist groups to launder money and fund their operations.

As some people might remember, organized crime did not start with the Internet. Nor is money laundering a proprietary feature of crypto-currencies. Just ask your (un-)friendly neighborhood mobster. His family might be in the funds laundering business since some centuries and a half. And, especially regarding Bitcoin and its public ledger, large scale money laundering is not a built-in feature. To the contrary: larger transactions  leave quite a footprint in the system.

The good thing about Lyon’s two page rant: despite the officially looking publication, policywise there’s nothing set as of so far:

If the leaders of the European Union and United States could be convinced to take a lead on this initiatives, … it would also strike a blow against those who would try to destroy the fabric of our world’s well-being, begs Lyons.

Of course, some of those world leaders might be inclined to remember the last time somebody almost succeeded in destroying not just the fabric of our world’s well-being. After all, bespoke leaders are still busy cleaning up the fallout from an almost final financial Armageddon (success not guaranteed). Alternative payment mechanisms, such as Bitcoin were definitely not at the root of this evil: They were not even around in 2007, but later on conceived as a potential remedy to skullduggeries inherent in the existing system, where the proliferation of weapons of financial mass destructions has reached the level of let’s say Brooklyn, Berlin-Kreuzberg, and Clacton-on-Sea having become rogue nuclear powers of their own.

A criminal misrepresentation of facts?
A criminal misrepresentation of facts? The lobby-tomized ICSPA.

So why is Lyons fighting so hard to ban these payment mechanisms? The ICSPA explicitly exists to fight against cyber frauds in electronic commerce, which mostly involves credit card technologies conceived for a non-digital non-networked world. Crypto currencies could be applied as a vaccine against those threats. OK, look no further than into the fairly short member list of his lobbying organization: a bunch of security services companies, a UK-based retailer, the global PR powerhouse Edelman, and, oh, woopsie: Visa Europe, the bank-owned credit card giant. Oh yes, alternative payment mechanisms could definitely become a threat to Visa’s well being: if they do not want to co-opt the remedy for the self-inflicted ills they’re suffering from (and which are the reason they finance a body like the ICSPA, whose executives not just do lunches with MPs, but are a liaison to law enforcement bodies like Europol as well).

The really bad thing is: Lyons knows his core audience pretty well. He and his ICSPA share table and bed with the powers that be on a fairly regular base. At the ISSE 2013 security conference in Brussels, Lyons explained how the world needs to reset the clock on trust after whistleblower Edward Snowden revealed the US Prism internet surveillance programme. Time to review cyber trust, says ICSPA, headlined Computer Weekly.
Lyons proposed course of actions: Governments need to do a better job to help citizens to understand the reasons for conducting internet surveillance.
How would he achieve that? Combining international efforts to clamp down on child abuse pornography could help to rebuild relationships and trust between business, law enforcement and governments. Ah, got that.
And, not to forget, the Ceterum Censeo, asking for the tit for tat: an international collaboration in outlawing ignitable currencies such as Bitcoin.

How will (or should) the Bitcoin community react to such efforts?

How to survive a lobbyist in full attack mode.
How to survive a lobbyist in full attack mode.

There are three main courses of action: ignorance may sometimes be bliss and is very much ingrained into the human nature (duh!), but can have some really bad side effects. So, what else? Following the lead of traditional lobbies like ICSPA and start talking to the government as well, negotiating with regulation bodies, and getting law makers up to speed. The US-based Bitcoin Foundation seems pretty active in this area. In Novemer 2013, General Counsel Parick Murg testified at a Senate Homeland Security and Governmental Affairs Committee hearing entitled, “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies.”

And yes, it’s really important: if you want to make real business, legal certainty is not a nice thing to have, but a precondition.

But not everybody is embracing this appeasement approach. Are nice talks enough, when the chain dogs of the incumbent competition have skipped the mere bite reflex and are openly out for a kill? Not to forget: Bitcoin is still a bit player in this lobbying arena. And let’s not forget: the dark forces of financial evil did not just survive their own suicidal attack on the global financial system. They got nicely remunerated for it as well, with all blessings of the system they almost destroyed. They achieved this with hardcore PR, well oiled lobbying, and being a fundamental building block of the current system.

No way, say the makers of the Dark WalletMany prominent Bitcoin developers are actively in collusion with members of law enforcement and seeking approval from government legislators. We believe this is not in Bitcoin user’s self-interest, and instead serves wealthy business interests that make up the self-titled Bitcoin Foundation.

Parts of the community feel the same and voted with their wallets for the Dark Wallet: via Indiegogo and direct Bitcoin contributions they collected fairly quickly more than a hundred thousand Dollars.

War! Schism! Whatever! We’re talking protocol here. The only relevant schism would be a nasty fork. At its current state, both parties may distrust each other. But on the other hand, it’s two approaches which are nicely complimentary. Talking to the government is not an inherently bad thing. Just remember: really successful pirates like Francis Drake had their letters of marque, thereby minimizing theirs risks and maximizing their profits. At the same time you should never stop working on strengthening your own superpowers. The power of Bitcoin lies in being a crypto currency, and not in becoming a complacency coin.

And, besides that: I’m pretty sure that Bitcoin as a protocol or an open platform will not necessarily wipe out all existing financial players. To the contrary: clever CIOs in modern banks will embrace crypto currencies. Why? Have a look at how the current system works. It’s pretty cumbersome at its core. So the next financial innovation may hopefully not be a new and improved weapon of financial mass destruction, but an improvement of the inner workings of an ancient machine.

The most dangerous of all KPIs?

Indexes (or indices, for the bourgeoise humanists among us) are a like botox. You can use them to heal, cover up, or kill.

In case of the botulinum toxin: heal obnoxious conditions like fissura ani, cover up your probably well earned wrinkles, or use some grams of this hyper toxin to kill half a million people by poisoning their milk supply.

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Measure this and here and there!

Same goes with KPIs. You can use them to tweak your business processes by creating accountability for set goals. Because, If you can’t measure it, you can’t manage it. You can use them to cover up what’s already going wrong (Hello, Enron).
And they can have some rather impressive, probably unintended, real world consequences. And this is what the new format Berlin Debates was taking on in their first round of Cambridge Union Society style exchanges: »GDP has failed. It’s time to switch to a new measure of progress.«

Matthew Taylor, Chief Executive of the Royal Society of the Arts, debated Prof. Dr. Karl-Heinz Paqué, a politically well connected German (neo-)liberal professor of macroeconomics. Taylor preemptively summed up the two hours nicely in his blog. Not measuring the GDP, the gross domestic product, is bad. But using GDP as one of the three major yardstick to evaluate governement performance: unemployment, inflation, and economic growth.

In a nutshell, GDP is a nice tool to compare different national economies. But it doesn’t say much about the economic state of the state. As Taylor nicely explained: it’s nice to knvoting with their feet (ow that there have been five goals shot at the football game. But if you do not know who scored for which club, the information lacks a certain quality. But quantity over quality is not GDP’s only defect. GDP does not include externalities. Long term costs like pollution (which would be quality of living problems as well) are not reflected.

This does not mean GDP is bad. It’s very well defined, definitely stable (a big plus), and works on an international level. It’s just that using GDP as the main KPI to manage a national economy tends to set the wrong incentives. Says Taylor. And that’s what the audience agreed upon by voting with their feet (by choosing an exit you voted either yay, nay or whatever).

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Where’s the pulse?

So say good-bye to yer olde GDP? Most likely, not. Popular indices have a tremendous staying power. Even if they might have overlived their time for quite some time. Case in point: the Dow Jones Industrial Average. Published since the 1880ies, the Dow is still “among the most closely watched U.S. benchmark indices tracking targeted stock market activity”.

It’s not watched, because it’s so spectacularly well designed. Measuring stock market tendencies with the Dow is a bit like an MD measuring the pulse of a patient, who’s wearing a space suit. You might see something. But taking 30 industrial stocks as an indicator for the sanity of the US markets leads to a VERY blocky image. Still, it affects investment decisions on a global scale.

Here's the pulse.
Here’s the pulse.

Of course, the GDP’s problem is not granularity. But it skews governing decisions by omissions. So as a policy decision making toolset, it seems a bit out of whack. Because, honestly: as a citizen, you shouldn’t be interested in beating your neighbor in GDP growth. You’re interested in your own economic well being, the well being of your community.

Of course, now the hard work starts. What do we want to measure and for what reasons? What is sustainably measurable anyway? It’s a reconciliation process with a lot of stakeholders.