Musings on Business and Tech

Category — business

We Need to Break More Rules

A recent episode of the Planet Money podcast profiled Thomas Peterffy, one of the first people to experiment and be successful with high-frequency trading. They told the story of how he was doing algorithmic trading before any of the stock exchanges supported electronic trading, and before NASDAQ even existed. So how did he do it? That’s the fascinating part.

He made his money building a system that was able to assign a fair market price to stock options. He then compared these values to what the options were actually trading for, and arbitraged the difference. Back in the late 1970s when he first started, he would print out the numbers and bring them to the trading floor in a huge binder. When the stock exchange banned him from bringing the binder, he stuffed the papers into every pocket his suit had.

Then Peterffy got himself a system called Quotron, a computerized service that delivered stock prices to brokers (it was a replacement for the widely-used ticker tape system). If he’d used the system the way it was intended, he would’ve read the quotes as they came in on the Quotron, manually input them into his algorithm, run the numbers, and cashed in. But that wouldn’t have been that much better than just using ticker tape, and the fact that he had a computerized system meant the data was in there somewhere, in digital form. If he could figure out how to retrieve it he could pipe it into his system and save a crucial, time-consuming step.

Nowadays if we wanted to do something similar, we might look into whether the Quotron had an API, and if it did we’d query that for the information. If it didn’t have an API, well, we might look for another system that did.

But Quotron had no such ability. So he did what any hacker worth his salt would do. He broke out his oscilloscope, cut the wires on the Quotron, reverse-engineered the data signal, and patched it into his system. And you think screen-scraping is hard?

When NASDAQ, the first all-electronic stock exchange, came online, he was faced with a similar system. Brokers could trade directly on the exchange via computer. This was no doubt a huge breakthrough, but there was still no way his system could make the trades automatically. So, again, he busted out his oscilloscope and patched his way into NASDAQ.

Eventually the folks at NASDAQ caught wind of this, visited him at his office, and reminded him that his terms of use dictated that trades must be made via keyboard input, not by splicing into the data feed. They gave him a week to comply with the terms. So what did Peterffy do? He built a robot to type the trades out on the keyboard. Of course he did. When the NASDAQ official returned a week later, all he could do was stand agape, in awe of what Peterffy had done.

We developers could learn from Peterffy. The ease of software engineering has made most of us too complacent. When Twitter’s API terms change, we complain about it for a few days, and then change our business models to suit the new rules. But the real innovation, the real interesting stuff, the way we’ll make $5.4 billion like Peterffy did, is by bending the rules and building systems that give us a leg up on the competition, or, better yet, improve people’s lives.

To be sure there are lots of hackers on the fringes of legality doing very interesting things, but the rest of us are somehow content to toe the line. We shouldn’t do anything that’s illegal, but we should get close. Innovation comes out of spurning the status quo, not complying with it. It’s time for people who know how to build things to bend the rules a little, and see what comes out the other side.

(The podcast was based on Peterffy’s story as told in the book Automate This: How Algorithms Came to Rule Our World.)

September 13, 2012   2 Comments

Apple vs. Switzerland

Yesterday Apple’s market cap topped $500 billion. Staggering. Only 19 countries in the world have a bigger GDP than Apple’s market cap, possibly soon to be only 18:

Apple vs. Switzerland

March 1, 2012   No Comments

TV Zero

My family and I haven’t watched “TV” in weeks. Granted, we don’t have cable (we use rabbit ears and a digital-to-analog converter box), but that’s not really the reason we haven’t been watching. The real reason is that Netflix instant streaming has changed our lives.

With the sheer volume of quality content that Netflix has (as well as other online video sites like Hulu), we are now at the point where we don’t really need to watch actual television. We are getting close to a point I like to call “TV Zero.”

By “TV Zero,” I don’t mean turning off all your screens and moving to Montana. I simply mean disconnecting from television as we know it (scheduled programs grouped into broadcast networks). I truly believe that, no matter how much the cable companies and networks drag their feet over the next few years, it’s just a matter of time before all programming formerly available on cable or over-the-air broadcast will be available on the internet. The experience is so much better.

For one thing, video over the internet is truly demand-based. I can watch any episode I want, at any time I want. For another thing, finding content is far easier, and has far more potential, than the current model that cable tv uses. Netflix can recommend shows I may never have heard of, based on what it already knows about my consumption habits. The array of content available is also more vast–services like Netflix can offer back catalogs of content providers with much lower incremental cost than, say, a cable company. In fact if you think about it, it’s kind of shocking that after 15 years of the “commercial internet” we’re still only in the early stages of this.

And then there’s all the recent buzz about Apple making a “smart tv.” If the rumors are true (and I believe they are , for the good reasons outlined here), the acceleration of our culture toward “TV zero” could increase tremendously. The potential for disruption and innovation in this space is huge, and in my opinion inevitable, and there’s no company in a better position to lead this change than Apple. But if Apple won’t do it, then someone else will. (Amazon? Google?)

One thing is certain, though: the cable companies will not go down without a lot of kicking and screaming. Unless someone in their ranks realizes the inevitability of this change, and figures out a way to profit madly from it.

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April 18, 2011   2 Comments

A Decade Later, Are We In Another Tech Bubble?

Lots of people are buzzing lately that we’re in another “dotcom” bubble, roughly ten years after the last one. In mid-November, noted New York venture capitalist Fred Wilson described some “storm clouds” ahead for the tech investing space. He described what he sees as some unsustainable “talent” and “valuation” bubbles. This was around the time of the TechCrunch story about the engineer that Google gave $3.5 million to stick around.

Not too long after that, Jason Calacanis of Mahalo fame wrote a brilliant edition of his email newsletter in which he outlined four tech bubbles he sees right now: an angel bubble (similar to Wilson’s valuation bubble), a talent bubble, an incubator bubble (new firms cropping up to try and copy the successes of YCombinator and TechStars), and a stock market bubble.

And the frothy news just keeps on coming: Groupon this week allegedly turned down a $6 billion acquisition offer from Google (yes, that number has nine zeros and three commas in it [1]). Oh, and also, the Second Market value of Facebook is about $41 billion. That makes it #3 in the web space after Amazon and Google.

And, finally, there was this hilarious and depressing tweet going around yesterday from @ramparte:

But for me the proof was in two recent encounters with people decidedly not in the tech industry: my accountant and my banker. Each of them, upon learning what I do for a living, started talking to me about their tech business ideas. One was intriguing, one was, shall we say, vague, but everywhere I turn these days I feel like someone’s trying to pitch me on their idea for a social network, a mobile application, or whatever. And who am I? I’m a nobody. Can you imagine how many pitches people like Fred Wilson and Jason Calacanis get? It must be absurd. And in any case, what most of these folks don’t realize is that the idea is about 5% of a successful business. The remaining 95% is laser focus and nimble execution.

I feel lucky to be in technology right now–the economy is so crappy for almost everyone else. And that’s got to be one of the driving factors of this bubble right now. It’s one of the only healthy industries out there, and it’s attracting people who are disenchanted with whatever sick industry they happen to be in. Other driving factors of course are the recent explosive growth in mobile computing, the maturation of the web development space (frameworks like Ruby on Rails and Django that make web app development almost frictionless), and the rise of APIs and web services that allow vastly different sites to integrate their offerings.

It’s as if all the fishermen in the world have descended on one supremely awesome spot. A lot of people will catch a fish or two, some will catch enough that they’ll never have to fish again, but most won’t catch a thing.

[1] If anyone ever offers me $6 billion dollars for anything, please remind me not to turn them down.

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December 5, 2010   No Comments

Are Derivatives Really That Complicated?

I should preface this post by saying I know next to nothing about finance. What I do know I’ve learned over the past roughly two years by listening to NPR’s Planet Money podcast and reading books like the one I’m currently engrossed in, Michael Lewis’ The Big Short.

Last year my friend Steve wrote about the “complexity” of derivatives, arguing very convincingly that, even though the media liked to talk about how complex were the securities that nearly brought Capitalism to its knees, in fact they were generally being very lazy because these things weren’t really that complicated after all.

In The Big Short, however, Lewis describes how many of the traders who were trying to short mortgage-backed securities described them as being “complex,” even though they had spent a lot of time researching them. When these traders first encountered these securities, they had no idea what they were looking at, but they took the time and had the smarts to research them and figure them out. However, even after that effort, they still called them “complex,” not because the concepts were difficult to understand, but because no matter how much they researched them, they could never really determine the quality of the underlying raw materials (mortgages) in any given security.

The Wall St. firms that created and sold the CDOs deliberately made them obtuse so that it was difficult to determine the actual risk contained within. Part of the reason the firms loved selling CDOs was because they were able to take low-rated mortgage bonds they couldn’t otherwise sell and package them into higher-rated derivatives that they could sell. On “first generation” mortgage bonds, it might have been clear what the risks of investing in them would be, since the firms did publish stats such as average FICO score or % of no-doc loans in the bonds. But the firms sliced and packaged these bonds into CDOs many times over, such that it became very difficult for investors to get a real sense of the quality of the underlying raw materials in them. So then everyone just trusted the rating agencies.

It’s like trying to determine the quality of mass-produced ground beef. You may know that one particular cattle farmer’s practices are sustainable and humane, but once you grind up his meat and combine it with the meats from thousands of different farms and feed lots, and then portion that ground meat into little hamburger-sized patties, it becomes almost impossible to determine the quality of any individual hamburger. So then everyone just trusts the USDA ratings and goes on eating.

Read The “complexity” of derivatives « Steve Reads.

June 30, 2010   1 Comment

Steve Jobs as Presenter

Yesterday I followed the iPhone 4 announcement live on, which was rebroadcasting a bootleg audio feed from the WWDC keynote. I was amazed by how much passion and enthusiasm a frail Steve Jobs could convey even through this distorted audio.

Though he’s been accused of peppering his speeches with superfluous accolades like “incredible,” and “awesome,” there’s really no one else out there who, through his presentation style, can make you care about things you didn’t know you cared about. Before yesterday, I didn’t know I cared so much about screen resolution, for instance, or video chat or 3-axis motion control. Now I care about them so much I want them in my next phone.

If Jobs weren’t also one of the best product people in the world, this skill would be enough to make him a very successful man.

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June 8, 2010   No Comments

How Many Gallons? How and When Will The Oil Spill End?

May 27, 2010   No Comments

Twitter Channels Steve Jobs

Yesterday, Twitter announced that it would no longer be permitting third party ads in the timeline. It struck me how similar this felt to when Apple recently changed their developer agreement, prohibiting apps that were cross-compiled using third party tools.

Let’s compare. First, the juicy part of Twitter’s announcement:

As our primary concern is the long-term health and value of the network, we have and will continue to forgo near-term revenue opportunities in the service of carefully metering the impact of Promoted Tweets on the user experience. It is critical that the core experience of real-time introductions and information is protected for the user and with an eye toward long-term success for all advertisers, users and the Twitter ecosystem. For this reason, aside from Promoted Tweets, we will not allow any third party to inject paid tweets into a timeline on any service that leverages the Twitter API. We are updating our Terms of Service to articulate clearly what we mean by this statement, and we encourage you to read the updated API Terms of Service to be released shortly.

Now, Steve Jobs’ “Thoughts on Flash:”

Our motivation is simple – we want to provide the most advanced and innovative platform to our developers, and we want them to stand directly on the shoulders of this platform and create the best apps the world has ever seen. We want to continually enhance the platform so developers can create even more amazing, powerful, fun and useful applications. Everyone wins – we sell more devices because we have the best apps, developers reach a wider and wider audience and customer base, and users are continually delighted by the best and broadest selection of apps on any platform.

Without Jobs’ outspoken stance on Flash, I’m not so sure Twitter would’ve had the gumption to make this kind of a decision, one that could potentially alienate such a large swath of their developer base. But I respect them for doing it. It’s a gamble, but one I think they’ll win.

I’m starting to see a pattern in which companies are coming down really strongly in favor of user experience, even if it pisses off third party developers. User experience should always be the primary concern, and developers should agree. I can see how some developers may see this as another “Fuck You” from Twitter, especially because announcements like this usually and conveniently tend to favor the platform provider over the little guys in the ecosystem, but I think it’s a move in the right direction. And they can certainly afford to make these kinds of wagers when they have so much inertia in their user base.

via Twitter Blog: The Twitter Platform.

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May 25, 2010   No Comments

Blippy Flies Too Close to the Sun

When I first read about Blippy on TechCrunch in December of last year, my first thought was “Oh God, this sharing thing has gone way too far.” My next thought was, “Note to self: stay far away from Blippy.”

For those who don’t know, Blippy is a “transaction sharing” site. You enter your credit card details and the site scrapes your account activity and posts it for your friends to see. Yay, my friend just bought a new toaster oven.

Apparently, they also, in a small number of cases, posted full credit card numbers on the Internets, which Google subsequently, dutifully, crawled.

This situation is utterly awful. Credit card theft is rampant (my wife just got notified yesterday of a fraudulent charge on her Visa card).  Those roughly sixteen numbers are sacrosanct.

I don’t know who is stupider in this situation:

  • Blippy, for creating a website that accesses user’s credit card accounts, scrapes their information, and broadcasts it for eternity (and does all of those things really badly, exposing sensitive data in the process)
  • Blippy users, for signing up for such a dumbass idea and willfully handing over their credit card data
  • Credit card companies, for creating a system where the only thing stopping someone from using my credit is not knowing the sixteen-digit number boldly printed on its face

Last night, Blippy issued an apology as well as a corrective plan of action. But this is too little too late. If you’re creating a website based on sharing my credit card transactions with my friends, isn’t your first and most important concern the security and privacy of the data? Or does that come down the road, after they’ve duped enough users into signing up?

An apology is simply not good enough. Nor is a corrective plan. Blippy needs to shut down their borked service and pack up the wax and feathers on which they’ve built their clusterfuck of a startup.

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April 27, 2010   No Comments

Why Facebook Will Never Get Privacy Right

When a restaurant reopens under the same management but with a different “concept,” you know it’s in trouble right from the start. For some reason, restaurant owners refuse to believe that the failure of their establishment has everything to do with them and nothing to do with whether it’s a “tapas bar” or a “gastropub” or an “organic new american bistro.”

It’s the same thing with Facebook and their privacy settings. Facebook, the problem is you.

Yesterday Facebook announced some changes to their privacy settings, including a section that TechCrunch singled out, called “Friends, Tags and Connections.”

First of all, I’m not even sure I’d know under what circumstances I’d need to click on this section. It sounds more like a place where I’d manage my list of friends. If I clicked at all it would be out of curiosity, not out of deliberate intention.

Secondly, as TechCrunch points out, Facebook’s own explanation of these settings actually makes them even more confusing:

Friends, Tags and Connections covers information and content that’s shared between you and others on Facebook. This includes relationships (shared between you and the person you’re in the relationship with), interests, and photos you’re tagged in. These settings let you control who sees this information on your actual profile. However, it may still be visible in other places unless you remove it from your profile itself.

If everyone I’ve ever known weren’t on Facebook I’d seriously think about deleting my profile. Between the annoying Farmville and Mafia Wars status updates, the creepy ads in the sidebar, the requests to join meaningless fan pages, the half-baked email application, the fact that they “own” all the photos I upload, and of course all their previous privacy missteps, the Facebook experience is just awful from start to finish. And there’s really nothing they can do to ever make me trust that they are approaching the issue of privacy with the seriousness and simplicity that it deserves.
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April 20, 2010   1 Comment