Posts Tagged ‘Generation T’

The Dark Pool of Empty Markets

Many have commented that the job market has become an enigma over the past few years. The jobless rate is low, but pay has risen slowly. Are we[1] measuring pay imperfectly? Vacancies co-exist with unemployment and the old phenomenon of under-employment and the new challenge of a zero-hours contract have emerged to colour the landscape. Many workers have had no real increase in wages in years. At Starbucks recently the Spanish barista and I chatted about job opportunities. She had an accredited certificate in the teaching of English as a foreign language. Additionally, she and her two friends were recent language graduates who had opted to move overseas to work as baristas in Ireland. They had no job opportunities as teachers in Spain. Coincidentally, a few months earlier, the vacancies page of a national paper carried notices for Spanish teachers at senior level to deliver a course on Spanish language and literature to the level prescribed by the Department of Education. The baristas applied for the vacancies and were not successful. It is not an unusual occurrence in the jobs market except that it was reported that in one of the schools Spanish was discontinued as a foreign language. French and German continued to be on the curriculum.

But why was Spanish discontinued? At one level there could have been a mismatch in the qualifications and skills required in the teaching of the Spanish course. At another level, maybe there was no demand for Spanish language at the school. Or maybe the more senior teachers, including French and German teachers, exercised a ‘hold-up’ on curriculum development until they retire. In a simple twist of fate one of the baristas had heard in the grapevine that there was a staff shortage in the school. On reflection there could be another explanation. Theoretical physicists have long believed that empty space is not empty at all[2]. The theory holds that radiation leaves energy in its wake when passing through the empty space. By analogy, in the economics of the jobs markets, Spanish baristas leave a skills set behind when they pass from one job at Starbucks to the next job at a Spanish restaurant creating an empty market of skills and talent in language provision. The transition creates an empty market of skills and talent in the provision of goods and services.

There are no actual jobs in an empty market. But with retirements and aging populations, Europe, for example, may have to rely on the dark pool of skills and talent in the empty market. It is not about the qualification per se rather it is about the misallocation of resources in an empty market that co-exists with the dark pool of skills and talent. In an efficient allocation of resources an individual with skills and talent enters an empty market at one level, (say) as a barista who is Spanish and qualified as a Spanish teacher, and exits at another level as a Spanish language teacher. It is an optimal outcome in a two-sided market of an aging European population and refugees, refugees that  qualified as doctors, engineers, teachers, nurses, writers, painters, plumbers, electricians inter alia who leave behind a skills set as they pass through an empty market as a doctor or engineer or plumber to become a refugee. Until policymakers accept the empty market phenomenon it is unlikely that baristas or refugees will have the opportunity to secure jobs that match their skills and talents. As Starbucks[3] CEO Howard Schultz commented ‘in a nation of latte makers and latte drinkers, you need more of the latter’. Europe has the demand for skills and talent; there is a dark pool of skills and talent, there is a new phenomenon of the empty market. The existence of an empty market could give rise to a misspecification in the economic analysis of labour data. In the econometrics of a wage equation, for example, the co-integration of earnings, prices and productivity will now require an effective hours’ variable[4] to accommodate hours worked in the new labour market of zero-hours contract,  underemployment and working in the grey and black markets. Otherwise a wage equation is just a re-parameterisation of a regression of the level of wages on the current and lagged levels of predicted wages and excess demand. In our view this could have implications for macroeconomic planning in an age of empty markets. The fact that there is a transitioning of skills and talent into an empty market right now should be recognised by policymakers and they should tap into and legitimise that dark pool, sooner rather than later.

[1] The question posed by Mark Glassman and Peter Coy in their vignette ‘Wages: Another Way to Look at Pay’ in Bloomberg Business Week July 22 2016.

[2] Article in The Irish Times ‘Magnetic Masters Bring Data Storage to a New Level’ by Dick Ahlstrom, July 21 2016.

[3] Cited in Time magazine July 11-18 2016 pp81

[4] Introduced in McNutt (1994): ‘Ownership and the s-firm’ in Andrew Burke [Ed] Enterprise and The Irish Economy Oak Tree Press, Dublin.

Raw War: Google ∧ Apple = 1

Google and Apple are like chess players in a smart game – their war is raw. They are as thran as a pair of cloth galluses. Both players attack: they have developed a cognitive awareness of each other as competitors and like[1] Radar O’Reilly they always know the rival strategy before the rival does. Players ought to know their weakness in a game[2]. Their weakness, paradoxically, is their rivalry. It is rational now for Apple (White) to defend iOS with selected roll-out of iNext smart pawns supporting iCloud to Apple Pay to e-SIM to iCloud Voicemail to MVNO in 2016 and beyond. But with Google (Black) in attack allowing its King’s Knight (Android) to be positioned across the chess board so as to weaken White’s centre pawns both players could be worse-off. Maybe Pushkin[3] had a point in preferring a bad peace to a good quarrel.

In this essay we try to argue that they should lose the competition and collaborate together in a partnership. Both players would be better off. Their individual success lies in the creative technologies and innovations they have created unilaterally. From the recent iPad Pro launch to Google’s voyage into wireless. Their future success, however, in the evolving complex market of artificial intelligence, cyber-genetics and autonomous devices, is mutually interdependent. Maybe Apple will buy Tesla. Maybe Google will navigate successfully the unchartered technical land of the wireless Sirens. Who cares?

Google throws the gauntlet down at every opportunity but Apple remains secretive, playing a Fabian[4] strategy of delay. Apple products can fail: who remembers Newton, Apple’s personal digital assistant? Or who remembers the Pippin game console system? Or the befuddled roll-out of its mapping service? Or that Apple TV does not support 4K? Or that Apple lags behind in the evolving complex market of artificial intelligence, cyber-genetics and autonomous devices. Covertly, Apple may have the upper-hand. Even if Apple does not have the latest device or innovation once it decides to enter a market, any market, competitors find themselves[5] in Apple’s line of fire. Who cares?

Chess Analogy

Apart from investors, twenty-first century consumers, and businesses, care. As the ipso-centric generation[6], we, as our own[7] ‘photographers, broadcasters, cinematographers, chanteuse, matchmaker and funeral director’ do care because of the impact the new innovations and technologies will have on our daily lives and in the creation of new services.

Integrating the narrative of Fred Vogelstein’s book[8] with chess strategy provides an interesting canvass on which to paint the competitive rivalry between Apple and Google. Guided by the brush strokes of non-cooperative game theory we discuss the strategy choices as moves on a chess board, Apple (White) v Google (Black) with Google (Black) as a player on the counterattack since the launch of the first iPhone in 2007. A game where it will be challenging for Apple (White) to hold on to the centre as Google attacks its Queen (iOS) quickly and swiftly, faster than any counterattack from Apple. In the discussion of a best reply for Apple (White) to counteract any perceived weakness in the game we have argued before[9] that Apple as a player should stop defending its pawn line of iPhone-iPad. The recommendation then for Apple in 2013 was to reshape strategy by playing not to lose rather than playing to win – simply, launch a[10] nano-iPhone for $100-150.

Google (Black) is intent on attacking the pawn line. So, what is Apple’s best reply today? The recommendation for Apple playing not to lose today is to acquire or develop wireless. Google (Black) has already moved into wireless, launching ‘Project Fi’ an alliance with Sprint and T-Mobile. Google’s entry into the mobile virtual network space (MVNO) has changed the game dynamics to the very core of the rivalry, the ecosystem iOS v Android.

Alekhine’s defense

The ecosystem is a zero-sum game. It is a game of attack in the style of Alekhine’s defense where Google (Black) attacks Apple’s broad pawn base with Google (Black) allowing its King’s Knight (Android) to be positioned across the chess board so as to weaken White’s centre pawns as Black continues to play vigorously.  It is a game of uncertain technical standards and software development that facilitates the arrival of spherical competitors[11] from anywhere at any time in the game.

What would a playbook look like as Apple (White) defends pawn line of iPhone-iPad against a Google inspired Android alliance with Black allowing its King’s Knight (Android) to weaken White’s centre pawns.  In the ‘I-think-You-think-I-think’ reasoning of non-cooperative game theory we could translate the Apple (White) v Google (Black) game into a payoff matrix with strategy sets S1, S2, S3 and S4. The Google payoffs (S3, S4) are in italics so best to read Table 1 as if you were an Apple executive with (S1, S2) and Google is your near-rival[12] competitor.

Attack is a Dominant Strategy

In the classic game theory of Prisoners’ dilemma both players prefer the outcome (3, 3). However attack is a dominant strategy and if both players behave rationally they will end up at the equilibrium payoff (2, 2). This is happening now in an action-reaction sequence of product launches and software updates toggling towards a point of balance in the game where both players independently of each other decide whether a new product is too geeky for it to be commoditised for the mass-market.

Payoffs (iOS, Android)

Table 1[13]: Attack Strategy for Apple (White) & Google (Black)

  S3: Defend  Android

 

 S4: Attack

Smart-products
S1: Defend iOS

 

 3,3 1,4
S2: Attack with Pawns –

iPhone./iPad

iNext?

 

 4,1 2,2

 

The players’ secrecy, for example, in artificial intelligence may be hurting its software development. So we have to ask: are the strategies realistic for 2016? Yes. Apple (White) will (and does) continue to move pawns to centre stage, launching new smart products including the recent iPad Pro and Google (Black) will continue to engage with Nexus smartphones, AI, IoT and MVNO as re-shaping strategy set S4,.

Unbeatable Strategies

The technology game is changing. Early denials by Apple in 2010 on MVNO have changed to signals on trial and camouflage[14] allowing for a more realistic and nuanced interpretation of likely future strategies, so we include e-SIM and iCloud Voicemail in Apple’s S1 strategy set in Table 2 and ask: what if Google (Black) is looking at a payoff column in Table 2 with payoffs (2, 4) and (1, 2) with an S4 attack strategy? Why would Google think like this? Firstly, there have been plausible denials and camouflage from Apple. Also the facts speak for themselves: in the commoditised market like smartphones and tablets Apple is unique and a brand leader commanding 28% of industry profits.

Payoffs (iOS, Android)

Table 2[15] Attack Strategy for Google (Black)

  S3: Defend  Android S4:Attack

MVNO
S1:Defend iOS

With e-SIM

iCloud Voicemail

 

  

 

3,3

  

 

2,4
S2: Attack with pawns –

iPhone./iPad

iNext?

 

  

4,1

  

1,2

 

It would be rational for Google to believe that Apple would defend with iPhone-iPad pawns under a sustained attack from Google. Or does Apple have MVNO plans but delayed due to the early innovation cycle of MVNO? Probably – Apple filed patents for MVNO IN 2006.

Fabian Strategy

The Fabian delay in roll-out of MVNO would be equivalent to a Fabian strategy of avoiding a frontal attack with a sequence:

Step 1: observe the future of Sprint under Softbank management[16].

Step 2: orient strategy and then

Step 3: attack with a MVNO product offering.

This is a classic OODA feedback loop[17] in play here by Apple (White). This is a rational ‘hold-back’ play by Apple in an evolving smart innovation technology[18] game where its competitor Google (Black) castles queenside and attacks Apple (White) pawns. If Google believes that Apple believes that Google thinks like this then we recommend for Apple to play minimax[19]  strategy in order to minimise the maximum gain of Google in the zero-sum ecosystem game.

If Apple plays minimax it should continue the pawn attack because Google will play maximin in order to secure a second win[20] by forfeiting larger payoffs of 4 for a 2 in smartphones and smart products. Google will attack with S4, for example, a wireless strategy and (1, 2) is the likely outcome. Knowing this, it is rational for Apple (White) to prefer the payoff (3, 3) in Table 2. Apple (White) should not over-extend. It is rational for Apple (White) then to defend iOS now with selected roll-out from iCloud to Apple Pay to e-SIM to iCloud Voicemail to MVNO in 2016 and beyond.

Lose the Competition

Albeit, both players know that if Google (Black) MVNO strategy fails to take off or if Apple (White) is prepared to sacrifice its Queen with open source iOS the game could careen towards the Nash equilibrium. The war as described so vividly by Vogelstein might just result in significantly higher payoffs in the short term but lower long term benefits. When both Apple (White) and Google (Black) realise that[21] in this war ‘the sweetest wine, it’s a witches’ brew’ they should lose the competition and collaborate together in a partnership.

Apple ∨ Google = 0 → Google ∧ Apple = 1

Regulators will catch up  http://www.patrickmcnutt.com/blog/soft-law-google-the-coffice/ and their ‘soft law’ will not only satisfice the demands of the ipso-centric consumers but it will also facilitate the spherical competitors[22] arriving on the scene with new software developments and greater innovations – new businesses and new challenges.  A 2013 cover page[23] in Bloomberg Business Week, featuring Tim Cook, Jonathan Ive and Craig Ferderighi in a photograph had the tag ‘What, Us Worry?’ Yes, we say. Both players have developed a cognitive awareness of each other as competitors and like Radar O’Reilly they always know the rival strategy before the rival does. Know your weakness in a game. Their weakness, paradoxically, is their rivalry. Ultimately, a bad peace is[24] better than a good quarrel. So lose the competition and collaborate together in a partnership.

[1] Radar O’Reilly in the TV series M*A*S*H who always knew what his colonel wanted before the colonel did.

[2] From McNutt, P (2014): Decoding Strategy

[3] Extracted from Alexander Pushkin’s The Captain’s Daughter translated by Robert & Elizabeth Chandler.

[4] This is named after the Roman General Fabius Maximus who delayed decisions for tactical advantage.

[5] Think Roku and Spotify. Check Chanelle Besette’s article ‘Invaders from Cupertino’ in Fortune December 23 2013 Edition.

[6] Read 2012 Blog http://www.patrickmcnutt.com/blog/game-vision-you-are-your-own-irrepressible-opponent/

[7] Comment from Will Self great article ‘The Book of Jobs’ in Prospect January 2014 pp58-60.

[8] Fred Vogelstein (2013) Dogfight: How Apple and Google Went to War and Started a Revolution

[9] Check Memo to Ms Ahrendts 2013 http://www.patrickmcnutt.com/news/memo-to-ms-ahrendts/

[10] Think of ‘nano’ in the dimensions of the Moto Razr. Processor speed – think of XiaoMi’s phones in 2014 such as Hongmi IS powered by 1.6GHz quad-core Snapdragon 400 as good as and cheaper than the Samsung S3 1.4GHz quad-core Exynos 4412.  Check WIRED Magazine August 2015 article by Andrew Huang. The ‘sweet point’ on price in order to capture the 6.5b people who do not have smartphones is US $100 or less.

[11] Spherical competitors arrive at any time. Ironically, Apple in 2007 with the iPhone was a spherical competitor to both RIM and Nokia. In 2015, Chinese players like Xiaomi, TenCent, Lenovo, Huawei fit the criteria as does Amazon and Google. Check McNutt Decoding Strategy

[12] As defined in Decoding Strategy as that competitor from the sum of competitors whom you believe is more likely to react first to your move in a game. However, this does not imply that Google necessarily identifies Apple as its near-rival.

[13] For both players attack strictly dominates since 4 > 3 and 2 > 1 and 4 > 3 and 2 > 1.

[14] Check out Business Insider August 2015 on a possible Apple MVNO http://uk.businessinsider.com/apple-in-talks-to-launch-an-mvno-in-the-us-and-europe-2015-8.

[15] In Table 2 attack for Google (Black) strictly dominates since 4 > 3 and 2  > 1.

[16] Softbank is a key investor in Sprint and there may be regulatory hurdles in the US http://www.bloomberg.com/news/articles/2015-08-18/softbank-boosts-sprint-stake-again-with-73-million-share-buy.

[17] The OODA loop refers to the military strategy of observe, orient, decide and then act.

[18] SIT games are like games of attrition and fall under combat competition requiring constant defence as in McNutt’s Decoding Strategy

[19] Maximin is more commonly used in non-zero-sum games to describe the strategy which maximises one’s own minimum payoff

[20] The winning move is at the point of second win where the best reply in a zero-sum game to a minimax is the maximin strategy play.

[21] Extracted from the lyrics of Ladybird by Natalie Merchant.

[22] Competitors from anywhere in Decoding Strategy book and also : http://www.patrickmcnutt.com/blog/byte-me-on-my-app-and-the-brontosaurus-paradox/.

[23] Bloomberg Business Week Edition 23-29 September 2013.

[24] Extracted from Alexander Pushkin’s The Captain’s Daughter translated by Robert & Elizabeth Chandler.

Soft Law: Google & The Coffice

The EU regulators should settle the long running case[1] against Google. They should present Google with the opportunity to amend any alleged or putative anti-competitive practices. Markets are evolving eco-systems – contest, combat and scramble market systems[2] – and new markets are created by technology. The challenge for the law is how to handle technology not in terms of the application of black letter competition or antitrust law but in terms of how differences in company treatment can be justified. Technology impacts on existing markets, it creates new commodities, it displaces old commodities, and in some respects a sceptic could begin an economic analysis by disputing the very premise of a market as understood in this case. Is there an alternative?

Frozen Markets

Yes. In the book Political Economy of Law http://www.elgaronline.com/view/9781848445215.xml we introduced the concept of a frozen market.  If you are reading this Blog on a laptop or smartphone while sipping coffee conducting business in your favourite coffee house – you are in a ‘coffice’ – half coffee half office[3] facilitated by the smart technology created by Google and myriads of new and evolving companies. As an antitrust practitioner you can recognize a frozen market (empirically) as the market with zero prices, long-run marginal cost converging to zero, scope economies in functionalities, time dependent consumer preferences, aged competition, technology convergence and average fixed costs declining.

A frozen market is a market that evolves as companies like Google, Apple, Amazon, Microsoft, Baidu, Uber, Facebook, Airbnb, LinkedIn, Twitter, Spotify, Symphony inter alia, discover new products, new services, new production and delivery processes. Former beliefs about competing and innovating change as end-user coffice workers demand more and firms risk lagging behind the technology curve. In traditional markets monopolies were transparent and the impact of monopoly power, for example, was defined in terms of alleged higher monopoly prices. However the new architecture of the Internet and cloud computing makes centralised control of services going over IP technology almost impossible. Using IP technology information can quickly reroute around and within specific countries. Regulators will not be able to implement rules on products and services in the evolving frozen markets. EU competition and antitrust law runs the risk of lagging behind technology companies. The treatment of personal data http://www.patrickmcnutt.com/news/who-owns-our-personal-data/ and the owneship of the data is an equally important topic.

Legal Principles to Adapt

Google today, new start-ups tomorrow are companies in a frozen market, companies that evolve from a latent underbelly of technology struggling to meet new challenges and set new standards in a modern evolving economy. In disputing the very premise of a market as understood in antitrust a case could be made that Google is neither an abuse of dominance nor a monopolist case; the perfect ‘frozen’ market does not imply perfect competition – the bedrock of modern antitrust. Rather, Google is a data-driven platform, an information pharaoh facilitating new innovative firms in the sharing economy, start-ups touching every aspect of our daily life. It is the creator of a momentum effect across myriads of multiple goods and services. Start-ups search for growth in an eco-system as we breathe for life with the intensity and frequency of effort and investment to affect our eco-system of life both human and economic. Technology is of the essence. Legal principles are adapting to reflect both the concept of a market as an evolving sharing eco-system but more needs to be done.

Indeed the intricacies and entanglement of engagement that companies face with Google provide a network of unavoidable transaction costs and insurmountable gains and leverage. This allows start-ups to grow exponentially in a technology convergence type of competition where cooperation and joint enterprising is more the norm than competing as frozen markets ‘thaw’ out to create new and unimagined products and services. There appears to be some resistance in the inn of black law antitrust for an alternative definition of a market as an evolving eco-system despite the importance of evolving technology to economic activity and to the innovation process.

Soft law

There is also a need to redefine ‘competitor’ in an era of rapid innovation and technological change. Arguably there is no black letter law directly germane to Google activities in the 21st century nor should there be an unquestioning and unchecked progress of Google and others in the technology market – but every effort should be made to amend, adapt the black letter law to facilitate rather than retard Google and the leveraged industries it has helped to create. Regulators should benchmark Google against a soft law of zero prices, long-run marginal costs converging to zero, economies of scope in functionalities, time dependent consumer preferences, aged competition, technology convergence and average fixed costs declining.

We need a soft law approach to Google. There is a need for further integration of the economics of technology and information markets into antitrust and legal reasoning with less focus and emphasis on competition in the product market and more focus on market systems. In the nineteenth century Alexis de Tocqueville once remarked[4] that ‘only a newspaper can put the same thought at the same time before a thousand readers (p517)’. Today, in the 21st century, Google and the Internet are doing that and, at an alarming speed. Ultimately, in assessing the merits of any case centred on geography, frozen markets and the role of technology, cloud computing and Internet information, law may be as relevant as the colour of the judge’s eyes.

[1] Check https://www.competitionpolicyinternational.com/eu-vestager-open-on-how-to-end-google-antitrust-case.

[2] Described in McNutt (2014) Decoding Strategy http://www.amazon.com/Decoding-Strategy-Predictions-Patrick-McNutt/dp/1259071065

[3] Read http://www.theguardian.com/money/shortcuts/2014/jan/05/coffice-future-of-work

[4] Alexis de Tocqueville’s 1841 classic text: Of Democracy in America, vol 1 and 2.

Activist shareholders, Tobin’s q = Marris v

Investors generally over-react to good and bad times. Equity values are now increasing at a decreasing rate across the indexes as investors anticipate corporate earnings and begin to read the signals; many investors extrapolate past share price performance, and using an moving average or charting the trends in the share price are de rigueur in the search for a Fibonacci pattern. Management are in a signalling game with shareholders, especially the activist shareholders who are demanding changes in the execution of strategy. From Pepsi to Apple from Hertz to Red Lobster, activist shareholders are trying to break up companies, demanding change from management. In http://www.mheducation.asia/html/9781259071065.html Chapter 4 of Decoding Strategy we define the activist shareholder as Bayesian – seeing what they want to see at a point in time. As Aristotle observed in Rhetoric it ‘is a matter of putting one’s hearers, who are to decide, into the right frame of mind’.  It becomes a constant exchange between activist shareholders and the management team of the targeted company. Most prominent today is Carl Icahn; he sees a pot of cash in Apple and is urging a share buy-back. The Apple C-suite management team are a player in a game of signalling and they should really engage in positive learning transfer [PLT], by signalling to shareholders how they intend to execute strategy, re-assuring them that further innovation will support a continued rise in the Apple share price.

All shareholders prefer high expected returns but they should also be concerned with the impact of signalling on share price performance.  Signals can be observed at any time: check the business feeds from CNN, cnbc or Bloomberg. Apple at US$554 January 24th 2014 9.37 ET is not the call – rather it is Apple at a sustainable US$800 by end of 2014. And that target price depends has a co-variance matrix that depends on (i) the outcome of market share zero-sum game with Samsung; (ii) Apple’s penetration in China with China Mobile and (iii) the launch of a nano-iPhone. The latter has been a theme of this Blog, notably in an open Memo to Ms Ahrendts: http://www.patrickmcnutt.com/news/memo-to-ms-ahrendts/. A nano-iPhone launch would signal innovation – the real challenge, however, is not just in the timing of a launch date but the price point. It should be competitively low priced with a volume throughput encroaching demand from low end smartphones across the world. We should be debating the sweet price for an advanced well specified nano-iPhone not the share price of Apple.

Mant of these issues are accommodated within the Marris methodology; for example, failure to re-invest the cash or any signals of lagged innovation can damage the long term value of the company. Bayesian shareholders are attracted to companies like Apple and Red Lobster’s parent company Darden Restaurants. They are unlikely to praise management. But as shareholders they are frustrated. In game theory language, they believe that management are bounded rational or limited in their decision making. A nano-iPhone signal to the market would be a better play for Apple executives now than a share buy-back. New product launch is a classic PLT signal, re-assuring investors that Apple executives are playing to win the game, not playing to lose. In addition, it could relax the constraint imposed by activist shareholders.

And the Marris v – probably better known as Tobin’s q – is a reliable metric in our game theory tool-kit where rational investors are also concerned with how their share portfolio co-varies with the signals in a signalling game. It is the ratio of market value and book value or the replacement cost of the firms’ assets. Combined with other metrics, the Marris v offers a guide to investors: if v > 1 consider a sell and if v < 1 consider a buy. Who didn’t buy ARM at 95p in early 2009? Taking a moving average of v, defined as v if v > v consider a sell and if v < v consider a buy.

Compare Intel v ARM share prices over the past 5 years. The relative high performance of ARM’s share price from less than £1 in early 2009 to £9.80 at 10.44 GMT January 24 2014 reflects management PLT, their innovation and their attack on Intel’s dominance in the chip market and Intel’s lagged response to getting its chips into smartphones and tablets. Intel management were bounded rational. They tried to acquire ARM but antitrust law prohibited the acquisition. Tobin’s q is interchangeable with Marris v. Both rely on market valuations; the Marris v, however, should be understood in terms of PLT. Management’s type, that is, their ability to define the game dimension and their ability to win the game represent an intangible asset in the Marris v. The Marris v by relying on market valuation avoids many of the descriptors of accounting profits wherein high profits often equate with a monopoly position. But it could also be the case that companies with high market shares earn profits not attributable to concentration in the market – they are more efficient and more innovative than their competitors. Observe the share price and the investment commentary but when v < 1 or v < v step back, read the signals, make a judgement call and consider a buy as a long term investment – do not look back and do not regret the decision once made.

Who Owns our Personal Data?

 Who Owns our Personal Data?

Personal information and data stored in the cloud have an inherent high ‘tradable’ value – they facilitate the discovery of patterns.  We trust the providers and processors and distributors of the data, they retrieve our personal data and they can and do use it. Our data is now a tradable asset. But who owns the information? In Chapter 12 of our 2010 book Political Economy of Law http://www.elgaronline.com/view/9781848445215.xml we had discussed property rights and consumer e-needs in an Internet era arguing for the integration of the economics of information into legal reasoning. There is a new challenge for the law, relying on ‘material facts at time period t when technology has already taken the market to time period t+T (pp306)’. Google believes that the information it is harvesting is its own by virtue of the harvesting. But you and I, as e-consumers, have claim rights to our personal data. Data exchange has become a transaction and we need to ask: who benefits from the trade in our personal data?

At the recent Midland’s Think Tank http://midastechnologies.ie/agenda/ in Mullingar, Ireland, I raised this issue in the context of how we could use this market exchange to our advantage in Ireland? A cloud services free trade zone [FTZ] in personal data and data patterns was presented as worthy of consideration.

At the Think Tank a range of interesting presentations were outlined and provided a great platform to showcase the greatest technology advance since the 1980s digital revolution – the Internet and all its applications.  The Internet is part of our daily lives. Not only is it the screen in front of us but also the back infrastructure of wires and machines.  We were told that there is an exponential growth in data and a reliance on data. Individuals are outsourcing memory to smart devices such as smartphones and tablets; we are reliant on pre-authorised smartcards, buying tools and Apps to support basic queries and purchases. SEPA when rolled out will smooth electronic transactions. Companies are migrating from in-house IT to outsourcing data storage.

We have become datified…..

In the June 2013 edition of Foreign Affairs the authors Cukier and Mayer-Schoenberger argued that we have become datified – Google’s augmented-reality glasses datify our gaze, Twitter datifies our thoughts and LinkedIN and Facebook datify our professional and personal networks. Datification, we contend, is a pre-requisite for third parties as they begin to extract an inherent ‘tradable’ value in our data patterns. But who owns the information? Do Google and Facebook, for example, own our data?  The EU Commission in their definition of ‘personal data’ in the Internet era are debating the traditional rules of data protection viz 2014 General Data Protection Regulation. Commissioner for Justice, Viviane Reding, commented recently in Global Insight that ‘personal data is the currency of the digital economy’ and that by 2020 it will account for 8% of EU-27 GDP.

Our data is at least worth the equivalent of 8% of EU-27 GDP before exchange and trading. Tradable personal data is a good example of the frozen market concept introduced in Political Economy of Law. Frozen markets uniquely evolve from ‘a latent underbelly of technology struggling to meet new challenges and set new standards in a modern economy (pp312)’. We should recognise the frozen market and persuade governments to transfer the trade in personal data to a cloud services free trade zone in personal data and data patterns.  With so many start-ups and legacy IT companies in Ireland, there may be an opportunity to bring them all together under one umbrella – a cloud services free trade zone, providing storage solutions, security and surveillance capabilities. The cloud zone could be designed as a ‘special services’ zone similar to the Shannon FTZ.  All IT companies registered would enjoy a 3 -5 year sunset clause of special tax incentives for employing IT staff. Information would be stored and processed into data patterns in the cloud zone. It is only when the data is traded does it become subject to Irish value-added tax or custom duties.

Free Trade Zone in Personal Data…

Mixing a tablespoon of skilled labour with a dose of FTZ is a recipe for baking the projected 8% of EU-27 GDP into an employment cake of highly productive Stakhanovite workers in the age of automation, technology and innovation.

One way to integrate the complexity and potential of the cloud is the organisation of a cloud free trade zone, subject to legal, regulatory and environmental issues. It could be established under an Irish or pan-European variant of the US inspired 2009 Alternative Site Framework [ASF] initiative, by re-organising the Shannon FTZ into an alternative site framework in cloud services spread across ‘magnet sites’ from Mullingar to the Inishowen Peninsula in Donegal. In this the 50th anniversary year of the Shannon FTZ it could be part of planning for the next fifty years of economic growth in Ireland reliant in part on personal data as a tradable asset.  Data security is paramount and our reliance on the data-keepers is dependent on trust and on transparency in their use of our personal data. A cloud services FTZ in personal data could provide both trust and transparency. Questions may arise – do we really own our personal data patterns? Who benefits from any trade in our personal data? Answers should be diverted into exploring options that will create new job opportunities in an Internet age characterised by a shrinking role for human labour.

Memo to Ms Ahrendts

MEMO

Re: Apple Inc: Play not to lose: Minimax strategy

Dear Ms Ahrendts

Congratulations on your recent appointment. We have been commenting on Apple for a number of years in this Blog, and from the perspective of game theory. You should challenge everything about the data – market share figures, consumer loyalty and the source of the competitive threat. Apple does need to refocus, to reshape its strategy in order to compete in an evolving game that exhibits both convergent technologies and rapidly changing set of consumer preferences. Are you a brand? Are you a design company or an innovator? Analysts look at Apple in terms of profit margins and a company trading on earnings estimates and revision of the estimates. With new product launches across the i-suite of products, coupled with an underlying iOS ecosystem, they look forward to new product launches, and endless queues by early adopters and loyal fans at different cities across the world. But from our perspective, observing Apple as a player in a game, we would adjudge that you are not winning the game.

Confused consumers

First of all, your product offerings are in danger of becoming nodoids: in other words, they come to represent nothing more than a roll-out across a common platform of a suite of not dissimilar products absent any innovation. Consumers are either underwhelmed or disappointed. Once they ask the nodoid question: ‘is an iPhone an iPad or is the iPad an iPhone?’ the game dynamic switches from a game of playing to win to a game of playing not to lose. This is happening. Secondly, the analysts expect the i-Watch – so what? Analysts continue to debate the next big thing. So what? Could it be IPTV or cloud solutions?  So what? You know that you are not in search, you know that you are not in digital mobile advertising, you are a late entrant into cloud services, you failed to acquire Twitter, SIRI failed, Newton failed in the 1990s and in 2013 you allow us to believe that you are not a player in IPTV.

We have argued this before #tuncnunc discussing a range of game solutions to consider: launch a nano iPhone or engage in a telecom alliance with 4G LTE providers such as China Mobile. The 5C launch is about maximising profit margins; a nano offensive play, however, would ignite a $99 ‘sweet price’ competition for full functionality smartphone devices. Forward guidance on the stock estimate above $500 may adjust for these events in 2014-15 but these events may now be too late from a game perspective to play to win the long game. In other words, no longer is it about how Apple is performing in 2013, it should be about Apple’s likely performance in 2023.

 

 

Second mover advantage: SMA & Minimax

So an alternative for you to consider in your new role is to secure the second mover advantage [SMA] by playing not to lose. First, recognise that your market shares are increasing at a decreasing rate. Correct that trend. The iPhone 5 delay, for example, created a zero-sum switch to rivals, notably Samsung, in the UK and possibly across the EU. Your smartphone market share is under threat in Asia as the convergent smartphone and tablet game evolves to become Apple’s game to lose. Start thinking like your competitors – reason like this: ‘I think-you think-I-think’: Apple thinks that Samsung expects it to defend the iPhone, so Samsung will attack the iPad. But Samsung believes that Apple will reason this way, and so assuming that Apple will defend the iPad, Samsung will attack the iPhone. But Samsung also knows that Apple will reason this way.

This line of reasoning suggests that some kind of a decision tree ‘what-if’ analysis will reveal which strategy is Apple’s optimal choice. But it is more complex than that – we argue in our new book Decoding Strategy that how either player does in the game depends on what each believes the other is likely to do. Apple has to choose to play a minimax strategy, that is, a strategy that minimizes the maximum amount Samsung can expect to get in the evolving smartphone and tablet game, and thus maximize the amount Apple can expect to win. It is for you to patch a minimax strategy into your strategic vision for 2014 and beyond. To quote T.S.Eliot: ‘What we call the beginning is often the end, and to make an end is to make a beginning, the end is what we start from’. With best wishes in t+1…..

i-Lag or Byte of the Apple

The smartphone has evolved from new gadget to just another gadget – it has become commoditized.  The Razr i will indeed allow you to switch quickly between the web, play games, send texts and take photos. Will iOS 6 disappoint as consumers realize that it begins to slow down your iPad2 and is backward incompatible with the new generation iPod touch?  A case of i-lag will emerge as random consumers begin to ask: why upgrade to iPhone5? Why queue? Why buy Apple product? The convergence of technology will trump the key players as spherical competitors from anywhere at any time enter the game. Google’s Motorola has now unveiled its first smartphone with Razr i, a social media and mobile advertising market game began without Apple, SmartTV technology resides with LG and Samsung, and the new spherical competitors in smartphones are likely to be the Chinese players, Huawei and ZTE. Forget the device; the game has evolved from a game of competing ecosystems, OS v Android and 4G technologies to one of consumer expectations. Rational consumers have no idea what they want, but whatever it is, they want it now.  So expectations are dangerously high, matching them with low prices may be an optimal response. Judicious pricing policies will facilitate a winning strategy. We have argued before in this Blog for a nano-iPhone – a strategy to compete on price against the impending challenge from Huawei in the US. Launching a nano is a dominant strategy for Apple Inc because its payoff in the smartphone game will be (i) always at least as much as that of iPhone5 [whatever Samsung or Huawei do] and, (ii) at least some of the time actually better in the evolving game of commoditized smartphones.

Refer back to Blog entry: Simon en-cycling to SMIN!

Refer back to early Blog entries: The  Brontosaurus paradox

Simon en-cycling to SMIN!

In less than 10 years the smartphone game has eclipsed its humble beginnings of combining a PDA with a phone. The App-ing Generation T who communicate and share across technologies can have an ice cream sandwich in their operating system or a mountain lion or faster graphics performance with ivy. Poorer consumers across the developing world simply want a phone to curve with messaging and FM radio and a 2 mega pixel camera. But do you remember where you were in 1992 when we witnessed the planting of the seed of the smartphone tree with the inaugural launch of the IBM Simon? Do you care? How many remember the first smartphone, the Ericsson GS88 with the open OS Symbian? That was 1997. By the time it had re-launched in 2000 as R380, the Palm Kyocera 6035 enabled you to phone a friend from your PDA contact list. So cool! How many remember the Palm Kyocera 6035? That was 2001. In 2012 Generation T eagerly await the global launch of Apple iPhone5 and the Samsung Galaxy S3. Analysts are reporting that Apple and Samsung could account for 30% of volume and 52% of sales in the global smartphone game. The game is less about the device or product – it is more about the ecosystem, the operating system in the game of smartphones. We are observing a battle of OS standards through the lens of a convergence in technology that will end the game because time available to the key players, young and old, from Apple to Samsung, from MS to Nokia, from HTC to Sony Ericsson to RIM, to make a decision is diminishing in time itself. In others words the game is en-cycling to an end point as spherical competitors from anywhere at any time are entering the game: the Nokia-MS alliance with Lumia platforms powered by Win8 and supported by Intel and AT&T, MS-Facebook alliance to challenge Google in social media and in search with a new search engine, a possible MS-Nokia-RIM-Dell alliance, emergence of Huawei and ZTE, of China Mobile and Data Wind. Who? The game started with Simon in 1992 and will end with the must-have small and thin, SMIN, the outcome that Generation T, the customer, wants rather than the device that produces it. Think on to 2022 and the Blog reader asks: who was Apple? But who is SMIN? Ref back to early Blog entries: The Brontosaurus paradox