Black Swan Effect

For those who spend a good part of their waking hours on risk management cannot avoid talking about "black swan" effects. Or what's called "high impact low probability events". But usually, since as human beings we do not have any problem with upside risks, we just care about downside risks. I have just begun reading "Black Swan" which seems to be an rivetting read. More on that later as I get along. I am taking the train from DC to New Haven, CT on sunday which will help me finish the book. While I was wondering about black swan effect, could not help thinking in various ways how black swans can be used as our advantage. Imagine if we had a business success model out of that. For giggles folks, here's a funny video that shows just that. Enjoy...

Power Blackout in Colombia

There was a nationwide (almost 80%) power blackout in Colombia yesterday. Reports from BBC and CNN indicate that the epicenter was a technical glitch in a substation in Bogota. It will be interesting when the post-mortem results come out.

GNEP - not that bad.

Alex Raskin writes about the recent agreement between Japan and US on collaborating in development of nuclear energy. The official news release is here. In January, DOE released a strategic action plan for Global Nuclear Energy Partnership. The details are here. Whether nuclear power is good or bad is highly debatable. All that is healthy. A slice of those views are present in the comments in Raskin's post. In general, here are the beliefs for supporters of nuclear power: nuclear power is cheap, it is GHG pollution free, and it can produce bulk power. From the skeptics: nuclear power is dirty and waste disposal is a pain, safety is a concern, highly subsidized by govt., risky if it fell in hands of the terrorists, and causes other forms of pollution.

All are valid arguments. Lurking in these arguments though - is the persistent question: What's the way out? The problem does not have a silver bullet.

The reality is that we have become used to a level of energy consumption that we think it is almost our god given right. Like the air we breathe. Energy-lifestyle has become our culture. Asking me to consume less is like asking me to give up my favorite vice. We love to live in the denial that the looming energy crisis is not going to affect me. We human beings never react to crisis willingly? Especially when we know it is slow. We are not willing to pay extra taxes or see our tax money go into wrong initiatives. GNEP in this particular case. We do not want to be charged a higher electricity bill. So what are the other options? We and the government go after the manufacturers to take a big bite. And manufacturers respond to shareholders. Unless shareholders incentives are good they don't care. And who knows what the incentives are.

Government may be not the most efficient of enterprises. May be it uses spin doctors and smoke and mirrors for leverage as Raskin indicates. But again, government is not where I look for a lean mean six sigma culture. More than anything else, I look for it to take up projects that is beyond any body else. So, while I share all the concerns, I believe the energy situation requires the real "Fortune 1" enterprise - Uncle Sam to take the lead. And implicit in this expectation is the role that government needs to play in outgrowing politics and sincerely educating people of what the goals are, the timeline, and the process. Evangelize, evangelize, evangelize. Perfect solutions don't exist today, but let's face it: this is a busy economics and not a burst economics problem. As much as I would like, building the advanced nuclear reactor will not happen the same way as developing youtube. Not even Google. It would take long drawn , persitent, planned commitment. Many hours, many failed attempts, lot of dollars, and many a career. Govt.'s initiative in involving the global community is smart. Other countries have continued its development in nuclear energy (while US nuclear R&D was quiet) and in some ways gone ahead of US in spent fuel extraction, reprocessing of waste and sodium-cooled recycling reactors. So collaboration will be a benefit. And more so: to the extent the process is opened up, there is greater trust. Trust is paramount to handling the politics surrounding nuclear energy. To the extent we open up, it is easier to get access to what others are doing. More exchange means more cross-border conversation which leads to greater mutual understanding and better understanding what others are doing for nuclear security.

Final word: geothermal, hydro, etc. holds lot of promise, but at this point they do not show any potential for solving bulk power needs. Unless, of course we reduce our consumptions by many folds. Any takers on that front?

Can IP/Patents be assets in hedge funds up for suing grabs?

I was talking to someone today who spoke about funds buying intellectual property as assets to be used to sue other companies. I think the story in Forbes is in similar lines. I am not a lawyer and I do not know about rather compex topic called patent laws. All I have done is read some of Larry Lessig's books and watched his lectures. And being an engnieer at heart, I just think what's happening is a blatant abuse of the patent process whose goal to me - is to motivate creative people engaged in the innovation process. I don't understand if someone is not creating anything, how can he/she claim the patent as a right and treat it as a commodity. If suppose NASA owns a patent, isn't it different from me owning the same patent. Say NASA likes me and gives me the patent as a gift. Then, is it an asset to me? Can I build a space shuttle in my apartment? But if Airbus got it, maybe it can be patent infrigement because in that case Airbus will have a competitive advantage. It looks like some people are just waiting on the sidelines doing nothing and waiting for making money by suing. I know many people will think I am wrong. Maybe they will say I know I don't know much about what I am talking about. But something ain't right here. I might as well hold this position that goes up in flames rather than keep quiet on such a bizarre process. If not for anything else, I'll learn something.

Blending movies

A friend of mine showed this bunch of cool videos most of which are blended movies. They are amusing - check them out. With Sopranos ending in a few weeks and TV getting more and more boring, I think I will enjoy my summer more with Youtube and stuff like these for entertainment.

Thinking Power Grids Like Airspace

Being a Red Sox fan gives me the liberty to indulge my expectations to border on hopeless futility. The electric grid is one of the cornerstones of infrastructure. Zillions of studies have been done to correlate reliable electric power to increased GDP to healthier babies. Many more million studies have been done in the past two decades to show how to de-regulate, re-regulate, partially regulate, and all kinds of combination one can think of. From both the banks of the Charles river to the banks of Hudson to Gulf coast to sunny California to other side of the pond - everywhere people have got involved in throwing ideas and papers by the dozen. Enron. Blackout. The Energy Act. But the saga goes on.

The question I posed to myself - If the power grid is an infrastructure - how would I like to see it? Does it compare with other infrastructure like ports, airports, and roads. Take for example airports? If the grid were operated like the airspace, and power wheeling as commodities being transported - will that work? Thousands of transmission lines resembling air routes. Substation nodes like airports acting like connection points to get plugged into this platform. Thinking the grid as a common. A platform. A marketplace. (As characterized by the book "Invisible Machines" which JP discussed lately). If so, all these "challenges" on who owns the grid, who monetizes, who arbitrages - become a different conversation. Generators and Loads become participants in this market place. Generators sell power and load entities buy power from this marketplace. The system operator (much like the ISO today) controls the physical movement and maintains the physics of the system. Its job is similar to the air traffic controller. The diversity of generation - nuclear, coal, solar, hydro gets morphed as different types of service. Based on their characteristics - their pricing will vary. Need a greater response time, pay extra for the gas power plants compared to coal. We can think about doing the same at the load side too. In concept, we establish a multi-sided platform markets that the book talks about in the contxt of software platforms. As a consumer I get a whole lot of choices - which creates competition - for those - who believe that competition drives innovation and lowers prices by reducing market power.

As for the grid. Just like any other market place - it will have to upgrade to satisfy buyers and sellers. What happens if in your city or country there are poor airports, poor health care, poor education system? Either you bug your policy makers or choose to migrate to some other place (of course, many may give up and stay put - whining or resigned to fate). But, buyers and sellers do force enhancements. Much like what I observed over the last few years what happened in Baltimore airport. Expanded terminal, new parking lots, more shops, more shuttles - Why? Because Southwest started operating a lot many flights. Infrastructure upgrade due to increased demand.

While the grid keeps operating as the largest machine man has ever made, while many have voiced how fragile it is becoming, while many believe the economic incentives are not adequate, while many are looking for solutions in creating multiple regional markets to trade electricity - I wonder how it will be if we look at ownership rights of the grid itself. I'll allow myself in this indulgence for sometime - looking at the barriers, benefits, and "boo-yahs". Thanks to JP and the folks of Invisible Engines for fueling this conversation.

Open innovation and consulting

James Governor's post on IBM's offering of free consulting services is very intersting. Definitely it is one of the cornerstones of IBM's current innovation stragegy where Irving Wladawsky-Berger writes:

"We are enabling customers to connect their data to the Internet by writing "glue" code for transaction monitors like CICS(TM) and databases like DB2(TM), and giving it away. We also have established Internet consulting practices to help customers. In addition, our Open Systems Centers worldwide will help plan the architectures, prove the concepts and prototype the solutions for customers."

IBM's initiative is an excellent way to hand over the keys to customer to play and get their hands dirty. As James points out - this is a "smart" move. Why? Because this will get customers to generate new needs or application areas that will bring in "unique value" propositions. And guess what - there will be no better people to pick up those businesses than those IBM folks who are already inside the door. People who are in consulting know unique value as opposed to commoditized services is where the big bucks are. A bit of pro-bono work goes a long way. This is a good demo of how opening the innovation, how incorporating one's customers within a company's value chain opens doors for business opportunities. Because of the intangible nature of the way this process works, people generally find it difficult to quantify and hence justify such initiatives. But the fuzzier the situation gets, the muddled it is, the more confusing the benefits and costs are - the greater the opportunities are to make money in high-end consulting business. Opening the business models unleases such an opportunity. And IBM is right on the money.

How do we feel?

The nor'easter in the eastern seaboard has left me pretty much indoors this weekend. Clouds and rain makes me feel a certain way. Looks like I am not alone. I can go to wefeelfine and find out what others in my area are "feeling". The website has collected a database of human feelings and emotions based on what they express in various places in the web. Check it out for yourself. It's pretty cool!

Kiva and Microfinance

Few weeks ago, I read about Kiva in one of Nicholas Kristof's article in New York Times. While many are charcterizing this as a "sexy" thing to do, I don't mind doing a tiny bit rather than "sitting on a fence". So, once the Times covered it, I was rest assured about some credibility. An aside - this is one of the reasons why I still believe NYT and credible entities need to exist in the internet. I know myself well enough - I would have never shelled off a dime if I did not have some comfort of legitimacy. Kiva was simply amazing. The process was simple and within 24 hours, I got an update that my beneficiary in Kenya has got his loan and on his way to expand his stock of shoes and repairing tools. It does make me feel good. Not for the amount of money that I chipped in, but the fact that when many chip in, it turns out to be a good sum. Time and again we argue about solving issues by democratization resulting in settling with the lowest common denominator. We argue competition enhances performance. As JP has mentioned in many of his posts - gift economics vs. market economics, sigularity vs. plurality, teamwork vs. individuality, and opernsource vs. proprietary are many faces to these ongoing discussions. Well, organizations like Kiva is another example to remind us that there are alternate frameworks to explore. And in some cases, maybe, works much more effectively than products that come from our conventional, common, or popular wisdom.

Future of libraries

I was out in my local public library to pick up a particular book. There came a passing thought. With Web 2.0 and the way Google is marching ahead, I was thinking whether we will be needing libraries the way they are several years froms now. Google had the project to scan shelves of books into their database. I think due to coyright restictions things are going slow. Come to think of it, Google is the database. So to read a book, if it is available in the web - it saves a trip to the library. Saves energy. Sure there are other opporutnity costs we can take credit for. So what happens to the libraries? They deifinitely have to re-define re-strategize themselves. What happens to the catloging process? Maybe less of a storehouse and more of a meeting place. Maybe more like a club for conversations. Well, that too can be done over the web. Then what? What do we then use the brick and mortar for? I will keep thinking about it.

Cody's and Demise of Inde Book Stores

Codys was once a Berkeley icon. I look at my frequent buyer's card and keep wondering about Codys'. Whenever I visit the Bay area, I always love to hang out here. Now, within a span of 9 months two of their three stores close down. Their signature Telegraph Rd store in Berkeley was closed amidst quite a bit of sentimental outpour and lament that people nowadays buy everything online. I remember, even New York Times mentioned that. One of the comments that stuck on me was about the owners comment on - Kant's "Critique of Pure Reason" gathering dust on the shelves - with no takers. Meaning - people don't go for these books anymore - signaling a phase shift in tastes and preferences. So, it is not just competing with other forms of books stores - the big boys - Borders and Barnes & Noble, but it is also about competition. With other modes of information, education, and entertainment. To counter that, in a modest way, Codys' promise to the die-hard fans was that their new store in Stockton St. in downtown SF would do the magic - offset many of the pitfalls that Telegraph had and prove to turnaround the business. Not so. I have been visiting Codys quite often over the last year and also Borders that is a few block away on Powell St next to Union Square. The difference is quite obvious. I cannot say whether Borders is making a profit or not but one thing I can certainly say - there are more people shopping in Borders. I wonder - Why? Before getting into what the possible reasons are - I must admit I am a big fan of independent books stores and these reasons, albiet my personal observations - cut to the heart of why an independent store fails to get my business. I go to inde book stores over a B&N or Borders only for two reasons: Unique experience and Discounts.

Codys fails my expectations on both these grounds. Let's take the easier one first - discounts. I haven't seen Cody's provide discounts over marked prices. The only discounts one can get is through the frequent buyer card which is - buy for $200 bucks to get a $20 off - a 10% discount. A B&N membership works much better for me. Compared to say - The Strand book store in NYC (which is a favorite place of mine) - Codys simply falls way short. So buying a book in Codys is no better than anywhere else - maybe even worse. As far unique experience, I must admit - I do feel a difference when I go into Codys. There is a certain order in which the books are shelved which gives a special touch. There are some books that may be found only in Codys - another way an inde store would try to differentiate - but there weren't that many - to make a mention of this fact. After a few visits, I felt Codys to be quite boring. The other aspect of the experience is when you interact with the people manning the store. I did not find anything special about the staff in Codys. They appeared as ignorant or confused or knowledgable as any body else who relies completely on computer searches. In comparison, I had two "aha" or as Tom Peters would say "wow" moments in the Borders next door. Once, the person at the checkout looked at my credit card and started discussing about stories written by a Berkeley based South Asian author who had the same last name as mine. I don't know how many times I have used my credit card before that evening - but never before, has my last name resulted in such a conversation. The second time was - when I asked for some help to find a particular book. I had completely forgotten the title of the book and badly mixed-up the author's name. The best I could specify was the theme of the poem. And the lady who was helping me - without checking the voodoo-blessed "system" took me to the bookshelf and said, "There you go! Late Wife by Claudia Emerson." "Yup, That's the one I was looking for," I replied - smiling - utterly embarrassed and completely impressed.

My point is: Yes, there are challenges for stores like Codys'. Some may argue that selling books and even music through such a business model may be selling "buggy whips" in today's markets. But, people like me love independent stores for a reason. It is the same reason why people still buy sail boats and sail. It is for the same reason why the horse carriages that go around Central Park would buy buggy whips. And if shops like Codys do not pay heed to why people love their stores amidst the changing market, well - they are sure to pale into the oblivion.