Stop Online Piracy, NOW!!!!

If Congress wants to stop online piracy, there's another way. Ban all content which is not creative commons or equivalently licensed material (e.g. GPL) from the internet. Any infraction should be treated as other security violations and made the responsibility of the copyright holder for not taking enough security measures to ensure that their content never reached the internet.

Won't that destroy online films?

Of course not, people will still want easy access to content from a convenient and trusted source (such as NetFlix) and where there's demand, supply will follow. The trusted brand is all important and people will still pay a reasonable subscription for it. The content producers will just have to adapt to a world where they can still make money from abundantly used creative commons licensed content rather than scarcity.

Won't that destroy online journalism?

Of course not, people will still want easy access to content from a trusted and respected source which provides an analysis of what is happening. The trusted brand is again all important and advertisers will still want to promote their messages. Certainly, people will copy it, so you'll need to build a loyal following and look at those copying sites as free marketing.

Won't that destroy the online music industry?

Of course not, people will still want to hear their favourite bands live, attend gigs, buy merchandise from the band site and they'd still pay (either through subscription or advertising) for a trusted and useful service. Certainly others will copy it, so you'll need to do the usual - build a loyal following, focus on creating a strong trust relationship and think of those copying sites as free marketing.

Won't that destroy the past models of media?

Well the media industry always cries wolf over piracy and change but certainly forcing them to keep copyrighted material secure will make it difficult for them to distribute. However, since many don't seem willing to adapt to a new world (hence SOPA/PIPA) and the cost of introducing legislation to protect them will harm more future focused industries (i.e. the internet is a component of these) then maybe legislation may be needed to force change.

Even if the content is freely available, I'd still pay to have easy access to it through a useful and trusted service, I'll still want to attend gigs, attend lectures, buy merchandise (even books) and watch movies that include product endorsements etc.

Yes, it will be a different world but either the traditional Media companies adapt to a world where you make money from abundance or the US will need to sacrifice its future competitive position (by harming its internet industry).

It's not like those traditional companies haven't had almost two decades to prepare for this change. What have those media executives been doing - playing golf with Kodak? What did you honestly think that digitisation and the internet was going to do - increase your profits by reducing your distribution costs?

Banning copyrighted material is an extreme option and I do believe in a more balanced approach. However, if the traditional Media industries are going to try and use legislation to avoid change, then someone needs to start thinking about how to use legislation to force them to adapt. Otherwise the US tech companies will be constantly in a defensive, rear guard action against acts like SOPA / PIPA etc.

The best form of defense is a good offense.

Reprinted from G+.

Mystic Me 5.0

I'm a bit late with my predictions for this year as a couple of components have already started and so I've had to re-write those parts. However better late than never and in any case this is mainly for my testing purposes. The normal rules apply, the predictions are built up of individual components and each and every component must be correct for the prediction to be correct.

Since, I managed to overshoot my target for last year, I've made the predictions even more detailed using well over 100 different components. I'm aiming for a 50% target (not higher and not lower) which is the ideal balance between usefulness and accuracy.

So, without any more egging of the custard, here goes :-

Predictions for 2012

1. Cloud:
   Open stack will gain further momentum in the popular press with multiple providers coming online to form a fledgling market. However debate will intensify over the wisdom of providing multiple APIs and whether Open Stack should focus more on being an AWS clone due to evidence of the growing success of Eucalyptus. This situation will be further complicated by Amazon launching a managed "Data Centre in a Container" product aimed at at large enterprises as an onramp to use of public AWS services.
   
   The adoption of cloud computing will continue to outstrip earlier analyst predictions and pundits will cite AWS as exceeding $2 billion in revenue.
   
   The confusion over "enterprise clouds" will grow due to marketing efforts promoting Enterprise Class vs Commodity based clouds, however there will be a backlash including some high profile customers declaring them as of dubious value. Platform as a service will have a strong year with CloudFoundry in particular growing significantly in both community involvement and media coverage.
   
   There will also be no let up in the pace of mergers and acquisitions in this industry with a particular focus on Devop and Management systems. Both ARM and Ubuntu will strengthen their positions in the cloud space. In particular, we will see increasing mention of a standard computing stack involving Ubuntu, OpenStack and CloudFoundry.
   
   Countering these developments will be an increased involvement of Gov bodies with the view of introducing legislation to the cloud with licensed cloud operators.
   
   Big Data will continue to rapidly grow in prominence, however the focus will switch more towards utility provision of big data systems and the importance of algorithms. In particular, data competitions will have a strong year and it will become increasingly clear that they are used not only for improving algorithms but as sources for recruitment of talent.
   
   There will be a number of high profile articles questioning when (not if) cloud will dominate financial ERP and more traditional Enterprise spaces with popular wisdom shifting towards the near future i.e. less than 5 yrs. However, what won't be clear in the first half of the year is which companies will dominate this space and instead concerns will be raised over whether existing software vendors can overcome internal inertia. By the end of the year, it will be clear that an outside player will dominate.


2. Environment:
   Total Arctic Ice volume will decline to the lowest level on record raising concerns that a tipping point has already been reached. The melting season will be considered to have extended again and the UK will suffer one of the most severe winters on record. Despite the unpopularity of nuclear power, there will be a number of high profile environmental articles highlighting it as a necessary evil in terms of combating climate change.


3. Economy:
   Despite assurances by the BOE (Bank of England) that inflation will reduce by the second half of the year, RPI will have increased on a year by year basis. The technical recession in the UK will turn into a full blown recession with increasing discussion in the BOE for another round of quantitative easing. Interest rates will be kept at their current historic low. The driving forces being many of the UK actions will be from Europe.
   
   In detail, the sequence of events include :
   In the first half of the year there will continued uncertainty over the European debt crisis and exposure of banks to financial instruments based upon this. There will be increasing calls for the ECB to act as the lender of last resort and underwrite individual countries debts across Europe but the ECB will initially refuse.
   
   With increasing social pressure within European countries, the core group of Europe will take drastic action. First, selected countries will default on the Gov debt but remain within the Euro causing increasing market reaction to Euro debt, weakening of the Euro and strengthening of UK gilts and GBP. As GBP strengthens, the FTSE will weaken (as foreign capital seeks to take profit) and to counter this the BOE will embark on a significant round of quantitative easing, possibly in excess of £500 bn depending upon how insane they are.
   
   At this point, the ECB will step in and consolidate the remaining Gov debt across the core Euro group into EuroBonds and act as the lender of last resort for future debt. Investors and rating agencies being caught flat footed will cry foul, however the strengthening of the core Euro group will cause both the Euro to rise and the debt crisis to recede in Europe. However, investors in those selected countries which have defaulted (i.e. banks etc) will be left with a realisation that they have been gamed. Legal actions will result but losses in those investors will be enormous.
   
   In the core European countries, those banks most impacted will be nationalised and it will become increasingly clear during the year that this had been planned as the most significant damage will be felt in the city of London. By the end of the year, the core Euro groups will start to re-define the single market agreement to be limited to a Eurozone. Faced with mounting debts, weakening of the financial market and the strengthening of the Euro market, the FTSE will start to fall significantly by the end of the year. The BOE will then again raise the spectre of even more QE.


4. Society :
   There will be continued protests in Europe over austerity measures in the first part of the year, however by the end of the year these will lessen. In the UK however the reverse will happen.
   
   Protests and strike action in the first part of the year will be mild, however by the end of the year with a massive increase in gov debt (due to QE3), rising inflation (due to QE3), weakening internal economy (due to QE3), isolation from Europe (due to Euro core and ECB action), further bail-out of the banking system (due to Euro core and ECB action) and increasing government austerity ... the mood will darken considerably.
   
   Someone, somewhere will write a popular but ridiculous press article on whether this is the "End of Britain?" By the end of the year, one member of the MPC will write an article explaining their concerns that they have got it wrong.


5. Politics :
   The year will show increasing tension between the coalition partners with a number of high profile spats. Despite this and with press pundits predicting a collapse of the coalition, the darkening public mood will convince both parties that an early election will lead to a rout. In their own interests, not in the interest of the country, no early election will be called.
   
   Despite the calls for more legislation of the internet and protection of vested interest, there will be a growing realisation that the UK must embrace a future which is not the past. Such calls will find a champion and increasingly the Government will talk about the end of large scale IT projects, embracing a more open future and a need for industry to adapt. Increasingly measures will be discussed to encourage high technology start-ups, to support open source, to end current Government purchasing practices and to limit IP effect on the wider industry.
   
   By the end of the year, despite the poor economic situation, the first glimmers of a bright future will appear as a number of high technology companies will openly discuss moving to the UK.


6. Technology:
   VMWare will clearly act as two operational divisions - one focused on infrastructure, the other on platform whilst VCE will be touted as a potential IPO for 2013.
   
   The dominance of Android on phones, tablets and TVs (as demonstrated by market share of units shipped) will increasingly raise speculation over Apple's future with several popular press articles asking whether this is a re-run of the Mac vs IBM PC.
   
   Amazon will also have an exceptional year in sales of their tablets with Amazon and Samsung being seen as as the two dominant players (by volume of units) in the tablet space.
   
   Google TV & Google Wallet will exceed expectations with G+ continuing to grow rapidly exceeding 350 million users by the end of the year. Despite hostility to the integration of G+ with Google Search, and the potential dangers of data gravity effects, Google will not discontinue the effort. As a consequence Facebook will buckle and start to adopt a more open approach to data.
   
   Early in the year pundits will discuss the potential for Twitter as 'the' worldwide real time messaging system and there will be, at least one, high profile attempt to acquire it. Twitter will both refuse acquisition attempts and refuse to integrate into G+. By the end of the year the pundits will change tune and articles will question whether Twitter is a "dead man walking".
   
   Mobile banking will also have a phenomenal year with pundits speculating whether this is the beginning of the end for many traditional retail banks.


7. Media :
   Despite early success, 2012 will be marked by an increasing "war" between past industries and the future. The battle of IP will cover many fronts simultaneously including legislation through Congress, further introduction of DRM on devices and attempts to reinforce Global IP laws.
   
   The battle in the US will turn particularly bleak as media companies aggressively fight a campaign through traditional media channels including assaults on the characters of many public opponents. The pro IP lobby will also find an unlikely ally in China. Due to expansionist policy, Chinese backed companies will increasingly become active in US IP law and provide funding to increasing IP / Copyright legislation. Opponents will highlight how China's policy in the US differs from its own home policy which will not strengthen such laws.
   
   Despite vocal public opposition the US Congress will continue to enact PIPA or an equivalent. By the end of the year, a number of leading Internet companies will have openly raised concerns that they may need to move out of the US. Media companies which have adapted to the new environment, such as NetFlix, will continue to grow rapidly but increasingly will find themselves dragged into the political battle with content providers.
   
   At the very end of the year, a high profile article (probably HBR) will be written concluding that the US has just handed the future of the internet to other nations.


8. Manufacturing :
   Both 3D printing and printed electronics will have a robust year in terms of growth and public awareness. There will be a marked rise in start-ups and funding in this space, with numerous public articles describing the technology as the future of manufacturing.
   
   The first hints of hybrid printers (both electronic and physical form) will surface along with technology articles questioning whether new forms of computing language will develop covering both physical and digital function.
   
   None of the major printing companies will make significant moves into this space during 2012.
   
   A number of articles will also raise concerns on the issue of security and whether this technology will lead to widespread piracy. These articles will conclude with the importance of DRM and a fledgling lobbyist organisation will form to promote these concerns in the US.


9. Things to Watch :
   The key watch words of 2012 are Ecosystem, Openness and "Do it yourself" IT.
   
   Increasingly there will be a clear separation between traditional organisations and a new form of next generation companies. Key characteristics of this next generation which will be highlighted throughout the year include :
   
   use of cultural strategy
   cell like organisational structures
   use of platforms to develop ecosystems with competition based upon ecosystems
   use of commodity components in IT
   emerging architectural practices (design for failure, chaos engines and distributed systems)
   extensive use of analytics and algorithmic regulation
   intensive focus on strategic gaming in competition
   use of open source as a tactical weapon against competitors
   a focus on disruption of existing industries as opposed to profit or expansion into geographical emerging markets.


10. MISOG's :
    Despite the best efforts of the Olympic Committee there will be endless grumblings about the Olympics in London covering the cost, the legacy, the exclusiveness of the event, ticketing, transportation issues, failure of IT systems, unpreparedness, rising costs of rent and excessive security. There will be some protests over the event with increasing concerns that the project costs have overrun and the UK could ill afford the event. Much of this will be couched in terms of the increasing economic gloom in the UK which will overshadow the event. Despite this, the UK will have a good event.

An open letter to Congress on SOPA / PIPA - from Aliens4SOPA

To understand the impact of SOPA / PIPA we need to get rid of some very basic misunderstandings.

First, explosions of industrial creativity DON'T follow the invention of a technology but its commoditisation i.e. it wasn't the invention of electricity but Edison's introduction of utility services for electricity that created an economic boom that led to recorded music, modern movies, consumer electronics and even Silicon Valley.

Electricity is an essential component of these industries and it had to be provided as a standard component before they could flourish.

Now the internet commoditises the means of mass communication i.e. mass communication existed beforehand but the internet turned it into a standard component. Hence we've seen an explosion of industrial creativity based upon this component i.e. Google, Facebook, Twitter etc.

Each time an activity - whether electricity or mass communication or trade - is commoditised, we see explosions of creativity, the formation of future industry and the disruption of past industry. As Edison commoditised electricity provision, new industries formed and past industries such as Gas lighting companies were disrupted.

Those past industries had a choice. They could either consolidate, acquire and adapt which is what they did or they could have tried to get Congress to pass legislation to stifle the electricity market. Had those Gas Lighting Companies succeeded in doing that, then Edison and those future industries such as Hollywood, Silicon Valley, General Electric would never have formed in the US. Instead they would have formed somewhere else and the US would be a fraction of the economic power that it is today.

SOPA is simply an attempt by past industries who face disruption AND refuse to adapt, to persuade Congress to legislate in favour of past models. Its effect will be the same as Gas Lighting companies persuading Congress to legislate against electricity. It's an economic blunder.

You live in global economic market and you compete against other nations. If because of concerns over piracy the US makes such an economic blunder, then as competing nations we will act like pirates by plundering your future. If we don't, China will.

We will happily take Silicon Valley off your hands. Send it to London, we would love it.

We will happily have those jobs, those future industries. If you don't want it, we do.

They key point to understand is the internet is an essential component for future industry just like electricity. Mess with that at your peril.

Of course, Media industries complain about a changing world, they've been crying wolf for decades : "8 track tapes and piracy will destroy recorded music", "video and piracy will destroy the film industry", "internet and piracy will destroy …" blah blah blah blah blah.

Adapt or die is all I'm going to say and if you don't want those future industries please send them to us where we would care for them. So as Alien from a competing nation, I'm all for Congress destroying the US economic future. Go for it.

As they say, fortune favours the brave or more aptly :-

"OUR FORTUNE IS FAVOURED BY CONGRESS CHARGING BLINDLY INTO AN ECONOMIC ABYSS"

We love you Congress.

PS if you could also persuade the Murdoch empire to shift permanently to the US that would be cool too. We've been giving them hints in the UK but I'm not sure they've got the message.

Review of Mystic Me 4.0

Before giving predictions for 2012, I'd better start by reviewing last years.

Of the 51 separate component predictions made (grouped into ten categories, see below) then :-

• 1 is yet undecided
• 4 are clearly incorrect
• 46 are demonstrable

This gives a 92% rate of accuracy for individual components. I'll publish the data when I get a spare moment and have completed the next round of predictions.

However, spotting individual components and trends is the easy bit (i.e. big data will become a hot topic etc). Combining it all together into a coherent story is the real trick.

When scoring a category, every single component prediction in that category must be accurate, timely, spot on etc for the story to be considered accurate. In other words, if a tiny part of the entire prediction for that category is wrong then the whole thing is wrong – no excuses.

I don't believe in the idea of "well I was 70% correct in my statement", it's simple binary - yes or no.

The results are as follows :-

#	Category	Notes	Score (0-1)
1	Cloud	All ten components are demonstrably correct	1
2	Environment	Of three components, two are demonstrable, one has yet to complete but can be considered likely to fail.	0
3	Economy	Of nine components, eight are demonstrable but one is clearly wrong (i.e. the FTSE did not drop below 3,000).	0
4	Society	All four components were demonstrably correct	1
5	Technology Business	Of seven components, two are not demonstrable (i.e. VMWare will increasingly act as two operational divisions and CPTN holdings will turn out to be a patent troll)	0
6	Media Technology	Of seven components, one was clearly wrong (i.e. government regulation to introduce censorship based services designed to "protect the most vulnerable")	0
7	Manufacturing Business	The one component prediction specified is demonstrable	1
8	Words to watch for	All five component predictions are demonstrable	1
9	Social Mobility	Both component predictions are demonstrable	1
10	MISOG's	All three component predictions are demonstrable	1

Overall this gives 60% accuracy but since the goal was to increase specificity to achieve a target of 50% accuracy then I can conclude that I overshot the prediction target and 2012's predictions will have to become even more demanding and more specific.

Hence the result is close but no cigar

For reference, the list of component predictions were:-

#	Category	Component Prediction for 2011
1	Cloud	Conventional wisdom within the popular press shifts towards seeing open source architectures dominating the cloud computing space
2	Cloud	Cost efficiency arguments around cloud computing will increasingly be replaced with customer innovation stories
3	Cloud	the adoption rates of cloud computing will outstrip many early analyst predictions
4	Cloud	Pundits will cite AWS as exceeding $1 billion in revenue
5	Cloud	Enterprise IT will increasingly focus on new value creation, architecture and vendor management techniques
6	Cloud	Increasing mention of terms like supply chain management and new business models based upon outcome
7	Cloud	Platform as a service (PaaS) will overtake Infrastructure as a service (IaaS) as the main buzz of cloud computing
8	Cloud	There will also be no let up in the pace of mergers and acquisitions in this industry
9	Cloud	Governments will also increasingly become engaged in discussing regulation of the cloud
10	Cloud	Some official will be talking up the idea of licensed cloud operators
11	Environment	Total Arctic Ice volume will decline to the lowest level on record
12	Environment	The melting season is considered to have extended by several weeks
13	Environment	The UK will suffer another cold winter.
14	Economy	Inflation, as measured by RPI, will continue to rise.
15	Economy	Because of instabilities in the recovery the MPC will hold interest rates low
16	Economy	BoE will implement a last gasp round of quantitative easing
17	Economy	London will experience a property bubble for high value residential property
18	Economy	The overall housing market, according to the Halifax House Price Index, will suffer a fall in prices
19	Economy	UK will fall back into recession
20	Economy	Instabilities will be driven by overexposure of banks to instruments based on sovereign debt
21	Economy	There will be increasing market attacks on sovereign debt and a drop in consumer confidence
22	Economy	The FTSE 100 will drop below 3,000 during the year.
23	Society	We will see increasing civil disobedience in many countries.
24	Society	UK will experience increasing protests and strike action
25	Society	Despite the necessity to reduce debt, the coalition (in particular the Liberal Party) will continue to wain in popularity polls
26	Society	Despite pundits predicting collapse of the coalition, it will muddle through.
27	Technology Business	VMWare will increasingly act as two operational divisions - one focused on infrastructure, the other on platform. Some public pundits will start to question whether one of the units will be sold.
28	Technology Business	CPTN holdings will turn out to be a patent troll, its target is not Android or FOSS specifically but Cloud in general.
29	Technology Business	We should see examples of companies trading on variability in cloud infrastructure prices through the provision of true brokerage services
30	Technology Business	The volume of tablet sales will sky rocket with new competitors flooding into the market
31	Technology Business	Existing industry will see a decline of traditional laptops
32	Technology Business	The concept of social searching will become increasingly important with a continuation of the plethora of start-ups providing new ways of ranking, mining and determining social reputation
33	Technology Business	Pundits discounting the future of Google will get a rude awakening
34	Media Technology	In the UK, there will be further high profiled efforts to carve up the Internet.
35	Media Technology	The use of government regulation to introduce censorship based services designed to "protect the most vulnerable"
36	Media Technology	Paywalls will continue to be the rage
37	Media Technology	Largest effect will come through the proliferation of devices with on-chip DRM
38	Media Technology	Media pundits will raise the question whether these devices and the introduction of two tier environments means the Internet can be effectively controlled for the average consumer
39	Media Technology	Online video will continue to grow exponentially
40	Media Technology	YouTube becoming increasingly seen as the future distribution channel of media
41	Manufacturing Business	Printed electronics will have a robust year in the popular press, with pundits talking up the potential for this technology especially when combined with 3D printing
42	Words to watch for:	Consumerization
43	Words to watch for:	Shadow IT
44	Words to watch for:	Ecosystem
45	Words to watch for:	Cloud computing will still cause confusion
46	Words to watch for:	There will be a continuation of marketing efforts to distinguish between enterprise and public cloud
47	Social Mobility	Increases in tax and a crackdown on tax avoidance
48	Social Mobility	No mass exodus of wealth from the UK.
49	MISOG's	There will be a considerable amount of grumbling over the Royal Wedding and how much coverage it's getting.
50	MISOG's	Unfortunately no private company will step upto the plate and offer to pay the bill
51	MISOG's	Someone, somewhere will write an article about how the cost of giving everyone an extra days holiday could stall the UK recovery

Future costs and Cloud

There are many subjects which I find tiresome but two which are starting to irritate me are the notion of Enterprise Cloud and Financial ERP. I'll deal with Enterprise Cloud in this post.

The shift from products to utility services inevitably incurs various forms of risks. These include disruption risks such as loss previous skillsets and political capital to transitional risks such as changes to governance and transparency of suppliers to outsourcing risks such as pricing competition and loss of strategic control.

A common, past method of dealing with transitional risks is the use of a hybrid model combining both public and private supply. However, this is a transitional approach and should be undertaken with a view of moving to a future hybrid model of multiple public providers (i.e. a competitive market).

A transitional approach requires you to build in a way which is likely to be compatible with a future public market. For infrastructure this mean use of commodity components and in most scenarios an EC2 / S3 / EBS like interface. Hence my support for efforts like OpenStack (and to a lesser extent Eucalyptus).

Unfortunately, many applications are designed with the best practice for a product world i.e. scaling is about bigger machines, resilience is about N+1 and in general the focus is on reliable hardware. Best practice for a utility world involves resilience, scaling and failure modes built around software i.e. design for failure, distributed systems and chaos engines such as Netflix's chaos monkey approach. There is an inevitable cost of architectural transition from one set of best practices to another.

Obviously many companies don't like this architectural cost of change and hence want to minimise it which has given rise to the concept of the Enterprise cloud i.e. it's like cloud but without the commodity bit.

It should be noted that cloud is simply a result of a standard process of evolution that inevitably leads to operational efficiency through provision of a commodity. A consequence of this is it also enables higher rates of innovation for new business activities (such as big data) through the combined effects of componentisation and creative destruction. The upshot of this, is that you've never had a choice with cloud - it's just a question of when and the longer you leave it then the more you put yourself at a competitive disadvantage to others.

Whilst a commodity based private cloud (which can and should achieve much lower costs than public provision today) is a viable option in the short to mid term (depending upon scale), unfortunately Enterprise clouds don't move you along that architectural transition and here there's a real gotch'a. The problem is simply known as Jevons' paradox.

As competitors gain the benefits of more efficient commodity provision and higher rates of creation, this is unlikely to result in a reduction in IT budgets but instead more IT activities undertaken with everyone trying to keep up with each other. We've seen this for the last thirty years i.e. as IT has become more efficient, IT budgets haven't fallen but we've just ended up doing more stuff.

You therefore have to factor in that six years from now your architectural transition costs may well have spiralled by an order of magnitude due simply to the increased size of the estate. This can obviously be counter balanced with a simplification strategy, assuming your estate is already bloated but when considering Enterprise cloud, you must include this increase of architectural transition costs along with less efficient provision during that time due to a non commodity approach.

In most cases, Enterprise cloud will be a pretty unattractive option and you should be very careful before embarking on such a route. It can however still be useful as part of a sweat and dump strategy for legacy environments i.e. you push the capital costs for legacy onto a provider with a view of dumping that part of the estate in the near term.

Why do I find this subject irksome? I simply hate repeating old ground and this has been covered many times before over many years. This is the last time.

Spotting the Next generation ...

For the best part of a decade I've worked on how business activities evolve from genesis through to products to commodity. As activities evolve then practices (such as management methods) that are applied also have to change leading to one size never fits all.

I've also demonstrated how this process of evolution creates a cycle, with commoditisation enabling further genesis (as in innovation of new activities) and the importance of inertia barriers in regulating this cycle.

These cycles also appear at the macro-economic scale and they're known as Kondratiev waves, however even more localised cycles (i.e. specific to an industry) tend to be associated with organisational change.

Hence with the commoditisation of the means of mass communication (i.e. the internet), new forms of organisation appeared known as Web 2.0. These companies had different activities, practices, strategies and structure to the more traditional, enterprise organisations that existed before.

In general terms, this cycle of evolution and its interaction with inertia barriers creates three economic phases - peace, war and build. During the peace phase, sustaining change is particularly high, companies fight to maintain their relative position and inertia barriers to change help support the status quo.

The war phase occurs when an activity evolves from one state (such as products or rental services) to another (such as commodity or utility services) and during this time disruptive change dominates whilst inertia barriers become a hindrance to survival. Companies literally are fighting to survive, often against their own internal culture and inertia to change.

So during the last IT war, caused by the evolution of the means of mass communication, these new web 2.0 organisations formed and the rate of disruptive change was high. Those traditional, more enterprise like companies that were impacted but survived the war had adapted and learnt many of the lessons of web 2.0. Today, social networking, social media, rich internet applications are the norm.

However, cloud computing - which is nothing more than the evolution of a wide range of activities from products (and rental services) to commodity (and utility services) - has initiated a new phase of war.

There are currently three main forms of IT organisation in the wild - the traditional enterprise who have adapted, the web 2.0 players and a new breed of Next generation companies. The practices, activities, strategies and organisational memes of these Next generation are the ones which will tend to diffuse and dominate our industry.

The underlying framework, models and principles of how this works is part of a report I'm finishing for the LEF. Including in-depth surveys of over a hundred companies, it provides a reasonable hypothesis of organisation evolution across activities, practices and strategies. I say reasonable because it's more than postulation as there is data that demonstrates the pattern but this is not peer reviewed, the sample sizes are small and hence its only a reasonable hypothesis and requires a good dose of skepticism.

I'm not going to go through the report but I thought it might be useful to just comment on how to identify the Next generation in general terms.

If your organisation :-

• embraces change and is acutely aware of inertia barriers
• has primary goals based upon disruption of existing markets and growing ecosystems rather than a focus on profitability and growth into emerging geographical markets
• views commoditisation not as a liability but an opportunity
• operates through small, highly empowered teams building and creating services
• builds and exploits ecosystems by enabling others to build upon its services
• uses data analytics rather than metrics to determine action
• continually challenges and removes processes
• understands evolution and avoids one size fits all mentality
• builds distributed systems designed for failure that use commodity IT where possible
• considers itself to be as, if not more, efficient than Amazon
• games behaviour both internally and externally
• views culture as malleable and focuses on talent density
• views open source as a tactical weapon
• is seen by others to be simultaneously highly innovative, customer focused and efficient despite what Porter said on the subject

... then you're Next generation. If this isn't you, you're not. If you're not, then just hope this war doesn't stretch into your industry or that IT isn't a major barrier to entry into your space or this hypothesis is completely wrong.

Along with retail, media, travel firms and others who have already suffered in the last war - we should see software products & hosting, insurance and retail banking dragged firmly into this one.

Of course, along with this war phase comes a build phase, a golden age where the genesis of new activities flourishes and we seen periods of frenzied growth.

The cycle is continuous, and the next major war after this one should be related to the commoditisation of the manufacturing process itself ... now, that'll be a big one. For me, this is personally important as it creates an opportunity to test the hypothesis.

What we should see as the means of manufacturing becomes more of a commodity (driven by 3D printing, printed electronics and hybrid printers) is a high degree of disruption in manufacturing industries as inertia barriers to change are broken by new entrants whose practices will be remarkably different from the existing players. The practices of these Next Next generation of company will diffuse and become the norm.

If this hold true, then I'll have enough to finally put the work up for peer review - having initial data (covering 4,000 data points), a hypothesis which describes a pattern from that initial data and has been preliminarily shown to exist in this current war through a survey (providing in total over 6,000 data points across 100 companies) and finally a pattern which is predictive.

If it doesn't and is falsified then it's back to the drawing board. The downside is I'll have to wait many years (possibly as much as a decade) before the next war starts ... if only companies were more like bacteria that I could grow in a lab.

Bye, Bye American dream ...

In the last fifty years wealth inequality has risen dramatically in the US, with real earnings (adjusting for inflation) increasing by 5% at the lower end of the scale and by 700% at the upper end of the wealth bracket. Not that inequality itself is a negative thing, it can spur ambition.

Unfortunately there is a strong correlation and causation between wealth inequality and intergenerational social mobility. Hence around the 1950s-60s, social mobility was around 12% in the US i.e. 1 in 8 of people in that era moved up (and down) a social class. If you were born into the working class around the 1950s-60s then you almost certainly know several people who have made it big, who have achieved the American dream, maybe you're one. Today, social mobility languishes around 3% i.e. 1 in 33.

Chances are that people born today in social working classes will see few of their contemporaries (if any) breakthrough to higher social classes.

In the US today, your future social class is not predominantly defined by your ability but by who your parents are and the opportunities they can provide you. As this spreads, the lack of role models for a change in class should become self reinforcing.

In short, if you're born today to a wealthy family, hey presto ... you're a success ... but if you're born today to a family of police officers (a noble profession in my view) chances of you becoming a CEO of a major corporation are pretty slim, certainly much less likely than it was for those born in the 50s or 60s.

I mention this because a friend made a comment that they thought that the concept of monarchy and class was over. Certainly in the UK we've suffered with poor social mobility and its impact on competition but even our social mobility is now better than the US. If anything, hereditary monarchy is alive, growing and becoming stronger in the US through hereditary financial monarchy. All Hail, the new Kings and Queens.

As for the American Dream, to be brutally honest the last vestiges of this are standing outside Wall Street in a much derided occupy movement. Certainly there will be examples of people who buck the trend (i.e. 1 in 33 or less) and there is always the X-Factor or adoption by a wealthy family.

My only advice is that if you're born into a low social class in the US, blame your parents and learn to curtsey or doth your cap. If your're born into the high social classes, thank your parents, lord it up but watch those peasants - especially when they get hold of pitchforks.

Bye, Bye American Dream ... nice idea, shame it didn't last.

[As an addition : for those who want to learn more on this subject, a good starting point is probably the Applied Economics 2009 paper from Harvard University scholar Dr Dan Andrews on "More inequality, less social mobility"]

Is it time to reset?

Our economy faces unusual challenges due to the exceptionally high debt burden. In terms of Government debt this is represented through Gilts (Government backed securities of debt). The recommended solutions to our problems usually involved manipulation of the money supply in the hopes that somehow this will correct the underlying problems.

For example, in the UK the Government sells debt with Gilts then, through a wheeze known as Quantitative Easing, it prints money to buy back the Gilts it has sold. The net effect is that GBP is devalued (leading to commodity price inflation), the delta between buy and sell price is absorbed as profits by the counter party (normally a bank) and the entire distribution of wealth becomes further concentrated to the advantage of the counter party.

It would in effect be more cost effective (and honest) if Government's didn't sell and buy back Gilts but simply printed money to counter their shortfall. You'd still however be left with the issue of devaluation.

Now in an export led economy devaluation can help boost exports at the same time as increasing inflation. However, we're not an export led economy, so devaluation without direct investment leads to higher material costs, less profitability in internal markets and correspondingly cost reduction, weakening of the internal market, higher inflation and stagnation i.e. what the media call stagflation.

All of these problems are exacerbated by debt, inequality of wealth distribution etc. In the Eurozone we're seeing this shake out with Greece which faces either a decade or more of misery or default on the Government debt (i.e. gilts)

Now, a Greece default would be a disaster because it would be difficult to raise further debt and investors would be wary of trading with Greece. But wait, it's part of Europe ... the EU could always raise debt for it. I suspect this is why people are so keen for Greece to leave the Euro if it defaults. A country that defaults but then continues is not a message the market wants to hear.

Why?

Well despite media opinion, Government shouldn't operate for the benefit of investors but society as a whole and Gilts come with risk (albiet relatively small). Now if a country default and continued to operate, then the problem for the market becomes what if this idea extends? So let us extend this Greek idea a bit more. What if every country in Europe and ideally add in the US as well, simultaneously defaults on Government Debt i.e. Gilts and resets the debt to zero?

Well for investors it would cause one hell of a haircut and some banks would probably fail. However, those can be nationalised where necessary and measures taken to limit the damage. You'd certainly need some form of protective measures for those at the bottom end of society - hence tax raises would be necessary - and Government would need to co-operate to smooth out some of the fall-out.

There'd be lots of nashing of teeth, the markets would suffer turmoil whilst they reset but investment (in the case of shares, gilts etc) is always shorter term gambling and despite the losses the size of the EU & US means investment will still continue, possibly even flourish. It's worth remembering that market indices (FTSE etc) are also not a good indicator of the underlying economy despite the media's fixation on them.

I can't see there are actually any real downsides to a Europe and US default (bar the temporary turmoil etc) except for investors but such gambling inherently occurs risk and these are fairly unique circumstances. The Governments could always shore up the economy by direct Keynesian style investment as well.

Naturally, some would argue that this might collapse the USD / EURO / GBP against other currencies such as the Yuan. But the above approach wouldn't significantly increase money supply (other than investors dumping) and the Yuan isn't a free floating currency. Certainly against other countries they'd be possible devaluation but then given the size of the trading blocks the effect should be minimal over time. What about sanctions? Against Europe & the US - don't make me laugh.

Of course, some will argue it would spook investors so much that there'd be a collapse of investment. However, if the money was invested in Government debt it wasn't invested in longer term infrastructural goals which is what we actually need. Any investors sent to the wall would be quickly replaced by others - that's capitalism for you - and as for pension funds, well it's true that we'd need decent protective measures put in place to protect the poorest but beyond that not a great deal more.

I'm writing this because the UK Government is planning to give more taxpayers' money to the IMF who may contribute to the Eurozone bail-out (something which our Gov. said they wouldn't do) or in other words piling on more debt to help solve problems caused by having too much debt.

This is a cycle we need to break. Can I suggest we reset the market economy by resetting Government debt. A simultaneous default by Europe and US on all Government debt should do the trick.

Does this post mean I believe this is the right course of action? Well, unfortunately whilst the idea is interesting, the practice is virtually impossible. In order to exact such a change, the various Governments would need to agree and execute almost instantly to avoid investors dumping Government bonds on the unsuspecting public (or wrapping them up in some other complex instrument). I have doubts that our leaders are capable of such consolidated action. All it would take is one party to phone a friend and warn them to get out of Government bonds and the entire scheme would unravel quickly.

So, overall ... I agree with the concept but the practice is probably too difficult and it's much more likely that we'll settle for many years (or decades in the case of Greece) of austerity

Ecosystem & Porter

A common characteristic of Next generation organisations (as opposed to traditional) is their focus on ecosystems and the provision of platforms to support their growth. The purpose of such ecosystems is not simply some form of marketing exercise but instead a mechanism for managing the innovation paradox (i.e. the need to be efficient to compete today but also to be creative in order to compete tomorrow).

Consider the provision through an online API of a software system whether it’s SalesForce, Amazon’s AWS or PayPal’s x.commerce platform. These services are core utilities that the organisation is providing with the express aim of others consuming i.e. an ecosystem of consumers developing around the service.

The consumption of the service may represent general use or even novel and more creative uses e.g. the early provision of big data Hadoop systems on AWS. Since the genesis of any activity is uncertain (being chaotic) and likely to fail, then the use of utility services helps reduce the cost of failure and thereby encourages the creative pursuits of others. The larger the ecosystem, the more likely that creative models of consumption and the genesis of new activity will be occurring.

Naturally, if those activities are useful (i.e. Hadoop on AWS) they will spread through the normal process of diffusion. By monitoring the ecosystem’s use of your services this spread can be detected.

These factors enable a model known as ILC (innovate-leverage-commoditise) to be used (see figure below). Through provision of utility services and the development of an ecosystem, you enable others to create new activities at a lower cost of failure and hence encourage innovation to occur in the ecosystem and around your services. Through monitoring, you can leverage the ecosystem to identify novel activities that are spreading. An organisation then can either copy or acquire such activities and commoditise these to create further services that enable growth of the ecosystem and hence further innovation through componentisation effects.

For example, the introduction of AWS enabled others to build Hadoop on AWS. With the spread of Hadoop on AWS, Amazon introduced an equivalent utility service - Elastic Map Reduce (EMR) - which in turn has enabled novel activities to appear that consume EMR. And so the cycle repeats ...

Figure 1 - ILC model (click on image for higher resolution)

NB, I italicise the term innovation because I'm referring to the creation of novel activities i.e. genesis of an activity rather than the broad use of the word innovation which is applied to almost everything from feature differentiation to service provision of a pre-existing activity. See "The Abuse of Innovation"

It’s through models such as ILC that an organisation can simultaneously appear to be :-

• highly creative - by pushing such uncertain activities to a wider ecosystem
• customer focused - by leveraging the ecosystem to identify that which is becoming adopted
• highly efficient - by focusing on commoditisation

In Porter’s terms these Next generation organisations have a primary focus on a cost leadership (a best price) for provision of the utility service.

BUT they also have a strong differentiation strategy which is heavily influenced through creative pursuits of others within the ecosystem that develops around their utility service (i.e. genesis of novel activities being driven outside the organisation). This is why Next generation organisations often cite “enabling others to build upon our services” as criticial.

BUT they also have a strong customer focus strategy heavy influenced by adoption within the ecosystem (i.e. they leverage the ecosystem to identify activities that are spreading) and subsequent provision of these activities as further utility services.

In such cases, all three of Porter's strategies are being pursued simultaneously with the major nuance between these players is whether they use copying (a weak ecosystem play) or acquisition (a strong, reinforcing ecosystem play).

I mention this because "focus on customer, innovation or efficiency" is one of those truisms like "culture eats strategy for breakfast". It's a great sound bite but on closer examination, it doesn't seem to stand up to rigorous scrutiny.

I'm currently collecting a selection of truisms and each one of them seems to leak like a sieve when exposed to rigorous study. The following are ones which in my view are all in need of serious re-evaluation :-

• You can't manage what you can’t measure
• You need to give customers what they want
• The best way to predict the future is to create it
• Avoid the commoditisation trap
• Business has only two functions - marketing and innovation
• Culture eats strategy for breakfast
• Focus on customer, innovation or efficiency

More QE madness ...

In the last five years, GBP has dropped in value by between 23-47% against the USD, EUR and CNY when Gold is used as the standard. GBP has taken a pasting. Our UK inflation during that time has been around 18% (based on CPI) but that's a basket of goods approach, as we've all seen basic commodity inflation has been much higher. You can pretty much put the entire inflation down to GBP devaluation.

One might argue that devaluing GBP is good for exports, however the UK has a huge balance of trade deficit managing to clock up a record breaking £9.2 bn in Dec'10. Whilst exporters have raised some recent cheer, what has to be remembered is that the UK imports almost all its copper, ferrous metals, lead, zinc, rubber, and raw cotton and about one-third of its food, along with a whole range of finished goods. With the GBP down the toilet, the cost of these goods has risen dramatically and certain items just aren't luxuries.

So, who has made good with the collapse of the GBP and where did it come from? Well, the reason why GBP has been hit hard is basically because of monetarist policies such as quantitative easing and keeping interest rates low. Quantitative easing (QE) is the best wheeze of the two and consists basically of buying back debt we're constantly selling, at an obvious premium, and hence simply amounts to printing money and handing it over to banks. The monetarist delusion is that those banks will lend it out, increasing money supply, and hence magically all our problems will be solved. In reality it takes no consideration of capitalisation requirements, debt exposure, weakness of infrastructure, business cycle etc. The net effect is always bad for GBP.

Through financial engineering we've created a situation of increasing inflation (due to GBP devaluation through money supply manipulation) combined with a weakness in the economy as a whole since we're not bothering to directly investing in it and trying to combat the economic cycle. This combination gives us stagflation = stagnation of industry + inflation.

So who benefits? Well, a depressed GBP makes the stock market and housing more attractive to foreign investors. Hence the FTSE, though fluctuating, remains artificially high and London housing is undergoing a mini-boom. Hence some people in the city think we're doing well, when in reality they might be doing ok but the rest of country is sinking fast.

Of course, viable solutions to this problem which include increasing interest rates, direct investment in industry (rather than QE) etc will cause lots of short term pain for those with debts and exposure combined with haircuts for banks and investors. Rather than face this, we continue on a path of devaluing our future in the belief that somehow this can correct problems caused by borrowing too much from the future. It's like a drunk reasoning that the way to deal with their drinking debts and find the path to happiness is through selling a kidney and only buying methylated spirits.

So, does our current policy help us? Not a jot. The increasing focus on money supply will probably mean more QE. At the same time, the overall economy will continue to weaken, unemployment rise, tax receipts reduce creating a need for more cost cutting, cost of basic goods will continue to increase, export led business (without direct investment) will continue to flounder but at least the FTSE will look somewhat rosy until reality catches up with it and graphically demonstrates the error of its ways.

Eventually, if we keep on this route we will finally reach a tipping point and enter the world of hyper inflation combined with extensive contraction of industry. I can't think of a nifty combination of these terms, so I'll resort to, Hyper inflation + Contraction = "Zimbabwe" Economics. Of course, I use the phrase loosely here because to actually achieve the stunning results of Zimbabwe requires a very rare kind of recklessness (or more appropriately "wrecklessness") which is unlikely to be repeated.

I'm writing this so as we enter these more troubled times, can we please, please, please remember to round up all the monetarists and either lock them up in the Tower of London or ask them to provide the data which demonstrates why what they're doing makes sense.

Larry offers Hotel California ...

According to CW, Larry recently raged over Salesforce describing it as a roach motel and pleading the case for interoperability. He's just given a gift horse to one of the smartest operators in town and this time Larry's forgotten to fill it with any of his own soldiers.

First, some background which everyone knows already, so I'll keep it short :-

• Activities evolve and our industry has been shifting from a product to a utility service world. This has been clear for the last 6+ years, Salesforce knows this and they've been positioning themselves in that future space.


• Past success always acts as an inhibitor to future survival, it creates an inertia barrier to change. This is why Amazon and not some hosting company encumbered by an existing business model made the break into IaaS. This has been crystal clear for 4+ years. Salesforce knows this, it's why Oracle has been slow to react to the change.


• In this future world, competitive markets will become key to solving those outsourcing risks such as pricing competition, second sourcing options and loss of strategic control. Such markets will require multiple providers, access to code and data (i.e. standard data formats and APIs) and semantic interoperability. The latter point is only solvable with complex systems through running code and unless the market intends to be a captured markets (i.e. dependent upon one vendor) then that code will have to be open source. This has been clear for the last 5+ years. Everyone knows this just a lot of people refuse to believe it usually because of inertia barriers which have become institutionalised.


• Critical in this new world is the development of ecosystems as these enable a company to solve the innovation paradox and simultaneously appear more innovative and highly efficient. This has been blindingly obvious for 3+ years. More details on common models such as ILC can be found here. Salesforce knows this, they've been playing an acquisition game around their own ecosystem and sending market signals because of this.


• With a large enough ecosystem, you can create network effects through aggregated data e.g. market reports. This can be used as a soft form of lock-in i.e. even if you open source an entire system, your service still maintains an advantage simply because of the number of people using it. In other words, you can be entirely open but in effect create lock-in (i.e. gravity) for your service because of the benefits that being within that ecosystem brings. This has been painfully obvious for the last 3+ years.


• Salesforce has also been playing a tower and moat ploy, building a tower of core revenue surrounded by a moat of high barriers to entry and devoid of differential value. Attacking Salesforce is a tough call for anyone, hence I suspect Larry's aim to make interoperability his calling card.

Salesforce has the ecosystem to play an aggregated data game i.e. free market reports for an industry based upon aggregated data or free comparison KPIs to your sales team effectiveness etc. Given the smart plays Salesforce has been making, you can bet your bottom dollar they've got lots of this in the pipeline.

Salesforce could also use open source as a tactical weapon in this space. They could open source the entire system and say "come and compete", "run it yourself" with full knowledge that those who build it for themselves and take the private road will eventually switch to public, whilst those setting up as public providers will lack the ecosystem and hence any aggregated data benefits. Salesforce is also smart enough to know that this game could be played against them, so they'll have to go down that route at some point. Hence you can pretty much bet your bottom dollar they've been working on this.

Larry has walked into a huge trap. He's just called out interoperability as the key differentiator for his service but as we all know the real issue is portability which requires semantic interoperability and running code. All Salesforce has to do is start launching more aggregated data services and open source the entire system under a banners of "Freedom in the cloud", "Run it yourself for Free" and Larry is left standing with the high cost proprietary service with no real portability (except between one licensed version of Oracle and another).

It's difficult to see how Oracle's strategists could have been more tweedledum or tweedledee as currently they are primed to become the industry's example of Hotel California (you can go anywhere you like as long as you're paying fees to Oracle?).

Now, open sourcing won't be easy for SFDC because they have an existing service, security professionals will be concerned over exposing security weaknesses, lawyers will have their usual collywobbles over IP and financial controllers will gasp at writing down a technology asset.

However Benioff like Maritz (you don't think CloudFoundry doesn't have a grand strategic purpose do you?) is a shrewd player. It all boils down to a question of timing but we should be expecting checkmate to Salesforce in the near future.

Bad move Larry ... really bad

Bank Recapitalisation ... Pirate Style

After much ado, the European Union seems to have been badgered into emergency action in order to re-capitalise the banking system due to its over exposure to instruments based on sovereign debt and the reliance on the dollar. I'm not a fan of this, this is just another monetarists prayer to the altar of "no sodding evidence whatsoever" and as usual the taxpayer will foot the bill.

Naturally, there will be wormtongues who will claim it was a Keynesian approach when it all goes spectacular wrong ... that is par for the course for economic banter.

So given that we're going to re-capitalise the banks, let us at least try and arrange the situation in the interest of the taxpayer. First, re-capitalisation should be forced and not voluntary and the capital ratio set by Basel should be raised to 30%. Next the banks should be given two options - either raise the money yourself or borrow from us, the nice friendly EU.

Of course, being the lender of last resort, there will be a couple of strings attached to the capital we lend (oh and lend is the operative word). Hence :-

1. The entire capital lent will need to be repaid annually over 5 yrs at EU base interest rates or average EU inflation (whichever is higher) + 10%.
2. The EU takes precedence over all other debtors and the entire banks assets will be used to underwrite the loan
3. A sum of Bank equity equal to capital lent will be paid to EU as our "setting up administration fee"
4. Late payment will incur an APR of 200% plus a penalty of 50% on any remaining capital.
5. No dividends will be paid until the entire loan is repaid
6. Upon final repayment of the loan, another sum of Bank equity equal to the capital + interest + any late payment fees will be paid over to the EU as our "closing administration free"
7. If you don't like the terms then go raise the capital yourself on the open market.

Now, I'm not actually advocating such draconian terms but I'm arguing for the EU and our Gov to stop acting like they're just pawns in this global game and start acting like pirates. The banking system is an essential vehicle for our economic system but like all things, it should be managed in the wider interest of society.