The myth of privacy

Dr. Michal Kosinski, Associate Professor at Stanford Graduate School of Business, is one of the new generation of 21st century psychologists who leverages data science as part of his practice of the art and science of his profession. Please see his work that provides insights into privacy what I call the myth of personal behavioral privacy in the digital world. See detail's on Dr. Kosinski's work here.

See below an interview of Dr. Kosinski by Dr. Fareed Zakaria:

Human vs. Machine

A list of human vs. machine competitions since 1979 showcasing how machines are performing successfully and winning at various tasks that humans have excelled in or have been naturally gifted to do. Complete blog here.

Superstar Formation and Sustainability

The second article in the September 17th, 2016 Special Report "Companies" in The Economist is "Why giants thrive".

"Pankaj Ghemawat, of the Stern School of Business at New York University and the IESE Business School at Navarra, Spain, calculates that America’s top 1,000 public companies now derive 40% of their revenue from alliances, compared with just 1% in 1980."

"It found that last year those that deployed 60% or more of their R&D spending abroad enjoyed significantly higher operating margins and return on assets, as well as faster growth in operating income, than their more domestically oriented competitors."

The article gives reasons for the continued growth of the Superstar companies though when it is gives the example of Amazon, I have to take exception to the various aspects attributed to the rest of the Superstars. Amazon has grown ideas from within that both created a trend and captured it (one click ordering and shipping, Echo, etc.), discovered the emergence of a trend and cornered that market (Amazon Web Services, small niche businesses will need eCommerce outlets, etc.) and finally this is a significant one, reinventing a market place that was considered to already see heights of innovation and productivity (logistics, supply chain, etc.).
In comparison, Google is starting to look like "I can do that too". It has copied Amazon's Echo, Apple TV and the Smartphone. Google does create solutions to Grand Challenges, as I call them, or should they be called Grand Automation, such as the self driving car - something one cannot and should not expect from the likes of the Detroit car families.

A key insight from the article is, "Most of the new tech firms are “platforms” that connect different groups of people and allow them to engage in mutually beneficial exchanges."

Though nothing lasts forever in the future of economics:

"The superstar companies, then, seem to have all the advantages. But two arguments are being advanced to suggest that their success may not last. One is that the forces speeding up creation, which currently work in their favour, could also speed up destruction. The other, more fundamental one is that these companies are merely holdouts against a general trend towards a more fluid economy."

Enjoy the complete article here.

Superstar companies

Following are comments to and excerpts from articles published in The Economist's Special Report "Companies" on September 17th, 2016.

The first article in this report "The rise of the superstars" explains what a superstar is, why today it has started to matter again and the age of entrepreneurism is at an end. I have rather an orthogonal viewpoint as an entrepreneur can find value creation opportunities in any economic circumstance.

The article starts and ends with the age old question asked since Roman times and superbly articulated by President Theodore Rosvelt:

"On August 31st 1910 Theodore Roosevelt delivered a fiery speech in Osawatomie, Kansas. The former president celebrated America’s extraordinary new commercial power but also gave warning that America’s industrial economy had been taken over by a handful of corporate giants that were generating unparalleled wealth for a small number of people and exercising growing control over American politics. Roosevelt cautioned that a country founded on the principle of equality of opportunity was in danger of becoming a land of corporate privilege, and pledged to do whatever he could to bring the new giants under control."

Though his aspirations may not have found culmination:

"But now size seems to matter again. The McKinsey Global Institute, the consultancy’s research arm, calculates that 10% of the world’s public companies generate 80% of all profits. Firms with more than $1 billion in annual revenue account for nearly 60% of total global revenues and 65% of market capitalisation."

This is both positive and negative:

"The number of listed companies in America nearly halved between 1997 and 2013, from 6,797 to 3,485, according to Gustavo Grullon of Rice University and two colleagues, reflecting the trend towards consolidation and growing size. Sales by the median listed public company are almost three times as big as they were 20 years ago. Profit margins have increased in direct proportion to the concentration of the market."

Positive because this is unsustainable for innovation - large companies do not deliver breakthrough innovation - their purpose is to be incrementalists - and the consumer and commercial markets have leaps in growth only when disruptions come along. Unfortunately, this trend's negativity squarely hits the entrepreneur head on:

"Startups, meanwhile, have found it harder to get off the ground. Robert Litan, of the Council on Foreign Relations, and Ian Hathaway, of the Brookings Institution, note that the number of startups is lower than at any time since the late 1970s, and that more companies die than are born, pushing up their average age."

The article quotes Mr. Peter Thiel, "Competition is for losers." Read Mr. Thiel's article in the Wall Street Journal here in which he elaborates on the concept of, "If you want to create and capture lasting value, look to build a monopoly." Interesting fact that "In a list of the world’s top 100 companies by market capitalisation compiled by PwC, an accountancy firm, the number of continental European firms has declined from 19 in 2009 to 17 now. Still, in most of the world some consolidation is the rule. The OECD, a club of mostly rich countries, notes that firms with more than 250 employees account for the biggest share of value added in every country it monitors."

The conclusion in the article is stark and perhaps has opportunities for the astute capitalist entrepreneur who knows that the multinationals growth has nothing to do with innovating but with the application of innovation and he or she can deliver it for them, "There are good reasons for thinking that the superstar effect will gather strength. Big and powerful companies force their rivals to bulk up in order to compete with them. They also oblige large numbers of lawyers, consultancies and other professional-services firms to become global to supply their needs. Digitisation reinforces the trend because digital companies can exploit network effects and operate across borders."

Silicon Valley continues to grow its superstars via M&A. It is fascinating to see how many small and entrepreneurial companies are being bought by the likes of Intel, Cisco, Facebook, Google, Oracle, etc. Though I find it rather interesting that Amazon continues to grow its own ideas starting from within the corporation!

Enjoy this first article in the special report here.

China, renewable energy and $361 billion

"China will plow 2.5 trillion yuan ($361 billion) into renewable power generation by 2020, the country's energy agency said on Thursday, as the world's largest energy market continues to shift away from dirty coal power towards cleaner fuels.

The investment will create over 13 million jobs in the sector, the National Energy Administration (NEA) said in a blueprint document that lays out its plan to develop the nation's energy sector during the five-year 2016 to 2020 period."

The renewable energy push has moved on to being funded at a national level across the globe. Read the complete article on China's push here. For China, the impact on the quality of life of its population will be the most significant impact for the long run.

What is Advanced Data Analytics

I have been attempting in oil and gas to educate and describe advanced data analytics for the past five years. The understanding is usually based on the individual's experiential learning and academic education. For example, Dr. Lev Tabarovsky, Technology Fellow at Baker Hughes further enhanced my thinking.

During a recent conversation with a colleague who was my manager at Baker Hughes as well, Dr. Mario Ruscev, currently the Global President of Products at Weatherford, he articulated probably one of the best descriptions I like to share:

"It has become very fashionable to also discuss Analytics use in the E&P world lately. Analytics are really a set of algorithms that empirically define and/or find relations, distances, similarities between multiple variables and/or dimensions events and allow you then to obtain responses when physically derived models cannot be done or struggle. Plugging data into Predix or Watson and expecting an answer does not really work. First you need to define what question you want to answer, then you know your events and get together a set of mathematicians and subject matter experts to find the type of algorithms that will work and optimize your solution if one is found. Instead of using a closed eco system like Predix or Watson we rather form a small team of Data Scientists (in the old days we called them theoretical scientists) to develop the solutions."

Excellent!

Solar cost trends

Good friend Dr. Chris Wedding forwards an excellent analysis of solar industry and the growth of solar.  Growth of solar to me is not how much upside there is for the investor but how cheap the energy use is for the consumer (see graph below). The article is more directed towards ROI for investors.

Enjoy the article here.

Ofcourse the recent allocation of $1B by Mr. Bill Gates and his co-directors (including Alibaba founder Jack Ma, Reliance Industries chairman Mukesh Ambani, venture capitalists John Doerr and Vinod Khosla, former energy hedge fund manager John Arnold, and SAP cofounder Hasso Plattner) towards clean energy has been in the news with Breakthrough Energy Ventures. Energy investments have not been successful because the standard model of Silicon Valley mindset based investment returns do not occur in the short timeframes nor the standard software style business models apply.  I was delighted to read the following from John Arnold:

"“Being a 20-year fund with patient capital that’s not needing short-term gains allows us to have a longer-term outlook as well as fund technologies that don’t fit into the traditional VC model as it exists today,” says Arnold."

Read the complete article at Quartz here.

Art of stating the obvious

McKinsey & Company's Mr. Marcel Brinkman, Mr. Scott Nyquist, Mr. Matt Rogers, and Mr. Richard Ward published "Five technologies for the next ten years" in September 2016. It is a good article consolidating technologies that will impact oil and gas. Though it is a delightful foray into stating the obvious, information that has been well know for the past two to four years.

"Five technologies will change the oil and gas industry: mobile will speed oilfield transactions, increase efficiency, and improve safety by removing people from harm’s way; the Internet of Things (IoT) will reduce the cost of repairs; machine learning will provide ever more optimal solutions to field challenges; robotics will upend the question of who does the work, and blockchain will make contracting faster and smoother than ever before."

Please read the obvious here!

Mr. James Dimon: Exceptional insights and foresights

This is a delightful interview of Mr. James Dimon, Chairman and CEO, JPMorgan Chase & Co., speaking with the Economic Club's president David M. Rubenstein on Monday, September 12, 2016. In 45 minutes, Mr. Dimon covers politics, economics, and current and future state of the world and much more. If there was ever a case to be made for the strength that America offers now and in the future, this interview covers it.

Counterpoint: Uber

"... it is a rerun of the oldest sort of business: middlemen insinuating themselves between buyers and sellers."

Writes Mr. Leo Mirani on Quartz here via Ms. Aruna Viswanathan  Mr. Mirani offers a compelling counterpoint to the much hyped Uber for X concept and the build up of the sharing economy.

"There are only two requirements for an on-demand service economy to work, and neither is an iPhone. First, the market being addressed needs to be big enough to scale—food, laundry, taxi rides. Without that, it’s just a concierge service for the rich rather than a disruptive paradigm shift, as a venture capitalist might say. Second, and perhaps more importantly, there needs to be a large enough labor class willing to work at wages that customers consider affordable and that the middlemen consider worthwhile for their profit margins."

The middleman has always been a part and parcel of business from time immemorial.  Real estate and financial transactions being the oldest.  One could say that religions may have cornered the market in creating the man in the middle business, yes?

The article is worth a read and refreshing, though what it highlights as the key reason for such economies to emerge, income inequality, is a bit disconcerting.

Entrepreneurism in the USA

The drop of entrepreneurism driven growth in the USA has a plethora of reasons.  One of them is US's policy on immigration:

"For decades, the United States invited the world’s best and brightest to come and study at its universities and provided them with temporary work visas. But it placed tight limits on the numbers of permanent-resident visas for those who wanted to stay, so the lines grew longer and longer. My research team at Duke, Harvard and NYU documented that there were, as of October 2006, more than a million skilled workers in “immigration limbo” in the United States, with only 120,000 green cards being made available every year for their work categories. Ten years later, I estimate the number of skilled workers in limbo is roughly 1.5 million. I explained in my book, “The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent,” that this would lead to a reverse brain drain. That is exactly what happened."

Writes my friend Mr. Vivek Wadhwa in The Washington Post opinion column Fewer foreign entrepreneurs say they need the U.S. That’s a problem here.

This has resulted in entrepreneurial innovations growing across the world.  Mr. Wadhwa's conclusion is correct - The tide has surely turned:

"The world’s entrepreneurs used to dream of coming to Silicon Valley because it was the innovation capital of the world and there were few opportunities elsewhere. This is no longer the case, as I learned during my recent trip to New Delhi. There are start-up incubators sprouting up all over India, and the quality of the start-ups is second only to those in Silicon Valley and China, which are running head to head.

I spoke to about 50 entrepreneurs at local incubators and meetups. Unlike earlier generations, very few had interest in moving to the United States. Most said they believed the greatest opportunities were in India. As technology designer Himanshu Khanna said, “Why should I move to Silicon Valley when I have a market 10 times as large here?” Five years prior, Khanna had asked me to sponsor him for a long-term U.S. visa, which he could not get.

The tide has surely turned."

Telco: New commercial models

Federal Communications Commission (FCC) has a new proposal, "The FCC has a plan to free us from our cable boxes" here at Wired.com:

"But cable providers may still fight this proposal. This is the latest in a string of plans hatched by the FCC to rein in the telecommunications industry, including the agency’s net neutrality rules and new regulations on how much telcos can charge for phone calls made from prisons. The telco industry is currently fighting the the FCC’s net neutrality regulations, and has already defeated the agency’s attempt to stop states from banning municipal Internet service. With $20 billion a year in rental fees on the line, the industry is unlikely to stand still."

Looking forward to the new wave of innovation in telco.