Unicorns and regulations: Prophecy or parable

From the entertaining article Silicon Valley Unicorn Obituaries by Mr. Prabha Kannan in The New Yorker:

"Three unicorns passed away in the Bay Area last week after an extended battle with a particularly virulent strain of valuationitis. Gathered at their bedsides were executives and prominent venture capitalists, who confirmed the deaths. “The virus came out of nowhere,” the treating physician said. “One minute they were thriving entities worth billions, and the next . . . I haven’t seen cases of valuationitis with inflammation of this magnitude since, oh, way back in 2000.”"

Read the complete article here.

From the more sober evaluation from Schumpeter: Toy Story in The Economist:

"The threat of adverse regulation animates the question of whether the hoverboard fiasco is a prophecy as well as a parable. Silicon Valley has long displayed some of the classic characteristics of a bubble: companies vying to build the most eye-catching headquarters and CEOs competing to produce the most extravagant ideas to “change the world”. There are growing signs that private valuations of tech “unicorns” will not hold up when they are subjected to the rigours of the public market. Some unicorns have shied away from going public at the last moment and others such as Good Technology, a mobile-device security firm, have sold themselves at lower valuations than they had hoped. If regulators alter the landscape further, 2016 might be the year that such firms follow the hoverboard and go up in a puff of smoke."

Read the complete article here.

Free Basics and India

Mr. Mark Zuckerberg provided India with an excellent opportunity via Free Basics.  Its blockage is not a failure but an idea which will be implemented in short order via the astute businessmen of India through their influence on the country's government.  Such is capitalism in a socialist country.

The Guardian writes in an article here:

"Rather than teaming up with the developing world’s universally loathed mobile companies to get them to zero-rate your offerings, why not optimize Android for P2P file-sharing of material downloaded and cached at wifi hotspots – file swapping being a very common, sociable practice already in play across the developing world – treating the telcos like the enemies of progress that they have always been, joining with users in subverting and sidelining them?

India’s got millions of activists with an open internet bandwagon we should all be jumping on, and the next billion will go to the company that figures out how to work with them."

Let's watch closely, there are a billion connections waiting to happen, and it is a gold mine for whomever corners the market.

Oil benchmarks

West Texas Intermediate (WTI) is now trading on par with Brent, the current international standard.  Yet, the alignment of the price and the US export ban having been lifted as of the end of the year 2015, what does the future hold?  The Economist write in Crude Measures:

"A good benchmark has to reflect supply and demand for oil wherever it is used. WTI may continue to be influenced by bottlenecks in the American market. Brent reflects the market for oil in north-west Europe. That was once a positive, but as Europe’s share of global demand for oil declines, proximity to the continent is no longer the advantage it was.

That suggests that an Asian benchmark will rise to the fore. The Shanghai International Energy Exchange plans to launch its own yuan-denominated contract this year. The new benchmark will have trouble getting off the ground. For one thing, China’s capital controls make it difficult for foreigners to buy the yuan needed to trade the contracts. The wild swings in China’s equity markets set an unnerving example for investors. But time is on its side."

Read the complete article here.

Magic in machine learning

I have had the opportunity to work in data-driven analytics across a number of industries, the most advanced ones being the finance and investment folks.  Now, I am in the oil and gas sector, where advanced data-driven analytics is starting to find a foot hold though there are skeptics a-plenty.  This includes folks to whom a Microsoft Excel is the ultimate analytics tool, and scientists who believe that complex physics cannot be complemented (and in some cases as I believe replaced) by machine learning driven, continuously evolving models.

"… the distinguished differential geometer Eugenio Calabi volunteered to me his tongue-in-cheek distinction between pure and applied mathematicians. A pure mathematician, when stuck on the problem under study, often decides to narrow the problem further and so avoid the obstruction. An applied mathematician interprets being stuck as an indication that it is time to learn more mathematics and find better tools."

Dr. Ingrid Daubechies writes an delightful article in the Wired here, "Machine Learning Works Great — Mathematicians Just Don’t Know Why".  She discusses supervised and unsupervised machine learning, with a nod to a bit of magic in machine learning that is still not understood.

Highs and lows of O&G, new models

"KKR & Co led a buyout of Samson in 2011 for $7.2 billion. The company estimated its value at less than $1.5 billion for its prearranged bankruptcy plan.

Dune Energy valued its assets, including about 15.52 million barrels of oil equivalent of reserves, at $229 million in September 2014. The company auctioned them during its bankruptcy for $19 million in July.

Houston-based BPZ Resources fetched less than $10 million for its assets in July, which included licenses to explore for oil and gas covering 1.9 million acres (7,690 square kilometers) in Peru. Last year it valued the assets at $291 million."

How long will it continue? A few good things will come out of this prolonged downturn in oil and gas, including cleansing of the sector from the bottom dwellers, injection of technology to do the same tasks in significantly different ways, new techniques of financial engineering both productive and detrimental (MBAs always have a place upturn or downturn), etc.

Yet, I have not seen any of the significant players in the oil and gas sector come up with novel business models.  Here is an opportunity to (1) copy successful methods from other industrial sectors that have worked, (2) leverage advanced information technology, from gaming to analytics (this requires top tier leadership with experiential knowledge), (3) and the most important of them all is to avoid popular definition of insanity: "Doing the same thing over and over again and expecting different results."

With today's West Texas Intermediate around $41, the article's prediction is ominous:

"Becky Roof of AlixPartners, who advises distressed energy companies, said the experience with energy bankruptcies so far partly reflects the type of companies filing: weak, with far too much debt. She said stronger companies will fail next year if energy prices remain low."

I recently wrote about M&A in oil and gas here.  Read the complete article at Reuters here.

Whose data analysis is correct?

We in advanced data-driven analytics believe that the patterns in the data do not lie.  Yet, our biases drive what features we feel should be key to the interpretation of data, pick the pattern that invokes the anomaly we want to detect, etc.  This experiment detailed in the Nature here by Dr. Raphael Silberzahn, Assistant Professor, Department of Managing People in Organizations, IESE Business School, Barcelona, Spain (bio and research here) and Dr. Eric L. Uhlmann, Associate Professor, Organizational Behavior, INSEAD, Singapore (bio and research here), highlights that today accuracy in data analytics must comprehend more than one method and more importantly group of data scientists before drawing conclusions.

"The experiment Last year, we recruited 29 teams of researchers and asked them to answer the same research question with the same data set. Teams approached the data with a wide array of analytical techniques, and obtained highly varied results. Next, we organized rounds of peer feedback, technique refinement and joint discussion to see whether the initial variety could be channelled into a joint conclusion. We found that the overall group consensus was much more tentative than would be expected from a single-team analysis."

In the near future, I hope that machines will simply consume data, and extract and raise the anomaly above the noise.  Though, we make the machine, so will the machine be biased?

The data set:

"All teams were given the same large data set collected by a sports-statistics firm across four major football leagues. It included referee calls, counts of how often referees encountered each player, and player demographics including team position, height and weight. It also included a rating of players' skin colour. As in most such studies, this ranking was performed manually: two independent coders sorted photographs of players into five categories ranging from 'very light' to 'very dark' skin tone."

The article concluded:

"Of the 29 teams, 20 found a statistically significant correlation between skin colour and red cards (see 'One data set, many analysts'). The median result was that dark-skinned players were 1.3 times more likely than light-skinned players to receive red cards. But findings varied enormously, from a slight (and non-significant) tendency for referees to give more red cards to light-skinned players to a strong trend of giving more red cards to dark-skinned players. After reviewing each other's reports, most team leaders concluded that a correlation between a player having darker skin and the tendency to be given a red card was present in the data."

Khosla on IT today

Via good friend Mr. Vish Mishra, article in the Business Insider, "Billionaire investor Vinod Khosla: IBM and Dell haven't had 'one new idea over the last 30 years'".

I had an awesome time in late 80s and all through the nineties building computer systems, writing software and firmware, building enterprise systems that scaled to 100s of millions of users... till the early 2000s. At that point I left IT because it was commoditized in every sector I stepped in.  Some sectors leveraged advanced Information Technology well, such as Finance and Banking, Consumer Product Goods and Retail, while some were adopting it slowly like Healthcare and Utilities.

Today I work in a Oil and Gas sector where I find myself fascinated by the inability (on average) to comprehend the power of advanced IT, let's pick one thing, the cloud.  Some of the players look like they reside in a mud hut with candle lights in comparison to other sectors, the most entertaining of (nonsensical) common wisdom being that the cloud is unsecured.  Another area is advanced data-driven analytics.  O&G is a deeply physics based sector, yet data analytics is able to drive solutions in places where physics needs complementation, where physics cannot be applied, or where complete system understanding does not exist to apply physics.  Yet, the stolid mindsets persist.

And this is where the opportunity for exceptional growth and next level of productivity exits.  Mr. Vinod Khosla's comments are a foresight as I translate them for O&G that it could look to the IT future being created by Google and Amazon to solve problems in new ways.

"Speaking of Dell, EMC, and IBM, he said, "They've not introduced what I consider one new idea over the last 30 years....Mostly they've spent their last few years engineering financials.""

"So what is Khosla looking for when he invests? "Who's inventing the future that's dramatically changes the world.""

Read the article here.

Globalization and the Middle East

I have always found it interesting how regions East of Europe are branded, more akin to the storied regions of Lord of the Rings; Near East, Middle East, and Far East.  Schumpeter of The Economist writes an excellent piece; discussing the facts of doing business in and with Middle East and companies there, respectively, to realities of ethinicity; from areas of growth in Middle East based on commodities to the region's multinationals attempting Western style management for productivity and efficiency.  Schumpeter states:

"... the problems are mind-boggling—and they are not the sort that an MBA course prepares you for. It is one thing to study “political risk”. ..."

Read the complete article here.

Oil and gas has $500 billion for M&A

I recently wrote an article on how large firms continue to grow through M&A here.  A recent article in World Oil reinforces my claim that this is the season for M&A:

"Exxon Mobil Corp. tops the list with a total of $320 billion for potential acquisitions. Chevron is next with $65 billion in cash and its own shares tucked away, followed by BP Plc with $53 billion, according to data from corporate filings compiled by Bloomberg."

Read the complete article here.

Rethinking power generation

Excellent article on reinventing generators for using ocean currents for power generation here.

Next generation multinationals

Schumpeter in The Economist states, "The golden age of the Western corporation may be coming to an end."

"The golden age of the Western corporation, [McKinsey Global Institute] argue, was the product of two benign developments: the globalisation of markets and, as a result, the reduction of costs. The global labour force has expanded by some 1.2 billion since 1980, with the new workers largely coming from emerging economies. Corporate-tax rates across the OECD, a club of mostly rich countries, have fallen by as much as half in that period. And the price of most commodities is down in real terms."

The world is flattened a la Mr. Thomas Friedman. The results have been corporate growth of existing multinationals to new ones from emerging markets growing fast:

"Two things in particular are shaking up the comfortable world of the old imperial multinationals. The first is the rise of emerging-market competitors. The share of Fortune 500 companies based in emerging markets has increased from 5% in 1980-2000 to 26% today."

The power of technology, and its democratization has been the other significant change:

"The second factor is the rise of high-tech companies in both the West and the East. These firms have acquired large numbers of customers in the blink of an eye."

The article offers a solution for the current multinationals, based on the concept that all innovation is preceded by invention:

"How can Western companies navigate these threats to their rule? MGI advises them to focus on the one realm where they continue to have a comparative advantage—the realm of ideas. Many companies in labour- and capital-intensive industries have been slaughtered by foreign competitors, whereas idea-intensive firms—not just companies in obvious markets such as the media, finance and pharmaceuticals, but in areas such as logistics and luxury cars—continue to flourish. The “idea sector”, as MGI defines it, accounts for 31% of profits generated by Western companies, compared with 17% in 1999."

Unfortunately, the larger the corporation, the lesser it is capable of creating and nurturing "ideas".  Ideas require a desire "to be something" more in the future, and then nurturing them, allowing them to fail.  Rare is a corporate that is capable of such, handcuffed to quarterly earnings.  Tools of the corporations to capture innovations versus "creating" via M&A, divestures for streamlining and growing the balance sheet, etc.

Yet, does a new model emerge for the ones who will last?

"The cult of quarterly earnings may lose more of its following. A striking number of the new corporate champions have dominant owners in the form of powerful founders. They are willing to eschew short-term results in order to build a durable business, such as Mark Zuckerberg at Facebook, the Mahindras and other assiduous families in India, and private-equity firms. Gibbon’s great work was a tale of decline and fall, as classical civilisation gave way to barbarism and self-indulgence. With luck, the tale of the relative decline of the Western corporation will also be a tale of the reinvention of capitalism as new forms of companies arise to seize opportunities from the old."

National productivity

From The Economist:

"The productivity gap, an indicator of a country’s output capabilities, is the ratio between the productivity of a benchmark country (such as the United States) and that of a less developed economy. The latest Latin America Outlook from the OECD, a think-tank, compared the productivity gaps of selected countries in the region with those of economies in Asia. In general, productivity gaps in Asian countries have narrowed significantly over the past three decades. America’s productivity in 1980 was 125 times that of China; by 2011 the gulf had come down to 17 times. In Latin America and the Caribbean, however, not only was there a much smaller reduction, in many cases the gap had grown."