Fired!

It happened yesterday. They just sent me an eMail. How is that a good way to be fired? Anyway, from today onwards I can tell you that I am no longer an Amazons.com Associate. I cannot fault Amazon's reasons for firing me. Yesterday Governor "Moonbeam" Brown signed a law that because Amazon has associates in California they would have to collect sales taxes from California residents, and Amazon, clinging to "the internet is tax free" mantra fired all their associates that are California residents.

Also, I cannot really fault Governor Brown. He has a big budget gap to fund, an intransigent legislature and the determination that he is going to fix the budget problem properly, or at least better than his predecessors. So Brown signed legislation that would provide California with more revenue, or at least try to plug a gap in state revenue, or at least be a stage along the way to plugging the internet sales tax hole. This legislation on its own is not going to generate any extra revenue, however if enough other states with a sales tax pass similar legislation maybe enough companies will throw in the towel and start complying with state sales tax collection.

What am I going to do? Well I am not going to leave California. The weather is good, there are plenty of good jobs that pay well enough and the other amenities, while not cheap, are well worth it. Also, I have to confess that I have not been a very good Amazon Associate, making practically nothing from all those seductive links sprinkled throughout this blog. In truth, I did not become an Amazon Associate to make money. The real reason was that I was concerned that if I copied a link from the Amazon.com web site, and if you clicked on that link, you might see a message at the top of your screen that said something like "Hello Richard Taylor. Have we got some recommendations for you." As an Associate, I could get a good clean link for a product without having to worry about the fact that the link could have other unwanted baggage attached.

So adios Amazon. I will just have to go back to guessing how to fix up links to your site so that they do the right thing.

Bitcoin as an Economic Entity

Bitcoin is the new peer-to-peer virtual currency that I wrote about previously. This post evaluates Bitcoin as money from an economic point of view. I will write a separate post on technical and security aspects. Economists look at money as three things: a measure of value, a medium of exchange and as a commodity, more commonly and politely stated as a store of value. Here is how Bitcoin measures up to these three function.

One function of money is as a measure of value. When we use money to measure value, we do not mean that the money exists, rather that the asset, good or service is worth or cost the sum of money. Thus when we say that someone is a millionaire, this means that the sum of all they own minus their debts is more than a million dollars. It does not mean that they have a million dollars in bills stuffed into a mattress.

The men with the green eyeshades often talk about this purpose of money as "unit of account", thinking about it as a measure of value gets to the essence more quickly. So, when I am in a computer store trying to decide whether I should buy the $500 laptop or the $1000 laptop, I use money as a comparative measure of value, by asking whether the $1000 laptop is really worth twice the $500 laptop and an absolute measure of value by asking whether I can afford the $1000 laptop that I really want or whether I should make do with the $500 laptop and save the difference for other needs.

For a measure of value, the best currency is the currency we are familiar with, that we are paid in and that we use every day. Anyone who has been abroad knows the difficulty of commerce with an unfamiliar currency. At first, after every transaction the thought lingers in the back of your mind, did we just get a deal, or were we robbed? However, with repeated use you pick up a new currency. By the end of a vacation you are starting to be able to predict what goods and services will cost in the new currency. When I played World of Warcraft (WOW), I quickly learned the value of WOW Gold through having to work with it all the time.

Bitcoin has another problem as a measure of value, its volatile exchange rate with other currencies. Since its introduction, it has appreciated against all other currencies by about 200,000%. Recently, heavy selling on a Bitcoin exchange caused its value to fluctuate between $0.01 and $17.00 over the period of a day. This volatility makes it difficult to use as a measure of value because its value is uncertain. Most currencies are managed by a central bank and one of the purposes of a central bank is to keep the currency stable with respect to other currencies so that it can be safely used for all the three functions on money. On the other hand, the essence of Bitcoin is that it is completely distributed with no central authority. As it is unmanaged, we can expect its exchange rate to be somewhat more volatile than other currencies.

Another function of money is as a medium of exchange. Before money existed, trading was difficult. If I led a cow to market with the intent on trading it for grain, I might come to an agreement with another farmer that my cow is worth 8 sacks of grain, except that I only want one sack of grain the other farmer only has 5 sacks of grain to trade and he does not want a cow anyway. With money, I can sell the cow for money to someone who wants a cow, buy just as much grain as I need and save any leftover money for other transactions in the future. Money as a medium of exchange greases the wheels of commerce by acting as an intermediary and thus removing barriers to trade.

Bitcoin scores high as a medium of exchange. It can be securely and anonymously traded on the internet for other goods and services. Also it is almost infinitely divisible so it serves for small exchanges. There are two caveats. Firstly a Bitcoin transaction takes about 10 minutes to confirm, so sellers may be unwilling to accept it for immediate transactions where there is no recourse. That is, Bitcoin is good for selling Alpacca socks over the internet, but not for selling hot-dogs at Coney Island. As Bitcoin is an internet currency, this is only of concern to someone who sells virtual goods over the internet without recourse. The Bitcoin FAQ addresses this issue, saying:

Do you have to wait 10 minutes in order to buy or sell things with BitCoin? 

No, it's reasonable to sell things without waiting for a confirmation as long as the transaction is not of high value. 

When people ask this question they are usually thinking about applications like supermarkets or snack machines, as discussed in this thread from July 2010. Zero confirmation transactions still show up in the GUI, but you cannot spend them. You can however reason about the risk involved in assuming you will be able to spend them in future. In general, selling things that are fairly cheap (like snacks, digital downloads etc) for zero confirmations will not pose a problem if you are running a well connected node."

The second caveat is that we typically maintain a reserve of any currency that we regularly use as a float to smooth out transactions. Anyone concerned with the volatility of the value of Bitcoin may be unwilling to maintain a float in Bitcoin and therefore not have a convenient reserve of Bitcoin for doing transactions. If Bitcoin continues to have a volatile exchange rate with other currencies and users do not keep a reserve of Bitcoin for doing transactions, it becomes more cumbersome to use and therefore less useful as a medium of exchange. The end result is that Bitcoin is only used when there is no alternative method of payment. The conclusion is that Bitcoin, or any other currencies usefulness as a medium of exchange does depend on it having a reasonably stable value.

The final function of money is as a commodity like Gold, Oil or Frozen Concentrated Orange Juice (FCOJ). Currencies are commodities that are traded like other commodities for good legitimate reasons. For example, a company that contracts to buy a good that is priced in another currency may want to buy insurance against a change in the exchange rate that would cause the good to become more expensive than when they made the original commitment. Financial companies create and sell instruments that provide this insurance and then trade currencies as commodities to protect their position.

First some words about commodities in general. Owning a commodity does not produce any value. Stocks and bonds may pay a dividend, while a commodity does not, so the only reason for owning a commodity as an investor is the hope that its value will increase so that it can be sold at a profit. In practice owning a commodity is an even worse proposition because money is tied up in owning the commodity that could be otherwise earning interest, so even owning a commodity is a losing proposition unless the commodity increases in value. Then there is a cost for every trade which further saps profits. Thus people who are not Bitcoin speculators will not want to hold more Bitcoin than they need for their day to day needs.

Commodity trading creates a market for the commodity that sets its price. The first test of a commodity is that there is a market where the commodity can be traded efficiently. Bitcoin passes this test as there are several markets for Bitcoin, although a recent attack against the MtGox, the largest Bitcoin exchange may reduce confidence. As an example of the efficiency of trading Bitcoin, MtGox charges a 0.65% charge against every trade.

When evaluating a commodity, we consider how it is used to understand the supply and demand that determines its fundamental price. Bitcoin is a fiat currency which has value because people find it useful as a medium of exchange like the other like other fiat currency: Dollar, Pound, Euro or Yen. The key to understanding the value of Bitcoin like any other currency is money supply, the sum of all the money that people keep in their bank accounts and wallet to smooth out their transactions and grease the wheels of commerce as discussed previously. However there is one difference. With other currencies there is a central bank that manages the money supply to keep the value of the currency stable. With Bitcoin, there is no central bank, rather the amount of Bitcoin is circulation is stable. Thus the base value of Bitcoin depends on demand for its money supply.

The base demand for Bitcoin is to use it as a medium of exchange. If more people regularly do Bitcoin transactions and keep it in their wallet to smooth out their transactions, or they tend to keep more Bitcoin in their wallet because they expect to use it for more transactions, there is more demand for the stable supply of Bitcoin and therefore its price rises. Conversely, if less people keep Bitcoin in their wallet or people keep less money in their wallet the price falls. On top of this base demand, there is demand from speculators who expect the price of Bitcoin to rise and therefore hold it in investment level quantities. The base demand for Bitcoin will tend to keep the price stable, while the speculative demand is likely to make the price more volatile.

Another consideration is whether there are any risks associated with owning the commodity. Bitcoin is a virtual currency and a problem with other virtual currencies has been hyperinflation, caused by someone discovering a software bug that allows them to generate huge amounts of the virtual currency without much effort. This has happened in several Massive Multiplayer Online Games (MMOG), but in each case the game has had a central server that hands out money and a game mechanism that is designed with a specific rate of exchange in mind. Bitcoin is different in that it does not have a central authority and it is traded in a free and open market that sets its value. An attack on Bitcoin could reduce its value, however this could be self defeating as it immediately reduces the value of the attack. I will write a separate post on the security considerations, however it is safe to say that as there is a vibrant market for Bitcoin, it is reasonably safe.

In summary, Bitcoin's purpose is to be used as a medium of exchange for transactions over the internet. Its base value comes from small amounts of it being held in a large number of users wallets because they regularly use it as a medium of exchange. If Bitcoin is heavy used as a medium of exchange, this will tend to stabilize its exchange rate against other currencies and make it more useful as a currency when measured against all the functions of money.

Bitcoin, a Peer to Peer Virtual Currency

Bitcoin is a peer-to-peer virtual currency that seems to pop up in the conversation everywhere I look. A virtual currency is is a currency that is created on computers and traded on the internet. A couple of examples of virtual currencies are Linden Dollars in the online world Second Life and Gold in the massive multiplayer online game World of Warcraft (WOW). People in third world countries play WOW to collect WOW Gold and sell it for real money to players in the first world so that they can buy more powerful armor, weapons and spells to use in the game. Bitcoin is different in that its purpose is to be a currency like dollars, euros or pounds, whereas Linden Dollars and WOW Gold are an element of their games and have no real purpose or value outside of the game.

The other aspect of Bitcoin is that it is a peer-to-peer currency. Bitcoin is created by mining for it against a cryptographic algorithm. Once Bitcoins are created they are traded on a peer-to-peer network. When a transaction has taken place, it is broadcast to the peers on the network, they confirm that the transaction is valid and has taken place. The peer computers add the transaction to the history so that the transaction becomes permanent. There is no central authority that creates or manages Bitcoin, it manages itself through its network of peer computers all running the same software.

One feature of Bitcoin that has excited interest is that it promises secure anonymous transactions, like cash, but over the internet. While this may seem like a good thing, it is also a problem as it means that Bitcoin is an extremely useful currency for people who want to get around the law. Bitcoin has the problem that it needs to establish itself as useful currency with a legitimate reason to be. If the major use of Bitcoin turns out to be to abet criminal activity it may find itself under attack from governments that want to suppress it.

I am going to do a couple of posts on Bitcoin, one examining the economic aspects, and the other looking the technical and security aspects. In the mean time here are a number of links on related issues. My interest in a virtual currency comes from several direction. In the past I have written in this blog about both Virtual Goods and Virtual Economies.

A big question at the moment is the whole issue of what is Money. Some politicians, concerned about monetary policy have called for a return to the Gold standard, which has resulted in others asking this question. This American Life did a Podcast on that subject and came to the conclusion that Money is much more ephemeral than we may think. Planet Money did a related story where they looked at the small Pacific island of Yap where they used giant round stones as money. When a stone changes hand because of a payment, as the stone is large and heavy, the stone remains where it is and everyone on the island just knows it belongs to someone different. If you think that is strange, it is not that different from the way we manage gold. The gold bars sit in a bank vault and their ownership is digital bits recorded on a disk that is revolving at 7200 RPM. When the gold changes hands, a new record of ownership is written to the disk, however the gold remains exactly where it is. I will have to write more about virtual goods in real economies another time.

The Facebook PR Fiasco

Last week came the revelation that Facebook had secretly hired a prestigious Public Relations (PR) firm to plant negative stories about Google and its privacy practices. This is a completely ridiculous thing to have done and wrong in so many ways that it is difficult to know where to begin. Here are some of the top reasons as to why it was a bad idea.

• Firstly, the idea that Facebook should be accusing anyone of of playing fast and loose with peoples privacy is a severely hypocritical. Just last year, Mark Zuckerberg told us that "the age of privacy is over". Now he is trying to say that Google is worse for privacy than Facebook! And by the way, this revelation comes at the same time as Symantec has discovered a serious and longstanding security hole in the Facebook App API that allows a users private data to to leak. The only cure is to change your Facebook password, so if you are a Facebook user, go and change your password now!
• Secondly, we come to the oxymoronic idea of a secret PR campaign. Anyone who thinks that a PR campaign can be secret does not understand PR.
• Thirdly, a competent let alone "prestigious" PR firm should have understood that the ruse was bound to be discovered and that the fallout would be much worse publicity than anything negative that they could promulgate. Thus anyone who claims to understands PR should have guided their client to do something less radical and refused to get involved in the PR campaign. As it is, the PR firm of Burson-Marsteller has lost a lot of their credibility by being involved in the fiasco, and in PR credibility is everything.
• Fourthly, the whole idea of a secret PR campaign against another company seems sophomoric, as if Facebook is run by a bunch of undergraduates who have little real world experience, and think that they will be able to get away with a jape like this. No wait …
• Finally, if Facebook does want to launch a PR campaign on privacy they should do so openly by generating positive press that compares their supposedly good privacy policies with others less good privacy policies and behavior. As Machiavelli said "A prince also wins prestige for being a true friend or a true enemy, that is, for revealing himself without any reservation in favor of one side against another" and goes on to explain why openness and taking sides leads to better outcomes than pretended neutrality. As Facebook did their PR campaign in secret, we conclude that they could not have done it in public and therefore their privacy practices are no better than that of Google or anyone else.

Note: I was going to call this post "Pot hires PR firm to secretly call kettle black" until I read this article from the Atlantic about Search Engine Optimization (SEO) and the fact that as search engines do not have a sense of humor, humorous headlines do not work in the online world.

Living In the Stream

It used to be that "stream of consciousness" was a pejorative. It was a phrase you used to put down the type of person who talked endlessly with little connection between what they said and what anyone else said or even between what they had just said. Nowadays, the way live our lives is in a stream of consciousness.

Text messages demand to be answered. If you do not answer a text within ten or fifteen minutes the sender complains that you are ignoring them. Emails keep arriving, and a popup in the corner of the screen heralds their arrival. The popup contains an excerpt of the message designed to make you read the whole thing immediately, even although you know that it is junk or something that you should handle later. Instant message boxes pop up whenever you are on line and cannot be ignored. Sometimes people call you on the phone, although good form these days is to IM someone first to see if you can call them on the phone. Finally there are the two great streams of consciousness that captivate our attention: Facebook and Twitter. Random stuff arrives in a random order and as you have subscribed to the feeds you keep looking at them to see if anything interesting happened. In practice it is most likely to be a video of a cute animal doing something stupid.

How people survive and get anything done with these constant streams of distraction is a mystery to me. I do software, and sometimes I need to concentrate on a problem for a good period of time without interruption. It is not that I am necessarily thinking hard all the time, just that it can take time to investigate a problem or think through all the ramifications of a solution and any distraction just breaks the groove, meaning I have to start over. When this happens endlessly in a day my rate of getting stuff done drops towards zero.

So how do we fight back against constant disruption? The answer is to take control and do not let others dictate the agenda. Firstly, establish that there are periods when you are off-line. I do not take my phone to the bathroom, or when I work out or when I go to bed. Also, I do not answer the phone when driving alone, and have my passenger answer when I am not alone. All our means of communication apart from voice have a buffer so that they do not need to be answered immediately, for voice there is a thing called voicemail. On the other hand, voicemail introduces us to the game of telephone tag which is fun for those who like playing it and exceedingly annoying for the rest of us.

Secondly, you do need to "return your calls" as they used to say. Which brings to the crux of the matter. If you want to be part of the conversation, you need to take part in it. Unfortunately, these days what you have to do is "return your calls", respond to your texts, answer your emails, react to IMs, post to Facebook and Twitter to show that you are a conscious sentient being, and finally do something to make a living. So it comes down to picking conversations, and thinking hard about which conversations you want to join. Do this right and we become Islands in the Stream, which is the most we can hope to be these days.

The Steve Jobs Media Playbook

Information wants to be free. Steve Jobs is not usually associated with setting information free, however he set music free and may well be on the way to set more media free. Here is the playbook that he used to set music free, and an examination of whether he can set other media free.

Back at the turn of the millennium digital music was starting to make waves and Apple introduced their first iPod in 2001. At the beginning, it was not a great seller. Next year the second generation iPod that worked with Microsoft Windows came out and sales started to take off. The next problem with promoting sales of the iPod was to let people buy music directly. In those days, to buy music you had to buy a CD, rip it onto a computer and then sync the music onto the iPod.

The record companies did not like digital music. It was in the process of destroying their business model of selling physical goods, that is CDs, which had been plenty profitable until the internet and file sharing had come along. Thus the record companies knew that if they were going to allow anyone to sell digital music, the music content had to be protected by a strong Digital Rights Management (DRM) system. Basically DRM encrypts digital content so that it can only be accessed by a legitimate user on a accredited device.

Now there is one important thing about any encryption, it depends upon a secret key to unlock the content. If too many people know a secret, it is no longer a secret. So it made perfect sense for Apple to have their own DRM system and be responsible for keeping their secret safe. The only problem was that Apple effectively controlled the music distribution channel because of the DRM system and its secret. By providing exactly what the music business had asked for, Apple managed to wrest control of the distribution channel from them.

In the past I have joked about the music business controlling the industry by controlling the means of production. In fact they controlled the business by controlling the distribution channel between the artists and the record stores who sold the music. When the iTunes store became the prime music distribution channel it was game over for the recording industry. They had to climb down and offer their music without DRM to escape from its deadly embrace. DRM free music has not stopped iTunes but it does open up other sales channels.

The remaining question is what will happen with other media? Apple will not dominate the tablet market as it has the music player market so it will not be able to exert the same influence. On the other hand, other media is not a collectible as music. We collect music because we want to listen to it over and over again. With most other media, we are happy to consume it once and then move on. Thus we do not feel the need to own the media in the same way. I have some more thoughts that will have to wait for another time.

The Gawker Password Fiasco

Last month I wrote about password security, just a little too soon. This month the popular blog site owner Gawker admitted to a huge security breach where hackers had broken into their web servers and stolen their entire database of user account names with email addresses and passwords. The attack has brought password security to every ones attention, with people reporting that their email and other accounts have been compromised. There are a lot of discussions of protocols for password security with good information, and unfortunately there is also a lot of misinformation. Here is my take.

The Forbes magazine web-site has a clear description of the attack on Gawker, (although their discussion of the password encryption is not correct). The short story is that the break-in was done by a hacker group called Gnosis who were annoyed by Gawker. Frankly, given Gawker's arrogant style, who has not been annoyed by them at some time? Gnosis first broke in to Gawker in July and got the passwords to accounts for Nick Denton and 16 other staffers there. In November, Denton noticed some possible tampering in a web account, and finally in December Gnosis announced their break in and released data they had gathered.

Although, Gawker had used encryption to hide the users passwords, they are susceptible to a brute force attack and many passwords have been broken. Gawker lost over 1 million accounts and more than 100,000 passwords have been cracked and published so far. The Wall Street Journal has a nice analysis of the most popular passwords including a frequency graph.

There is a lot of misunderstanding about how passwords are stored on a web site and how a brute force attack takes place. For example, the Forbes article I mentioned earlier obviously does not have a clue. I do not know for certain how Gawker protects their passwords, however the best practice is to use a salted hash. With this technique, the web-site chooses a salt, which is just a random string of characters. When a user sets a password, the salt is appended to the password and the whole string is hashed with a cryptographic hash function like SHA-1. The resulting hash value is a seemingly random string of bits, and this is stored as the encrypted users password. When the user wants to log in, the salt is added to the supplied password, the resulting string hashed, and the hash value compared to the saved hash. If they are the same, the user must have provided the correct password and is allowed to log in. By using a salted hash, the web-site does not save the users password, they just save a cryptographic hash that is used to confirm that the user knows their password. To make things more secure, the web-site can save a different salt for each user or just add the user name to a common salt so that even if two users have the same password, the salted hash of their passwords are not the same.

In a brute force attack the attacker knows the algorithm used to generate the salted hash and has the salted hash of the password. The attacker generates a list of potential passwords, applies the password checking algorithm to each password and if the results are the same, they have guessed the users password. If the attacker can try 20 passwords a second, they can test well over a million passwords a day on a single computer.

It is very easy to generate a list of potential passwords. One good starting point is a list of broken passwords, such as published by Gnosis from the attack on Gawker. The next step is a dictionary of common words and proper names. Many applications have a spelling dictionary that can be used as a starting point. Then try some simple variations like adding a number to the beginning or of words, capitalizing letters in the word and make common substitutions for letters such as 1 for the letter 'i' and 5 or $ for 's'.

So now that you now how it is done, think about your passwords and how easy they can be attacked by brute force, and excuse me while I go and change some of mine.

The Registration Dilemma

To register or not to register, that is the question:
Whether 'tis better to create a new online account,
or just make do with with the existing ones,
and so lead a slightly less ennobled life.

Online account registration is a barrier, something that we are all thinking about as this is the season for buying stuff. As I said previously, I have about 70 online accounts where I actively maintain a user identity, and I have created many many more. Thus every time I am presented with the choice of registering for a new site, I stop and think, do I really want to create another account? In the past couple of weeks I have decided to forgo on creating 3 new online accounts and just stick to my well traveled paths.

Registration is not always thought of as a bad thing. For example, Dave McLure, Master of 500 Hats, micro Venture Capitalists and relentless promoter of analytics to improve web based businesses, has Activation as the second of his 5 step program to web enterprise success. Now Activation does not necessarily imply Registration, however Registration is the most common and strongest form of Activation. Dave's perspective is that to succeed on the net, your product needs to be strong enough to overcome any barriers to Activation.

There have been many initiatives to vault over the registration hurdle. The most promising one is OpenId, an open system that allows you to use your account at one web site to log onto other web sites. A couple of years ago I thought that this was a good solution to the Single Sign-on problem and worth promoting. Now OpenId seems to be moribund and it is not widely used. I am not sure what happened, but I did hear rumors of a argument and a split which diminished the organization.

One of the problems with OpenId and any other system is that it tends to favor and strengthen the big players like Yahoo and Google. Another idea the people often trot out is some form of micro-payments system that would obviate the need for registration at many sites. There are a couple of problems. Firstly, any payment is its own barrier, and creating many little barriers instead of one is not a path that is likely to lead to success. For a broader discussion of this issue I recommend the book Free by Chris Anderson.

The second problem is that a successful micro-payment system will favors and strengthen the big players that operate it. It has to be a big player as no one is going to trust their payments to some small and unknown start-up. In practice, the only really successful micro-payment site is iTunes, and it shows up all these problems. In the beginning we all cheered as Steve Jobs took on the record companies. Now that iTunes is the leading purveyor of music, many people have taken to railing against the power of Apple.

The Registration Dilemma is this. We can either continue with the current system that has a chaos of millions of sites, each with their own registration that we need to manage, or we can give in to consolidation and just deal with a few giants. Every time I think about it, I end up siding with chaos.

Write Down Your Password

If Bruce Schneier says that you should write down your password, then write down your password. What he means is that given the choice between having a weak password that is so easy to remember that you do not need to write down and a strong password that you do need to write down to remember, it is better to go for the strong password. However, the problem of online identity management is much more complicated. Note that even the terminology is broken. We need to distinguish "online reputation management" which is about managing your personal brand online, with "online identity management" which is about managing how you authorize yourself with websites. Often, the term online identity management is used for online reputation management.

The problems of online identity management starts long before you need to provide a password. First you have to provide a user name. Each site has its own rules about what your user name should be. About half of web sites use an email address as a user identifier, while the other half insist that you play the game of user name roulette where you have to keep guessing a user name until you find one that has not been used. I have enough different user names that I have to write down my user name for each site, before even thinking about writing down a password.

Next problem is the large number of sites where you have an account. I have about 70 sites where I actively maintain a user identity, and there are many more sites where I have registered an identity and then abandoned. Of those 70 site, about 15 are sites like banking sites that are important to protect with a strong password.

One site that is particularly important to protect is your email account. Use a strong password with your email account and do not use that password on any other account. If your email account is compromised, you are in a lot of trouble. For example, many sites allow you to reset your password by mailing you a new one. Remember, an attacker who gains access to your email account is able to read your email including emails from other sites where you are registered. Many sites store your email address and password, so if they are compromised, and you use the same password for all accounts, the attacker has got your email address and the password to the account.

Another serious problem is any account that gives you access after answering security questions. The security questions are effectively another password and they encourage answers that are easy to guess. You are better giving nonsense answers to security questions, except for the fact that you now need to write down the answers to those questions as well. All in all, online identity management is a pain.

Understanding the iPad

Some people still struggle to understand the iPad. When it was first announced, there were shrieks of outrage from techies, complaining that it was not a free and open computer system and so nobody should buy one. Then it came out and was adopted by the millions. Steve Ballmer, CEO of Microsoft, expressed dismay that the iPad is easily outselling any tablet computer that Microsoft and ever had a hand in. More recently an executive from LG told the Wall Street Journal that they would bring out a Tablet that would be better than the iPad because it would be oriented towards content creation rather than content consumption.

Then there are many people who get it. For example, Jerry Kaplan, founder of Go Computing, an early slate computer in an interview with Chris O'Brian of the San Jose Mercury News understood that the iPad is oriented for media consumption as opposed to the more general purpose Go slate computer. My belief is that the iPad is a new category of device that addresses a new market.

Last year I wrote about Media Convergence, the idea that in the past, each type of media was different. Books were bound paper sold by booksellers, video was delivered as movies in movie theaters and broadcast as television, records were vinyl goods sold in record stores and heard over the radio, magazines were sold by booksellers or delivered by mail, newspapers had their own content delivery network to ensure that everybody got the previous days news by the following morning. With the digital revolution, all these different types of media are now the same. They are all just buckets of digital bits that are delivered through the Internet. Given this, the next thing we need are devices for consuming all this media. Audio just needs a device the size of your thumb and headphones, whereas video, books, magazines etc. need a screen that is big enough to see, and that is what the iPad is for.

When thinking about these things, I find it useful to draw up some requirements and use cases and then see how the offered devices match those requirements. Here is what I want from my Personal Information Appliance (PIA - remember that acronym).

1. Light enough that I can lie in bed and read or view media with it.
2. Instant on, long battery life, able to handle all media types.
3. Get media without having to plug it into anything else.
4. A screen large enough to read or view and small enough to make the device portable.

So how does the iPad match these requirements? At 1.5 pounds it is a little heavier than most "light" reading, but there are plenty of hardback books that weigh more. For the second requirement, Adobe Flash is the major missing media type, however there is probably an app to do that. As for screen size, we are going to have to resign ourselves to having multiple devices with different screen sizes until they work out the technology to project images directly onto the retina.

The funny thing is that even although the iPad is speced as a device for consuming media it turns out to be capable of much more. Computer games are the newest type of media and the iPad is a great games platform with a lot of future as Steve Jobs boasted in the recent iPod announcement event. There are many instances in the business world where it will be useful, for example in sales and marketing for giving a presentation or demonstration to an individual. The other day I was astonished to find my boss using his iPad for email while waiting for his laptop to be repaired.

Google's Got Background

Go away for a few days and when I come back, Google looks like Bing. Instead of a restful blank page they had a background picture. Arrgh! Fortunately, it lasted for less than a day, and then we went back to the blank page we knew and loved.

Actually it is very clever. Firstly it tells the people who might be attracted to Bing because they can customize how the page looks that they can do the same thing with Google. Secondly, and more importantly, it encourages people to create and log in to their Google account so that they can customize their Google home page. Google can give you a better search experience when it knows who you are, and it can make more money from the advertisements that are pitched at you when it knows who you are.

I thought of trying to customize the page to something less distracting when I realized that I would have to give up something of my identity in exchange. On weighing this transaction I decided that what I would give up outweighed the benefit, particularly when the backlash would probably cause the background image to be a short lived experiment.

And the Future of Television is ...

Wait for it, wait for it ... Sports! The path to this conclusion requires a couple of steps, so bear with me. The Convergence Consulting Group just published their annual report on "The Battle for the North American Couch Potato", and several news sources and commentators immediately picked up on one element of their report. According to Convergence, by the end of 2009, 800,000 US households had cut the cable and that they expected this to double to 1.6 million households by 2011. Cutting cable means cutting subscription TV service like cable or satellite and getting all media content from the Internet, Netflix and over the air. I recently wrote about Television being in trouble because of increasing subscription fees and less content. There has been a trickle of cable cutters for some time and now Convergence Consulting tells us that the numbers are starting to swell.

So why should we not cut the cable? It turns out that sports is the only type of content where subscription television offers a compelling product that you cannot easily get if you cut the cable. I came to this conclusion after skimming through the comments on TechCrunch post on the cable cutting story. The majority of comments are either from people who have cut the cable and the only thing they miss is sports, or from people who say that they cannot cut the cable because they would not be able to get the sports that they want to see. The fact that sports is the only type of content mentioned is quite startling.

How Data is Changing the Study of Economics

Andrew Leonard in How The World Works recently posted on how computers and the availability of data is changing the study of Economics, and I have to agree. There are a number of forces that are converging to make this happen right now.

Open Government initiatives are making more data available and the internet makes it easier to get the data. Emerging movements like the Open Data Commons emulate the Open Source movement that has made software more available. The Open Data movements are concerned to not only make the data more openly available but to make the data better by providing tools to manage it and inspection so that problems with the data can be corrected.

Web sites to make data available have been around for some time. For example, Numbary.com exists to make public data more available. Sites like Many Eyes and Swivel allow the user to upload data sets and analyze them. You do not need to find your own data sets because you can go to these sites and play around with data sets that others have uploaded.

Several popular books have shown us what can be done. The best known example is Freakonomics, which takes a number of interesting data sets and shows us how they can be analyzed to tell interesting and sometimes quite startling stories. Less flamboyant and more educational is Super Crunchers, subtitled "why thinking-by-numbers is the new way to be smart".

Leonard suggests that the rise of large scale data analysis will displace the old guard who sit in their ivory towered and built model. I have to disagree. The economic model is the explanation of what is happening, the result of analysis. Building a model to explain some aspect of the data or behavior that is brought to light by the data is the result of Analytics. More and better data means that the models will be better, more definitive and most importantly in a fractious discipline, more defensible.

The iPad App Conundrum

While the iPad looks like it is going to be successful, I think that there is a question over how the market for iPad Apps will develop. Apps for the iPhone are a stunning success that caught many by surprise. I recall a post in TechCrunch when the iPhone App-store was about to be introduced. Using numbers that were probably leaked from Apple, the column predicted a substantial and valuable market for iPhone apps. The commenters were full of scorn, suggesting that the idea of anyone paying money for little apps was ridiculous. Apple showed us just how it could be done.

On the other hand we have the iPad. Apps for the iPhone make sense because of its small screen. Each app makes the best use of the limited screen space for its own dedicated purpose. The iPad has a much larger screen where the browser with scripting and plug-ins can support most of the experience. Therefore the need for specialized apps is less compelling.

There will still be iPad apps. For example I expect games to do well. However, media companies hoping to monetize their content through subscriptions have a tricky tightrope to walk. Most media companies now make their content available for free on the internet supported by advertising. They cannot afford to withdraw this content completely, but on the other hand if they want to monetize through the iPad, they have to provide a value added experience through their app if they expect to get people to pay. I look forward with interest to see how this all plays out.

Update: TechCrunch just posted on how magazines might work this issue with video on the cover.

Television in Trouble

There are forces at work that are going to completely change the television business in the US. On the one side there are the major television networks who believe that it is their right to earn large sums of money from television, just because they have in the past. On the other side is the consumer who is tired of the cost and increasingly switching off. In the middle are the cable companies and the cable content companies.

The consumers are fed up. Television has become unwatchable as the number and length of the commercial breaks has extended. We used to get 48 to 50 minutes of content in each hour, and now we get just 42 minutes. At that rate a season of 24 has less than 17 hours of content. The only way to watch a TV show is to record it on a DVR and watch later, skipping the commercials. Once we get in the habit of watching TV offline, it becomes much easier to cut the cable completely and just watch the web. Between Netflix, Hulu and YouTube there is quite enough stuff to keep entertained.

Another source of complaint is the constantly rising cost of cable. This is caused by the cable company paying more and more for content. For example, the cable companies pay ESPN $4 per month per viewer to carry the channel, and that fee is rising. Other cable content companies are jumping into the valuable content pool. Ten years ago, the AMC channel used to show very old movies with no commercial breaks, now AMC puts on award winning shows like Mad Men full of commercials. Every cable channel seems to have its must see TV program from the BBC with Top Gear through the the USA network with Burn Notice.

The cost of cable is about to go up sharply as the major TV networks demand commensurate fees for their programming from the cable companies. This does not seem like a winning idea in recessionary times. As fees rise more and more people will cut the cable. Either the cost of cable has to stabilize with cuts to content, or TV risks going the way of radio. (I hear that radio still broadcasts, but I do not listen to it, and nobody that I know still listens.) I think that we will see some big changes coming to TV business over the next year or so.

Bandwidth Hogging

There are several discussions going on around the web about bandwidth hogging started by a post from Benoit Felten in the fiberevolution blog. I wrote about this issue last month in my post on net neutrality. The basic problem is that when the internet becomes congested the person who has created the most connections wins. Congestion can happen anywhere from your local head end through to a backbone and the backbone interconnects. Felten claims that there is no problem, and given the data, he is willing to do the data crunching to prove it, while others disagree.

The problem is a classic Tragedy of the Commons. There is a shared resource, the internet, and some people use more of it than others. That is fine provided that they do not interfere with each other and there is enough resource to go around. As I explained, the problem is that when there are not enough resources to go around, the people who win are the people who create a large number of connections, and these tend to be the people who use the most bandwidth. The point of a torrent client creating a large number of connections is to ensure that that the client gets its "share" of the net whether there is congestion or not. The only viable response is for everyone else to create large numbers of connections to do whatever they want to do, be it download a web page or make a internet phone call. This is undesirable because it can only lead to more congestion and less efficient use of the shared resource.

There are two parts to a solution. Firstly, the internet service providers have to keep adding more equipment to reduce congestion as internet usage grows. Everything would be fine if there were no congestion. Secondly, we need better algorithms to manage congestion. Penalizing people for using the bandwidth they were sold is not the answer, particularly when that is not the real problem. I have suggested that we should look towards limiting connections. Another thought is to kill the connections of the users with the largest numbers of connections to reduce congestion. Again, I am sure that this will have some unintended consequences.

The real problem is that unless we can all agree to be good internet citizens and get along, the forces against Net Neutrality may win. Then large companies with deeply vested interests will get to decide who has priority. The recently announced merger of Comcast, a large Internet Service Provider and NBC, a large content provider is exactly the sort of thing that we need to be wary of.

Vote for Net Neutrality Now

There is a lot of talk about Net Neutrality now, and the issues are not completely clear cut as I will discuss later. However, there is also a big threat that needs to be addressed right now.

Bills are being proposed in Washington with friendly names like "The Internet Freedom Act" whose effect would be to give more control of the internet to the big ISPs and take away power from the people who are giving us innovative services like Google, Skype and Amazon. While there is also a friendly bill, and the FCC is on the side of Net Neutrality, everyone needs to act to let their congressman know whose side they are on. Visit "Save the Internet" and take action now!

Now that you have done your bit to save the internet, we can talk about the problem. When a node on the internet gets too much traffic, the traffic control algorithm will pick connections at random and kill them. While this is good for keeping the traffic flowing in the aggregate, it tends to favor one class of user over another. The disadvantage user is the one who is using a single connection to browse the web, download a song or make a voice call. The advantaged user is using Bit-torrent which opens a large number of connections to do a massive download. It does not matter if Bit-torrent loses a connection, it has many others to make up for it, but it does matter when a web browser, or Skype conversation loses a connection.

One solution is to answer greedy software with greedy software. That is every internet application would emulate Bit-torrent and greedily create hundreds of connections in case any one of them gets stomped. While this solution puts all applications on an equal footing, it may strain resources leading to a "Tragedy of the Commons", something that should not be in our bright digital future.

Another solution would be to limit the number of simultaneous sessions a user can have. I personally feel that this would be better than having Comcast or AT&T doing deep packet inspection of my packets. However a hard limit on the number of sessions may cause all sorts of problems with software that is not expecting it, leading to deadlock and other bad behavior. Does anyone have any other ideas?