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.

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.

Revolution: The First 2000 Years of Computing

For years, the Computer History Museum (CHM) has a open storage area where they put their collection of old computers, but without any interpretation except for docent led tours. I had no problem wandering through this treasure trove because I knew a lot about what they had on show, from slide rules and abacuses to the Control Data 6600 and the Cray machines. Even then, a docent could help by pointing out features that I would miss, such as the ash tray on each workstation of the Sage early warning computer system.

Now the CHM has opened their "Revolution: The First 2000 Years of Computing" exhibition, and I recommend a visit. They still have all the interesting computer hardware as they had in the visible storage area, however it is placed in a larger space and there is all kind of interpretive help from explanation of the exhibits to video clips that you can browse. In my visit, I saw a lot of new things and learned much.

For example, Napier's Bones are an old time calculation aid that turns long multiplication into addition. The Napier's Bones exhibit explains how they work and allows you to do calculations using a set. The exhibit on computers and rocketry has the guidance computer for a large missile arrayed in a circle around the inside of the missile skin leaving an ominously empty space in the middle for the payload. In the semiconductor area they had examples of silicon wafers that ranged from the size of a small coin from the early days to a current wafer that is the size of a large dinner plate. There is also an interesting video discussion of the marketing of the early microprocessors like the 8086, the Z8000, the M68000 and the absolute importance of landing the design win for the IBM PC that led to the current era where Intel is biggest and most profitable chip maker. These are just a sample of the many fascinating exhibits there.

I spent over 2 hours in the exhibition and only managed to get through half of it. I am a long time member of the museum and can go back any time, so this is a warning to non-members to allow enough time for their visit.

The Year in Posts

Looking back at posts in this blog over the last year I see a couple of themes emerge. Firstly there were many posts on technology and media, in particular several on the iPad which has had an extraordinary effect as the first device specifically designed for consuming media. Other issues of concern included television, 3D, aspect ratios and the problem of registration at web sites. We are going through huge changes in the media world as digitialization and the internet delivery system changes everything. I have written many posts on this in the past and I will continue to do so.

The SDForum Business Intelligence SIG that I chair had a banner year with so many memorable meetings, it is difficult to pick out the best one. A fantastic talk from Google Analytics Evangelist Avinash Kaushik on "Web Analytics 2.0" drew by far the biggest crowd. We had two great big data talks: "Winning with Big Data" from Michael Driscoll of Dataspora and "Mad Skills for Big Data" from Brian Dolan, both very impressive. Donovan Schneider from SalesForce.com spoke on "Real Time Analytics" and Dan Graham from Teradata spoke on "Data Management in the Cloud". Finally Peter Farago and Sean Byrnes of Flurry talked about the extraordinary information they collect about smartphone usage that they collect from their Mobile App analytics platform. Co-chair Paul O'Rorke who organized several of these meetings has stepped down and we will miss him greatly.

Finally, Blogger started collecting statistics in May of this year. Looking at the page views on this blog, my last post on "Windows File Type Fail" has generated a lot of interest in the few days since it was posted. The most viewed post is a 2009 post on "Ruby versus Scala" followed closely by the Windows post. In my view, the post last year about the Windows Autorun feature is a better rant than the current one. You can feel the veins bulging in that rant whereas this years rant is very laid back in comparison. Do not worry, there are many more misfeatures of Microsoft Windows to rant about so I am not going to run out of material for a long time.

Is That Annoying Modal Caps Lock Key Going Away?

So Google came out with their new Chrome Operating System, loaded it onto a laptop and gave the whole caboodle of people to play with and comment on. While Chrome OS has generated a lot of comments, the largest and most active discussion has been about the Caps Lock key. You see, Google has changed the behavior of the key that used to be Caps Lock to instead call up a search page. I am sure this change was made to pander to keyboard weenies who want to Google without having to lift their hands from the keyboard. Anyway, the change has backfired. Instead of talking about Chrome OS, everyone is engaged in a furious discussion of why the Caps Lock is either essential or should have been disposed of a long time ago.

I have two problems with the Caps Lock, no make that three. The first problem is that it sits right between two important keys. Below is the Shift key whose importance needs no explanation. Above it is the Tab key, used for next field, command completion, automatic indent and plenty of other useful purposes. In the middle sits Caps Lock just waiting to be hit by accident. This brings to the next problem, Caps Lock is modal. Hit the Caps Lock key by accident and you do not make just one typing mistake, rather the whole keyboard is shifted into a new mode and the error compounds. By the time I look at the screen, I have typed half a sentence in the wrong case.

I am a member of the tribe that hates modal user interfaces with a passion. Some of my compatriots physically remove the Caps Lock key or reprogram their keyboard to reduce typing errors. I have only gone as far as to disable that other annoying modal key. The Insert key is used by many editors to switch between insert mode and overtype mode. If you hit Caps Lock by accident, the result is obvious, if you hit Insert by accident you can go on for some time before you realize that you are seriously damaging the document that you are trying to fix up. Of course, the Insert key is slightly off the main keyboard, right above the really useful Delete key and just waiting to be hit by accident.

My final problem with the Caps Lock key is that if you are in Caps Lock mode and you press shift, it reverts back to entering lower case. This means that when I hit cAPS lOCK by accident every key I type is in the wrong case, not just some of them. I happen to have an old typewriter from the 1930's so I know what shift really means. The Shift key causes the whole paper carriage and platen to move so that when the typebar comes down a different type piece strikes the ink ribbon and paper. Shifting the platen is why it is called the Shift key and it is a heavy key to hold, so there is a Shift Lock key that is a mechanical lock to hold the platen in the shifted position. With the platen locked in the shift position, hitting the shift key does nothing, so why has someone gone to the trouble of programming bogus behavior in out modern and supposedly more convenient keyboards?

Now, I know that there are people who love the Caps Lock key and who use it all the time. For my part, given the choice between a key that causes a small typing mistake every time I hit it by accident and a key that brings up a new web page by accident, I will choose the Caps Lock function every time. Caps Lock is annoying but I have lived with it for a long time and it is much smaller surprise than a new page that I do not want.

Vertical Pixels are Disappearing

The quality of monitors for PCs is going backwards. A few years ago, noticing the rise of the widescreen monitor and fearful that all reasonably proportioned monitors would soon disappear, I bought a Samsung Syncmaster 204B (20.1" screen, 1600x1200 pixels). Last night it popped and stopped working. When I went online to research a replacement monitor, the full gravity of the situation became obvious.

Not only is it virtually impossible to find a monitor that is not widescreen, almost all monitors that you can buy, whatever the size of their screen, are 1920x1080 pixels. In the years since I bought the 204B, the number of pixels that we get in the vertical direction has shrunk from 1200 to 1080! Funnily enough, there is a post on Slashdot this morning titled "Why are we losing our vertical pixels" about this topic. The post has drawn many more that the usual number of comments.

For me, the vertical height of the screen is important. I use my computer for reading, writing, programming, editing media and some juggling with numbers. For each activity, having a good height to the screen helps, and width after a certain point does not add much. A Television uses a 1920x1080 pixels for a full 1080p display. The monitor manufacturers are just giving us monitors made from cheap LCD panels designed for televisions. When I watch TV, I have a much larger screen in another room with more comfortable chairs and more room between me and the screen. Thus, I do not need or want a computer monitor that is expressly designed for watching TV.

The real problem is that 1920x1080 monitors are so ubiquitous that it is difficult to find anything else. After a lot of searching I only found a couple of alternatives. Apple has a 27" widescreen monitor that is 2560x1440 pixels at a cost of ~$1000, and only works well with some recent Apple systems. Dell has a 20" monitor in their small business section that is 1600x1200 and costs ~$400. However, Dell seems to vary the type of LCD panel that they use between production runs and one type of panel is a lot better than the other. Unfortunately, you do not know which type of panel you are going to get until it arrives at your door. Neither alternative gets me really excited. One thing is certain, technology is supposed to be about progress, and I am not going backwards and accepting less pixels in any dimension for my next monitor.

Tablet Aspect Ratios

One important issue with tablet computers that is getting little attention is the screen aspect ratio. Some time ago I wrote about "aspect ratio hell" while trying to decide how to crop holiday photographs. The answer seems to be that you have to crop each photograph independently for each way the photograph is going to be output or displayed. For photographs, the variety of different aspect ratios is a perplexing problem that has no good answer.

Tablet computers have the same problem except that the responsibility lies with app developers who need to make their app work well with the aspect ratios of their target platforms. Aspect ratios for a tablet needs to take into consideration that it will be used in both portrait and landscape mode. The iPad has an aspect ratio of 4:3 (AR 1.33...), which is the same as the iPod Classic while the iPhone and iPod touch have an aspect ratio of 3:2 (AR 1.5). Anyone trying to develop apps for Apple products needs to take this difference into account. On the other hand, both Blackberry and Samsung has announced their Android based tablets with a 7 inch screen which has an aspect ratio of 128:75 (AR 1.706...), which is close to 16:9 (AR 1.77...).

When we look to media, television uses 16:9 and most cinema has a higher ratio like 2.40:1 except for iMax (AR 1.44) which is much squarer. Books and newspaper use a 3:2 ratio (AR 1.5) while magazines tend to be broader with a lower aspect ratio. Frankly, anything with an aspect ratio of more than 3:2 tends to look unnaturally skinny when viewed in portrait mode. A cell phone can get away with a higher aspect ratio because it has to be pocketable, but larger devices meant for viewing both media in both landscape and portrait mode needs to keep its aspect ratio to 3:2 or less. For example, the Kindle, which is mostly used in portrait mode has an aspect ratio of 4:3 (AR 1.33...). From this point of view, the Samsung and Blackberry tablets seem to be designed to be used in landscape mode and not in portrait mode. I hope that other tablet makers do not make the same mistake.

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.

End of Moore's Law

The recent announcement that Intel is buying McAfee, the security software company, has the analysts and pundits talking. The ostensible reason for the deal is that Intel wants the security company to help them add security to their chips. Now, while security is important, I do not believe that is the reason Intel bought McAfee. In my opinion, this purchase signals that Intel sees the coming end of Moore's Law.

In 2005, the Computer History Museum celebrated 40 years of Moore's Law, the technology trend that every 2 years, the number of transistors on a silicon chip, and thus its capabilities doubles. On the stage Gordon Moore told us that throughout the 40 years, "they have always been able to see out about 3 generations of manufacturing technology", where each generation is about 2 years. So Intel can see its technology path for about the next 6 years. At that time Moore told us that they could still see how they were going to carry on Moore's Law for the next three generations.

Now what would happen if Intel looked 6 years into the future and saw that it was no longer there. That they could see the end of Moore's law and that meant that they would no longer have the ability to create new and more powerful chips to keep their revenue growing. I believe that they would start looking to buy up other profitable companies in related lines of business to diversify their revenue.

McAfee is a large security software company, its main business is selling security solutions to large enterprises. If Intel had wanted to buy security technology they could have gone out and bought a security start-up with better technology than McAfee for a few hundred million dollars. Instead they are spending an expensive 8 billion dollars on an enterprise security software company. This deal does not make sense for the reasons given, however it does make sense if Intel wants to start buying its way into other lines of business.

Now there are many reasons that Intel wants diversify their business. Perhaps they see the profitable sales of processor chips disappearing as chips gain so many transistors that they do not know what to do with them. However the most likely reason is that they can see the end of Moore's Law and that it is now time to move on and add some other lines of business.

Another Angle on the iPhone Woes

In all the discussion over the antenna problems with the new Apple iPhone 4, there is one thing that I have not heard, and that is how few product lines that Apple has. The iPhone 4 is a prime example. It comes in two memory sizes and we are promised a second color real soon now. On the Apple site you can still buy the previous generation iPhone 3, but that still makes it 3 models available with another one or two to come. Compare this with BlackBerry which has six ranges and thirteen models. Blackberry is restrained in the number of models it offers compared to the likes of Motorola, Samsung or Nokia.

The same its true in other areas. With the Mac, Apple has three ranges of laptops, three ranges of desktops and one rackable server. Compared to HP, Dell or Acer this is a ridiculously small number of product lines. Again with the iPod there are 4 product ranges each with a couple of different memory size and and more variation on color.

There are a number of advantages in having a small number of product lines. Economy of scale will make the product cheaper to manufacture, however by the time you get to millions of devices, the additional advantage is not that great. More important are a brutally strong brand image and a lack of consumer confusion. There is no question about which version of the iPhone to get, the only question is whether you are willing to pay more for the extra memory.

However, there is one big disadvantage to having a single product line like the iPhone, and that is that you have all your eggs in one basket. If the product should prove to have a flaw, there is no other product line to take up the slack. If a consumer want to buy an iPhone now, they either have to go ahead and take the risk that it might be a lemon or wait until the problem is fixed. They cannot go out and buy the other Apple phone because it does not exist. For a big consumer goods company, Apple has had remarkably few dud products, but their life depends on getting each one right.

The HP Tablet and the Elephant

Recently HP bought Palm and in the acquisition press release announced that they are developing "... webOS based hardware products, from a robust smartphone roadmap to future slate PCs and netbooks". In all the discussion of this event, nobody seems to be discussing the elephant in the room, or more correctly, the elephant who is no longer in the room.

Ten years ago, HP would not have dared announce that it was going produce its own operating system (OS) in competition with the dominant Microsoft Windows OS. Then, most hardware developers had been cowed by Microsoft's aggressive and successful response to any attempt to develop a rival operating system. To give a couple of examples, in the early 90's the Go Corporation had developed its Penpoint OS for handheld computing. Then in 1992, Microsoft announced its own Windows for Pen Computing. Go Corporation faltered, was taken over by AT&T and then the project was shuttered. Another example is the fate of Be Inc. who had developed BeOS, initially to power their own hardware. In 2002, Be Inc. sued Microsoft claiming that Hitachi had been dissuaded from selling PCs loaded with BeOS, and that Compaq had been pressured to not market an Internet appliance in partnership with Be. The case was eventually settled out of court with no admission of liability on Microsoft's part. However by this time Be Inc had admitted defeat and sold its intellectual property to Palm Inc.

In the late 90's Microsoft was so dominant that no Silicon valley Venture Capital firm would fund a start up that would have the remotest chance of challenging Microsoft in any way. Since then Microsoft seems to have been transformed from a lithe competitor into a stumbling giant. The Vista version of the Windows OS is widely regarded as a failure, and was quickly replaced by Windows 7. While the Windows Mobile OS for smartphones has been around for a long time and gone through several versions, it has been losing market share for some time. Recently Microsoft introduced a new smartphone, the Kin with much ballyhoo, only to give up on it six week later. There are plenty other examples of Microsoft's left hand not knowing what the right hand was doing, like the PlayForSure debacle.

We have come to the point where Microsoft is so crippled by its own self inflicted wounds that one of its most important OEM customers is going to use its own operating system on future slate PCs and netbooks. The elephant is no longer in the room.

Avatar Issues

After complaining about the latest revival in 3D movies, I finally went to see Avatar in glorious IMAX 3D. The movie is a stunning spectacle, well worth the price of admission and even hanging around for half an hour to ensure that we got a good seat in a full cinema a couple of months after the films release. However there are issues.

The first issue is that we had to sit through several trailers for 3D movies that are going to be released in the next few months. Hollywood seems to be more determined to make 3D movies work this time around by building a pipeline of 3D movies for us to go and see. On the other hand, all of the forthcoming 3D movies are animated, meaning that serious people do not need to watch them. To do digital animation properly, the film makers build 3D model of everything in the foreground of a scene, so it is not a huge amount of extra work to throw off a 3D version of an animated movie. Come to think of it, Avatar is mostly an animated movie with slightly different visual aesthetic and much more detail in the models and textures.

The other issues relate to movie making. 3D is a different medium that requires different film making techniques. For example, limited depth of field is beloved technique for "art house" movies. In 3D all parts of the image need to be in focus all the time because you cannot resolve a 3D image that is out of focus, moreover it is likely to give the viewer a headache. The rule for 3D movies is f/64 all the way.

Another issue is the foreground. 3D movies need to be very careful about composing the picture so the foreground does not protrude. There were only a couple of instances in Avatar where the foreground was a problem. The one noticeable incident had foreground leaves in the forest sticking well into the field of view combined with a camera movement that caused the fronds to move rapidly past the eye in a most distracting way.

Depth of field and foreground are only a couple of issued with the language of 3D movies, there are many more need to be considered. One example is the aspect ratio that the movie is made in. It seems that Avatar was made so that it could be viewed in several aspects ratios. All in all I question whether it is possible to make a movie that succeeds in both 2D and 3D.

James Cameron has said that he did not want the 3D effects to distract the viewer from the movie. I still remember the scene in "Flesh for Frankenstein" where the children go into the belfry, bats fly around and one flies out of the screen and into your face. Fortunately, there were no such scenes in Avatar.

Finally there is the political angle. Some people have complained that Avatar is anti-American. For anyone who thinks that the sub-Blackwater corporation mining Pandora, and walking over the natives without so much as a "by your leave", represents the American ideal, I feel very sorry for them.

Two Kinds of Book Readers

To get to the heart of Kindle - iPad issue we need to understand that there are two kinds of books. One kind of book is what I will call "page turners". You start reading the book at page 1 and read sequentially turning the pages until you get to the end. The other type of book I will call "reference". You start reading the book by going to the index or the page of contents, finding the topic you are interested in and proceeding from there. Books such as dictionaries and encyclopedias are organized as indexes to make look up easier.

Of course, nothing is ever completely black and white. There are plenty of books that fall between the two poles of page turners and reference books. For example, a book of poems may be organized to be read as a page turner, however it will also contain an index of poems and perhaps an index of first lines. Many technical books are written as both a page turner and a reference. Perhaps on first encounter you read it cover to cover and then use it as a reference book. The way we read magazines and newspapers is more like a reference book than a page turner. In a magazine we look at the index to find the article we want to read, or flip through the pages to find something eye catching. Scanning a newspaper is a similar act.

The point of all this is that the Kindle book reader is a device that is optimized for reading page turners. Navigation is difficult. While the Kindle in theory can be used to read newspapers and magazines, it has not been very successful in this application. The iPad on the other hand has all the touch based navigation mechanisms and also the advantages of the web like hypertext and search engines.

In summary the Kindle is a gadget for reading a specific type of book and nothing else. As such is is effective and well received by dedicated readers of page turner books, a small but devoted audience. The Kindle is limited by its niche. The iPad is a much more general device that does book reading as one of its many functions. Better navigation and the display means that it can be used to consume all media types, and it is particularly good for navigation heavy media such as newspapers and magazines and reference material.

iPad Excitement

After weeks of excitement, build up suspense and leaks, Apple finally got around to announcing their large form iPod Touch, called the iPad. Already it is being decried all over the internet for its many deficiencies. In summary, the complaints come from a bunch of geeks who say that the iPad is too deficient and locked down to be the kind of computer system that they can play with, and anyway they already have enough computer systems, so why do they need another one. The simple answer to these complaints is that nobody is forcing them to buy an iPad.

I see the iPad as a lifestyle device. It is the thing I have in my living room so that while watching a movie, I can look it up on IMDB, perhaps to find out who is that familiar looking actor in a cameo role. In the kitchen I can use the iPad to look up a recipe, and in the breakfast nook to skim the morning newspaper headlines over a cup of coffee. Last thing at night, I can use the iPad to read blogs, news magazines or a few pages from a book before going to sleep.

In my opinion, the most interesting thing about the iPad is that Apple is playing to their strength as a systems integrator. The iPad has lightning performance and good battery life because Apple has developed their own processor chip in tune with the software that runs on it. Admittedly the software comes with plenty of restrictions like a lack of multi-tasking. However, as is often the case with Apple, the end result is "less is more".

3D - Not

We are hearing big things about 3D. The movie Avatar was recently released in two different 3D systems, and at the CES trade show, several television makers announced that they will have 3D TVs available later this year. Optimism abounds. Someone in the panel for the This Week in Tech episode broadcast from the CES show in Las Vegas said they managed to watch a 3D demo for several minutes before they got a headache.

The real problem is that we have been here before. Every few years there is a new 3D system that is going to change the world of visual media. 3D still pictures are 100 years old. The first 3D movies were released in the 1950's. I saw "Flesh for Frankenstein" in 3D more than 30 years ago. Since then we have had 3 or 4 more 3D hype cycles. The result has always been the same, a lot of huff and puff with no lasting result. I see no reason why 3D should fare any better this time than it has on all the previous occasions.

e-Readers for All

The e-Reader market is heating up, just in time for Christmas. Amazon is expanding features and bringing the Kindle down the price curve. Today came word of the Barnes and Noble e-Reader with two screens, an e-ink screen for reading and a small LCD touch screen for interactivity.

Also today I caught up with the "This Week in Tech" podcast from last weekend where they talked about the real killer features of the Kindle - wireless download and almost unlimited capacity. You can buy as many books as you want any time you want, which leads to buying many more books than you would otherwise buy. Imagine the scene, at dinner with your friends, you discuss books that you have recently read, and bam you buy the books they recommend there and then. In fact there was even a cry in the podcast "Friends don't let friends use a Kindle while drunk" (for fear that the judgmentally impaired friend may buy too many books).

When the original Kindle came out there was a tremendous outcry against it with people complaining of gadgets destroying their book reading experience and authors expecting to have their livelihood destroyed just as the music industry has been laid waste. Hint, musicians are doing just as well as they have always done, it is the music moguls with their "by the way, which one is Pink?" who have been laid waste. The Kindle stimulates the publishing industry and makes it much easier to buy books, leading to more sales where author gets a larger slice of the pie.

Competition is good, particularly for the consumer. The e-Reader needs another generation or so to iron out the kinks and bring the price down to the mass market levels. I am waiting for the $149 price point (iPod Nano) which should come by next Christmas if not sooner.

Augmented Reality

Earlier this month there was an explosion of posts and comments on the TechCrunch blog about Apple rejecting the Google Voice application for the iPhone. Michael Arrington wrote a post about how Apple reasons for the rejection were misleading and untrue that got over 400 responses. At the time I did not understand the reasons for the intensity of the comments and responses, particularly in a quiet news month like August. Last week I went to the SDForum Virtual Worlds SIG to hear a talk about Augmented Reality, and started to appreciate what is going on.

The Augmented Reality presentation was given by Kari Pulli and Radek Grzeszczuk, researchers at the Nokia Research Center in Palo Alto. What they mean by Augmented Reality is that you point the camera in your smart phone at something and the phone displays more information about what you are looking at. For example, you point the phone at a building and it tells you which building you are looking at with perhaps a link to a map or information about the building. Alternatively, you could point the phone at a book cover and the phone will identify the book and give you links to reviews and a web site where you can buy the book.

Someone in the audience asked the interesting question "Where do you get your data?" There are many different places to get data. For the demos, the book cover data had been scraped from Amazon.com. But when it comes to data, the elephant in the room is Google, the company that promises to organize the worlds information. To organize the worlds information, they first have to collect it and then they have to have the computer systems and technology to organize it. Google has been busy doing that for many years now.

The history of mobile appears to be going like this. First came the cellular network companies. They proved themselves incapable of providing anything more than voice and data services, so they are doomed to continue providing nothing but these basic services. As time goes on these services become less differentiated and eventually mere commodities.

Next come the smart phones providers like Blackberry and Apple. They have opened up the cell phone business model to provide services that their users really want. But they still rely on others for data to run these services. When the data providers get a little too close to core functionality they back off their openness, as Apple has with the Google Voice application.

The final step is for the data providers to take over, as Google is doing with the Google Android cell phone operating system. This is a play to reduce the devices to mere commodities and put the interesting business where it really belongs, with software and data.

Media Convergence

The digital age has brought an extraordinary convergence of media that I have not seen remarked on anywhere. In the old world, each type of media was manufactured and delivered in its own different way. Movies were printed onto film and shown in movie theaters. Newspapers were printed on newspaper printing presses and delivered through a content delivery network that ends up with the product being thrown onto driveways in the early morning hours. Books were printed on book printing presses, bound and delivered through wholesalers to bookstores around the country. Records were printed in record presses, delivered to music wholesalers and then to record stores. Radio and TV were produced in studios, sometimes recorded and sent around the country to be broadcast on local transmitters.

That has all changed. In the new digital world, each media type has the same underlying form. Spoken words, music, written words, pictures, moving pictures are all buckets of digital bits. While we can still get each type of media in its old form we can also get them all delivered to our computer, cell phone or media player through the internet or the cellular phone network.

Even the devices we use to consume media are converged. Most of them can handle everything, so lets take an extreme example, the Amazon Kindle book reader. While the primary purpose of the Kindle is a book reader, it also has text to speech and handles audio files so that you can listen to music while reading. It will also display black and white pictures in the 3 common formats. So when you come to list the types of media that a Kindle can handle, it is quicker to say what it cannot do, that is color and moving pictures, than list all the things that it can do.

This change to digital media is just upon us, so it is going to take some time for all the consequences to shake out. At the moment, there is great wailing and gnashing of teeth from the newspaper industry. Newspapers rely on advertising which always does badly in a recession, but this time they also have to deal with the air being sucked out of their lungs by internet advertising and free listings. For some time, movie producers have been worried that they may be MP3ed like the music industry. More recently, book publishers have become aware that their business model is targeted and they are starting to behave like deer in the headlights as well.

These are just media industries and their travails are just the price of doing business in a time of technological change. The interesting question is how it will affect culture. If all types of media are fundamentally equivalent, will our preferences, being unfettered, change? One change is that there is a move towards shorter forms. For example, online journalism is certainly shorter and more punchy than the printed equivalent. This is just one example of one direction that change could go in. I am sure that there will be more consequential changes, so let me know what you think.

Too Cheap to Meter

Last month Malcolm Gladwell wrote a snarky review of Chris Anderson's book Free: The Future of a Radical Price for the New Yorker. You will remember that Anderson's last book The Long Tail produced a wide range of reactions and "Free" will be no different. I did not like the Gladwell review. He picks up on a lot of little things while missing the big picture. On the other hand the book is somewhat carelessly written so that it is easy to find little things to criticize.

An example is the discussion of the phrase "too cheap to meter". In the 1950's, Lewis Strauss, then head of the Atomic Energy Commission, predicted that atomic energy would make electricity so cheap to produce that there would be no need for electricity meters. Unfortunately too many people see that phrase and take it to mean that electricity would be free, which is not what Strauss was claiming as I will explain.

The book "Free" has a chapter called "Too Cheap to Matter" that starts with Strauss's claim and goes on to Moore's Law and other laws of shrinking prices. Anderson seems to imply that electricity could be free, and in a long and rambling footnote still does not get to the point. Gladwell in his review of the book picks up on the implication and castigates Anderson for thinking that electricity could ever be free, using his own words against him.

To understand Strauss, you need to look at a utility bill, where you will see that the charges come in two parts, a fixed component for providing the service and a variable component which is your actual metered use of the utility. Strauss was claiming that for electricity there would be no need for the variable part, all that would be needed was a fixed part to cover the cost of fixed generator plant, transmission and billing. Sorry Gladwell and Anderson, Lewis Strauss was not trying to say that electricity would ever be so abundant that it would be free.

It is not unusual for utilities to be unmetered. Here are three examples of unmetered utilities from my personal experience. Firstly, I pay a fixed price for the broadband pipe of my internet service. Secondly, where I grew up, domestic water is plentiful enough that it is not metered, householders pay a fixed price for a 1/2 inch water main connection or somewhat more for a 3/4 inch water main connection. You could say that my garbage is too difficult to meter, so I just pay a fixed price for the weekly emptying of a 32 gallon garbage cart.

Apart from some writing that seems to imply more than is actually there, I found Chris Anderson's new book to be forward looking and full of familiar arguments. Well recommended. I will write more on the subject.

Musician Uses Twitter to Her Advantage, Shock Horror Probe

Technology is turning the music business upside down, like any other media business. Some people embrace the change and some people decry it. When I read a post like this one about using Twitter to make money, I always read the comments. Whether the post is at the Berklee School of Music or TechCrunch, the range of responses is wide and consistent. Some commenters accept the new world and cheer it on, while others complain bitterly. Typical complaints range from: "I cannot do that because I do not have any fans" through "people should respect copyright and give me the money I am due" to "the record company put you there so you should give it all back to them".

The most ridiculous response is the complaint that a musician who spends time developing their fan base is wasting time that could be better spend on creative activities. The point of the Amanda Palmer post is that if you are properly organized, it does not take a lot of time or effort to keep in contact with your fans, particularly when using new instant communication tools like Twitter.

Technology changes. Music is no longer distributed as sheets of paper or by stamping it on 5, 7 or 12 inch pieces of plastic. The business model must change with the times.

The moving finger [of technology change] writes; and having writ,
Moves on: nor all your piety nor wit
Shall lure it back to cancel half a line,
Nor all your tears wash out a word of it.

HT to Roger for the Berklee post.