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Category: ibanks

Let Our Robots Fill Out Your Forms…

Bankers are making use of new technology to determine whether you’re creditworthy. According to the NY Times:

“…they may look to see if potential customers use only capital letters when filling out forms, or at the amount of time they spend online reading terms and conditions–and not so much at credit history.”

They say that “no single signal is definitive, but each is a piece in a mosaic, a predictive picture, compiled by collecting an array of information from diverse sources.”

Fortunately for you, our new firm, HONESTLY, has a whole cloud full of robots standing by to fill out your loan forms for you.

HONESTLY has hacked into all the major banks and new technology providers. When our robots fill out your forms for you, you’ll hit all the right notes for their algorithms. This kind of service has previously only been available to the very rich, but thanks to the marvels of modern cloud-based technology, we can offer robot-driven loan application filling for a low $9.95.

The banks and other loan providers have said that they’ll continually change their matrix of criteria to create better risk assessments. Since we’ve hacked into their systems, have paid off their programmers, and created strong predictive profiles of their key executives, we can anticipate their every move. In fact, sometimes their new criteria comes directly from us, which saves us programming time. That’s a saving we pass on directly to you.

HONESTLY, I can’t think of a reason not to have robots fill out your next loan application.


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Apps and Sturgeon’s Law


Despite the fact that the Network has a kind of permanent memory, it’s not very good at remembering certain things. Or maybe it’s just that we aren’t. We see what we want to see.

During the last internet bubble we learned about startups, venture capital and burn rate. There’s a small window for new technology companies to find an exit before they burn up. The more companies in a space, the more difficult the exit.

The last bubble was burst when a list of tech companies was published that compared their cash on hand to their burn rate. Suddenly it was simple to see how much time each company had to make a profit or an exit. It wasn’t a pretty picture.

The unlimited optimism of the time quickly turned into a climate of fear. Investors suddenly wanted to see revenues and profits. It changed everything. Should someone publish such a list today, it would have a similar effect. We’ve simply forgotten that start ups burn cash, and while many things are cheaper, the fuse has just been lengthened a bit.

Another thing we seem to forget is that free communications systems fill up with spam. It’s estimated that 70% of all email is robot-generated spam. Whenever a new social communications hub is created we think that this time it’ll be different. As a social networking system matures it attracts trolls and starts to fill with spam. It’s always worked that way.

If your company is marketing to a free (non-subscription) social network, it’s likely the audience is filled with robots and spam accounts. Free access to a social network lowers barriers to growth, but it also creates a fertile ground for gaming the system.

Recently I read that 80% of mobile apps are used only once. That seems like a high number until you remember Sturgeon’s Law. This law states that 90% of everything is crap. In light of that, 80% is actually an excellent number. The other thing this should tell you is that as the ecosystem of apps matures it will revert to the norm. That means the number of apps used only once is more likely to be headed toward 90% than 70%.

If an app store has 1 million apps, 900,000 of them are crap. That leaves 100,000 that might be useful. That’s actually a pretty big number. Some say that software is going to eat everything. It’s certainly going to try and eat everything. But despite the brilliance of the young engineers writing this ravenous software, 90% of what they produce is going to be crap. It’s easy to forget when everyone’s smiling, optimistic and sure that their new technology is going to fundamentally change the way we do this or that.

It might be more helpful to look at tech start ups as though they were a slot machine programmed to take your money 90% of the time. Some can afford to play games with those odds, most can’t.

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Real-Time Networks, Man-In-The-Middle, And The Misappropriation Of ‘Hot News’

Google and Twitter have filed a amicus brief with the appeals court on case. Briefly, at issue is FlyOnTheWall’s near real-time redistribution of investment bank research ratings. Investment bank research departments spend time, money and resources creating stock ratings and price targets. The purpose of this effort is to create an information asymmetry in the market to the advantage of the i-bank’s clients. FlyOnTheWall does not employ analysts and has no research capability, it discovers stock ratings, aggregates and redistributes them in near real time. Since their cost of production only includes real-time redistribution infrastructure, and therefore they can offer their high-value information feeds at a lower cost than investment banks. Subscribers to FlyOnTheWall pay for these aggregated news feeds, they aren’t free. In their testimony, FlyOnTheWall claimed they only gathered information from publicly available sources and only published tweet-sized snippets summarizing the reports.

Google and Twitter make the following argument in their brief:

News reporting always has been a complex ecosystem, where what is ‘news’ is often driven by certain influential news organizations, with others republishing or broadcasting those facts — all to the benefit of the public,

and further

How, for example, would a court pick a time period during which facts about the recent Times Square bombing attempt would be non-reportable by others?”

At issue is the re-emergence of the hot news doctrine, which was originally put in place in 1918 to stop William Randolf Hearst’s International News Service from taking Associated Press wire news stories and redistributing them as their own. The court set forth five criteria to determine whether ‘hot news’ has been misappropriated:

(i) a plaintiff generates or gathers information at a cost;

(ii) the information is time-sensitive;

(iii) a defendant’s use of the information constitutes free riding on the plaintiff’s efforts;

(iv) the defendant is in direct competition with a product or service offered by the plaintiffs;

(v) the ability of other parties to free-ride on the efforts of the plaintiff or others would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.

In the case of the court ruled for the plaintiffs, Barclays, Merrill Lynch and Morgan Stanley, and decided that a 2 hour embargo was a reasonable amount of latency to build into the Network. In the fast-paced world of equity trading, two hours is an eternity. These days trades are often executed in a matter of milliseconds. The enforcement of this kind of rule, however, is problematic. In the brave new world of social media, both individuals and news organizations have interconnected real-time distribution networks. Once bits of information touch this public social network they can spread with breathtaking speed. Twitter, Google and Facebook are currently the media through which this information is dispersed. And each of them can be said to profit by the circulation of high-value information through their networks.

Over the last few days we’ve seen the drama of General Stanley A. McChrystal play out. The events were put into play by a story written by Michael Hastings, a freelancer for Rolling Stone Magazine. The story about McChrystal’s comments began leaking out Monday night. Both Politico and Time magazine posted a PDF of the Rolling Stone article to their web sites before Rolling Stone. Rolling Stone asked the sites to remove the PDF. The New York Times reports:

Will Dana, the magazine’s managing editor, said that the magazine did not always post articles online because it could make more money at the newsstand and that when it did, the articles were typically not posted until Wednesday. But other news organizations made that decision for him.

The McChrystal story is an interesting example of the ‘hot news’ doctrine. Rolling Stone magazine puts out 26 issues of its print magazine per year. Even before the issue hit the newsstands, it dominated cable news, has been fully reported in the New York Times and resulted in McChrystal’s resignation and replacement by General David Petraeus. One could argue that Rolling Stone should have a business model that allows them to benefit from these kind of real-time events. And it’s quite possible that the broad dissemination of this story will lead to a significant increase in newsstand sales and web site traffic.

In this case the ‘hot news’ was so hot that the story itself became a story. Major government policies regarding the conduct of the war in Afghanistan had to be decided in real time. There was no hesitation, no waiting for Rolling Stone’s newsstand business model to play out. By the time we finally see the printed magazine it will have become an artifact of history. With the advantage of hindsight, we may even wonder why the headline writer put McChrystal’s story third after Lady Gaga’s tell all and the final days of Dennis Hopper.

The question about the ‘hot news’ doctrine isn’t going away; and the decision of the appeals court will be closely watched. In the meanwhile, the marketplace is searching for a solution to the fact of real-time aggregation and relay of digitally-copied work product. The return of the pay wall is an attempt by producers of stories about the news to create a firewall around their work product. Most corporations employ a firewall to keep their valuable internal discussion from reaching the public networks. Limiting access of your product to paying customers isn’t a new idea. However, when your work product is a story about news events or ideas encoded in digital media, creating reliable access controls is problematic. Where in the early days of the Network the focus was on direct access and disintermediation of the middle man; now the economics favor the man-in-the-middle. Meta-data can be sold at a fraction of the price of the data to which it points. The complex ecosystem of ‘the news’ is looking for a new equilibrium in which both data and meta-data can flourish.


Hambrecht Previews the Next 18 Months

Om Malik interviewed my old boss Bill Hambrecht about the state of the economy and the future of the IPO in Silicon Valley. Watch the whole thing. Hambrecht has worked on transparency in the pricing of securities for many years. His ideas about using a modified dutch auction to price initial public offerings are still revolutionary.

Hambrecht’s explanation of the subprime mortgage crisis is one of the clearest I’ve heard. Mortgage backed securities are traded in a dealer-to-dealer market without transparent and continuous pricing. Stocks are priced through a continuous auction on the stock exchanges. When a company has to voluntarily mark down the value of these mortgage-backed securities, they hesitate. When they’re finally forced to mark an asset down, there’s a big jump down in value. That change in value wrecks the balance sheet. Interestingly, it’s not a business or revenue issue– it’s a price/value of assets problem. Hambrecht’s solution has always been to allow the market to discover the appropriate price and make the process transparent.

Hambrecht thinks the consolidation of the bulge bracket investment banks means that big iBanks will only be doing big deals. Their cost structures will dictate a move toward the mega deal. The ground is being prepared for a new crop of boutique investment banks to bring the new crop of small companies public. My favorite quote in the interview? “It’s like 1968 all over again.”

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