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Category: value

A Note for Karoli on the Production of Value

Published December 3, 2008 by cgerrish

High heel

Karoli Kuns and I exchanged some comments about a recent NewsGang Live where the idea of “value” was discussed. In particular, how one might decide to purchase a pair of shoes. The conversation on the show swirled around the functional and exchange value of shoes. Let’s assume we all buy shoes that fit. Sometimes we buy shoes that are comfortable. We assign value to shoes, or almost anything, based on a number of factors.

For an interesting angle on the production of value, we can turn to Jean Baudrillard. He wrote that there are four ways of an object obtaining value. The four value-making processes are as follows:

The first is the functional value of an object; its instrumental purpose. A pen, for instance, writes; and a refrigerator cools. Marx’s “use-value” is very similar to this first type of value.

The second is the exchange value of an object; its economic value. One pen may be worth three pencils; and one refrigerator may be worth the salary earned by three months of work.

The third is the symbolic value of an object; a value that a subject assigns to an object in relation to another subject. A pen might symbolize a student’s school graduation gift or a commencement speaker’s gift; or a diamond may be a symbol of publicly declared marital love.

The last is the sign value of an object; its value within a system of objects. A particular pen may, whilst having no functional benefit, signify prestige relative to another pen; a diamond ring may have no function at all, but may suggest particular social values, such as taste or class.

Take a pair of shoes and assign a percentage of the total price to each the categories of value. The largest number will probably be next to the sign value. The shoes may have a value within the fashion system of shoes; within the fashion magazine system; within the designer system; and most importantly shoes have a signaling value within our social group. All of these things play in to the price we’re willing to pay.

Now think about the role of a social graph through Tw*tter as a method of signaling value. Compare it to using Search. PageRank uses citation as a method of deriving the value of a link. Citations are painstakingly extracted from spidered and indexed web data. Think about a real-time market where value is established through citations (gestures) across overlapping rings of social graphs. Sign value is largely produced as a social process. The key is: the gesture market needs sufficient volume and market makers.

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The Doomsday Machine and The Golden Rule

Published November 26, 2008 by cgerrish

Before the turn of the millenium, back when I was first joining an investment bank, I wanted to do some background reading. One of the must-reads was Michael Lewis’s Liar’s Poker. Of course, we were looking at disrupting the business. But in the over-heated world of the Internet IPO, no one wanted to disrupt anything– there was too much money at stake. Like all bubbles, that one eventually popped.

Our firm had a small part in popping that bubble with a piece of research we produced called “burn rate.” The first crop of Internet companies went public very early in their lifecycles. That meant they had to report their financials quarterly. At a certain point it was a simple matter of looking at cash versus run rate to determine how many months these firms had left. In Internet Bubble 2.0, initial public offerings were not possible, but the principle of burn rate remains the same. If a firm is not at, or close to being cash flow positive, they’re burning cash. This time the fires are behind closed doors, but their burning just as brightly.

Whack-a-mole

But the Internet Bubble is nothing compared to the Real Estate / Sub-Prime Bubble. While trying to get my hands around this Bubble and Collapse, I turned to Michael Lewis again. Lewis’s article, “The End,” in the December issue of Portfolio nails it. The Sub-Prime meltdown is difficult to understand. And when people talk about the “bailout,” it’s hard to understand what exactly needs to be bailed out. Treasury Secretary, Hank Paulson, has come under criticism because he’s perceived to be playing whack-a-mole with the crisis.

Bubblicious

Lewis takes a simple approach to explain the situation. He looks at the other side of the trade. Every trade requires a buyer and a seller. While the vast majority of the nation and Wall Street were buying in to the idea of ever rising real estate values, Steve Eisman, of FrontPoint Partners, was shorting the bubble. The article exposes the transubstantiation of BBB rated debt into AAA rated debt. As Eisman struggles to understand the trades he’s making, we start to understand the Doomsday Machine that Wall Street was constructing. For the bubble to keep expanding, it was important that the emperor was percieved as being fully clothed and regal. People like Peter Schiff were laughed at for trying to seriously address the problem. Risk is at the heart of investing, but in the real estate bubble, risk was grossly misrepresented. The label on the box said it contained wholesome ingredients, higher return with less risk. It was too good to be true, and it was. Bubblicious.

Lewis closes the loop by having lunch with John Gutfreund. Gutfreund was the CEO of Salomon Brothers while Lewis worked there. Liar’s Poker chronicles that time. They were the first i-Bank to go public, created the mortgage-backed security and their BSD’s from the bond arbitrage group went on to found Long Term Capital Management. Investment Banks follow the Golden Rule, he with the most gold makes the rules. Lewis posits that this is the end of investment banking as we know it.

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Tracking Voices: Attack, Sustain, Decay

Published November 16, 2008 by cgerrish

Radar read out

In trying to understand something like “Track,” I find that as a new angle is uncovered I need to make note of it before it slips back into the aether. Part of understanding is explaining something to yourself, and then trying to explain it to someone else. It’s turning a shard of a mental image into a story. Understanding the signal-to-noise ratio in that transmission is one measure of success. Sometimes a transmission can carry the payload of a dense and ambiguous metaphor— something that is neither signal nor noise.

Noise is something we can’t or don’t want to understand. Signal is communication for which we already have a framework for understanding. Ambiguity is a different kind of payload in a signal. Sometimes it’s important to drive toward clarity, other times it’s important to let something remain in an ambiguous state and allow for the meaning of play and play of meaning to unfold. The usefulness of track is something largely undiscovered. The tools we use to track the idea of Track are both primitive and highly sophisticated. We talk to each other; we listen; and then we talk to each other some more.

Measuring the decay of sound

The small piece of the picture that came into focus for me today was the distinction between “who” and “what.” Distinguishing “track” and “search” seems to have some conceptual value. Search is more associated with what; track is more associated with who. Either can be used for the purposes of the other, but there’s some value in making this distinction.

There’s a sense in which track can be used to understand the current presence status of a person on the Network. We use a status indicator on IM to indicate to our personal network of reciprocal connections our level of availability. Tracking a person or a topic keyword tells you who is currently speaking on the Network. Who, not what. Speaking, through microblogging (tweeting), is a form of indicating your presence and availability.

An essential component of track is its basis in the real-time stream. One way we make conversation is through making sounds– and sounds have a physics. Finding the presence of speakers must occur within the context of the sound envelope— track must do its work in the period starting at the end of the sustain and finishing at the end of the decay.

The decrease in amplitude when a vibrating force has been removed is called decay. The actual time it takes for a sound to diminish to silence is the decay time. How gradual this sound decays is its rate of decay.

Once the sound envelope has completed its decay, the presence of the speaker can no longer be assured.

A directed social graph, or affinity group, can be followed to understand current presence status. Track can also be used for that purpose, and additionally to discover new speakers on the subject of one’s affinity. Condensing value out of that stream returns us to the beginning. A story emerges, a melody emerges– from the attack, sustain and decay– of the voices in the stream. A thousand flowers bloom in an eternal golden braid.

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Office Coffee: A Leading Economic Indicator

Published October 22, 2008 by cgerrish

Office coffee machine

My office supplies coffee, tea and hot chocolate to its employees. There’s filtered cold water and hot water for the tea and chocolate. Coffee requires at bit more work. Someone has to make a pot of coffee which includes putting a filter into the machine and then loading 1 1/2 portions of ground coffee from pre-measured packages. Through experimentation and oral history, I have learned that 1 package of coffee is too weak, and 2 packages of coffee are too strong.

Office coffee is perpetually bad. There many reasons for this. Often the coffee will sit in the pot cooking away for hour after hour– the flavor boiled out of it. Even when cut with milk it’s barely drinkable, an acidic brown liquid. Good office coffee requires social cooperation of a fairly high level. Reasonably good raw materials must be provided. And then the key, there must be a willing group of people dedicated to making and then maintaining the freshness of the brew.

If you think about it, the social contract around the quality of good office coffee requires an effort equal to that of a business like Peets or Starbucks. A single person is unlikely to make that effort; social cooperation is necessary.

The quality of office coffee produced in this manner is a leading economic indicator. We’ll leave to the side for the moment the idea of subsidized office coffee. When the cost of social cooperation to yield a good cup of coffee is sufficiently below the cost of buying a good cup of java– people switch. Labor replaces capital. The better and fresher the office coffee, the worse the surrounding general economy. As the economy improves, the quality and freshness of office coffee will start to deteriorate, and alternatives will start to seem economically feasible. Capital replaces labor (the general replaces the specific).

In a good economy, there are those who will cling to office coffee as a matter of principle. But as the general quality of office coffee will tell you, this is an utopian ideal. Of course “office coffee” is just a variable, we could just as easily be talking about enterprise software.

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