America’s way of legalizing scams & bribery

It’s called out-of-court settlement. 

Yes, that's how any company in US can do anything, legally - but - it should be backed by a huge amount of money.

Case in point - Goldman Sachs settlement with SEC. Few months back, Goldman Sachs made a settlement with American regulators for $550m following an investigation into its practices that led to misleading its clients.
The $550million paid to regulators is a pittance in front of the $3 billion increase in its market value seen soon after the settlement of lawsuit.

Goldman’s acknowledgement in the settlement papers:
"Goldman acknowledges that the marketing materials for the ABACUS 2007-AC1 transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was "selected by" ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure."


Why did SEC investigate only the Abacus product sold by Goldman? Most probably because the money-losing clients of Abacus included big names like Royal Bank of Scotland.
Who knows if lot of other clients lost (and are losing even now) a lot more money due to Goldman’s practices?

$300 million of the settlement money (i.e. more than half) goes to SEC. Giving the money to regulator in return for settling a lawsuit can be considered equivalent to bribery.

Lesson: A company can get its way through anything, as long as it has deep pockets.

Role of form factors

When personal computer (PC) was launched, it created a revolution. It was an instant hit with the large companies, especially with the clerical staff, who were involved in a lot of processing work and intra-office communication. This was in spite of the fact that PC had significantly lesser processing power than the existing computing machines i.e. mainframes. An important thing about PC was its form factor. It gained acceptance with individuals, largely because they could use it easily on their desks. 

Other revolutions led by form factors: 

  Laptop 

  Walkman 

  Portable music players (iPod, etc) 

  Portable memory (Floppy, CD, etc) 

  Portable hard drive (USB drive) 

What about phones?

A phone has retained its form factor almost completely during its entire history. Even today, it is a device that rings when a call arrives and the user pulls it out, presses a button or two to start the conversation. Though today, people do many more things on phones – browse internet, play games as well as use other applications. But still, all of it is over a single device which was designed to be a phone for voice calls. The form factor of this device has not changed.

Most probably it is because people are used to talking over phones in a certain way and no one wants to disrupt this human behaviour. But then, history has taught us, most of the development has happened due to disruptions only. 

Why do people need to carry around a separate device called mobile phone? 

Why cannot the mobile phone be part of the wrist-watch & connected to a bluetooth headset for calls? 

Why cannot the display be a foldable screen or a projector that is used only when needed? 

When it comes to creativity, sky is the limit. 

Have OHA & Android achieved anything other than giving competition to iPhone?

In fall 2007, a group of companies announced something very ambitious for the future of mobile telecommunication. This group wanted to change the way people communicate & access information. It was called the Open Handset Alliance (OHA). OHA, led by Google, included many giants: device manufacturers (like Motorola, LG and Samsung), semiconductor companies (like Intel, Qualcomm, Nuance and Texas Instruments), mobile operators(like China Mobile, Telefonica, T-Mobile and NTT DoCoMo) as well as software and commercialization companies.

 

Google’s chairman and CEO Eric Schmidt said, "This partnership will help unleash the potential of mobile technology for billions of users around the world. A fresh approach to fostering innovation in the mobile industry will help shape a new computing environment that will change the way people access and share information in the future. Today's announcement is more ambitious than any single 'Google Phone' that the press has been speculating about over the past few weeks. Our vision is that the powerful platform we're unveiling will power thousands of different phone models."

 

Fast forward to today. The alliance still exists and many more giants like Vodafone, ARM, Huawei, Sony Ericsson and others have joined it. But, what have they accomplished? Agreed that the currently available mobile devices provide a much richer experience. But, its credit goes to Apple, not to Google.

OHA promised the goal of “Open Software, Open Device, Open Ecosystem”. Let’s review these one by one.

 

Open Software:

The real openness can be achieved only if everything related to Android is open sourced. The aim of OHA was similar. All partners agreed to contribute back to Android community. Going by the current situation, all device manufacturers have their own customizations. Most of them don’t share the source code because it is considered a differentiator. So much for the ‘openness’ of open software.

Open Ecosystem:

The key ecosystem players are: Device manufacturers, Mobile operators and Software firms/individuals.

For an open ecosystem, a customer should be able to use any mobile operator with any device and load it with any compatible software application. The main problems seen in mobile market were: Operator–Device lock (mainly in US) and Device–Software lock. Both these locks were expected to be broken by OHA.

The Device-Software lock is similar to the Open Device topic discussed below.

The Operator-Device lock exists mainly in US and is still intact. Google tried to sell Nexus-One without an operator lock. This effort failed miserably because US market is used to the discounts that come with locked phones.

Except the US (and few more countries), the Operator-Device ecosystem has always been fairly open.

So far, OHA has been unable to set a new business model to facilitate open ecosystem. Almost all device manufacturers still sell operator-locked phones.

Open Device: (Most important aspect of OHA)

This, in my opinion, is the most important aspect of OHA. World over, mobile devices are significantly closed and controlled either by the manufacturer or the mobile operator or both.

An open device is one where the owner can control what to install and how to use. Although Google has been against Apple’s closed system, even the Android devices are not completely open.

Device manufacturers do not give complete control of devices to users. Why do manufacturers restrict root access? Even Google’s Nexus One doesn’t allow it.

Recently, Motorola was on the receiving end when developers protested against its restrictions on usage of custom ROMs. Motorola’s logic ‘Business Reasons’ was clearly not acceptable to customers and prospective customers.

 

We are far from a really open mobile handset device. 

If Android has achieved something, it is only the creation of a formidable competition to Apple’s iPhone.

Why are startups better innovators than large companies?

Why do we see so many large companies missing the bus while smaller players are able to better judge the market?

Why does the effort and perseverance of few people work but the professional management does not?

One part of the answer lies in the company's decision-making process (or the lack of it). What are the controls (if they exist) within a company and what is the overall company culture.

Startups have absolutely no controls and everyone has an opinion on things. But, in a large company, these voices die in the crowd (or are killed due to culture). Decisions are made by people who are really busy in daily operational activities. Moreover, many different people take many small decisions. And there is no one to take a large decision which is very important in case of major industry shifts.

Another reason is the investors. The nature of investors in a startup is very different from that in a large company. In a startup, investors consider failure a probable option. But, investors in a large company invest for steady returns. Investors in a large company tend to steer the company towards a path where company can earn more profit in near future without keeping long term gains in mind. It’s common for a large company to favour small definite profits in the near-term as against long-term huge risky profits. Risk-taking is avoided in a large company though they are best positioned to take these risks. 

Moreover, these investors are generally financial experts, not industry experts and definitely not visionaries. They tend to underestimate the major industry trends & dramatic shifts. VC (Venture Capital) and PE (Private Equity) firms who invest in startups and small enterprises are known to hire industry experts. But, the Investment Institutions, Mutual Funds & Wealth Management firms don’t do that. 

Technology giants can also become “too big to fail”

Status check:

Microsoft Office has over 85% market share in corporate desktop software (primarily Windows + Office).

Google has over 60% market share in Web Search in US and over 80% globally.

What would happen if these companies faced any financial pressure?

(This is very difficult to imagine, but assume that it is possible.)

It will directly affect entire corporate world & individuals who use these products.

Will that cause a “digital tsunami”?

Will the U.S. govt. bail out these firms because people cannot live without them?

Will we form institutions like “International Technology Fund” or “World Technology Union” to regulate the technology world and to help the distressed firms?

Can these companies be called “Too Big To Fail”?

What is a developed country?

What is a developed country?

While world's leading economists have come up with great methods of defining 'Development', there is still no consensus on the correct method.
Am a novice in this field. But, lets see...

I feel amount of 'development' of a country depends upon the opportunities available to an average resident of that country. To understand this better, I have come up with a small model.

In this model (refer adjoining image), we try to put down the growth/status-quo/decline of all individuals living in a country.
Higher the growth of an individual, steeper the line.

If more people of the country grow over their lifetime, it indicates that they got better opportunities.
Of course, they must have hard too, but I assume all countries would have the similar mixture of hard working people. (I wonder if this is a valid assumption.)

The number of individuals and the rate of growth of these individuals is a fair indicator of the opportunities available to them.

If the line is not tilting or if it is declining, it indicates status-quo or decline i.e. a lesser developed country.


How is this different from the GDP measure used by most economists?

Well, GDP is a measure of the overall production of the country, which may have been financed by outsiders.
ethod is kind of independent of the initial position of the individuals.
By doing this, the bias of starting position and size of country is taken care.
In this measure, an effort is made to measure how much an individual is able to do during his/her lifetime under the available environment.


No, I am not claiming a better model.

This is only an effort to work out alternate methods to measure the development of a country.
Am sure there will be limitations of this model and it needs to be refined further to become truly usable.

Your comments are welcome.

Banking on Innovation in Banking

Has the banking industry changed over past 50 years?

Of course, yes. Thanks to technology, banking today is very different from how it was 50 years back. But, to what extent. Almost all developments have been in two core areas - Banking Operations and Customer Interface. Technology has made banking faster, smoother and much more efficient.

But... but... but, has technology really changed banking?

Now what does changing mean? Let me explain. Even 50 years back, banks used to collect money from individuals & firms for safe keeping, while providing services like payments, wealth management, investment options, advisory, etc. They gave credit to needy individuals & firms. They also diversified into financial consulting. These banks were regulated by a primary bank (a govt entity). All this is true even today.

Some exceptions - the credit card industry and PayPal.

Credit cards have changed the way people handle money. Instead of applying for loan whenever needed, people need to apply for credit card once and take credit whenever they want: On-demand credit. Credit cards affected consumption patterns and the overall way of life (spend before you earn). They were definitely a game changer. Next, Paypal. It is not a bank. It does one core activity - payments. But, it also acts as a storehouse of money. It lets individuals accept any payment mode - even credit cards. So, from an individual's perspective, it is as good as a bank. You can transfer money into it, pay money to anyone, buy goods through it, or even take the money out. All this without a branch network and hardly any physical presence. This is a big game changer - an individual's many banking needs are fulfilled without an actual bank.

Fast forward into the future.

Physical money (bank notes, coins, etc) will cease to exist. Every person's money will be stored in a single reserve, most probably the govt controlled primary bank. Even corporate entities will have their funds with only the primary bank. Other banks will no longer be involved in safe keeping of funds (from past experiences, govt would have learned that keeping funds with itself is the best option). These banks will become entities that provide services like payments, wealth management, advisory, etc. All these services would have a charge. Due to competition & due to advanced technologies, the charges would be very low. The other side of economy, access to loans would become fairly automated and objective. With the advanced technologies in place, every person and corporate entity would have a credit score, loan amount slabs and interest rates linked to it. They can avail credit anytime. The risk of default also lies with the primary bank. But, due to the large size, the overall risk with the primary bank would be close to zero. Again, the normal banks would become processing agents for the loan while charging a service fee or a commission for their services.

But, why? Why would all the entities prefer this over the current system.

Government can better control the flow of money - no black money, no bank runs, no bank defaults (and no govt bail-outs). Banks will be free to offer services and charge for them. Banking would become just like any other consumer business. Banks will be lesser regulated. Any company could offer banking services without specific licensing. People will be happy since their money will always be safe with the government. And they will also get best service due to competition. Companies will be happy since things will be transparent. They can know how much loan they can get and at what rate.

Back to the present day.

If this happens, then we can definitely say that technology has changed banking - in fact a 'bank' will no longer be called a 'bank'.