What I’ve Been Reading

February 24, 2012 //
7

Venture Deals: Be Smarter than your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelsohn
Actually an excellent introduction to the world of early-stage financing; I expected little, but the book is fantastic and will become my recommendation to people who want to know more about the venture industry.

The Hare with Amber Eyes by Edmund de Waal
A well-written history of a family of wealthy Jewish financiers who crossed paths with Proust and Rilke and then lost everything when Germany annexed Austria. At times, I couldn’t tell if the book was fiction or nonfiction. I never fell into this book.

Love and Shame and Love by Peter Orner
This book felt lazy, as if Orner-the-short-story-writer wanted a novel and so chained short stories together, rather than write a proper novel. I do have friends who loved the book.

Open City by Teju Cole
This novel doesn’t have much of a plot, doesn’t differentiate speech from narrative, and has a marginally-present main character — and yet I loved it as much as the deafening reviews suggested I would. “Ordinary solipsism” and all the rest.

Triumph of the City by Edward Glaeser
One of my favorite nonfiction books of late. It’s fast and overwhelms – in a good way – with evidence for city life. I came away more conscious of housing stock levels and land-use regulations. Definitely recommended, particularly the chapter on Detroit.

Bitcoin babbling

February 21, 2012 //
7

Finally re-read the Bitcoin paper this weekend and came away with a few more thoughts. In somewhat-scattered fashion:

1. The paper’s introduction seems to suggest, without being direct, that the existence of reversible transactions (and the resulting need for dispute mediation) explain micropayments’ poor adoption. My impression had been that micropayments’ lack of success had more to do with marginal costs other than fraud being prohibitively high for both spenders and financial institutions. So even if we eliminated all fraud risk, I don’t believe micropayments would make sense.

1a. Transaction batching is often cited as the way we’ve gotten to what looks like micropayments. (Payments on Apple’s iTunes store and Flattr both look like micropayments, but neither are.) If anything this seems to support the it’s-transaction-risks-other-than-fraud hypothesis; batching transaction would seem to make chasing down any instance of fraud more difficult but reduce total costs because it’s (mc*1 transaction) rather than (mc*n transactions). Though transaction batching makes dispute resolution more difficult, we’re still willing to do it.

2. Bitcoin’s gold-mining analogy will likely become my at-hand anecdote for technology that borrows from but does not replicate “the real world.” Much has been written about the reasons social software should mimic the real world; I was once one of the advocates. Yet a few recent conversations have convinced me the best technology doesn’t mimic the real world but rather extends the real world.

3. The privacy models laid out in section 10 referenced banking, but they’re general. Here’s the models from the paper in which “Traditional Privacy Model” is a traditional bank and “New Privacy Model” is Bitcoin:

Here’s Facebook and Twitter repurposed in Bitcoin’s language. Interestingly, Facebook’s model is precisely that of a bank: it sees all transactions, knows the attached identities, and mediates between parties. Twitter is a bit different; it doesn’t shield anyone or anything from the public.

What social software divorces all content from any sort of identity (pseudonymous, anonymous, or identified)? I’m looking for something that has no concept of public identities, even those defined temporarily like 4Chan’s.


This is all very high level, so more practically: I would love to see a version of Twitter that includes replies, RTs, and favs but drops usernames and profile photos — if anyone works on this, please let me know.

It’s also very technical, but the interesting part here is in the feelings: I’m very curious about the experience of reading tweets on an identity-less Twitter stream. What would the product feel like? Would different tweets spread in an identity-less network, and if so, what does that mean for Twitter? How large must the difference be between identified Twitter and identity-less Twitter before you’d reconsider your beliefs about the social web? How large before you’d change your beliefs about Facebook?

Other reasons why so many smart young people go into finance, law, and consulting

February 13, 2012 //
15

Tyler Cowen and Robin Hanson recently blog-debated the reasons “so many young people go into finance, law, and consulting.” (Tyler’s post, Robin’s post.) I do find this topic interesting for some reasons that are more and less personal. My own explanations are below, with credit due to the friends with whom I talked through these … thank you guys.

1. I agree with the three general reasons Tyler lays out: “You are productive fairly quickly, you make good contacts with other smart people, and you can demonstrate that you are smart, for future employment prospects.”

1a. The productivity point may be controversial, but it shouldn’t be. If nothing else — and there is much else — it’s rendered true by salary in the medium- to long-run. Most corporations don’t (and arguably can’t) pay a $60-120k starting salary for 22 year olds. Maybe it’s because they have trouble identifying which 22 year-olds will be sufficiently productive to justify that salary, but maybe it’s because 22 year-olds just can’t be that productive in larger firms.

1b. These jobs pay well in part because the higher-ups in each field actually work with the recent graduates and get utility out of working with smart people. It’s often worth an extra $x,000 from the partners’ pool to get the recent grad whose market rate is $75,000 rather than the $(75-x),000 recent grad.

2. These fields are considered impressive and prestigious. Talented students who guide themselves toward increasingly prestigious problems were and probably still are likely to spend time in consulting, finance, or law. These fields are the output of “the Ivy League hill-climbing algorithm,” as one friend put it. (I do believe software engineering is gaining ground here.)

3. Consulting and finance firms have figured out how to allow smart young people to live in New York/Boston/San Francisco but work in Dayton/Piscataway/Bentonville where they are most needed. This is non-trivial.

4. Adjusting for quality of life, I don’t think consulting, finance, law (or even operations at Google) pay differently. There’s time at work and workplace culture and people’s utility functions — and then if that fails, there’s expense accounts. Consulting firms often have the best ones and pay less than banks and law firms at similar experience levels. But take-home pay matters less if you charge expenses 4.5/7 days of the week to your employer.

5. Coming out of school, declaring you “don’t know what you want to do,” and devoting time to “figuring it out” is hard for many high-achieving students. Those that pull it off still face awkward questions from friends and family members. Consulting and finance (and to a lesser extent law) seem like “places where one can go and be productive and figure out what one should really do.” In these fields, career swaps are the norm.

6. That these jobs are not the most exciting things one could be doing is often the worst that can be said. They are very rarely “bad options.”

Another way to phrase this question is “why can’t [some specific field] attract more smart young people?”

What I’ve Been Reading

February 10, 2012 //
3

The Essays of Warren Buffet: Lessons for Corporate America by Warren Buffet / edited by Lawrence Cunningham
30+ years of Berkshire Hathaway shareholder letters collected and organized by subject. Self-recommending, as Tyler Cowen would say, with the added bonus that Buffet’s funny.

In Other Rooms, Other Wonders by Daniel Mueenuddin
Recommended by someone whose book-taste I trust, especially when it comes to stories like these. (How many “here’s a story of the hardships of daily life in South Asia” have been published in the past decade in the US?) It’s actually quite good though — Mueenuddin can write well, and his characters act and speak like people, not caricatures. Start with his New Yorker short story if you’re skeptical.

Poor Economics by Abhijit Banerjee and Esther Duflo
Skimming or reading this book gives an overview of the last decade-ish of development economics literature, in which Banerjee, Duflo, and their Poverty Action Lab have had a hand. The book explains, in clear English, the “paradoxes” of life in poorer countries without assuming irrationality or pity.

Tide Players by Jianying Zha
Stories of major figures in China’s business, intellectual, and cultural sectors. I didn’t find I empathized with or liked any of the people profiled — which admittedly isn’t the point — but did find the stories narrow, interesting windows into modern-day China.

Dancing in the Glory of Monsters by Jason Stearns
One of the best books I’ve read on the conflict in the Great Lakes. Stearns avoids moralism, even temporarily. The first three-quarters of the book, mostly historical, were better than the last quarter, which was mostly forward looking.

Thoughts on Hollywood’s economics

February 8, 2012 //
11

I’ve recently been trading long emails with a friend about the economics of Hollywood. It’s a somewhat-timely issue to the tech industry, and I’ve enjoyed thinking through what might be going on:

1. The internet offers products competitive to Hollywood: there’s loads of non-Hollywood content on the web that people enjoy. More entertaining stuff finds its way to the internet every day, and as content distributors (e.g. Amazon, Netflix, YouTube) start producing content, seeking to improve their economics, they’ll be more “premium, Hollywood-like” content.

2. Labor supply is changing too; some of the people who would have gone to work in Hollywood earlier are instead choosing to work on the internet.

3. Until streaming becomes a substantial revenue source for studios, they’ll continue fighting everything that seems like to interfere with box-office receipts or DVD sales – including the internet. Parallels to Hollywood’s initial opposition to VCR sales abound. Yet Hollywood can’t rival the distribution offered by the internet, especially with its current cost structure, and piracy is most common in places where content isn’t legally available. Studios cannot build their own networks of theaters and DVD sellers that rival the internet’s reach and would do well to embrace internet distribution.

4. Wider distribution means more popularity, more of a role in the “cultural consciousness,” and more merchandise sales. Moving forward, it’ll not just be the Twilights that have merchandising machines; more films and shows are turning toward merchandise as a revenue stream (e.g. Mad Men’s collaboration with Banana Republic.) A film industry that embraces distribution as a pathway to revenue is a film industry that’s likely to embrace the internet.

5. Box office revenues have been falling, but they still matter because they seem to be the best-available indication of a movie’s future cash streams. (For how much longer will the bragging rights of box-office receipts matter? When can we start using Facebook newsfeed data to predict box office takes?) Yet without revenues to securitize and sell off upfront or better control of production and marketing costs, studios will make bets that appear to be safe. In practical terms, this means more sequels and cookie-cutter plots.

6. Competition from the internet should improve the movie-going product. Theaters will have to offer a more differentiated experience than simply a big screen, surround sound, and comfortable chairs (you can have all that and more in your home.) I expect we’ll see “super-premium” theaters in big urban areas and theaters selling alcohol in many more areas.

7. Despite the downward price pressure from Moore’s Law and componetized software, movie-making technology is becoming more expensive. Call me techno-optimistic, but this seems unsustainable.

8. One interpretation of Kickstarter’s rise in the indie movie world is that it provides a proxy for market demand. A Kickstarter project’s success can be used to assess movie-product/market fit. It is also true that Kickstarter — and “the internet” more broadly — increases the chance an indie movie will be discovered; as grocery stores move to upper floors, movie marketing will matter less.

9. As other forms of media have moved online, they’ve gotten more participatory. Participatory projects succeed when: 1) the bigger project can be parceled into smaller, lower-cost pieces; and 2) there’s a large pool of potential workers available. Figuring out how to break apart movie production while controlling or lowering video-production costs will open up new forms of “movie media.”

10. The economics of Hollywood movie production seem sufficiently unattractive to support current production costs, but today’s studios aren’t being wholly irrational either. (Put differently: it would still be difficult to produce J. Edgar, even if you started from a Silicon Valley garage; put differently still: movie production isn’t yet garage ready.) Yet Hollywood, the high-cost and high-quality producer, has begun hitting diminishing returns, and there’s an opening for “a new type of movie” that starts out looking inferior but, over time, is able to win through relentless increases in efficiency.

Back of the envelope: Sheryl Sandberg’s a 10000x employee

February 7, 2012 //
0

Prompted by this NYTimes article about the expected value of Sheryl Sandberg’s compensation package at Facebook:

1. Sandberg joined the company in March 2008; in December 2008, Facebook was being financed at a $15bn valuation.

2. Let’s take $15bn as Facebook’s valuation when Sandberg’s comp package was issued. (The number might be too high; maybe there was a premium placed on preferred shares, and the company certainly grew in 2008, but it’s in the ballpark.) From March 2008-January 2011, Facebook increased it value 6.67 times. ( = $100bn/$15bn.)

3. The Times calculated Sandberg’s comp package at $1.6bn if Facebook were valued at $100bn. What’s worth $1.6bn at a $100bn valuation was worth $240mm at a $15bn valuation. (Assuming no stock grants, options resets, etc.)

Punchline: Facebook’s board granted Sandberg a $240mm comp package because they thought she could build a business that would generate billions in profit and would increase the company’s value by way, way more than she was getting paid. She did it, and that’s why she’s the number-two at one of the most valuable companies in the world.

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