Communication Revolution

Recently I have been using the text message service on my phone more often than I used to before. That made me wonder how did the text message service start in first place. I vaguely remember working as a programmer for transaction services software where I was coding services that could listen and respond synchronously or asynchronously. For a layman, synchronous means the service listens to your request and responds to it and the requester waits until the response is received, it all happens in real time. But operationally it was more efficient to create a bucket and drop your request in it and the service will take it when it is free and drop the response in another bucket from which the requester picks it at convenience. This way there is no real wait time and the requests with different response lengths can be handled optimally. This is asynchronous communication. Where I am going with this is that the birth of text message lay in the cheaper ways to communicate, ie asynchronous communication. It was very efficient and sometimes unreliable. A phone call is more reliable in a sense that the talk is real time and it does not function if one of the ends goes offline. It was expensive compared to sending an offline text which had a lower priority if resources were scarce. Text messages were very novel concept that worked on asynchronous or offline mode and could be scaled very fast by doing a broadcast. Though text messages started with the whole concept to save scare network resources and to ensure efficient processing of multiple request they have taken an entirely different sociological form today.

On a sociological level text messages start with very good intentions. I want to send a text as I don't want to disturb the other person and still convey my message and let the other person respond at their own convenience. If I want to invite many friends for an event I will just send a broadcast over text message and get done with it. but then starts the tricky part, text message does not generally come with an obligation to respond. Nor does it come with any formal communication protocols like hellos and good byes. Though the text message technology has become very reliable these days the users have made sure that the whole medium of text messaging remains in the gray zone of optional or delayed response. This is just an open secret or accepted norm for text messages. It is also interesting how the messages can be communicated tersely. If someone invites me for an event using text message service and if I don't want to go for some reason I can just type "Busy today. Will stop by other day", and there are no questions asked. even if a persistent invitee responds to my text by asking what I was busy with, I could give the real reason or not respond at all and there is no problem either ways. Compare this to a phone conversation, it gets more elaborate and committed conversation where excuses might not work. With text becoming more prevalent I see that people have stopped taking phone calls. I am sure the swinging pendulum that oscillates between texting and calling will reach its point of balance some day. But then sometimes I think text messages have lost their childhood innocence and have reached the post puberty age of a notorious teenager. Only time will tell how this adult will look like.

The Economics of Taste

Fiction has always fascinated human mind. Be it a story of lovers fighting against the evil society or story of the human race fighting against the aliens. Fiction is like exemplifying ones dream. After writing on all the serious things, I though I should try my hands on the matter of fiction. Fiction that would be as real as it would be imaginary, as inventive as it would be simple. What best could it be than blending science with economics?

From my childhood I have been taught about the 5 human senses. Vision, touch, smell, auditory senses and last but not the least taste. Through my readings and experiences I have always seen the first four senses being very popular among the fiction writers or in the scientific community. We have entire fields of specialization in the first four senses in the medical studies. Taste has always been the ignored one, though we use taste in the most artistic form possible, like taste for music…etc. This is the story of taste. When I was a kid I was once traveling to my native place, a remote village in one of India’s most economically undeveloped areas, Marathwada. While strolling through the farms one of my local companions gave me a dry leaf to chew and spit it. After going through this exercise he gave me some sugar and to my shock and disbelief I had lost the taste for sugar. Sugar tasted like ash. Fortunately the effect of the leaf was a temporary one and I regained my taste senses in an hour or so. Fast forwarding to the present, I live in the bay area work for a multinational bank and am constantly worried about the fat accumulation in my body. I try switching to the 0% fat substitutes just to realize that it tastes the same as the sugar after having the shrub leaf I had eaten during my childhood in the remote farms of India. This entire cycle of experience just made me realize one obvious fact, “duh, bad food tastes good” and good food tastes like Sh**. Well philosophically anything in excess is bad once we define excess. A logical extension to good food being not great to taste would be improving the taste of good food. Lot of research dollars today go in making the 0% fat food taste good but with limited success.

Well the question I have is why spend money on just changing how good food tastes than change the senses to make any food taste good. It is like regulating our taste buds. If there is a spectacle for our eyes, and hearing aids for our ears, why cant there be a taste bud regulator for our tongue? (I know it would not be to amplify the signals as the spectacles or hearing aids do but to change the nature of these signals entirely, think of the 3D cinema) It would be like eating the same content but making it taste like what I would like to eat in reality. It would be like eating the healthiest food available and making it taste like the unhealthiest food (by which I mean the tastiest) one can imagine. Only if man can conquer the sense of taste the way he has conquered (manipulated, I can’t help being sarcastic) the other senses. Imagine a world where you are not worried of how many grams of carbs you had for the day. A world where the food content does not dictate the taste rather you dictate the taste of the food content.

How would a simple taste bud regulator look like? It could be as simple as pre-eating the taste, which you want from the food you are going to eat. This pre-eating could be in different forms. The simplest being like the shrub I ate as a kid or a taste capsule that would dissolve in your mouth. The most sophisticated form would be by having an artificial layer of sensory material made of intelligent nano particles around your tongue that could produce the taste you like depending on the signals you send through a remote control in your hand. Imagine changing taste of someone else’s food with your remote control ;). It’s like the way my primary school teacher used to say, no invention is good or bad but depends on the way it is being used. There are innumerable ways of devising the mechanics of taste control. I would rather leave it to the real scientists when the get interested in this subject.

You might be wondering by now, where is economics in all this or did I just forget about it? If you thought that the idea of controlling the taste was wild (out of whack) you should stop here, as the next part gets even wilder.

Think about how the world would change if we could control our taste senses. Think about the different problems that would be solved, Obesity, to start with. Everyone eats same nutritious content but for some it is the tasty oily French fries and for some it’s the cuisine from the best chef in France. Industries that will suffer include pharmaceutical, restaurant businesses, hospital systems (less number of people will be unhealthy), etc. Farmers will grow the most nutritious food. Industry will put more money in researching more nutritious food without worrying about how it would taste. The decoupling of taste and nutrition would be a boon for the humankind. Be it the Prairies in the US or the Deccan plateau in India, everyone will have the same crop. Socialists will love this as taste will no longer be the function of the supply of a particular edible commodity. Capitalists will love the new form of change in the competitive landscape with many old big companies losing to new breed of lean and mean operations. To put it in a statisticians’ language the world would be an easy place to optimize meeting the needs of every human being. If you exaggerate more there would be no conflicts between young children that don’t want to eat because they don’t like the taste and their mothers trying to feed them. The options are innumerable.

This was indeed my silly experiment with fiction. I will never be able to express fiction like the expert story tellers as Yann Martel, but this at least this would complete my fantasy to fantasize about “The Economics of Taste”.

To end the fantasy I wish we could have something similar for human minds that would make everyone like every other person making the world a better place to live.

The American Dream v/s Greed is Good - Tell your story

Ok here is the deal, I give you the pictures you fill in the story! Guys please write something in response……technical, philosophical.….. anything.

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Health is Wealth? Health needs Wealth!

I would like to start with the old proverb:

If wealth is gone nothing is gone,
If health is gone something is gone,
If character is gone everything is gone.

While creating this proverb our ancestors assumed that all three, character, health and wealth are not only mutually exclusive but also totally in one’s own control. I am not sure how evolution has changed the dynamics between these variable but they seem to have become interwoven and the precedence has changed to the fact that wealth has gained the top position in this survival of the fittest race. If you don’t have wealth it is tough to keep up with your health and what use is a human full of character but no health and wealth. I see all three variables linked very nicely in the new Michael Moore movie, “Sicko”.

I have not seen Michael Moore’s “Sicko” yet but am experiencing “Sicko” through all television network debates and on NPR while I am on my way to office and back. I truly believe that Michael makes a point and that too in a typical Michael Moore style. He has a punch in his presentation. His reputation precedes the grim issue in this movie and that is the sad part of all. The big dilemma is no reputed journalist is willing to take risk of covering any topic that really matters and very few want to take things seriously when they are said by Michael Moore. Well who said life way easy and why should Michael be an exception. Let’s not focus too much on the movie stuff and lets us do a reality check on this issue.

It is indeed a fact that healthcare costs are increasing day by day and so are the insurance premiums. Some would say that the market forces would correct it and keep things balanced and if costs are increasing that is the new balance point. Now when I think of the healthcare panic in the general public, I find at least one reason why the theory of free market does not sound good here. I believe in a regulated free market else you will run Microsoft computers and everything else will be Wal-Mart. I feel that the healthcare companies have successfully created a panic in the people that might be dividing the population in two categories, the rich who want to pay more and more and make sure that they and covered and the poor who cannot pay and are stuck with a big healthcare question mark. When we just see the numbers or dollars that go in the healthcare funding we are missing a big portion of the reality. To get the reality I think we need to find why the costs are increasing when the demand side seems to be unhappy.

We need to divide the demand in at least two segments and study this issue in the light of these two segments. It might not be the typical 80-20 distribution but the costs are for sure not evenly distributed as well. To make the point more clear lets assume a town with 100 people. Let’s say of which 20 people can be classified as rich and remaining as not rich. The average premium that the not rich people can afford is, say $100. Suppose the rich people can afford $500 on insurance premium. Currently everyone pays $100 to the insurance company. The insurance company is smart enough to know how much more can the rich people give in premium. Let’s say a randomly chosen person the town develops cancer. The cost of this treatment is $5000. Hence, the insurance company starts Co-pays beyond $2000 in treatment costs. The co-pay creates a panic in the town as everyone is worried what if they develop cancer. The rich immediately pay $500 for complete coverage when the poor are already at their threshold of premium payment. So overall the rich contribute $10000 as total premium and the total premium for the town is now $10000(Rich) + $8000(not Rich) compared to the $10000(All people) before the cancer case and co-pay rule. Overall the demand side seems to be very excited to pay more and the equilibrium starts shifting up as the average premium for the town is now $180 against $100 in the previous case. My point is again some serious math (not beyond arithmetic indeed) needs to go behind this issue to get to the root.

Let us do an audit trail of the healthcare spending and how many pockets it ends before and after the customer reaps benefits.

Expense for the customer = Revenue for Insurance company + Revenue for the provider + Revenue for the malpractice insurance company + revenue for the pharmaceutical company + Uncle Sam’s share.

Among the right side elements of the equation revenue for Insurance Company and Revenue for malpractice insurance company are realized even before the direct benefit to the expense bearer. Also these indirect costs are the biggest influentials of the healthcare costs as the interface or separate the real supply and demand of the healthcare service.

I am just creating a framework for everyone to think on this issue and trace the problem to its roots. I am not providing any conclusion to what needs to be done to resolve the problem though the following two are probable alternatives to the solution. First one is the universal healthcare plan and the second being healthcare outsourcing. If the dissatisfaction among the general population continues it might result in Healthcare tourism industry to flourish in countries in Asia, Latin America and Europe.

I am hopeful that our ancestors were right about wealth, health and, character and that the market forces will resolve the problem to benefit all parties involved in the system.

Let’s Rationalize, Part 1: A mumble jumble note on irrelevant thoughts!

Rationality is an overloaded term in today’s context. Every profession uses (abuses) this word to its fullest potential. It has become a synonym to cultured criticism. It seems more cultured to say “Cant you think more rationally?” than to say “That was a foolish thought!” Let’s use rationality on two fronts, finance and microeconomics and clutter it with relevant and irrelevant thoughts.

The world of finance is divided in two prominent schools of thought, “the markets are efficient guys” like E. Fama, and the “Markets are inefficient guys”. The boundary between these worlds is getting thicker though, with more people believing that markets are very weird creatures that behave in varying degrees of efficiency and inefficiency depending on many other factors including the most prominent one i.e. insider information. Some would call it asymmetric information to make it look more rational! A rational progression of this asymmetric information is insider trading. When I first got introduced to equity markets it was tough for me to believe the dependence of this market on the regulators of the market. It took me back to my days as a child when the degree of punishment at the end of every action resulted in me deciding whether I should or should not do the action. A very rational way of making decisions as a child. Long back I had read a book that describes every individual in varying degrees of child, youth and parent. I am sure that traders have a lot of child element preserved in them. This makes me think children will make the best traders as a logical extension to the previous sentence. Professor Fama needs to address the whole foundation of modern day financial markets that are driven by payoff calculations of obeying the regulations or not obeying them. Dr. Fama needs to help these grown up children of financial markets grow into rational adults, through an alternate market structure, where insider information becomes irrelevant and not a source of arbitrage creation. Dr Fama can wrap his Market Efficiency theory on this new structure and nobody can prevent him from winning the next Nobel Prize (I am not saying that he will not get one for his current theory though. He and Jagdeesh Bhagwati are due for a Nobel; I have no idea about this, I just read this somewhere.). Let me ask you this, how rational are we in putting a rational structure over an irrational foundation.

Looks like the notion of market efficiency is also loosely (additional information might lead to say more tightly) connected to the arbitrage (I love this word and its abuse or use to make cheating look rational. In a real life situation, an Enron trader, during the California energy crisis, calls his boss and makes a comment that they were f***ing California and making a lot of money, the boss responds to make it look more professional, and the f-word was replaced by Arbitrage Opportunity) opportunity. If the markets were perfectly efficient hedge funds would not find a place in financial markets. Hedging as a word has a positive connotation, but when I was first exposed to the hedge fund strategies to create arbitrage it was difficult to find any positive trait. It seemed another example of rationalization of human greed. Don’t get me wrong I am not against Gordon Gekko (greed is good guy) nor am I against Al Gore or sustainability, but am more inclined toward rationalizing(in an overloaded sense) these two extremes of the greed spectrum. That makes me wonder are rationality and convenience (with a negative connotation) getting aligned in a modern sense. Convenience needs a lot of overlap and ambiguity, while rationalization plays a role in creating that ambiguity or in justifying it. Other word that also connects these two in modern business world is flexibility. My favorite use in business world is “Headcount Rationalization” being universally used for layoffs. Off shoring becomes some kind of operational rationalization and so on. I will continue in next part more with Rationalization and the Game theor with special emphasis on Prisoners Dilemma.

Googolplexing Google

Few days ago I read the news of Microsoft trying to align with Yahoo to face Google. I was not only surprised but also amazed by the immaturity of the industry being reflected through the action of the most successful and largest player in the Industry. Not being a mature industry is the exact reason Google should not think it is shielded from the booms and more specifically busts of the industry. Here I would like to draw a framework of how, even, Google with all its growth and earnings momentum can be Googolplexed (Googolplex is 10 to the power of 1000).

Two computer scientists think about the best algorithm to search for the relevant content and create Google. Google’s creation was also driven by the increasingly chaotic internet content. Well known players in the arena were busy with their own priorities like desktop solutions and universal portals with instant messaging, ignoring the ability to create a faster way of searching the increasingly large and fat world of internet content. It was same time when Microsoft was already facing criticism of trying to monopolize the desktop. This was a perfect time for Google creators to launch a search engine that was going to change the way people think about internet. Open source enthusiasts supported the search engine with all might and the information about this new search engine spread like a virus.

As a Linux enthusiast I got introduced to Google in 1999 and before 2001 Google was already a huge force in the internet space. The growth was powered by not only the superior algorithm, Google creators invented, but also by the perfect storm created by open source enthusiasts and the overall increase in rate of internet penetration and usage across the world. Google too realizes that common man’s viewpoint is important for its continued growth. This has kept all the Google offerings free to everyone. Google has intelligently created its own space in the internet advertisements and advertising brokering business to become a $100+B company. Google ads are today displayed on billions of web pages making Google a perpetual money generating mechanism.

Let’s analyze Google’s revenue a bit closely by doing a back of the envelope calculation.

World population:6.5B

World population using internet: 1.14 B
Assume 75% of world population using internet accesses internet every day = 75% of 1.14B = 0.855B

Assume every person accessing internet accesses 20 pages on an average with Google ads everyday. Therefore number of pages accessed = 17.1 B

Suppose Google’s conversion rate is 1% :
Clicks leading to revenue = 1% of 17.1 B = 171Million clicks per day

Assuming the average pay Google gets per click as $0.2, revenue per day = 171 * .2 = $34.2 Million

Yearly Revenue = 34.2 * 365 = $12B approx.

This is really a perfect example of the old saying that every drop makes an ocean. Now imagine the growth prospects. Suppose internet usage increases by 10% and penetration increases by 2%, this itself guarantees Google a revenue increase potential of 12% continuing doing what it is doing now. Google already has many things in pipeline apart from Google labs. Also the engine is becoming more intelligent increasing the potential to charge more per click. Google revenue is bound to increase more than 20% given most conservative numbers.

What can slow this enormous growth?

There are different ways to compete in this space:

Create an engine superior to that of Google with faster crawlers gathering information of billions of web pages (Use Google itself to create such list). Are thee any brains remaining in this space that think of challenging the Google algorithm (at least for intellectual curiosity)?

Now a more disruptive alternative, make web search extinct. Now this is a project that Google needs to start to work on for its own long term survival. If one comes with a model where search is no longer required this can make Google unhappy, unless Google diversifies its revenue stream by then. It might sound a dumb idea, but I am sure it wont be long that cyberspace will become virtual again.

Until then a big lesson for the Google competitors: “Every Click Matters”.

Information Age Agriculture

Though I may have become a part of today’s services sector boom, my roots are in farming. Agriculture has been the main profession of my family hailing from a one of economically backward regions of India, Udgir, in Latur district. My exposure to a life of an average farmer came from my stay in Udgir during my high schooling. I have seen extreme variances in the lifestyle of a farmer and other professions in rural Maharashtra. I have seen farmers sell their crops at pennies and depend on loan sharks for survival. Ironically the economically poor strata of the society forms the major voting bank for various political parties, but has never gained any benefit from the political process. My quest to find the root cause continues with my exposure to the big picture and to experts from this area. Here I have tried formulating a solution for our farmers. This is a conceptual draft and would need a very detailed analysis on every aspect before even thinking of an implementation plan.

Farming as an industry in highly populous developing nations is very fragmented and disorganized making it the most inefficient industry in these nations. This business idea is primarily for but not limited to the part of world with farmers owning very small pieces of land (preventing them from enjoying the benefits of economies of scale) and developing an information network among the farmers connecting them to the marketplace. Initial capital will be required to establish an infrastructure and create information based services for farmers to assist them in decision making related to operating a farm and selling their produce to the market.

This is a service that will help the farmers to form small cells based on geographic location and have a network of such cells across the region. This network will have an access to the important market information and will provide the farmers with important services that will help them in deciding on what to produce and how much to produce with useful forecasts developed by the system thus maintaining the supply and demand balance for the farming sector. The service will also attempt to eliminate the need of a middleman in the transaction and thus providing an economic benefit to the producers and consumers. The service will be highly scalable and can be easily integrated with other services and information that is helpful to the farmers. The service can also be extended to the derivatives market providing the farmers a protection from the downslide of the prices.

The main customers will be farmers across the region, creating their own marketplace. The Service will be web based with free access to the basic set and will be nominally charged for additional services. Advertisements will be major source of revenue. The website will have free material on educating farmers with latest techniques of farming. The website will have an extension service for livestock management as well. The greatest benefit farmers will gain is easy access to market and being able to keep the supply and demand in balance thus avoiding the currently usual surplus or deficit of a produce, creating huge loss to the farmers and consumers.

Much of the information used to build the system will be collected from the local universities and the related government agencies. The information will be intelligently tackled using a web based application framework. This market has constantly been a neglected market for long due to factors like initial investment, power of middleman and low marginal profits. The information age specifically the web based solution provides an excellent answer to this problem and thus one who takes the lead will have advantage. Once the brand name has been established it would be tough for the competitors to cut through this business model. Association and ties with the non-profit organizations in the region to promote the system would also be a key in capturing a greater market share.

Information sources will be the main suppliers for this business. The suppliers here are the related government agencies and the universities. The information required is mostly public information and in case any licensed information is required it will not be difficult to get given the nature of the service. The farmers will be encouraged to form cells and own a computer to access the services in case individual ownership of computers is not possible. Ties with computer manufacturers will be helpful in customizing the computers to the requirements of the farming industry.

The main cost will be developing the system and collecting the data from the different sources. The system will be developed in different stages of increasing scope. Initially limited services will be made available and as revenue starts building additional services will be developed and provided, keeping into consideration the overall profitability of the project. Given a world wide market in developing countries like Chine, Brazil, Argentina, Mexico, India and other nations the break-even should be achieved at a good pace.

Small farmers have been one of most neglected business class. The system is not limited to small scale farmers but it will immensely improve the economic conditions of these farmers giving them access to the capital through intelligent decisions using information, and thus raising the standard of living of this class of society. This would be a capitalist approach toward improving the living conditions of this class of people that forms a huge proportion of the developing nations.

My ultimate goal is to achieve a seamless integration of information about the entire world reducing the inefficiencies due to fragmented access or no access to information that can be used to make intelligent decisions. This project is part of this goal in to provide direct economic benefit to one of poorer classes of the society.