David Kellam

I will be spending the coming weeks updating Coworking Melbourne to reflect my thoughts on vital aspects of this new and exciting community working exercise. Check out the twitter feed, blog and FaceBook page.

I only read two web pages daily: theage.com.au and /. (The rest I either skim via RSS or only stumble across occasionally)

Normally relegated to the Herald Sun, the logic flaws in this article this morning astound me:

The bureau estimates that Melbourne’s population grew by 74,713 in the year to last June and, on revised figures, by 74,791 the year before that.

Hmmm ok, so that’s a fair few bodies. How’s that fit the bigger picture?

Bureau of Statistics figures show the city is on track to have 4 million people by the end of this year, after its population growth increased to an annual rate of 2 per cent.

OK, some context. 2%. Sounds like a lot.

Melbourne’s population growth last year far outpaced all other major Australian cities.

Hmmm… being the 2nd biggest city in the country, and a cheaper one than the largest, this isn’t that surprising. Still, good to know. I wonder how we compare quantitatively…

Sydney’s population grew by 55,047 or 1.3 per cent, Brisbane by 43,404 (2.3 per cent) and Perth by 43,381 (2.8 per cent).

Hmmm… maybe they mean more net peeps = good mkay? Out-pacing? Doesn’t look like it on population growth… maybe they mean something else…:

The label of Australia’s fastest-growing city might once have been one for which Melbourne yearned…

Sorry boys. Still is! Of the four cities listed, Melbourne has the 2nd slowest rate of growth. In order to “outpace” something, you need to move faster over time with respect to the thing being measured. Population Growth rate (i.e. expressed as a percentage) is a measure of acceleration, not displacement! (Wiki article)

If this were a physics problem, you’d be working with the following data:

Starting Point
Melbourne: 3,900,000 people
Sydney: 4,400,000 people
Brisbane: 1,950,000 people
Perth: 1,600,000 people

t = t + 1
After one year (unit of time), you’d have:
Melbourne: 3,900,000 + 74,791 = 3,974,791 people
Sydney: 4,400,000 + 55,047 = 4,455,047 people
Brisbane: 1,950,000 + 43,404 = 1,993,404 people
Perth: 1,600,000 + 43,381 = 1,643,381 people

Calculate Velocity:
The velocity of each of these movements is: (trivial, as the unit and quantum of time is the same in each above)
Melbourne: 74,791/year
Sydney: 55,047/year
Brisbane: 43,404/year
Perth: 43,381/year
Of these, Melbourne certainly has the greatest velocity (net displacement over time). It might be the fastest moving (if all were on the same starting line and you are measuring only net increase in numbers).

Calculate Acceleration:
However, it is not the fastest growing: (from the article):
Melbourne: 2%
Sydney: 1.3%
Brisbane: 2.3%
Perth: 2.8%

Conclusion:
At present rates, Melbourne will never catch up to Sydney, and Perth will eventually catch up to Melbourne (in approx 115 years).

Moving on to the rest of the article:

In a national perspective, it was the year of the west. Perth added almost as many people as Brisbane, growing by 43,381 people or 2.8 per cent. And south-western Western Australia grew more quickly than either the Sunshine Coast or the Gold Coast, its population rising by almost 9000 or 3.9 per cent.

Cairns had the fastest growth rate of the big regional cities, 4.1 per cent, but has since gone into a deep recession with the loss of Asian tourists.

Ha! Now we find that not only did Melbourne’s growth not even outpace Sydney or Brisbane, but it’s failed to keep up with three separate parts of Queensland as well! Seriously, the entire contention of this article is absolutely bogus!

The most surprising thing here is not that journalists have zero understanding of basic mathematical concepts. No, the most surprising thing is they then get the concept of pace/rate of growth right in the second page of the same article! (i.e. the Cairns quote above). So we’ve got a situation where Cairns with a 4.1% rate of growth has been “outpaced” by Melbourne’s 2% rate of growth. Someone had better teach me more quantum mechanics fast - I’m trying to reconcile two parallel universes here!

Of course, it’s possible they mean that the rate of growth of Melbourne’s rate of growth is out-pacing other cities, but that’s neither in the data nor the argument presented in the article.

Reminds me of Bob Cringely’s excellent post on the bailout of the US banks, back when he was writing for PBS.

Yes, I am addicted to Scrabble. It seems I’m not the only one:

Gotta love XKCD… except this particular comic bugs me. A veteran scrabble (tm, c, r, wheres-my-capital-letter get-lost-and-die-under-a-torrent-of-lawyers-scrabulous all-rights-reserved-hasbro) player would never play OSTRICH for a mere 13 points, not even making a second word and destroying the beautiful bingo-potential set of {O, S, T, R, I, L} (or even more potent 5-letter subsets thereof).

A veteran player might play a small word to keep the bingo potential and get rid of the less-valuable C, e.g. COL forming HI & LI for 17 points. A small score, but good strategic play. A less-experienced player may make HISTORIC, using up the mid-right triple for 42 points and still leaving {L,T,S}. Not bad. Heck, even CHI if they liked the prospect of keeping their other 6 letters (but there are plenty of more valuable non-bingo moves, letter turnover is good).

A seasoned strategist would spot the morphological possibilities and may eventually come up with COISTRIL (thanks to a decent medieval vocab) for 63 points. A zoologist might end up with TROCHILS for 64, but that’s possibly a long shot.

However, even a superfluous superficial (although the former typing slip makes it seem more erudite :P) knowledge of Roman History would instantly reveal the prospect of LICTORS in no less than 7 locations on the board ranging from 64 to 71 points. (If you’re struggling to find the 71, yes CH is a valid word).

So CLITORIS is only the 3rd-best possible word (9th move) on sheer points alone. How much one adds for amusement factor is a separate issue

I had 24 lictors in a past life.

DRK

P.S. In case you missed it, all XKCD comics have a final comment shown if you mouseover the image. It’s often a fine display of paraprosdokian.

It’s a while since I posted on this blog, quite possibly because I’m too busy with my new company and reading much better or funnier blogs. Oh well, in the spirit of the Festive Season, I thought I’d share a few gems from the last year of RSS:

• Great post on today’s generation that echoes my sentiments
• If you want to know about VCs’ role in the world
• Semantic Web (possibly Web 3.0) - watch this space
• The evil power of the “default”
• Recommendations vs Ads. Obvious, but they still don’t learn…
• Google as the next Microsoft, from the more-often-right-than-wrong department of Bob Cringely
• When will everybody realise Google only has one good product?
• VCs? Get with the program
• These people will rule small business in the 21st Century
• For the more down-to-earth of you who would prefer a “real job”, Marc’s posts on Career Planning are gold

There, this blog post is now more informative than the sum of all blog posts before it

Sometimes The Internet is just too small. Or too young*. Whatever it is, sometimes it’s a very small world. I’ve often had conversations about the best cartoons I remember from a kid (born 1981 in Australia, to give some perspective to that :P) but rarely bothered to take those conversations online.

The Mysterious Cities of Gold (Cites d’Or) manages a significant cult following online, including
a Facebook group and heaps of other sites:

• 120,000 hits on Google for “Mysterious Cities of Gold” or 1.65M freeform
• 137,000 hits on Google for “Les Mystérieuses Cités d’Or” or 240,000 freeform

You can also find the entire series - in decent quality here, lower quality elsewhere such as YouTube:
http://stage6.divx.com/Children-of-the-Sun/videos/

In short, a great show adequately preserved in Internet History.

Next, however, comes A.E.I.O.U.. This was an absolute classic. It used to air on ABC in the early eighties for a few minutes between shows - which shows I can’t remember, but I recall it airing around 1988. I managed to find the following:
The animation company
A Blog post
Reference to the series
However I can’t quite believe that the Google search results for “Francesco Misseri +aeiou” in English returns only 5 results, of which 3 are the same. Does nobody else remember this show or its stupid catchy theme song - nothing but vowels!

In this case, the Internet is too small: someone should post a video of this series online so that when people think I’m crazy for breaking out into random child-like song comprising nothing but 5 vowels, they will understand.

* Yes, I’m aware I’m referring to events post-Internet and pre-Web, but I’m using the term “Internet” holonymically for “the Web”.

In response to Richard’s post

Companies create objects or services that they hope consumers will desire. They also must create, to truly succeed, a space, mental and physical, for the potential client to form a desire. The easiest way to do this is to understand desire at the conceptual stage of the project and push to match that desire. It’s remarkable how often exigencies distract from this process. In the space of desire, there are still many unfilled holes. The ideal mobile phone for instance. While perfection is asymptotic since desire is never satisfiable (whatever you are presented, desire is always elsewhere) bring on the businesses that shoot for what the consumer wants to buy, not what can merely be sold.

In the PDA world, that used to be Palm. It is no longer. They succumbed to forcing their products on people inherently unsuited to their way of thinking. In order to keep this new group happy, Palm had to change who it was and what it did. Instead of a loyal Apple-like followship (which it had), it now subjects itself to the wider market with an ever-diminishing list of unique features (case in point: recent move to Windows Mobile-based devices); an ever-diminishing ‘core’ market of users and an insufficient marketing* budget to address this expanded, diluted trigger-happy market.

* where marketing is defined holistically as the process of figuring out what your customer wants and delivering it.

As I’m in this space, I think I can say with some personal experience that the reason this happens to companies like Palm is the vast majority of the business world is ill-equipped to deal with the hard, risky decisions that come as part of a startup. Palm hit a natural equilibrium in the market defined by its core market times its average marginal benefit. This roughly equates to its economic surplus or profit. Where you face decreasing marginal returns and relatively unchanging costs of capital, economics tells you to start looking elsehwere for your profits, usually in the form of diversified investments (to eliminate systematic risk). What it doesn’t teach you, at least not directly, and what you have to learn is that some risk is a good thing. For Palm, the risk of being a small player in a larger market would have been a good one to adopt. Apple has been doing that for the last 20 years quite profitably, with a few Amelio-esk exceptions. For the directors and senior managers at Palm, most likely with significant degrees of hidden incompetence, keeping their high-paying jobs and cushy lifestyles and not having to make any particularly hard decisions (the kind that either get you sacked or make you a truckload of money), the road less travelled is the dangerous one. Unfortunately for the company and its shareholders, it’s usually the only long-term viable one.

This problem is a manifestation of the Agency Problem, but it intersections nicely with market economics. Few companies realise let alone strategise for the fact that their shareholders and customers have choice. By being open and resolute about who you are and what you do, you abstract away the individual desires (inherently illogical/unpredictable) of your shareholders and customers and shift the choice back to the market, allowing you to focus on your most profitable intersection: size of customer interested in your core offering x marginal benefit of that core offering to those customers with respect to the competition. A large company should be doing this in parallel over and over again across different industries and products, leveraging a common operational base. A small company should do it just once (then sell and start again elsewhere or use the operating surplus to rinse and repeat). I’ll write more on this some day, but in time it will be shown that this is a far less risky strategy to adopt than attempting to predict where the market will go. The only difference between most product/sales operations and share traders/fund managers is that everyone knows the risks of doing the latter. Fewer than 10% achieve super-market (sorry, couldn’t help myself) returns. What the hell are the rest doing?

Anyway, for companies like Palm, the problem is essentially one of existential choice. The rational economic decision may be to stay the same size (in which case, how are those options going to grow quickly so the executive can get a quick cashout?) or to start up new business (in which case, how is the executive going to get a quick exit when the new venture probably won’t show its mettle until years down the track?). The agency problem can be eliminated but it requires compromise on the capital structure front. It’s inefficient for owners of capital to actively work their capital, and it’s ineffective as the intersection of capital owners with business managers is but a subset of this overall market. Small is the new big. For these reasons and many more, small business is the way of the future. That is, of course, until we figure out some new structure (think project matrix organisational structure mixed with some as-yet-unknown capital structure) that maintains both the flexibility and risk-adopting attitude of successful small businesses.

I predict we will look back in 50 years at our current capital structures and think “What the hell were they doing? That’s just so obviously wrong!” the same way we look back at underpaying workers and miraculously expecting productivity gains. But by then, like now, the game will have changed. Today we have technology and service-based business. Tomorrow we will have access to cheap and plentiful capital, and an increasingly diminishing need for it. This is already changing the game rapidly. A start-up can be done in someone’s spare time on an average salaried income. Sure, maybe only 0.1% of this capital-poor type succeed, but there are millions trying. A startup used to take millions of dollars in hardware and hosting just to be able to handle the load of scaling globally. Now we have services like mosso.com which aim to give you your fair share of that for US$100 per month. Or mediatemple.net for US$20. Sure, these services are in their infancy and have plenty of problems to deal with at the moment, but the point is they’re examples of disruptive technologies that change the nature of the game. Reinvigorate.net is able to compete product-wise with Google Analytics with the addition of $20/mth worth of hosting cost. Sure, their market sizes are orders of magnitude apart, but market size is not what will dictate the profits of the 21st Century.

Watch this space.

Dear all,

By now some of you will have heard my talk about my latest project - A Global Obligation. Well the good news is it’s open for all (Web 2.0-compliant beta mode of course!) Please do your part for humanity and check it out. If you have any feedback or bugs, please let me know. Of course, don’t let that stop you from sharing the word once you’ve donated!

Click the image below to donate!

If you can’t see it, you can access it via this URL instead.

Yes, we’ve got referrals tracking working, so refer all your friends, add a banner to your blog and make the biggest dent in the Universe you can!

This post by Seth Godin sums up nicely what’s wrong with most organisations. It certainly explains my daily frustrations in dealing with many incompetently-managed organisations.

What’s wrong with America is exemplified by this experiment. Maybe it’s my upbringing, but if you did that here in Melbourne, there is no way it would be ignored like that. Reminds me of the Michael Moore ‘Dead guy’ (almost wrote ’skit’) segment on The Awful Truth. Context indeed.

I usually whole-heartedly agree with John Gruber’s posts. This time, I think he’s got a little sloppy towards the end of his argument. Specifically:

People who are already buying from iTunes would continue to. People who refused to buy from iTunes because of DRM might start. And people who bootleg would continue to bootleg. This situation would be better for the music industry, not worse.

Gruber’s argument here doesn’t go far enough, and it makes a big difference to the likelihood of getting the Big 4 to agree to a DRM-free world. Talk profit. Specifically, the net increase in additional users purchasing songs and increased volumes of songs being purchased by existing iTunes (etc.) users as a direct input to the profit function.

“People who are already buying from iTunes would continue to (do so)”. False.
You need to talk in marginal numbers, comprising:

• loss of sales (customers and customer downloads) due to greater ease of piracy
• increased sales due to easier use of legally-downloaded music (as opposed to fear/hatred/dark side of DRM)

I would argue that the iTMS has been the most successful because it is the easiest to use. It’s still a nightmare. Anyone who has dealt with reformatting iPods, moving computers, etc. would attest to the ‘too hard’ nature of such processes for average consumers. Even if you don’t agree on that, there’s at least a significant marginal increase in utility as a result of no DRM. We already have some evidence for a relationship (probably non-linear) between utility and willingness to purchase legal music, on-line or off-line. For many consumers, buying a CD, ripping it and then adding it to their personal audio device of choice is of greater utility than buying something off the iTMS.

There also exists a general insensitivity to price, within a non-free non-inconsequential band. If only 10% (a guess) of people are buying legal music, chances are they’re a less price-sensitive bunch than the entire market. So the chances are they could afford and would willingly pay more. They won’t, due to market forces (price of CDs in comparison, competition in a high-margin industry), but knowing that they would is important. Knowing that your customers are primarily purchasing based on something other than price is the key to unlocking this whole mystery.

allofmp3.com has already shown people are willing to pay for (probably) illegal music (OK, they claim the site is legal in Russia, but I’m sure you could get stung on some kind of parallel importing/failure to pay customs rules, let alone the risk of going through such proceedings) because it’s easy to use. They’re banking on price sensitivity, but they’re really baiting people because of their ease of use, lack of restrictions –> increased utility.

So as thousands have already said, Apple does have an interest in expanding the size of the market, given they have very little room to grow in gobbling up more of the pie. We do also need to consider fixed costs vs marginal costs. Sure, Apple is paying a hefty percentage to the record labels for each song, but there are significant fixed costs as well (e.g. iTMS staff salaries, marketing expenses, R&D amortisation, etc.). Given iTMS is hardly making any money (which is fine for Apple due to its status as an economic complement of iPods), Apple could be looking at it from a MES (minimum efficient scale) operations perspective and looking to drive further profitability from the iTMS. After all, if you own a business, you might as well try for a profit maximising result, even if you don’t have to.

Apple thus far has focussed on two things: becoming the power broker in the online music industry, and establishing the economic link between music sales and availability and iPod sales. Both of these serve as barriers to entry and protection against competition. Apple established the 2nd point long ago, but is only now in a position of sufficient clout that it can dictate terms to the record companies. The music execs have started to realise online sales are the way of the future. Their costs are lower and their profit higher. Their only concern is a flawed assumption that piracy kills the business model. They’ll soon wake up to this too. When they do, Apple is looking to be in a position to accept the supplicant grovelling to their new masters. And it will be a happy day for consumers.