Marc Andreessen: why Bitcoin matters

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What technology am I talking about? Personal computers in 1975, the Internet in 1993, and — I believe — Bitcoin in 2014.

This may not be the best essay on Bitcoin, but it is definitely the best essay that I have read. Because I respect Marc Andreessen I pay attention when he decides to write publicly. And when I see that Andreessen Horowitz has invested nearly $50 million in Bitcoin-related startups, that gets my completely focused attention.

Media coverage typically talks about much the value of a Bitcoin has risen (or fallen). Or how Bitcoin is a vehicle for buying drugs and guns. I think you will better understand the significance of Bitcoin by thinking of a fraud-free VISA payments system with nearly zero fees and no minimum transaction. That creates possibilities. Once the infrastructure is in place Bitcoin will enable many possibilities that are way beyond a no-fee VISA. Here’s just one of Marc’s many cases: Remittances. The hard-working people who picked your strawberries are sending cross-border remittances to their family. A big chunk of the funds sent (order of magnitude 10%) is lost to bank-fees and funds-transfer agents. A Bitcoin-based payment system will drop that 10% fee to nearly nothing. That will have a huge impact on the workers’ welfare.

Andreessen summarizes why Silicon Valley is “all lathered up”:

The practical consequence of solving this problem is that Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.

What kinds of digital property might be transferred in this way? Think about digital signatures, digital contracts, digital keys (to physical locks, or to online lockers), digital ownership of physical assets such as cars and houses, digital stocks and bonds … and digital money.

All these are exchanged through a distributed network of trust that does not require or rely upon a central intermediary like a bank or broker. And all in a way where only the owner of an asset can send it, only the intended recipient can receive it, the asset can only exist in one place at a time, and everyone can validate transactions and ownership of all assets anytime they want.
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Bitcoin is an Internet-wide distributed ledger. You buy into the ledger by purchasing one of a fixed number of slots, either with cash or by selling a product and service for Bitcoin. You sell out of the ledger by trading your Bitcoin to someone else who wants to buy into the ledger. Anyone in the world can buy into or sell out of the ledger any time they want — with no approval needed, and with no or very low fees. The Bitcoin “coins” themselves are simply slots in the ledger — analogous in some ways to seats on a stock exchange, except much more broadly applicable to real world transactions.

The Bitcoin ledger is a new kind of payment system. Anyone in the world can pay anyone else in the world any amount of value of Bitcoin by simply transferring ownership of the corresponding slot in the ledger. Put value in, transfer it, the recipient gets value out, no authorization required, and in many cases, no fees.

That last part is enormously important. Bitcoin is the first Internet-wide payment system where transactions either happen with no fees or very low fees (down to fractions of pennies). Existing payment systems charge fees of around 2 percent to three percent — and that’s in the developed world. In lots of other places, there either are no modern payment systems or the rates are significantly higher. We’ll come back to that.

Bitcoin is a digital bearer instrument. It is a way to exchange money or assets between parties with no preexisting trust: a string of numbers is sent over email or text message in the simplest case. The sender doesn’t need to know or trust the receiver or vice versa. Related, there are no chargebacks — this is the part that is literally like cash — if you have the money or the asset, you can pay with it; if you don’t, you can’t. This is brand new. This has never existed in digital form before.

Bitcoin is a digital currency, whose value is based directly on two things: use of the payment system today — volume and velocity of payments running through the ledger — and speculation on future use of the payment system. This is one part that is confusing people. It’s not as much that the Bitcoin currency has some arbitrary value and then people are trading with it; it’s more that people can trade with Bitcoin (anywhere, everywhere, with no fraud and no or very low fees) and as a result it has value.

If you give your attention to Marc’s essay for 30 minutes I think you will understand why his firm is actively seeking Bitcoin-related opportunities. Oh, I hear that Amazon will launch a Bitcoin payment window soon. Just kidding, but think about how skinny Amazon’s margins are – and the impact on profits when the 2 to 3% credit card fee goes to 0.01% for purchases by Bitcoin customers. Think about the network effects when Amazon starts accepting Bitcoin.

 

Uber is a Dating Service

It is very interesting how people with different frameworks react to events. An example is the media storm related to SF startup Uber.com and dynamic pricing. For the second year now Uber has utilized dynamic pricing for peak demand periods such as Halloween and New Years Eve. Perhaps the media will continue to make January the “dump on Uber” month; or maybe they will go back to easy fillers like “Ten best of 2013″.  Uber seems to be like the political-horse-race meme, journalists can generate column inches without even getting out of their chair. They just need a Twitter account. 

Back to frameworks. I will offer only two examples to illustrate:

  1. computer science, economics
  2. journalists

#1 When I read about Uber inside my framework #1, I see Uber as a dating service that leverages machine learning. They earn a fee only when they match-mate successfully, and better than competitors. They earn more fees if their algorithms allow them to better position their drivers where the demand will be (micro demand prediction) They don’t “own” either side of these matches. In particular, it’s the drivers that are really setting the price and agreeing to the pricing scheme. Uber is providing the platform to enable the transaction. So given my framework, what I see is:

  • Charges of “greed” and “gouging” don’t make sense – if the Uber service doesn’t attract drivers to Halloween or New Years Eve then there is no match. No ride for me, no fee for Uber.
  • If Uber is going to be the winner in this match-making competition, then their secret sauce is going to have to make both buyer and seller prefer Uber to the other ride matching services. Profiles of the “daters” are absolutely essential. Yet journos complain that “the driver rated the passenger”. 

#2 On hearing somebody paid 7x the typical fare on to get home in a December snowstorm? Obviously that is the Uber corporation taking advantage of the helpless passenger. The alternative of the stranded passenger in the snow doesn’t come to mind. On hearing a story that Uber didn’t tell the passenger what the fare would be until they get a big Visa bill they think “Of course, that’s what that greedy corporation would do”. The alternative that the passenger didn’t pay attention to all the Uber price notices and warnings isn’t considered.

I was first aware of the Uber dynamic pricing trials in 2012 from Joshua Gans’ post Uber and the delicate business of creating a platform. Reacting to the first media storm, Joshua summarized Uber’s challenge

Basically, to satisfy one side of its market — the taxi drivers — Uber upset the other side — its customers.

At the time I thought Uber would experiment until they found the right balance to satisfy both “daters”. So far it appears that this techno-optimist called it wrong. I’ve investigated as best I can the bill-of-accusations against Uber. None of it holds up. I’ve examined their FAQ, their user guide, and a number of Travis Kalanick’s blog posts on dynamic pricing. I’m impressed — objectively Uber has worked very hard to avoid surprising a customer with a high fare. How can a client complain “Uber didn’t tell me what the ride would cost” when, from NZ (!), I was able to obtain a London Uber quote in about 60 seconds on my iPad on a slow internet connection. Starting with finding where on the Uber site to get my quote, then choosing London as my city, then typing in my route from Mayfair to Canary Wharf. 

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Further down the quote screen is the exact fare basis, which is the same time and/or distance fare basis as for most taxis, including Uber London competitor HAILO. In October Hailo’s minimum fare has gone up to £10 between 6am to 10pm Monday to Sunday; and £15 between 10pm to 6am.

And the famous London Black Taxis. I said same fare basis, not the same coefficients. 

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If you read through the Uber Happy New Year bulletin published Dec 30, the day before NYE, you’ll see how totally clear the Uber UI on what you will pay — you can’t just press I ACCEPT HIGHER FARE under the Huge Type multiplier, you also have to key in the multiplier (7 in my example above). And the depth of the coaching (“pro tips” to avoid paying high fares). Travis begins with this:

New Year’s Eve is upon us and we want to give you some quick pro tips for getting around with Uber! This New Year’s Eve we’ll have a record number of cars on the road ready to get you where you want to go. But, that doesn’t change one simple fact: on NYE, everyone wants to move around the city at exactly the same time!

You can avoid the peaks of surge pricing with good timing when you travel. Check out our smart tips below, and don’t forget you’ll always know the price before you request.

So here’s my question: what can Uber do differently than the above, or this (from a Travis Kalanick Dec 16 email reply to “outraged client”):

We regularly do surge pricing when demand outstrips supply. Remember, we do not own cars nor do we employ drivers. Higher prices are required in order to get cars on the road and keep them on the road during the busiest times. This maximizes the number of trips and minimizes the number of people stranded. The drivers have other options as well. In short, without Surge Pricing, there would be no car available at all.

Now granted, that the prices are significantly higher. BUT we notify every customer in big bold images in text, which each customer has to confirm in order to request. Furthermore, every customer also had to type in what the multiplier was in order to double confirm that they understood what they were agreeing to.

So, was it expensive. It was, and we wish it wasn’t necessary. But if you did indeed take the rides described then you confirmed the price which was very up front, and then entered the multiple you read into a text box in order to double confirm.

Airlines and Hotels are more expensive during busy times. Uber is as well. We don’t just charge to make a buck though, we take a small fee of the transaction, but the vast majority goes to the driver so that we can maximize the number of drivers on the road. The point is in order to provide you with a reliable ride, prices need to go up.

If you have other ideas for how to provide a reliable ride during busy times, I am all ears. In the end, Uber is reliable, always, and we will create a system that maximizes the number of people that can get safe and reliable rides. Not surging is saying you shouldn’t have the option. Not surging is saying we should be just like a taxi and be unreliable when people need us most. These are outcomes that take choices away from the consumer and make it harder to get around cities – these are outcomes that we put a lot of hard work in to avoid so that at least you have the choice if you want one.

Uber is recruiting a Policy Economist!

We’re looking for a Policy Economist to tease smart answers to hard questions out of big data

Über iPhone app

Uber is a fascinating enterprise. I think they are going to change cities globally. Not just reform the sclerotic taxi monopoly. Here is an example

Urban transportation has looked the same for a long time – a really long time – thanks in large part to regulatory regimes that don’t encourage innovation. We think it’s time for change. We’re a tech company sure, and we’re working in the transportation space, but at the end of the day we’re disrupting very old business models. Our Public Policy team prefers winning by being right over some of the darker lobbying arts, and so we’re looking for a Policy Economist to tease smart answers to hard questions out of big data. How do the old transportation business models impact driver income? What effect if any is Uber having on the housing market or drunk driving or public transit? To what extent are the different policy regimes in New York City and Taipei responsible for different transportation outcomes? Just a few of the questions we want you to dig on.

Read their placement ad for the full description of the opportunity. And note the Perks:

  • Travel like a European diplomat: employees are showered with Uber credits 
  • Ground floor opportunity at a fast growing company that is changing the face of transportation worldwide 
  • As an early member of our business operations team, you’ll shape the business direction of the company 
  • We’re not just another social web app: we’re moving real assets and real people around their cities 
  • We have access to an amazing list of advisors and investors that we actively engage

If I were a young economist that would look like a big chance.

Amazon PrimeAir: “The last quarter mile”

NewImage Michael B Sullivansees the implementation of Amazon PrimeAir much the way I do, as the last part of integrated logistics:

Taking as the basis for conversation a world in which both drones and driverless vehicles are technically possible and easy-to-use (I don’t think either are right around the corner), then I think you use both for your delivery.

Forget last-mile delivery, this is more about “last 15ish miles” and “last quarter mile.” You send your driverless big old truck out with hundreds of packages. It has with it a small fleet (maybe 5-10) of drones that handle the last quarter mile of the delivery. Your truck trundles along on big streets that can accommodate it; the drones blitz out with packages and back over short distances, charging up from the big batteries of the truck on a rotation. This allows you to deliver far heavier packages (the drones don’t need a battery capable of delivering X kg over 15km, they need a battery capable of delivering X kg over 0.5km), at overall lower cost (the majority of your trip is via low-energy rolling along roads, not high-energy helicoptering), but with the same convenience of the actual delivery (no giant truck moving along narrow residential streets, no need for some kind of klutzy mechanical linkage between a robotic vehicle and your drop-box at your house). It’s probably less legitimately awful in terms of aviation control, too.

Uber Might Be More Valuable Than Facebook Someday. Here’s Why

Über iPhone app

This is pure speculation – but it is an exciting spec. Not all of this will happen, but possibly other big opportunities will emerge. This is just a sample:

So, step one: Take over taxi industry. Step two: Kill ownership. From there, who knows what could happen in the long term? Uber could start using self-driving cars made by Google (one of its investors) to eliminate the need for human drivers, driving down its costs even more. It could introduce a near-instantaneous delivery service to rival Amazon’s drones. It could roll out a subscription service, akin to Amazon Prime, that would include perks like predictive transportation, so that, for example, when Uber sees an appointment on your Google calendar for a cross-town meeting, it sends a car to your office automatically at the right time. There’s no reason that other companies couldn’t try to do these things, too. But Uber has first-mover advantage, and it’s got most of the kinks – customer interface, payment, fleet management, supply-and-demand considerations – worked out already, making it a prime candidate to beat competitors to new product areas.

The result of Uber’s efforts, in other words, could be the creation of a techno-metropolis, in which people and goods are ferreted around seamlessly and, perhaps, automatically. It would be like something out of a sci-fi movie. And Uber would be standing at the center of it all, collecting a cut of every transaction.

 

The economics of cheap drone delivery

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Tyler Cowen

Let’s say 30-minute drone delivery to your home were legal, well-run, and, for purposes of argument, free or done at very low cost. You would buy smaller size packages and keep smaller libraries at home and in your office. Bookshelf space would be freed up, you would cook more with freshly ground spices, the physical world would stand a better chance of competing with the rapid-delivery virtual world, and Amazon Kindles would decline in value. Given that the storage costs for goods would fall (more storage by specialists, accompanied by later delivery), expected inflation would more likely be converted into price hikes today. The liquidity premium of money (NB: not currency) would rise and the liquidity premium of goods would fall. Some drug markets would be taken off the streets and the importance of gang “turf” would fall.

Addendum: What do we know about network economies in drone delivery systems? FedEx and UPS and USPS, taken together, dominate the market for physical delivery of parcels to homes. How much room would there be in the market for “lone drone” operators?

 Amazon is developing Amazon PrimeAir .

Power Searching and Advanced Power Searching with Google

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There are two Google courses on Power Searching and Advanced Power Searching. The course is an efficient, very high return on your attention investment. You are guaranteed to learn methods and “tricks” that will make you a better student or researcher.

Here are a few examples:

The deadly curse on King Tutankhamen’s tomb

Mimicking presidential voices [From Kee Malesky, of National Public Radio]

Searching your own web history

The course is in both video and text-transcript form – to suit your preferred learning modality.

Android fragmentation

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The latest Android, iOS data from OpenSignal makes my head hurt. There is much more analysis in the report – but these two figures capture some of the pain that Android developers suffer. The graphic below shows the variety of screen sizes/resolutions that full Android support requires.

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The bottom line is that Android devices are pushed by carriers – who have NO incentive to keep their customers up to date on the latest OS version.