A Blog by Jonathan Low


Nov 24, 2014

Crowdsourcing Comes to the Booming Market for Litigation Finance

Everyone's looking for a better return on their money, which often means investing in places and activities that are unconventional, at least by traditional standards.

Plaintiffs' attorneys have long funded client's cases in situations where the aggrieved didn't have the resources to pay the often hefty fees, but in which, it was perceived, an favorable outcome - and payout - appeared likely.

The latest iteration on this sort of initiative has brought crowd-funding to the fore. After all, why should the big guys have all the fun?

The concern, as the following article explains, is that funding individual cases was usually done by experienced, knowledgeable investors who often knew (or know) the litigants and something about the issues at hand. The question is whether the pressure to deliver returns to a broader category of investors will create pressure to generate more lawsuits in order to keep the funding mechanism functioning. And the obvious targets for such suits would be the 'deep pockets,' the corporations and high net worth individuals who provide tempting targets because of their ability to pay and potential inclination to settle on terms favorable to the litigants.

There is nothing illegal in that, but it may cause a rethinking of the rules - or even a decline in returns as too much money chases too few 'good' cases. But then that's why they call it a market. JL

Paul Barrett reports in Business Week:

Litigation finance inevitably encourages more lawsuits, with deep-pocketed corporations as the targets. And turning litigation into a vehicle for third-party speculation raises questions about conflicts between clients’ interests and those of outside funders looking to maximize returns.

How To Account for Fairy Dust

OK, haha, it's the Monday before Thanksgiving, I've a zillion things to do if I'm going to be able to sneak out of here a little early on Wednesday and what's this nonsense about fairy dust?

Well, actually, it's about money. A lot of money in the macro sense and even a lot of money in the micro.

The micro refers to 'vitual durable goods,' those items essential to video game play that you can buy with real money on that big interweb thingy. Or that your kids do. Like magic wands and extra life candies and virtual cows. The revenues from which are in the billions. And so there are a lot of issues about revenue recognition, depreciation, valuation, currency translation and so forth. The sort of head-scratchers that economists and their accounting friends actually need to think about. Because the world's tax and revenue services certainly are.

It's a very interesting subject if you care about that sort of thing or believe you can make a couple of bucks by arbitraging the market for fairy dust.

But it may be even more interesting as a metaphor for the way value is increasingly created on the web. As the service economy expands and through technological innovation even comes to dominate what used to be thought of as manufacturing, we are faced with the challenge of figuring out how to identify and measure value. For auto makers, aerospace, equipment manufacturers and other purveyors of heavy metal , this may mean that financing and servicing are generating more income than the sale of the item itself.

For the larger question of what it means to provide digital marketing, web site development, internet reputation management and social media strategy, some fundamental questions arise about the nature of value and wealth creation. Military and security services must determine how to protect and defend such accumulations, even when they are primarily bits and bytes. Without Fort Knox or the Federal Reserve caverns filled with gold beneath Wall Street, in whose virtual pipes does such wealth reside or transit and, therefore, who is responsible for what and when do those obligations begin and end?

There are those who think the whole shebang is nothing but fairy dust and that the entire virtual structure will come crashing down any second. But all those acquisitions of startups with twelve employees and a beta test that sell for nine or ten figures appear to be collecting real money in their real bank accounts. Whatever that means these days.

The fact is that our ability to measure and manage the nature of  wealth has not kept up with the economy's ability to generate it. There are concepts and white papers and conferences, but there is no comparable data nor is there a global governing body - or set of bodies - to provide anything other than encouragement. Given the degree to which our economy is dependent on growth of this sort of intangible, ephemeral value, we had better figure this out before it all goes poof! JL

Emily Chasan, Noelle Knox and Tiziana Barghini report in the Wall Street Journal:

Anticipating when players will move on is an essential part of recording revenue where the sale of “virtual durable goods,”  is a major source of income.

Nov 23, 2014

Google Tiptoes Back Into China

Google's refusal to compromise what it said were its principles with regard to internet search in China was, ostensibly, a gesture meant to underscore its devotion to its 'don't be evil' motto - and a failed attempt to convince the world that it was right and the economic powerhouse of 1.whatever billion people was in the wrong.

It was bold, laudatory - and one that the company has probably regretted ever since. Not that it doesn't believe it was correct to defy authority with regard to the sanctity of knowledge, but that that is one humongous shank of a nation likely to drive global commerce for a long time to come so giving it a pass hurts. A lot. And as one who just returned from China a couple of weeks ago, access to any and all Google products (as well as Twitter and Facebook) is forbidden, which is to say, impossible. Unless, presumably, one has the right connections or can claim to do so for research purposes (though even that is being monitored more closely of late).

It is then not surprising to learn that Google is figuring out way to make itself acceptable without totally sacrificing whatever it was it believed it stood for at the time. The Chinese, too, now that they have launched Baidu, AliBaba and several other internet enterprises, sees that there are benefits to giving its web and app developers an outlet for their talents while chipping away at western dominance of those markets.

While this may be bad for Google's soul, it doesnt appear to have damaged the commercial prospects of any of its rivals. We live in a relatively pragmatic and sometimes cynical age: 'ya gotta do what ya gotta do' seems to be the current watchword of our faith. So expect Google and China to effect a rapprochement - and expect to benefit from it. JL

Victor Luckerson reports in Time:

Chinese developers can now sell their apps as exports in Google's app store.

Traction Tricks: Meaningless Metrics and Laughable Logo Lists

Traction is the indicator a startup needs to demonstrate that it is on the road to scale, the prerequisite for monetization, otherwise known as cashing in.

Since differentiating oneself sufficiently to attract attention, let alone moolah, is a significant achievement, it is understandable that entrepreneurs do not want to give the wrong impression and lose whatever funding they have and to which they will inevitably feel compelled to add. Nothing ever goes right, or at least according to plan, more time is almost always needed, which means more money will be required to fund that time.

So there is an entire subculture around creating impressive albeit frequently irrelevant and sometimes false metrics. Not necessarily false in the sense of fraudulent, but false in the sense of meaningless.

The metricidal tradition in tech is rich: those who remember the early days of the dotcom era will recall when 'eyeballs' were all the rage. That being the number of people who spent some time on your site. Then, the amount of time they spent there was thought to be redolent of success until it was established that most people who spent a lot of time in the early days were either on hold with customer service or trying to figure out how to enter their credit card info without it being rejected for the twenty-third time.

Those technical bugs have been largely eliminated but not so the urge to, well, exaggerate one's impact. To which has been added the requisite list of 'client' logos, some of whom merely answered the phone.

The point is not that metrics or clients are irrelevant, but that in a world of information, where most people use the same hardware, software and educational credentials, there is not all that much that is easily falsified. You may not have the numbers - yet - but as the following article explains, if you can justify your processes and assumptions, you may already be ahead of the curve. JL

Jonathan Friedman comments in Venture Beat:

If you have not yet reached product/market fit, instead of trying to cover this up with impressive but meaningless numbers, use this as an opportunity to discuss your future plans for the product roadmap, business model, and financial projections.

The Secret Life of Passwords

Every time there is a security breach at a major corporation, usually one that deals with the credit cards or financial data owned by millions of consumers, there is much stern finger pointing at the information security protocols in question.

'They should have known,' appears to be the common refrain, between Russian mobsters, Chinese cyber spies and Islamic terrorists, the enemy is perennially at the gates, ready to pounce at the merest sign of weakness.

But increasingly, a finger is wagged at the aggrieved public, as well. For the 'weakness' of their password protections, primarily. Why are they not installing two or three password protected security systems, preferably with a dizzying mix of numerals and letters that only a computer could remember.

What this hortatory injunction fails to recognize - or acknowledge - is that convenience rules. We want what we want when we want it and while bowing vaguely in the direction of prudence, we have places to go, people to see and information to capture. Isn't it someone's job to worry about cyber theft?

Which leads to the more interesting question, as the following article explains: how do people choose the passwords they use? Because they're easy to remember and have some sort of emotional resonance that serves as a mental reminder, is the logical answer. But the psychological frameworks and fault lines within which those decisions are made may tell us something about our society - and ourselves. JL

Ian Urbina reports in the New York Times:

‘People take a nonnatural requirement imposed on them, like memorizing a password, and make it a meaningful human experience.’

Algorithmic Arrogance

We have ceded a lot of authority to a belief system. We had better hope that faith is not misplaced.

Curiously, that belief system is based on information. On data, actually. Which is probably what makes it so dangerous, as the following article explains.

That belief is in the infallibility of numbers. Of algorithms to be precise, but however you define it, in a canon based on the superiority of statistical analysis over that of human judgment.

There are many reasons for this evolution, and sobering human experience with its own species should not be entirely discounted for the change. But the fact remains that we have handed so much power to machines and the processes that run them mostly out of fear. Because we are afraid of mistakes and their financial or professional cost, despite the 'let's embrace the lessons of failure' ethos that supposedly prevails in some quarters. Because we are afraid of consequences generally in a technologically driven economy which can quickly turns such knowledge to our disadvantage. And because we are afraid of the complexity that has come to rule our world.

Why we think that algorithms designed by other humans with all their faults and biases will make better decisions than mere humans with the same characteristics is a reflection of our technological myopia. It is, quite possibly, a transitional state which will change as we more fully integrate technology into our lives and learn to dominate it more successfully than we currently do. But until then it would be advisable to remember that numbers and the processes that manipulate them are no more accurate than anything else humans create. JL

Luke Dormehl reports in Wired:

A single human showing explicit bias can only ever affect a finite number of people. An algorithm, on the other hand, has the potential to impact the lives of exponentially more.

How Soon Will Apple Be Worth $1Trillion?

Apple is already the most valuable enterprise in the world. By a fair amount. The data and the trend lines suggest that it could soon have a market value in excess of $1 trillion.

One can argue the various technical requirements from a financial standpoint that it would need to get there, but since it's already worth $670 million and rising this seems more like a strong possibility than a leap of faith.

The real question for Apple and for its shareholders is whether this is a good thing or a sign of incipient decline.

This is not a knock on Apple in any way. By any measure, what was once a niche computer maker has become a technological colossus that bestrides the world. And its success is wholly deserved.

 The concern, rather, is that there comes a point at which you are no longer competing with mere competitors: you are competing with physics, history and the law of big numbers. Those are elusive but powerful opponents because they are not attempting to thwart your progress, they just exist as a set of facts whose existence must simply be acknowledged.

The challenge is that much of Apple's growth has been built on the iPhone, by all accounts an exemplary product. The reality is that the market is finite. At some point you just can't sell anymore of them because the market is saturated. Especially when a significant proportion of the future is dependent on sales in China which has not only competing entities but a national will to dominate that it can use to make life difficult for others as it has so readily demonstrated numerous times, to Apple's discomfort, among others.

Former GE CEO Jack Welch used to say that if you don't like your market share, redefine your market. History, physics and math suggest that the fact of achieving that trillion dollar goal will be difficult since it requires not just re-defining but reimagining markets in order to leap the barriers it currently facing. But it would be foolish to bet against Apple. JL

Paul LaMonica reports in CNN/Money:

It is worth more than $670 billion. Apple has a $260 billion market value lead over key rival Microsoft and is worth $300 billion more than Google .