A Blog by Jonathan Low


Dec 19, 2014

Upping the Ecommerce Ante: Amazon Launches One Hour Delivery

Delivery, a tactile, tangible, all-too friction-filled legacy service has become a tense battleground for tech companies and their retail allies.

Google and eBay had already entered the fray but Amazon, applying its advantage in physical infrastructure to support and implement its strategy has now announced one hour delivery. It's $7.99 for that service, but free for customers willing to wait for two hours.

This may sound like a childish attempt at one-upsmanship, but the organizational and operational sophistication required - on top of the technological systems to make it possible - are time and resource intensive. This would be hard to execute even if you had all of the necessary pieces in place - and were efficient enough to make them work in sync.

Amazon may be solidifying a lead - but it is also sending a message to its competitors that if they hope to remain in this arena, they had better be prepared to invest and build as Amazon has. JL

Davey Alba reports in Wired:

The service lets you order from a range of more than 25,000 “daily essentials” and have them delivered to your door within an hour for a $7.99 fee. And if you’re OK with a two-hour window, the company waives this delivery fee.

How Tech Companies Will Continue to Make Their Tax Obligations Disappear

"I'm shocked, shocked..." said Claude Rains' character Captain Renault to Humphrey Bogart's nightclub owner  Rick Blaine when forced by his superiors to 'discover' illegal gambling at Blaine's bar in the movie Casablanca. That was, of course, just before Renault was handed his winnings from earlier in the evening.

European politicians this year have similarly found themselves in the uncomfortable position of having to 'expose' private tax deals offered to tech companies in return for ostensible job and revenue-creating investments in their countries.

The problem, as the following article explains, is that officials in those countries were usually complicit in designing and offering those advantages to the tech behemoths.

It may well be that some of the impetus for the openly hostile legislative proposals circulating in Europe subsequently may well have had their genesis in the uncovering of these deals and their forced cancellation.

But not to worry, at least if you are a tech executive. It appears that some of the 'fixes' that 'closed loopholes' may well have opened some other avenues of escape for those looking to right size their tax obligations.

The larger issue is that the loss of revenue for these nations may mean reduction in expenditure for education, infrastructure and other economic policies which ultimately speed those products to market and produce consumers who can afford them. JL

David Johnston reports in Newsweek:

To anyone with even a modicum of knowledge about the world of international taxation, the E U’s recent discovery of tax avoidance in its midst is—there is no better word—farcical. Certain countries have adopted national policies of luring investments, and therefore jobs, by handing out tax benefits.

Owning Is the New Sharing

Airbnb has announced that it will begin to pay taxes in Amsterdam and, presumably, will follow suit globally soon enough.

Uber has acknowledged the need to take more responsibility for screening its drivers, even as it remains reluctant to  adhere to many local sensibilities - and regulations.

The reality is that the sharing economy has been a dream to some but has turned into a nightmare for others. Not because it is 'wrong' or 'bad' as some have charged, but because the economics of their success turn, too often, on their ability to skirt rules, regulations and taxes that have a double cost: they undermine the society they serve while putting enterprises and people out of work who were, actually, hewing to those standards. Oh, and paying taxes.

There may well be a strong argument for these sorts of services at a considerable discount. But sharing means taking ownership of the risks and costs that operating within any society entail, not just grabbing the opportunities it offers. JL

Nathan Schneider comments in Shareable:

VC-backed sharing economy companies like Airbnb and Uber have caused trouble for legacy industries, but gone is the illusion that they are doing it with actual sharing. Their main contribution to society has been facilitating new kinds of transactions — for a fee.

As Robots Get Smarter, Workers Struggle and Drop Out

In most cultures there were some traditional certainties about work and generational change. In the US, there was the belief that each new generation would be better off economically than its predecessor. In other, perhaps less affluent or optimistic regions, there was the presumption that children would do at least as well as their parents.

Clinging to these 'eternal verities' is increasingly difficult.

Globalization and the elimination of the post World War II status quo is partly responsible for this. Entire continents like Asia are now competing in ways not even imaginable two generations ago. But it is no longer possible to dismiss those concerned about the impact of technology as mere Luddites.

From computerized robots conducting surgical procedures to devices that disassemble and recycle concrete structures far more efficiently and profitably than men with sledge hammers, machines are being substituted for people.

While there are some benefits in terms of time, effort and accuracy, the cost of purchasing, directing and maintaining them is not always substantially less than paying a human to do the same task. But when tax benefits supporting the investment in technology are thrown into the mix, the machines win.

One of the problems with the analysis is that it does not fully take into account the actual cost of current unemployment, nor does it incorporate the opportunity cost of the long term impacts from displacement and underinvestment in human capital.

The answer, as the following article explains, is not in eliminating technology or even slowing its introduction, but in recognizing the investment required to offset its impact on the entire society affected. JL

Claire Miller reports in the New York Times:

Economists long argued that, just as buggy-makers gave way to car factories, technology would create as many jobs as it destroyed. Although fears that technology will displace jobs are as old as the Luddites, there are signs that this time may really be different.

Dec 18, 2014

Mobile Phones' Growing Costs Begin to Impact Consumers - and Telecoms

Most mobile devices are not gold-plated and jewelry-encrusted, but the contracts that come with them are starting to feel that way to users.

And the result is that telecom providers' market value is starting to slide as investors wonder if the companies in question will be able to charge sufficient amounts to cover the revenues and profits that the capital markets have come to expect.

The problem became noticeable several years ago when telecoms gleefully revealed that newer and more powerful smartphones were causing users' bills to take off exponentially. For a time, people were so besotted that they sacrificed other needs to cover their telecom bills. But the growth was unsustainable - as the telecoms and those who funded them should have known.

Given that typical household incomes are largely stagnant but demand for newer and greater services is growing, there is increasing pressure on the providers to offer discounts to maintain market share. Meanwhile, Apple, Samsung and the other manufacturers are designing ever more powerful devices in order to stay ahead of their lower cost competitors in Asia.

As if all of that weren't worrisome enough, at some point, consumers' 'right' to phone service will attract politicians' attention, making cost recovery even more challenging. The result is that the untrammeled growth expected for the industry may begin to moderate - and for some time. JL

Thomas Gryta reports in the Wall Street Journal:

Something has shifted in a sector that could once be counted on for steady growth. The concern is that carriers will have to pay heavily to handle the soaring data traffic from their customers’ smartphones even as their ability to command premium prices for that traffic is eroding.

No Movie Theaters, No Video on Demand. No Reputation? The Implications of Sony's Cancellation of 'The Interview'

A $44 million budget for a film these days is not considered 'major.' Sony's stock price would not have taken a hit if the movie bombed at the box office.

The real concern was the liability if it caused a literal bomb.

Not only would the cost of any damage or casualties be worrisome - but the impact on audiences heading to see other movies over the holidays might give theater owners, mall owners and Sony's competitors grounds to sue. Absolutely no one is mollified by the bland assurances offered by an utterly unconvincing cavalcade of government officials.

The larger issue is that Sony's putative leaders have demonstrated technological cluelessness well beyond that limited to the mere cyber security of their information.

It is, sadly, a commentary on the arrogance of Sony's Hollywood executives - a subsidiary of a global technology company, no less - that they thought there would be no blowback if they greenlighted a film about assassinating an actual world leader. After all, he was from some humorless, backwards 'Hermit Kingdom' where fermented cabbage is considered a delicacy. What could possibly go wrong in the face of the global humiliation Sony would visit on them?

So who's laughing now? The US cyber defenses have been shown to be, shall we say, a work in progress. The Obama Adminstration adds to its reputation for foreign policy ineptitude. Those involved are too frightened even to release the film in VOD (video on demand) format, handing every crank in the world a moral victory. The principle of free speech and standing up to terrorism has been rendered meaningless by corporate and national leaders too unsure of their own ability to respond - and too focused on the implications for their own futures, leaving one to wonder why this possibility did not occur to them beforehand. Sony's role in this probably puts executives' jobs at risk and quite possibly, the corporation in play.

One can imagine Vladimir Putin, Xi Jinping and Kim Jong-un texting each other high-five emoticons.

In the service of US national pride and corporate financial salvation, here's a modest idea for a movie script that might help Sony recoup it's losses: a small backward nation, facing a bullying super-power, enlists its talented if unsung and underfunded tech geniuses to turn the tables on its rich, arrogant antagonist...JL

Bryan Alexander, Andrea Mandell and Elizabeth Weise report in USAToday:

The overarching worry from theater owners wasn't "that people would stay away from The Interview, it was that they would stay away from The Hobbit and all the other movies opening on Christmas Day."

Too Much of Anything...Has Wall Street Become a Drain on the Economy?

Research typically contributes $5 to the economy for every $1 a worker in that field earns. In finance,  60 cents is subtracted from the economy for a similar effort.

Finance is not inherently evil as some would charge. Nor is it "doing God's work" as the CEO of Goldman Sachs once famously averred.

But it may well be far too large for the good of the the US and the global economy. The nature of that scale is debatable, but as the following article explains, it may be as much as $300 billion a year.

The problem is that the industry has become so big that the basic laws of economics no longer apply. It has doubled in size over the past 50 years in terms of its percentage of GDP, but it is no more efficient at its basic task: allocating capital efficiently. Instead of new infusions of investment and technological prowess enhancing competition and reducing prices as in, say, mobile phones, the reverse has happened. The result is that finance may actually be slowing economic growth in the US as it hoovers up ever greater resources, capital and human, thus starving economic sectors that might well be more productive.

This is, of course, what oligopolies do. Fundamental laws of biology - as well as finance - suggest that preservation of the species is a primary motivation for much of that evident behavior. Finance is a key service in an increasingly service-driven economy, but if its interests have begun to diverge too far from those of the culture it ostensibly serves, what then? The question for the society which the economy both nourishes and serves is at what point - and to what degree - it must feel compelled to intervene to preserve its own, larger prerogatives. JL

Jim Tankersley reports in the Washington Post:

The financial sector has grown so large that it (is) slowing economic growth. The financial industry has doubled in size in the past 50 years, but it hasn’t gotten any better at its core job: getting money from investors to companies that will use it.