The internet is composed of traffic ecosystems. Destination platforms with indefinite retention ultimately control those ecosystems.

Zynga had an explosive IPO in 2011. It hasn’t made money and has lost most of its shareholder value. Zynga built itself largely based on Facebook’s ecosystem. When Facebook apps were new, if you had an app Facebook graciously spammed all of your user’s friends for free. What was hundreds of millions of dollars worth of paid exposure was handed out for like pretzels at a dive bar. At the same time, some of the engagement Zynga created with Farmville players fed Facebook’s own user retention: people wanted to log back in to harvest some more grain. Soon enough there were many others who could provide the same. Facebook cashed in.

There are numerous companies which are deeply dependent on free traffic from behemoth platforms. Indeed, acquired by Recruit Holdings, built its’ position largely thanks to Google’s free traffic gravy train and inability to index legacy applicant-tracking system Taleo (recently purchased by Oracle, with copious quantities of irony.) Currently about 50% of Indeed’s users arrive from Google. How much of that free traffic supports their operations is unknown. What is certain is that a loss of that free traffic would have a further reaching impact than just losing half of visitors by: funding the competitor(s) who replace them and the share of direct visitors who originally discovered Indeed on Google who will go somewhere else instead.

Retailmenot IPO’d last year. About 90% of their users arrive by typing in trademark terms on Google. After receiving those visitors for free, Retailmenot sells them back to the trademark owners in exchange for affiliate commissions or other advertising. Retailmenot may find placing large banners in shopping malls does not deliver anywhere near this many visitors. Sadly the only area with a positive ROI may be the shakiest. Warren Buffet would perhaps see it more as an on ramp than a moat.

Mobile game developers are in a similar camp. While the winners spend vast sums of money on pay-per-install player acquisition they also benefit from free exposure on both the Google Play Store & Apple App Store. Just as Google has reduced organic exposure on its search pages, do not be surprised if in the future top visibility requires top dollars to Google & Apple.

Local and national newspapers around the world get much of their traffic for free from places such as Google News & Facebook. Rest assured that when someone does figure out a magical model to profit from journalism (Buzzfeed theft & amateur content hacks excluded) that a good chunk of those profits will be handed over in a competitive bid based marketplace for user’s visits.

What makes a good internet investment? A place users are going to return to on their own for a very long time. If not, poke deeper and the business model probably relies on continuously acquiring users from the place that they do return to. Unlike physical real estate you can’t simply purchase a building on a landmark street and know people will walk past day after day for the indefinite future barring a nuclear detonation. Digital real estate is fluid and handed out by someone else.

Google’s success with Android, barring the emergence of successful forking in the West, means they will dominate for another tech cycle. Facebook + Oculus could present some interesting alternatives. Amazon, Valve, and Microsoft remain wildcards.

My suggestion for anyone who wants to development the next big platform, focus on authenticated security with provable privacy. Today everyone flops hard, from free Android games which steal all of your personal info to Chinese quadcopters with “bugs” which could fly themselves straight in to police helicopters. The NSA is hardly a bother to anyone beyond intimidated Senators. When consumers are doing DNA printing & launching swarm robots they damn well will want to know they are in control.

Processed food has some big problems. Everyone likes to isolate particular things: fat, sugar, salt. Rarely have I heard a concise explanation of why it is bad. Never have I read a good business explanation of why processed food flourishes in a market environment. Diabetes and obesity related diseases are already out of control. As a larger percentage of the global population moves to cities this will only become worse.

Why is processed food bad?

There are two pieces to this. One is based on hard nutritional science, the other is less definite but likely. It is important to separate the two as to not fall in to the chasm of psuedo-science which dominates much of popular food culture.

Processed food requires one, two, or three of the following ingredients to remain palatable: fat, processed sugar, or salt. Excess salt causes high blood pressure, processed sugar as ultra-refined carbohydrate will contribute to instant weight gain (this is why you have a sugar high and then a hard crash, your body rapidly stores the calories as fat rather than burning them off slowly from something unprocessed such as a steak.) The added fat is more controversial. What we know for certain is that if your arteries are inflamed, fat will accumulate as plaques, harden, and cause lasting damage and eventually heart disease. Together the three are the perfect recipe for gaining weight and getting sick (sodium through water retention.)

The three are mixed and matched. The dirty secret is “Low Fat” = even higher salt or sugar. The converse may be true with “Low Sodium.” We don’t see much “Low Sugar” because of artificial sweeteners like aspartame. If you take something, such as that bag of potato chips, and remove the salt and added fat its going to taste like crap. Its that simple. One would be very challenged to produce a processed food product lacking these ingredients. There is an added effect which I will cover below in the business of processed food.

The second part is less known: its about what processed food contains and what it doesn’t. Processed foods have all kinds of added chemicals which are safe for human consumption in small amounts. Some have to do with flavor, others are there so that your candy part sticks together, your beer doesn’t become too frothy, and so on. Those weird chemicals, ironically, are there so you don’t say “gross!” when you look at packaged food.

But here is the kicker: unprocessed foods contain a lot of things we don’t know quite as much about. Nutrients, anti-nutrients, oxidants, anti-oxidants. What a head of cabbage, mushroom, or raw salmon are made out of is totally different than a potato chip or hamburger bun. To date there is minimal evidence you can just take a bunch of pills with these known and unknown ingredients in them. Certainly, a refined pill will not replicate the process that occurs in digesting whole, unprocessed food and the benefits to gut bacteria.

Why we keep buying it (and how to cash in)

A (semi) capitalist marketplace creates a large number of incentives for some things while also adding disincentive others. Some are totally uncontrolled facts of reality, others can be adjusted through marketing (tricking woman in to smoking cigarettes by piggybacking on the suffrage movement.) When a businessman is able to correctly balance the uncontrollable while influencing the controllables they get rich.

Here are a few facts:

  • Humans desire consistency.
  • Unprocessed food spoils quickly and is inconsistent (soggy broccoli.)
  • Humans use brands to identify what they like and what they hate.
  • The law helps make simple logos become worth billions of dollars, because the government enforces their protection.
  • Corn, wheat, soybeans are available in massive volume cheaply and can be split apart and put back together again as something completely different (Coca-Cola.)
  • In order to be consistent food must be processed (that includes your orange juice.)
  • Fat, salt, and sugar must be added to processed food to make it taste good.
  • High glycemic index food products (processed carbohydrates) cause blood sugar spikes & are addicting.
  • Food addiction means is largely what influences processed food sales volume.
  • The greater the sales volume the more money can be spent on advertising to recruit new customers.
  • All of the major food companies in the world operate almost entirely in this framework. Diverging even a small amount can remove scalability and ultimately profits. Coca-Cola, Pepsi-cola, Starbucks, Kraft, Nabisco, Frito-Lay, and others have all created and dispersed vast fortunes exploiting these incredibly damaging weaknesses.

    There are alternatives, and we can see them a little in big cities. However, they are expensive and mostly only benefit the wealthy.

    A little practical advice

    It is possible to break from processed food, assuming a few things. I have successfully helped friends by having them follow in steps:

    First, remove all drinks containing calories

    Liquid calories alone can take a person from normal to overweight. At the very least you should drop about 10 pounds. Secondly, this is going to help alter your taste buds reaction to sweet foods. I suggest drinking water, a light green tea, and black coffee. Keep note of your dairy and consequently calcium consumption. This is the primary problem with cutting milk consumption (not ok for developing children.)

    This first step is a stopping point for a large portion of people due to alcohol consumption. Sorry, your body has to make a profound shift and slamming it with high glycemic carbohydrates = you will not pass go.

    Increase your consumption of unprocessed protein

    You can sit on a sofa all day eating chips and candy. This is impossible with steak. Carbs tell your body “eat more” while protein says “stop!” When observing the diets of morbidly obese people protein calories make up a tiny percentage. Fish tops out the list as healthy (watch mercury intake), followed up by lean cuts of turkey, chicken, pork, grass fed beef, and veal. Eggs are great too.

    Imagine a dieting approach that tells you to eat something rather than restrict consumption? Let your body do it for you. (On a very serious note the correlation between pain killer prescriptions and US state obesity rates makes me suspect there can be signal interference with various narcotics.)

    Increase consumption of bitter foods

    Do it slowly. Drink more bitter green tea. Increase consumption of lettuce and broccoli. If you are also drinking a soda a day this won’t work. Your taste buds will make big changes. Soon you will notice fruits like bananas taste great while adding sugar to coffee is repulsive.

    Purge all processed food from the house

    An absolutely critical step. If you don’t do this, you will fail.

    Focus on quality

    For long term success you must be obsessed with food quality. You must have access to large volumes of high quality fresh produce because this is what you will be eating. Find the nearest farmer’s market. Figure out how to buy food multiple times a week instead of once. Work on cooking yourself. With a tiny amount of work you can match much of what you would be served at a one Michelin star restaurant. I suggest “The Four Hour Chef” for starters.


    Android & iOS

    The mobile operating system wars have left two dominant players: Android & iOS. Windows Mobile, Blackberry, Firefox OS, and a few others are fighting over different slivers that remain.

    Just a few years ago there was talk of another dominant platform: Facebook. The plans were grand, Facebook would act as a platform not just for social identity but for the web. All kinds of things were possible. Then Facebook started changing enough things around to annoy the hell out of developers (Oculus developers, take note.) At the same time, suddenly mobile apps could access all of a users contact information. The Facebook platform’s giant competitive advantage vanished overnight.

    Something similar is happening in the operating system world.

    Cross Platform with One Click

    Take a look at gaming. If you want to develop a new video game you can use a system such as Unity 3D. When complete, you can export the game to: Windows 8, Windows Mobile, Linux, OS X, iOS, Android, Blackberry, WiiU, Playstation, Xbox 360, and the Unity web player which runs in Firefox, Chrome, IE, and Safari. Unreal Engine, the thing that powers huge video game hits such as Gears of War, can build games for Windows, OS X, iOS, Android, Playstation2/3, and XBox One/360.

    In the past week Amazon dropped the fireTV. Though it looks like a monolith up against Google’s Chromecast, it marks the platform battle heating up for the television set.

    I see this from a different perspective. The platform doesn’t quite matter. In order to build a successful Software-as-a-Service you need to be available everywhere. As an entertainment company, if you only allow users from a specific data provider or on a specific piece of hardware view your content, you are napping in front of a giant bulldozer.

    Post OS Platform War Has Begun

    Some are speculating that the platforms which will really matter are the storage spaces, such as Dropbox (recently valued at over $10 billion.)

    Microsoft released Office for free for iOS, you just have to pay $9.99 a month for Office 365 to do anything meaningful. On closer inspection it may just be a clever trick to get everyone to store their files in Microsoft’s cloud, OneDrive.

    And Already Ended

    A new paradigm has begun: Software must communicate with other software.

    In a past era of skepticism I believed Google’s acquisition of Urchin and consequently free release of Google Analytics marked the end for web site statistics software. I was wrong. Today numerous alternatives exist. Mixpanel and KISSmetrics stand out as two dominant players and that is only the tip of the iceberg. Other companies such as KeenIO provide even great quantities of raw data for analysis. Chartbeat lets news sites accelerate the efficiency of their pageview journalism. It turns out one size does not fit all.

    Customers demand data portability — but to become better software must support data portability. That means the systems that erect high walls in their gardens will experience growth retardation while more open competitors flourish. By specializing developers can produce software that is really fucking good at whatever it is trying to do.

    Want to perform statistical analysis on your data set? You could code in some fancy formulas in to Excel, cross your fingers that not mistakes were made. You could open the data in Tableau (which supports every DB format big and small you can imagine, kudos to them, sucks for Excel), tweak some formulas and charts around, and get your answer after 30 minutes or so. Or, you could drop everything into Statwing. Statistical analysis, complete with charts and detailed math produced in under 60 seconds.

    Which tool would you rather use? The one that was built to do exactly what you were trying to do.

    This is of no great insight on my part. Take a look at the best examples of web software today. All support integrations. This enables tools such as Slack to provide a centralized point for teams to communicate with each other.

    Slack was released publicly less than a year ago and has support for over 40 integrations. That means you can assign a task in Asana buy typing a command in a chat room, and be notified the same way. Github commits, Bitbucket commits, Dropbox files, Stripe, Zendesk, and more all supported. Of course your company has its own specialized tools. Integrated them with Slack’s API or a webhook. Isn’t it nice not to have 55 browser tabs open anymore?

    Geckoboard provides custom dashboards which allow you to monitor all of your critical metrics in one place. Over 100 and counting. Since they each do something well, show your Mixpanel and Google Analytics charts on a single screen, in a visibly cohesive format.

    Mutually Assured Destruction

    Why would you use Microsoft’s OneDrive over Dropbox? What would happen if Mixpanel decided to ban data from exiting their system? What if Slack stopped allowing data to be imported from Github and announced you had to use their version control?


    W3Schools Browser Stats doesn’t match what I see on my sites. Just like Alexa’s original stats massively over-rated webmaster friendly web sites and message boards because every other webmaster had Alexa’s toolbar installed, W3Schools skews to webmasters and developers as well.

    Just how bad are W3Schools stats skewed? While they report 4% mobile usage for February 2014, we see more in the range of 50% on our web sites; a trajectory of 60-70% by the end of 2014 is likely. I will leave the skew for the other numbers up to your imagination.

    A more important question is — at what point should I stop supporting a web browser?

    My answer is simple: Stop supporting a browser when that browser can no longer securely browse the web. A small portion of users still browse while using badly out of date browser and operating systems.

    Assume these users are infected by a botnet, broadcasting spam, and probably sniffing out URLs the infected visits. Giving the impact of time, do your own research on which browsers are no longer safe.

    There is a curious collision of forces occurring today. The two most man made powerful forces are crushing against each other: the deflationary power of technology and the inflationary power of fiat money.

    The abstract is this:

    Elected government officials perform best when they do things that require borrowing money. The end of the gold standard and the proliferation of democracy globally means governments will indefinitely support inflationary policies as it makes paying off debt possible.

    Technology is hyper-deflationary. Devices become more numerous, more powerful, cheaper, at an accelerating rate. The average smartphone would be worth millions of dollars (decades ago) and have access to information rivaling every living human. Consequently, old devices are now worthless. Because of this, the end-game for technology is free.

    What this means, I suspect, is that the inflationary forces will drive some asset prices up while technology drives the value of human labor down. I believe technology will win.


    How we got here

    A tweet I saw a few days ago:

    And here is a little chart I whipped together in Tableau of the price per barrel of domestic crude oil:



    Not being a commodities trader, this is hard to explain. A book I read last year shortly before the most-infamous man to ever be pardoned died: “The King of Oil: The Secret Lives of Marc Rich“, had a pretty good answer. Except from pages 57-58 of his biography:

    In August 1971 President Richard Nixon abandoned the gold standard, whereupon the dollar immediately lost 20 to 40 percent of its value against most other currencies. As the global oil trade was based on dollars, this meant that the oil-producing nations were earning even less “real” income in terms of purchasing power. In effect, these countries had to spend more of the devalued dollars they had exchanged for oil to purchase goods on the international markets. Several important oil-producing countries now began nationalizing their domestic oil industries. The North African nation of Algeria was the first to do so, in 1971, and it was soon followed by neighboring Libya. The floodgates were opened when Iraq, one of the world’s largest producers, nationalized the concessions belonging to British Petroleum, Royal Dutch Shell, the French Compagnie Française des Pétroles, Mobil, and Standard Oil of New Jersey (now Exxon) on June 1, 1972. Six months later OPEC pushed through a plan of gradual nationalization of all Western concessions in Kuwait, Qatar, Abu Dhabi, and Saudi Arabia, and in spring 1973 the Persian shah nationalized all of Iran’s oil assets.

    This post is not about gold. It isn’t about what should or shouldn’t be done. It is simply an explanation of the forces that exist whether you like them or not. No one follows the gold standard anymore and its quite unlikely they ever will again.

    The Federal Reserve and other central banks around the globe practice inflation targeting. By controlling interest rates central banks choose whether borrowers or lenders (savers) are subsidized. Its a simplistic yes/no, up/down, 0/1 way of managing. Whether inflation rates are being targeting or employment, they lower or raise rates until the economy appears to be doing what they want it to do. Alternatively they just change how they measure inflation or employment.

    Unfortunately even a modest 2% inflation rate looks something like this:

    © Mike Shedlock, see URL for more
    © Mike Shedlock, see URL for more


    Deflationary, and Accelerating Technology

    In case you haven’t been following the progress of technology, here are some excellent charts from one of my favorite books “The Singularity Is Near.” The Google guys liked it enough that they made the author Director of Engineering.

    © Ray Kurzweil
    © Ray Kurzweil

    Moore’s law roughly applies to prices of other aspects of technology:

    © Ray Kurzweil
    © Ray Kurzweil

    In some segments we see development pause or make little visible progress, and then suddenly jump forward by leaps and bounds. Virtual reality headset technology stood nearly at a standstill for two decades until the adventus of the Oculus Rift. By utilizing the massive advancements in display technology brought about by mobile phones, we went from clunky out of date headsets costing 5 figures to a super light weight nearly consumer headset costing about $300 overnight.


    Why the economy isn’t working

    The Western World has largely benefited from a vast middle class who had a living standard comparable to the most wealthy.

    In the United States the difference between wealthy and the middle class is square footage and number of your homes. It is not dirt floor vs marble or glass windows vs no windows. While visiting NYC one of my offshore developers commented, your homeless don’t look homeless.

    Government policy, both federal and local, appears oblivious to deflation. Outside of government, all of finance and all investing advice is based on price inflation. Investment bankers get rich off of borrowing your money at a subsidized rate (thanks federal reserve) and then buying assets before you have the money or need for them. Rather than seeing a solution as prices being too expensive, the solution is seen as prices are too cheap — even when you can’t afford them today!

    There is an attempt to force inflation not just through low interest rates but also through laws. Rather than lowering the minimum wage, the federal government is trying to raise it. We will see a lot more of these attempts before we see fewer. While a profitable private technology company can ignore interest rates, government regulations can derail trains before they leave the station. Setting fixed prices forces economic activity outside of the law and cripples legitimate businesses.


    Why tech gets so rich

    Technology companies are worth an enormous amount of money right now. Without pointing fingers, some of these companies may be validly priced, with widening moats, double digit profit margins, and double digit growth. Others laughably lose money and are nothing more than turds painted in faux gold.

    If you own a technology company you are simultaneously benefiting from asset price inflation and technology deflation. Each year you are better, faster, and stronger. Meanwhile interest rates are extremely low allowing you to finance growth almost for free.


    A cheap, waste minimal, future

    Some things are so cheap to provide at a mass scale that they can be nearly free. Education is interesting because right now prices are completely insane:

    © Mother Jones
    © Mother Jones

    This is curious, since top tier colleges have endowments so large they just let students attend free. Meanwhile there are a massive number of high quality learning options online that cost nothing: Codecademy for programming, Duolingo for foreign languages, MIT OpenCourseWare, Coursera, Khan Academy, and many more. This is if you can’t teach yourself from the infinite books, message boards, and blogs online.

    Free can come through benevolence and community support, such as Wikipedia, or it can come indirectly such as with Duolingo (crowd translating.) If technology followed old inflationary prices and companies paid more for less none of this would exist.

    There is something else special that is occurring. Thanks to mobile, user bases are really fucking big now. You have a million users? No one has heard of you. Tens of millions or hundreds of millions of users are required now for relevance. That also means instead of charging customers $100 a month, you can charge them $9. In the case of WhatsApp it was actually 8.25 cents per month.

    Information behaves differently than commodities. Commodity output will not double every two years. However, through the smart use of technology we can dramatically reduce waste both in production and consumption. Through better engineering we can construct buildings that we don’t simply knock back down.

    There are a lot of really bad ideas out there. Focus on keeping your business running and eventually the power of those bad ideas will wane and then vanish.

    Uber has problems, but the ones in the press are baloney. Here is why.

    Uber is dangerous because its a phone app

    No one should be using their phone while driving. Because Uber is an app, drivers look at it while driving around. Recently an Uber driver killed a kid in SF.

    Taxi drivers and cab commissions across the US are claiming Uber is dangerous yet cab drivers continue to use their mobile phones and wear earphones while driving — all illegal and dangerous.

    Whats the difference between Uber and bad cab drivers? When your cab driver kills someone he gets to go back to work. A recent investigation by the New York Post found that New York cab drivers found that of 16 fatal and serious crashes since 2009, only two drivers lost their licenses.

    Unlike cab commissions, Uber bans drivers for just sucking, much less mowing down children. The driver who hit the kid was immediately removed.


    Uber discriminates against the poor

    A lawsuit in my home city of Chicago by local cab drivers alleges that Uber discriminates against the poor because they can’t afford a smart phone.

    Smart phones are not expensive. You just need an Android phone, which could cost as little as $40, assuming you don’t pick one up used for even less.

    Except you do not need a smartphone to use Uber! You can use Uber by SMS, in which case a $5 reconditioned phone from Tracfone along with a $7 a month plan.

    That is about what a single use cab ride costs.

    Poor people don’t use cabs to go a few blocks (the only time a cab is cheap.) They walk. When they want to go far they take the train. When do poor people use cabs in the city? When they are sick and need to go to the doctor, old and have limited mobility, or physically handicapped and have no mobility.

    The cab systems screws sick poor people. If these guys actually cared they wouldn’t be continually pushing for rate fare increases.

    How & Why

    Cities impose artificial limits on the number of vehicles that can operate in cabs. That is part of the reason why every cab driver in New York City who actually owns their medallion is a millionaire (actually the real award for that one goes to US interest rates.)

    In the pre-digital age the cab system made sense. You don’t want criminals picking people up (although New York City doesn’t mind vehicular manslaughter.) You don’t want excessive numbers of vehicles on the road increasing traffic congestion and pollution.

    Now we can use smart phones to do the reverse. Traffic can be reduced through innovate ride sharing programs such as UberX. You can make money while driving yourself to and from the airport. There won’t be a need for ride share lanes when everyone is sharing.

    Instead of leaving driver quality enforcement up to arbitrary panels and commissions private corporations can deal with it. Crash once and your done. Let dangerous drivers stay in your system and face expensive lawsuits in civil court.

    End Certain For Cab Drivers, and the Cities Which Protect Them

    The age of cars is coming to an end. They produce a lot of air pollution. Too many of them makes roads painful to use and cities difficult to get around in. Cars may have even been responsible for most city crime thanks to the past use of lead gasoline.

    Vehicle automation won’t be a choice. The federal government controls the highways, the National Highway Traffic Safety Administration imposes safety standards on vehicles. Assuming freely driven cars are still allowed, insurance companies will price coverage accordingly — which won’t be cheap when your in the category responsible for almost all vehicle caused deaths.

    Drunk driving deaths will no longer occur. Pedestrians won’t be mowed down crossing the street. Bad weather won’t cause pileups thanks to multiple device sensors and auto adjusted speeds. When deaths drop vehicles will become lighter. They will use less energy to run.

    Uber, Lyft, Google, Tesla, or some other company will provide on demand vehicle service so it will just be there when you need it.

    In the future, there just is no place for cab drivers or Uber drivers.

    (Or bus drivers, or truck drivers, or farmers driving tractors, but that is another story)

    Some cities will reject Uber and related services. For now, they can get away with it. Eventually the gap will be really obvious, like trying to book a hotel using a pay phone verse Samsung’s newest Galaxy phone.

    Overall, the poor could be a lot better off.

    NYC Taxi Medallions “..a city auction of 200 new medallions for wheelchair-accessible taxis fetched record prices of up to $1.3 million each.”


    US Stock Market DOW 16,000+

    US Housing Real Estate Las Vegas up over 21% 2013 YTD. Epicenter of the last real estate bubble (in terms of overbuilding housing on worthless land)

    US IPOs

    “Money is so cheap today, people can splurge on $1,000 faucets.”

    Technology costs money. Hardware infrastructure and human labor takes capital. Most companies build stuff with borrowed money. Technology is accelerating. Businesses which are not able to keep up end up with dated, legacy infrastructure. In order to move forward too much ends up in the trash — sometimes stuff that is still being paid for.

    Digital Ocean is rampaging EC2 & Rackspace.

    iOS castrated Blackberry.

    Android is rampaging iOS.

    Tablets killed Netbooks.

    If you can’t internally innovate, sometimes you can buy your away above water. (Hint: you need to buy innovators, not the dinosaurs, Microsoft.)

    Most industries haven’t even gotten this far. But, even after an industry is eaten by software there are still opportunities. Big bureaucracies can’t innovate no matter how innovative they were when they got big.

    If you sell an advertiser a 300×250 rich media ad, how much space are they allowed to take on your website?

    Is it appropriate for the ad to blow up to 800×512 pixels? What if the user clicks on it? What if the user mouses over it?

    In this case, the ad did the latter:

    Chrome Ad

    Chrome Ad's Inline pop