Tim Oren's Due Diligence

The Roving Eye: Mike Rowe is a Smart Guy, The Real AIG Scandal, Wired Still Funny, An Old Fart Moment

The fever's gone, so today is the day to stop the drugs and see what happens when the overlapping antihistamines, cough remedies and the like wash out of the system. So far a marginal headache and a few sniffles, but the brain cells are mostly firing again.

Also a dirty guy. Spend 20 minutes on this TED talk instead of another Discovery Channel rerun. It's well worth it.

Can you say moral hazard? Most of the AIG bailout money went right out again, to counter-parties to AIG's failed credit default swap trades. All made whole, and the bills passed on to the taxpayers and their future generations. Shouldn't these big banks be taught some lessons about counter-party risk? Instead the ones learning that lesson are the $1 / year guys. The country's in the very best of hands.

Another good source for bank information. This site pulls together TARP as well as conventional bank rating metrics.

Analysis No, Snark Yes.

The passing of the computer lab. One of those things that make you feel old. Who needs a computer lab when everyone already has one? I got into the racket when the 'computer lab' was a building, not a room; there was only one computer. The chokepoint was access to key punches, which is why I learned to fix the most common failures of IBM 026 and 029 punches: He who revived the machine got first use and didn't stand on line. Over time the prestige went from a big card deck, to a mag tape, and then just a listing, because you'd gotten 'interactive' privileges. Then you got to stand on line for a ASR 33 or 'glass TTY'. 'Home computing' meant you'd scored a gig that would give you an old terminal and an acoustic coupler so you could do more work. I like sitting here with a supercomputer on my lap a lot better, but occasionally the boggle factor kicks in.

Bleah, I hate being sick

Here I thought I'd got through the winter unscathed, but yesterday I was running a fever close to 101. Either a nasty cold or a bit of respiratory flu. Yuck. Fever's down and more brain cells are functioning today, but not up to writing anything serious. Here are a few links that I was stashing...

Slacker databases.

The MSM behaving normally.

John Galt at AIG?

First Townhouse, now JournoList. Any correlation with the MSM behavior above is undoubtedly accidental.

The Roving Eye: IBM (heart) Sun, +1 CA, Of Cars and Mortgages, H. O. Petard

Going Blue. The day's big tech news is the potential acquisition of Sun Micro by IBM. I call this one a good move for both parties. Sun has been known to be strategically compromised for years. In spite of their attempts to transition into the open source market, their core hardware and Solaris business has been under attack by commodity architecture - both linux and Wintel. They are being slowly reduced to a low-volume supplier of specialty hardware, which is a fancy way of saying 'dying'. IBM would pick up a customer base, a robust enterprise Unix platform, an entry level database, consolidate dominance over the enterprise Java market, and can work out a hardware convergence strategy in the next generation. Also IBM, unlike Sun, has figured out how make money from open source based services. That lets them do this deal while HP, hopelessly compromised to Microsoft, has to watch it happen.

Hurrah for the State Board of Ed. I don't throw bouquets to the CA state government very often, but credit where it's due: The board of education overruled the San Mateo County and Sequoia school boards to allow a charter school in the county. The One may be backing charters, but word hasn't spread to the local educrats. The Sequoia district, where I have the misfortune to live, has a long history of trying to squash charters and indeed any form of competition or accountability. (And if anyone from that district happens to find their way here, you can note that our household is two reliable NO votes on any funding proposal you put on the ballot, until you accept choice. And we're not the only ones.)

Hazardous ground. Shannon Love has a great post on moral hazards at ChicagoBoyz. She (blush) He comes up a with an analogy that I wouldn't have thought of, making the problems created by Fannie and Freddie a good deal more comprehensible. RTWT.

Read things before you sign them, OK? So Countryside Mortgage pal Chris Dodd, frantically trying to take the bonuses away from AIG execs, turns out to be the one who wrote protections for them into the pork bill. And Obama, now fulminating against the payouts, and his Treasury officials, have known about the payments for months. (HT: Dan Riehl.) So while the Congress scrambles to pass a bill of attainder to confiscate the proceeds, perhaps we should ask whether any of these 'lawyers' holding high office actually read anything, including the Constitution. The only good news, with the Obama adminstration calling the AIG bonus protection the 'Dodd amendment', is that the Senator is about to go under the bus. Update: Heh.

Looking For a Few Good Banks

I'm looking for a new retail bank, for reasons described later, and perhaps a couple of others in which to park some short-medium term CD money. Given the current environment, it makes even more sense than usual to look into the financial stability, management and business practices of a candidate before sending them the cash. Particularly, I'd like to avoid those that have taken TARP bailout funds, and still have the old management whose practices may have made it necessary. Of course, the easiest way to avoid such is to just look for banks that haven't taken the bailout.

Whereupon it develops that while there's a Treasury maintained list of TARP banks (pdf) - which lags reality by a few weeks - there's no easily available list of those that have turned it down, or made a statement of that intent. It's almost as if the MSM doesn't want to tell that story. But a bit of digging around produced this compilation of non-TARP banks, from the Bailout Sleuth blog, which seems to have set up camp on the TARP issue. Advantage - blogosphere! If you think it's worth supporting that effort, send them some link love or put them into your reader.

I've done my retail banking with Wells Fargo for many years. Wells, of course, has taken $25 billion in TARP funds. Now, they can legitimately claim they didn't want the money, and that they and other solvent banks were pressured into the program by Bush's Treasury Secretary Paulson. (The legal basis for that force majeure, if any, would make interesting reading.) Indeed, they are complaining loudly today about just that.

But that's beside the point for someone looking for a good bank to stash some funds. Having taken Bush's shilling, the TARP banks now find themselves political footballs for Obama and the Democrats. From last week's NY Times (BugMeNot):

The list of demands keeps getting longer. Financial institutions that are getting government bailout funds have been told to put off evictions and modify mortgages for distressed homeowners. They must let shareholders vote on executive pay packages. They must slash dividends, cancel employee training and morale-building exercises, and withdraw job offers to foreign citizens. As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds.... One of the biggest concerns of the banks is that the program lets Congress and the administration pile on new conditions at any time.

This has everything to do with political expediency, but nothing at all to do with providing a safe return to depositors, or even less to banks' bond and share holders. These banks are no longer creatures of the market, but of an administration and Congress attempting to suspend reality. The NYT again:

“I honestly believe the people in power pushing this policy see it as a win-win — as something that is good for the banking industry and good for homeowners and others,” said Douglas J. Elliott, a former investment banker who is now an economics fellow at the Brookings Institution. “But there is a slippery slope and there are potentially significant negative consequences.... What gets us in real trouble is when we try to fudge things and pretend that something is in the direct interest of both the government and the financial institutions when it in fact costs the banks money or increases their risk levels.”

Wells and the other big TARP banks were once too big to be let fail. Now they're too big to be let free. Me, I'm looking at good regional and local banks, even credit unions. Small is beautiful.

Requiem for an Industry

On a day when the Seattle paper closed down its presses for good, I may as well link the already justly noted Clay Shirky post that sums up the media and market movements behind the industry's ongoing demise. While there are tactical reasons for the downfall, such as biased reporting and over-leveraged balance sheets in the midst of a credit crunch, we are living through a moment as transformative as the coming of the book, and Shirky takes this head on:

When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won’t break before new systems are in place. They are demanding to be told that ancient social bargains aren’t in peril, that core institutions will be spared, that new methods of spreading information will improve previous practice rather than upending it. They are demanding to be lied to.

There might have once been a chance for the industry to migrate piece-meal to some new business and media model, but the complacency and folly of the newspapers - both management and editorial - let that time go by. While there may be some survivals among those with strong brands and management (WSJ comes to mind), we are largely going to see market transformation by the 'urban renewal method' - waiting to see what goes up on the landscape opened as incumbent structures come crashing down.

What Is It Like to Be a Bot?

(with apologies to Thomas Nagel)

How I'm Not Writing a Book About Bots

Over a year ago, I had been sufficiently inspired by my experiences at DARPA's Grand Challenge to contemplate a book-magnitude project on the topic of the coming growth of robotics. I had gotten to the stage of talking to trusted friends about approaches to the project and topic, and contemplating the necessary 'field work', when I was rudely interrupted by my accident and consigned to bed or home for four months. That didn't interfere with my net access, so I continued the pursuit virtually. But what I learned caused me to drop the project by the time I was back on my feet. I had consigned that effort to the "some things don't work out" category, until a recent dinner with one the aforementioned friends persuaded me that the experience and my conclusions might be worth a blog essay, if not a book.

What I Learned From the Sensor Market

Sensing is a topic that periodically inspires futurists, venture capitalists and would-be inventors. The first order logic is impeccable: Everything is going digital. Computing infrastructure is getting cheaper, more networked and widespread. To become more useful and even more ubiquitous it needs to be aware of its environment beyond the sporadic input from humans. Ipso facto, sensing will become a growth market, worthy of venture capital and lots of trade shows and (virtual) ink.

It's at the second order that things become problematic. When you add the 'what' to sensing the grand logic breaks down. Determining (for instance) temperature, geo-location, dissolved oxygen, or pathogenic presence are all sensing tasks, but the actual technology used to accomplish them has very little in common. There's little similarity beyond eventually producing a byte stream of data. Looked at more closely, sensing as a market begins to break down into a collection of vertical niches with total revenues in the tens of millions to small hundred of millions, with only a fraction available to an upstart. To the extent that larger companies grow in the space, it's often due to sales channels synergy of peddling a portfolio of sensing devices to the makers of automation and control systems. Not really conducive to getting the VC juices flowing.

Periodically comes a potential technological and market shift that can be argued to convert sensing into the scale market that everyone would like it to be. Bioterrorism or other WMD threats could blow a $10m's category up by an order of magnitude. Carbon nanotubes might be a common technology for a wide variety of environmental sensing, finally producing a real platform play. Or sensors will become small, cheap autonomous 'motes', creating the need for a common operating and management system. None of these plays have hit - yet - but hope springs eternal. Meanwhile, sensing remains a collection of niche markets.

But What About Prof. Nagel?

The post title is a play on Thomas Nagel's essay What Is It Like to Be a Bat? (pdf). This is a well-known work in the philosophy of the mind-body problem. Nagel's work suggests that it is impossible to separate mind - specifically consciousness - from its physical embodiment. The reason explored is the inescapable binding of biological mind to the sensorium of the body. Nagel's title example is the echo-location capability of the bat, another sense beyond those available to humans. So while a human intelligence can attempt to reason abstractly about the mental life of a bat, the notion that we can in any sense share the consciousness of the bat is specious. The binding between embodied senses and embodied mind is not breakable.

This point of view of course not a popular one with 'strong AI' advocates whose goal is precisely the separation of some form of mind from a biological container. And indeed the copy of Nagel's essay linked above features a skeptical introduction by AI advocate Daniel Dennett.

Now let's leave the bat and presume a bot. A bot, of course, is "...a machine--made so.", as was said of an early fictional robot. Until and unless we get self-reproducing and evolving bots, they will be constructs. Which begs the question of who will be doing the constructing, and to what end. And brings us back from high philosophy to the reality of markets and technology.

Dull, Dirty and Dangerous

These are the traditional hallmarks of tasks where a bot might be a better solution than a human. Whether it's scouting a battlefield (dangerous), eldercare (boring), or cleaning up contaminated sites (all of the above), 3Ds has been a touchstone for thinking about robot markets. But it has the same flaw as the 'sensors' market framing: When drilled down to specific tasks and applications, the requirements often diverge. And they differ in ways illuminated by both Nagel and sensing.

The physical form of the robot is the most obviously divergent. A simulacrum of human form may be useful when the task involves human interaction, such as entertainment or healthcare, simply due to social expectations. But more often the form is optimized to task performance - robot planes and fish to snoop and spy, small tracked battlefield bots, robot trucks to haul supplies, or plastic shelled geometric shapes skittering across carpets and through gutters. The next generation becomes even smaller and more form-adapted: snakes to crawl through rubble, midget ornithopters to perch and stare.

The second divergence is sensing. A task-optimized robot is going to omit the analogues of human senses that are not useful to the application: The stratospheric spy plane doesn't need smell or touch. They will get 'super' versions of other human senses: The robotruck has 360 degree vision and the spy plane will have a kinesthetic feel for flight that only comes to expert pilots. And they will have senses impossible to the human. Echo, radar, lidar and chemical sensors already form part of the robotic sensorium. The healthcare bot will know from biosensors embedded in the patient's body in a way that no chart-reading doctor can. What we must infer, the bot may experience directly.

No Scale, No Platform

Venture capitalists talk about 'scalable' markets and companies. They are looking for a solution that - once proven - can be quickly reapplied to generate the ferocious growth that makes a venture investment profitable. Technologists talk about platforms - a physical or virtual system that underlies multiple solutions, by forming a standard basis onto which needed features can be added. Both are a way of speaking about 'horizontal' services and components that support multiple markets.

I conclude that bots are inherently 'vertical' - a set of similarly named artifacts that are in fact intensely optimized solutions for specific problems. There is little commonality in their physical embodiment, and little market pressure to accept suboptimal common forms for the sake of scale economies. Likewise sensing elements are already as divergent as the original sensors market, and may become more so as we get better at sensory integration at the software level. The only common element I can find across applications are in fact 'reasoning' capabilities such as Bayesian networks, and there also the skill is not in the basic technology, but in application to the particular task environment.

If I'm right, then robot technology and markets cannot be analyzed as platforms or 'scalable' businesses in the horizontal sense. Each application market must be looked at on its own merits, just as in sensing. The market and technology skills won in one application will be only loosely applicable to the next. Specific form dominates generic function.

And that's why I'm not writing a robotics book. I'm both a VC and a technologist, and it's the horizontal play that keeps me going. Instead I'll be reading domain specific books like this and seeing if my logic holds true.

The Mind of a Bot

Nagel was working forward from first causes, and his logic has been used as a critique of the project to abstract human intelligence that has dominated AI from its inception. (I've long suspected that the Turing test, as the archetypal expression of this trend, has been one of the biggest ratholes in the history of technology.)

The advent of bots will give us another angle on the intelligence problem, looking from the machine backwards. If the consciousnss of a bat is inherently non-human, what can we say about the 'mind' that we might find in a construct that does not share our form and will have only a few senses in common? Whatever intelligence may emerge there, it's not going to be human.

Looking at the physical embodiment of the bot can also be deceptive. When the task allows, the mobile portion of the bot is often networked to remote sensors, and to command and control logic from elsewhere. We can recognize sessile bots, such as modern power distribution systems, that never move but work through networks of sensors and effectors. If we abstract the definition of the robot to a combination of environment sensing and effectors with intervening logic, and translate it to the virtual realm, then it's hard to argue that (for instance) Google is not a bot in-the-large, sensing the patterns of the Web and its readers, and seeking to modify them with search results and ad placements. Which might give new legs to another old science fiction plot.

The Roving Eye: New Media and The War, Buying A Silicon Valley?, Sic transit gloria Wired

The military weighs in. With the Iraq campaign winding down, and Afghanistan ratcheting up again, the Small Wars Journal put out a call for lessons learned on the influence of Intenet media on the Surge in particular, and war fighting in general. You can follow links from the cited post for opinions from serving military, veterans, strategists and others, or grab this PDF to read it all in one place. Fascinating and thoughtful stuff, relevant for anyone with an interest in military affairs, foreign policy or new media. If you follow just one link from this post, read this.

Times are changing. Y Combinator's Paul Graham asks an intriguing question: Can a city outside of Silicon Valley buy its way into the high tech ventures game? That used to be a dumb question, though often ignored by wannabe politicians and Chambers of Commerce, both in the US and elsewhere. The talent and capital pools of the Valley, combined with decades of network formation and institutional memory, gave it a regional advantage nearly impossible to duplicate. Doing so would be a 20 year slog, well beyond the attention span of politicians. Those who tried ended up with empty 'venture incubators' and busted portfolios of local champions crushed when they left their home court.

That could be changing. The Valley isn't what it once was, between the business killing antics of the California government and the outsourcing of most junior 'farm team' technology jobs to elsewhere. Still, the capital lives here, and often startups find it necessary to be local to access it. That's Paul's line of attack, that there needs to be funding for the whole life cycle available in any wannabe locale. And not controlled by politicians, but by investors who've earned their stripes as entrepreneurs or angels. He suggests how to piggyback the Valley's network of angels as talent scouts.

He could be onto something, though there's one thing he's not saying: The future of the early stage specialist investor looks dim. With two severe downturns within one decade, not having funds to follow a company through its whole life-cycle is a recipe for being crammed down and washed out, an additional burden to the IRR forecast on top of the normal vicissitudes of early stage venture. That is a second indicator that non-Valley venues should have funds for the whole life cycle. That would also indicate that any locales wanting to try Paul's idea will focus on software and services, whose falling capital requirements have made them increasingly difficult to fit into the Valley model.

Just another MSM rag. Once upon a day, it was worth dealing with the eye-bashing layouts and colors of Wired for the nuggets of pithy observation and cogent analysis buried in there. It's been quite a while though, and as it morphed into yet another fashion magazine, I dropped my sub and stopped following it. Now it's apparently fallen to the level of the common media - if you can't find enough stories, make something up. Chris Anderson, call your office.