discourse and notes «

We start small and work our way outward. At the core there is the value unit, which isn’t the bit but what its batches stand for. We may call this information, but it includes a great deal besides. In the sense of media there is content. In finance and commerce there is data. There is knowledge more broadly, related to knowledge work, in science, education, law, and so on; in all services. Increasingly information (via bits) is integrated with production of goods. The list goes on, and its categories tend to overlap. So for simplicity we may generally call the items information, and regard this core as the value unit.

This is a depleting asset when left alone, because it has life only as information is relevant. Data, news, behavior changes, are information that might only be momentary. Some information has much longer shelf-life, especially if we include arts and entertainment. But even then it’s a matter of degree, perhaps even in the sciences. Supply and demand factor in and complicate calculations, but when dealing with information we’re dealing with perpetual supply, almost by definition, and some knowledge is more quickly set aside than another. For purposes of this discussion though, we should limit ourselves to information that’s shared in bits (in the age of mechanical reproduction). A depleting asset.

This value unit, however, is processed through systems. These serve to renew, replenish, refresh, the life and thus the value of information, more or less effectively as different information lends itself to such processing more or less readily. Information systems, in the technical sense of bits and bit flows, have largely tended to be deflationary in nature. Moore’s Law, open-source, web distribution, shared storage, and other such efficiency features of digital technology contribute to a lowering of barriers and business costs, and to a set of consumer expectations predicated on “free” or, at the very least, lower prices over time.

In this environment of a depleting value unit processed through deflationary systems, platforms exist to create enterprise value. They do so in a variety of ways that includes technology upkeep and improvement, feature integration, economies of scale, security, network effect, brand presence, and related staples of the digital media and information technology segments – which are increasingly converging with counterparts in finance, commerce, education, healthcare, hardware, and others. The link, once again, is information and its qualities and flows. It is the common language, in a sense, and enterprise value created through it very much depends on its fluency and economics.

Enterprise value consists of two basic ingredients: a core business asset and its optionality. The former is the foundation, the actuality, and the latter is its future possibilities, many of which unknown. The value of a platform is determined not only by the success with which it currently operates, but by its ability to do so with equal or greater success ahead. For an enterprise to grow into and justify its option value, in the context of the information environment described, it must continuously fine-tune its platform and reload its systems. In the financial sense, this equates to long-term life (perpetuity), and an ongoing stream of willing buyers for its product (even as it may be reinvented), and for itself.

The balance between the core asset and the optionality varies with different types of platforms and different stages in the enterprise cycle. At one extreme, the pure startup, the value proposition is likely all option based. At the other extreme, say, the mature utility, the option value will be very low. In between these two ends is where most financial activity takes place, and structures are determined by the blend of optionality on the upside and asset coverage on the downside. In an information-based environment – characterized by economic drivers and market profiles as touched upon in this overview – financing structure and business valuation take on special features that reflect it.

… Or at least, they should. And the nuances of venture capital, later-stage lower-risk equity, debt funding in its many manifestations, the differences between liquid and illiquid positions, strategic versus purely financial investment, and the timing of investment exits, all should be understood in the depicted context of bits, value units, systems, and platforms… even as financial asset classes themselves converge and take on characteristics of the underlying sectors they target and support. We start small, and work our way outward.

If there were a company that hoarded cash while borrowing money at almost no cost, that launched new products to offer more features for the same or a lesser price (and these products made more and more “free stuff” possible), all things being equal, one would say this company was showing many characteristics we’d associate with a deflationary system. When we further observe that some customers might skip new product versions knowing that another, before too long, will be economically more attractive, we would conclude that these customers are behaving in a way characteristic of deflationary psychology. That’s one example.

This article isn’t about a company or a customer segment. This article is about economic signals and patterns, recognizing, or at least suspecting, that economics is not even really a science, let alone an imperfect one, and that its “laws” are merely markers in an ocean. Matters of yes and no are rare in this field, where almost all matters are about more or less, and sometimes about finding pieces of vague puzzles that may or may not fit its always changing picture. This, at least, is what I have observed, and I have no doubt only observed some things.

The other day I observed an interesting debate (free of charge online) between two prominent venture investors. One argued that technology innovation has slowed to a crawl while the other argued the contrary. When asked for hard evidence to support their otherwise anecdotal positions, the latter pointed to the surge in advanced technical and scientific degrees at universities, while the former pointed to falling market valuations of technology companies in the aggregate (after stripping out a handful of the very dominant players). Both acknowledged the flaws in their measurement systems, but what else is new, this is economics, and a proxy for science is better than no science at all.

Now, it’s quite conceivable that both of them are right. Maybe it’s possible for innovation to increase and its financial value to simultaneously fall, in the aggregate, if one presupposes a deflationary rather than inflationary environment. Coming out of an extended era of Edison and Ford and IBM and Apple and Microsoft and Google, we tend to equate technical innovation with economic wealth creation, but what if the data presented by the opposing sides in the referenced debate in fact leads to a different set of circumstances and new context?

When entrepreneurial theorists advise founders to raise cash when they can get it, that is consciously or unconsciously deflationary advice: All things equal, in a deflationary economy cash is more valuable than equity. When entrepreneurs sell their businesses in so-called “acquihires,” or otherwise plan for early exits at a theoretical fraction of what these businesses may have been worth if they had stuck it out for a few more years, these are consciously or unconsciously deflationary decisions. When we note that it’s cheaper than ever to launch a technology business, for a variety of well-known reasons, that’s a deflationary observation.

These subjects are all much more nuanced than presented and very complex. The perspective highlighted is one angle among many, and like any angle in the economic realm it is relative rather than absolute. Nevertheless, it’s an angle worthy of consideration and may in its small part explain broader economic experience of late – for instance, that general inflation rates have been as low as these have been, despite enormous liquidity infused by central banks worldwide.

In the previous article here, the possibility was broached about a new economic investigation and new analytic method to reflect a changing economic landscape in which information and knowledge are new drivers of capital formation. Should such a new science emerge, it will undoubtedly be as fickle as its predecessors, but like its predecessors it will serve its purpose of demarkation and guideline until it, too, like its predecessors, runs its course and is succeeded.

Not to be simple and all, but maybe things are actually simple. Oftentimes, I think, experts lose sight. On one hand defined by complex and narrow expertise, on the other hand motivated to preserve its value, a specialist in a certain knowledge realm might not see the terrain around the subject and the clarity of pictures from afar. Like a Chuck Close portrait in the distance, the image is bright and sharp and like photography, but as one steps up to the canvas one starts to see the multitude of colors and shapes that make up every single point. While these points are necessary to the whole, spending time with points rather than wholes is limiting. If taken to excess, dangerous. In an increasingly knowledge-based economy, there is that risk.

In the term knowledge one can infer many things, and for the present case let’s include all and any. Technologists will instantly think of data and its assorted flows and designs, and there is that. But there is also education and medicine and law and finance and other services, there is news and reporting and research, there are the many branches of science, there is even entertainment, with its own special knowledge. A cab driver’s knowledge is critical to the cab driver’s job, as is a chef’s, as is an engineer’s. The type and complexity of knowledge may vary, and the skill of the knowledge worker, but ownership of knowledge is a common link to all of the areas listed.

In a knowledge-based economy, which is increasingly the case and profile, the value unit, increasingly, is information. It is important to understand this and to understand its implications. Not to suggest that information was ever not valuable, it always has been, but in an economy dominated by knowledge-work, information becomes the medium of exchange and, in ways, the very currency.

The terms currency and exchange are being thrown around here in the context of knowledge and information purposefully. Because the former are economic terms that are the root of economic science, while the latter are increasingly the drivers of economies. I’ve noticed lately a growing divide between economic schools of thought, which I think reflects an underlying confusion and inability to explain economic events with precision, or to make economic forecasts with any real confidence. Perhaps this is due to an inordinate focus on individual points rather than the whole.

Not to be cynical, or what’s worse, simple, but the whole may be much clearer than its points, as is often the case. Peter Drucker predicted a Post-Capitalist Society, in which knowledge-work is the dominant driver, and it seems he was right. As far as I can tell, however, economists have been slow to adapt to this new reality. I have not seen a post-capitalist economics, a science to explain and formulate the production, distribution, and consumption of goods and services in the context of knowledge and information as core value units. In short, I wonder if the experts are studying the canvas from too close, and missing the picture.

Stepping back – and I am no expert – I would think characteristics such as inflation and deflation are quite particular in the case of information. I’d even think that the more fundamental concept of supply and demand comes with a special set of quirks when knowledge is the subject. Monetary policy, based as it is on currency as the store of value, may be understood differently, or more comprehensively, were currency and value reassessed in this new context. Fiscal policy, used as it is to supplement and direct business and social activity, might refocus on new and maybe more relevant targets.

In a knowledge-based economy, the study of economics is no longer a detached framework of observation but is itself a subject. Just as economists might study widget-manufacturing from an angle that widget-manufacturers may be too close to see, so also economics now may benefit from an outside and more removed perspective. The image may be bright and sharp and like photography as one steps further away from the single point.

In other news, economics remains misunderstood. Of this there are perpetual reminders. As central bankers think through the side effects of monetary medicine (they had themselves) prescribed (in the heaviest possible dosage), other theorists are honing in on a spreadsheet error. Apparently, policy decisions were predicated on a miscalculation, or a formula based on misplaced inputs, or some other circular mess, don’t ask, I don’t think anyone really knows, and wait till they get their hands on the poor intern. “But sir, you said…” “Never mind what I said! I say lots of things!” In this our world of macroeconomics.

With this fairly comprehensive summary by way of backdrop, the Bitcoin “bubble” is a never-ending source of fascination. To call it a bubble is erroneous, in the purest sense, because that would imply a market price far past some fundamental worth. That latter thing, however, does not technically exist. Thus, “a bubble in relation to what?” is not an easy question to answer. There are plenty of theories, some more grabbing than others (even if essentially meaningless). What the Bitcoin phenomenon has served to accomplish, however, is to draw attention to questions about value and perception, the role of central planning, the role of the market, the interrelation between information and capital, the meaning of currency and the nature of its flows, and the complexity of this whole web of partial facts and incomplete ideas that ultimately shapes an economy.

One wonders if the Bitcoin surge, collapse, and partial rebound, and the series of unanswered questions that have come out of the attention all of this has garnered, have taken some toll on other markets also. Gold, for instance, that strong silent type and medium of exchange which heretofore could be relied upon for old-school concreteness and material substance, has behaved in unspeakable ways lately, that miners and chemists would find shocking. Maybe less so economists: Like philosophers, it takes a lot to make them blush, having by this time seen all sorts, explained all kinds, and built great models.

All messing aside, these thoughts about substance versus theory and science versus economics bring to mind some of Peter Drucker’s ideas about a post-capitalist era in which knowledge is the store of value and knowledge-work the basis of new professions. In modern parlance, we can think of knowledge as data, analytics, information, content, and we can think of associated professions in finance, engineering, education, healthcare, law, and other service functions built on the understanding of particular knowledge realms. The results of such knowledge and knowledge-work are, in modern parlance, applications.

Applications are not necessarily actions, but also tools, and in some cases directions. We tend these days to think of applications as apps, by force of habit and cultural inclination, which is a limited and narrow sense of something much broader and more complicated. By the same token, a great deal of complexity has lately been reduced to apps, and I think there is a tendency sometimes and in some professions to reduce some things to formula and menu-based selection. While there are efficiency advantages in this approach, we have seen that models can be flawed and relying on these can be dangerous. We also now suspect that math alone isn’t enough to base a currency upon. And knowledge, we sometimes find, is not where we expected to find it.

This post is both business and pleasure, as almost always: Youth is wasted on the young, and patterns can be hard to recognize up close. Bear with me, it might make sense in the end.

Bob Dylan played at my alma mater last weekend, decades too late. Back in the day, I would have sold my whole LP collection, not inconsiderable, to see him there. Eh, what can you do; as another alum liked to say, “so it goes.” So it goes. But I was there in spirit! Very deeply so, floating in my faded jeans and loose black jacket, in homage to the Last Waltz style. So cool, almost aloof. Perhaps somebody saw me, I wouldn’t be surprised.

Removed nevertheless, (though not necessarily detached), I have my own perspective of the show, based on a lifetime following the subject. To begin with, one must understand that the band currently playing has been together on a nearly perpetual tour since 1988. Because of the professional bond that develops to make such never-ending tour dates possible, the setlists from one show to the next have tended to get shuffled and changed up on (Dylan’s) whim. It keeps the music and musicians fresh. But during this present leg - almost entirely at college venues – the setlist is uniquely rigid, every show the same.

Is this important? In my opinion, yes, and in two ways:

Firstly, that the band was booked to play to college crowds on the kids’ home-turf tells us that Dylan is reaching out to a new generation. Secondly, that the setlist is preselected and locked in suggests that the content has been carefully thought through and chosen for a reason – not only the songs but also the order in which these are played. It amounts to the performance of a playlist, which is different from a setlist – a subtle distinction, but one that a generation raised on the iPod should understand.

So if the artist has put a bit of thought into this, let’s humor the man and try to understand what he is saying to the kids. From where I sit, no longer one of them and admittedly removed, I see a pattern. First off, I note the dearth of go-to “standards” in the mix; no Rolling Stone, no Memphis Blues, no Blowing in the Wind and Tambourine Man and all that. Instead, a selection that most of the audience would not have heard in their family den or in the award-show inductions.

The lines within the song selection stir up nostalgia, resignation, irony, and related such themes and whims as an old man who has lived to tell the tale is likely to share with kids who would listen. The show begins with “I used to care, but things have changed” (“don’t get up, gentlemen, I’m only passing through”), runs its course through “This kind of love, I’m so sick of it,” “You can’t open up your mind, boys, to every conceivable point of view” (“rough out there, high water everywhere”), a burlesque detour to those badass early Roman kings (“sluggers and muggers wearing fancy gold rings”), then back to the regretful Tangled Up In Blue (“we’ll meet again someday on the avenue”) and melancholic “beyond here lies nothing but the mountains of the past.”

But the climax, the statement, arrives as it should towards the end, nearly there, before the encore’s finale. (From Thunder on the Mountain: ) “Been thinking about Alicia Keys, couldn’t keep from crying, when she was born in Hell’s Kitchen I was living down the line, I’m wondering where in the world Alicia Keys could be,” setting up the punchline by thematic extension in the next tune, Scarlet Town: ”All things are beautiful in their time…”

All things are beautiful in their time… Remembering that Dylan is singing all of this to the young ones, the new generation, one really has to pause right here in order to sigh…

The ballad of Mr. Jones (I assume, the encore) closes the show on a familiar note, sending the students back to libraries and study halls to “read all of F. Scott Fitzgerald’s books,” as they should.

The thing about pattern recognition is that it can be rather subjective, and we often project ourselves into the patterns we think we recognize. By the same token, there are patterns that can only really be seen through subjectivity. Machine learning, predictive analytics, natural language processing, and all such algorithmic fare have their limits. Digital technology is binary, and by definition bound by two whole numbers. These sharp numeric tools do not pick up on the patterns we occasionally notice, because formula is void of character. It’s the analog interpretations, even when flawed, that shape our choices and definitions.

I wonder, as Bob Dylan looked into the crowd of lit-up iPhones what patterns he thought he recognized. A quantitative set of filters will not quite calculate the answer, and the targeted message sent wirelessly our way will be misplaced. In my next installment here, I’ll get back to regularly scheduled programming. I’m thinking, something about the meaning of innovation and knowing when to exit.

Until then, here is the playlist.

The scenario goes something like this. A company is several years old, and has been a reasonable success in the consumer web. This is to say, its app is used with greater or lesser regularity. The company has a presence, in other words, and gathers data that now needs to be monetized. In short, its presence has not yet been turned into a business, but perhaps it can be. This company is at a crossroads, not unusual for a free consumer web where users have gotten used to free product. But business is still business and costs must be covered.

In this scenario we see a company with value, possibly quite large, that cannot be fully understood. There is value in its utility, in its data, in its backend technology and analytics, in its frontend design and consumer recognition, but absent cash flows what does that value really mean, and to whom. No question mark there because the question is rhetorical. We don’t know, and maybe not even its venture backers do, who have watched the company evolve and supported it with sizable investments, let’s say $70 million just to pick a number. Years and millions later, the crossroads. Not unusual.

The scenario plays out in this fashion all the time, and necessarily must, because any business constructed on no charge eventually gets to that point. Even a business constructed on some charge that’s insufficient to cover the base, or a business built on some future charge that will be sufficient at that time, these are all merely matters of degree. The success or failure of any such venture is determined by some element of unknown possibility and its capitalization contains some element of option value. That is the crossroads. When that option gets exercised, the value is locked in, and the choice at the intersection is made. Right or left.

We often see these intersections with their options and unanswered questions at very early stages of business building. For this reason, seed-stage financings are frequently consummated as convertible notes, postponing the valuation discussion to a point where the choice at the crossroads is more likely to be made. That is arguably the Series A funding event, although the so-called Series A crunch tells us that many such businesses are not ready for the option exercise just yet. Then tougher decisions happen, or are postponed again, as the case may be. And sometimes it turns out that the decision was premature.

When, say, $70 million has been raised and valuations have been set, in theory the crossroads choice was established. But in actuality the crossroads we thought we passed might have been jumping the gun. It happens, and there are ways to remedy the mishap with corporate finance. This used to be called a down round, which was like taking steps back to the original intersection, but that was before the markets had fully thought through the breaking up of value into component pieces. There is the existing asset, and there is the optionality. It isn’t all one, and it does not have to be reflected as an all or nothing proposition.

One can instead go back in time, which is to say, reset the option by funding the isolated asset and gaining leeway – without resetting the full enterprise valuation. One can, for instance, borrow some amount of senior debt, say something less than $40 million, that will in a downside scenario – that is, a scenario in which the optionality doesn’t materialize – get adequate coverage from the asset. In this example, if $70 million has built a recognized platform with utility and lots of data and analytics and consumer presence, perhaps fifty cents on the dollar (give or take) isn’t a bad coverage ratio.

For equity owners this does several things. It allows new outside capital to come in without painful valuation discussions; it extends and leverages the optionality of the initial investment; and it keeps management’s feet to the same fire without a reset of stock options and targets that might have accompanied a revaluation of the enterprise. For management the runway is not insubstantial, what with the head start that the first $70 million has provided already. Which said, however, the downside of the structure is the downside of any leveraged deal. If the asset doesn’t grow into its option value, priority claims are priority claims, and borrowing turns messy. At any stage.

The term crowdfunding is sensationally deceiving. The intended significance of it – that businesses, projects, even individuals, can access financing from a crowd – in actuality describes traditional markets and banking. Crowds deposit funds into banks, and banks use these deposits to make loans to businesses and projects and crowds. Insurance companies use funds contributed by their collective of policy holders to invest in debt obligations. These institutions and others (such as university endowments, for instance, which receive funding from crowds of alumni) also invest in hedge funds and private equity and venture capital pools, which crowd around stocks or certain startups.

One difference between crowdfunding in its intended sense and the mechanic of traditional markets is that of intermediation. There is a directness implied in crowdfunding which does away with the crowd of managers and general partners and officers of funds and banks and the like. This is referred to as disintermediation, which is also sensationally deceiving. It’s just that a new batch of intermediaries emerges to replace the old. Instead of Bailey Savings & Loan and Duke & Duke there are now Lending Club and AngelList and the like, or rather there is all of that, at least for now. The sources of finance – the crowd, in the abstract – is driven through different filters, which is intermediation all the same.

A truer difference between crowdfunding and traditional market mechanics is perhaps one of consciousness. Bank depositors don’t think about the mortgage and small business loans transacted with their savings, but actively participate in the process known as crowdfunding. In the same sense, an individual’s insurance or pension plan might run through a chain of redirections and advances to eventually end up as a tiny fraction of Twitter’s next funding round (whether private or public), or this individual could consciously throw in a buck or two through FundersClub. In any of these cases decisions occur somehow, somewhere, maybe at different levels and in different numbers. The crowd all the same is a presence, more or less active, more or less conscious.

Consciousness and vocal participation, however, is a critical distinction in the case of crowds. It is especially so in an era of many voices that make themselves heard through social media outlets. Through these bullhorns messages carry farther and crowds can be more effectively stirred up. When crowds get excessively stirred we sometimes have what is known in traditional markets as a bubble, or, more delicately, momentum. Sometimes the crowd dissipates, and the bubble pops. If and when the crowd comes back there is volatility. And sometimes these waves are idea bubbles – traditionally known as groupthink, or, more delicately, style - that can also dissolve and pop like an inflated stock.

Studying crowd behavior isn’t limited to markets, (although many things that aren’t about money flows really are). Stadiums filled with cheering fans, the rhythmic motion of a concert crowd, the traffic patterns of cars and pedestrians around the midtown area during holidays, these all share some common characteristics. By the same token, likes and retweets are momentum patterns in a crowd of followers, and these aren’t the only ways in which markets and media overlap. Increasingly, really, it’s one and the same.

Although studying crowd behavior isn’t new, it warrants a renewal for some of us in this new context of the popular web, crowdfunding, and emerging marketplaces. Crowds and Power is the title of a 1960 publication by Elias Canetti, who won the Nobel Prize in 1981. Its subject is the observation of crowd patterns in a variety of historical and then-current circumstances, analyzed from the perspective of psychology, art, politics, physical movement, expansion, diminution, and other related variables that, taken literally, have to do with public demonstrations and the rise or fall of social collectives. Taken figuratively, however, there are fascinating similarities between such traditional crowds and newer, more virtual ones, and between the concentrations and dispersals of past movements and more modern ones – say, the alternative currency phenomenon known as Bitcoin.

The contrarian approach isn’t always right, the opportunity isn’t always greatest where the crowd isn’t. To know the distinction, one may as well begin by understanding the subject.

It’s easiest to discuss gain and loss when dealing in tangible things, such as financial capital. Tangible things, however, are sometimes rooted in abstractions, and financial capital, for instance, is rooted in information. We should probably define our terms, and the definition of information is complicated, like any definition of abstractions. An entire Wikipedia page with its own table of contents is dedicated to the subject. If somebody is in a hurry, say a modern teenager, and wants to cut to the chase of it, Summly won’t do the trick.

What I mean by information, for current purposes, is knowledge that is transfered or stored. And let’s keep the discussion simple and stick to the idea of information as something very broad, containing everything from social gossip to ancient history, from global intelligence to the picture of a butterfly, from quantified data to Mona Lisa’s smile (which, incidentally, I don’t believe to contain as much knowledge as they claim). Let’s say it’s all information if it can be conveyed and processed.

With that established, the more important idea is the recognition of a growing and increasingly dominant footprint of information exchange. Facebook, Twitter, Google, Amazon and Yahoo! are participants in it, as are PayPal and ATM machines, as are Spotify and Netflix, as is the emerging Internet of Things. The samples and pieces may be distribution mechanisms or storage devices, computing processes and hardware; there are layers of security, targeting, and filter; there is the cloud; and there are countless other components in this deep and tangled web that increases (and at times reduces) knowledge, that influences our decisions and enjoyments, and compounds our risks.

That last aspect of the depths and tanglement occurred to me when noticing the popular uproar over Google Reader’s termination. The personal value of information is not a new idea, and its place in the individual and collective dynamic is all I’ve been writing about so far. But the notion of information loss, in this context, may not naturally occur to most of us. And the idea that losing valuable information can be equivalent to the loss of capital may not register to many beyond the fear of a broken harddrive or identity theft.

What if, however, Facebook were to end? What if the Twitter servers were to lose your follows and followers? What if Spotify goes broke and with it your music library? In large part these examples and others relate to the perils of centralized storage, but the bigger issue here is that individually and as a collective we rely on the deposit of information much as we rely on the deposit of money in a bank. We take it for granted, we presuppose its safekeeping and its permanence.

As information exchanges mature in coming years, and as the world of information technology and media consolidates into its leadership core, concentrated pockets of information capital will emerge (and really already have), which will be responsible for the safekeeping of knowledge, if you will, almost as a public service. These will be information banks, knowledge repositories, the value of which will arguably be as important to protect as the old-fashioned other types of institutions that merely hold cash.

As we consider the fate of Google Reader, as we consider how and with whom we entrust our information, as we think about the interconnection of information and money flows, the themes presented should and probably will be in our consciousness more and more. As we consider the phenomenon of Bitcoins – a decentralized information-based currency – and Apple’s staggering cash reserves, ideas about value storage and the safety of information deposits should probably also cross our minds.

A guy said: “To bear a name is to claim an exact mode of collapse.” He was a cranky old cat, to be sure, and most of the time he was yanking chains. In jest, though, there is some truth, and jesters can be as truthful as anyone. The quotation may be applied to many things, one of which is the weight and limiting rigidity of solid objects in an environment that’s been and always will be fluid. It is vaguely about what N.N.Taleb would refer to as robustness, as distinct from antifragility. The latter, according to the author, gains from disorder, the former does not. In an environment marked by change, by disorder, optionality gains and solid objects don’t. Somehow this all relates to business planning, strategy, and product.

It also relates to investment, which takes on many forms. We think of investments as financial instruments, but this is not always the case. The uproar over Google’s announcement that it intends to discontinue its Reader product illustrates the investment that will be written off by its users. It is (arguably) also an investment written off by Google. It may or may not be true that the product suffered from changing circumstance, and many users would disagree that circumstances had changed for them. Perhaps there is a demarkation line in all this relativity, but somewhere in the dynamic between Google and its user base there was a sufficient drive for termination. Now Google Reader is a name associated with finality, and content aggregation in the cloud, as a concept, is also. By extension Google itself might suffer a tiny blemish. The product’s users are hopefully antifragile enough to uncover new and even better systems, and thus gain from the experience.

Not all users can be so fortunate in all cases. For instance, there are the depositors in Cyprus banks. It’s a complicated situation, no doubt, but the definition of a bank, its very name, bank, is blemished somehow when savings accounts are treated as financial investments (like subordinated debt) at risk. Some fear a panic and bank run, and some even worry that this may spread to other nations where there are banks. And now, rightly or wrongly, the word does not absolutely mean what it used to, not exactly.

But that’s all very complex and getting more so all the time. The subject of this article isn’t anything as specific as banking or cloud services, but a more general notion about change, dynamism, evolution, and the ways in which these and similar realities (that are always with us) may impact product, strategy, planning, and ultimately names and definitions. When Twitter came on to the scene, seven years ago, was it anticipated that its product would be at the center of revolutions and global markets, and, if so, would its creators still have referred to the original messages as… tweets? When popes and presidents and magnates send these things out, I wish I wasn’t reminded of some little bird sound.

The concept on a different level also applies to whole sectors. In a market increasingly dominated by Pandora and Spotify and streaming services, what does Radio actually mean? Is Amazon a media organization or retail marketplace? And what anyway would be the difference? Where does the line get drawn between an exchange and, say, AngelList, which is presumably a social network? Between EBay and Square, and, for that matter, Visa? The list goes on and on, and necessarily should (by “definition” of change, dynamism, evolution, and the like). Yet as fleeting as names and definitions are, as vulnerable to obsolescence, backfire, or malfunction, they are essential to crystalizing thoughts and staking a claim to an existence. Radio had to be called something, but maybe it’s wrong to call Pandora that.

In the past couple of installments here and here, the subject of convergence has been dealt with at some length. The subject has been at the top of mind for a long time, and although cognizant of what pitfalls there are in naming things, it is important, I think, to give the theme a name. I like connected systems: the convergence of distinct segments into and around digital media and information technology. Although the idea and name, both, will one day be obsolete, I think we need to recognize the phenomenon presently. I think product builders and strategists need to understand that the industry they’re in is no longer, say, Radio, or even banking, but something that takes part of a bigger integrated whole, centered around information packaging and flows.

Taleb, options trader, says: “We know more than we think we do, a lot more than we can articulate.” The statement opens a chapter called On the Necessity of Naming.

Sometimes a word or two makes all the difference. A few words in an exchange with an investor I respect made me realize that the hundreds in the prior blog post need just a few more to complete the thought. That article and its linked overview presentation are about the convergence of previously disparate segments into and around digital media and information technology. It is also about the growing overlap of different financial asset classes and structures, mirroring a sector that seems perpetually in a state between origin and maturation.

These are important considerations for investors, entrepreneurs, and other executives in the subject segments, and here is why. For business builders there is the increasing possibility that their competitors won’t in a year or two be the same competition they face today, or that they expect to face. This isn’t just a matter of specific companies, but whole sectors as these increasingly encroach on one another’s terrain. In regard to financing activities, these same executives need to be versed in multiple funding solutions and options – venture, growth equity, debt, M&A – in compressed timeframes and often parallel (rather than sequential) patterns.

For investors the issue is one of analysis and liquidity, and it relates directly to the same themes. The question is one of risk assessment and valuation in a context that is less formulaic all the time. It is also one of exits in an environment in which media, technology, commerce, finance, hardware, services, and various markets are in a state of coming together. The strategic takeout at a future point is thus also less formulaic. It could be the social media giant or it could be the credit card company. It could be the bank, the retailer, or the chip manufacturer. It could be an alternative quasi-public offering in a new market, or it could be a recapitalization deal using leverage. We have already begun to see transactional events that hint at a growing number of such future “surprises.”

These ideas are particularly important to consider as we come out of an environment of many silos and individual hyper-focus. Going forward that may be less optimal and less the case for many than has been in the past. Development of cross-segment and cross-structural directions, interaction with multiple ambassadors, as it were, is the prescribed approach and call to action.

discourse and notes

A lens for evaluating the bits

Towards a new economics, cont’d

Post-capitalist economics

Of bitcoins, apps and new professions

Dylan’s playlist and pattern recognition

Creative finance in the middle stage

Too deep to fail

Connected systems

Why our thematic focus matters