🛰 The effect of Network Effects, Renewables and Carbon Taxes, Regulated Mobility - IOP Observatory #13

Let’s start this week with having a look at network effects. This phenomenon is arguably the most important component of this brave new world of the internet economy, and if my core hypothesis is right, will drive transformation in many industries that software and networks are only just beginning to impact. While the concentration effects that come with platformisation driven by network effects tend to be well documented, the mechanics and effects behind it are generally understood to a lesser degree. Regarding the “why”, Aggregation Theory by Ben Thompson presents a good launch pad. As to the “how”, Battery Ventures published a good piece laying out some of the tactics employed by startups to achieve scale in networks. But of course, not all that glitters is indeed gold. And so we see Yale Law publish and outstanding report detailing how common (and particularly US) antitrust law is toothless in face of the shapeshifting dominance of Amazon, which defies old notions of monopolies. Add to this the ever-changing governance of online marketplaces, be those focussed on mobility, information or second-hand goods, which, argues Anil Dash, lead to rigged market, and you’re looking at a series of third-degree effects of networks that we’re only now starting to grapple with in notionally well-understood markets, but will face in all the industries that software touches, which, according to some, is of course “the world.”

In Silicon Valley Now, It’s Almost Always Winner Takes All

Aggregation Theory

Network Effects – The Keys to Ascending the Consumer-Internet Throne

Amazon’s Antitrust Paradox

Tech and the Fake Market tactic

You don’t actually need convincing that renewables are on a roll, do you? Well, if you do, here’s a data point: last year, 90% of all newly added generation capacity was driven by renewable energy sources. Add data points from the US, namely that renewables now contribute double the jobs that coal does to the economy, and you’re looking at the trappings of quite an economic transformation. And then have a look at renewed momentum behind the idea of a carbon tax coming out of the conservative corner, and the next few years could get even bumpier than they already are going to be. It’s funny how we always look at exponentials only in compute terms, especially around Moore’s law, that might soon expire, but the most fascinating exponentials are around solar PV and battery storage, both of which tend to exhibit superlinear scaling. That means that they get cheaper ridiculously fast. Not to get ahead of ourselves, it was also a good year for global nuclear, mostly in China and Korea. But nuclear only added 9.5GW in 2016, given that BNEF had solar at 70GW of new installations in 2016.

One of the predominant arguments against a fast roll-out of self-driving cars is that regulators will be too slow to adopt. Now, if that sounds like the traditional mantra of free-market disruption and innovation pitted against staid bureaucracy, you might be partially right. There’s certainly some of that, but the fast movers in that space play regulatory arbitrage. It’s all the more surprising that a company like Uber just can’t shake it and stop flouting regulators. Case in point: Otto, an Uber subsidiary focussed on autonomous trucking, seems to be testing their system on public roads without a license. That comes after bringing their self-driving cabs onto SF streets, again, without a license. But regulators are trying to accommodate safe testing of this new technology. Germany recently introduced legislation that would, in principle, enable self-driving vehicles (I’ve not seen the draft yet. If anyone has it, could you forward it to me, please?) and introduced a transnational test zone with France, giving companies the ability to test their system within two different governance schemes (Think different signs, speed limits, etc.). As is so often the case, it looks like partnerships are going to deliver faster and better results than trying to in-house it all. Hence it’s interesting to see how the German auto giants position themselves in this race. And lastly: we spoke about superlinear cost decreases with solar and batteries. You should add Lidar to that. What is Lidar, you ask? TechCrunch has a good primer.

It used to be that “given enough eyeballs, all bugs are shallow”. A modern version would be: “Given a motivated-enough adversary, every system is compromisable.” And casino’s can’t fix it, because software needs to be state-audited.

Again? When do they learn and implement voice fingerprinting?

That’s it for this week. I’ll be off to Munich tomorrow for a few days of visiting IBM’s new European Watson HQ. If you’re in town, give me a shout. I’d love to catch up with you over coffee or beers.

And as always, let me know what you think about the Observatory at martin@internetofpeople.eu

See you next week! Cheers,

Martin