Powering The Digital World Is About To Get More Expensive

What impact will Russian aggression against Ukraine have on your digital use? Given the resulting displacement in energy supply, probably a lot.  Everything we do on our phones, tablets, and laptops involves a network of fortressed buildings around the globe, called the data center.  Inside the data center sits racks of computers called servers, upon which powerful algorithms run, so we can best live our lives in this digital world.  Beyond the obvious space capacity limitations, each data center operator has to purchase enough energy to power these mighty operations, to keep the facilities cool, to ensure optimal performance.  Who will absorb these increased costs?  Will the data center operators pass on these costs to firms who lease space inside the data center?  Will they in turn pass these costs on to consumers?  Who’s in a stronger position to manage their p&l performance?

In a report issued in December 2020, the global data center power market was forecast to grow from $19.1 billion in 2020 to $26.1 billion by 2025.  This on new data center construction globally to meet storage demand, and on the unprecedented rise in power consumption to support new cutting edge technology, which has increased both operational and power costs.  Global Data Center Power Market

Layer in the actual and projected rise in crude oil and natural gas, brought about by firmly united NATO country sanctions against non-team player Putin’s Russia, you can quickly see we’re going to have an expense problem.  Swift NATO response to the February 24, 2022 invasion has resulted in member countries instituting crippling financial sanctions, including shutting down imports of oil and gas from Russia.  The battle in Ukraine further disrupts the supply.

Goldman Sachs, who attributes their success to a very intentional team culture, has issued a report by their Commodities Research Team.  As Russia and Ukraine supply 17% of oil and 11% of gas to the rest of the world, the energy sanctions hit will be painful.  The impact will be greatest in Europe, particularly Germany, but will certainly be felt here in the United States.  Russia and Ukraine supply three million barrels of crude oil a day.  Goldman predicts the west can offset half of this by releasing strategic oil reserves, and relaxing sanctions in Iran and Venezuela.  The remaining 1.5 million daily shortfall in crude oil will result in higher prices to reduce energy consumption, forecasted at a range of $125 – $175 per barrel in 2022.  The April 1, 2022 price sits around $100, with the 52 week range at $57.63 to $130.501.  Goldman Sachs Podcast Impact of Russian Invasion on Global Economy

Data centers are primarily powered by electricity, which are impacted by rising natural gas prices.  According to the U.S. Energy Information Administration (eia), wholesale electricity prices trended higher in 2021 due to increasing natural gas prices.  Our reluctance to date to address the major impacts of climate change have resulted in especially volatile storm and temperature conditions, which in turn puts pressure on prices.  More on that here.   Since the onset of the war, natural gas has risen from $4.79 on March 1 to about $5.60 on April 1, 2022.  The 52 week range is $2.45 to $6.471.  

The good news is that major data center providers like Equinix, who benefit from veteran and strategic thinking management, have made significant advancements in energy efficiency and sustainability innovation. In December 2021, the Clean Hydrogen Partnership announced EUR 2.5 million in funding, choosing seven companies – Equinix, InfraPrime, Rise, Snam, SOLIDpower, TEC4FUELS, and Vertiv, to develop low-carbon fuel cells to power data centers.  The EcoEdge PrimePower (E2P2) project aims to provide economic and resilient prime power solutions for the data center environment.  It is hoped this could also reduce carbon emissions from operations by up to 100%.  Consortium to Lead Fuel Cell Development for Data Centers

In January 2022, Equinix announced its first Co-Innovation Facility (CIF) located at its Ashburn Campus in the Washington, D.C. area.  This is part of a broader Data Center of the Future initiative.  The CIF is a new capability that enables partners to work with Equinix on trialing and developing innovations to define the future of sustainable digital infrastructure.  Equinix Joins Partners in Sustainability Innovation

Broadly speaking, Equinix has been engaged for some time in transforming energy efficiency.  Since 2011, they have invested more than $130 million to reduce energy consumption within their data centers.  Equinix Energy Efficiency  The other major data center provider globally is Digital Realty.  For information on their operations and sustainability efforts, read more here.

All that being said, with the clear acknowledgement that I’m a big Equinix fan who follows their financial performance closely, it remains to be seen how this current global energy firestorm will impact p&l performance in 2022. 

Keeping it simple, I turn to the latest guidance provided by Equinix CFO Keith Taylor on February 16, 2022, a mere eight days before the invasion.  Following Q4 2021 revenues of $1.706 billion and adjusted EBITDA of $788 million, Q1 2022 guidance informs a revenue range of $1.726 – $1.746 billion, and adjusted EBITDA of $781 – 801 million.  FY 2022 guidance for revenue is projected to be $7.202 – $7.252 billion, adjusted EBITDA $3.307 – $3.337 billion. 

Clearly there are many variables that will determine any forecast variances that may occur.  If the energy cost scenario plays out as anticipated, I would expect that adjusted EBITDA will show unfavorable variances to forecast, likely starting in the second quarter.  Even if the decision is made to pass on these increased costs, the timing of client contract renewals will affect this decision.  I will look to the upcoming quarterly investor calls for guidance, and keep you all updated.  Please join in the conversation and let me know your thoughts!  Stay safe and be well!

Feature Image: Please enjoy my favorite digital photo of my amazing brother Geoffrey and I at Lady Gaga’s performance at the L.A. Forum in December 2017! Yes we are a very musical family! #DigitalMemoriesToLastALifetime

1 Data sourced from the Wall Street Journal.

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April 1, 2022 By Cynthia Drew In Technology /  

“Nothing Really Rocks and Nothing Really Rolls” A Discussion on Net Neutrality

On Thursday, December 14, 2017, the Federal Communications Commission (FCC) voted to shutter net neutrality laws, rules designed to make sure all Americans have open access to the internet. They also made some changes that will limit FCC authority over the broadband industry going forward, which will make it harder for future FCC appointed officials to reverse this ruling. FCC repeals net neutrality.  While net neutrality rules were formally defined and implemented in 2015 during the Obama administration, and upheld by the D.C. Circuit Court Of Appeals in June 2016, net neutrality guidelines have a long history of discussion and support by the FCC.  Higher court upholds net neutrality. 

During the George W. Bush administration, then FCC Chairman Michael Powell delivered a key note address on February 8, 2004 at the Silicon Flatirons Symposium, entitled “Preserving Internet Freedom: Guiding Principles for the Industry”. His remarks included the following, “…Professors Phil Weiser and Joe Farrell, a former FCC Chief Economist, make this point in a 2002 paper published with the Competition Policy Center at the University of California at Berkeley. Weiser and Farrell acknowledge the strong incentives that network owners have to ensure that broadband platforms remain open. Such openness encourages competition among Internet applications and services, which will in turn make broadband platforms more valuable to both consumers and network owners….” To obtain full remarks, please click here. So basically the December 14, 2017 vote to repeal net neutrality, is effectively a first, and represents sweeping change of delivery and access, since the internet first arrived on the scene in the late 1990’s and transformed our lives.

Aside from the obvious effect, that it puts into the hands of a few, the ability to control how you and I access information, express opinions, and execute consumer transactions on the internet, there are far more concerning long term implications. The world is on the precipice of transformative technological change for innovations in Artificial Intelligence (AI) and Blockchain Technology, that will ultimately demand a higher level of analytical reasoning ability from the human workforce to remain gainfully employed. Gatekeeping the internet, never mind that it’s for profit at your expense, and we will get to that in a minute; and limiting your ability to access information, and thus engage in thoughtful analytical debate, is completely contrary to the workforce game plan that is needed in the 21st Century.

Attorney Generals Schneiderman from the state of New York, Ferguson from the state of Washington, and other Attorney Generals across the country have declared their intent to file a legal challenge. Experts indicate they have multiple grounds for appeal, with the two most convincing being first, one of procedure, in that the FCC violated its own guidelines as to notice and discussion. As one example, on Monday, December 11, 2017, more than 200 companies, including AirBnb, Reddit, and Twitter sent a letter to FCC Chairman Ajit Pai urging the FCC to reconsider the plan to repeal net neutrality.  Chairman Pai, not widely known to most Americans before this decision, refused to extend the discussion and review period.  Tech companies ask FCC to keep net neutrality rules.  Instead, he posted a video on YouTube, with 7 different pop culture clips, including one with Mr. Pai dressed up as Santa Claus and wielding a blue “lightsaber”, apparently looking to capitalize upon the excitement surrounding the latest Star Wars release. Ajit Pai as Santa with blue lightsaber.  Perhaps this was intended for people who don’t fully understand the implications of this far reaching decision. For me, it would be helpful to confirm and understand any guidelines in place for appointed officials to lead Federal Commissions like the FCC.

The second convincing argument for appeal is that the Commission disregarded the overwhelming view of the public and ignored the legal precedent upholding the existing net neutrality rules. In 2014, a University of Delaware poll found 81% of Americans were in favor of net neutrality, with support wide across gender, age, race, and level of education. An early December 2017 poll by the University of Maryland concluded 83% of Americans do not approve of the FCC proposal to repeal it.

The real issue is that the 2015 rules officially define broadband telecom providers as utilities, and therefore subject to government oversight and regulation. Telecom providers are concerned this will give government officials the right to regulate and control pricing, which will further inhibit innovation. Repealing net neutrality will give telecom providers the ability to effect pricing policy on the basis of speed and content choice. Major providers have indicated they will voluntarily not engage in this practice. That’s absurd. There are two broad categories of technology necessary to deliver content over the internet, software and infrastructure. Software has always commanded a much higher P&L result than infrastructure. No sound business entity would ever refrain from taking advantage of new regulations that afford the opportunity to improve the bottom line. Nor should they. We are a capitalist economy and as investors, we rely on the experienced good judgment of leaders to provide a meaningful return on our investments. This ruling will have a far reaching cost impact for most Americans, across products and services, or any aspect of delivery of a product or service, that requires transfer of information over the internet.

The other important detail to keep in mind, is whether you use the internet over a physical connection or on a mobile device. The 2015 net neutrality laws, afforded for the first time, rules that would apply fully to wireless broadband. What net neutrality could mean for your wireless carrier.  The entire field of delivery is now wide open and available for discriminate change.

The debate will surely rage on and will likely include new legislative actions. Stay tuned. This is certainly a topic I will follow closely. Please note links below you should read.

Net Neutrality repeal what you need to know.

States take action after net neutrality vote.

I’ll leave you with this 70’s classic, from the very first vinyl album I ever purchased,“..And nothing really rocks, and nothing really rolls, and nothing’s ever worth the cost…. and I never see the sudden curve until it’s way too late…” #netneutralityrepeal

Bat Out Of Hell

 

 

 

 

 

 

 

 

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December 16, 2017 By Cynthia Drew In Technology /  

Google and the Internet of Things 2017 Update

As a follow up to my first article on Google, the internet and technology juggernaut whose innovations in search and advertising have made their brand one of the most recognized in the world, this update will focus on the leverage such dominance brings. Google core products, including Search, YouTube, Android, Google Play, Maps, Chrome, and Gmail, each have over one billion active users monthly. 2016 Net Income totaled $19.5 billion, up 19% to 2015, driven on 22% growth in Google Properties revenue, formerly referred to as Google Websites revenue. Gross profit margin was 61%, down slightly (1%) to 2015. Net profit margin remained steady at 22%, and the effective tax rate was 19%.

Taking a closer look at Google Properties revenue, 2016 revenue totaled $63.8 billion, comprising 71% of total Google revenue. While Google doesn’t currently disclose the product breakout in their public filings, there’s enough public information available to estimate the pieces. Analysts Eric Sheridan at UBS and Justin Post at Merrill Lynch both estimated You Tube revenue to be about $12 billion in 2016. I estimated Google Search revenue at $50.5 billion and Android at $1.3 billion. Google dominates the global search engine market, maintaining a near 90% worldwide market share since 2010, although they have lost a little ground recently, currently holding a little under 87%. Android revenues, driven on mobile ad revenue, experienced strong growth in 2016, with my estimate reflecting a 60% increase to 2015.

While clearly Search revenue dominates the Google revenue story, investors are now paying closer attention to YouTube as analysts have become very bullish on this product segment and project revenues to reach $20 billion in 2018, and $27 billion by 2020.   Merrill Lynch now believes YouTube may reach a $90 billion valuation on a standalone basis. YouTube’s $90 million valuation.

The P&L success of the YouTube operating model finds its roots in the Digital Millennium Copyright Act (DMCA) of 1998, legislation enacted before user generated content sites like YouTube existed, and before the significant transformation in digital technology we enjoy today. Google’s YouTube takes full advantage of the DMCA “Safe Harbor” provision that provides full protection from infringement liability for content flowing through their lines. To qualify, Google must meet certain guidelines, including promptly blocking access to newly discovered infringing material, and terminating repeat infringers. However, the responsibility for surveillance and enforcement lies with the musical creator, not with Google. Most in the music industry view YouTube as a huge problem, a large global firm making billions of dollars, at the expense of the little songwriter who is struggling to survive.

Before we get into the latest key developments surrounding “Safe Harbor” protections for large powerful platforms, it’s important to note a recent operational change at Google’s YouTube, that also has a disparate impact on the songwriter with less than 10,000 YouTube views, and more importantly, that forces program loyalty provisions for all of their content providers. In 2013, Jack Conte, a struggling musician on YouTube, founded Patreon, a platform where musicians can post their content and find backers to support them. Content creators are projected to earn $150 million on the crowd funding platform in 2017.  Digital Music News reports that in order for musical creators to add external links to their videos, to sites like Patreon and Amazon, they are now required to join YouTube’s Partner Program, which carries an additional requirement, of a minimum of 10,000 views. It’s important to note that most content creators on YouTube depend on external links to earn money, that Google’s YouTube controls 60% of all streaming audio business in the world, and that it pays for only 11% of total streaming audio revenue artists receive. 1

Wait, there’s more. Are you familiar with Senate Resolution 1693 Stop Enabling Sex Traffickers Act of 2017? This bills amends the federal criminal code to include those who benefit from “participating in a venture” that supports child sex trafficking, to be subject to the same consequences as those who are directly engaged in this criminal activity. To achieve the intended goal, the bill seeks to amend the Communications Act of 1934, specifically Section 230 on Safe Harbors, to remove the protections communication and content delivery companies currently receive, should a sex trafficker use their company’s internet platform to advance their cause. Since introduction, the bill has received wide bipartisan support and additional sponsors, as well as support from companies like 21st Century Fox and Oracle. However, pro-internet groups like the Center For Democracy and Technology and the Electronic Frontier Foundation, powerful organizations well funded and with close ties to Google and similar minded Silicon Valley internet firms, are against this legislation. They are concerned that the removal of the Safe Harbor provision, as it relates to child sex trafficking, will set a precedent and open the door for further erosion of Safe Harbor provisions that could ultimately impact the organizations whose causes they are advancing. Background on the Stop Enabling Sex Traffickers Act.

Huge thank you to the Association for Independent Music Publishers (AIMP) for a very informative panel discussion on these important matters, featuring Jonathan Taplin, Director Emeritus of the Annenberg Innovation Lab at USC Annenberg School for Communication, member of the Academy of Motion Picture Arts and Sciences, who also sits on the California Broadband Task Force. I highly recommend Mr. Taplin’s book “Move Fast and Break Things” How Facebook, Google, and Amazon cornered culture and under-mined democracy.

I’ll leave you with this epic performance from my beloved rockers, incredibly on point some 25 years ago, and always forward thinking…

“.. You can’t trust freedom when it’s not in your hands, when everybody’s fighting for the promised land.. I don’t need your civil war.  It feeds the rich, but it buries the poor..”

Guns N’ Roses “Civil War” Live Paris 1992

Enjoy!

1 Jonathan Taplin, “Move Fast and Break Things”

Feature Image Credit: Cynthia Drew with Rock&Roll soul sister Tammy Michaud on the GN’R stage Labor Day Weekend 2017, at The Gorge Amphitheater in the stunning Wenatchee Valley, just over the mountains from Seattle, Washington.

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October 30, 2017 By Cynthia Drew In Music P&L, Rock&Roll, Technology /  

The Music Of Sound

‘.. Be sure that you have not reduced the filesize to the point where the audio has become mono – PRESERVE THE STEREO AUDIO..’ So read an important instruction I followed to the letter of the law, in the final assignment of my Music Supervision class at The Berklee College of Music. Professor Brad Hatfield, Emmy Award winning composer and creator of the Music Supervision program at Berklee demands excellence in the music of sound! I couldn’t agree more! Hence my recent purchase of Bose Soundtrue-ultra-in-ear-headphones-apple-devices. ‘..headphones designed so nothing will get between you and your music… At a retail cost of $129.95? Yes. Boes is in the music business. Apple is not. Where is this leading? The quest to find the best quality audio possible delivered at home and on a mobile device! MQA. Master Quality Authenticated. What is MQA? So glad you asked! Let me paint the canvas for you.

The very first 45 I bought was “That’s the Way I Like It” by KC and the Sunshine Band. Next came “Fly, Robin, Fly” by Silver Convention. These two hits traded the #1 and #2 spots on the Billboard Hot 100 in December 1975. My enduring love affair with all things music began with U.S. Top 40 Terrestrial Radio and Vinyl Singles. Every Friday I went to the Plaza Department store, eager to plunk down $1.04 for the latest chart topping single. I should note that since I moved to the land of music and sunshine this summer, I actually met a member of KC and the Sunshine Band, keyboardist Robert E. Lee! If you’re an “indy” recording artist, you must check out his unique operation at Creative Studios LA in the heart of North Hollywood’s famed Art District.

As my musical tastes continued to form in the 70’s and 80’s, I amassed a pretty extensive Vinyl collection from singles like The Bay City Roller’s “Saturday Night” and Queen’s “Bohemian Rhapsody” to well over 200 albums. My very first Vinyl LP was Meatloaf’s “Bat Out Of Hell”. Led Zeppelin, The Rolling Stones, Aerosmith, and yes of course Guns N’ Roses followed. I would like to personally thank my parents who supported my Rock&Roll love affair by letting me join the Columbia record club, where you could purpose a gaggle of 10 albums or so for 1 cent, and commit to purchase x amount more over 3 years.   Who remembers that?

The quest to fill my world with epic musical masterpiece of course grew from there! I’ll never forget the day I convinced my mom to buy me my very first stereo console system, complete with equalizer and real speakers, where you actually had to plug in the speaker wires! It was like a right of passage and I felt invincible! In my first year of college I bought my very first full rack system made up of actual components! My heart rocketed to the moon and let me tell you there were many rockin’ parties on the 8th floor of Tower A at Hofstra University!

By the time I graduated from college in 1987, vinyl sales in the US had dropped by more than half since I had graduated from high school, and the world was introduced to the first digital audio format, the compact disc. By 1999, the industry soared to record high revenues on commanding sales of the compact disc, with a file format that consists of two channels, signed 16-bit Linear PCM (pulse code modulation) sampled at 44.1 kHz, basically setting in motion transformative change of the audio file format from analog to digital.

And so begins the debate on the music of sound! The Compact Disc Digital Audio format was developed by Sony and Phillips in the 1980’s and is the Red Book audio standard for encoding music on CD’s. While you can certainly argue that the CD is more durable than a vinyl phonograph record, there is endless debate as to the quality of sound between the two. From a technical aspect, it boils down to two things, how much space is available, and the level of noise discernible to the human ear. From a pure musical aspect, ask critically acclaimed and legendary guitarist Slash, who decidedly prefers analog tape to existing digital formats.  Check out this very up close look of the entire in-studio recording process of his 3rd solo album “World On Fire” with Myles Kennedy and the Conspirators. Slash Real to Reel  Drummer Brent Fitz tell us “…The most important thing for Slash and the rest of us is to capture a vibe that is almost a forgotten art form, which is recording to two inch analog tape… The music is what speaks the most….” Slash goes on to say, “It’s one of the few band oriented up and running Rock&Roll studios in town.”, referring to NRG Recording Studios in North Hollywood where recording to two inch analog tape is still an option. Studio Barbarosa in Orlando, Florida is another.

To be fully transparent, while Brad Hatfield’s Music Supervision class has provided me a basic primer in music editing and audio file formats, I have no formal expertise in this area. What I do understand is that the maximum frequency at which humans can hear background noise is 20 kHz.  The experts at Sony and Phillips determined that the sampling frequency of the compact disc audio file must be greater than twice the maximum frequency. They arrived at 44.1 kHz.

Of course the recorded music industry was turned upside down and forever changed in 1999 when technology internet firm Napster arrived on the scene and introduced a peer to peer file sharing internet service that created a mechanism to exchange music in a new MP3 format that, among other things, accelerated the continued erosion of sound quality.  The MP3, designed by the Moving Picture Experts Group, and further developed for audio by several teams of engineers at The Centre for the Study of Television Broadcasting, Matsushita, Phillips, Sony, AT&T, Bell Labs, and others,  is a patented digital audio encoding format that uses a form of lossy data compression.  Basically this means that certain parts of the sound are compressed and the result is music that is not full quality audio. The compression is needed for the audio file to fit on a digital delivery medium, and the feeling was that most people will not notice the difference in sound quality. Additional formats have since been developed. iTunes downloads utilize the AAC format, generally regarded as higher quality than the MP3, yet still not considered full quality audio, also a compressed format. WAV and AIF formats have no compression, also referred to as lossless compression, and are considered full quality audio. ALAC and FLAC formats are also forms of lossless compression for storing digital audio, but they’re generally much smaller in file size than WAV and AIFF files, hence more practical for downloads and streaming.   They are considered “High Definition Audio” formats.

Fast forward to 2014 and newly patented digital audio technology MQA is about to revolutionize the music listening experience by delivering “better than full quality audio”! Bob Stuart, founder of Meridian Audio, launched MQA (Master Quality Authenticated), a revolutionary British born technology poised to change the way people enjoy music! From the same country that gave us the British Rock invasion in the 60’s and beyond, this breakthrough technology will reverse the trend, in which sound quality has been continually sacrificed for convenience. MQA allows listeners to experience every intricate detail the microphone heard, offering music fans the purest ever sound! In 2016, MQA recruited Warner Music Exec Mike Jbara to lead the newly spun off firm.

How does MQA work? MQA starts by capturing 100% of the musical performance. It then cleverly adapts to deliver the highest quality playback your product can support. After capturing the performance, MQA “folds” the audio file to make it small enough to stream. They call this “Music Origami” and it can be fully approved in the studio. Next comes the “unfold” process where the first level of “unfold” recovers all the direct music related information. Output is 88.2kHz or 96kHz. Products with a full MQA Decoder deliver three levels of “unfold” and the music listener is hearing exactly what the artist created in the studio. I’m told it’s incredible!

I can tell you with first hand experience, that MQA sound at the first level of “unfold” is amazing! Nugs.net, a firm dedicated to delivering the highest quality audio for live performances of many well known Artists, has partnered with MQA and currently offers Springsteen and Metallica concerts in full MQA format. I purchased a Hi-Res MQA Download of the 1/27/17 live performance of Bruce Springsteen & The E Street Band in Perth, Australia. Promise me you’ll do the same and listen to Bruce and his band perform the epic classic “Because The Night”, he co-wrote with the legendary Patti Smith. Even on a basic smartphone, at a default sample rate of 44.1kHz, it will blow you away! See how many instrumental stems you can hear! At the very least, ask me for a listen the next time you see me.  I can’t wait to see the expression on your face!  For the music production folks reading this, you can bring it a step further by loading the album into your DAW and adjust the sampling rate to 96kHz.  I used Amadeus Pro.

AudioBruce

MQA at its most primitive level will bring you to your knees. Please look at the Spectrum graph below.  The pink highlighted region represents additional musical sound and texture you will experience at a basic minimum MQA level of play. I can’t even imagine what it will be like at the full three levels of “unfold”! I won’t have to wait long. MQA has just partnered with LG to deliver the very first global MQA smartphone the LG V30!  

FrequencyBruce

And earlier in the year, MQA and Universal Music Group entered into a multi-year agreement to encode UMG’s extensive catalogue of master recordings in MQA’s industry leading technology! Imagine listening to some of the greatest Artists in the world, in the very best high definition audio format?   I’m hoping this will include all the labels under the Universal Music Group umbrella that include legends like The Beatles, The Rolling Stones, Lady Gaga, U2, Bob Marley and Guns N’ Roses, to name a few. Incredible! I’ll bet the GN’R guys would approve!  MQA and UMG collaboration.

Speaking of epic musical masterpiece, I’ll leave you with this live fan favorite from the opening night of the U.S. leg of the 2017 Not In This Lifetime Tour. Extraordinary musical genius absolutely committed to the very best in audio fidelity! How many instrumental stems can you hear? Perhaps the lovely thoughtful teams at MQA, Nugs.net, and Guns N’ Roses will provide us the opportunity to experience this in ultimate exquisite sound form, as it should be.  Check out the big screen on the left side of the stage, you might recognize someone you know at 9:19 and 9:46. Enjoy!

Knockin’ on Heaven’s Door Live St. Louis 7/27/17

Feature image credit:  Thank you to one of the awesome fans from the “GnFnR Fanspot #NotInThisLifeTime fan group for sending me this incredible photo, taken at extraordinary timing from the other side of the PIT; and to Margott Hinostroza for creating this wonderful worldwide network of GN’R fans!

 

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October 9, 2017 By Cynthia Drew In Rock&Roll, Technology /  

Google and the Internet of Things

Continuing in my series on mobile and internet technology, this month I take a look at Google, the internet and technology juggernaut that generated $75 billion in gross revenue and $16.3 billion in net income in 2015. Net profit margin was 22% and the effective tax rate was 17%. The stock closed 2016 at $793.02 with a market capitalization of $554 billion. Google takes pride in not being a conventional company. Their innovations in search and advertising have made their brand one of the most recognized in the world. Their core products, including Search, YouTube, the Android mobile operating system, the Google Play app store, Maps, the Chrome internet browser, and Gmail each have over one billion monthly active users. Google believes they are just beginning to scratch the surface. In 2015 they created a new public holding company named Alphabet, a collection of businesses, the largest of which is Google, as well as new businesses Verily, Calico, X, Nest, GV, Google Capital, and Access/Google Fiber.

 google-pl

Focusing on 2015 Google Websites revenue of $52.4 billion, at 70.2% of total segment revenue, up from 67.4% in 2013, the firm’s SEC filings describe this segment as advertising revenue on Search, Google Play, YouTube, Gmail, Finance, and Maps. While Google does not publicly report earnings by product line, Search, YouTube, the Android mobile operating system, including the Google Play app store, are the key product lines in this segment. For 2015, researching multiple sources of earnings estimates, including these two by eMarketer and Forbes, I estimate the breakout to be:

google-websites-new

 

I should note that there is considerable debate about how much Android contributes to Google’s bottom line, with annual revenue estimates ranging from $300-$500 million to $1 billion, to as much as $31 billion, as recently claimed by Oracle in their lawsuit against Google.  Oracle is suing Google for copyright infringement, for using its Java software to develop Android, without paying for it. Five years of litigation continues following a January 2016 U.S. Supreme Court ruling where Google lost in their effort to derail the case. Any settlement figure would be a function of this estimate, where it may be appropriate to include “Search” ad revenue. We’ll leave that decision to the copyright finance valuation team assigned to the case.

In the Search space, competition is fierce. Competitor Microsoft’s Bing market share continues to increase, at 22.3 percent in October 2016, compared to Yahoo at 11.7 percent, with Google still leading the pack at 63.6 percent. Considering that Bing was first introduced in May 2009, and that it also largely powers Yahoo Search, Microsoft is certainly gaining ground. Bing finally catching up to Google. U.S. Search Engine market share.

The biggest advantage Bing has over Google right now is their paid advertising platform. Bing is closing the gap by offering more niche advertising, and at lower prices. New functionality in the Ad Preview and Diagnostics tool is starting to turn Bing Ads into a major player in the paid search advertising world. It’s likely that more marketers will start using Bing Ads as an online advertising platform for budgetary reasons alone. If combined with more design, functionality, and visibility changes, Bing could start closing that gap between them and Google faster than ever before. Another increasing threat is in Europe where the European Commission has instituted new personal privacy provisions. Further, many European countries have launched legislative attacks on Google’s ambiguous privacy policy. This presents a significant opportunity for Bing to rise up and force Google out of Europe.

In the smartphone space, Google’s Android operating system is the hands down leader at 86.2% market share, compared to Apple’s iOS at 12.9%, according to the latest Gartner research.  Android, which was launched in 2008, makes money for Google in two ways, advertisements supplied by Google shown on Android phones, and revenue Google takes from its mobile app store, Google Play, which some technology analysts predict will soon overtake the Apple app store. Google Play to overtake Apple App store.

Also, in 2013, Starbucks dropped AT&T to partner with Google to provide an improved WIFI experience to their customers. Google will also work with Starbucks at developing the next iteration of the Starbucks Digital Network to provide increased content. Interestingly, I should note that following a recent flurry of iOS 9.3 updates, the functioning of my Apple iPhone 6 has declined dramatically when connected to Starbucks WiFi. Starbucks Google partnership.

The final point of analysis, and of course near and dear to my heart, is the subject of music video and Google’s YouTube, which was estimated to gross $5.6 billion in revenue, and net $1.6 billion or 28.6% margin to Google’s bottom line in 2013. Advertising Age on Google’s YouTube.  In the U.S. they were expected to net $1.08 billion, just 6.3% of all of Google’s net U.S. ad revenues for the year, but 20.5% of the $4.15 billion U.S. online video ad market.  Forbes contributor Tim Worstall on Google’s YouTube.  We can only rely on estimates as I noted earlier, in that Google does not publicly disclose financial results by product line. My 2015 gross revenue estimate for YouTube is $7.5 billion.

The P&L success of the YouTube advertising revenue model finds its roots in the Digital Millennium Copyright Act (DMCA) of 1998, the most important amendment to the U.S. Copyright Act of 1976; legislation enacted before user generated content sites like YouTube even existed, and clearly long before the significant transformation in digital technology we enjoy today. Google’s YouTube takes full advantage of the DMCA “Safe Harbor” provision that provides full protection from infringement liability for content flowing through their lines. To qualify, Google must meet certain guidelines, including promptly blocking access to newly discovered infringing material, and terminating repeat infringers. However, the responsibility for surveillance and enforcement lies with the Musical Artist, not with Google. Once a user uploads a video from a concert for example, probably without a license from the Artist, a global marketplace with at least five billion active users monthly, is instantly able to access this creative work for free. While Google’s YouTube is clearly not the only source of music piracy, the sheer global volume of the user base and ease of access to musical content, certainly makes it a major player. In the U.S., music piracy is a serious problem and results in the loss of $12.5 billion in total output annually, another $2.5 billion to downstream industries, the loss of 71,000 jobs, and $422 million less in U.S. tax revenue. The RIAA on the true cost of music piracy.

Further, Google’s YouTube is permitted to operate under an advertising revenue model, markedly different from a royalty based revenue model that has long been the standard in the recorded music industry. Musical Artists are in the fight of their lives! Multiple advocacy groups, including The Grammy Creators Alliance, The Future of Music Coalition, and the Berklee College of Music’s Rethink Music Initiative to name a few, are waging in earnest, a campaign for U.S. Copyright reform that reflects today’s music delivery system, that will protect Artists’ compensation, and that will ensure an enduring legacy of creative expression for years to come.

Looking abroad, in September 2016 the European Commission proposed modernizing copyright rules to help European culture flourish. The EU has adopted the Digital Single Market Strategy to offer better choice and access to content online and across borders, and to promote a fairer and sustainable marketplace for the creative industry. EU Press Release.

The winds are shifting and the message is becoming more clear. As the global recorded music industry is gaining legislative ground, particularly in the EU, and as consumer and music industry awareness and activism are on the rise, and as the Google YouTube development team has begun to respond with technology advances like Audible Magic and ContentID, expect to see transformative change in digital copyright law and protections, that will ultimately put some pressure on the YouTube profit model. Further, here is an interesting point if you’re really paying attention.  Today’s technology graduates are more interested in the altruistic goals that silicon valley offers, like working on products that will change the world, as opposed to Wall Street, where attractive compensation packages apparently don’t carry the same level of gravitas. Talent wars: Silicon Valley vs. Wall Street. Then perhaps it’s not a stretch to say that these young grads will not want to play a role in the continuing erosion of the Artist P&L and musical creativity in our society.

Let me leave you with this thought. What value does music create in your life? Think about that first piano recital where your daughter was so excited to play Beethoven’s “Moonlight Sonata”; or that hard fought comeback to competitive gymnastics performing the floor routine of your life to Bill Conti’s “Theme From Rocky”; or the incredible emotion flowing at the debut reunion performance, twenty three years in the making, of a legendary and iconic Rock & Roll band! What about the pure joy and hope you feel when your very special and brilliant 55 year old brother writes his first set of lyrics to the “Twelve Days of Christmas” and then sings them to his girlfriend! Yes! “…take me down to the Paradise City.. yeah yeahah!” For those of us who cannot possibly imagine a world without music to fill our souls, with pure unbridled emotion and purpose that inspires us every day, our message is simple. We’re on it and we’re in it for the Artist! Count on it.

 “Ten years ago they sent a machine from the future, “You Could Be Mine”

 

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January 3, 2017 By Cynthia Drew In Music P&L, Rock&Roll, Technology /  

Who Is Leading the Smartphone Market Today?

We can evaluate this a few different ways. If we compare current market share of the major operating systems, Google’s Android is the hands down leader at 86.2%, compared to Apple’s iOS at 12.9%, according to the latest Gartner research. If we’re looking at manufacturer volume sold, the numbers certainly make the case for Samsung with 22.3% market share to Apple’s 12.9%. If we consider TechRadar’s most current ranking of the top 10 smartphones, the iPhone 6S and 6S Plus are ranked 7th and 8th respectively. They are the only smartphones in the top 10 who run on the iOS platform, currently 9.3.5. All the rest run on Android, which continues to evolve with the new Lollipop and Marshmallow updates. Samsung’s Galaxy S7 Edge and S7 lead the rankings. The HTC 10, new 2013 Chinese manufacturer OnePlus 3 model, and the LG G5 round out the top 5. The Sony Xperia Z5 and the Xperia Z5 Compact come in at #6 and #10, and the Nexus 6P is in 9th place. Read more here in TechRadar rankings.  

However, if we look at net profit, Apple dominates. This Forbes article points out that while Google’s Android dominates market share, Apple makes all the money.  A 2013 Forbes article, this one by Tony Bradley, suggests Apple can ignore Android market share all the way to the bank.  But that may be changing, particularly given the recent news that in Q1 2016, Apple has experienced the most significant drop in revenue since 2003. More here on iPhone sales drop.

So why am I telling you all this? I’m trying to figure out if I should stay with my current smartphone manufacturer. Can you live without your mobile device? I can’t. So here’s my take on Apple. There’s an app for everything and I rely on quite a few of them to live my life. Email, calendars, notes, text, maps, music, social media, coffee, news, travel reservations, ticket purchase, transportation, weather, and even a wireless speaker system. I recently purchased a Sonos system for my home and it is controlled by an app on my iPhone. I have speakers in my living room, kitchen, and bedroom that did not require any added installation expense, drilling, or unsightly wires. Yes, Steve Jobs was as equally passionate about aesthetics, as he was about functionality. If you want to regularly learn about new apps, register with the Starbucks app and you’ll get weekly messages highlighting a new free app. You have to be discerning though, as data overload can certainly be a problem. I am a huge advocate of “less is more”.

Given that Apple’s current market capitalization is about $576 billion, more than double the level when I made my first Apple purchase in 2010, I expect nothing short of white glove service. Let’s see how they measure up and what is required for that to happen.

I actually hopped on the current mobile technology bandwagon later than most of my contemporaries, with the purchase of the iPod Touch in 2010 and iPhone 4 in 2012. Both were introduced in 2007. Of course my passion for music led the charge! Enamored with 24 hour on demand music, I quickly fell in love with Apple and got out in front on the purchase of the iPad 2 in 2011. Then I discovered the MacBook Air in 2012. All of my devices are on the iCloud under my Apple ID. I do not have an Apple Watch.

I think it’s important to understand some underlying basics first. The iPhone, iPod Touch, and iPad all operate on the iOS operating system, although the underlying technology of the iPad is different than the iPhone. The iPod Touch is a media player. The Mac operates on the OSX operating system. All Apple devices, whether they run on an iOS or OSX operating system, are intended to sit harmoniously together on the iCloud. Also relevant to the discussion, in 2014 Apple rolled out a new programming language called Swift. Learn more about Swift here.  Building upon their core language Objective-C, Swift offers an “interactive playground” and is viewed by developers as a new simpler language that could make their lives easier, thus lowering the barrier to entry for Apple developers. But it does require a new learning curve and it drives a wedge between iOS & OSX development and the rest of the mobile software world. Swift development is only applicable to Apple devices. In a 2015 Bloomberg article, Joshua Brustein writes, “..There was almost no way Swift wouldn’t lure developers in large numbers. Apple gets to decide which languages can be used to write apps for iOS devices, and legions of coders take heed because the average Apple user generates four times as much revenue for developers than the average Android user. It almost didn’t matter whether Swift was any good…” The article also references assertions made by Kyle Sherman, a software developer with Linked In owned document sharing firm SlideShare, as to the onerous degree of processing power software developers need on their laptops to convert Swift into a computer readable format. Additionally, Colin Eberhart, Technology Director for UK based software development company Scott Logic said, ‘Swift updates regularly break his code. “If you are building production code, right now you just don’t want to be using Swift,” he says. Apple declined to comment for this story.’

As an analyst who partners with Capital Markets business heads to drive P&L growth, the past 10 years in trading technology, and as an avid mobile technology user, I have many thoughts on this evolving landscape. As for me personally, currently with an iPhone, iPod Touch, iPad, and MacBook Air, I really only need the iPhone and MacBook Air, or a competitor equivalent.

My Apple device world worked very well until 2014 when I purchased the iPhone 6; previously I was very happy with the iPhone 4. I often wonder if my iPhone 6 experience would have been better, had I upgraded from the iPhone 5. In the beginning I had very poor cellular service. Apparently I wasn’t alone. In 2014, IOS 8 updates caused Apple to pull 8.01 release due to dropped calls issue. More on this in Forbes magazine. Thankfully, that problem resolved pretty quickly with subsequent updates.

The main issue that continues to frustrate users in 2016, is the wireless network problem. In 2014, I used AOL for my personal email, and had terrible difficulty sending email on my iPhone 6. Apple genius bar specialists repeatedly blamed AOL. At one genius bar visit, the specialist suggested restoring network settings to factory settings. The effort was futile. I finally figured out that if I turned off Wi-Fi, then the email would fly successfully, otherwise it would sit pending in the outbox until I deleted it. So my solution worked well for about two years, but with a recent flurry of iOS 9.3 updates, once again I can no longer send AOL email from my iPhone, even if I turn off Wi-Fi.  Thankfully I now have a new email account on my business website server that works just fine. Interestingly, when I send from my AOL mail folder on my MacBook Air, I have no issues with the transmission, but I do notice that it generates multiple copies of that sent email to my junk folder.

An ongoing problem, I have difficulty with several social media apps and maps when not connected to strong WiFi, or where the WiFi setting is on, but none are available. The search function works terribly, and often new links will not load.  I regularly close all the apps multiple times a day, and frequently reboot my phone.  The maps function has been particularly frustrating as the GPS does not always work correctly.  One time I was driving in upstate New York, and the app thought I was in Illinois.

Most recently, with a spate of iOS 9.3 updates mainly designed to address security issues, now running 9.3.5, it is clear that many settings have changed on this latest update. In addition to deleting some very important Notes, I lost the ability to search in my Notes, which was a huge problem as I have many passwords and important information I use regularly. The Apple genius bar staffer told me my Notes were no longer backing up on the iCloud and therefore lost the ability to search. She adjusted the setting and recommended that going forward, I should check all my settings after each iOS update. To be clear, I don’t consider that white glove service. Another setting change that stood out, was to my Weather Channel app, which changed location to Las Vegas, Nevada since this latest iOS update. I clicked on “Add Current Location” and a new window popped up called “My Profile”. I was instructed to turn on “Weather Follow Me”. Are you aware that you have a Profile on your iPhone? I had never seen that before. Do you know how to access it? Since making that update, I am unable to find My Profile and the screen where I turned on “Weather Follow Me”. I checked my iCloud account, accessibility, privacy, location services, and the Weather app. I can’t find it anywhere. I believe it is hidden to make it more difficult for hackers, which I heartily endorse, but if you’re going to change settings to protect me, that also affect functionality I rely on, you either have to get the settings right, or you have to make it reasonably easy for me to find and update them. I rely on my mobile device to make my life easier, not more difficult. That standard must change, or I will no longer purchase Apple products.

At one point in the history of my iPhone 6 difficulties, I was told by an Apple genius bar staffer that my iCloud account had become corrupted and suggested recreating it. Again, I wasn’t alone in this. In 2013, my research shows that Apple began having problems with the iCloud. Apple iCloud service issues.  In general, I think Apple’s iCloud has difficulty when you have multiple devices of varying age and operating system on the same Apple ID. I also think that when a new iPhone comes out, the updated operating system works best when you have migrated from the previous iPhone model. I have since taught myself the steps to create a new Apple ID to see if that will help. 

As to my MacBook Air, recent OSX El Capitan updates have also created problems and strange software functionality, including issues with the Facebook event calendar. The chief difficulty I currently have is opening new windows in the Safari browser, when multiple windows are open. Recently I have had the same issue with apps on my iPhone, if I am using several at once. Once again I am not alone. iOS 9.3 had a bad week.  While this article speaks to a fix, I can tell you this is the single largest ongoing problem I have with my iPhone and Mac.  Many iPhone users complain about battery life, which I have never done.  I believe carrying an auxiliary battery is a very reasonable solution.  However, I have noticed that since the latest iOS update a few weeks ago, the battery life has noticeably worsened.  I assume this is because a setting has changed.  I have gone through all the menus and adjusted settings to preserve battery life, yet this problem persists.  The final point this music lover will make, is the quality and volume of sound when listening to music.  If my phone is connected to a power outlet, the sound is better.  It also seems to me there is a problem with the actual port where I connect my headphones to the phone. Interestingly, I have a friend who purchased the iPhone 6S a year ago, and he has a similar problem with the power cord port, frequently having difficulty plugging in and having the phone charge.  I believe that falls into the category of problem where some iPhones were bending.  I am happy to hear today that the iPhone 7 now has wireless headphones, so I am interested to hear more about that!

As Apple rolls out the new iPhone 7, I am considering buying one, as perhaps this will end my current iPhone 6 suffering, but I will certainly wait until all the reviews are in, and will specifically look for improvement on the issues I detail in this post.  I certainly want to learn more about the wireless headphones and two-camera system, but those added features alone, assuming they work well, are not enough to entice me.  I’m really interested in learning the nuts and bolts of iOS 10.0.    I am also considering the the Samsung Galaxy S7 Edge, at a current sticker price of $792, but I need to do my research first.  Apple is offering $649 for  the regular size iPhone 7 if you pre-order now.

One final point I will make, that I will develop in greater detail in a future blog post, has to do with mobile software performance on different wireless networks. I have Verizon FiOS 150/150, which is considered very good, although I should note that my wireless function works better when I am in the subway. Transit Wireless, a bai communications company that boasts a highly experienced global technology management team, has produced an impressive level of service in my opinion. Perhaps we can encourage them to enter the residential space. Also, since the latest iOS update, I have noticed a substantial decline in service on my iPhone while at Starbucks. Apps are very slow to update and media often fails to load. Previously I found wireless capability at Starbucks to be quite robust.  Interestingly, Starbucks WiFi is powered by Google, whose Android operating system is a major competitor to Apple iOS.

Overall, I believe the software hacking issues that have historically plagued Windows applications, are finally becoming an issue for Apple. I wonder if the “simpler” Swift programming language Apple rolled out in 2014 is a contributing factor. Also, if one of the goals of rolling out a simpler language, is to facilitate more cost effective programming, then there needs to be a standard as to level of functionality and service. In my September 2015 Blog post on long term capital appreciation, read more here, I spoke about the intense pressure CEO’s face as to quarterly earnings reports, yet most believe a long term growth strategy is better. Simply finding the least expensive path in the short run, may ultimately cost more in the long run. There is a simple saying, you get what you pay for. There’s a cost to service delivery failure.  Firms can model different P&L forecast scenarios based on these different strategies.  Apple states that they don’t compete with consumers who buy other smartphones.  I assume then, that they have a very good handle on the category of consumer who buys their phones.  For their “highly discerning technology user” clientele, I would evaluate sales and genius bar records to determine this population.  If this group comprises a small %, and it is better for the overall P&L to risk losing them on service performance, as opposed to making development and service delivery changes that will probably increase expense, then I will have my answer.  An industry colleague and friend I admire, recently told me he gave an estimate to a prospective client for some software development work. The prospective client advised that he had received a lower price estimate from another provider. My friend pointed out that when his team finishes delivering the product, it will stand firmly on two legs and deliver the type of service the client demands. In the case of the lower bid, the client will probably be at risk for service failure, and ultimately will need repeated follow up work, which will cost more in the long run. What is your client’s service level threshold?

Next month, I’ll take on Samsung and Android.

To wrap up in signature Rock&Roll style, hungry for a first class service level, and still riding the Guns N’ Roses #NotInThisLifetime reunion tour high, I’ll leave you with this epic live performance from the early 1990’s. “..When everybody’s fightin’ for their promised land. I don’t need your Civil War.”

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September 5, 2016 By Cynthia Drew In Technology /  

Blockchain Technology Is Happening!

You know I’m not one for sales fluff. I like cold hard facts. Make it about game changing innovation as big as the creation of the internet, and I’m all in! So yes Blockchain technology jumps to the top of my “FAVS” List, right next to Rock&Roll, Numbers, and Artistic Gymnastics!

What is Blockchain technology? A highly secure and encrypted database architecture that creates a distributed ledger, one set of records created at the beginning of the trade life cycle where all market participants have open access to the same copy. The Blockchain contains a high degree of trust, and can ultimately lead to more efficient, lower cost, and transparent settlement in minutes, rather than days. Virtually anything of value can be tracked and traded. Yes I said “settlement in minutes”, a thrilling proposition in the realm of cash flow and the beginning of a rising rate environment.

I first brought you my subject matter interest in Blockchain technology in my March Blog post Technology To The Top. I had just attended a Financial Women’s Association event on Blockchain featuring Blythe Masters, CEO and Board Director of Digital Assets Holding, a firm whose mission it is to develop this disruptive technology. Huge thank you to my good friend and trusted entrepreneurial advisor Janet Handal, Co-Chair of the FWA Technology committee and a leading force in the technology space, and Co-Chair Susan Joseph for bringing us this well received event. The FWA is consistently out in front on strategic financial industry issues, since its humble beginnings in the 1950’s, started by eight pioneering Wall Street women. Blythe Masters of course, has been out in front on many strategic changes in financial services. Her steely resolve and brilliance in leading the capital markets and regulatory environment to successful finish on some of the most complex issues the industry has faced, makes her the very best choice, in my mind, to lead this effort. With her March 16, 2016 appointment as Board Chairman of the HyperLedger Project, the global Blockchain community is off to a running start in delivering the most game changing innovation the global transaction marketplace will experience since the creation of the internet! Yes I said “global transaction marketplace”. The language is deliberate as this will cover a broad swath of industries well beyond capital markets, including consumer retail, manufacturing, and near and dear to my heart, the recorded and live music industries; basically any industry where something of value can be tracked and traded.

Since my initial dive into this exciting subject, I have come to learn how far this development effort has evolved. Thank you to my friend and industry colleague, Bhavin P. Kapadia, who invited me to hear him speak on a Blockchain panel, sharing his intent to learn more and be out in front on the delivery of this technology to OTC derivative settlement. A four person panel convened at a May 2, 2016 event for the newly created Hyperledger NYC Meetup Group, a very informative gathering chock full of technology experts leading the global Blockchain effort. The meetup group event was organized and moderated by Renat Khasanshyn, Altoros Founder and CEO, an engineering visionary from Belarus who wants to change the world; already with an impressive resume of accomplishments building complex applications using cutting edge technology. He started the Hyperledger-NYC meetup group specifically because he wants the HyperLedger project to become the #1 platform of blockchain-based decentralized applications. He is committing time, energy, and money into this new group, with an approved 2016 budget, and is happy to hear from others who wish to contribute to the success of this effort.

The HyperLedger Project is an open sourced effort to foster collaboration in the early stage development of this transformative technology. On Feb 9, 2016, the Project announced 30 founding members & code proposals to advance the technology. On March 29, 2016, they elected leadership positions and gained new investments. Learn more here. The technical community is just getting started in their review of proposed ideas, making this an ideal time to step forward and influence the discussion, more on the HyperLedger Community. Some of the most innovative firms in the world are actively engaged including the CME Group, Deutsche Borse, Thomson Reuters, DTCC, Goldman Sachs, JP Morgan, BNY Mellon, Wells Fargo, State Street, and Cisco to mention a few. Consider getting involved. Join HyperLedger Project.

The Project is supported by The Linux Foundation, the largest open source non profit organization in the world supporting kernel development and fostering a thoughtful environment for the open exchange of ideas. To join the HyperLedger Project, you must be a member of the Linux Foundation.

Another project important to the Blockchain discussion, is the Ethereum Project, led by the Swiss founded Ethereum Foundation.  Ethereum is a decentralized platform that runs smart contracts on a custom built blockchain.  ConsenSYS, a venture production studio with impressive technology talent spanning four continents, creating next generation app technology on the Blockchain focused primarily on Ethereum, sent two key people to participate on the meetup panel.

It’s an exciting story developing across the globe, at IBM Innovation Labs in Durham, NC, at the NYU Varick Incubator in lower Manhattan, at emerging blockchain software firms from Silicon Valley to Silicon Alley, across Europe and Asia, to Sydney, Australia where banking competition is fierce among the country’s largest four Banks, and technology innovation is key to differentiation, as noted in the final panel discussion by Sophie Gilder, Blockchain Innovation Manager at Commonwealth Bank in Sydney, Australia.

The first panel “HyperLedger vs Ethereum – A Battle for Blockchain, or a Match Made in Heaven” featured

  • Tom Menner, Senior Solution Architect at IBM
  • Bhavin P. Kapadia, Independent Consultant delivering OTC Derivatives Trading Platform Implementation at Wall Street Investment Banks
  • Igor Lillic, Full Stack Software Engineer at ConsenSYS
  • Andrew Keys, Business Development, Investor Relations, and Strategy for Hub and Spokes at ConsenSYS

A large group from IBM was in attendance as IBM’s Open Source Blockchain is a key component of the Hyperledger Project. Distinguished IBM fellow Jerry Cuomo, one of the founding fathers of IBM Websphere Software, and current Vice President of Blockchain Technologies at IBM, a new business unit within the IBM Cloud Group, is leading the group based in Durham, North Carolina. More on his perspective. Also contributing greatly to the IBM effort is Frank Lu, Product Line Manager for Blockchain, Sharon Weed Cocco Director Blockchain Technologies Development, Wolfgang Kulhanek IBM Cloud Architect, and Catherine Hickey IBM Hybrid Cloud Sales, a forward thinking and veteran group of people happy to share their knowledge and excitement for this effort.

It was a thoughtful and engaging panel discussion with great audience question and participation, reaching an important conclusion that the HyperLedger and Ethereum projects are complementary. This is encouraging as Ethereum’s blockchain implementation has gained recent attention, despite some concerns as to their establishment under the General Public License (GPL) which limits protections for unique technology development down the road. More on this from Altoros. I look forward to learn next steps on this collaboration.

So yes Blockchain technology development is happening! What is Wall Street’s reaction? The Depository Trust & Clearing Corporation, who oversees the entire stock settlement system, co-owned by the biggest investment banks and key financial industry players, and now a member firm of the HyperLedger project, is calling on capital market firms to get on the band wagon and support Blockchain collaboration. Yes DTCC is getting out in front on this, staking a claim to offer the market’s major players the opportunity to mobilize and influence next gen Blockchain products. It’s an interesting play, as this technology is clearly a threat to the DTCC business model. ‘Wall Street has learned a lesson from Silicon Valley, that embracing your biggest threat is the only way to prevent yourself from being overturned.” Wall Street embraces the Blockchain.

Of course Wall Street Banks are hungry for the prospect of sweeping cost savings in the middle and back office, and accounting shops. Accordingly, the potential for regulatory capital savings is huge, estimated to be in the billions of dollars. Further, this news is particularly timely, as implementation of SEC Rule 613, The Consolidated Audit Trail (CAT) moves forward. First introduced in October 2012, CAT seeks to embellish certain OATS limitations, specifically as to client identification. The current proposed timeline suggests this could potentially go live in early 2018. There is tremendous concern as to the cost of this development. The Blockchain could solve this huge cost issue. CAT overview.

Some other use cases that come to mind include:

  • Consumer Purchase Platforms – Improved Cash Flow and Automation of Accounting & Audit functions
  • Trading Technology – Automation of Market Data Reporting and Billing
  • Recorded Music – Private sector creation of a Music Rights database with a unique universal identifier structure

One final shout out to the group that started my journey into the Blockchain domain. A key and growing group of global FinTech leaders,  The FemTech Leaders Meetup Group engages technology visionaries across the globe with groups currently in New York, London, Copenhagen, Sidney, and Singapore. This group was founded by a savvy and engaged leader in the global FinTech community, Ghela Boskovich, Director of Global Strategic Development for Zafin, a firm with a relationship banking technology platform offering customer centric product innovations while driving revenue, transparency, and operational efficiencies for their clients. I first learned about this group from my FWA friend, the very astute and articulate Cornelia Levy-Bencheton, a global Marketing and Communications Strategy thought leader in the technology and digital space. I highly recommend her two recent publications delivered by O’Reilly Media, “Women In Data” and “Data, Money, and Regulation: The Innovation Dilemma”.

Of course, no one walks on water, even those delivering transforming technology. Capital markets developers will remind you of the ongoing, yet to be solved issue of evolving and inconsistent “ticker symbology”, a huge nut still to crack.  Will the prospect of trading P&L improvement, following the 2008 near collapse of the financial system and the onslaught of costly regulation that followed, get everyone focused? Perhaps. Stay tuned … Welcome To The Jungle!

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May 16, 2016 By Cynthia Drew In Technology /  1

Technology To The Top!

Technology has certainly transformed our lives, but can you take it to the top? As Mick Jagger and Keith Richards penned in the sleeper ballad “Tops” from the Rolling Stones 1981 “Tattoo You” album, “… I’ll make you a star…I’ll be your partner, show you the steps, with me behind you, you’ll taste the sweet wine of success…” Well, if you work in Capital Markets, the sweet wine of P&L success today depends upon innovation, collaboration, efficiency, and government regulation. Innovation ideally adds compelling functionality. Collaboration can mitigate risk and enhance solutions. The two combined have the potential to increase efficiency. Then there’s government regulation, a complex nut to crack that certainly requires both innovation and collaboration for all to succeed.  

In the electronic trading industry, innovation has lowered trading costs for the investing consumer; has made the markets more efficient and transparent; and has shifted real estate from exchange floors to fortressed data centers. Exchanges, data center providers, and electronic trading support firms collaborate to support the trading needs of large sellside banks, buyside asset managers & hedge funds, and new proprietary trading firms spun off from sellside banks in the first round of Dodd Frank reform. As the next wave of Dodd Frank reform implementation is upon us, specifically risk compliance, technology innovation will again play a key role in managing the P&L of all the firms on this food chain. The bottom line? Adding another layer of cost to the already razor thin margins that exist today, simply demands a solution!

A promising new technology that likely holds a piece of the long term solution for the trading P&L is Block Chain technology. A highly secure and encrypted database architecture that creates a distributed ledger, one set of records created at the beginning of the trade life cycle where all market participants have open access to the same copy, the Block Chain contains a high degree of trust, and can ultimately lead to more efficient and transparent same day settlement, and of course lower operational cost. The technology has the ability to process both trading settlement and loan transactions and there are implications for Big Data as well, solving the dilemma of “garbage in, garbage out”. Blythe Masters, CEO of Digital Assets Holding, whose firm has received a Series A $60 million investment led by JP Morgan, to develop this disruptive technology, maintains ‘These systems will tackle settlement latency in mainstream financial markets and will change the way our financial markets operate.’ Blythe Masters on Blockchain.  See more on JP Morgan Blockchain testing.  

Of course this is a huge undertaking, the transformation of multi asset class transaction settlement across a complex and fragmented global market, so it will not happen overnight. At the same time though, as the global capital markets’ P&L has gone through transformative change since the near collapse in 2008, financial institutions are under incredible pressure to improve margins. One way or the other, they will. Block chain could be one avenue to help achieve this goal. Interestingly, JP Morgan has been testing the technology over the past year and plans for live “applications” later in 2016. Stay tuned.

As a veteran analyst, passionate about financial analysis driving P&L growth, and always determined to increase operational efficiency in support of compelling analytics, this subject matter really speaks to my heart! In addition to the obvious operational “value add” Block Chain technology can add in transaction settlement, I see great potential for all of us who have labored over the years in calculating trading p&l’s and discerning key business trends.

Further, as a passionate Rock&Roll fan, I am completely delighted at the intersection with the music world, a subject I touched upon briefly in my September 2015 post “The Musical Artist P&L in Today’s Digital Streaming World”! A very strong potential use case for Block Chain technology is in the recorded music industry. Similar to Capital Markets, the Artist P&L has been transformed dramatically by technology in an evolving and fragmented digital market. Professional Music Advocacy groups, including the newly created Grammy Creator’s Alliance, have been out in force on Capitol Hill urging legislators to adopt new legislation and create mechanisms, using technology, to help Artists earn well deserved and transparent royalties for the music they create, in essence “to make a living”, and to promote and support an enduring legacy of musical creativity. Referencing the U.S. Copyright Office’s “Copyright and the Music Marketplace Report” released early in 2015, one of the recommendations reads “Encouraging the private sector to create a comprehensive database of music-rights ownership information with unique universal identifiers and messaging standards.”

On a lighter note, to round out the Technology to the Top discussion, how would you like to be on Jimmy Kimmel Live? You can be, using new video wall technology that Cisco has built exclusively for the show! Learn more here. Simply sign up at the website and hopefully you will receive an email from a very nice producer named Jamie. You will be sent a link to download the “Cisco Jabber” to schedule a live test with the production team, to make sure you have a solid internet connection. For wireless users, Verizon Fios works very well. Also, lighting is very important. You will then have a chat with the producer, so he can get a sense of your background. If the test is a go, you will then be placed on the priority list to appear on the show, when a particular subject pertinent to your background, is set to air. I am told you will then do a second test before appearing the following night. Very exciting and what a brilliant use of technology to engage the entertainment audience! Jimmy Kimmel Wall of America segment.

So to wrap up in signature concert footage style, I leave you with this incredible live 1993 Argentina performance, a technically brilliant & masterful combination of emotion filled voice & electric guitar by two Rock legends, amid a creative backdrop of carefully choreographed colors, lights, and video sequences. Enjoy! 

 

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February 26, 2016 By Cynthia Drew In Technology /