Think Bigger. Aim Higher. Go Further.

Tag: risk Page 1 of 2

Valuation of Hierarchy vs. Network

Modern platforms such as Google, Facebook, AirBnB, and others enjoy astronomical market valuations despite having comparatively less hard assets as legacy firms like Marriot, Boeing, T-Mobile, or Walmart. The difference may have something to do with their organizational structure.

Hierarchy: Since the dawn of the industrial revolution, centralized organizations comprised of multiple levels of management have been the proven means for allocating resources and minimizing risk.  The value of such a construct is expressed in terms of market demand and sensitivity to risk as expressed by the Capital Asset Pricing Model (CAPM).

E(Ri) = Rf + Bi (E(Rm)-Rf)


E(Ri) = Expected rate of return on capital amount
Rf = Risk free rate of return
Bi = Sensitivity to market volatility
(E(Rm) = Expected market return

The CAPM valuation model for an organization is dominated by market risk multiplied by a firms sensitivity to market risk.  CAPM valuations are limited by market expectations and performance.  CAPM is largely a linear function except in the exclusive state where volatility is very low and market returns are very high, such as monopoly or some duopoly conditions.

Networks: A network is characterized by a collection of nodes (which may represent a switch, a computer, a sensor, or a person) and branches (wires, signals, instructions, or communications) connecting the nodes.  The value of networks is a function of the total number of nodes and the total number of possible connections that can be completed between them multiplied by some coefficient of value for the quality of those connections. 

Metcalfe’s law for Networks suggests that the theoretical value of a network will be proportional to the square of the number of nodes according to the following relationship.

Theoretical value is proportional to: n(n-1)/2

The Actual value would be related to the quality of the nodes, the actual number of existing branches, and the net quality for the transactions that transpire over the network. For example, the Value of Facebook is estimated at:

VFacebook = (5.70 x 10-9) x n2

Where (n2) is the total number of users and (5.70 x 10-9), is an incredibly small number represents the average quantity and quality of nodes and branches between them. The Facebook platform objective is to maximize total number of connects AND maximize quantity AND quality of the interactions.  For reference; MySpace still has 500M registered users giving it a valuable network, however, a low coefficient of interaction has eroded value of the platform substantially.

Self-regulation, fault-tolerance, and Management Autonomy

The network can make independent decisions: An engineer that is mis-allocated can quickly move closer to their area of interest and competence.  Overlap between civil, mechanical, and electrical engineers can be managed appropriately.   A corrupt engineer would have a very difficult time gaining access to a target without enduring a long and difficult road to establishing a transaction record that would permit sufficient isolation to the target to actually profit from the crime. It would be difficult to corrupt an engineer without knowing if they will be assigned to a target.  It would be difficult to which engineer will be assigned to a potential target in advance of the attack.  If an attack was attempted, it would be easy to identify who committed the crime.  High impact targets may be covered with redundancy or a Byzantine proof.  Obviously, Bots would be quickly and easily dispatched to the null condition.

Network Learning

Interactions between nodes will tend to optimize claims such that the value of the compensation received is proportional to the effort required to establish and verify a claim.   This is a common practice in professional societies and certification bodies today.  Further, strong professional communities with sufficient diversity, create conditions for rapidly and iterative teaching, learning, and collaboration leading to a high rates of innovation.  Finally, professionals may reflect artistic or literary expertise or cite membership in multiple networks on their own valuation and the valuation of their team.  Reflecting diverse interests from professional, recreational, and social opportunities will increase the individuals stake in the network and everyone’s stake in a team.

The Value of the Quantchain Network:

Economist Robert Solow received a nobel prize for his work in estimating that 80% of economic growth can be attributed to technological change. Said another way, for every 2 dollars spent on engineering, society can expect 8 dollars returned to the economy.  This conveniently provided an average nodal value for engineers.

It is easy to count the number of engineers on the Quantchain, therefore the only variable left is the ability to assess the value and diversity of the interactions. Quantchain accomplishes this precise objective in several ways:

  • The decentralization of engineers diversifies interactions
  • Dominant game strategy = cultivate a diverse community of claimants and validators approaching Dunbar Number.
  • The Percentile Search Engine assigns optimum probability vs. cost to all transactions. 
  • Individual transactions and collective transactions are readily analyzed.    

Engineering networks can be assembled and subdivided in any number of ways and theoretical values may be assigned to them making the valuation of teams, mergers of teams, divestiture of teams, or scenario testing of any imaginable combination of teams, a quick and accurate projection of network value.

The New Value Movement

I believe that it is important to make a distinction between New Currency and New Value. The potential for confusion is high but the implications of getting this wrong could be catastrophic.

The Storage and Exchange of Value

A currency is a social system designed to store and exchange value.  Value is what people make when they do things together.  Not so obvious is that a particular type of currency may not be very good for storing and exchanging a particular type of value.  It is obvious that dollars may adequately representing the physical value of a computer, however, those same dollars may not be very good at representing the social value of a community using computer systems to interact with each other.

The New Value Movement:

From yesterday’s post: I have encountered hundreds of people developing social currencies with increasingly creative and constructive methods because their community is important to them. People are trying to solve the great puzzle of  human division because their community is important to them. People are trying to resolve the constraints in natural resources and the limitations on our planet, because their community is important to them.

The New Value Movement is precisely that; a movement to articulate, store, and exchange New Value arising from technological advances and NOT adequately served by the existing financial system that enabled those technological advances in the first place.

The Total Value is the True Value

The idea of New Value is not to replace the current financial system, rather, the net total of value articulated by both systems exceeds the maximum value that traditional money alone is capable of processing.  Convertibility between New Value and old currency will be conducted using a yet unknown New Currency that many now call “Social Currency”.  When the total monetary system can articulate the total value of the Earth AND it’s human resources, only then can an organic set of priorities be delivered to a market.

The New Currency Movement:

On the other hand, the image of a New Currency often evokes the wholesale replacement of an old currency brought about by the collapse of a financial system, hyperinflation, destruction of the factors of production, the introduction of some unforeseen peril, induced volatility, political risk, nationalization, war, terrorism, famine, plague, pestilence, etc.,…Obviously, the differences between the two movements could not be more stark…

A Clear and Present dAnger

It is also apparent that the traditional financial system has become fragile and it must never be in the best interest of anyone to benefit from increasing this fragility. The Internet and emerging social media technologies have finally integrated the tools that people need to organize themselves into New Value economic developers. However, during the transition, individual people or groups will hold the power to both stabilize and destabilize.

The danger is that a new currency ideal may seek to benefit from the premature collapse of the old currency system. This is not creating new value, this is the transfer of value by the abuse of power against the very system that supports that power. This is precisely the flaw that the new value movement is trying to correct.

Social Currency Derivatives Trading

The New York Times published an article yesterday about derivative traders being controlled by 6 powerful banks whose influence serves to keep out competitors and decrease the transparency of transactions. What struck me was the graphics that the article used to demonstrate both the problem and the solution for derivative trading:

The Problem:  Murky Market – no transparency

The Solution: Introducing a clearinghouse for transparency and correct pricing

The second diagram demonstrates how the introduction of a vetting mechanism inserted directly at the spot of least transparency greatly increases socially valuable attributes such as transparency, true pricing, reduced risk, open sourcing, elimination of conflicts of interest, and increased sustainability, etc – many of the attributes demanded by the new generation of activists seeking their place in the discussion that they struggle to understand. Hedge funds are indeed important tools for reducing volatility if, and only if, they don’t themselves introduce new risks.

The Value Game:

The second diagram looks a great deal like The Value Game developed by The Ingenesist Project for the monetizing social currency. By introducing a leveraged asset in the middle of a series of transactions, true value of the whole transaction system can be established eliminating volatility and reducing systemic risks.  The Value Game works in a manner quite similar to a hedge instrument.

The Airplane Game:

The Airplane Game deployed by the new start-up called Social Flights, for example, introduces a jet airplane transaction as a clearinghouse for the balance of the transactions in the game of door-to-door travel.  When all the players put their money down on a jet flight, they convert the financial currency to social currency, the true value of the transaction can be established when compared to an alternate market such as commercial airline, driving, train, etc. – not necessarily to dollars in the bank.

Financial Currency is a derivative of social currency

It is not surprising that social currency will become a hedge instrument for financial currency in markets.  After all, nothing economic can happen until people get together to build something.  Nothing of any significance can be built unless people exchange social currency. Only after all of that, can it be converted into money.

Intrinsic Banking

As such, every broker in every market can be replaced by a Social Value Game providing intrinsic banking services.  Can you see it?

The Innovation Banker

Future of Banking

When I use the term “Innovation Bank”, people conjure up the image of a cheery place where anticipation reigns as starry eyed depositors arrange their intellectual property in neat cubby boxes, Patents fly like cash register receipts and companies troll the halls looking for a cure for their bottom line blues.

This is not exactly what we have in mind, nor is it too far off either. An innovation Bank is simply a knowledge inventory that contains knowledge assets that exists in the format of a financial instrument and can be deployed for the purposes of increasing productivity.  In the process, it makes 10X more of itself every time it is deployed.  It mints its own money.

The Innovation Banker

This is not much different than a financial bank. In fact, in the financial bank, everyone assumes the borrower has the knowledge to execute the business plan and the bank lends the money. Oh, by the way, the money makes more of itself  10X over (fractional reserve system) every time it is deployed.

With the innovation bank, everyone assumes the entrepreneur has the money to execute the plan, and the seek to borrow the knowledge. Other than that, they can be considered identical. The key is in the scope, depth, and format in which the knowledge assets live in a community as well as the ability to track and preserve the creation of new knowledge in a community.  An innovation banker is a knowledge banker

A Virtuous Circle

Together with the financial banking, these two system engage in the dance of the virtuous circle of innovation enterprise. Apart, they collapse into the swirling cesspool of eternal debt and infinite interest (pun intended).

Music by Phil Felicia

9/11 and the Convergence Economy

Today, I have been reading a lot of posts related to 9/11 and the terrible events of that day.  The conversation lives.  It is propagated in every direction and expressed in so many different ways once unimaginable from editorialized news.

My memory of 9/11 was quite personal; I was the customer engineering account manager at Boeing – my customer was United Airlines.  I was fortunate to have worked with many UAL Pilots and Flight Attendants and their Unions; UAL lost 16 employees that day – I lost 16 friends.

I remember the anxiety in the aircraft business as the unspeakable was spoken, the impossible became possible, and the unreal became real.   My own identity was defined by commercial air travel and the safety and comfort of people and families.  The relationship between Boeing and UAL has always been profound; but the strain caused inside the industry was foreboding.

The fact that data could shift so rapidly called everything into question.   Relationships diverged, people no longer knew how to process the information that was available.  This gargantuan ‘outlier’ stained every single probability chart in existence – like a crater in a barren landscape.  The only clarity could be found in shorter time segments, before 9/11, after 9/11… but not 9/11.

“Google News” was one of the first information aggregation devices and was developed in response to one news junky’s need to know, as soon as possible, what is happening in the world of such micro-timing. As the subsequent political and economic swings overshot every rational stabilizing mechanism such as ‘checks and balances’, or ‘market arbitrage’ forces, the rest of us sought quicker and better ways to stay in touch with the events of the world.  This meant, quicker ways to stay in touch with each other.

Today, as 9 years of  “new time”  has been added to the risk equations, we can see the effects of radical cultural shifts; social priorities are gaining momentum over Wall Street priorities. While governments still wrestle with the old world order, a new one is forming in it’s place.  This new world has the power to perform many of the functions of corporations and government.  Can twitter catch terrorists?  Can Facebook entries trigger community awareness?  Can instant messaging deliver instant response?  How many lives are saved by Social Media?  I am not certain, but it is an important question to ask that age old question: Will good triumph over evil? or in economic terms; Is humanity self-correcting?

The convergence continues.  The next paradigm of economic development will continue on the micro-time scale as FB communities hit neighborhoods, Linkedin communities hit local communities of practice, and Twitter news armies grow.  Cooperation Capitalism will replace competitive Capitalism and social vetting will replace institutional surveillance.  Finally, a productivity backed currency will replace debt backed currency. Bring it on.

Georgism; When Old Ideas Become New Again

Henry George was discredited for many ideas which are now emerging in with the increased economic influence of Social Media, social capitalism, trade of limited natural resources, and the trade of social currencies in reaction to the demise of financial currency.

The new film “The End of Poverty?” begins with the same question which Henry George asked in P&P:

Why does poverty become a deeper problem as a society becomes more prosperous?

While times and technology are far different than 110 years ago, early ideas are sometimes essential to peel back the complexity and look for the “truisms” that drive the Human Condition. Only then can we find both our common ground and our common direction.

From WikiPedia: Henry George (September 2, 1839October 29, 1897) was an American writer, politician and political economist, who was the most influential proponent of the land value tax, also known as the “single tax” on land. He inspired the philosophy and economic ideology known as Georgism, which is that everyone owns what he or she creates, but that everything found in nature, most importantly land, belongs equally to all humanity.

[The following is a lose adaption from a 1993 article by Robert V. Andelson which can be found here with links dutifully provided by Stephen Nacci, 2010]:

…The method of discrediting Henry George is described in “The Corruption of Economics

The book describes basically taking Classical Econonomics and distorting it by
artifically merging land into capital, and distorting Classical economic thought
with NEO- Economic thought, and pushing this agenda through media and
institutions… over the last 100 years…

Henry George’s first book, Progress and Poverty: An inquiry into the cause of
industrial depressions and of increase of want with increase of wealth… The
was self-published in 1879. It went on to become the best-selling book ever on
political economy,* and in the 1880s and 1890s was said to be outsold only by
the Bible.

*Political economy is the science which deals with the natural laws governing the production and distribution of wealth and services.

He went on to write several other important books including Social Problems, The Land Question, The Condition of Labor, A Perplexed Philosopher, The Science of Political Economy, and (published posthumously) Protection or Free Trade, and a number of articles and speeches, including The Crime of Poverty, Ode to Liberty, Thou Shalt Not Steal, Thy Kingdom Come, Causes of Business Depression, and Justice the Object, Taxation the Means.

In 2006, Bob Drake* did a thought-by-thought updating into contemporary language of Progress and Poverty, which was published with the subtitle “Why there are recessions and poverty amid plenty — and what to do about it. Or, download and listen to Bob’s MP3 here

We hope you’ll explore Henry George’s answers — and his remedy. We are persuaded that the problem of poverty can only be solved through recognizing what George taught.

Conversational Cannibalism

hypocriteI don’t often run a full repost from other people on this blog, but this post by Seth Godin was just too rich to leave alone.

I have been posting a lot lately on the irony of social media devolving to spammers spamming spammers, especially the recent Twitter plan to charge advertisers for jumping to the front of the line by exploiting data provided voluntarily by the users (Twitter Me Elmo).

All of this tells us that Social Media is up against the ropes on the monetization plan. As a result it is starting to consume itself. This may be the first indication that the Dollar is NOT the currency of trade in the social media space, it’s a yet unnamed Social Currency. This definitely tells us that something new must happen soon.

Of course, The Ingenesist Project specifies an alternate financial system that can accommodate a social currency, but the lure of the almighty dollar remains strong enough to blind the choir itself and out-pitch the humble whisper new economic paradigm evangelists.

Anyway, here is Seth’s post in it’s entirety. Buy his books and read his blog, get his feed for daily email enlightenment. Seth, I apologize in advance for posting without your explicit permission…etc…just trying to “keep the convo rolling….”


Cannibalism and spam

By Seth Godin:

So, these two cannibals are eating a clown, and one says to the other, “does this taste funny to you?”

We don’t often have conversations about cannibalism. We don’t trade recipes or talk about health issues. That’s because it’s off the table, not permitted, inconceivable.

Marketers should feel the same way about spamming people. Spamming them by email, by text or yes, by calling their cell phones with a robot, repeatedly, just because it’s cheap and because they can.



If anyone should know better, it’s the Word of Mouth Marketing Association. And yet, not only did they spam thousands of people by phone, they want us to “keep the convo rolling”. And when I spoke to their Executive Director, she had a hard time understanding that what they were doing was spam.

Spam is unanticipated, impersonal, irrelevant junk I don’t want to get. Not only that, it costs them less to send it than it takes me to figure out what it is and deal with it. That doesn’t scale. In fact, it destroys the medium.

Why would anyone join, pay their dues, go to their meetings or want to engage with an organization that’s willing to cross a line like this? Even once? (and then brag about it!) Maybe I’m getting cranky, but the relentless march of marketers into our lives is really getting to me.

In case you missed the first part of our show, the future of marketing is based on permission. It’s based on sending messages to people who want to get them, who choose to get them, who would miss you if you didn’t send them. It’s not easy and it’s not cheap to earn permission, but so what? This is my attention, not yours, and if you want to use it for a while, please earn the privilege.

PS If I ran Twitter, I’d build my new ad service about a socially acceptable way for corporate users to build large lists of followers, people who would give permission to get news and discounts and insights from advertisers. Twitter knows who likes what and they have permission from users to be a bridge between the user and those that might want to talk to them. That’s a powerful place to be.

Using cheap technology to spam people is not.

The Brain-Picking Economy

brainI come across an increasing amount of posts and discussions related to alternate currencies, social currencies, and knowledge as a tangible asset, etc.  It is as if people are grappling with something that they don’t quite understand or can’t quite grasp – but, soon will.  Really, don’t lose heart – they are definitely on to something.

Sandy Jones Kaminski of Bella Domain provideds a well developed argument against letting people pick your brain by proposing the “no brain picking list”.   While somewhat tongue-in-cheek, the article portrays a common frustration felt by specially qualified people who get too many requests for “brain picking” and not enough turkey sandwiches to justify the time-value of the exchange.

[People who ask to pick your brain are either asking you to work for free or they are trying to bypass the very hard work required to build a social network by asking for your referrals]. While not quite a reason to end brain-picking, it certainly indicates a hugely inefficient market.

Taking some clues from the banking industry

A bank seeks to match most worthy money surplus  (rich people who will not pull their deposits abruptly) with most worthy money deficit (employed people with good credit history).  In order to accomplish this, the financial system has 5 essential components: a currency, an accounting system, a vetting mechanism, entrepreneurs, and business plans.

Now suppose we transpose the rules of finance on the rules of brain picking.


A currency is defined as a vessle that stores and allows for the exchange of value.  So it’s natural to expect that relationships, networks, “contacts”, “followers” and all the other accoutrements of social mediation are means by which we store value.  We invest time in developing our own knowledge assets and we invest those assets in our relationships.

Accounting System

The balance sheet needs to, well, balance.  The first assumption I make is that every single living breathing person on Earth holds value. It’s only a matter of whether they have a surplus in knowledge assets in that which I have a deficit and vice-versa. Since my deficits far exceed my surplus in the vast majority of human knowledge, I am always looking for a fat juicy brain to pick as well.

Vetting Mechanism

If the game isn’t fair, nobody will play.  Social media provides the most critical element of brain-picking economics.  Any time someone asks to pick my brain, I’ll do a Google search or conduct a social media profile on them. What I find will quickly determine what the initial contact will involve a courtesy email or a 3 hour golf game.

Business Plan:

Buy low sell high.  That’s the mantra of capitalism, but it remains “unspoken” in social media.  If a person is very successful at picking brains, there is an inherent quality in that which may be useful to me. I will study them. If other important people have allowed this person to pick their brain, why not me? If I’m getting a lot of pickers from a certain demographic, maybe that represents a business opportunity, seminar market, or speaking engagement.

An entrepreneur is as an entrepreneur does

Entrepreneurs do nothing more than identify assets and elevate them from a low level of productivity to a higher level of productivity.  I ask my brain picker who they have also discussed the matter with. I also ask them places and dates of those interactions.  I ask them about people in their social network, rumors, concerns, projections.  I ask them their goals an objectives in talking with me – exactly as I would do for any client….

…well before you know it, I’m picking their brain.

Criminals Steal Social Agreements

At the end of the day, everyone is arguing over money. How are we going to heal the poor? How are we going to police the world? How are we going to bail everyone out? How are we going to preserve the environment? The answer is always the same…it takes money to solve all of these problems.

What people do not realize is that currency is a social agreement, not a disagreement. Money is whatever people agree to use as a storage container for the value of their time, labor, intellect, or other resources. A criminal can steal your time, labor, intellect and possessions, or they can just steal your social agreements and replace them with a social disagreements.

It is easier to steal from the poor than the rich

Stealing money is not as difficult as some may think. Whenever people are held below a certain economic level, they fail to organize in communities that would otherwise protect them from outside influences. These people are often too busy holding a job, paying off debt, or traveling in search of work, or worse, a place to live – they become easy targets.

Blind leading the blind

Currency, by fiat or black market, is just a way that everyone agrees to store and exchange value. So, when people are at each other’s throats over a system of beliefs, they are effectively blinded to their true opponent – their inability to make a social agreement regarding the storage and exchange of value.

The current political strains pulling at this country are dangerous. The real problem is not your colleague or neighbor who is in favor of universal healthcare. The problem is not your old classmate on facebook calling Obama a liar. It’s OK to oppose the government – it’s our right. It’s OK to oppose bankers, they are accountable to a social charter.

The problem is that people are opposing each other.

There is no way to pay off a 50 Trillion dollar debt. All politicians know this. You would need to harvest every fish in the ocean, pump every remaining barrel of oil, and cut down every tree to extract this amount of “value” from what is left of the Earth. To whom exactly would this value be delivered and how? It simply cannot and it simply will not be repaid without some magnificent productivity gains on the order of nuclear fusion or superconductivity.

I will not speculate exactly how the currency fails. There are plenty of examples in history. Instead, I will speculate on what will replace the failed currency in the age of social media.

Social media is taking on some very fortunate characteristics, especially in the area of organizing people and communities around a common goal. Too often that common goal is to oppose another force of social media. This will change, it must change. When the dollar fails, people are going walk out their front door, look at their neighbors, and introduce themselves.

So, There you have it – that’s where all the money went. It is stored and exchanged in our social agreements.

Culture: When Engagement Is Not Optional

pLASMA bALLToday we see Social Media duplicating many of the functions of earlier society by storing community wisdom, applying social vetting, and deploying social currencies.

It takes a Community

Here is an article is about a a person who learned through social media profiling that her fiance was active in hobbies that conflicted with her moral constitution – before the wedding instead of after.  In the old days, the community would also profile each individual based on the social record of their behavior.

Social Capitalism

Here is a video article that discusses how social media is  duplicating many functions of the corporation outside the construct of the corporation. Factors of production increasingly enter the org chart as a social media application.  We now question whether the corporation itself is the sole vehicle of wealth creation.

Social Currency

We see social media duplicating many of the functions of the financial system where currency, credit scores, banks, land, labor, and capital are being replaced by social currency, social vetting, social capital, creative capital, and social entrepreneurs.

Macro vs. Micro

We see divisions of scale from the long-winded one-sided content of the static web presence to the micro blogging applications that more closely resemble a conversation.  Time factors are accelerated to the point where real-time is not fast enough.

Local vs. Global

We see an emerging segmentation between Local Social and Global Social. At first global leverage was the awarded the small entrepreneur with something to offer to the world.  Now ‘Local Social’ enjoys substantial leverage over global corporations by reorganizing the way people prioritize and experience each other and their community.

Everyone is a node

Taking an analogy from the physics of electricity, the term “potential” means the difference in energy between two nodes.  The greater the difference, the bigger the spark and the greater the impact.   The local energy at each node influences the direction and size of sparks between nodes.  As people accumulate ‘Social Current’, their position relative to those around them changes. Likewise, their potential also changes relative to the ‘Social Current’ of others. Everyone has some potential relative to every other node.

Integration has arrived

Much like the knowledge economy integrated, but did not replace, the agrarian economy, Social Media will not replace the corporation, the financial system, dissertation, conversations, localization or globalization.  Rather, everyone becomes a corporation, everyone prints their own social currency, everyone publishes their intentions, everyone has local and global leverage.  That’s what Integration is all about.

A ‘culture of one’ is moot.

It is not surprising then that our culture itself is now being defined in terms of social media with effective aggregation of  social norms, storage of social wisdom, and medium of exchange for community ideals.  The true test of “culture status” is when engagement is no longer an optional.  Without engagement, there is no culture.

Gowalla and Foursquare: Money is as Money Does

manhattanMoney happens because people happen, not the other way around.

Wall Street has no idea what’s knocking at their door with the emergence of a new class of Social Media Applications that incorporate geolocation strategy.

Money is as money does.

Hanging out in bars and buying silly tokens does not define a sustainable economy any more than borrowing money from yourself with interest in order to keep it sufficiently “scarce”. However, the strategic combination of social capital, creative capital, and intellectual capital does define a sustainable economy.

Social Productivity can be loosely defined as “what you make with your time”. All of us have a limited number of hours on Earth.  “Don’t waste my time” is the new Tax on Tea. The Last Mile of Social Media is a critical step that will complete the Internet as a system of social organization, and as a result, financial reorganization.

The 5 components of a financial system

A financial system must have 5 components acting in a system in order to sustain itself:  1. a means to store and exchange value (currency). 2. inventory 3. vetting  4. entrepreneurs, 5. A business model.  If any of these components is missing or becomes corrupted, the whole system fails.  Where all of these components are intact, however primitive, an economy will flourish.

1. Currency is a social agreement and the Dollar is no exception.  The “social agreement” is the presumption that the currency is scarce and therefore valuable.  In reality, time is scarce.  Geolocation is important because traveling is a quantity and guessing is a quality that are both time consuming.

2. The knowledge inventory is emerging where people establish themselves as experts through blogging, community organization, and development of creative content.  The new class of social media applications like Gowalla, Foursquare (and those not yet created) will eventually evolve to highly organized and finely granulated knowledge inventories in and about communities.

3. The vetting mechanism will form as people with common knowledge assets aggregate around cooperative activity rather than competitive activity.  High integrity will be rewarded and low integrity will be punished. Gowalla and Foursquare are still easy to cheat, but that will get worked out.

4. Entrepreneurs. As information becomes infinite, time becomes more scarce, thereby forming the basis of this new economy. Entrepreneurs will identify knowledge assets and elevate them from low levels of productivity to higher levels of productivity. Gowalla and Foursquare provide visibility to some rudimentary knowledge assets – it will only get better.

The New Class of entrepreneurs will begin by aggregating strategic combinations of vendors.  Then they will aggregate strategic combinations of knowledge assets and match them to strategic vendors in infinite combinations. They will manufacture “time”.

5. The business plan is simple: A. transform data to information, B. transform information to knowledge, C. transform knowledge to innovation, D. transform innovation to data.  Each transformation produces “time”.

In fact, this is all that Gowalla and Foursquare accomplish.   Each transforms data into information and people transform information into knowledge.  People are drawn to the possibility of  increasing the value of their time in their community.

If people can make their own currency more efficiently than a corporation or government can do it for them, they will. Don’t worry, a currency will find a way to represent them – after all, money is as money does.

The Interesting Thing About Interest Rates

Money represents human productivity, but the interest on money represents risk. This means that the lender collects interest because that represents the risk that they assume in departing from their money. Meanwhile productivity fluctuates naturally and can be affected by a many external forces.

The problem is that risk can never be negative, therefore interest rates can never be negative – that is called “breaking he buck”. Risk is a measure of volatility, or, “deviations from what is considered normal”. While there is certainly good deviations and bad deviations, there can never be a “negative” deviation from normal – it is a mathematical impossibility, a glitch.

The result is that productivity must always be driven up and up and up – sometimes in unnatural ways, such as forcing consumption. Constant production is unacceptable – it must always increase. Vacations, free time, family time, and leisure are not acceptable. What if we had a currency that could accommodate a negative interest rate?

A Community of Knowledge Assets

A Community of Knowledge AssetsOur culture organizes itself around winners and losers. Corporations reflect this competitive nature to the core of their Capitalist doctrine. Sports analogies abound across the enterprise straight through to the HR department always on the lookout for the most amount of superstar for the least amount of money.

Social media has every industry trying to understand the concept of community. Among the most difficult ideas to grasp is that knowledge assets in a community live on a bell curve, not in winner and loser columns. Everyone is an expert at something and nobody is an expert at everything. Someone who is not performing adequately is simply a misallocated asset, not flotsam subject to jettison at the next layoff or outsource “opportunity”.

A Community of Knowledge Assets

Like most assets, there is a perfectly legitimate market for everyone in a community – nobody need be excluded, marginalized or laid off. Social Media is turning the tables on the hierarchy and old winners who don’t play by the new rules quickly become the new losers. Maybe we ought to run our economy like a community instead of losing so badly at trying to be a winner.

A Community of Knowledge Assets

Video: Taxonomy for Community Knowledge Inventory

2009 Forecast DocAny taxonomy that is used to classify information is a candidate for the classification of knowledge. This is because knowledge is related to information in a differential equation that also includes data and innovation (another blog post).

The trick is that everyone needs to be using the same taxonomy so that we can all access knowledge inventories of the people around us as easily as it is to access books on This will lead to a trade in knowledge assets formally the sole domain of corporations through the process of industrialization (yet another blog post) .

Please enjoy these videos, use them as you wish and let us know what you think.

Video: Tangible Knowledge; The Holy Grail of Social Media

Accounting Balance sheets have tangible assets and intangible assets. Unfortunately, intangible often means invisible and those on the dark side of the moon wind up in the unemployment line.

What if knowledge assets were tangible? What if you owned your knowledge like a company owns a structure or specialized machinery? What if it could be quantified and qualified so that it resembles all other tangible assets? Easy answer…entrepreneurs will trade it, like money.

Calculating The ROI of Social Media

This video introduces a new way of looking at social media valuation. People find value in social media otherwise they would not do it. How is that value expressed as a financial instrument? If you engage your clients in the same currency that they are trading among themselves, the greater the likelihood you will realize the value of the new media phenomenon.

Draw Your Own Org Chart

I recently caught up with a childhood classmate on Facebook. I remembered hearing that she had lost her older brother, Robert, in a recreational accident several years ago. Nobody ever knows what to say to a friend in a situation like that. But her brother was different.

When I was a freshman in high school many years ago, a couple of goons were getting ready to kick my ass for no particular reason except that I was a freshman. Then Robert walked around the corner. He stood next to me, applied a menacing grin, and stared my oppressors down. After a few moments, he walked away without saying a word.

Robert never said very much, he didn’t have to. He had so many friends that nobody dared to mess with him. I very much appreciated his intervention because nobody ever bothered me again.

Over the next several months, I saw Robert do this few more times. That’s when I realized why he had so many friends. It was one of those “life lessons”.

I’ll leave the story here, where Robert left it for us. Draw your own conclusions about social media organization.…

Picture credit: Names and Faces are not of the actual people portrayed in article

Using Social Currency To Fight Terrorism

conversations2-500x351Given the events of the last several weeks, it’s time to for the aviation industry to get serious with Social Media.   This article demonstrates how an alternate currency can be used to severely reduce or eliminate terrorist risk in commercial aviation.  Think I’m kidding, read on.

Obviously an airline will not let you board an airplane if you don’t have the financial currency sufficient to buy ticket.  Why should an airline let you board an airplane if you do not have social currency sufficient to fulfill your social obligations while in the air?

People with extreme social currency deficiencies are routinely stripped of their rights by a jury of peers and isolated from society for a period of time (where they would not board an airplane anyway).  While there are many systems in place to manage the various degrees of social currency deficiency, none appear to be able to identify a terrorist without also violating the rights of non-terrorists.

Human Writes

However, many people are willing to share information about themselves to associates with whom an economic benefit is shared or exchanged.  This happens a billion times per week on Linkedin, Facebook, and Twitter – why not among fellow passengers?  After all everyone is already connected by 6 degrees.

What would a terrorist’s Facebook profile say about them?  Do they have a lot of referrals on linkedin?  Do they post great work on Flikr? Is their community orchestra featured on My Space? Are their posts popular on twitter?

Should a social currency credit score become imperative to social transactions as the financial credit score is for financial transactions?

Banks and Insurance companies already rely on a highly invasive “Credit Score” to establish financial risk profile as a means of protecting their selves and their other clients. Why wouldn’t an airline use a social credit score to establish a social risk profile as a means of protecting their selves and the lives of their other clients?

Ruse and lose

Sure, the bad guys can adapt to social media as they have adapted to all other measures.  The problem is that the greater the size and scope of their social media ruse, the more difficult it is to maintain the ruse.  A threshold score could be set to nearly eliminate this possibility.  Those folks can then simply opt into the full body scan.

The Paradigm Shift

As the saying goes, the attacker needs to be successful only once, while the defender needs to be successful every time.   The concept of a Social media credit score flips this paradigm on it’s head. The attacker’s social credit score needs to be successful every time.  The defender needs to be successful only once.

Political Memoirs; The Money Shot?

political-memoirsOne must seriously ask, how exactly do political memoirs increase human productivity?

2009 marked the resurrection of the infamous “Book Deal” with lovely Ms. Palin and entourage leading the charge. However, books are not the actual product; it is the kindling (amazon pun intended) that they provide for endless fodder for the mainstream and new media.  It’s the money shot.

Entering a mid-term election year with the future of our country in the balance, the onslaught of meaningless dribble will be epic. The national pundits will go wild fueling local media coverage as the authors engage in their cross-country tours of duty performing the perfunctory act of accomplishment.

There will be a wide audience of Americans asking themselves the same question:

Should the past be used to predict the future?

Karl Rove

Former deputy White House chief of staff’s book Courage and Consequence will be published on 9 March by Simon and Schuster’s Threshold Editions, a conservative imprint. Deal reported by US media at $2m.

Donald Rumsfeld

To be published in the autumn by Sentinel, an imprint of Penguin. No advance for the former defense secretary, share of proceeds to go to charity.

George W Bush

Autobiography, tentatively titled Decision Points, is to be published by Crown. Deal estimated at $7m.

Laura Bush

Her memoir is due in the spring from Scribner. Laura’s deal may be worth more than her husband’s. US media put it at $8m.

Dick Cheney

Scheduled for spring 2011, the former vice-president shares publisher with Rove. His deal is estimated at $2m.

What if this conversation has no currency?

What if we are reaching a tipping point? What if nobody cares anymore? What if none of this makes any sense to anyone? What if we can more accurately use the future to predict what really happened in the past?

Conversational Perjury

As brands get social, they enter the new media performing their best interpretation of a conversation. Face it, they are still going for the kill – like a wolf in sheep’s clothing – the dance of the pitch is just getting more sophisticated. Social media is powerful followed closely by the of abuse .

The danger is that the more it resembles buddy talk, the more likely it will be mistaken for buddy talk. The sales pitch is being elevated to an art form. Now social media can be as much as a social cure as a social anomaly.

The 4 Big Lies of Marketing:

The integration lie; Ingratiation efforts are manipulative and calculating but serve as a very subtle way of obtaining increased power over another person. Appearing to be similar to the target the ingratiator appraises the target person’s attitudes, opinions, and interests and modifies his/her statements to match the perceived beliefs of the other conforming to the target’s wishes.

Major Brand: The key principles underlying [company] decisions and actions in social media are: Listening, Learning and Engaging in conversations with our customers where they are…while hiding where we are.

The foot-in the door lie: To increase the likelihood of a prospect saying yes to a moderate request, a person may ask for a smaller request first. By saying yes to the first, small request, the person may agree to the second request to maintain consistency with self perception.

Major brand: we recently launched an on-line quiz with a widget component exclusively through social media and it has been a great success just in terms of the number of people taking the quiz and then word of mouth as a result. This goes back to us showing people can engage with [company name] not yet buying the product.

The ‘Istanbul bazaar’ Lie: The initial request is very large – large enough that no one could be expected to comply with it. It is then followed by a smaller, more reasonable request. This technique relies on the norm of reciprocity. The norm of reciprocity states if a person does something for you, you should do something in return for that person.

From a famous social media marketing evangelist: Extrapolate the potential points of touch between your customers and your organization, by showing them what full engagement looks like but then asking for a smaller subscription, enables participation in some of your processes, in some way.

Even a penny will help Lie: This technique is based on the tendency for people to want to make themselves “look good.” Since everyone has a penny, one would look foolish to say no to the request. The target cannot simply give a penny without looking foolish. The target tends to give whatever is appropriate for the situation.

From a Social Media Marketing Guru: FB Friending, Twitter, and even Linkedin are brilliant in delivering mutual follow mentality to marketing – people want to feel good for having followers and will often put up with constant, yet fleeting marketing messages. Tweet meme is another way for people to feel good about thier self for a tiny investment of a single click.

Inherent in all 4 techniques is the attempt by an influencer to manipulate another by engaging in subtle subterfuge. The only way to undo the lie is with a simple truth: knowledge and understanding that the influencer is always lying.

Dark Net and the Economics of Mutual Anonymity

In 2001, Michael K Bergman, an American academic and entrepreneur and one of the foremost authorities about the Internet, published a paper estimating the “Deep Web” to be 400-550 times larger than the known Googleverse.  What does this mean for everything we claim to know about the web, social media, and social influence marketing?

Andy Becket wrote an excellent investigative piece called  The dark side of the internet that I highly recommend reading.  Among many great points, Andy describes the deep web:

“The darkweb”; “the deep web”; beneath “the surface web” – the metaphors alone make the internet feel suddenly more unfathomable and mysterious. Other terms circulate among those in the know: “darknet”, “invisible web”, “dark address space”, “murky address space”, “dirty address space”. Not all these phrases mean the same thing. While a “darknet” is an online network such as Freenet that is concealed from non-users, with all the potential for transgressive behaviour that implies, much of “the deep web”, spooky as it sounds, consists of unremarkable consumer and research data that is beyond the reach of search engines. “Dark address space” often refers to internet addresses that, for purely technical reasons, have simply stopped working.

The implications of the Dark Web are subtle.  Like “Dark Matter” in space, the dark web may behave as a multiplier to account for that which cannot be explained except by some invisible, albeit, constant force.  We can assume consistence because the common thread that transcends the entire Internet is still conversation. The ability to have a conversation as well as the ability to reject a conversation is part of the Dark Web and still a conversation nonetheless.  The opposite of publicity is anonymity – if the universe seeks balance so too can we expect the web to equalize around the average anonymity of conversation.

Entrepreneurial factors also appear rational when applied to the Dark Web, specifically true ownership.  Ownership includes the right to restrict access from others.  In the Googleverse of search rankings and old economics, watered down and largely unenforceable copyright laws create a wasteful game of Cease and Desist among content providers – not exactly a safe place to converse.  The inability to establish ownership and boundaries of user generated content is a primary constraint on monetization.

Meanwhile, the Dark Web utilizes a knowledge inventory where trusted people of known affinity are given free access to share freely – and anonymously.   Ironically, anonymity improves the quality of a conversation by eliminating the irrelevant data that often constrains conversation.   It is worthwhile to consider anonymity as a possibles monetization factor – pay to hide?

Not all anonymity is corrupt and perverse.  People spend a great deal of time and effort developing a database that represents a knowledge inventory and they don’t want someone to just copy it.   Trade secrets are the great competitive financial instrument of capitalism and depend on secrecy.  For better or for worse, political activity in non-free countries such as China, Iran, and Afghanistan also rely on anonymity. The more time people spend on the web, the more of their personal life that would want to keep to themselves – the ability to avoid Google bots is a tangible conversation.

The phenomenon to consider is that people with mutual anonymity are able to share more freely.  Ironically, anonymity improves the quality of a conversation by eliminating the irrelevant data that often constrains conversation.  Conversely, efforts to constrain anonymity destroys freedom of the web.  Tell that to your web analytics team.

Pirates, Anarchy, and the Monetization of Social Media

(Editor’s note: some ideas adapted from writings of Peter T. Leeson and introduces the idea of IOUs trading as a proxy for production.  The monetization of social media will likely evolve from such an idea)

No sane blogger would post an article suggesting that anarchy is superior to government as a means of producing widespread cooperation…or would they?

As Milton Friedman put it, “government is essential both as a forum for determining the ‘rules of the game’ and as an umpire to interpret and enforce the rules decided upon.” Most great anarchist theories are duly faulted for significant problems coping with cheating and violence.

Nonetheless, large swaths or anarchy exist today.  For example, there is no World Court to enforce World Law, if such laws existed.  Nor is there a Global commercial law to enforce contracts between Global traders. Even at a local level there is no guarantee that the government will protect your property or enforce your contracts.

A common objection to anarchy is that without government the strong will plunder the weak because the weak have an inherent inability to protect themselves. How can self-governance alone protect the weak?

Social Piracy?

Fallout: FTC and Blogger Payola


The FTC recently issued guidelines for payola to bloggers.  The impact and opinions are now emerging over what this means for social media. As with any game played on a new field, rules need to apply.  The questions emerge regarding who the rules hurt, who they help, and how the game will develop in the future due to those rules.

Straight from the horse’s mouth:

The revised Guides also add new examples to illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed. These examples address what constitutes an endorsement when the message is conveyed by bloggers or other “word-of-mouth” marketers.

Extrapolate into the future:

The Invisible People

InvisibleManThere is no knowledge inventory.  There is no knowledge inventory.  There is no knowledge inventory.

This is a stunning omission for a society that intends – no, a society whose future is irrevocably dependent on it’s ability to innovate it’s way out of inevitable monetary collapse.

America does not know what Americans knows.  Entrepreneurs do not know what knowledge is available to them.  Markets do not know the supply and demand of knowledge assets.  The self-correcting magic of market capitalism is utterly unavailable if people and their knowledge assets are invisible.

  • There is a story out of the past mayor (someone who performed their civic duty to run for elected office) of Bennett Colorado who is one eviction letter away from living in a Ford Explorer with her 4 dogs.
  • Thousands of older Engineers are unemployed when Congress is crying for more Engineers.  This is the reason why there are none – the career has been reduced to a lousy bet.
  • Experience is knowledge, yet older workers also have a tougher time finding new jobs once they become unemployed. The average duration of unemployment for those age 55 and older is almost 30 weeks.
  • About 38 percent of the older workers and 26 percent of the younger workers had been out of work for 27 or more weeks in June.

Our economy needs to be able to efficiently match knowledge surplus with knowledge deficit in order to produce things and educate each other.  Diverse knowledge assets need to be combined in new and strategic ways.  Knowledge assets need to be matched by proximity as well as innovation potential.  Investors need to know the probability that a collection of knowledge assets can execute a business objective in order to decrease innovation risk.

Nothing can be accomplished without a knowledge inventory.  We have empowered corporations to be the stewards of the US knowledge inventory and the associated innovation economy. Information, knowledge, and innovation act as a system.  Without one of the pieces, you cannot have the other two.  If we outsource the knowledge economy, we lose the innovation economy.

The great promise of Social Media is that the knowledge inventory becomes a public reference. People need to know what other people know so that they can build things.

Once you are outsourced – you become invisible.  Who will be the next invisible person in your neighborhood?

Building a Better Entrepreneur; Google 10^100

Google 10^100 award voting is Launched.  There are two sectors that we believe would have the greatest impact on the greatest amount of people; building a better banking system and funding social entrepreneurs.  You can’t have one without the other – if Google funds these two sectors in concert, the outcome would be incredible.

Build A Better Bank

In the old banking system we assume that we have the knowledge to execute a business plan and we go to the bank to borrow the money.  In the new banking system, we will assume we have the money and we go off in search of the knowledge.  Social Media is an excellent “public accounting system” for knowledge assets.

Our current banking system has gotten it backwards.

Technological change must always precede economic growth. The supranational currency may be backed by productivity and not debt.  Social media provides an excellent platform upon which to design such a banking system. People trade “social currency” at a tremendous rate.  This is evidenced by the amount of destructive innovation is occurring in many legacy sectors due to social media.

Better Banking Tools for everyone

“Partner with banks and technology companies to increase the reach of financial services across the world. Users submitted numerous ideas that seek to improve the quality of people’s lives by offering new, more convenient and more sophisticated banking services. Specific suggestions include inexpensive village-based banking kiosks for developing countries; an SMS solution geared toward mobile networks; and ideas for implementing banking services into school curriculums”.

Suggestions that inspired this idea

1.    Enable prepaid cell phone bank accounts for millions of people working in the informal economy
2.    Create a community-level electronic banking system for rural areas
3.    Build IT-enabled kiosks which provide access to financial services
4.    Create a single world bank or supra-national currency, uniform rules and transparent public accounting

Fund Social Entrepreneurs

Venture Capital is ridiculously expensive. Corporate innovation serves shareholders value over social priorities.  Some say that the financial risk of funding innovation is too high. The top ten reasons why start-ups fail are due to knowledge deficits, not money deficits.  A new banking system that trades knowledge as currency would solve this problem.

The key is to match most worthy knowledge surplus to most worthy knowledge deficit.  Google is perfectly able to build a search app for knowledge assets if there were an inventory of knowledge assets.  With the most worthy match, Risk can be reduced and new financial instruments can be developed such as the innovation bond, innovation insurance, tangential innovation markets, and destructive innovation transition contingency options, etc.

Help social entrepreneurs drive change

Create a fund to support social entrepreneurship. This idea was inspired by a number of user proposals focused on “social entrepreneurs” — individuals and organizations who use entrepreneurial techniques to build ventures focused on attacking social problems and fomenting change. Specific relevant ideas include establishing schools that teach entrepreneurial skills in rural areas; supporting entrepreneurs in underdeveloped communities; and creating an entity to provide capital and training to help entrepreneurs build viable businesses and catalyze sustained community change.

Suggestions that inspired this idea

1.    Provide targeted capital and business training to help young entrepreneurs build viable businesses and catalyze sustained community change
2.    Create a non-profit, venture capital-like revolving fund to invest in high-impact local entrepreneurs
3.    Send young American entrepreneurs to underdeveloped communities to help create small businesses that would economically benefit those communities
4.    Create schools in rural areas to teach local people how to become entrepreneurs
5.    Create a private equity fund to help immigrants in developed countries finance business development in their countries of origin

Page 1 of 2

Powered by WordPress & Theme by Anders Norén