Someone asked me the other day if this blog had to be so dense. Meaning, as only English could cast it, that it’s hard reading, especially if you’re dense. I guess this blog has to be dense. People who read blogs are not idiots. Demographically, we’re the most clued-in cohort of the most connected segment of the wealthiest economy in history.

Steve Jobs challenged John Sculley, “If you stay at Pepsi, five years from now all you’ll have accomplished is selling a lot more sugar water to kids. If you come to Apple you can change the world.

Our choice is to spend even more time watching Celebrity Fear Factor on our Tivos and swilling Pepsi, or we can get together, think hard and invent the future.

Inventing the future is not difficult, but it hurts the brain. We have to conform to the existing Internet protocols, add some standards of our own, but without requiring a wholesale adoption by the people we want to serve. We have to think hard on why things are as they are and how they might be and then design the answer to what keeps the past from becoming our future. After that we need to hack some code. And revise and revise and revise…

Besides, this blog is mental exercise for me, allowing me to trot out the ideas I’ve read and conclusions I’ve reached over a lifetime of saving the ideas that seemed worth saving. So I guess my writing will continue to be dense and I’ll hope you’re patient and persistent enough to help me make sense of this design study.

As Blaise Pascal said of one of his writings, “I made it longer only because I lacked the time to make it shorter.

Hidden in Plain Sight

Our microeconomy design is coming along.

But we still lack the Rosetta Stone that helps us apply a universal human protocol to our shared record of transactions. If people don’t use the forms we’re designing to capture our Peer-to-Peer transaction data, they won’t be used, and we’ll have designed another Edsel.

The universal theme of Peer-to-Peer transactions in the open marketplace is Identify, Specify, Negotiate, Deliver, Evaluate and Pay.  

  1. You identify a likely product, usually after some research. 
  2. You specify how you want it and where and when. 
  3. You and the seller negotiate any details or adjustments to your specification.
  4. The seller delivers the service or product
  5. You evaluate its suitability and your satisfaction and discuss it with the seller and others
  6. You pay the seller

We like to talk about the marketplace as our model for Internet transactions, but that’s not how it works for most of us. If the globe is to be a global village, we need to solve the sequence demanded when the seller doesn’t know the buyer:

  1. You identify a likely product, usually after some research
  2. You specify how you want it and where and when. 
  3. You and the seller negotiate any details or adjustments to your specification.
  4. You pay the seller
  5. The seller delivers the service or product
  6. You evaluate its suitability and your satisfaction and rarely discuss it with anyone

It’s become the standard for mail and Internet orders and we don’t realize it’s a drastic revision of how things have always worked in the agora. In our P2P microeconomy, we’ll apply the traditional sequence even to distance sales. Why would a seller agree to that? Because the buyer has a published reputation the seller can rely on. It’s an extension of the role blogs are beginning to play. John Robb on blogs and reputation:

My weblog is my global business card.  It is the place everyone that wants to contact me can quickly go to find out who I am, what I am doing, and how to contact me.

Now that his blog has introduced him, I’d send John a figurine today and let him pay me later. If the trust problem can be solved, the get first, pay later model could unlock a lot of customer reluctance and get the cash flowing again. Money velocity is the oxygen of a free market.

We’ve described a totally transparent transaction model where everything is visible (initial inquiry, delivery details, promised start & finish, price, terms, in-progress remarks, actual start & finish, buyer’s grade & comment, seller’s grade & comment and anything else the parties to the transaction want to archive). Most of the data is in plain sight, though only the high points are published by the participants in their RSS feeds. Confidential data may be encrypted using the W3C’s forthcoming encryption protocols.
6:16:06 PM    

What Good is a

Tim O’Reilly quoting William Gibson:

The future is here. It’s just not evenly distributed yet.

Economies aren’t evenly distributed either. We Americans live in a microeconomy that’s so advanced it’s a distant fantasy to most of our fellow humans – 300 million people living like 3 billion. Among us are people who cashed out of their dotcom shares at the right time who live in an even smaller, even more unbelievable microeconomy.

It’s often a matter of luck meeting a remarkable opportunity and a prepared mind. Sabeer Bhatia had an idea he thought was obvious, which he later called HotMail. Why should a web user have to know his SMTP & POP settings to do email? The idea seemed obvious and technically trivial. HotMail “was so inspirational because it seemed like an idea anyone could have.” (link)

HotMail proved to be a self-imagined microeconomy for Bhatia, his partner Jack Smith and VC Steve Jurvetson. So it goes with the most extraordinary microeconomies – they’re magical but not evenly distributed.

If you’re dissatisfied with your microeconomy, it’s because the economy you’ld like to live in doesn’t yet exist for you, though it probably does for someone – an unevenly distributed future.

Alan Kay famously said that “the best way to predict the future is to invent it“. The challenge is to design a user-friendly microeconomy and then distribute it evenly enough that it can touch any life. To build that microeconomy from scratch, what to focus on? Yesterday, I suggested that data is the heart of the problem.

Every economy is data-based. Every database is forms-driven. In our lives, we say or write some things and if they fit a certain requirement, a form is presented to us, filled in, and then our Social Security Number becomes a blip in a database which causes resources to flow in ways dictated by the database rules. Maybe you get a check every two weeks. Maybe you get a phone bill every month.

Most (all?) microeconomies are scarcity-based – they mine a lot of people’s too-scarce cash and distribute it to very few. They’re interesting to us for the same reason the lottery is interesting – not because it makes a difference to so many, but because it makes such a big difference to so few.

Knowing how hard it is to get rich, these opportunistic microeconomies are built to be uneven – their candid goal is to make as much money as possible for a relatively few people, so that’s the purpose of the operational databases they build. Then they build a back office database called an accounting system to collect from the many and distribute to the anointed few.

If our proposed  microeconomy is to be even-handed, it must be built from the inside out, starting with an open source accounting system and then building the open source operational database(s) to handle the actual transactions. As a public microeconomy, there can be no central control and no definition of what work is done by this enterprise, since there’s no enterprise in the usual sense. Instead, it’s a free-for-all where we collectively track the quality of transactions and conduct the marketplace as we would in a village, where all promises and all outcomes are visible to everyone.

Universal Assurance

AT&T’s old slogan, Universal Service, has been realized, but there’s still dissatisfaction with the service we’re getting. What people purchase is not a product or service, but a sense of assurance that it will give them the benefit they seek. Disappointments arise because you pay in advance for everything you get, whether it works as advertised or not. What we need is a transaction protocol so favorable to the customer that it creates an economic ambience of Universal Assurance. Here are the elements of Universal Assurance:

  • All previous customers have thoroughly rated the proposed benefit
  • The seller will deliver the proposed benefit in advance of payment, “on approval”
  • The seller is willing to reduce the price of the benefit to match its worth to you
  • The price you pay is based on the grade you give it once you’ve tried it out

In that microeconomy, you won’t contract for anything unless it’s already been rated highly, which makes it worth the time and effort of trying it out, knowing your own acceptance protects you against unsuitability.

Our microeconomy is designed to be peer-to-peer, so everyone is buying and selling all the time. Our peers’ competence is visible, quantifiable and are tough competition for the “Brand” names. Branding looks pretty weak compared to strong ratings from real customers.

Our next challenge is to teach people how to productize whatever they might offer, whether it’s plumbing, massage, web design or managing your Wall Street Journal subscriptions. Then their skills can be describable, sellable, reputable and worth more next month than they are today.

10:27:50 PM    

Design Review

This design study is meant to be both focused and meditative. If we’re lucky, we won’t fail at both. After the last several meditations on the evolution of leadership personalities from Attilla the Hun to John Malone, it’s time to recap our study criteria and get down to the nitty gritty of Xpertweb data structures and why they have to be so idiosyncratic.

Conclusions to Date

  1. The economy is an Operating System, due for a major revision
  2. All transactions depend on forms and protocols constraining the participants’ behavior
  3. The forms are based on data describing the rules – data controlled by sellers or government
  4. Proprietary data is the root of tyranny
  5. Sellers and buyers need equal authority over the transactional data archive
  6. New standards are rarely effective because they need the buy-in of too many players 
  7. To design an economy, we’ll start with a microeconomy and make it viral

Symmetrical Data

It’s not yet obvious how tyrannical proprietary data has become, but perhaps we’ll soon recognize that all our customer frustrations are based on the seller’s control of customer records and their disinterest and incompetence in satisfying a customer. Doc Searls was called by a Wall Street Journal salesperson after paying in advance for a two-year subscription:

“Wait,” I said. “Can you check and make sure you got the payment and it was credited?” “Sorry, I don’t have access to those records, but you can call customer service at 1-800…”
Translation: “I’m just an outsourced telemarketer reading from a script.”

Doc’s frustration is based solely on WSJ’s inability to deploy people with access to and competency with all his account data and the authority to correct data errors on the spot. But why would they ever do that? They know their primary mission is to obligate him to assign some of his cash flow to them. There’s a lower emphasis on doing what we think their mission is: delivering a fine paper to his doorstep.

There’s another proprietary database lurking behind the scenes to enforce the WSJ’s one-sided rules, and it’s the most tyrannical private data in the world – the one that will hammer his credit rating if he goes to Tahiti for the winter and his subscription doesn’t get paid. If Dow Jones hires Doc to speak, they’ll probably pay him as companies usually do, 60-90 days after receiving the invoice. The Wall Street Journal will call that sound cash management. But if Doc pays his clients for their products on the same schedule they pay him, he’s labeled a deadbeat.

It’s solely because they control the data. Doc has no influence over it and a US citizen is an idiot if he doesn’t cower at the magic incantation, “will be reported to a credit agency.” That’s probably why he pays his WSJ subscriptions 2 years in advance (as if that helped him in this case). How much customer money is held by companies, simply because a late payment carries such an inordinate burden? How much stronger might the economy be if the cash spent more time in customer’s accounts under symmetrical data protocols?

The current data model is assymmetrical – all of the data is managed by one party.

Building the Symmetrical Data Store, one datum at a time

Every Xpertweb user maintains a complete record of every transaction they conduct, whether they’re a buyer or seller. The data for every transaction is identical on the buyer’s and the seller’s data store. That’s why every user has a web site even if all they do is buy stuff – their data record is always available and it’s stored in the open on each web site, so any attempt to change data is immediately detected by the other party’s specialized spidering software.

Every Xpertweb user has a mentor, who sets up the new user’s web site, teaches him how to use the forms and provides disk space to mirror all the user’s data. That leaves four copies of each record as a redundant archive. Each user could modify any data on their own web site, but the most damage thay can do is cause a transaction record to labeled as unreliable because it’s not synched with the other 3 copies.

Each user’s web site is managed by their local open source, trusted PHP scripts. When a buyer enters task data on the seller’s site, it’s immediately reviewed by the buyer’s own trusted script and written to the buyer’s Xpertweb site upon the buyer’s confirmation.

Here’s the high-level data structure for an Xpertweb user. Directories are blue, data is red:






Here’s a detailed data structure depiction.

Wasting Newly Abundant Resources

“So today, the prime rule of thrift in business is “waste transistors.” We “waste” them to correct our spelling, to play solitaire, to do anything. As a matter of fact, you’ve got to waste transistors in order to succeed in business these days.”
                        George Gilder

The Xpertweb data storage design takes that advice to heart. One reason data is proprietary is that it’s so complicated to manage efficiently. Millions of dollars are spent to make a corporation’s customer records quickly accessible to only its authorized employees and increasingly, to customers on the web. The data sit on huge dedicated server farms. It involves a lot of customers and just a little bit of data on each one. It rarely describes how happy the customer was with the last transaction, and never lets prospective customers know how happy are the past customers. When it’s accessed, it’s by using a specialized data program that knows how to read and translate all that encoded, compressed data.

So transaction data has to be sketchy but archives millions of encounters. But when you or I have a transactional data store we find useful, it will have lots of data on each of just the few transactions we participate in.

So the resources wasted by Xpertweb are web server hard drives. Most ISP’s give you 10, 20, up to 100 MB of storage for free, which is a lot of space for the 85-100 data items required to describe each of a few thousand transactions in enough detail to be useful to all interested parties.

The data is stored as XML data, which means it takes a lot of words to describe each datum (rather than looking like a compressed Excel table, with 1 header row describing the data, XML tags each datum with its own label):

<xpw_project_data project_id=’ADCGEFH.FHECDBAM.1003863968′>
  <xw_customer_email_address>;/ xw_customer_email_address>

The project ID is unique because it’s a combination of the seller’s unique
ID (ADCGEFH), plus the buyer’s unique ID (FHECDBAM), plus the number of seconds since the start of the year 1970 (1003863968). Presumably, this buyer will be unable to submit more than one initial purchase inquiry to this seller on that particular second.

In order to be even more wasteful, Xpertweb puts just one datum in each XML file, so this file might be called customeremail_ADCGEFH.FHECDBAM.1003863968. Like a packet sent over the Internet, the file contains all the information needed to relate this data item to its transaction forever.

12:31:19 PM    

Meritocracy – meritorious or

meretricious? So we see an evolution of the personality types running the show, with today’s rulers seeming to be more like James Spader than Arnold Schwarzenegger. Most of us are dancing to someone else’s tune, whether we’re resentful, accepting or in denial. Even those who seem to be masters of their destiny are usually also caught in the trap of reacting to larger forces.

The interesting question is not who runs the show, but what is the purpose of the show? What force is driving the engine of greed, fear, manipulation and capitulation that circumscribes most people’s quietly desperate lives?

The Tyranny of Net Present Value

All capitalism is based on a single strategic algorithm: calculating the Net Present Value (NPV) of a series of anticipated cash flows by discounting each future cash flow (cf) by a desired annual return % (discountRate) over the period of the expected cash flows:


Why would this dry formula be so important to a design study for a new microeconomy?

The NPV calculation lies at the center of all modern resource allocation decisions.

You may resent it, but all your economic possibilities are defined and constrained by this simple calculation buried in the computers of people you will never meet. It is what they are talking about when people say “Follow the money.”

Philosophers surely regret the idea that the greatest civilization in the history of civilization has been reduced to a single simplistic formula, but that is the case. If in the beginning was the Word, then in the end there’s only the Net Present Value formula. With it, managers and financiers and governments and pension plans compare any set of cash flows to any other set. Then they sell the lower one and purchase the higher one. Even though it ignores the sweep and drama of the rise of civilization, it’s a democratic yardstick. It’s also the basis of meritocracy.

That is the process of “capitalizing” every cash flow, whether it’s an inflow (customer payments and collections, bond yields, corporate earnings) or an outflow (employee salaries and benefits, supplier payables, social security payments). Corporate managements have an uneven track record in growing their revenues but they are masters at reducing their expenses and making optimistic forward-looking statements. A company’s stock market valuation is some multiple of forecast earnings. To increase the value of the shareholders’ (i.e., management’s) stock holdings and options, the best strategy is to reduce expenses, which appears to instantly increase earnings. As available capital exploded in the 20th century, every discernible cash flow opportunity in the economy shows up on someone’s radar screen and is targeted for assimilation or annihilation, whether it’s mom & pop retail sales in rural Arkansas (a Wal-Mart opportunity) or a 48 year-old engineer at Chevrolet (a GM expense).

The logic of meritocracy says that an electrical engineer may be a star at 27 but a liability at 48. This is the basis of the pervasive, subconscious grievance against meritocracy, even when it’s not framed in those terms. The conventional wisdom of the age is that everyone needs to re-train themselves on a moment’s notice to become a software programmer or help line staffer or home health care specialist.

The question is, what is the obligation of an economy to consider and support the preferences of the majority of its participants? Naturally, the “moving hand” school of thought is that the market economy is driving all these choices, and complaining about it is unreasonable, as G.B. Shaw pointed out. Even if individuals can adapt as quickly as proposed and remain employable, they are repeatedly separated from their last company’s web of support and their only opportunity for a web of wealth – often, it appears, by intention. Even when they earn stock worth more than a million or so dollars, they may feel as far from their dream as did some Silicon Valley millionaires before the Big Bust:

“Before there was a Silicon Valley, there was a Santa Clara Valley. This was a place like most places in America. People lived at many economic levels, but most could live comfortably, with some confidence that tomorrow would work out.
“But today, anxiety is everywhere.
“So it is rather interesting that, no matter what their financial status, the people of Silicon Valley all seem to want the same thing. They want a good life. They want their families to be safe from harm, with quality food on the table, a sound roof over their heads and a good education. And they want a secure future.
“Surely, if we can be so clever as to create all this miraculous technology and all this massive wealth, we can create a society that enables a stable and sustainable quality of life for everyone.
          – Here’s the Pot of Gold, Now Where’s the Rainbow?
            (San Jose Mercury News, 8/24/99)

The deeper problem with meritocracy in the corporate age may be that it is judged in a court of appearances no more reliable than the royal palace where the nobles fawned over the king. What appears as merit in the boardroom may not look that way to the customers, flawed as they are with their self-serving yearnings for software that’s yielding and hardware that’s durable and support that’s uplifting. What if tasks were performed in the harsh light of the global market and were rated by the customer before her tears of gratitude or rage are dry?


It’s possible that some successor to corporate capitalism could allocate people’s time better and reward them more generously, which has happened with every previous shift in economic operating systems. If there were such an improvement, it would have to rise alongside the current system, starting as a minor solution to some pervasive need in the larger system. It might be called the Peer Economy, where you transact directly with your peer and not their company, although you’ve never met nor will, each with absolute confidence in their security and total satisfaction.

The Peer Economy will appear if it has a means to weave webs of support and wealth which cut across corporate borders and are aggregated in the very fabric of the Internet, not locked inside the balance sheets of contending companies with inconstant loyalties to their people and variable reliability in the marketplace. It must depend upon a data structure free of control by any entity, open to all and shared among the participants to any transaction. Until the introduction of XML in 1998, that was technically unfeasible. Today, it is technically trivial.

Xpertweb is a set of mechanics to serve the Peer Economy’s open data requirement.

10:24:26 PM    comment [commentCounter (15)]

Wealth creation options

Every society has an economic model which is woven into its cultural structures and biases. Early European societies chose their leaders like wolves do – the toughest, snarliest male ruled everyone who was less nasty, and so forth down the chain of outrage – “the divine right of thugs” (John Perry Barlow). After a while, political savvy and stability counted for as much as toughness, so confidence (and power) became vested in a single family’s line of orderly succession which was always being tested and occasionally altered, but there was a single king at any one time. After that, history has been a gradual spreading of the wealth to more and more participants.

Today there are forms of prosperity which do not depend on one’s place on the Forbes 400 list of jillionaires: most North Americans and Europeans enjoy a standard of living beyond any medieval king’s.

Feudalism’s rule of force

Perhaps the most hierarchical model: In this system, everything and everyone in the kingdom belongs to the king, who shares his rights with nobles on a conditional basis, dividing up the economic production (i.e., game and agriculture) based on what frontiers they protect. As long as they remain loyal, Lord John gets most of the production from one county, called a “shire,” and Lord Alfred from another shire. (The old word for cop was “reeve,” so the lord’s henchman was his “shire-reeve” or sheriff.)

The king and his nobles are woven into a web of wealth but there’s almost no chance for upward mobility for others and very little portable wealth. The system works because each productive person – the serf – is woven into a web of support and is reasonably safe from foreign soldiers. The serf’s only wealth opportunity is as simple as the possibility that his son might join the crusades and be fed and clothed better than dad and end up with a little bit of ill-got plunder.

Aristocracy – the rule of position

Of course, the nobles have children, so the goodies get divided up into smaller and smaller parts, but everything still belongs to the nobility – the only ones woven into a web of wealth. Like the feudal system, technology moves imperceptibly in an aristocratic economy, so there isn’t much of a chance for someone to break into the higher brackets by inventing a steam engine or motorcar. Upward mobility is limited to sucking up to someone higher up the pecking order, so most of the aristocrats hang around the king’s court acting as fashionable as possible. In the case of Europe, the wealth stayed pretty much where it was, although subdividing a little each generation. The common people still had their web of support and could look to warfare for a faint wealth opportunity.

Mercantilism & Colonialism – the rise of mobility

Nobles need fine garments and exotic foods, spices and trinkets to impress each other, so a merchant class rises which becomes the engine for change and possibility for the lower classes. Adventurous souls who colonize and administer foreign lands can win a ticket into the aristocracy by opening new possibilities for power and ostentation for the aristocrats, who retained their exclusive web of wealth. This kind of thing is too rough for the gentlefolk, so there’s a lot of upward mobility compared to feudalism and aristocracy – for those few who are mobile and audacious enough to conquer the seas.

Most of this population led the harsh and hopeless life of their ancestors, but for the first time there was a chance at a slightly less military prosperity by gaining a foothold in the colonies and cultivating new lands – an unintentional shifting of emphasis from conquest to productivity. Naturally, this all depended on the unconscionable, systematic eradication of the rich cultures encountered by the relatively uncultured soldiers and serfs. But, from the viewpoint of those emigrating from the European underclass, colonialism/mercantilism was an unprecedented opportunity.

The possibility of going to a new land was a wealth opportunity which may have been statistically insignificant but was tangible enough to maintain hope, at least for kids or grandkids.

Industrialism – the rise of productivity

For the first time, the extractive kinds of wealth (farming and mining) became less compelling than the transformative kinds of wealth (milling and manufacturing). The wildcard role of technology really started to shine once a novel machine or process could leverage the impact that a given set of resources (capital) could produce.

This is a fundamental shift from those who hold power through their position to those who hold power through their know-how: the statists vs. the producers. Naturally, those who want to rule because of some assumed right to rule did not give up their power gracefully. One could argue that the world wars were the conflicts of the statists vs. the company men. The companies won. Actual wealth started to count as much as position.

Johnny marched home to more jobs, hope and the promise of more upward mobility than ever before. But real wealth? That was hardly a consideration for any but the old aristocrats and the corporate chieftains who owned a piece of their own companies. They were the only ones woven into a new web of wealth – based on the accounting systems of the companies in which they owned stock – rights to a little bit of many others’ productivity. The stock market itself had not yet become a universal wealth machine nor had corporate salaries and stock options skyrocketed. The worker’s wealth opportunity was defined as a slowly increasing paycheck and increasingly accessible homes, cars and vacations. Given the historic options, that looked pretty good.

Corporate Capitalism – the rule of meritocracy

Free-market capitalism is neither aristocracy nor democracy. Its special “ocracy” is meritocracy – those who are most able rise to the top of the pecking orders of multi-national corporations and their management teams, not determined by any static biases of family, ethnicity, national origin, birthright or even gender. But the lack of those perceptible biases doesn’t mean there’s a lack of bias. The bias is for a special blend of intelligence and energy called merit. Most of the significant wealth is managed by corporations which need a steady supply of hungry young tigers with big brains and bigger egoes to attack markets and destroy competition and launch killer products to conquer market segments.

It sounds as brutal as feudalism. The expendable foot soldiers of these campaigns are people from the same social classes as those who rise to the top. The difference may be in their genes – their hearts don’t seem to be in the unending fight – and at some level they know they’re expendable as soon as a wave of re-engineering or acquisition dictates. There’s been a steady increase in the level of commitment, intelligence, energy, ambition and ruthlessness required to rise to the top of any organization, so the few who make it are reaping greater rewards compared to the people who fight in the trenches. And that’s why they’re in the game.

Money, not nobility, is the only way to differentiate oneself from the run-of-the-mill. The stock market wealth engine has reduced the process to a formula: Own stock or options in a company; build the company (perhaps from scratch); buy another company or be bought out; own stock and be perceived as instrumental in building the new organization; buy another company or be bought out… That process builds the winner’s web of wealth. Stock is never given out of generosity, so folks who don’t negotiate hard have a more constrained web of wealth. If they are downsized, they are separated from their web of wealth, perhaps before they have any significant bit of other people’s productivity.

Meritocracy is a profound, perhaps counter-genetic shift. Historically,
those who were woven into a web of wealth maintained a web of support for the many whose productivity they laid claim to. For the first time, technology means that more productivity does not mean more workers. The genetically based contract – that the powerful protect the weak in exchange for their productivity – has broken down. It would never occur to a king or noble (or silver-backed gorilla) to estrange a loyal and hard working serf simply because there were other, harder-working serfs. This all changed with the pervasive application of the Net Present Value calculation.

With no alternative in sight and general agreement that capitalism won the battle of the isms, no one seems to see any alternative but to keep carrying a heavier load each year, like the farmer carrying a calf around each day until he falls under an unsupportable load of bull.

Perhaps this is not the final system. Perhaps there’s life after meritocracy, especially when one observes that the products and services produced by the meritocrats are not always satisfactory. Just because these hard-charging companies are defeating each other in the market doesn’t mean they’re winning customers’ hearts and minds. There’s something about large organizations which squanders most of the participants’ time and energy in producing motion rather than progress. Too often, they seem as competitive with customers as they are with competitors, designing byzantine structures to lock a customer into a complex dependency when all the customer wanted to do was surf the net or call home.
12:57:20 AM    

Valuing the Chains that Bind Us

Most of us consumers think of products as the object or service we hold in our hand or in our memory after the product is delivered. This is only the expression of the product, not the real deal. The main event is the Value Chain that has moved the product into our possession.

Take a bag of Fritos. Frito-Lay is just the begining and the catalyst for a process that comprises scores of steps and thousands of people, most of whom don’t work for Frito-Lay.

Value Chains are the means by which originators get rich in a market economy – they are combinations of producers, distributors, middlepeople and retailers.

Value Chains have always been hard to forge, defend, manage and collect from, which is why they’re so profitable. The Internet is poised to combine productive individuals into value chains which reward their participants as richly as traditional value chains.

You probably know that the real rewards in the Fritos product don’t go to the farmers who produce the corn, salt and oil nor to the people in the hair nets who use the machines to produce the critters. That’s because there are so many people ready willing and trainable to do those things.

The money goes to the people who direct the tricky process by which a bag of Fritos* is in your face in so many places, and is recognized by you when you see it.

  1. corn grown by the farmer is
  2. combined by the combine owner is
  3. trucked by the trucker 
  4. to the Co-op which buys it in order to
  5. sell it to a distributor who 
  6. sells it to Frito-Lay (maybe through another distributor) where 
  7. it’s made into little curls and 
  8. put into little bags made by a bag maker and 
  9. put into boxes made by a box maker and 
  10. shipped to a warehouse leased from a real estate investor 
  11. filled with equipment leased from a leasing company which is
  12. owned by an investment group, where it is 
  13. re-distributed to regional warehouses (same structuring) where it’s
  14. bought by a local franchisee who
  15. sorts it into leased route trucks driven by
  16. their route driver who
  17. stops by each store to arrange the little bags and update the inventory with a 
  18. leased handheld computer 
  19. programmed by an ISV to
  20. make sure the bags and the signs are current and to
  21. train the shopholder about the special bonus he’ll get if 
  22. you buy a little bag of salty curls this week.
*Frito-Lay experts: Just an example – of course there are vertically integrated steps

It seems like a lot of commotion just to feed your habit, and we haven’t even mentioned the marketing ziggurat that makes sure the right synapses close when you see the red and yellow bag. Every step along the way the product changes ownership as it increases in price. If the baggie costs you a dollar and the corn and salt and oil cost a nickel, then the Gross Domestic Product increases by about 8 owners x $.45 average price = $3.60 because of the series of sales to get you your $1 bag. There’s probably another couple of bucks in there when you add the pennies paid in marketing and leased real estate and equipment and their financing. Call it $5-6 of GDP to sell the dollar bag.

None of this is news, but it’s usually forgotten in talk about the Internet economy. We all know that productivity is the key to a successful economy, but each of those intermediaries is already as efficient as it can get. The next step is to remove some steps from the chain. But which company and its employees and owners and their congressmen do you think will volunteer to step out of the loop?

That’s why the next step in productivity will be as disruptive to existing value chains as file swapping is to the record labels. The other dirty little secret is that better productivity through disintermediation lowers the GDP. Which administration will get behind that initiative?

Meanwhile, NetFlix has removed several steps from the delivery of movies to the movie watchers, eliminating a lot of jobs and profits. They are the model of how the Internet decimates value chains.

Peer to Peer Value Chains

What’s in it for the Rest of Us? None of those eight transactions report on the satisfaction of the next owner in line. If they did, other distributors or jobbers or farmers would step up to prove their higher quality/lower cost.  Some of these might be loose alliances of experts working like the farmer’s Co-op to consolidate several steps.

Xpertweb requires each user to have a web server and to know how to use a series of specialized forms. It’s no easier than setting up a blog, so it’s still beyond the appetite of the average farmer, combine owner or snack jobber. So every Xpertweb user has a mentor who has used an FTP tool to upload the newby’s files and configured his business preferences. In exchange, the Mentor receives a 1% fee from every transaction made by the new user and from transactions of other new users mentored by his users. Fees never total more than 5% of each transaction which is a lot less than any current value chains, but it’s a little bit of automatic income that few individuals are used to.

Mentorship puts each mentor at the beginning of a value chain of people doing whatever they can get high ratings for. Though the share is modest, the range of transactions is far greater than in any single business. Suppose the farmer mentors his combiner, his trucker, his son and his wife. He might start receiving fees on tasks they perform – combining soybeans, trucking pigs, programming Cisco routers and selling afghans over the Net. If he had become the King of Corn his rewards could only come from the corn business – a riskier kind of automatic income.

So your Xpertweb Value Chain builds itself automatically, one user at a time, extending out over the horizon of comprehensibility: A microeconomy of people who always report quality, beginning to compete, one task at a time, with people and enterprises unwilling and incapable of demonstrating satisfaction at the task level. It’s Darwinism at work.

12:21:20 PM    


After a couple of weeks of jabbering on, I might as well describe what the chatter’s about. This blog is a design study. We’re designing a micro-economy where the details of every transaction are visible and satisfaction of both parties is explicit and archived. Sellers and buyers who build an archive of satisfactory transactions are hugely valuable to each other, so they accumulate a currency of trust that untested parties can’t match. It’s the missing piece that keeps our economy from operating like a village market, where everyone is known to each other, and received accordingly.

  1. Buyers and sellers record duplicate data about each transaction: quality, timeliness, etc.
  2. Services are delivered before payment
  3. Mandatory customer satisfaction grades may reduce the invoice amount
  4. The records are open, mirrored and permanent

This design study looks at the current economy and sees what we all perceive – the natural antipathy between sellers and buyers and between employers and employees. The only entities that don’t see this are the sellers and the employers. The economy relies on the collective record of who did what to whom. It’s interesting that those records are always maintained by the sellers and employers and never by the buyers and employees.

Further, the study team is amazed to observe that, in making policy decisions at the company or government level, the only transactional data point that’s publicized is the price (or cost) of things: Price paid vs. costs incurred, yielding earnings. Earnings today compared to yesterday and tomorrow, to competitors and allies. All presided over by an oligopoly of analysts (could the label be more telling?) who read the entrails and determine the fate of huge organizations, all for the maintenance of a supervised lottery of equity tokens unrelated to the companies’ real worth or the value of their teams. The lottery’s supervisors and analysts always do well, yet rarely raise the suspicions of the parishioners.

No one has even commented on the lop-sidedness of the record-keeping and the bizarre limitation on its data type.

So Xpertweb is a data problem, challenging not in its complexity but in its unique architecture.

Not to Scale

Businesses live to keep their data proprietary and to know a little bit about a lot of consumers. They don’t try to know much about each consumer or transaction so their data bases tend to be blindingly fast at presenting uninteresting information.

Information for and about real customers – buyers for whom purchases are customized – must be much more rich and interesting. But they don’t have to be designed to take over the world, so they can be small and not so efficient. For the customer, though the wealth of information can be rich and useful, especially when the customer is getting a copy of her own to use as a lever when she wants some custom treatment.

Armed with that distinction, all the raw materials for a useful design study are available, and that’s our purpose here.

Doing Something About the Weather

Usually writers can only write about reality as it exists rather than as it might become, so usually it can only be a kind of elevated griping. But the Internet does change everything, and it requires only a specialized form of writing to make it work. These specialized writings – code – can be developed at reasonable cost if we know exactly what is our purpose. Thanks to the low-level protocols and standards now in place, we don’t even need to get permission from others to change the world. Apache and Linux and HotMail and Jabber and Radio and Blogger and all the rest have sprouted like weeds by offering something easy enough to fill a need that wasn’t even felt when the first code was released. But good genetic material has a way of prevailing and a micro-community quickly coelesced around each of those nascent standards.

Xpertweb is designed to form a little microeconomy with a better feature set than the larger one it’s planted in. Then we’ll see if the nutrients are suitable.
9:29:43 PM    

The Trust Profit

John Robb is a prophet who has proven his wisdom, but the BigCos don’t get it, and I wonder if they’re suffering from a structural problem. Today he describes a project he helped create at Gomez where they were able to tie their fees from business clients to their clients’ customers’ satisfaction levels, yielding unprecedented profits.

Here’s John’s formula describing what works:

Focused content –> Trusted decision support —> Performance-based advertising = huge profits

Let’s break it down. Trusted decision support is the heart of this success story. Clients and customers who defer decisions due to, well, indecisiveness, leap into a transaction when they understand the quantified benefit of a prospective purchase. Amazingly, companies are united in their rejection of the simple technique of tracking the measured quality of their transactions. As John reports,

Of course, this isn’t going to happen anytime soon.  Why?  Trust needs to be inserted into the equation.  Trust by customers in the decision making tools.  Trust by media companies that advertisers will accurately report their customer conversions.  Trust by the advertisers that the decision making tools will be objective and not treat them unfairly.  As always, trust is in short supply, but I think that can change.

John believes that web logs and knowledge logs will eventually help us compile the record of trust left by a satisfied customer. I’m interested in the mechanics of capturing the customer’s feelings before the tears of gratitude are dry. Since Trust is the key, the obvious question is…

Who Do You Trust?

Everyone has a great bullshit detector, because we were all children. We’ll accept a remarkable range of rumors as facts, but we carefully filter the facts we trust with our money. Presented with a pitch, we reject it out of hand. Presented with a fact, we assume it’s false if a statement by the seller. If it’s a quote by a previous customer, we listen with new openness. If it’s a statistic reporting the satisfaction ratings of past customers, we take notes and act on the evidence, as John reports. Companies’ failures to report their customers’ satisfaction costs them billions every year. Despite that cost, companies will refuse to report satisfaction because of the risk that even a few transactions will be unsatisfactory. Of course they will, but companies can’t release the illusion that all their efforts are perfect.

So we can’t trust the sellers to report the good, the bad and the ugly, then we have to look to the customer’s records for the truth, but we need a means to compile all customer ratings of a seller into a meaningful overall average rating compelling enough to attract a new prospect. The average rating must be supported by enough detail that the prospect can drill down into the individual tasks’ ratings and customer comments to feel the fabric of the seller’s tapestry of quality. This will require a disciplined but distributed data store comprising all buyers and sellers willing to subject themselves to its rigor and to maintain the data according to an agreed-upon standard. This looks daunting to me, but Xpertweb provides all those attributes in a way that makes it as accessible as blogs are becoming.

There’s never been such a data store, but never before was there a world wide web and XML. Their very existence implies a shared satisfaction data standard.

Brought together, they demand it.
10:56:23 PM    

The Mediocrity of Meritocracy

“I think the world is run by ‘C’ students.”
                                 -Al McGuire

Any line so attractive and quoted by Adam Curry deserves our attention.

I’m nitpicking to observe that it’s probably not true, but the world’s certainly controlled by C students. Modern organizations demand a grasp of scores of dynamic components – finance, legal, regulatory, marketing, etc. To run such an operation is one of the most demanding roles ever attempted, and Adam would probably concur. In most enterprises, what matters is whether you deliver the goods, not whether the Board thinks you walk on water. The notable exceptions we’ve seen this year are not the majority of businesses.

CEO jobs aren’t popularity contests, except of course for the biggest, toughest job on earth, but Dubya probably wouldn’t have received many C’s either without his connections.

(Digression of the day: “Dubya was born on third base and thinks he hit a triple.”)

Who are those guys?

Ken Werbach looked at the copyright fight and saw two distinct personality types:

Herein lies the conflict between Hollywood and the technology industry in a nutshell.  One sees content as the critical resource, and data networks as simply another mechanism to deliver it.  The other sees connectivity as the essential factor, with movies being one of many resources that can travel along those connections.  Hollywood sees a moral dimension in protecting its property and the creative works of its artists, as well as a nobility in bringing entertainment to the masses.  The tech industry thinks bits are bits, and the only moral value that really matters is freedom.

Werbach is really on to something here. What looks like a straightforward difference of opinion may reveal a deep and fundamental distinction in how people see things and act on what they see. To put a label on them, you might say the content people are part of a type called Pushers and the tech people are Pullers. The Pushers see markets and consumers as targets to be captured and held, a grand game of capture the flag. Pullers pull together the details that fascinate them and don’t think too much about the pecking order they’re trapped in. More interestingly, it looks from here like the Pushers have been running things for-frickin’-ever.

If these are indeed distinct personality types, and Pushers have been running things forever, what if the Pullers are beginning to supplant the Pushers in the power structure? How will it affect the way decisions are made, how resources are allocated, what the society considers fair or not?

Organizations are run by the middle managers who look like they are doing their job and so are promotable. But there’s no task-level quality metric in an organization, so the test is whether an employee is liked and admired by management – a highly personal choice. Who gets picked? The same ‘C’ students who’ve been picked since Junior High. The cool kids.

Be Cool to your School

Remember high school? I recall a fundamental division among my peer group of adolescent males – the cool guys and the rest. The cool guys got the girls and the rest wondered how they did it. The difference was their confidence that they had all the answers that mattered and their mastery of socialization skills and the pecking order. We, on the other hand, made no pretense at being clued in to everything, because we were interested in how things really work, whether it was computers or rockets or math or literature or western civilization, geeky interests that lowered the cool factor. That would be most of the people writing and reading blogs.

Remember how disengaged the cool kids were? They seemed to avoid the details, maybe because it’s a full time job being cool. It requires a kind of social genius and real attention to a vapid but disciplined repartee. Many of the coolest kids really did nothing more than date, drink and all the rest. Their primary discipline was to remain cool, so everything served that expediency. Even when they were very smart, they couldn’t afford to deal with complexity, since their priority was to emerge from every encounter with their coolness enhanced. That’s why they deal in OR logic, not AND logic.

I believe we adopt these archetypes early and they stick with us forever. Think about your own classmates and how they ended up. The coolest guys, if they don’t get sidetracked by booze, drugs or rock ‘n roll, seem to move up the corporate or political ladders with an easy grace beyond comprehension. Their true organizational genius is to get people to do their bidding, which is no mean feat. They’re usually surrounded by can-do Pullers who love being close to His Coolness. Those are the people who actually get things done.

At some deep, tribal level, we resonate with certain personalities and do what they want, whether or not it’s in our own best interest. Those are the personalities who easily engage bosses, senior partners, directors, bankers, analysts and all the other people whose nod puts a career on a fast track. They also fascinate political party workers and voters. They were at the Hamptons this summer and Pullers weren’t.

Revenge of the Nerds

In Mindwalk, Liv Ullmann plays a nerdy nuclear scientist who fears we’ll destroy the world because leaders don’t think through the implications of their initiatives – that we need to think about systems, not expediency. Sure enough, the web erupted four years later and started requiring people to think about systems and how things work under the surface. The Pullers who were good at that designed the Internet and now it’s caught the attention of the Pushers, who don’t have a clue how it works, but have directed the Pullers who work for them to figure out how to dominate their fair share of the Internet.

It may not be possible for Pushers to co-opt the Internet. If that’s true, it could precipitate yet another shift in the personality types that dominate the economy. Each era favors certain leadership archetypes.Todays leaders are nothing like their warlord predecessors, so is it possible the Internet age could change the type again? How could that happen?

Each phase of history has its natural leaders, though I can’t think of any that weren’t Pushers. Monarchies arose due to the divine right of thugs. Leadership of the medieval church went to those who could be simultaneously pious and manipulative, with no relationship to physical strength. The Industrial Age asked for some technical prowess, but no more than the horse- or swords-manship required of an earlier aristocracy. Today’s middle managers are those with a leaning toward finance and corporate structuring, but no more than is required to inspire the Pullers who get things done.

The principle of Procedural Disadvantage is also the principle of Procedural Advantage. In an Internet world, systems people understand how to get things done and their bosses are hostage to the systems the Pullers put together and only the Pullers can maintain. Since creaturtes started organizing for mutual advantage, there’s never been a feedback
quality loop so the group could see if their leaders were making good decisions. The good leaders’ groups prevailed and the bad leaders’ groups died off. Darwinism is a powerful invisible hand, but it’s workings are not obvious to the participants.

With the growth of Procedural Advantage as a visible force, the dynamic has changed forever. When systems fail, we all see it immediately: the switchboard lights up, the web orders stop and the damage is visible to every analyst, shareholder and customer that’s plugged into the system.

Good news for Geeks, Nerds and Pullers everywhere: the Pushers will never stuff the Procedural Advantage genie back in the bottle.
1:49:50 PM    

Can We All Just Get Along?

We’ve been talking about setting up a tipping point by adding a new metric to the single data point that’s interesting to sellers today: what things cost. This is a failure of record-keeping and imagination. Previously, I found myself amazed by the fact that the only datum tracked by sellers is what something costs, or a lot of somethings:

Today’s companies report just one kind of data – price, but they sometimes call it cost. (price received from the buyer, price of all the costs & expenses, and the difference between those prices, called Earnings). That’s all the sellers in our economy care about, and they’re the only ones keeping the data. It’s also the only fact keeping your portfolio above zero.

Cluetrain Rule 1: Markets are conversations. Not about price or costs or earnings, but about quality. If the Internet is going to talk about quality, we need to capture data about quality. Xpertweb does this by capturing quality data at the moment of payment, in the form of a number and a comment. Here’s an example of a $100 Xpertweb transaction:

  1. Buyer picks a service
  2. Seller delivers the service and invoices the buyer, subject to the buyer’s rating
  3. On the invoice, the buyer rates the service 1-99% plus a comment
  4. The Buyer’s grade may adjust price
             85-99% earns $100
             50-85% earns $50-85
               1-50% earns $0
  5. On a transaction summary form, the seller rates the buyer 1-99% plus a comment

All grades and comments are recorded and permanently visible.

TipWare for the Rest of Us

Why would a seller trust a buyer to give a fair grade when a low grade reduces the buyer’s cost? Probably for the same reason that a waitperson trusts most of her income to strangers’ appreciation of her service. Further, the Xpertweb seller knows the buyer’s grading history before accepting the assignment. That history is a lot more detailed than eBay’s huge rating system, which has had the kinds of problems that may be inevitable with a centrally managed rating system.
11:56:43 PM