Early Indications - December 2007

Prediction Scorecard

How did we do?

Last December I wrote that "we see a collision between systems based on old and new models of regulation, remuneration, protection, privacy, and so forth. At base, we are having to redefine some of the core systems that make the world work: money, contracts, civil rights and civic responsibilities, identity, possession, and others. This year, I believe that several of these collisions will reach new heights of unexpectedness, expense, and impact."

Prediction 1:
"This year, look for a still grander failure of data protection [relative to the VA], either in one highly visible episode or a cumulative increase."

Result: Hit
The British Ministry of Revenue and Customs loss of 25 million names is truly spectacular: it's roughly half of England's population, and sensitive information included naming 350 people in witness protection programs. The costs and risks of providing new identities for those affected could be extreme. The TJX breach, meanwhile, was initially reported to have involved 46 million records, but according to a recent court filing could have exposed 94 million credit card-holders - nobody can say for sure, but the affected banks and the retailer are said to have settled. The amount of the settlement was undisclosed, but the company, which books about $18 billion in annual revenue, set aside over $100 million for litigation settlement.

Prediction 2
"YouTube and related content distribution mechanisms will push the envelope too hard, with a high-profile episode of unauthorized copy distribution prompting legislation, litigation, and potentially business failure."

Result: Too early
Litigation, yes, courtesy of Viacom, business failure, no.

It's also worth watching a court case in the adult entertainment industry, since that sector is often a forerunner of changes in the wider business environment.  According to the Los Angeles Times, on December 10 "Vivid Entertainment Group filed [a] lawsuit in Los Angeles federal court against PornoTube and its parent, Data Conversions Inc., which does business in Charlotte, N.C., as AEBN Inc."  The YouTube-like Web business is said to be posting copyrighted material, costing one of Vivid's competitors 35% in revenues, according to the article.

Prediction 3
"Some new activity - whether job referrals, recipe swapping, rotisserie baseball, genealogy, Christian evangelism, or something similarly below radar - will break through using a Google-like monetization model and approach the growth rate we saw for video in 2006."

Result: Hit
Facebook was clearly the big story of 2007, but even as early as June, it was reported that digg had passed Facebook in number of unique visitors, having grown 1400% in one year. May 2007 data from Compete show digg with 22.6 Million unique visitors, while Facebook had 20.2 Million.  It's important to note, however, that people spend far more time on Facebook.  Fantasy [American] football has about 12 million players, up 33% since 2005; overall, fantasy sports are a $2 billion industry, or about 13 times Facebook's estimated 2007 revenues.

Prediction 4
"For all their amazing capabilities, communications and computing systems still can't cheat physics. The year 2007 will see the so-called virtual world continue to encounter the physical environment in important ways. A few examples suggest the breadth of the issue:
*Data centers are beginning to scale up to the size of factories and even foundries in their energy consumption."

Result: Hit
So-called "green" computing is indeed front-page news. Google's data centers are setting the pace as 40-70 megawatt facilities are coming on line.  Large single points of failure in any system increase the potential scope of damage if an outage were to occur.

Prediction 5
"A different facet of the energy and transportation systems relates to automobiles. While Chevrolet just introduced a good-looking electric car, the Volt, that anticipates developments in battery technology, Tesla Motors will ship over 200 Roadsters at $100,000 apiece that out-accelerate a Porsche 911 and achieve the equivalent of 135 miles per gallon fuel efficiency. [The enthusiasm for ethanol will continue, despite severe limitations.] How politics and markets react to rising oil prices, from a systems-of-systems perspective, will determine quite a bit about the shape of the next 10-20 years."

Result: On hold
Tesla found car-building more complicated than the founders thought, and slipped its ship date again. The Volt is being touted as a signal of rejuvenation at GM under Bob Lutz, while Honda announced a major commitment to less expensive hybrid engine technology. Ethanol mania seems to be subsiding slightly. A huge oil discovery off Brazil must be countered by growing political instability in many oil-rich regions, and high prices reflect a combination of that political risk with booming demand in the developing world.

Prediction 6
"The yea 2006 did not see a major disruption to the world's transportation and communication systems. Such good fortune cannot last indefinitely, yet readiness for the unexpected remains lower than it could be."

Result: Glancing blow
Yahoo's merchant servers melted down on "Cyber-Monday," leaving many of its 40,000 businesses searching for new commerce providers after seven hours of outage and another five of slow performance. Air travel is suffering both meltdowns both macro and micro (as at LAX in August, when one bad network card shut down the airport and stranded about 20,000 fliers, or when JetBlue infamously mismanaged weather delays in February), but we saw nothing that qualified as a major disruption.

Prediction 7
Paradoxically, even as people and devices grow more connected, with access to more information, the need for intermediaries evolves rather than disappear.

Result: Hit
Apple's iPhone was clearly one of the year's big stories, as were YouTube, Facebook, Amazon (particularly its Kindle reader, but also Mechanical Turk's role in the Steve Fossett search) and Google's unrelenting command of search and advertising.  All are intermediaries, or filters.  As Facebook discovered, matching advertising to audiences in return for money is very appealing in its revenue potential, but hard to do and easy to get wrong.  Microsoft just announced a major ad placement deal with Viacom.  Along with its Facebook investment, this puts Microsoft in excellent position to learn at the front-ish edge of ad serving and measurement, realistically behind Google and perhaps Yahoo.  The biggest noise of the year was made by the social networking model, which is such a powerful filter we have yet to devise cogent models or names for what might be possible: the filtering and sheer time-consumption of MySpace, Flickr, LinkedIn, and the rest may finally have driven the final nail into the 1990's mantra of disintermediation.

*****
Overall, it was a decent showing as no assertion fell wildly off the mark, and another several areas appear to be unfolding in line with the prediction, just not quite in this calendar year.

I hope every reader finds joy and peace in the holiday season, and we'll start the new year off with another round of predictions for the leap- and election year of 2008.