Posted on March 10, 2013. Filed under: Companies, Economy, Private Equity, Technology, Venture Capital | Tags: Austin, billionaire, Britannic Encyclopedia, China Leaders Forum, CNBC, collective intelligence, Columbia Business School, Creative Destruction, DST, Edgar Perez, Facebook, Forbes, Fortune, GE, global brain, Google, Harvard Business School, High-Frequency Trading Book, High-Frequency Trading Conference, High-Frequency Trading Seminar, Internet, Kevin Kelleher, legacy cost, Mark Zuckerberg, McKinsey, network effects, News Feed, NYTimes, Richard Foster, Russian investor, Securities and Exchange Commission, social media, South by Southwest Interactive, Texas, the excellent company, The Speed Traders, The Speed Traders Workshop, The Wizard of Innovation, Twitter, Ultra High-Frequency Trading, Wikipedia, WSJ, Yahoo!, Yuri Milner |
In an interview at the South by Southwest Interactive conference in Austin, Texas, Yuri Milner, the Russian investor whose early bet on Mark Zuckerberg’s firm made him a billionaire, said companies like Facebook, Google and Wikipedia will still exist a century from now because their services gain momentum the more people use them. “All three have amazing network effects,” said Milner, the co-founder and chief executive officer of DST. “Chances are that those are long survivors.”
Milner has long believed that the internet would develop into a “global brain”, which is often described as an intelligent network of individuals and machines, functioning as a nervous system for the planet Earth. He also has envisaged that the advent of the Internet of things and ever increasing use of social media and participatory systems such as Twitter, Facebook, and Wikipedia would increase our collective intelligence.
Richard Foster, the Creative Destruction author referred by Forbes as The Wizard of Innovation and speaker at China Leaders Forum, was in the 80s in a search for “the excellent company”, the all-seeing, all-knowing, all-wise company that made all the right moves in advance, and that made more money for its shareholders than any of its competitors. This was the permanent outperformer stock, the really good deal, he said. Foster looked at 4,000 companies over 40 years; he concluded there was no such company, and there never had been such a company! No company had been able to outperform the market for any substantial length of time. (GE once came as close as any, but didn’t do any better than the overall market index, Foster reflects). Somehow the market, managed by nobody in particular, was performing better than all the brains on the planet.
Why is it that no company can outperform the markets for a long time? Foster thinks there are several reasons, but the most important is something called legacy cost. All companies have legacy costs, which are created the moment a company makes a commitment of time or resources to a particular course of action. And when a company is challenged to do something new, to take a new course of action, it has a hard time abandoning its legacy costs. Companies argue that the incremental cost of making a slight improvement to an existing product or service is much better than the full cost of developing something new from scratch. In doing so, the company attempts to optimize between the old and the new. This takes the decision making power away from the customer, and it’s a bad direction to go in. Markets, however, just charge on ahead with the new, because new entrants don’t have any legacy costs to deal with.
Just last week, Facebook’s new News Feed made some welcome cosmetic changes. But it didn’t go very far in addressing the social network’s deeper issues. Fortune’s Kevin Kelleher talks about the vulnerabilities Facebook is facing since it went public. Facebook is facing more powerful competitors and two important yet sometimes contradictory mandates, to create a service that will engage its users, and to make money that will satisfy investors; Facebook’s presentation played down those facts. How intrusive these ads strike users will depends on the algorithms Facebook designs to insert them in feeds.
So while Facebook’s new news feed makes some cosmetic fixes that users are likely to welcome in time, they don’t go very far in addressing rising competition from newer social networks and the uneasy balancing act between users and advertisers. Those are the legacy costs Foster refers too, which new entrants that will grow into becoming new leaders never face. Legacy costs never stopped Wikipedia and Google from dethroning leading institutions called Britannic Encyclopedia and Yahoo!
To think that new companies will take a century to remove Facebook, Wikipedia or Google from their leadership positions is no more than wishful thinking; these firms have at most 10 years to milk their cows and make the big decision: change or die. While Milner appears not to have a vested interest in Wikipedia or Google, he might as well start cashing in on his already wildly profitable Facebook bet. Somebody in some garage is already building a better mousetrap.Read Full Post | Make a Comment ( None so far )
Posted on August 6, 2012. Filed under: Exchanges, Flash Crash, Practitioners, Regulations, Securities and Exchange Commission, Technology | Tags: algorithmic trading, Alternative Investments, Ameritrade, automated trading, Blackstone, Broken Markets, Center for Economic and Policy Research, Chicago, Dark Pools, Dean Baker, Don’t Ban the Trades, Edgar Perez, End of Equities Investing, Facebook IPO, Forbes, Futures and FX, GETCO, Goldman Sachs, hedge fund manager, Hedge Funds, HFT Expert, HFT Seminar, HFT workshop, HFTLeadersForum.com, High Frequency Trading Leaders Forum 2012, High Frequency Trading Networking, high frequency trading speaker, High-Frequency Finance, High-Frequency Trading, High-Frequency Trading Book, High-Frequency Trading Conference, High-Frequency Trading Expert, High-Frequency Trading Happy Hour, High-Frequency Trading Seminar, Hong Kong, House Financial Services Committee, How Algorithmic and High Frequency Traders Leverage Profitable Strategies to Find Alpha in Equities, How Traders Profit From High Speed Trading, Investing World, Jefferies Group, Joseph Saluzzi, Kiev, Knight Capital, Knight Trading, Knightmare on Wall Street, Kuala Lumpur, London, Malaysia, Market Abuse Unit, Mary Schapiro, McKinsey, Mexico, MIT Sloan, Moscow, Neil Barsky, new york, New York Stock Exchange, New York University, NYSE, Options, Pace University, Polytechnic Institute, Quantitative Trading, Regulate Them in Real Time, Sal Arnuk, Sao Paulo, SEC, Securities and Exchange Commission, Seoul, Shanghai, singapore, South Korea, Stephens Inc ., Stifel Nicolaus, Stuart Theakston, The Malaysian Insider, The New York Times, The Speed Traders, The Speed Traders Workshop, The Speed Traders Workshop 2012, The Speed Traders Workshop 2012 Sao Paulo, Thomas Joyce, trading strategy, Ultra High-Frequency Trading, Weibo |
In my latest piece in The New York Times, I argue that wrongdoing existed long before the advent of high-frequency trading, and it will always be a part of markets. High-frequency trading is simply a tool; it can be positive or negative for investors and markets. To maximize the benefit and minimize the downsides, regulators need to catch up with the technology.
High-frequency trading has been under a microscope since the infamous “flash crash” in 2010. Let’s remember, though: The market rebounded that day almost as fast as it fell, and regulators ultimately determined that the crash was initiated by human error. But many in the financial sector and in government were uncomfortable at the thought that high-frequency trading programs could vaporize huge amounts of equity in a matter of minutes.Read Full Post | Make a Comment ( None so far )