Machine Learning: map and players

This post is a mix review of Machine Learning type of solutions the market offers, and a quick review of some players I have in my mind.

Machine Learning Wardley Map

Components:

  1. Machine Learning can be used by companies and individuals. The B2B and B2C is important when you look at the perspective that many individuals don’t know the are using solutions based on machine learning every day.
  2. Data scientific: I have centered as the element creating the machine learning solution, which is not completely true, as around the person or team creating a machine learning solution for a big organization there are many stakeholders working around it: operations, data analysts, marketing, legal department….
  3. Specific solution: it’s a solution for a given problem that is pre-build or build and it’s available to be acquired by a company or a person. Usually they are centered on an industry and they are very specific to a niche or a given problem. We will not find here generic problems or generic solutions.
  4. Machine learning development kit and platform : they are the tool and the environment available for the data scientific. The existence of cloud solutions and industrialized solutions enable an individual to have available environments and development kits to work on Machine Learning. We cannot forget the amount of resources available are incredible.

After drawing this simple map, I got distracted by stocks and I put my attention on components 3 and 4: specific solutions and tool + platform. The result of being 2 hours looking around, I got these 2 tables: This second table have some spaces, which mean there is not solution on that area for the given company (at least I have not seen it).

Some notes that I have not included in the pictures:

  • Impressive work done by Google on many areas, their capacity and amount of available resources offered to a person like me are infinite.
  • Facebook is a refined machine of data and algorithms that seems to work in a perfect way taking into account that what they are managing is very difficult: people’s opinions and behaviors. They are investing a lot on virtual reality and augmented reality.
  • Robotics, you have Amazon, and then the rest of the world. The day they deciede to sell their robotic solutions, it’s going to be interesting what happens in the industry.
  • Palantir has a good bunch of solutions and they are very closed to big clients. They are attending customer issues and have a lot of work to be done.
  • C3.ai, same thing as Palantir, they are attending end customer issues with their solutions. By the moment they have so many industrial customers, they have to demonstrate they can attend other type of customers with a good volume of Purchase Orders.
  • There is space for all of them and other players. This just have started.

What are your thoughts about Machine Learning solutions and its players?

 

6 reasons to learn Wardley Maps in a start-up

  1. Because it is a way of representing the context where your niche solution gives value and that’s important for your sponsor or potential sponsor.
  2. Because it helps you understand what others are doing, especially your competitors.
  3. Because by analyzing your competitive environment you can learn to better detect the real behavior movements of your user.
  4. Because it promotes you to think in terms of uncertainty, future options and reviewing where you are leading your company.
  5. Because it will help you find where your market fit or to know where your product should go to fit in a market with relevant volume.
  6. Because it forces you to focus on the concrete, moving away from the business of generalities. The concrete is shabby, it’s think in short, it’s not strategic, it’s urgent. Awakening the urgency of your user is vital.

I would like to come up with 10 reasons, can you think of any one else?

The World of videogames

This entry is made with the help of the Value Investing FM program , during the interview with Andrei Trucmel (Twitter @R_yZyy) and with the “Buy the Dip” program during the interview with @krevix (Twitter). Sorry the interviews are in Spanish.

In case you want to read it in Spanish, you can do it here.

Table of Contents

  1. Evolution of the video game market.
  2. The map.
  3. Components and evolution points.
  4. Maintain competitive tension.
  5. The intellectual property.
  6. Looking to the future
  7. Roblox: a disruptive agent and surrounded by a lot of uncertainty.
  8. Weather patterns
  9. Types of plays

1.- Evolution of the video game market

The video game market evolves a lot and very fast. The main aspects that have changed in the last 10 years are:

  • The elimination of intermediaries.
  • The removal of some entry barriers.
  • Many changes in consumer habits.
  • Video games compete with traditional sports, with cinema, with TV series, with any type of sector that is dedicated to the entertainment industry.
  • Video games, like many facets of life, have been greatly influenced by the influencers model. Content creators are directly influencers. They are audience aggregators that move people towards those video games.
  • There are children who prefer to watch a video game played by a famous player to a movie or a cartoon.

To understand the magnitude of the industry, very detailed reports of its impact in countries like the US can be found . The capital flows are huge. There are many similar reports that focus on other geographical areas or specific areas of the industry.

2.- The map

The video game industry 20 -30 years ago:

  • The player acquires the game when it is published in a physical store. He is aware of new games through magazines he buys at kiosk.
  • Physical stores acquire a large number of games depending on demand and reach agreements with content publishers.
  • Content publishers are in most cases content creation studios. In the cases of imported games (from other countries), the publisher of the content usually does it by geographic area.
  • Content generation studios work in ad hoc environments that are expensive and not highly available. There is no base software that allows content creators to focus on the content itself.

Inception of video games industry

The video game industry in 2021:

Current situation of video games industry

3.- Components and evolution points

1.- The player has changed his consumption habits:

  • Older players have nostalgia for old video games and influence new generations of players too (daddy gamer influences his children (some mums too!)).
  • Video games are like a second life for many people: virtual reality.
  • Games have a very social component, they are played with other participants, and they allow you to meet people in a different context.
  • In the past, the video game was the developer of the game and the individual sale of the product. Now the sale is done a lot through social networks and influencers.
  • Before the player had to ask for a game in advance and came when it came (delivery could take weeks or months). Now players want to play the game launch day, for that the purchase has to be digital (here the market places are the enablers of this demand).
  • In the old times you waited, and that was it. Now FOMO (Fear of missing out) effect causes many players to be drawn in.
  • The players are very loyal, they are great promoters of the use of a game, and if a new version comes out they will acquire it.
  • In the social realm of gaming, pigeonholing players by the games they play is a very common practice. It is a very social environment of philias and phobias.

One of the consumer habits that are taking root in the player is the passive watching of video games on the screen (as if it were watching TV).

2.- Sales channels :

Before, the sales channel was limited to the product, which physically traveled from the manufacturer to the distributors and then to the stores.

3. The content creator .

Before the content creator was a big corporation, since developing a game was expensive and required tools and environments not available for everyone. In addition, when distributing the game, it was necessary to have a very large distribution capacity.

This has changed a lot thanks to two major factors:

  • Tools to create content : like Unity, where a creator can carry out the creation of their product at a quite reasonable price compared to the previous possibilities. A Unity license is about $ 150 / month.
  • Market places : that allow to distribute the games. now content creators can upload their games to marketplaces and allow players to download them. With this “distributor” or intermediary disappears. There are very good “digital key” systems that ensure that sales channels are secure.

4.- The market places and / or publishers :

The first thing to emerge were content publishers, creating games for end users. As the industry has grown and evolved, these content publishers have been incorporating independent studios into their templates and have focused on the E2E distribution of content.

Later, the natural evolution was to become a market place, in such a way that they removed intermediaries in the distribution chain, offering their content directly through those market places.

Controlling the generation and distribution of content is very important and the evolution of each of these market places within a highly competitive environment is important. For example Valve is a company that is very reluctant to adapt to changes proposed by users, they define the lines of the content and the evolution of the same, on the other hand, Tencent adapts to the requests in a better manner and has into account the sensitivities of the players (better listeners of customer feedback).

There are a number of large companies that try to control the management and dissemination of content, pumping in large amounts of money to prevent small content creators from flourishing. In fact, if one of them flourishes, sometimes the little one is acquired by the big one.

Market places are not only limited to promoting games, but also offer a lot of content to players: video content, e-sports visualizations, a lot of physical merchandising, avatars, game “powers”, etc.

The ability of a publisher to keep a game alive, version it, and keep it relevant for many years makes the company generate a lot of free cash flow for many years. The case of Super Mario Bros, created in 1983, by Nintendo is very remarkable. The benefit is not only monetary, but it adds a lot to the brand image and the recognition of the brand by the population (my elders know who Mario Bros is, but not what “Call of Duty” is).

The targeted investment: Lines of developing a game takes years of work and management expectations of the campaign to promote the game is a work of months with large investments (advertising, influencers, planning management expectations, promotion streaming, publishing lace for holiday sales, etc.).

Big publishers release the most powerful games (or new version of a popular game) in October and November. Other games are released in March-April in order to maintain high revenues in other parts of the year. E-sports are usually published when the league begins the season.

It is important to understand how capital flows have changed their way in these years, and how the growth of the industry is due in part to technological advances, consumer habits, and the ability to monetize in different ways.

Representation of the main Capital flows

It is important to comment that:

  1. The monetization cycles right now are much shorter than before (from years to months),
  2. The number of users that make up the market is much higher,
  3. The billing sources have multiplied (before it was a single way of billing, now there are multiple).

4.- Maintain competitive tension

Content creators heavily monetize games with the sale of options, game “powers”, or skins.

In individual games this is something that does not have much incentive, but in group games it does.

For example, the player of Candy Crash usually has linked to their contacts (also players) and can see which phase of the game they are going through. In the end you compete with your acquaintances. Candy Crash gives the option to buy the phase step or buy some “helps” that allow the player to phase. No one here can tell if you are using your credit card to “win”.

In other games such as warfare or sports, the use of extra options must be very well taken care of by the content creator so as not to distort the competition too much. That someone has a cooler shirt than the opponent is not a competitive advantage, but having an extra energy is. Knowing how to maintain that competitive tension without resulting clearly decisive advantage is essential so that the opponent does not feel cheated.

5.- Intellectual property

The management of intellectual property has always been a very important area.

Before, licenses were distributed on the product and the ability to distribute a product in a geography.

EA Sports (from the game FIFA) has a very clear management of operating licenses: always pay a lot for licenses so that a competitor can never sneak in. So far it has been the only one that has been able to pay them and they continue with the policy of paying them very expensive in order to continue to maintain the dominant position.

Right now the distribution of video games through market places is one of the decisions that content creators have to think very well, since this exposure conditions them in growth and in obtaining economic returns.

If they want to make a TV series of a video game, this intellectual property protects the creator; and the TV producer has to negotiate with the owner of the game. The demand capture of video games right now has a high capacity to attract from other areas that make publishers have a lot of value in their hands (apart from the recurring billing they get with subscribers to games).

6.- Looking to the future

Potential evolution of the industry for the next few years is anyone’s guess, as there are many uncertainties regarding what user trends will be.

I try to mention some of the components that can come into play massively in the industry.

Components that are part of the present and future needs of industry players

Industry players will decide in which area they will invest their capital. The little ones will have to be very careful to focus on the areas that they think will bring future billing. The giants, with a greater financial muscle, will be investing in all areas so that as they become economically viable: strengthen them.

Understanding where each of the needs is and where they are going is essential to focus. In any case, in some of the proposed components it is not known when it will be possible for them to have a turnover adequate to the investment made. Some examples:

  • When Google will monetize an investment as large as Stadia Games.
  • When a small content creation studio will be able to put out a game that is relevant to the public scene.
  • When a small player training company will be able to successfully monetize the players it is training.

Virtual reality

Many companies have the idea that the idea of ​​Second Life that did not succed about 10 years ago will have repercussions in the future. In this field, the use of games as a platform to allow players to interact and specific events such as the Travis Scott’s concert in 2020 in the Fornite game are examples of the attraction that this type of new forms of interaction are having.

The certainty of how the platform and the interactions between people will be is still very uncertain, but there are many large companies working in this area for years to be prepared for when the environment (one or more) arises that will have more acceptance by the users. users. Here being the first has a lot of advantage.

A metaverse is the fictional virtual world described in the aforementioned work “Snow Crash” (“Virtual Samurai”), or a collective and often shared virtual space created by convergence and compatibility with an aspect of external reality. The search for the metaverse that causes acceptance is one of the most sought after visions in the industry.

Cloud gaming

They are services where the user uses the power of remote servers to play, not needing so much power on the local device. It works like video-on-demand services and stores games remotely for the player through client software. The client software would send the player’s inputs to the server.

Los principales actores en este area son: Ge Force, Shadow Cloud, Paperspace, Vortex, Parsec Cloud, NVIDIA play steam, Google Stadia, Playkey.net, Steam Link, Rainway, Microsoft XBox…

Looking at the amount of financial muscle there is here, it could be said that there is not so much uncertainty and that it is in fact a step that is understood to be natural to attract more mass of players.

Video channels (Streaming)

Youtube, Twitch, Facebook gaming,…. They are video channels where championships or games are watched. Watching live championships is one of the events that is being explored the most by these streaming platforms.

These channels monetize their broadcasts basically with advertising. Also, streaming is highly promoting multiplayer games. This creates competitiveness and actors or influencers that attract a large audience (example: Ibai Llanos).

The market is divided between Asia and the West. Behaviours and market penetration are quite different.

Mobile games

This is a trend that is deeply rooted in Asia, less in the West (Candy Crash, Call of Duty…).

The problem is that monetization is more complex, since placing ads is very annoying and causes rejection.

Right now this type of game is more ingrained in Asia than in the West.

7.- Roblox: a disruptive agent and surrounded by a lot of uncertainty

Roblox (acronym for robot + block) is an online multiplayer video game / platform in which users can create their own virtual worlds (thanks to Roblox Studio) and interact with other users. Yes, all of that.

On October 2019, it has more than 5,000,000 game creators, and more than 100 million monthly active players.

I learned about Roblox when I started to ask nephews and children of friends between the ages of 9 – 14 and they all know or play with Roblox. They started with a lot of educational material and this means that the age of beginning of interaction with the environment is promoted by the parents. Then the child quickly finds a way to play other games and to bring in his friends. As @@ R_yZyy comments: “it is the metaverse of the youngest”, and we must see how it evolves (a lot of uncertainty at the moment).

If we modify Wardley’s map a bit from the current situation and highlight (in red) where on the map Roblox is trying to carry out its activities, the result is this:

Components where Roblox is acting

  1. It’s a social network in itself where you can have groups, blog, private messages and messages online.
  2. It’s a marketplace and a content publisher: there is professional and amateur content.
  3. It’s a content creator, both professional and amateur.
  4. I have drawn a line between “user” and “content creator”, as anyone with programming skills can create a game.
  5. It has its own virtual currency: robux.

In certain aspects it competes with Unity, but as you can see, they are not the same. Unity went public at the end of 2020. Roblox was going to do so in early 2021, but postponed this event to revalue the company again (Unity doubled its market value in 2 months).

Roblox has a life cycle whereby the user arrives at a time, when they grow up, they want to play other games: “when they grow up” and this is a handicap for the environment. At this point there is a very big challenge of user retention.

8.- Weather patterns

This is my personal vision of the weather patterns that condition the players in this industry.

Climate patterns identified in the gaming industry in a general way

9.- Types of plays

This is my personal vision of the types of plays that condition the players in this industry.

Types of plays identified in the gaming industry in a generalist way

well…

That’s it. Any constructive feedback is welcome.

How to bring back benefits of social media companies to people

This is an idea, maybe a crazy one, but here we go.

I see social media companies are an useful tools and they have enabled so many positive things, but in some uses they are a problem society, not only by the use given by an end user, but by the controller of the tool itself.

So many people are talking about this and how these companies are able to dictate their own rules, laws and apply them without control; there are not separation of duties and they are not based on the principles that the countries have given to themselves.

I wrote a little bit about it in October, trying to dig in the issue and understand better the roots of the issue.

To do it, I used this map created by Simon Wardley that I modified to show where a company as Facebook is acting around so many principles of our society.

There is an antitrust case that is in the early stages between 46 states of US and Facebook where basically the states accuse Facebook of suppressing its competition through monopolistic business practices.

There are specialists and journalists claiming that Facebook, Alphabet, Amazon should be split into different parts so some competition could grow around them. I do not see this to be easy in case of Alphabet neither Facebook. The quick minds think that separating Facebook into Facebook 2.0, Instagram and WhatsApp is the right thing to do, but I do not see this move useful for anybody. The reason? a new social media giant will appear, acquiring competition again and in 10 years we will have the same problem.

With the available cash that Facebook has right now they can acquire so many relevant competitor that challenges them. Go to a website and check, they have right now around 55.000 million dollar cash. What do you want to acquire?

You can say, “What is the proposed solution you have for this?”, well I have a crazy idea about it, and I hope you can challenge it.

I would like to start reviewing the Real State Investment Trust (REIT) first.

Real State Investment Trust (REIT)

REITs were established by US Congress in 1960 to give all investors, especially small investors, access to income-producing real estate. It was a manner in which the best attributes of real estate and stock-based investment are combined.

Before REITs the benefits of commercial real estate investment to regular Americans were not available, you had to access to these type of investments through large financial intermediaries and this was only accessible to wealthy individuals.

With the creation of REITs these profitable assets were accessible to more people.

This legislation have evolved since the first tax reform act. Since then, the U.S. REIT approach has flourished and served as the model for around 40 countries around the world (even Spain created them, they are called SOCIMI).

In total, REITs of all types collectively own more than $3.5 trillion in gross assets across the U.S. (not bad right?).

REITs must pay out at least 90 % of their taxable income to shareholders—and most pay out 100%. In turn, shareholders pay the income taxes on those dividends. This fact attracts to many small investors as it’s a business easy to understand and enable them to have some extra income.

My point is that the government was able to make accessible to the small investors a high amount of valuable assets, in a moment where the Real State prices where going up too much and they were creating a lot of wealth to just some citizens.

Right now in 2020, there is a problem with the social media, where each individual feeds these platforms and they are not able to access to the benefits of these companies. You can argue that you can buy stocks of Facebook, Twitter or any other social media company, and make some money with the change of price of that stock. But to me this is not enough, you just can see the percentage of free cash flow these companies are reporting: it’s huge!!!

I repeat: it’s huge amount of money that they generate and they do not share with the people. Other companies are not able to provide a consistent amount of FCF. You can check it.

The free cash flow is the money that they have in the pocket after investing in all operations, R&D, financial investment, etc. They have so much money that they do not know what to do with it (remember the 55.000 million dollars Facebook has right now?).

At this point you can say, “what is your crazy idea about it?”

Social Media Investment Trust (SMIT)

The federal government should create an investment vehicle called SMIT that forced all social media to pay out at least 90 % of their taxable income to shareholders.

In this way, the companies share the profits with the citizens that wants to own these type of stocks. It will continue to be a huge profitable business where the society could benefit on it.

In this way I’m sure the management teams of these companies will invest more money on R&D projects, which will contribute to the future too.

Social Media Investment Trust, Wardley Map

Would you invest on these type of companies?

You do not like to buy stocks? Ok, no problem I’m sure another financial vehicles will be created as ETF or any other one that adapt to your investor profile.

Arguments against this idea

  1. Companies will reject it. I’m sure, as the real state companies did in 1960. But Dwight D. Eisenhower though that REIT creation was a good thing for the country.
  2. Companies will not be able to compete: this is not true, the REIT industry has demonstrated that this works, and remember, if you own a 1 of a social media stock, you will receive regular dividends; in case you have thousand of these stocks, you will receive millions of dollars in dividends. In fact I think that this will attract a lot of investors and the prices will blow up as a rocket.
  3. Companies will not be competitive: that’s not true, they can invest on R&D, they can acquire companies, and execute their plans as today, you just can look at the REITs.

I recognize is a crazy idea that the companies will not accept, but my point is that in this way Social media companies can bring back some of the benefits that they are taking to the people that are in fact the people that feed these platforms with data. Right now the the scale is very unbalanced.

 

 

Apple product evolution

Disclaimer: this is not a Wardley map!!

This is a graphic representation of the products commercialized by Apple, adding some information that helps us to gain perspective.

I have classified them by the nature of software technologies, simplifying it too much.

This is the graph:

  • Each product has been represented since its first release till 2015, coloring it by the 4 stages mentioned in Wardley maps (genesis, development, product, basic service).
  • I added the at the bottom the period where Steve Jobs and Tim Cook where the CEO of the company.
  • Revenue information (taken from macrotrends.net, no more than 2005)
  • The number of acquisitions done by Apple by year (on the table) and classified by the nature of the technology on the graph.

Comments

If you know something about the history of the company, you know that we can see two different ways of leading the company, as the personality and purpose of the CEOs where significantly different. We can argue that what Apple is Today is thanks to what Steve Jobs did during his years of dedication to Apple, but we can also say that what Apple is Today is thanks to what Tim Cook is been doing during these last 9 years.

We can see that since 2013, the number of acquisitions done by Apple have increased in numbers. We can think that the company size was bigger so they were better positioned to do these purchases.

Some people says that Apple is not innovating, the argument I listen is that they really are not adding any new product to the market since so many years. But when you look at the type of companies they are acquiring, you can notice that the investment on Artificial Intelligence, Augmented Reality and Virtual Reality is there. It does not mean that they will succeed, but they are doing their job to invest and innovate.

This is an unpopular opinion, but I will write it down. I think that Steve Jobs created superior products and things that changed the way the electronic devices were used. I think nobody rejects this point. But I have the opinion that Tim Cook did an excellent job as CEO to provide value to its shareholders and turned Apple in a machine of doing money quarter by quarter. I think this is not well recognized as the job done by Steve. Nowadays, for instance so many people recognize the impact of Satya Nadella in Microsoft, but no at the same level that Tim Cook is doing in Apple.

Some people have told me, why Warren Buffett came in into Apple in 2019 and not before. Was this a mistake, or it was done on purpose? I would like to say that the people in Berkshire Hathaway are not stupid, and I have not the answer, but I can figure out that Apple demonstrated to them that they are transitioning from product company to service company where the users consume products and services as a basic thing in their lives. Berkshire loves cash cows and Apple now is that cash cow that they love to have in their portfolio.

Nokia Product evolution

This is not a Wardley Map, but a graphic representation of the products commercialized by Nokia during last 20 years.

I have classified them by major software type of technologies, simplifying it too much.

I’m not taking into account the hardware and semiconductor technologies that they really are so much important, and the reason to do it is that I wanted to focus the analysis on software technology giants.

Nokia serves me as reference, so once you see the other graphs, you can compare.

On the chart you can see:

  • Product evolution of the main families of mobiles that Nokia sold.
  • You can notice how they jumped from their own OS to Windows and then to Android. These moves meant to Nokia a huge effort to keep themselves into the competition.
  • The chart in blue is the revenue from 2005 (I cannot obtain more years from macrotrends.net).

 

Digital sovereignty borders

Coming from the post published by Simon Wardley Digital Sovereignty, I was thinking about some way to look at the situation at the right perspective.

So here they come some initial toughs about what potentially could come.

In my last post Government and Facebook conflicts, I point to some basic conflicts between governments and Facebook. The same exercise can be done with other major companies as Google, Amazon or Apple. But now I would like better to focus on a higher perspective. How these digital models are implemented around the world.

In US we have GAFA (Google, Amazon, Facebook and Apple) you probably would like to add Microsoft, Netflix and other ones, but for this time let’s simplify it.

Then I would like to point the fact that China is implementing these models and the companies that in parallel are doing something similar but in a different way are what is commonly known as BATX (Baidu, Alibaba, Tencent and Xiaomi).

Let’s draw some maps

I would like to start with a map copying the idea of Simon where he represents the national sovereignty.

From that map, I was thinking about the borders between the world as we all know and the effect of these big companies. So I would like you to think about a map as this:

These companies are there, they are present in the daily lives of so many people and we see them as “friends”, but they are acting without control and they are invading many basic rights that took years to have: safety (data protection legislative environment…), privacy, civil rights, habits, behaviors.

Right now they are basically doing 2 main things:

  1. Storing tons of data about ourselves in so many ways.
  2. Promote short term dopamine-driven loops to maximize profits.

Right now you can think that they are complex and very evolved activities, but if you look with a perspective of 20 years, the technology that they have today is nuts with respect the amount of innovation that is coming in these fields.

The machine learning and Artificial Intelligence available in 10 years will make us blush.

What are the governments doing?

  • There are some efforts from European Union to punish and change some behaviors of these companies (but right now poor result).
  • The US congress is preparing several initiatives to declare some monopolistic positions (being in preparation).

The only country that reacted to this situation was China, that started copying the US models, and from that point, they have evolved to something different. For instance, if you compare Facebook and Tencent, the evolution of the platforms/services have evolved in very different ways.

In the long term, they are massive destruction weapons, ready to be used when required.

In the 60’s we had the cold war, between western countries and communism countries, right now there are 2 countries building digital weapons. Look at the map in this way:

What are the other lands doing with respect the Digital Sovereignty?

Government and Facebook conflicts

Simon Wardley has first written about digital sovereignty and later he did some comments on Twitter about the moves a company as Facebook is doing.

Simon’s answer captured my attention:

So, first I have done is a short analysis about how Facebook works, decomposing the main components of a huge company as it is. I know, over simplification is not accurate.

Then the basis of the discussion goes around a map that is explained on the digital sovereignty post. Sorry but if you want to understand the next paragraphs you have to spend some minutes reading it.

To define slightly better the conflicts that I have seen I would like to do a small change on the “power” component, dividing it into the classification that is common at least in democratic countries: legislative, executive and judicial.

The use of topographical intelligence in business strategy / Courtesy of Simon Wardley (CC BY-SA 4.0)

This differentiation is important, and we will see later why. Just as a highlight of what’s coming next, the point is that sometimes, the “executive” power is using the digital powers to skip from the physical sovereignty that the citizens of a land have provided to the politicians.

Where can we find conflicts between government and Facebook?

There are thousand of scenarios, and it’s impossible to cover all of them, but I will try to comment some of them. If you have another example, please let me know.

Situation #1, Respect Local Laws: national elections in a democratic country

Let’s put Spain as example (I know a little bit more about some rules here). So have clear laws about how politicians can communicate and persuade citizens, there are laws about freedom of expression and other mechanisms that enable an imperfect but accepted system. Someone could tell me that traditional channels of communication (newspapers, radio and TV) can influence as the same than Facebook on the elections, so let’s try to see this in deep.

In Spain the 24 hours before the voting day politicians cannot advertise themselves. Here the government controls traditional channels of communications stop offering advertisements, but in the internet, you can find volumes of information about the political parties 24×7 and a last minute “news” that expands quickly on the social networks.

The conflict? Facebook and other social networks are invading the land of power, not executing some filters during these previous 24 hours. They can say that are opinions, but the reality is that a lot of this content was there thanks to advertisement that they are monetizing.

Situation #2, Misinformation: US elections in 2016 and the fake news

Here Facebook and other digital channels have the ability to skip a simple rule that the Spanish people gave to ourselves.

In 2016 during the US elections there were in 2016 where it was clear the manipulation done on Facebook platform, even do that Facebook for this 2020 elections they have enabled an action plan where they are removing, highlighting or filtering some of the content published on the platform.

One of the key points where the credibility of the information. A trusted traditional channel of communication have a credibility, and their editors value it as key asset of the company. They can be more aligned to one party than to other, but they will not enable that a third party will publish any information without their control and without checking if this is a credible information or not, basically because their credibility is at risk.

Facebook was not seen as a channel of communication, they saw themselves as a platform where people publish things and they monetize it. At some point the maintain that people clicks “like” or “share” things as an individual act, and that there is not anything wrong on it. The problem comes when someone understands that with enough money and the right knowledge about how the platform works, they can modify the perspective or the perception of something, and we all know that a “lie repeated 1000 times is still a lie” but some people believe it.

A trusted traditional communications channel would have not enabled these fake news.

The manipulation of the platform had several consequences but I would like to focus on one. For this 2020 elections, Facebook have enabled a set of rules to remove, filter and avoid the spread of a publication. The questions that come to my mind are:

  • Who have decided that the filter rules are the right ones? (scope of digital legislative power).
  • How are these algorithms executing these rules? (scope of digital executive power).
  • How are the claims done by an user being judged? (scope of digital judicial power).

The conflict? A private company is exercising executive, legislative and judicial power, over the individuals of a nation.

The digital sovereignty have the same elements of the sovereignty and on this case FB has the upper hand of the power, nor the citizens that gave themselves a framework for living as a collective.

Situation #3 no civil discourse

Kenneth J. Gergen describes civil discourse as the “language of dispassionate objectivity”, and suggests that it requires respect of the other participants, such as the reader. It neither diminishes the other’s moral worth, nor questions their good judgment; it avoids hostility, direct antagonism, or excessive persuasion; it requires modesty and an appreciation for the other participant’s experiences.

  • Do you see something of this in Facebook?
  • How can you do it if you do not know if you are discussing with a person or a bot?
  • How can this be done if there is no control of it?

In a democratic land, if you want to organize a protest, you can call on it, ask for permission to walk on the streets of a city and protest about the ideas you have and being heard by other citizens. There are some laws that tells how you can behave, there is a control of how you do it, and another citizen can claim that some aspect of that protest was against the law.

In Facebook you can organize a protest creating thousand of bot-users, creating and budgeting a campaign, and spreading it in the platform.

The questions that come to my mind are:

  • Who has validated that the virtual protest/campaign is aligned with the law? (scope of digital executive power).
  • How can I demand that some aspect of the protest is wrong? (scope of digital judicial power)
  • Is classifying the only way  to tell Facebook that something is wrong? (scope of digital executive power)
  • If something is proved as wrong, how is Facebook punishing it? (scope of digital judicial power) and how is Facebook avoiding this type of wrong behavior again? more algorithms? (scope of digital legislative power)

The conflict? A private company is exercising executive, legislative and judicial power, over the individuals of a nation.

The digital sovereignty have the same elements of the sovereignty and on this case FB has the upper hand of the power, nor the citizens that gave themselves a framework for living as a collective.

Situation #4 no civil rights

Civil and political rights  are a class of rights that protect individuals’ freedom from infringement by governments, social organizations, and private individuals. They ensure one’s entitlement to participate in the civil and political life of society and the state without discrimination or repression.

In the space of Facebook’s land:

  • Who does define the civil and political rights of the users? (scope of digital legislative power)
  • Who does take care of these right? (scope of digital executive power)
  • Who does take care of the right execution of these rights? (scope of digital judicial power)
  • Have you read something about this in the terms of service when you create the Facebook account?
  • How the use of Facebook respect the civil and political rights?

Situation #5 lack of data protection

Well, there are tons of discussions and controversy around data protection but the basis is that there is a basic conflict.

The conflict? You do not have control of the data that you give to Facebook, and governments have more or less data protection policies.

Other conflict? They are tracking you in thousand of ways, you just consult the list of patents they have related to this: they control the camera, the microphone, the way you touch the screen, location….

Components I realize that Facebook is acting

In the original map where Simon draws, the one called “the culture map”. The map is a representation of what culture. The positions can be widely discussed but what is important is to realize that culture consists of many components including values, behaviors, memory and other concepts linked to our collective (family, friends, church, supporter group, region, nation…).

Well, I have highlighted some of the components where I think that Facebook is acting. Something that probably can derivate into a discussion for each one of the components.

The use of topographical intelligence in business strategy / Courtesy of Simon Wardley (CC BY-SA 4.0)

I have added to the map a component, “digital sovereignty” that some day everybody will recognize as a valid concept, and later it will just called “sovereignty”, in the same way that now a phone was once a “mobile phone”.

Some words to ponder, consider and debate

You can say: you can individually stop using Facebook!!

And I will reply to you, that your are partially right. As an individual, I can remove my Facebook account, but we live in a society and we belong to collectives that when something new comes we have to accept the positive things that this “new thing” has, and control as best as possible the bad things that the “new thing” has.

When cars became popular, nobody told “stop using cars”, the citizens created rules to live with this new technology, have the benefit of the positive aspects and minimize the bad aspects.

So, one of the original questions raised by Simon is very valid:

how to balance “Me” vs “We” in a modern society?

 

A short analysis of how Facebook works

This post tries to analyze some aspects of Facebook as a company, so I can confront some values promoted by Facebook and how they enter in conflict with government’s values.

Let’s start looking for capital flows

The first thing is to follow the flow of capital, so first thing I have done is to look into the Q2 2020 quarterly report for investors.

The first thing we can find is that 98% of the revenue comes from advertisement.

These are the KPIs and measures offered by FB and they are considered valid from market point of view:

  • Facebook Daily Active Users (DAUs)
  • Facebook Monthly Active Users (MAUs)
  • Facebook Average Revenue per User (ARPU)
  • Family Daily Active People (DAP)
  • Family Monthly Active People (MAP)
  • Family Average Revenue per Person (ARPP)

I want to remind the main types of cost, so I will save this screenshot here:

Spending time on their platforms is the main thing they measure and what happens there is the second thing we should look at. Where?

Patents

I have been reviewing the list of FB´s patents and I have stopped in the second page of patents as there are so many. From the extraction I got:

  • Methods and systems for identifying target images for a media effect
  • Automated detection of tampered images
  • Location based content aggregation and distribution systems and methods
  • Ranking items using a unified model
  • Techniques to promote filtered messages based on historical reply rate
  • Informative advertisements on hobby and strong interests feature space
  • Generating catalog-item recommendations based on social graph data
  • Determining related query terms through query-post associations on online social networks
  • Optionalization and fuzzy search on online social networks
  • Apparatus, method and program for image search
  • Methods and systems for providing user feedback
  • Systems and methods for partitioning geographic regions
  • Dynamic tagging recommendation
  • Automatic personalized story generation for visual media
  • Managing notifications pushed to user devices
  • Systems and methods for filtering page recommendations
  • Systems and methods for filtering page recommendations
  • Predicting reach of content using an unresolved graph
  • Providing social endorsements with online advertising
  • Real-time tracking of offline transactions
  • Systems and methods for selecting content to send to labelers for prevalence estimation
  • Temporal clustering of social networking content
  • Suppressing entity suggestions on online social networks
  • Methods and systems for synchronizing data streams across multiple client devices
  • Systems and methods for suggesting content

Tired of reading patents? …. me too.

I want to focus on some of them:

  1. Systems and methods for recommendation of topical authorities: Systems, methods, and non-transitory computer-readable media can determine one or more respective topics of interest for at least some users of a social networking system. At least some of the topics can be propagated to at least a first user, wherein the propagated topics were determined to be of interest to users that follow the first user in the social networking system. At least one topic from the propagated topics for which the first user is a topical authority is determined.
  2. Inferring relationship statuses of users of a social networking system:This patent application discusses predicting a set of emotional states using information such as how many times you visit another user’s page, the number of people in your profile picture and the percentage of your friends of a different gender.
  3. Determining user personality characteristics from social networking system communications and characteristics: This patent proposes using your posts and messages to infer personality traits. It describes judging your degree of extroversion, openness or emotional stability, then using those characteristics to select which news stories or ads to display.
  4. Predicting life changes of members of a social networking system: This patent application describes using your posts and messages, in addition to your credit card transactions and location, to predict when a major life event, such as a birth, death or graduation, is likely to occur.
  5. Associating cameras with users of a social networking system : Analyzes pictures to create a unique camera “signature” using faulty pixels or lens scratches. That signature could be used to figure out that you know someone who uploads pictures taken on your device, even if you weren’t previously connected. Or it might be used to guess the “affinity” between you and a friend based on how frequently you use the same camera.
  6. Correlating media consumption data with user profiles: This patent explores using your phone microphone to identify the television shows you watched and whether ads were muted. It also proposes using the electrical interference pattern created by your television power cable to guess which show is playing.
  7. Routine deviation notification : This patent tracks your weekly routine and sending notifications to other users of deviations from the routine. In addition, it describes using your phone’s location in the middle of the night to establish where you live.
  8. Statistics for continuous location tracking: Correlating the location of your phone to locations of your friends’ phones it tries to deduce whom you socialize with most often. It also proposes monitoring when your phone is stationary to track how many hours you sleep.

There are a lot of algorithms that they have patented to protect one of their most valuable assets: their platforms.

The use of these algorithms and the decisions that they are taking show up a lot of

Facebook needs

Let’s start with Facebook needs. Below a summary of needs.

I want to put my attention to “active users” and “behavior’s analysis”, to me these are the two key aspects I would like to review in deep. Some of the questions that comes to my mind are:

  • How does FB keeps the users engaged on their platforms?
  • How does FB keeps the attention of the people?
  • How does FB change the habits and routines of interaction to keep people engaged?

Chamath Palihapitiya answers is: “with short term dopamine-driven loops”.

how dopamine-driven feedback loops work?

Well, this is the basic loop:

How dopamine driven feedback loops work

Some books with more information

All this is more complex that the short summary I have done here, so in case you want more details a book focused on this topic should be a good source of information. For instance:

  • Chaos Monkeys: Inside the Silicon Valley Money Machine’
  • Facebook: The Inside Story (English Edition)

Now I will comeback to the analysis of conflict of values between government and Facebook.

Algorithmic Trading Wardley Map

I have been drawing this map as part of a conversation on slack with other user (Tom) where I was trying to figure out what map and needs are required.

So I started with the user: the algorithmic trader. This person wants to implement an algorithm for executing trades automatically without human intervention. So, the design of a system, the back-test of the algorithm and the execution of the final tested code are its main needs.

Then, you could decide if to do it by yourself or using one of the existing platforms. I know Quantopian a little bit, so I have used this one as reference for the map (you can use others).

I have drawn the lines in different colors to differentiate the selection of a user that wants to take one route or other: user that builds its own environment (green) or that uses a platform (orange).

I have doubts with the practice, in the few knowledge I have, practices depends more on the models and technique that an author writes about.

The Wardley Map

The typical steps that an algorithmic trader do are:

  1. Design the system starting defining the trading rules that wants to put in place. Once done it’s moved into an algorithm.
  2. The algorithm is tested on a data set, and results are evaluated through a set of indicators and standard values that traders use to work with.
  3. Once a tested algorithm is considered as valid, the code is executed in production with real money.

Key aspects of the map:

  • Real time data is key for the execution of the code, specially if the algorithm works well in small spaces of time. There is a big space of work here and the competition with high frequency traders is tough.
  • The connection with the broker is key, a platform as Quantopian that used to have it, removed it. The brokers uses to enable APIs for connections from external computers. Here again the time response is key.
  • One of the advantages of Quantopian is that they offer a prepared datasets that in the past had high quality. This makes you save a lot of time because the preparation and maintenance of data is something that is very time consuming.
  • I have not represented concepts as risk management, as this is something conceptual that the algorithm trader has to implement in the code following the principles, rules and systems that is more valid for him/her.

Quantopian Business model

This Bostonian company has two main lines of business are:

  1. Developer members, who develop and test algorithms for free, focusing on specific factors that, in case they are winning algorithms, can be added to Quantopian’s offerings to institutional investors. In this case they can have some royalties or commissions.
  2. Institutional investors, have their investments managed by the winning algorithms.

There were a moment where they took a decision

In 2017, Quantopian decided not support the connection with live trading brokers

I have read this note, where it’s announced that Quantopian no longer supports live trading through Interactive Brokers (or Robinhood). Here, the users are moving to other environments, some of the ones mentioned are:

Reading the comments of the forums, it seems that the solutions are not perfect, but the users are surviving using other environments. The users having their own environment must be laughing.

The point is, Quantopian wanted to have a free environment to promote winning scripts and then use them with their institutional investors. To have real winning algorithms you need real competition that forces people to find higher profits, not just a mediocre profit that an individual could use to earn some dollars. They probably identified that real competition was invaded by average brokers that wanted to take advantage of a free environment, and they cut the umbilical cord for these average brokers.

Announcement on October 29th

Quantopian’s Community Services are Closing, this is the title of the note published to announce the closing of the Research and Backtesting are no longer available.

Gameplays

We can identify two sets of gameplays used by Quantopian:

  • Education: they have had a clear approach to educate people and the amount of educational content is really extense and high quality.
  • Open approaches: the use of python as programing language enabled them to attract a lot of researches that are used to work with it, and to take the advantage of libraries as Zipline.
  • Differentiation: they were offering the institutional investors a set of algorithms that were tested and they had real winning percentage and profits. The market is very extense, and to have an “army of researchers” looking for weird correlations that leverage profits for “free” is something definitely different.
  • Creating constraints : the removal of access to live brokers was an invitation to some set of users to leave the environment. I can imagine that they took the number of users connected to brokers, and they easily calculated the amount of resources that they were consuming.

Which other gameplays do you identify?

Which other platforms exist?

I found this picture in https://tradingtuitions.com/  that is very useful to understand some of them: