Balancing the budget

Balancing the budget, or at least lowering the growth of the current deficit, may be a way to signal a change in our national priorities. Doing so would not only appeal to fiscal conservatives but also work as an example to everyone in the country that the days of financing through debt are over. Sending such a strong signal would ensure larger support for some of the programs that are truly needed in terms of restoring the country’s infrastructure and ensuring that every American has access to education and healthcare resources.

The first item would probably be a repeal of the tax cuts enacted in 2001 and 2003. Such financial leger de main didn’t make sense then and it still doesn’t. Repealing those cuts would put anywhere from US$200 to US$300 billions back into the government coffers, which goes some way towards solving the budget deficit gap.

An order asking for a two percent across the board cut for all 2009 discretionary spendings would add about $240 billion in funds, helping handle the rest of the deficit (except for TARP)  and allowing the country to get closer to a balanced budget. The total budget would still represent an increase from the 2008 budget, just not as large a one. Making the cuts mandatory across the board would ensure that the pain is evenly spread and not based on any ideological directives.

Retiring the debt?

Another big question that could be considered would be around what to do with our national debt. Before TARP, interest on the national debt for 2009 were considered to be around US$260 billion. To put this in context, it’s more than what we spend on Medicaid yearly (US$215 billion); or 63 percent of what we spend on Medicare (US$409 billion); or 40 percent of what we spend on social security (US$644 billion); or a bit over 8 percent of the national budget… and that’s just the interest.

Not only that but today, for every US$100 the US government currently spends, it borrows US$14. That’s pretty scary because that money doesn’t come for free and that means that our interest payments will continue to increase over time.

So one could ask whether retiring some of that debt through accelerated payment might be a way to help create a surplus in the future. Since the debt will be crushing on future generations, why not take the hit now and find ways to use some of today’s entitlements as ways to offset those extra payment. For example, if we were to pull out of Iraq, we probably would end up with US$50 to US$100 billion in spendings that are no longer necessary. Assuming we had balanced the budget by other means, could we look at investing that money into retiring our national debt. The premise is the same as that of repaying a little more on your mortgage every month: if you did that, you might shaves years of interest on the back end. In the case of the country, that could means trillions of dollars that could be reinvesting in the country.

Encouraging Investment

Our current infrastructure is crumbling. Whether it is roads, bridges, railroads, or the electric grid, we are dealing wht a 20th century architecture that is not suited for our 21st century needs. For example, one of the biggest holdups in getting cleaner energy in the country is that the electric grid is not built in a fashion that would allow routing energy from low population areas to heavily populated one. Rebuilding the grid to solve that problem would cost about US$60 billion over several years. But here’s an interesting tidbit: that rebuilding could be done by the private enterprises that currently run the grid. The challenge would be in getting different states to agree to play together on setting common rules for building it out, coupled with some possible tax cuts to offset the initial investment costs. Something similar to the tax abatment on internet retail could be put in place around energy to stimulate, for somewhere around 4-5 years, the investment into new infrastructures through some form of private-public partnership.

Also in the public private partnership side would be the creation of a national service program allowing students to go to college for free in exchange for doing national service. The program would take the form of up to 4 years of college tuition paid for in exchange for up to 6 years of working for the country (The program would be sliced in one year increments, with tuition for one year being paid in exchange for 18 months of service). That service could take the shape of work as a government employee either at the state or federal level. Initially, the program would only be available for education through public universities. Private universities who are match the difference between the cost of a public offering and their own cost would later be added to the program, which might help curtail the rise in the cost of education. Service would be compulsory for anyone who has taken a government grant but there would be an opt-out clause that would allow someone to repay the loan in full, with interest, in their first year out of college, allowing them to join the private sector after that.

Then, I picked up the same info from the Apple store offerings for the MacBook today:

So looking at this, the comparison in terms of a price drop, since we’re talking about features, would probably have to be around the 2.4 GHz version since it’s the only version that appears on both pages (the MacBook didn’t have any 2.0 GHz or 2.1 GHz version.)

However, here is the first problem with the statement. The 2.4Ghz MacBook version offered today is $1599 and the 2.4 Ghz MacBook Pro version offered yesterday was $1999. That’s only a $400 price drop.

Using the same advanced “check the Google cache” methodology, I pulled up the technical specification list for the MacBook Pro as it appeared on Apple’s site yesterday. It looked like this:

I then pulled up the similar data from today’s specifications for the MacBook. The idea here is to get a fair assessment, based on Apple’s words yesterday and today, about whether one really gets the same value for less.

So let’s take a quick run down through the features of each devices, since Steve Jobs asked us to keep thinking of today’s MacBook offering as equivalent to yesterday’s MacBook Pro, based on the data provided by Apple itself:

So by the look of it,it’s not an exact match. The screen of the old MacBook Pro is, of course, larger, which accounts for it being heavier and bigger. But other features seem to have disappeared: The 2 firewire ports are gone, as is the ExpressCard slot; So is the antiglare screen (with glossy available as an option instead of a default) and the DVI port. Oh, and the supported screen resolution goes from a top of 1440 by 900 to 1280 by 800.

On the plus side, the multi-touch pad is a glassy button-less one, a new video card is available, as is a larger hard drive (50 more Gb to use) and a speedier motherboard is available. Also, it appears that the battery is now a 45-watt-hour one instead of a 60-watt one so I suspect that there are some power enhancements in this new machine.

Are the two machines similar? No. However, each of them has pluses and minuses and they are only $400 apart which, considering some of the things that have been dropped and added, seems to point to a machine that, assuming depreciation, is probably in line, price-wise, with the earlier one.

Having gotten that data, I then tried to understand the percentage of fluctuation as far as the high and low values for a given day and then for the close of day. I’ve bolded the values that are over 1 percent of fluctuation for a given day.

From this, a few interesting points come up:

• It seems that market swings of over 1 percent are not that uncommon these days. For the observed period of a month, the market closed with a change of over 1 percent for 19 days compared to 5 under 1 percent.
• Since Lehman went under, a swing of less than 1 percent only happened twice, both times on Wednesdays (September 24th and October 1st)
• Significant swings (over 4 percent in either direction for top or low) seem to be becoming more common with 7 of the last 24 trading sessions seeing such swings.

So all this activity begs the question: is high volatility the new normal?

In order to figure that out, I averaged out the percentage of change for the recorded period and then tried to compare that to the volatility since the Lehman failure (with September 15th being the first trading day after the news became official). The results looks as follows:

I would love for readers to check my math here as it seems that there’s a pretty stunning change (38%) in the overall open to close change in price since the Lehman crisis happens, which makes me wonder whether this is only a temporary period or whether we are going to have to get more used to the concept of large swings in the market.

Anyway one slices it, however, it’s pretty clear that we are looking at a market that is largely panicking and it seems that one cannot deduct any trends (either up or down) from what we are now witnessing. Yes, it’s true that the market has dropped over 10 percent in the weeks following the Lehman bankruptcy, but all this at a time when we’ve seen the market drop almost 7 percent on one day to be followed by an almost 5 percent gain the next day.

I am by no mean a financial wizard, so I’d love some of my more economically astute readers to explain (or provide another area that needs to be explored) whether any of this data holds any value to better understanding what is currently happening.

A few months ago, I started getting the feeling that we are in the process of moving into a post-boomer era, and highlighted some of my thoughts on the subject. This was a surprising change of pace to my readers, who are generally more used to my studying things with technology as my focus lense but it was the beginning of an evolution in my thinking.

As the first rumbles of the economic crisis started appearing a couple of years ago (HSBC, my employer at the time, was one of the first companies to aggressively write off bad loans), I started wondering whether the crisis in the mortgage space was only the beginning and thinking that the credit card crisis was probably going to dwarf the mortgage crisis if it ever happened.

At the time, however, I had been so focused on looking at the world with a technology focus that I was failing to find the words to really describe what I was witnessing. My gut was telling me that this was a big turn but I neither had the audience nor the vocabulary to express my thoughts in a clear fashion.

Furthermore, not being a citizen yet, I felt that it might be presumptuous of me to point to the ills of a country that was hosting me as a guest, a country that had offered me so much opportunity. So I kept quiet.

But I now believe that it’s time to attempt to highlight a few things that do not appear to be part of the debate surrounding how to deal with the current crisis. And since I have the luck of dealing with readers who generally are much smarter than I am (and many of them much more powerful than most people), I thought that maybe, just maybe, I could get some of the basic discussion started here, spreading a meme around the concept of a culture crash.

In this particular case, I think the issue is around the destructive culture of credit America has been cultivating with the rise of the post-WW2 generations. I am not saying baby boomers because they are only part of the problem, as my own generation ( Generation X) and the following one, are also involved in the same destructive addiction to credit.

At issue is the concept that over-extending oneself is a good idea. It may be because I am coming from a foreign country, or it may be for other entirely different reasons but I have always had an aversion to credit. When I took my first mortgage, I worked hard to try to repay more of the principal than was requested by the bank. My concept was simple: I thought that if I could repay my loans early, I’d give away less as interest and could then use that interest to pay myself. It turned out to be a smart move but I have no idea as to how I came around to that conclusion. The funny thing is that I had discovered the concept of, to put it in terms that are now being used by every pundit, “liquidity is king.”

Whether it is credit cards, mortgages, or other forms of loans (student loans, car loans, etc…), I’ve always been suspicious of the idea that one could spend more than they had. I was aware of the concept of assets but ultimately, I felt that assets should be, for the most part, tangible. And a bank account with cash in it is about as tangible as things get.

Living in the USA, however, I have always been surprised by how much of a credit culture the country has. When asking for a mortgage, I had to fight my bank to get a “lower” mortgage amount because they felt I was asking for too little. The idea of lowering the risk (both mine and the bank’s) of financial default seemed to go counter to many in the go-go run-up of stock prices in the dotcom era, following by the go-go run up of real estabe prices in the recent housing bubble. Sure, I didn’t spend a lot of time jetting around the world on a lot of vacations as I toiled to ensure that my mortgage was paid off (and it took me a few years to do so)  but I discovered that many of the people who had run up their bills based on the promise of paper fortunes represented by their dotcom options were the same people who were financially wiped out when those paper gains evaporated.

The same phenomenon seems to have repeated itself with the housing crisis, as people refinanced their houses to take cash out and traded those houses as investment vehicles up until the point where the virtual gains they had made in the run-up on prices evaporated.

The similarities between the dotcom crash and the housing crash are a little eerie and, with the benefit of having gone through one of those crisis, I am now starting to gain perspective on the other one.

Meanwhile, the risk of dangerous investment securities (the so-called structured investment vehicles) seem to have been balanced by taking a few bad loans and mixing them with good ones. The problem was that these mixes got increasingly complex and, as I was talking to a friend of mine involved in developing some of those products, my gut feel got stronger. The thing in my discussion with said person (who shall remain anonymous in order to protect the guilty parties) was that “no one really understands many of those investment products anymore.” It felt a bit like a house of cards to me but once again, I figured that I didn’t really know enough to talk smartly about it.

Until this current crisis.

Students of history are familiar with the concept of a run on the bank. As I was reading up on such issues as part of my preparation for a speech, I started thinking about how brittle our economic system really is. Ultimately, most of the financial markets are based on people’s perception of value and, if that perception changes, the whole thing can unravel pretty quickly.

I think we are now at the tipping point of a major shift in the perception of what a good financial decision is. Wall Street may be the most impacted by this for now but I suspect that it will spread relatively quickly (my gut tells me the perception will be generalized globally within the next 3-12 months). The change is coming from the fact that growth may no longer be considered as valuable as tangible assets.

During the dotcom days, I received a couple of crash courses in perception management. The first one was going from VC to VC with a plan trying to raise around a million US dollars for a start-up. The company was slated to be profitable within 2 years and would grow at 15-20 percent afterward, per our projections. To say that our financing efforts were not going well was an understatement. The moment of realization came when, in another disastrous meeting, a VC told us “you’re asking for a million dollars, and will only give us 15-20 growth after the initial couple of years. Your plan lacks ambition.” The whole time, we had been basing our plan on realistic achievable numbers and I failed to understand why we were considered to not be ambitious. Things got worse and, in a fit of desperation, my business partners over-rode my decision of conservative growth based on solid revenue and created a projection set based on year on year tripling of the business, starting with an initial investment valuing the company in the 15-20 million dollar range. I thought were were going to be laughed out of the room by the first VC we presented this but something truly scary happened: not only did the VCs like it, but some of the people who had previously given us a soft no were now banging on our door, trying to get into the round. Of course, we took a first round, and a few more afterward, and enjoyed a nice liquidity event that achieved a nice profit for the initial investors. The company continued on air until the dotcom crash, which it didn’t survive as a going concern.

The lesson here is that VC investment, IPOs, the housing bubble, etc… all have one thing in common: they are based on the idea of future payout, due to year on year growth that is often based on numbers that are wishful thinking in the best of cases ( and outright fraud in the worst cases, as we have learned from Enron and Worldcom)

I think this concept is now hitting the wall. The problem is that it has yet to be replaced by something else as we are moving through the irrational stage that generally marks the end of every great cultural movement. So the operative word is “sell, sell, sell” and confidence has shaken some of the mightiest institutions on Wall street as it will shake up other institutions soon.

On Wall street, they are now well aware of that reality and some of the cooler heads are realizing there may be some ways to profit from the stampede by acquiring assets at fire sale prices.

However, I’d venture that both the panic and the cool reaction are relatively contained right now. Contained to people in the financial industry, the media (who have never seen a crisis they can’t hype), and the reacting investors.

A few days ago, I was at a party in the tech community, and the happy atmosphere reminded me of the euphoria I had experience in the late 1990s, only a few months before the dotcom bubble went crashing down. As I travel in the murky waters between Wall Street and the technology world, I was shocked by the contrast between the panic I was witnessing in the financial space, and the relentless optimism I encountered in the tech space. The assumption that the crisis is contained to Wall Street was well engrained (and may yet change as more people see their 401k go down) but I started wondering about the disconnect. When presented with the issue, one person pointed out that a lot of people would go to grad school, as had happened after the last dotcom bubble and the only thing I could think of, upon that remark was “and where will they get their student loans from?”

Once again, I was getting stuck in the credit mindset and it made me uneasy but it came from the realization that credit is a core basis for the current US economy.

What I suspect is now going to happen, after the credit culture crash, is a move to core value, with people working hard to save up in order to buy things in cash. Actually, I hope that that is the case because any other option only seems to provide a short term band-aid to a major problem. If we fail to take the opportunity to move beyond the credit mindset, the next crisis will make this one look as easy to deal with as the dotcom crash currently looks to us: a big deal for a few people but ultimately something we can get past.

And I’m afraid that we will continue to spiral down the road of an ever increasing amount of debt until such time as there is no other thing to do but crash the culture in order to reset it.

$700 billion is a pretty large figure (TechPresident has a good post that puts it in perspective) and it’s one that will only increase the national deficit.

But interestingly, there’s a way to cover the $700 billion. If we are in a time of crisis, we all have to tighten up our belts: the president has said that the alternative is a really bad economy so I’d assume we are all in this together and we all need to pull in. With the figure of $700 billion being rougly $2300 per person, there’s no way we can ask for everyone to chip in that exact amount. But what if we decided to spread paying it back over several years.

So I started playing with the national budget simulator, a handy little tool which has older budget figures but can give us some ideas.

The first thing I did was repeal the Bush tax cuts from 2001 and 2003. If we are in an economic crisis, we have to figure out a way to get the country back on track so repealing tax cuts that were creating when the economy was arguably in a better state might do the job. Doing so against the 2006 Budget would have yielded $294.88 Billion. That gets up about a third of the way through paying for the bailout. So, if you repeal the 2001 and 2003 tax cuts over a 3 year period, you pay for the bailout. In times of crisis, that might work.

But that was the easy part. What if we need to pay for this in one shot. If that’s the case, we’d need to find another $400 billion in the budget:

• Get rid of reconstruction aid for Iraq gets us $6.84 billion. With $80 billion in oil revenue currently running for the Iraqi government, we could argue they can cover their own reconstruction cost and eliminate this.
• Cutting untaxed foreign profit would yield another $15.74 billion. You could argue that in times of crisis, we need to focus on internal profit and foreign profit is fair game.
• a 20% cut in defense research and development would yield another $13.62 billion (from base of $68.129 billion) but slow down our ability to develop new weapons.

But those are all small cuts and other cuts could have negative impact on the economy so, looking at most of the budget, the only way to get anywhere near the $700 billion mark would be to repeal those tax cuts from 2001 and 2003. They were expensive then but are now downright unaffordable and one could argue that it would be our patriotic duty to cut them.

Ideas, comments, suggestions as to how to raise the $700 billion are welcomed in the comment thread.

So without further ado, here are my prepared remarks:

Good afternoon,

I know many of you are probably wondering why a history of currency would be on the program at a Web 2.0 conference. So let me first dispel a few concerns you may have:

1.    History can be a useful indicator of what may happen in the future. Under a historical lens, Web 2.0 is pretty easy to predict as the natural descendent of community organizing and lowered cost of communication and mediation.
2.    Web 2.0 will impact currencies and that will probably be the biggest thing historians of the future may remember about Web 2.0

So, in the next few minutes, I’m going to take you on a trip through roughly 60 centuries of history (just the highlights, I promise) and will show you how each major shift in the evolution of currency reflects what we consider pillars of the Web 2.0.

Having done so, I will attempt to take you through the next 25 years and project how Web 2.0 may fundamentally redefine how we think of currency, and present some of the challenges and opportunities this historical change may present.

So here we go…

About 4000-5000 BC, the basis of most trading was something called barter. Barter is simple to understand, really. At its most basic level, it goes something like this: “I have fish and you have some chickens. How many chickens will you trade me for my fish?”

The other guys says he will give me 5 chickens for my 10 fish and, if I feel it’s a fair trade, we make the exchange.

So that’s all good but one can’t live off fish and chicken alone. And eventually, I go back to the guy and he tells me he’s not interested in fish but if I can find a cow to sell him, he’d be willing to exchange 50 chickens for it. So now, I’m out looking for someone who will give me a cow in exchange of some fish.

That may work for a couple of goods but you can see how inefficient an approach it is.

Back then, people started realizing the same thing and so there was a move to find some way to simplify things. Communities started gathering around some goods that they would agree were useful as a basis for trade: grain, honey, rice, etc…

And, through these actions, the concept of money was born… and with it, the basis for what defines a currency was established:
-    It provides a standard measure of value for goods and services
-    It serves as a medium of exchange
-    It serves as a method of storing value

Let me get into those points in more details before we move on.

A currency provides a standard measure of value for good and services. If I go back to my example of chickens and fish, I can look at currency as a go-between. By establishing that a fish is worth 1 pound of grain and a chicken is worth 5 pounds of grain, I can then extend the model to a cow is worth 100 pounds of grain and a house is worth 1 ton of grain. From this data, I can infer that a house is worth more than a cow, which is worth more than a chicken and so on…

However, none of this can happen if there isn’t an agreement amongst everyone that a particular currency has value. You could call that a certain wisdom of the crowds and that’s where currency starts overlapping with web 2.0. We’re going to get to more details about that later.

The second point is that a currency serves as a medium of exchange. Because everyone agrees that grain is a great way to make those comparisons, I don’t have to go around and try to make conversions from one item to another. I trade the item against grain and then can use the grain to “buy” something else. In that sense, I can exchange any good for grain and grain can be exchanged against any other goods.

Once again, this only works if people agree on it as a medium of exchange. And that, in turn, represents a form of metadata about a trade. Sort of like if people were to tag an item with the same term. And once again, we get to a position where it overlaps web 2.0 as the crowd is now working together to establish value and therefore define markets.

And because currency is metadata, it can also serve as a way to store value for future use. For example, if I fish, there’s only so long I can keep my fish before it spoils. By selling it immediately (ie. Trading it for its currency equivalent), I can avoid that spoilage and store its value for future use. So, in a sense, currency serves as a storage medium.

But the fact that it works as a storage medium can be both an advantage and a disadvantage. As storage for value, the currency itself become valuable. And when something is valuable, well, some people try to acquire it through means other than production. From here, we end up with theft, pillage, war, etc… And from all this carnage, we get to  the point where people try to find ways to protect their currency (and, almost as often, their lives).

In around 3000 BC, in ancient Egypt, some people come to the insight that, by storing their currency together and agreeing to share the cost for an army to protect that currency (which, at the time, is grain), they may be protecting themselves from loss. Along the banks of the Nile, granaries start to appear and they become a place for storing currency: people come in with the grain they received as a form of payment for whatever it is that they sold. And the first accountants appear, keeping track of what amount of currency people have in their accounts.

Everybody is happy and celebrates as they have discovered a fantastic way to store their currency and keep people from threatening them. Across Egypt, people pat each others on the back until… well, until the first currency crisis.

Around 2200 BC, severe drought made grain more scarce. The result was that disbursements (taking grain out) started to move at a higher rates than deposits (putting grain in). And some people found themselves in a situation where they had spent all the grain they had and had a hard time producing anything they could sell. In this case, the value of the currency (grain) increased because the currency became more scarce.

Eventually, the problem affected the top of the economic food chain, aka. The pharaoh and, as a result, local people started opting out of pharaoh rule and attempting to take control of their own currency. When all was said and done, about 200 to 300 years later, grain was abandoned as a currency as it was considered that a currency that can be eaten is a currency that can have a problem. So metals, which could be turned into tools, which themselves could be melted again to turn them back to metals, started emerging as the dominant form of currency.

This is important because it finally moves currency to something that is more abstract. Metal may be a commodity that, without any work, could be considered of little value but, as an abstract construct of value, it works. And for the next few centuries, that’s the case.

Some interesting alterations in terms of the ways money is stored and carried happen during that era. For example, in a number of countries like China and  Sweden initially, people realize that metal may not be the most portable of currency for large transaction and so places where currency is stored (now called banks, because, initially they were sitting on river banks) start issuing the equivalent of paper receipt for storage and people start trading those receipt. Here, we see the emergence of two key components of a more modern system:
-    First, the concept of representative money, where a piece of paper can be redeemed for a certain amount of metal, therefore representing that metal.
-    Second, the emergence of paper as money, creating another layer of abstraction in the transactions.

With the move to paper, currency becomes sort of an I.O.U., representing a certain value but not possessed of that value in itself. This shift, called the shift to representative currency, is important because it establishes currency as an even more abstract concept. The piece of paper you receive is basically a receipt that can be redeemed for some equivalent amount of metal but it isn’t the metal in itself. So here, we see currency basically becoming free-floating metadata, asserting worth without necessarily showing it.

The problem is that the distance from a bank where the paper note can be redeemed becomes a factor in terms of exchanging the banknote.

Enter John Law.

Law is an interesting character: he’s a Scottish economist who, at age 23, shoots a man, is tried and found guilty of murder. He’s thrown in jail, manages to escape and lands in France. While there, he gambles a lot and comes upon two major observations:
-    People have taken to trading the paper bills as if they were coins
-    Paper is divorced from the metal it represents

From there, he deducts that whoever could control the flow of paper bills could start issuing more IOUs than they have metal for.

With this, he comes up with the concept of a reserve bank, assuming that he could have a bank with only 75 of the cash reserve needed to cover the IOUs it had issued. But there’s a problem with that: in order to control the flow of paper bills, he needs support from a government. And initially, most people think it’s a crazy idea and won’t go for it. But Law convinces some more junior people that it’s a good idea and, eventually, one of his patrons hits the jackpot: Philip D’Orleans rises to power and quickly realizes that he’s running a country where the government has a substantial deficit. So he puts Law in charge of creating a national bank and law sets out to create the first government controlled reserve bank, issuing more paper than it has metal currency for.

It’s a pretty radical idea. Law is dealing with a society where everyone agrees that what you see is what you get as far as currency goes but then he leverages the agreement that paper is a representation of what you get and, after having taken over control of the currency flow, he turns that into what you see is what you get if no one rushes the bank.

Because with his second insight, John Law creates the concept of fractional reserve banking, which basically means that the bank, at any given time, only holds a fraction of its obligation.

But fractional reserves can be a little scary: they work well as long as people trust that the bank can repay them. And most of the time that’s not an issue because while a person needs to pick up their gold or silver or whatever other metal the currency is traded against, another person probably doesn’t need his or hers. So it balances itself out in some sort of common good.

Where the system can fail is when everyone decides to take their metal out at the same time: remember, the bank doesn’t have enough metal in its safe to cover all the currency it’s distributed. That problem is actually an echo chamber problem.

A run on a bank, the situation I’m talking about, generally begins with a whisper: somebody has heard that the bank is having problem and concludes that money you’ve deposited there is no longer safe. That whisper starts spreading and, thanks to an echo chamber type of effect, people worry that their money is no longer safe in this bank. Since they don’t want to lose that money, they run to the bank and withdraw all their money from the bank. Problem is, they are not alone and quickly tens of thousands or more people start doing the same. Because of that massive onslaught, the bank no longer can meet its financial obligation and actually does fail.

This happened in the 1920s with the great depression and it’s happening now (that’s why the government is busy bailing out a number of financial institutions.

But let’s return to history. In the 1940s, after World War II, the Bretton Woods accord established some global rules for currency exchange against gold. But most of the reconstruction of Europe ended up being backed by US dollars to the point where the US held somewhere around 65 percent of the global gold reserves. In 1960, an economist called Robert Triffin figured out a problem with what had happened: there were more dollars in the marketplace than there was gold to back it up. In the early 60s, an ounce of gold was worth about four to five dollars more in London than it was in New York.

Due to many political and economic events throughout the 60s, the possibility of a run on gold and a run on the dollar started increasing and on March 17, 1968, the possibility became reality, creating a substantial money crisis. The whole financial system teetered on the edge of collapse during that era and eventually, the Bretton Woods accord was abandoned. On August 15, 1971, US president Richard Nixon announced that the US would no longer convert dollars to gold. In fact, he added the US would not convert dollars to anything.

That announcement is appropriately called the “Nixon Shock” because with it, Nixon puts an end to the concept of a representative currency established by John Law. In its place is now the concept of a Fiat currency, a currency that is traded not because it has a guaranteed value but because the government says that this currency MUST be accepted as a form of payment.

And so currencies now float, not based on a physical value but based on what people think that value ought to be: today, dollars, euros, pounds, and yens have a particular value not because it is set against actual goods but because people believe that the government that backs those currencies will continue to do so in the future.

So let’s go back to our fundamentals of currencies: they have to be an agreement and that’s where we get to web 2.0 and its impact on currency.

Which gets us to more recent times. During web 1.0, a number of companies starting thinking that the internet, because it was global in nature, needed a global type of currency. So technologies like Digicash, Cybercash, Ecash, Flooz, Beenz, appeared in an attempt to mirror cash and create new currencies.

But they had many problems. First of all, the different systems were hard to use, often requiring software to be installed on the users’ machine. That limited participation and, if you remember one of the fundamental rules of currency creation is that users generally agree on using a common currency.
The second part was that the systems actually went too far in trying to emulate cash. So, just as you need to go to an ATM to get cash today, most of the system used the concept of a purse that was to be refilled from a different area. But why go to an ATM to withdraw cash when you’re on the Internet? Why not say, “I have money in my account, refill my wallet if it’s empty. ”

The third, and probably most important part, was that once spent, the currencies were transferred back into some real world currencies like the dollar or pound sterling (and no euros because this is all happening before the euro became a consumer currency.) That was the biggest mistake because currencies weren’t really traded.

The dotcom bubble crashed and, along with it, most of the virtual currencies that had been introduced. It wasn’t a very big deal because people didn’t hold much money in those currencies.

Meanwhile, a parallel development having absolutely nothing to do with currency creation took form across the internet: because of its global outreach, the net was a perfect place for people to play games together. At any given time of day or night, there was always someone interested in a game of chess or backgammon or something else. Some games went beyond the basic board games and leveraged the concept of role playing games that had been so attractive to so many computer geeks.

And over the years, as computers became more powerful, the quality of the graphics improved. And as the games improved, new point systems were created for each quest allowing to trade work (game-related achievements) for goods (better weapons, magic potions, housing, etc..)

Those points took various forms. So games like World of Warcraft or Lord of the Rings online, which are set in a medieval-like type of environment, turned to gold as their achievement point systems. Linden Lab, with created Second Life, created the Linden Dollar… and so on and so forth.

But then… then something really unexpected by most of the game makers happened: people started exchanging those virtual currencies for real world ones. Looking back now, it seems to make total sense: the challenge, for a lot of those games, is that it takes a lot of time to acquire virtual currency.

Here, in the developed world, time tends to be at a premium. Most of us are multitasking constantly because we just don’t have enough time to do everything that we would like to. But because we spend a lot of time working or doing other things, we don’t have much time to play games. On the other hand, we tend to have more disposable income than people in underdeveloped countries.

For example, in 2005, the average annual salary (and let me make this clear, I’m talking average annual salary) for a Vietnamese worker was 1200 dollars. That’s 1200 dollars a year. That same year, in the Guangdong province of China, that number was $2,778.

Some of those people are in their early 20s and when they get out of work, they go out and spend some of their money to play video games. At some point, a few entrepreneurs around southeast Asia realized that if they paid ANYTHING to those players, they might be able to get past some of the more boring tasks and resell the accounts to people with little free time. A new economic model was born and all of a sudden, World of Warcraft gold started getting traded against US dollars and euros.

Students of currency history could have predicted this. Remember, currency is a social agreement on the value of something and here, those virtual currencies became an agreement on a value of time.

While initially the phenomenon was one of supply arising from southeast Asia to meet North American and European demand, it eventually went around full circle. When China decided to start requiring that people register their work occupation as “virtual workers” for people dealing with that type of trade, over 750,000 people applied in the first quarter. That’s three quarters of a million people in China alone claiming to make the majority of their living from creating goods they sell against virtual money.

And Asia is where it actually gets very interesting because frictions between the government and virtual currencies are becoming more common.

Meet Tencent. Cute little penguin, right? Well, that little penguin is currently at war with the Chinese government. It started relatively innocuously. Tencent provides an IM system and offered a virtual currency, the QQcoin, to be used so one could upgrade their online avatar (an avatar is basically what your online character looks like) and allow for people to give gifts to other avatars. Not a big problem until a few other web sites started accepted QQcoins as payment for services, and eventually for goods. In May 2007, the Chinese authorities started issuing warnings about the QQcoin. By November 2007, they were blaming it for impacting the Yuan, the national currency.

That industry, which people have called the virtual world economy, real money trade, or RMT, currently represents anywhere between 2 and 4 billion US dollars of transaction flow a year. That’s up from inexistent less than 5 years ago.

So let’s keep that number in our minds and move to the next set of influences Web 2.0 is having on currency. As you know, Web 2.0 in increasingly about giving power to the user and increasing peer to peer relationships.

I talked earlier about the virtual currencies that popped up during the web 1.0 phase. There was one company which, at that time, came up with the idea of moving currency from one Palm device to another. For those of you in the audience who may not remember that time, Palm devices where the spiritual grandfathers of the iphone or most smartphones today. Well, the Palm thing didn’t work out for them, so they figured they’d start moving money via email. Oh, and they renamed the company around the name of the product: Paypal.

I think everyone here knows the rest of the story. Paypal has become a leader in moving money on a person to person basis with something as simple as an email address in terms of identification. That simplified transactions and many people around the world are actually using paypal today to move money from one currency to another.

And while many may snicker at the idea that moving money from something as ridiculous as the Palm, well, it was just a question of timing and marketplace. Currently, in Kenya, M-PESA is doing the equivalent of 10 million US dollars in daily person to person transaction on mobile.phones. That 3.6 billion dollars a year.

That’s real currency right now but why does it have to be a real one? After all, it’s just virtual money as it moves from an electronic device to another.

Meanwhile, marketplaces like prosper.com and zopa have started allow users to make loans to each other via a web interface. It’s called peer-to-peer lending, basically, people lending money to other people, or as most of those companies claim, they’re Ebay for money.

According to the online banking report, it will be a US$9 billion a year business by 2017.

That’s real currency right now but why does it have to be a real one? After all, it’s just virtual money as it moves from an electronic device to another.

So if we take the trends we’ve just explored:
1.    Virtual currencies have grown to be traded as if they were real currencies
2.    People are moving money from one person to another via the internet or mobile devices

… we may be able to come up with the conclusion that where this is going, in the long run, is an area where exchanges could be set up either online or on mobile devices to use virtual currencies are real currencies.

And if we assume that this first step is possible, then it’s not too far away from the next step, which is an explosion in the number of currency offerings we may see in this world.

What we’re seeing here is the first shot in what I think is the next evolutionary step in the history of currency and it’s an evolution that could either be a transitional phase without major disruption or a massive change in the way people are interfacing with currency: this could be our generation’s Nixon Shock.

The issues around this new world are significant.

The first issue is around who is controlling those currencies. For most of history, currency was under the control of the currency issuer. But in the last couple of centuries, there’s been an increasing trend towards government control of currency.

How will government react when their own currency is challenged? And will their reaction matter? After all, the Chinese governments actions to date, as far as the QQ is concerned haven’t stopped trading.

What will happen in terms of tax collections? Will government have to start accepting currencies beyond their own as agreed form of payments? And if they accept other forms of currency, will they have to accept other government-run currencies as form of payment?

How will criminal behavior be dealt with? Today, criminal elements can be tracked because whenever they have to deal with some currencies, they have to eventually deal with banks. And because banks are regulated, criminal behavior can be intercepted. What happens when those money flows move outside of the financial institution control? Shouldn’t governments think about regulating those institutions as money transfer operations ?

What happens when the number of currency explodes? Sure, computer systems can do the conversion without problems but how will WE assess the worth of a currency?

And, as currency initially proliferate, there will eventually be a move towards an agreed upon set of new currencies because remember that currency is ultimately, about an agreement value by all of us. But when some of those currencies die, what will happen to the people holding them? Will the dead currencies be converted to emergent ones? And what happens if the dead currencies are ones that were controlled by governments? Will they fight for survival?

I unfortunately don’t have any of the answer to those questions but if there is one thing I know, it is that where questions exist, opportunities abound.

And with that said, I would now like to open up the floor for discussion.

But today, I can say that I got past most of the funk. Sure, I still look up in the sky when a plane flies lower than expected; Sure, I still get some chills down my back when I get close to ground zero; but, for the most part, I can go about my life without being reminded of what happened.

Today, my concerns have evolved: it’s more about building a better future for the generation born after 2001, that of my son, than it is about dwelling on that horrible and unfortunate date.

But today is also a time for reflection: there is still only a construction site on ground zero, the result of wrangling by different factions about what the place should be: it may be weariness on my part but maybe the best way to honor the dead would be to put your own agenda aside and try to figure out where the common ground is. Whether you were affected directly, through the loss of friends and loved ones, or indirectly (and, let’s face it, most of us in the USA were affected at least indirectly), a way to celebrate might be to reach out to someone you generally wouldn’t and try to understand what ground you share.

7 years ago, New Yorkers pulled together. 7 years ago, we were all as one but somewhere along the way, the country went back to being apart. Why not make today a day to bring all of us together again as New Yorkers, as Americans, as members of the human race.

In Memoriam: Carlos Dominguez, Mark Ellis, Melissa Vincent, Michael DiPasquale, Cynthia Giugliano, Jeremy Glick, David Halderman, Steve Weinberg, Gerard Jean Baptiste, Tom McCann, David Vera.

Strategic Position

Google lives on the web. Most of its application need a web layer in order to operate and, if it were to find itself in a position where the access to their application where to be compromised through the equivalent of a strategic man in the middle type of attack, their business would die off. So, if Microsoft, which currently still controls around 70 percent of the web browser market, were to decided to change their code to impact how Google applications function, Google would be in deep deep trouble.

Because Google realizes that the browser is sort of their achilles heel, they had to make a play into that space. The first thing they did was help the creation of an alternate offerings, by giving large subsidies to Microsoft competitors like Apple and the Mozilla foundation, largely dolled out as revenue for traffic generation through the search box. See, one of the thing not too many consumers are told about is that the search box in Safari or in Firefox are actually paid placements: Every time a user uses that box to perform a search, a little bit of revenue goes back to the browser creator. So that’s great because it allows those alternative browsers to develop and, as long as Google is people’s preferred choice anyways, no one is complaining.

Of course, there are certain issues with the arrangement: a lot of the people who have installed Safari or Firefox don’t like online ads and some developers were happy to provide tools allowing those users to remove ads from web pages. Google wasn’t too thrilled about that but it found the issue mostly OK as long as the arrangement didn’t hurt its advertising cash cow too much.

But over time, this model created a problem. The feature was tested by consumers who, having seen too much of their screen real estate polluted by ever larger ads, liked what they saw. And, as ads became smarter and started to target users individually, it spooked consumers. Being able to block certain ads became a product differentiator and started to cause some problems to Microsoft.

So, with IE8, Microsoft is starting to claim that it will help users and one of the trial baloons it has been floating is that the user may have more control over what ads they can see and possibly may be able to block some ads.

For Google, that’s not too happy a development: the idea of being able to provide free products is based on the fact that Google is really and advertising company with a side business in search. And if the advertising is blocked, then Google’s whole business model falls apart.

So now, Google needs to regain some level of control. For many years, it’s been going after bits and pieces of the Microsoft empire: a little bit of the office suite over here (Google Apps), a little bit of the enterprise space this way (Google Appliances), a little extra screen real estate (Google Widgets), an alternate application distribution network (Google Pack)… but the premise behind most of their offerings was that life was now in the “network cloud” (basically recalling Scott McNealy’s old “The Network is the Computer” concept with 2.0 flavor).

With Chrome, Google is now trying to bypass most of Windows. There’s still a few things that Windows will be allowed to do for now (connecting to the Internet, managing the communication layer) but it seems that this is the farthest Google has gone into addressing Microsoft head on. In the mid-1990s, Marc Andreesen, then at Netscape, said he wanted to relegate Windows to being just a set of basic libraries and, with this offering,  Google is trying very hard to do so though I am sure you’ll never hear them say so.

Will it work? I don’t know. At first glance, I’d say that their challenge will be to get the software installed on a lot of machine. For all their past efforts, it looks like it may take a while. Once they have gotten Google Chrome installed, the next thing will be to move up to a default setting. That will be another challenge.

What I suspect is that the company will soon offer a customizable version to cable and phone companies to ensure that they choose Chrome over Internet Explorer. And one thing I’m pretty sure about is that whatever happens, Google will ensure that ad blocking software will not work on Chrome.

Memory Management: Marketing or Truth?

One of the things that leaves me scratching my head is whether the memory management Google claims as an important piece of its offering is actually based more on marketing messages than reality. Buried in the developer’s menu is an item that supposedly offers a view into the memory and CPU usage of Google’s new browser. Yes, the browser feels fast so it’s clear that there are a number of improvements there but what is that costing in terms of memory. Here’s what the browser reports:

What you’re seeing here is the browser running two plain HTML pages and an instance of a richer web-based application (Google Reader, which, according to this, accounts for 40Mb of memory space used). Where I get a little puzzled is when I looked at what Microsoft reported through its task manager:

The same 5 processes appear (but since Windows only knows them as running as chrome, it can’t identifty which is which but the numbers are very different: Chrome reports an aggregate memory use of 96,300K while Windows reports an aggregate memory use of 121,544K or 25,244K more. To be very honest, I don’t know which number is correct but, with only 3 tabs open (and the tabs I have on here are the minimum I have open at any time), I don’t find it very reassuring to see this type of gap appear. Will it get worse as I add more tab? I don’t know but it’s something worth investigating.

My journey to this moment is one that, in retrospect, would pretty much a given. Since 1992, I’ve been involved on the outer periphery of presidential elections. In the mid-1990s, for a brief period, I was even lucky enough to be present when policies and legal precedents that continue to shape the Internet were established.

In the last presidential election, I took a week off from work to put my money where my mouth was, volunteering with the A.C.L.U. to help protect individual citizens’ right to free assembly and free speech during the New York Republican convention. I’ve had many memories from that week but what stuck most, in my mind, was the courageous group of three Republicans who, one night during that week, went down to Union Square, where most people were protesting against the GOP, and set up individual spot asking the protesters to debate them. The exchanges were both fiercely partisan and cordial and I am still amazed by the fact that people who sat on opposite extremes of the political spectrum could not only sit down and talk with each other but do so in a manner that may have helped all participants.

And yet the time passed and it took me another few years to even apply for American citizenship. But last year, I finally decided to make the leap. And the leap was made on one small but crucial and all to often taken for granted right: the right to vote.

I have not posted any partisan thoughts on this site when it comes to American politics. It was a conscious decision: back then I was a resident alien (yes, that’s the technical term) and I felt that to use this bully pulpit to discuss American politics would be in bad taste. As a non-citizen, I felt that I had little or no right to really voice my opinion as loudly because I considered it to be in bad taste.

But things started bugging me. It’s not that I was starting to dislike America but rather that I started to dislike how the administration was dismantling the idea of America that has been set down by the founding fathers. People who know me well know that I can be a bit obsessive about the US constitution and the bill of right. And what I felt, after a few more years of the Bush era, was that this administration was going against a substantial amount of what the founding fathers intended.

A worse crime than attacking the foundation of the American republic though, was in the way it was done, attempting through twisted logic, to paint that attack as in line with what the founding fathers intended. To besmirch their names in such a way was, I think one of the final straw.

The people who assembled in Philadelphia in 1776 and declared that enough was enough put their necks on the line for us with the declaration of independence. And the people who, 11 years later, came up with the US constitution did the improbable: they decided that, having defeated the mightiest army of the time, they would not accumulate and aggregate the power amongst themselves but rather, they would form a country where checks and balances would rule the day to ensure that the people had the strongest voice possible.

So the states would act as a check on federal powers; 3 branches of government would balance each other out to ensure that none became too strong; even those would be balanced as internal mechanisms would limit the authority of any single person within that branch.

George Washington, who had initially had a hard time prosecuting the war but eventually turned things around to win a country was given a chance at becoming the country’s new king. But not only did he turn down that opportunity, he did not seem to argue for a strong executive branch. Once in power, he not only avoided the trappings of royalty, but also set foreign policy precedents by declaring the US as a neutral nation in foreign conflicts, and eschewed any attempts at war, preferring peace.

Alexander Hamilton believed that the country’s burden ought to be shared by all. However, while heading the house of representative, he decided to sway votes to ensure that his political opponent (and a fierce advocate against that idea), Thomas Jefferson, could become president because he felt that doing otherwise would undermine the legitimacy of the country.

Thomas Jefferson, a slave owner, decided to deride the practice of slavery in his initial draft of the declaration of independence and time and time again, pushed for laws that ended up dismantling some of his own interests.

The men intended on building a new country based on equality and justice for all, even if that meant that they would no longer be guaranteed worship but instead would be considered equals to all. And for this, I would say that they were not just mere men, they were supermen.

But somewhere, somehow, things started going horribly wrong in our times. And I suspect that the main issue has been one based on economics, with many people believing that the golden rule (”he who’s got the gold makes the rule”) should be the basis for our nation. That golden rule led to a belief that each American is an individual and, as such, has little or no responsibility to the rest of society. It elevated the individual to a place where kings would be OK, and thus, the belief of a strong president, stronger than congress or the courts, started to take hold.

And so, a new era of selfishness replaced the basis of selflessness that our founding fathers intended.

I could recount the ways in which those things can be illustrated by the actions of this administration. Whether it is a rush to war (and here, I do not talk about Afghanistan, a war that was based on facts and a real enemy but rather about Iraq, a war that was “sold” because it appealed to a certain group) or the belief that corporations can be above the law (for example, the telecom prosecution exemptions currently being discussed which, I’m sure, are leaving every criminal trying to figure out how they can present their trade in a way that will make them benefit from the same approach large telcos do), something went amiss.

But things going amiss are not the reason to become citizen of a country like the United States, a country that was founded on optimism, hope, and renewal.

And hope, renewal and optimism seems to be the flavor of our times. While we are still living in dark ages, there is a sense that a new breed of politics, a new breath of fresh air, may be allowed its place at the public table. In fact, I would even be so bold as to say that wild concepts like substance over style could have a chance to enter this election cycle.

Granted, Obama oozes style, with the type of delivery that not only presents new ideas but voices them in a way that people find it inspiring. Granted, McCain offers substantive policy but I am not wild about that sustance, as it provides a view of an America angry at the world, and fearful of others.

And that, ultimately, is what this precious voting right comes down to. By now, having lost half of the people who generally read my site (an assumption I’m making because I suspect that the previous few paragraphs will leave many of my Republican leaders angry), I can say that a lot of my thinking about getting US citizenship revolved around the right to vote and the right to belong. The USA, only 7 years ago, was a country that, for the most part, welcomed non-Americans. But since 9/11, things have changed and there seems to be a growing resentment of foreigners, largely dictated through policy pronouncements that would make the founding fathers spin in their graves.

So I am now a new citizen and, on election day, I will most probably go out and vote FOR Barack Obama. Voting FOR someone is an opportunity I missed in the 2000 election cycle (I have to admit that, had I been a citizen in 2004, I would have been more intent to vote AGAINST George Bush than FOR John Kerry).

But of course, there is a lot of work to do between now and then, and there is more than one election to go. This country, my country, is in trouble and I, like many others, have worked to do. And I hope that one or more people, having read this, will consider reconnecting with their civic duty.

But do not take this for my telling you who to vote for. Whether you believe in John McCain or Barack Obama only matters to me inasmuch as I might have to work with or against you politically. However, what would really touch me more than anything is if you, reader in any country where leaders are chosen by election, could reconnect with your community and help improve it by restoring real political dialogue, just like those republicans, with whom I respectfully disagreed on a warm night in August 2004, who decided to talk to their non-republican counterparts. On that night, all those involved may have come from different political factions but they talked in the language of exchange of ideas that so many decades ago inspired the world and defined one country, my country, the United States of America.

Strategy: Hardware? Software? Service? Partnership?

Let’s take a look at the players in the “smart phones” market: Apple, Nokia, Microsoft, RIM (blackberry),  Linux Mobile, and Palm. Sun used to have a Java Mobile but it seems to have dropped off the market, in terms of device market share. And then, there’s the new pretender to the crown in the form of Google, with its Android OS offering.

How do they stack up in terms of Hardware? Operating System? Service Offering? Well, here goes:

A first glance at this table seems to reflect some of the player’s pre-existing biases. Microsoft is known for its software business so that’s where it put the most weight; Google is all about free software to power their services; RIM and Palm do a hardware software combo; Apple throws its weight behind a fully Apple controlled experience.

However, there are a few caveats: For example, while Microsoft is in the space primarily as a software provider, it also owns Danger Inc., makers of the Hiptop. And while Palm has its own software, many of its devices are powered by Windows Mobile.

But apart from those exception areas, it appears that strategies are organized across four business models:

• OS only: This strategy is preferred by Sun and Linux. The model here is to provide an operating system that can be used by others. For Sun, this strategy has largely failed as substantially less than 1% of all handsets around the world is powered by their OS. Linux, which really was the first open source mobile OS has captured about 4 percent of the global smart phone market to date. Microsoft is the big leader in terms of that strategy, with its Windows Mobile OS currently powering about 12 percent of all smartphones around the globe.
• Software + Service: All this leaves us with Google and their Android offering. Much of the commenting today is that the move Nokia just made was aimed at the fact that Google had an “open” operating system. But what Google is really trying to do is provide an operating system that melds OS and services. Either that or they are in the OS only camp. Either way, they are not playing in the same space as the iPhone or Nokia (see triple play below).
• Hardware + Software: This model is preferred by RIM, makers of the Blackberry, and Palm (especially with their inexpensive Palm Centro line). This strategy works best if you want your device to be focused on few use scenarios: The blackberry is first and foremost a portable email station; Palm devices are first and foremost PDAs. This orientation comes from a past where the device wasn’t initially intended as a phoe but morphed into one.
• The triple play (ie hardware/software/service): This is the strategy currently used by Apple with the iPhone: they provide the hardware, the software, and a set of services (me.com, iTunes, Software store) on a complete package.  Through recent acquisitions, Nokia has been moving in this direction: while they were traditionally a hardware player, they started adding services to their devices. With today’s announcement, they’re also getting some control over software.

So looking at this, it becomes apparent that while many are pointing to Nokia going after Google, it may not be the target. Since Nokia does service and hardware already, getting more control over its own OS is probably an important move.

Open Sourcing

I can already hear some readers snickering: Symbian’s been open-sourced so Nokia does not have control. Let me make something very clear: the gold rule (”he who’s got the gold makes the rule”) applies to Open Source as it does in other areas. While it won’t get exclusivity, Nokia, having paid $400+ million to open source Symbian will be considered “more equal than others” by the Symbian foundation, I’m sure.

But why open source? If we look at the players mentioned above, their position on open source and their market share, the picture becomes clearer:

Looking at the market share date, Nokia’s move doesn’t seem to make sense: They currently control 65 percent of the market, why would they bother? But here’s the thing: There’s this newcomer called Apple and they didn’t exist 18 months ago: they now have 7 percent of the market and are growing.

If I’m a Nokia executive and I’m looking at this data, I start worrying. So what do I do? I look at competitive advantage: initially, I try to compete with cooler devices (the Nseries) and while it stops some of the bleeding, it doesn’t appear to fully halt the competition. So I start looking at services as a way to stabilize revenue (Maps, Music, Games) but that doesn’t stick. Then I realize that my problem is the operating system: I’m stuck with that alliance of partners I have but they’re slowing me down. So I have to take over. But I can’t do that by just kicking all of them out. So I acquire and open source.

The open source move fills three strategic objectives:

• I get to keep partners still involved but get them to agree to my taking charge.
• I get other people to improve my code and/or developing FOR it, thus allowing me to counter a potential Google threat if it ever materializes.
• I get to look more “open” than Apple and will use that in my messaging

The Future: Collateral Damage Then Status Quo

Of course, while it works out great for Nokia, there is a little bit of collateral damage:

• Sun’s offering, while interesting had already sunk largely into irrelevancy so they’re no longer a player.
• Palm OS, was teetering on the edge but now it’s pretty much cooked.
• Linux, while still having teeth, will probably see its market share dwindle as its unique selling proposition (more open than others) is gone.

So that’s unfortunate but what does it do to the rest of the market. Well, in fact, it looks like today’s events wont’ have much impact: Palm, Linux and Sun represent about 5 percent of the market. With Apple at 7%, RIM at 11%, Microsoft at 12% and Nokia at 65%, it looks like the market will stay pretty consistent. The remaining 5% will be carved out by the existing players and by Google’s entry into the market. Nokia will remain at the top for now.

Potential events that could have a more disruptive effect: a Microsoft/RIM partnership (or outright acquisition) which, when integrated would give Windows Mobile a 23% market share. But short of such a move, it looks like the situation will mostly stay at status quo for the time being.