Autonomous Vehicles: The Empty Re-positioning Challenge

Over the next 10 years it is estimated that the number of autonomous vehicles on U.S. roads will become a mainstream force. The rate of progress to this goal is accelerating, building on the success of technology-enabled safety features such as lane assist, adaptive cruise control, and emergency braking. We first saw these technologies come together with self-parking features, and 15 years of continual innovation and evolution are now at a point where self-driving vehicles are a reality.

The stress that will be exerted on already stretched infrastructure will be significant because of the very nature of this leap forward in capabilities. Roads, enforcement, regulations, and the legal system are all designed to work within the framework of a human-controlled automobile. Roads in particular are organized to protect us from ourselves, with speed limits fixed irrespective of the road conditions and flow patterns designed to move a person from A to B.

There is a consensus that car sharing services will continue to expand and with autonomous vehicles go into overdrive as car owners turn loose their vehicles when not in service of the owner. I would not rule this out but it is an overreach to assume that people will do this by default. Personal property is just that and I, for one, would not take kindly to having my vehicles used by strangers unattended. I also don’t think people realize how much the cost of maintenance and depreciation is per road mile, therefore the economic proposition of car sharing may not be a good deal for everyone.

For people leasing vehicles, the mileage restrictions alone prove onerous to car sharing use cases. This is important because lease penetration broadly is about 27% of the total U.S. car market, but as you move up the price tiers the lease penetration increases to 50%. Self-driving technology is an expensive add-on, even more when coupled with EV and hybrid drive systems. It is predictable that over half of all self-driving vehicles will be leased.

So let’s assume that the majority of the market for self-driving vehicles, acquired for personal use, will be strictly for personal use.

Putting aside the obvious challenges that autonomous vehicles present to the legal system – liability – let’s take a look at something not often talked about in the context of autonomous vehicles. Empty repositioning, the process for moving vehicles that do not hold passengers in order to retrieve and transport passengers.

I was first introduced to this problem while looking at an investment in the ocean shipping industry. The flow of trade between countries is rarely equal, the U.S. brings a massive number of full shipping containers from China while sending a much smaller number to China. Left unattended, China would eventually run out of shipping containers, so there exists a well understood process of empty shipping container repositioning. Container ships returning to China carry empty containers in addition to loaded containers. The process is not that complicated, made easier by the fact that shipping containers are standardized in size and configuration and a shipper doesn’t care whether they get a Maersk or APL branded container, they are all the same.

The empty repositioning problem in shipping is solved by loading empty containers on ships headed back to Asia. This is complicated by the fact that empty containers have to be loaded at ports which are not the final destination, but port operators and shipping companies have developed processes to ensure that empty containers are loaded optimally for weight and unloading of full containers at other ports. None of this applies to cars though.

The challenge to public infrastructure comes from the loading of roadways with vehicles that do not contain passengers. For 4 decades the investment in transportation infrastructure has favored incentives to high occupancy vehicles (HOV) over single occupant vehicles (SOV) and public transportation. As HOV lanes, which in CA see about $2.5 billion of investment each year, have proven to not increase carpooling and remain underutilized (LAO report link), toll roads have gained favor.

Unfortunately, car sharing and HOV lane utilization continues to lag projections and the typical HOV lane carries fewer passengers per mile than a non-HOV lane. The challenge that self-driving vehicles presents is enormous because in that scenario a typical SOV will be making 4 trips per day instead of 2.

Autonomous vehicles represent a cataclysmic tipping point for how governments allocate funding for roadways. The entire public transportation system is designed around a premise that increasing congestion will drive people from their cars on to mass transit. In dense regions that are land constrained, the Bay Area being representative, public officials don’t even bother to obscure the strategy increasing the pain of driving.

Here we see a technology that massively disrupts not only traditional businesses, but also public policy on mass transit. Drivers don’t have to drive during their commute, and can send their vehicles home when they are not using them, avoiding the cost of parking. Transportation planners are wholly unprepared for this future, and given the hundreds of billions of dollars that have been spent on public transit systems that are inflexible and capital intensive hub-and-spoke systems, I forecast a lot of pain ahead.

Save The Newspaper Industry and Still Lose Weight

This is a really interesting article on the newspaper business; how the eyeball model is failing and why a “subscription consortium” could be a positive development if Congress changes the antitrust laws that likely restrict newspapers from enabling this now.

Harder to foresee was the emergence of a painful paradox: Newspapers’ revenues have shrunk even as their audience has grown, because online-ad revenue does not come close to replacing print-ad revenue. Exactly why is not perfectly clear, but one reason is that only some newspaper advertising has moved to newspaper websites, with the rest shifting to such online upstarts as Google and Craigslist. Another reason is that readers seem to perceive print ads as information but Web ads as distractions, and so ad rates are much lower online than in print.

[From National Journal Magazine – How to Save Newspapers–and Why]

Before tackling the subscription concept, I do wish to take issue with Rauch’s suggestion that it is not “perfectly clear” why online advertising is failing to bridge the gap for newspapers with declining print distribution. While not “perfectly clear” it may fall into the rather obvious category that online advertising is more transparent than print and thus is less likely to benefit publishers through inefficiency. In other words, even CPM based display ads are performance based in that the advertiser pays for exactly what is delivered, not what is reported to be delivered.

Newspaper advertising is not monolithic either, there are classifieds, business card ads, information ads, sale ads, coupons, and spotlight ads. Of all these categories it is classifieds that have most certainly been negatively impacted by Craigslist et. al. For the other ad variants there is a good analog to online display ads but it’s not entirely clear that newspaper ad sales groups understand how to sell online ads, but having said that it is also true that coupons are far different from spotlight ads.

Perhaps the real problem that the newspaper business has is not a lack of options but a lack of imagination. Why is it that the best newspapers can do is interstitial and display ads?

There is one problem that newspapers face which is difficult to overcome and that is the fact that newspaper advertising is predominately local whereas online the boundaries presented by geography simply don’t apply. If I am placing ads for an automotive dealership and SFGate’s numbers present a picture that suggests only half of the online audience is within the 5 Bay Area counties that I care about then the consequence of that is that their ad rates are only worth half of the rate card to me.

This only serves to illustrate the weakness that display ads have online… if your .46% click through rate is now no better than .23, the 1:30 ratio of people who click on an ad to buy a car now causes a chain reaction that results in having to display the ad 12,000 times to get a lead across the finish line. What this means is that the CPM rate is worth about $8.30 to me if my competitive marketing costs are $100 per car buyer, and this is a success story! If my RPM (collective CPM to a page) is $25 on average, I have to generate 10 million pageviews just to generate $250k in revenue.

Rauch presents an interesting concept of a consortium subscription but here’s why it won’t work. News is fungible and with the explosion of news sources that are available online it is unlikely that newspapers as represented online today could justify a subscription cost on the basis of unique reporting alone. Even a meaningful consortium of newspapers would have a hard time sustaining this concept.

This is because newspapers by and large have taken a chainsaw to news gathering operations and as a result do very little in the way of unique local coverage. Cable news in particular has been aggressive about picking up alternative forms of local coverage and are ramping up initiatives to collect user submitted videos in particular, all of which further threatens the newspaper model of journalism.

Newspapers can, I believe, succeed online but they will need to broaden their reach and deepen the portfolio of advertising products they offer. As advertisers demand more precise targeting and yield the newspapers will have to respond with much better targeting and probably something like technographics that predict how different audience groups engage brands and online media.

As I have written before, I don’t think that newspaper executives are stupid or incapable of understanding what is happening to their collective industry. I do believe that smart people fall into a trap of viewing something different as simply an extension of what they have already been doing, and as such tend to be incremental in their innovations. Journalism is not broken, nor is the notion of print newspapers, but what is clear is that simply doing online what you were doing offline isn’t working and no amount of volume will make it up. If The Huffington Post can do as well as the rumor numbers have them doing, then the Washington Post can as well.

Lastly, the title of this post is something I played around with while thinking about television advertising for products that promise weight loss without any work. Eat all you want and shed the pounds! Of course they don’t work because losing weight is a simple equation about burning more calories than you are taking in (lot’s of factors, but in a nutshell this is it). The newspaper industry isn’t going to be able to save itself without some serious work to remake the culture of the newspaper business, deal with the costs of their unionized print operations, and optimize what is a generally expensive and low yield news operations. Nothing is free, same goes here.

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All the Time is Prime Time

Like every train wreck, you can see it coming but only at the point of impact does anyone really pay attention to it.

But the more significant shift can’t be blamed on the strike. In the past television season, there has been a sharp increase in time-shifting. Some of the six million are still watching, but on their own terms, thanks to TiVos and other digital video recorders, streaming video on the Internet, and cable video on demand offerings. So while overall usage of television is steady, the linear broadcasts favored by advertisers are in decline.

[From In the Age of TiVo and Web Video, What Is Prime Time? – New York Times]

It’s probably unfair to say television execs are a bunch of lemmings who have no one to blame but themselves. All of the major networks minus CBS have expanded into cable and an increasing number have integrated their online offerings, as opposed to treating them as side projects. In the final equation I think this is less about a new technology, or in the case of DVRs an old technology, altering audience behavior and more about consumer attention spans and competitive activities.

200805121201.jpgIt’s a fact that people watch less television today than they did even just a few years ago, and when combined with the explosion of content that is available and you have a perfect storm that results in substantially greater complexity in attracting an audience.

This complexity is also why television sitcoms have become much more targeted and are allowed a much shorter period of time to develop. The days of a Seinfeld or Cheers pulling down 15 or 20 share are gone and won’t be seen again.

Another dimension to all of this is that consumption of web-based video often happens at work, which may or may not have implications for content producers. I’d have to think that through a little before commenting. But one interesting side observation is the globalizing consequence of web-based video, which of course is not limited to a specific broadcast network and a geography.

30 percent of daily video consumption comes from Indians outside of India, largely from the Bay area and New York.

This international aspect represents a phenomenal opportunity for content networks to rethink the way they do advertising to appeal to new audiences online that they would never have the opportunity to reach through broadcast.
In the end the big television network will prosper as new channels for delivering content create new placement opportunities for advertising.

On the production side of the business it is clear that a decade of changes in the way that television shows are developed, financed, and syndicated has resulted in a broad array of content development capabilities across every genre, meaning there is no shortage of content to pump online.

Having a broad portfolio of content and a seemingly endless opportunity to distribute content doesn’t equate to content that audiences find appealing, so if there is one thing that could be targeted as white space at this point, it would certainly be instrumentation of the player endpoints and the content itself to register user engagement and subjective qualitative aspects.

Personal Web and Personal MOBILE Web

Webwag introduced a collection of mobile widgets and synchronization engine that gives mobile users a seamless experience with Webwag’s start page service.

"Synchronize your personal web with a mobile phone, enjoy your graphical attractive widget on your personal device, this helps users to keep in touch with their upmost important data and information."

This goes to prove a point I was making earlier about enterprise portal products being left behind as start page services infiltrate the enterprise.

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The Social Dimension

"What’s most exciting, though, about Blizzard is that it takes the first step towards turning Pageflakes into a social network. For the first time, members will be able to establish a public profile and there will be a "People" tab added to the site. Members will be able to subscribe to other people’s Pagecasts. In other words, the will be able to subscribe to all the feeds and widgets that person is paying attention to."

This is what has been missing from portals, and in the absence of any sense of "we get it" from portal vendors I suspect that start page providers (a term I use to lump everyone from iGoogle to Netvibes to MyYahoo!, and even Facebook) will erode market share of portals through capturing attention of users.

How many people have a corporate portal but set their browser to their MyYahoo! page or their Netvibes page? A lot, and the trend only gains momentum as these vendors add more capabilities and more imagination to their services.

What happens when Netvibes turns on a groups functionality that notifies any user with a company domain name of the other Netvibes users who share the same domain name? The ability to network people together in a low friction manner is proving to be intoxicating for users, and out of that networking comes groups, events, bulletin boards, shared widgets, and viral distribution of not just information but also application functionality.

Yahoo! in particular could be a big beneficiary of this trend if they undertake two critical strategies, the first being to revive their enterprise group, which was abandoned in 2003. Arch enemy Google has done a good job of positioning enterprise search capability (appliance) on one end and Google apps on the other, the result being that enterprise users are increasingly using Google services and at some point tying up the various initiatives under a true enterprise service contract is a natural endpoint.

Yahoo! has more users on their personalized portal pages than any other vendor, plus the vertical portals (e.g. real estate) that offer them a natural tie in to vertical industries. The other missing element to Yahoo’s strategy is an explicit initiative to integrate Yahoo! Groups to domain specific users, which would give them something along the lines of SAP’s business process communities. Taking it a step further, enabling the user created group/networks aspect, like Facebook, would be the third leg of the stool for Yahoo!.

What’s the one conclusion I can offer as speculation or forecast here? Enterprise portal products are increasingly bleak in outlook, if for no other reason than the providers don’t seem to grasp the importance of a social dimension. The other interesting issue to consider is the potential for interoperability of social networks as a function of identity and reputation.

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Sony Gives Critics Cause For Pause

"Sony is launching a social network for PS3 users called Playstation Home, according to news coming out of the Game Developers Conference in San Francisco today. The network is a 3D virtual world similar to Second Life, says Engadget, except that it’s much, much better."

I’ve been pretty tough on Sony for their DRM strategy, their crappy stores, inability to build a decent online music service, and most recently for really screwing up the PS3 launch. I guess it was only a matter of time before the odds turned in their favor and they delivered something that is truly impressive.

The new Playstation Home service is probably less about being a Second Life killer and more about giving game consoles a new purpose in life, or in this case, virtual life. What I find appealing about Home is that it can extend the audience for PS3s beyond gamers, and for gamers it holds the promise of giving them something without a definitive ending point for them to participate in. In other words, games have beginning points and ending points, virtual worlds don’t.

The Sims being an example of the exception… but even the Sims is essentially a primitive virtual world, so Home should appeal massively to the same audience that is into the Sims (which is heavily women, BTW).

To close the point about games having end points, the game business is a hits business just like movies. Success rides on killer titles and franchise games driving consumption of consoles. Titles like Gears of War, Madden Football, and Gran Turismo become resasons for buying, and if a console maker and their software partners are unable to turn those titles out, well they suffer.

However, while game consoles used to enjoy exclusivity of titles, today’s market increasingly features producers putting out killer titles on both Xbox 360 and PS2/3… it’s somewhat analogous to the PC world where when everything runs in a browser window the choice between Mac and Windows becomes one of what Apple and Microsoft are doing with respectively and less about the ecosystem of software providers.

Playstation Home could end up being something that has greater value to Sony that game titles, if the experience of Linden Labs with Second Life is any indicator. While not putting game titles at risk anytime soon, I can see a trajectory where Sony builds a killer experience for users while at the same time giving them a platform to converge their other businesses like movies and music into, and indeed building entirely new businesses around advertising and content.

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State of Affairs in Enterprise IT – Part 1

I was thinking this weekend about the convergence of trends that we are experiencing in enterprise technology. In the Irregulars discussions these things get vigorously debated but there is invariably a thread that remains to be pulled on, not because we neglect it but because of the circular nature of things and how one trend fuels another which then becomes self-fulfilling because the first uses as it’s evidence the second.

Bear with me while I run through some of these now, but I already know that this is something that will take the span of several posts to fully think through.

Consumerization of the enterprise is a hot topic and one that I fundamentally believe in if for no other reason because enterprise users are consumers themselves and are increasingly expecting the ease of use and low barrier to entry that consumer services have become known for. Most enterprise software is not built to sell to users but rather to IT and CIOs who are likely never to use the applications that they are selecting for their employees. As a result of this dynamic, enterprise software companies have become fat on rich maintenance streams and low expectations from the people who are actually buying them, as opposed to the people that are using them.

Enterprises talk about “shared services” environments all the time, as if the notion exists that their is a services marketplace behind the firewall. How many global 2000 companies allow their employees to select what HR system best serves their needs? How about email or mobile devices? If IT were a shared service environment then I would be able to select from Outlook, Gmail, and Zimbra for my email application, and if one let me down then I would be able to switch. In just such an environment my employer would only be required to pay for the software that was being used, as opposed to what was sold to them.

Okay, so maybe HR is a legitimate shared service… but what about CRM? If the cost of implementing the “standard” CRM package that my company licenses to is onerous to me, why can’t I select the one that better fits my requirements and budget?

People in large companies are looking at Google’s Premier Apps and saying “jeez, $50 a year for 10gb of storage, that alone is worth it” because they well understand that they can buy a 100gb drive at any Best Buy for $100, so why pay EMC $10,000 for a 4×500 storage array? Enterprise technology vendors are hoping against all odds that we’re not aware that there is this thing called the internet where we can see what things really cost. You want to tell me that you need management software and failover capability Mr. IT guy? Well that’s your problem not mine so don’t try to shove $1,000 of “shared service cost” on me just so I can have a bigger email inbox.

Niel makes a good argument about how IT can no longer use the hostage strategy to force me to pay for their expensive infrastructure, as in “your box is in our datacenter and if you don’t pay we’ll send you the SATA cable cut up into a thousand pieces” so they are now using the fear strategy as a fallback. Hosted services aren’t safe and you don’t know who is looking on Google’s servers so you can’t trust them. What about compliance?This argument has evolved from “you mean your going to trust your mission critical data to some third party who might have a datacenter powered by hamsters running on wheels?”, because who is really going to question Google’s chops when it comes to running a world class datacenter?

From where I sit the best thing that could happen to enterprise IT, at least for users, is that IT becomes an infrastructure services provider inside the enterprise. In other words, they keep the power on and a dial tone on the line, while business units take greater responsibility for selecting and managing their hosted applications. IT should also be responsible for legacy systems, after all they are responsible for building them in the first place. If business units are responsible for the cost of providing the applications they use, the actual cost and not the “shared service” cost that is used to pay for all the software that is bought and not used, then they will make better decisions and be more accountable for bad decisions because, after all, it’s coming out of their budget and they have direct control over the decision making process.

In just such an environment in this place we’ll call “Fantasyland” business users would get applications they need because they selected them and the scenario where the better app didn’t get selected because it doesn’t support the Tagalog language wouldn’t materialize because our fictitious business group is located in the UK and they really don’t need Tagalog support. Business users would get the features they require because the provider of the selected application would be directly connected to the people using the software and if something didn’t work or could work better they would be incented to deliver because their users could actually pull the plug on them if it didn’t work right. Lastly, because the business unit would be concerned about their budget and conscious of what things actually cost, they could constantly evaluate options and select the best value not on a 8-10 year TCO analysis but what things are actually costing them in today dollars, and because the software would actually work there would not be the investment in the customizations required to get it to work in the first place.

Basically, in Fantasyland the market dynamics of the best priced, best built solution would prevail just like in the real world consumer market that we business users are currently living in. We may be talking about Fantasyland but here in the real world we are seeing examples of business units taking more control of their IT environments and telling corporate IT to go away… more on that in a future post.

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Mac Geekery – How to View TiVo Recordings on Your Mac or iPod

I’m sure that pretty much everyone except one group of constituents is unhappy with this. For Apple it means that iPod owners can break free of ITMS for video content and for the MPAA it means that consumers can take their video content with them and not pay any “license” fees for the right to watch content that is broadcast free to them to begin with, and for TiVo it means more scrutiny from an industry that already doesn’t trust them, as well as the minor fact that their DRM has been cracked.

The one group of people that is happy about this – consumers. Viva la revolution! Ecosystem are not meant to be walled off and accessed only with toll roads.

Mac Geekery – How to View TiVo Recordings on Your Mac or iPod:

This article discusses a method to automate the process of getting the files off the TiVo and into Front Row/iPod format. If you just want to convert a single file then just run tivodecode on the TiVo file and you’ll have an MPEG-2 file that VLC can play. If, however, you want to make a media center that does everything for you and keeps anything from one show to everything the TiVo records, then you should read on.

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Off to Ireland for a couple of days

I’m outbound to Ireland today to speak at the IT@Cork event, my topic is pricing trends. I am looking forward to meeting Tom Raftery in person, having up until know just talked via email or phone with him.

That I am speaking on pricing trends is somewhat interesting if for no other reason than this is not something I have been called on to talk about at a conference. I’m excited because the timing is great, we are going through a series of exercises on pricing for Teqlo and this has made me more committed than ever in the SaaS delivery model. I say that not because of the usual reason thrown around but because SaaS offers a software publisher a great range of options to build a revenue model with, and none of them are mutually exclusive of the other meaning there are a great many ways to make money versus the old “license and maintenance” days, which to give credit to was never that simple to begin with.

I’ll post my presentation online as soon as I write it… thank god for 11 hour flights! 🙂

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