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Does Apple Pay Get Security Right?

September 11th, 2014

So we have yet another attempt to succeed at mobile payments, courtesy of Apple Pay. However, Apple has a very long history of taking inventions and putting them together in just the right way that they finally are usable, and take off. As Tim Cook said on Tuesday, “every other attempt looked at it from the perspective of the business model, rather than the user experience.”

Given the many high-profile security breaches over the last several years, I would like to take a look at the security implications. In short, did Apple get security right? Will using Apple Pay significantly reduce the exposure to credit card theft and breaches?

Unfortunately, as of this writing, no detailed architecture or design paper for Apple Pay has been released. What we do know is the following:

  • It uses Near-Field Communication (NFC) to share the purchase authorization, similar to many cards that have it
  • Apple has no information about the purchase, the amount or even the merchant
  • Apple does not share the credit card number with the merchant; actually, Apple may not even have the card stored at all, except for initial setup of each card
  • Apple Pay uses one-time “tokens” to authorize the payment

What does this mean? You go into a Duane Reade to buy a pack of tissues. Here is the before and after:

Today

  1. Clerk rings up the cost
  2. You take out your credit card and swipe it
  3. Point-of-Sale (POS) system reads your card number from the magnetic stripe
  4. POS transmits the amount and card number to the processor
  5. Processor approves

The obvious weak points here are #3 and #4. There are 2 major problems:

  • Any form if illegitimate software or hardware anyone between your card and the processor can steal your card information. In the Home Depot and target cases, the POS was compromised; in other breaches it was store wifi; in the Adobe case, it was the database that stored the cards.
  • Just having your card number is, ipso facto, authorization to take from your account.

Sure, over the years cards have added additional band-aids, like the infamous 3-4 digit security codes that are not on the stripe, but the core of the problem remains.

Now, let’s look at the apparent Apple approach.

Apple

  1. Clerk rins up the cost
  2. You take out your iPhone
  3. Your iPhone recognizes the NFC, and reads a request for the amount agreed, along with the merchant
  4. Your iPhone generates a unique one-time “card number” or “token”, which is valid only for this merchant and this amount. It may also only be valid for this date, which is how I would do it, although Apple has said nothing about it.
  5. Your iPhone transmits the token to the merchant POS, which then sends it to the processor for approval.

The major weak points have largely been eliminated. Even if the POS is awash with malware, all they can get is a token that is good for a single purchase, of a single amount, to a single merchant, possibly only for one day. If they tried to use that code elsewhere, it would fail. This, in turn, would reduce the security burden on the merchant, while decreasing the incentive for hackers to attempt to breach those systems.

Does this increase their incentive to breach bank and processor systems? Sure, but that incentive is there anyways. Any hacker would get far more in ill-gotten gains by hacking the Visa network or Chase than even Wal-Mart!

So Does It Work?

The answer is, it depends. If the actual architecture is done correctly – and we will only know that and have confidence if and when Apple releases whitepapers and architecture to the public – then, yes, this really could dramatically reduce both breaches and their impacts.

The latter is a big question though. Apple, from its very onset, has had a tight culture of secrecy. It doesn’t like to describe how the innards of its systems work, for fear of competition. Growing up in the Apple-Microsoft world, followed by the Apple-Google-Samsung love triangle, this is hardly surprising.

Nevertheless, security by obscurity is insecurity. The only way to truly be confident is for them to open Apple Pay up to external analysis, and let the chips fall where they may. I am positive there will be some horrible weaknesses, but every system has them. Publicity will allow them to be found, publicized and fixed, while those who work in obscurity will have similar weaknesses that will never be found… except by thieves.

Of course, in the end, I still strongly feel that this just exacerbates our “pull” system, where we give merchants something – a signed check, a credit card number, an Apple Pay token – to allow them to pull funds from your account. The best solution, one possible only in a fully connected world, is one where the merchant gives you their account number, and you send them the funds.

Not many systems work this way, but the preeminent one is… cash. The most famous second one is BitCoin. It is almost a pity it had to be a “counter-currency,” as it could solve many of the problems with push. But that is an article for another day.

Apple Goes for Shiny and New, but What About the Basics?

September 10th, 2014

Apple, arguably, had its most important launch event in years yesterday. Beyond putting its smartphones back in play with the iPhone 6 and 6 Plus, competing on specs with LG and Samsung, not to mention Motorola (Motorola? When did they come back from the dead?), it launched in 2 new categories:

  • Apple Pay – mobile payments, for which a follow-up article will be launched this week
  • Apple Watch – a more convenient extension to your phone on your wrist

Apple Pay has enormous potential, but depends entirely upon Apple’s iPhone business.

There is no doubt that Apple had to catch up. Despite having created the business in 2007 – it seems like a very long time ago, but it has only been 7 years – followed by the entire category of mobile apps and the App Store, it has fallen behind every major competitor on screen size, specs, processors, cameras, etc. It had to catch up and regain its “flash”, its “cachet”.

However, I find it troubling that Apple did not address the basics. Yes, Apple has a new processor, and cool games to show off, but day-to-day usage is, for the most part, not about ultra-high-power games.

Most smartphone users have 3 simple complaints and challenges when dealing with their phones. They either cause problems directly or cause people to be concerned about those problems.

  1. Battery Life
  2. Fragility
  3. Water sensitivity

Let’s look at each in turn.

Battery Life

Every smartphone user complains about battery life. To their credit – and Samsung’s, and Motorola’s, and Google’s, etc. – every one of them has spent significant resource in placing better batteries with a few percentage points of longer life; improving hardware to work more efficiently; reengineering its software to perform the same tasks with less energy.

But in the end, until some of the major physics and chemistry breakthroughs are sufficiently commercialized, everyone is playing on the margins. This means that how you charge your phone becomes at least as important as how your phone maintains its charge.

To compete, companies have adopted different solutions:

  • Most smartphone makers (other than Apple) use a micro-USB port, increasing the chances that you will find someone else to lend you a cord.
  • Some manufacturers support wireless or inductive charging, so you don’t even need a cord.
  • Motorola’s latest flagship Moto X has a form of “rapid charge,” that can give you 70% charge in 5 mins.

While all of this innovation is short-term stopgaps, these will matter greatly for the next 5 years. Since Apple’s mantra is that their stuff “just works,” it is surprising that Apple did not address it at all.

Anyone except the most dedicated brand die-hard (Apple or Android) will switch brands if they can get a materially similar device with 50% more battery life or, conversely, a really quick and easy way to recharge.

Fragility

Everyone has dropped their phone at least once, and said, “I probably just shattered the glass and will have to pay $50-100 and a day without it to repair it!” Whether or not it actually shattered, awareness of the fragility of the phones changes how we all operate.

Apple does claim to have “ion-hardened” (whatever that means) its screens on the iPhone 6 and 6 Plus, but those are just words. A video did leak a few weeks back showing someone bending a supposed iPhone 6 screen, as well as trying unsuccessfully to crack it with a hammer. However, if that was it, Apple did not promote it yesterday, suggesting the video was not genuine.

Water Sensitivity

Ever bring an iPhone/iPod/iPad in for repair? The first thing they do is look in the microphone jack for the little sticker that changes colour when exposed to water. Apple is spending significant sums buying special microscopes, adding the stickers to the manufacturing process, training their employees, and having them spend salaried time to examine for these little stickers.

As a result, everyone who has a phone hides it from the rain, runs back to pick it up off the kitchen counter, scrambles to grab it away from the spill on the table… and worries about their warranty.

It is entirely possible to waterproof it; just look at the Samsung Galaxy S5, or even Apple’s own Watch.

Putting Them Together

Imagine if you had a reasonably modern smartphone that:

  • You didn’t worry about water
  • You didn’t worry about dropping it
  • You didn’t worry about it running out of battery (or at least felt comfortable you only needed a few minutes to recharge it)

If this smartphone ran a modern operating system with modern specs – like the Samsung S5, LG G3, iPhone 6 or Moto X – how many would buy it in a heartbeat?

Apple is adding new sexiness to its iPhone, and entering new categories… but there is a whole world to (re)capture in its core smartphone category – redefining how you just use your smartphone. It requires “back to basics,” but would be a must-have across the board.

Pity.

Facebook Advertising and Sloppy Pricing

September 9th, 2014

As I mentioned in an earlier post, I had a poor experience attempting to pay Facebook for services I agreed to purchase. It wasn’t the acquiring process that was messed up… it was the actual payment. This is the absolute worst place to make things fall apart – when you want a customer’s money.

I did, however, discover one other serious mistake on Facebook’s part: sloppy pricing.

Let’s go back to my sample advertising campaign. I selected the article to “Boost” and the target audience, and then it gave me the prices. Since I was physically in Israel using an Israeli ISP (and hence IP address) at the time, the price offered was 180 Israeli shekels (NIS). On the other hand, since my business is US-based, I clicked on the “select currency” pull-down, switched to US dollars…. and got 180 USD! The current NIS:USD exchange rate is ~3.60:1 (it was worse, but the Bank of Israel lowered its rate by 25 basis points early last week), I could pay $180 USD or 180 NIS = $50 USD! Essentially, the price was 180, whatever currency you were in. Maybe, I should have tried Chinese Yuan, as the RMB:USD rate is around 6.14:1!

I could easily understand the same demographic in 2 different regions – US and Israel or UK and Hong Kong – with differential prices, but for the exact same demographic to cost the 3.6x less just because of a different currency? This is a classic arbitrage opportunity, and a big one at that. Even better, the 2 markets are run by the exact same company, in the very same window in front of the same customer! Facebook needs to be careful to manage its pricing much more carefully. Maybe I wouldn’t have paid $180 to advertise, but maybe I would have paid more than $50. Either way, to sell the exact same product, to the exact same audience, in the exact same packaging, for 2 different prices? Foolish.

It looks like Facebook has its internal technology figured out pretty well – they do some impressive stuff architecturally in order to scale to the 1BN+ users they have; the published documents and presentations are recommended reading for anyone designing technology systems – but they appear to be much weaker in terms of integration with external systems like PayPal, and especially in their own marketing and especially pricing. It appears they need some adult supervision at the helm. Sure, they did $2.02BN in revenue in Q3 of last year, but how much more are they leaving on the table?

 

Why I Won’t Advertise on Facebook

September 8th, 2014

If there is one rule that is more important than any other in business, it is this: make it easy for your customers to pay. Sure, “cash is king,” and “know your numbers,” and “the customer comes first,” and all of that. But all of those are just ways to get people to become and remain your customer, or to keep your business afloat. Much as the purpose of their being your customer is to service them, to deliver great value, if you are in business, then all of that is to get paid.

In other words, the absolute worst thing you could do is make it difficult for your customer to pay you. The moment a customer parts with their money is the moment when they are recognizing the (hopefully greater value) service you have provided them by allowing you tp pay your bills. This is the one point, more than any other, that should be 100% easy and frictionless. Web companies have spent untold billions to find ways to make checkout easier, payment easier, shopping cart abandonment lower.

And yet, the actual payment itself can sometimes be an afterthought. Last week, I came across a classic case of “payment doesn’t matter”.

I have never actually paid for an advertisement on Facebook. Sure, I have run some of the analytics, and helped companies with it, but I am a strong believer that the head of marketing should always be able to draw up the campaign herself, the CTO should be able to design the software himself, he VP finance should be able to calculate the ROI herself. There is simply no substitute for hands-on experience.

So I decided to have some fun. I logged onto Atomic’s Facebook account, and paid to promote one of my recent articles. I didn’t need the extra exposure – although it never hurts – but I wanted the experience; a few tens of dollars is a pretty cheap education. I finished the process, selected PayPal, and sent the campaign on its way.

Two days later, I received an email – not a Facebook message, which itself is suspicious, since companies that don’t use their own services are suspect – stating that the payment didn’t go through. I went back to the payment page, tried to pay again, and again had it fail. After multiple tries, I went to my PayPal account, and saw zero history of any attempt to set up a Facebook connection. Quite simply, Facebook had done something wrong on the integration, and hadn’t even bothered to catch it on their own or send a good message to the customer.

The next few days involved emails to Facebook – no way to call, of course – phone calls to PayPal, and insistences by Facebook that, “it is a problem on PayPal’s end,” without any more helpful detail than that. Miraculously, 24 hours after my insistence that the problem is Facebook’s but I would reach out to PayPal anyways – which I did, getting through on the first try and waiting fewer than three minutes on the phone – it suddenly worked.

I don’t mind spending time getting an ad campaign set up correctly, or tweaking a post, or a Website. But once I have agreed to pay, it should be seamless, and issues should be handled quickly and professionally by my vendor. Unless I absolutely must, I won’t be buying anything off Facebook for quite some time.

Real High-Tech is Vacuum Packs

September 4th, 2014

I love technology. I had an Apple II as a kid, did engineering projects in high school, and have worked in and out of the tech sector for years. But as cool as the technology is, it is the impact on a business, and organization, a society that matters. This is a lesson many engineers forget, focusing on the solution rather than the problem, but it is the reason any of these advances have value.

So here is an everyday technology that really is a high-value: vacuum packs.

For decades, there was only one way to buy tuna: canned. Parents and kids knew to pull that can of StarKist or Bumblebee Tuna out of the pantry, grab the can opener from the drawer, and open it up.  Cans are great: they don’t spill; they last pretty much forever; they are nearly impossible to break.

Along comes the vacuum pack. For the last few years, you can buy tuna in a vacuum-sealed bag. It looks and feels like extra-thick aluminum without the rough edges. It is rectangular in shape and nearly flat, with a slight V-shaped indentation near the top on each side, so you can literally rip it open like a paper bag.

Vacuum packed tuna is far more convenient. It can be opened without tools, making it ideal for lunches at school or in the office; it is lighter, making it easier to take on camping and day trips; it has no sharp edges once open, avoiding the often painful finger cuts.

Classic marketing teaches that when you sell something that has a higher value to your customer, it doesn’t matter what your cost is; sell it for more. A quick check on Amazon shows the following (I tried to pick packages with nearly the same net weight of tuna, to account for bulk pricing differences):

Apparently, the vacuum pack is not materially different in price than the cans. This could be a conscious choice by StarKist to promote sales of the vacuum packs, or it could be a sign of a more staid marketing department.

However, even at the same price, the vacuum packs are a big profit win… for StarKist.

StarKist’s profit is nothing more than its revenue minus its expenses. Let’s assume that the costs of acquiring and processing the tuna, as well as marketing, are identical for the same 6-oz of tuna, whether it ends up in a vacuum pack or a can. I have no insight into the packaging costs, but the sheer difference in weight between the 2 implies there is a lot less material going into the vacuum pack than the can. That leaves shipping and storage, which is where the difference is. Let’s compare the 2. I took them both from my own closet, weighed them on the same scale and measured them with the same tape measure:

  • 160-gr / 5.6-oz can of tuna. Gross weight 196-gr; radius of 4.25-cm, height of 3.6-cm
  • 181-gr / 6.4-oz vacuum packet of tuna. Gross weight of 183-gr; length of 14-cm, height of 18cm, width at thickest central point of 1-cm.

Remember that companies pay for shipping both by weight and by volume, whether it is the trucks/boats/airplanes, or whether it is the labour.

  1. Weight: Although the additional weight varies by size of package, the close examples above show that 18.4% of the shipped weight of a can is lost, while barely 1% of the shipped weight of a vacuum pack is lost. This is a huge benefit for StarKist.
  2. Volume: To properly calculate the volume, we need to remember that a can cannot simply be stored; it has to be packed with other round cans, creating lot of dead weight. If you have ever bought a 4-pack of tuna (or any other canned good), you have seen how they are packed together. Similarly, a vacuum pack of tuna may be thick only around the centre, but it has to be packed with all of them. Thus the shipping volume requirement of the 5.6-oz can above are 260.1 cubic cm, or 46.45 cubic cm per oz of net product, while the shipping requirements of the 6.4-oz vacuum packet are 252 cubic cm, or 39.38 cubic cm per oz of net product.

The vacuum-packed tuna requires 94.6% less shipping weight and 15% less shipping volume per oz of net product!

Vacuum-packed groceries is not something that will show up on VC radars, or make TechCrunch. Yet, in its own way, it has had a vastly larger impact than the latest “social-mobile-local” funded out of Silicon Valley, NYC or Tel Aviv, and will continue to do so, making life better for consumers and profits higher for StarKist.

X-rays and smartphones and Figure1

September 3rd, 2014

A few weeks back, Fred Wilson wrote about his investment in Figure1, a social site for doctors to share radiology images – X-rays, MRIs, CTs.

The hypothesis behind Figure1 is that doctors can share images “en masse” across the network, leveraging the knowledge of many doctors to analyze, and benefitting every doctor who submits an image for others to read, or can compare existing images to the one that s/he is looking at this very moment.

The questions that bother me are whether this is necessary, and whether doctors are prepared to adopt it.

Is It Necessary?

Doctors have adopted much of technology with gusto. In the early days of PDAs, doctors carried their entire pharmacology list on their Palm Pilots, reducing their need to remember thousands of drugs, their interactions, and their dosages. These have since moved to smartphones with regular cloud-based updates.

The next generation is mobile imagery. Doctors not only use their smartphones to take images, they use their patients’ smartphones to take images and iMessage/WhatsApp to pass them around.

Back in February, I broke my ankle playing ice hockey (adding insult to injury, my team went on to win the tournament without me; I am glad they won, but I would have preferred to play to the end). A friend of mine from the tournament is a first-class orthopedic surgeon, and advised me that under no circumstances should the local emergency room orthopedist be allowed to operate or significantly treat without clearing it with my friend first. How, exactly, was I to have my friend see the images when they were on a hospital computer 20 miles from my friend?

“No problem. Tell the ER doctor to bring them up, snap a picture with your iPhone, and send it to me via iMessage or WhatsApp.”

I was surprised, had never heard of this before, but followed his suggestion. Even more surprisingly to me, the ER doctor was entirely used to it, actually expected it when I asked him to bring up the images.

Remote medicine performed entirely by smartphone plus free messaging app.

Will Doctors Adopt It?

Doctors are notorious for being over-confident in their own knowledge. While they will often consult other doctors, they carefully vet those with whom they consult, trusting only to those they personally feel are the “best of the best.” This shouldn’t surprise us; they are trained for years that they were the smartest, which is how they got into that great med school, let alone survived it, and those smarts are what make them so indispensable to society. While I have known many truly modest doctors, and many truly great doctors, and even a few great but modest doctors, our system still trains them to focus on their own skills and those within their own personal experience network.

A network of thousands or tens of thousands of doctors and images they do not know personally, by referral or by reputation is a foreign construct to most doctors, and one which makes them uncomfortable.

Do doctors who already have iMessage/WhatsApp and smartphones with high-resolution cameras actually need a social network? It clearly has benefits such as widespread sharing and interpretation of images and a broader base of images to compare against. But is it sufficiently better than the basic solution to drive adoption? And will it overcome doctors’ aversions to go beyond their own smaller networks?

It is also a liability landmine. If Dr. Smithers does not know the patient, has not seen the patient, has seen an MRI that has no name or history attached to it, determines that a growth is not a concern, and the person dies, will the family sue Dr. Smithers, or just the direct oncologist? Who holds malpractice liability?

Personal bias: since I like Fred, and I want his investments to succeed, I most sincerely hope so.

Beer, Jelly Beans, Ice Cream

September 2nd, 2014

Over the course of my travels, I had several interesting connections with beer. First of all, I saw several interesting micro-breweries in the Rockies and in Vancouver. More interestingly, at breakfast in the Vancouver hotel, I saw a man wearing a “Yuengling Ice Cream” hat. Yuengling Ice Cream? Isn’t Yuengling beer?

Apparently, it is both. During Prohibition in the 1920s, when manufacture of most alcohol was banned, the Yuengling family turned to running a dairy to support the family. It produced ice cream for 65 years, when it stopped and refocused on beer. By most accounts, it has been successful; most beer drinkers know of and have had Yuengling Beer. However, in the last year, the family has turned back to its dairy tradition, and begun manufacturing and selling ice cream.

The company’s return to ice cream likely is driven by two factors:

  1. The success of the Yuengling Beer brand. While companies like Toyota and Honda needed to create a new brand to move up-market, Yuengling may be successful leveraging the beer brand into a parallel market, ice cream. At the same time, the alcohol affiliation with the Yuengling brand may instinctively drive away one of the most important demographics: children (and their purchasing parents). While Baskin-Robbins or Ben & Jerry’s may have flavours affiliated with liqueurs such as Bailey’s or Kahlua, these are individual flavours specifically tailored to the adult market, not the entire Baskin-Robbins or Ben & Jerry’s brand.
  2. The memories of those who grew up on Yuengling. The national – and global – markets today are vastly different than they were in 1985. Children who grew up loving Yuengling Ice Cream are now well into their 40s with children of their own. If they wait too long, they are likely to lose that “market memory” entirely. Twenty to thirty years is the right time to get those adults to introduce their children to a love of their own youth.

Surprisingly, there is no “beer flavour” ice cream. I expect eventually it will arrive, as Yuengling leverages its beer flavouring expertise to attract people who remember great Yuengling Ice Cream but today enjoy Yuengling beer.

Where I did find beer flavour was…. jelly beans. Jelly Belly “draft beer” flavoured jelly beans are manufactured in their plant in California, just north of the San Francisco Bay. I was surprised at how realistic it tastes. Clearly, Jelly Belly knows it is marketing, at least partially, to adults who like beer, and thus sell both Candy Corn and Draft Beer flavoured… all without alcohol, of course.

Klondike Wastes

August 29th, 2014

In Seattle, south of downtown, is the National Park Service Klondike Gold Rush Museum. It is 2 floors of fascinating exhibits on the history of the 1897-1898 Klondike, Alaska, gold rush. Like most parks, they have Junior Ranger booklets and badges, and even participatory activities; my kids “panned for gold”.

What struck me most about the entire exhibit – businessperson that I am – were the numbers on a plaque hung near the door. During the rush of 1897-1898:

  • 100,000 people traveled to the Klondike
  • 30,000 (30%) actually made it to the Klondike; the rest could not manage the difficult trek of the Inside Passage plus the Chikoot and White Pass trails
  • 4,000 (4%) struck any gold at all
  • 300 (0.3%) earned $15,000 or more in gold

$15,000 was chosen by the Park Service as the amount required to have earned a reasonable return. In other words, if you didn’t earn that amount, after giving up wages and the sheer cost of travel, you might as well not have come.

The numbers are staggering. If you were one of 1,000 people leaving for the Klondike, only 3 of you will have gotten any  real benefit. If 100 of you were on a boat, only one person in every 3 boats would have found it worthwhile!

What a phenomenal waste.

The Klondike gold rush may have created some millionaires (or the late-19th-century equivalent), but for the most part it destroyed wealth as surely and as swiftly as a good market crash.

 

There and Back Again: A Transportation Technology’s Tale

August 28th, 2014

With respects to JRR Tolkien, whose writing I greatly enjoy (Peter Jackson’s movies somewhat less), I have been thinking about the changes in the infrastructure of transportation technology since a visit to the San Francisco Cable Car Museum a few weeks ago. I recommend it for a great short visit. It has history of the cable cars and the 1906 Great San Francisco Earthquake & Fire, lots of historical pieces, and the mechanism that actually drives today’s remaining cable car lines. Even better, it is free, which is quite a treat in the very expensive San Francisco.

The cable car was introduced by Andrew Hallidie, inventor and public figure, in 1873. Before then, like every other city around the US (as well as the world), public and private transportation were provided by horse and carriage, or foot. However, as SF expanded from the edges of the Bay, it encountered those famous and beautiful, but difficult to climb, hills, for which the city is famous. Many horses could not get up or down the hills, let alone pulling a carriage full of people behind them. Those that could were more expensive, burned out quickly, and left quite the residue behind for the city to clean. All in all, horses were a very expensive and inefficient – not to mention barely effective – proposition.

Hallidie recommended using the then-becoming-effective electricity to drive a few key stations, where huge wheels would cause the cables to move under the streets at precisely 9.5 mph (15.2 kph), and cars could move by gripping the cables.

Within a few decades, however, electricity distribution had caught up in efficiency to electricity generation, which had enabled the entire cable car system in the first place. Putting an electric engine into the car and letting it draw electricity from wires under the ground or overhead – what most of the world calls a trolley – became more efficient than cables under the street. When the great earthquake destroyed much of the cable car infrastructure, it made much more sense to invest in trolleys, rather than cable cars. SF almost lost them all, until they were declared a National Heritage and, thankfully for pictures and movies and tourists, the few remaining lines have been retained.

Finally, unlike SF, most cities have eventually moved to completely independently-powered trolleys, without cable lines overhead. We call them buses.

What I find fascinating is how the development of transportation technology went full circle.

  1. Fully Independent: Each unit moves under its own power – literally, horsepower
  2. Fully Centralized: New power generation – electricity – surpasses the old independent power, leading to central power and locomotion, i.e. cables
  3. Semi-Centralized: New power distribution and locomotion efficiency begin to overtake centralized locomotion, and the engine is moved back into independent units, with power provided centrally, via overhead or understreet lines – trolleys
  4. Fully Independent: Power generation and locomotion fully overtake centralized, with self-powered units – gasoline buses

Whether the next state is electric buses, or gasoline buses, or liquified natural gas (LNG) buses, the final state remains independent units moving down city streets under their own power, with no central distribution of power or locomotion.

Just about every other system that depends on power works this way. Right now, with home lighting and powering, we are in the semi-centralized state. Houses (in the modern era) were originally lit with oil and heated with wood or kerosene. Nowadays, most are done by electricity, but the distribution is provided via a central network. This makes each home highly susceptible to the network – as several outages in the last decade have shown – and exposes each one to surges from the others.

Will home power generation eventually go the same way as transportation?

It is hard to tell. Most home units cannot support a wind turbine and do not have a major waterfall on their property. Solar is growing, but still low efficiency and more expensive than coal/oil/LNG-generated power. But if trends hold, eventually each home or at least neighbourhood will become independent in power, similar to each car being independent in transportation.

Why Pay for Something You Can Get for Free?

August 26th, 2014

A few weeks back, I took the family on a big vacation. Normally, that means hefty airfares – upwards of 18,000 miles covered can cost a pretty penny – especially for a large family. However, since I am a regular traveler, I did every single ticket on airmiles, and paid only the taxes required.

As my readers know, most of my miles are on United, which opens up the Star Alliance network for tickets – Air Canada, Lufthansa, Swiss, Brussels, Singapore, ANA, etc. My first leg was 6,000 miles to Newark airport. At the time I booked, United did not have award seats available directly into Newark (EWR), but did have on Air Canada via Toronto (YYZ). We take what we can get, and I booked several seats on the Air Canada flights.

An interesting element of interline award ticketing is that an airline must pay its partners for seats. Thus, if Air Canada gives a miles seat to one of its Aeroplan members, it costs them nothing but potential foregone revenue. By contrast, if Air Canada gives a miles seat to a partner like United, United must pay Air Canada for that seat. It is a pre-negotiated rate, much less than it would get on the open market, which is why Air Canada only opens up a few seats, but it still costs United real money.

The day before my flight, I checked United on the nonstop into Newark. After all, I far prefer to fly nonstop than via a connection, which adds time and the potential for a missed connection. Sure enough, United had 12 seats open on the nonstop, far more than I needed… but not 1 award seat.

I had several extended calls with United, but nothing could get them to open up the seats as award seats. Apparently, with just 12 coach seats left on a 200-coach-seat 777, United felt pretty strongly that they could sell them. The real questions, though, are:

  1. What are the chances United will be able to sell them?
  2. What are the chances United will be able to sell them for more than it is costing them to pay Air Canada for my seats?

Let’s say that Air Canada sold my seats to United for $700 each. If United can sell their seats at the last minute for more than $700, then by all means, they should hold onto those seats. On the other hand, if they cannot sell every last one for more than $700, then it would make sense for them to give me the unused inventory, and save themselves the $700 per seat they will have to pay Air Canada.

Unsurprisingly, they did not sell every seat. Actually, they did not sell a single one…. nor did they open them up to awards.

I sat in the airport lounge with my family, waiting for the Air Canada flight, watching the United flight taxi away from the gate… with 12 open seats on board.

Personally, I enjoyed the Air Canada flight. I grew up in Canada, hold Canadian citizenship, and still think maple syrup and hockey are among the greatest inventions of modern man. Flying Air Canada is like being home in so many ways. But what a waste for United to pay someone else for something they could have gotten for free.