Atomic Energy

Business Insider’s Alyson Shontell claimed, based on an interview that Fred Wilson (whom I much respect, especially when I disagree), that Twitter almost had what it takes to kill Facebook. In this theory, Facebook is, at its core, “a photo sharing company.” This may be true, it may not. Personally, I think Facebook has much more than that. But Twitter will not easily kill Facebook by just adding images, in addition to its native text and Vine video. There are two key types of reasons.

Network

Essentially, both Facebook and Twitter have independent (at times overlapping) networks. The people you follow on Twitter are not likely to be the same as the ones you friend on Facebook. Many people use Facebook for personal friends, Twitter for personal + business, and LinkedIn for business. The two spheres are different. Either way, people will not easily, if at all, give up their specific network that exists in one platform for the other, even if Twitter adds photo sharing.

Relationships

This is more fundamental. Facebook and Twitter follow different relationships, and thus have different ways of using those relationships. The heart of the difference can be summed up in the difference between the respective verbs, “friend” and “tweet”.

• Friend: When I “friend” someone, I am sharing part of my life with them, and they with me. It requires mutual agreement, and each of us can, by default, see everything written by the other. We write/post, whether text or picture of video, with the assumption that all of our friends, and no one but our friends, will see it. We can write more in depth, because we assume those who are our friends will often have interest in reading more of what we write than others. Facebook has become a major platform for political discussion (and fierce debate), precisely because that is what we do with friends, whose opinions we are interested in hearing and sharing with.
• Tweet: When I “tweet”, I send it out into the wild. By default, anyone can see it; actually, it is impossible for me to stop others from seeing it, even without being logged into Twitter. I encourage others, even non-friends, to follow and read my postings. The relationship is largely one-way, as someone can “follow” me without my approval, and I can do the same to him or her. The posts are limited to 140 characters, length of a traditional SMS message, unless I use an outside service (e.g. WordPress) to write something longer, but then I need to summarize very briefly for my tweet.

Twitter and Facebook serve different, complementary purposes, with different relationship dynamics and different networks even for the same individuals. By all means, Twitter should have a better platform for posting pictures to complete its “trifecta”, in Alyson’s words; it might think about a platform for extended posts (acquire/create a wordpress.com competitor?). These will help grow its business… but that business, despite being a “social network”, is fundamentally different than Facebook’s.

Last week, while in California, I had the pleasure of meeting with founders and/or execs from several businesses that are either built on open-source or contribute massively to open-source. While sitting with the last of them, I realized that I had seen several distinct business models for profiting from open-source, and they are worth sharing.

Short Introduction (those in the business can skip)

What is open-source?

Open-source, normally applied to software but can be extended to other items as well, refers to releasing the original source code, the text that creates the program. When you run a piece of software – Microsoft Word, or an Oracle Database, or iOS on your iPhone, or Android on your Samsung – the code is in a “compiled” format. To recreate or, even better, modify the program to do something more suited to what you want, you not only need programming skills – which can be bought on the open labour market – but you need the “source code”, the text that was turned into the program that you are running. In general, compiling is a one-way street. It is easy to turn source code into compiled or “object” code, but extremely difficult to do the reverse.

Most creators of software release the compiled program, whether for free (Angry Birds Free) or under some paid licence (Microsoft Word), and keep the source code under close wrap. For example, when Web servers were first released, Netscape Server and Microsoft IIS were closed-source and purchased products, while Apache was open-source and free. Unsurprisingly, nowadays, Apache dominates the Web server market, IIS is tiny despite Microsoft’s marketing budget, and Netscape is long gone.

Let’s assume that you see a product you like, and, for whatever reason, it has been open-sourced. Can you use it? Can you copy it? Can you redistribute it over the Internet (e.g. in your Web site) or as part of a shipped product, commercial or free? Can you modify it? This brings us to licenses.

Open-Source Licenses

There are a lot of different open-source licenses. But, in practice, they really come down to two types: copyleft and permissive. Any open license, however, does not restrict you from using the software internally. If you want to download and use internally, go ahead.

• Copyleft: Copyleft, most characterized by the Gnu General Public License (GPL), says, “you can take this software, redistribute it to whomever you want, modify it and redistribute it to whomever you want, on one condition: the product you distribute it as part of must also be free and open under the same terms as this license.” The philosophy behind GPL is, “we are giving this away as long as you give your stuff away; if you make money off of it, you need to pay us too.”
• Permissive: Permissive licenses, usually one of Apache License, MIT License or BSD License, say, “do as you please: redistribute, copy, modify, whatever you want.”

Why Open Source?

Why bother open-sourcing if you can closed-source and make money off selling licenses for the compiled, “finished” product? There are several good reasons:

• Drive adoption: free beats paid. See Dan Ariely. See Apache vs Netscape & IIS.
• Speed: open-source products tend to generate contributions from a large community of developers outside of the original creators/owners. This tends to make a better product, more suited to the market, in accelerated time.
• Trust: If customers can see your code, they know if it is good, instead of full of security holes, rather than just relying on “trust me.”
• Reputation: The technology community is intensely reputation-driven. Releasing open source improves the creator’s and contributors’ reputations.

So how do you make money on open-source?

Business Models

Dual-License

Under this model, usually with a restricted GPL license, the source code is open and free, but if you want to use it commercially, you need to purchase a separate, commercial license. This model, if the product is great, tends to capture a very small share of the market, but get paid well for that share. It also generates strong emotions, as within development communities, some react very strongly to the GPL.

The example that comes to mind is ExtJS from Sencha. Its closest competitor is probably jQuery and jQueryUI, both of which are MIT-licensed (i.e. permissive). jQuery appears in 50% or more of the top sites on the Internet, ExtJS barely shows up. On the other hand, ExtJS goes for $400/developer, so it doesn’t take that many customers to build a viable business.

A person I met with last week, who is deeply involved in open-source, called this model “bait and switch”. While I disagree with him – I think those who pay for commercial licenses are getting into it with eyes wide open – I understand the sentiment.

Freemium

Under this model, two (or more) versions of the open-source product are released. The basic product, which is usually quite good, is free, and often under a permissive license, while a version with more advanced features is usually closed-sourced and available for a fee. Normally, some of the features in the advanced edition eventually make their way into the open-source edition after several months or years. Many open-source companies work this way. 10gen, the creators of the open-source MongoDB uses this model.

This model is clean and easy to understand: hook smaller companies or projects on the benefits of the product, get the community benefits of open source, sell the higher-end product on a perpetual license or subscription license like classic software.

Support Services

Under this model, the entire product base is free and open-source, normally under a permissive license. A company garners expertise, either by being the creators of the product or by hiring experts, and sells ancillary support services. This is the basic model for RedHat (although they have expanded to other models). Note that the company selling support need not be the original creator or current maintainer of the project; RedHat did not create Linux, but it is one of the largest support providers for it.

Reputation Advantage

In this model, the company derives no direct benefit from releasing or contributing to open source. It has a product or service, usually a service, that benefits from open-source technology, and often has to solve complex unique problems. When it does so, it releases its results to the Internet as open-source, usually permissively licensed. I did work with Tufin Ltd back in 2010, and, in solving some client-side Web development problems, we agreed to open-source the solutions. The classic example of this – and probably one of the early pioneers, along with Sun Microsystems – is Yahoo. They release enormous amounts of open-source, and continue to contribute to open-source communities. Lately, Google, Facebook and Twitter have all followed the same route.

To quote Gil Yehuda, for these companies, the software is the plumbing and the service they provide is the porcelain. Everyone wants the plumbing to work and not leak, but the porcelain has to look nice and be special.

Companies like these release open source to get community input into their products and therefore improve them; to get positive reputation in the tech community, and to help recruit: “with us, you get to work on all this cool stuff with people inside and outside the company, and look at what it does for your personal reputation!”

Which Model?

No one model is the best. If your core business is not built around the software products, but the services around it, the Reputation Advantage model makes sense, provided that you do not weaken your business by giving away core competitive advantage. If you have open-source that you want to leverage, then any of the first three makes sense. However, the dual-licensing only works if you have either a unique ownership of the market or a sufficiently large market that you can make enough money off of small market share. Finally, if you do not have open source, but have expertise around other open-source products, the the Support Services model is yours.

Unfortunately, Better Place is everyone’s whipping boy today. After all, the company blew through upwards of $800MM (remember Webvan?) and is going through liquidation after it barely got started.

While most commentators will focus on the money lost, and especially the massive hubris of the founders and investors (and which wildly successful world-changing startup didn’t start with lots of hubris? It takes chutzpah to believe you will change the world!), I find two points interesting.

Average Profit

Over its very short period of operation, Better Place sold 2,000 Renault Fluence Z cars. Ignoring true gross margin, if it spent $800MM, and sold 2,000 cars, then its average is a loss of $400,000 per car sold. In other words, it could have saved everyone money by buying its customers Lamborghinis (even at Israeli prices). Granted, it made a little money on each car (not as much as Renault did), but with that much money at stake, it had to have sold between one and two order of magnitude more cars, or something on the order of 100,000 cars, to begin to prove the model.

Which brings me to the more important point:

Prove Your Model First

It isn’t just the $800MM waste that reminds me of Webvan, but the fact that it didn’t prove its model. The guru of this science of startups is of course Steve Blank, with his “Four Steps to the Epiphany” followed by “Startup Owners Manual”, and his student Eric Ries “Lean Startup”. I cannot begin to do either Ries or Blank justice here, but I have no doubt that they would have advised Better Place to start small. Build a minimum viable product (MVP) to reduce your costs while you find the product/market fit, prove that the model actually works.

In the case of electric cars, that involves everything: the car itself (including features, style, battery life, etc.); the market (commuters? soccer moms? work-at-home parents?); charging/changing; financial model; warranty; insurance; etc. etc. Better Place management assumed it knew what everyone wanted, which is a very dangerous thing to do at any size, but especially when playing with $800MM.

Just to give one example: a changing station is very expensive. Then-CEO Agassi said it cost $500,000 to build each, although I have little doubt that once you add maintenance, taxes, cost of the land, and especially the huge R&D to design the stations, each one was many times that. Israel alone had 27 charging stations, while Netherlands had ~18, together ~45 stations. The company probably blew $100MM on R&D and another $100-125MM building these stations, plus labour at the stations, or more than one fourth of its total capital. What would an MVP be in this case? Labour. Cut a deal with existing gas stations to use their pits. Every time a car comes in, drive it over the pit, a person swaps the battery, away it goes. Sure it isn’t as cool, and probably more like 2-3 minutes rather than the claimed 59.1 seconds of an automated change station, but it would cost maybe $30 per change including rental agreement and labour (excluding the battery, which costs either way). With only 2,000 cars on the road, if each changed once per week (unlikely, since most charge at home anyways), then there would be 52*2,000 = 104,000 changes per year, or $3.12MM in costs. Better Place would have $200MM extra left in it war chest to learn the lessons and fight another day.

Unfortunately, with SAP-experienced management, car company executives and big government dreamers, their ability to do it lean was culturally constrained. Somewhere out there, someone is planning on alternative cars. I do not know if they will complement or replace the internal combustion engine. But there is someone who will test their assumptions with MVP, fail in many small ways, learn the lessons, and eventually succeed where splashy Better Place failed.

When I went to business school, our economics professor used the various costs of MBA programs as a great example of fully loaded costs. A full-time MBA degree was about half the cost of an executive MBA. Considering how much harder an executive MBA is – try balancing school, family and the type of workload the kind of driven executives who usually take an executive MBA balance – and the higher cost of an EMBA was surprising; one would expect it to be lower. Our professor showed us that what mattered was the fully loaded cost, including the opportunity cost.

Someone who goes to Duke Fuqua or Stanford GSB full-time is giving up almost two years of income. After taxes – especially in NY or CA – that is quite a bit less, but still a lot of money. Someone who goes to an EMBA is someone who cannot afford to take the time off, either for financial or personal reasons, although usually for professional ones. Once you add up the opportunity cost of lost income plus the cost of a full-time MBA, it roughly equals the nearly double cost of an EMBA.

This point was brought home again last week in a different context – undergraduate education – by Richard Vedder, University of Ohio economist and scholar at the American Enterprise Institute. Mr. Vedder penned an article (courtesy of Bloomberg), showing that many graduates of “cheaper” public institutions end up leaving college having paid much more in tuition and fees (as well as opportunity cost), and carrying greater debt loads, than those who go to very expensive “elite” institutions (including my personal alma mater Columbia for undergraduate and Duke for MBA).

According to Mr. Vedder, the standard four-year graduation rate at the higher schools is 87%, and the six-year rate is 95%. In other words, the overwhelming majority of those who go to Columbia, Duke, Harvard, Stanford, etc. end up graduating – and paying tuition and fees for, and missing work for – four years. At the sampling of state schools, the four-year graduation rate is 25% (!), with the six-year rate at 55%. Even at a school that costs half of an Ivy, if you take twice as long, your direct costs will end up being the same – actually more, since with the greater-than-inflation rate of tuition increases, your sixth year will cost a lot more than your fourth – and your lost opportunity costs for working will be much greater. If you spend several years and don’t even graduate, you will have spent the money and taken on the debt, not to mention lost the years of work, and your earning potential will have increased not a bit.

As Mr. Vedder points out, sometimes the “cheaper” option can be much more expensive. When working with clients, I always persistently dig until I find all of the costs of an option before recommending it, especially the hidden ones and lightly-made assumptions.

Of course, if you can be disciplined and graduate in the standard four years at a cheaper school, then it will cost you less than the same four years at a more expensive school; much of it comes down to the discipline of the individual student. But the school culture, support and target goals have an outsized impact.

Yesterday evening, I visited an old friend, who had a bright nephew, around 19 years old, over. During the discussion, which somehow turned to exchange rates, he asked, “what determines the exchange rate between currency X and currency Y anyways?” It was a great educational moment, always made simpler by real-world examples, which I love. After all, the great insight of economics is that it is not high-level theory that really makes up an economy, but just the sum of billions or trillions of decisions in the real world.

I had a great example of that recently. In our kitchen, we have a water filter attached to the sink. Although the utility water is pretty clean, we like filtering our drinking water through a special faucet. For the last few months, the faucet for the filter has had a small leak. Drip…. drip… drip. Being a responsible citizen, and more to the point aware of how much water can drip from a “small” leak over a period of time, and thus run up my expensive water bill, I resolved to change it. But being a student of numbers and metrics, I was curious as to whether it really paid.

So I performed an experiment. I put a measuring cup under this slowly dripping faucet, and set a 1 hour countdown timer on my watch. When the timer went off, I checked the measuring cup. Turns out “they” were right; a slow drip can leak a decent amount. The measuring cup had 1/4 cup of water in it after just one hour. Still not satisfied, I decided to check how much that would be in a month. 1/4 cup in one hour * 24 hours / day * 365 days / year = 2,190 cups of water per year. That seems like quite a bit. Since I am normally billed for water in cubic metres, each of which is 1,000 litres, it makes sense to convert it to cubic metres. Each cup is 0.000236588 cubic metres, so 2,190 cups / year = 0.518 cubic metres. While that seems like a lot, even my expensive water bill is only $4/cubic metre. Put in other terms, this terrible leak is costing me…. $2/year! The cost of a replacement faucet? $30 plus labour (although I would replace it myself). It would take 15 years to pay it back!

Moral of the story: read the numbers carefully, they are not always what they seem.

I have been following, and keenly interested in, Bitcoin and other alternative currencies for some time now; apparently I am in good company. Bitcoin has been getting lots of press, both good and bad, especially the wild swings in the conversion rates and the Mt Gox DDoS attack.

But an alternative format (for lack of a better term) has been around for a while, called Ripple. The company behind Ripple’s protocol and network, OpenCoin, is the one that received the Andreessen Horowitz backing, and is co-founded by one of the founders of Mt Gox, the largest Bitcoin exchange around today. Ripple is an exchange network that functions similarly to Bitcoin, yet allows direct interactions in “real-world”, i.e. national fiat currencies. Yet I have been struggling to understand why Ripple is necessary, what it adds to the conversation. While I am all for as much competition as possible in any market, Bitcoin is hardly mature; why leave Mt Gox and start something so similar? What did Andreessen Horowitz see in OpenCoin/Ripple that was unique? So I can exchange USD for USD or CAD for GBP over the network? That is so great?

I had the pleasure of a long, late Thursday evening conversation with a very smart consultant out of the UK, Carl Rahn Griffith, when I began to understand it. All currencies, Bitcoin included, serve two purposes:

• Means of Exchange: they allow me to acquire bananas or iPhones or cars from you, and transfer then to others. Money itself really has no value, beyond its use as paper and ink, except as that means of exchange. If I work for a client and receive $1,000, and use it to buy an airplane ticket to London, all I really did was exchange my labour for an airplane ticket, but since my client doesn’t do airplane tickets, and United Airlines has no need for consulting services (actually, they desperately do, but that’s another story…), $1,000 is a convenient means of exchange.
• Store of Value: I may hold that $1,000 for some period of time. Sure, it is worth an airline ticket (and lots of burgers or bananas), but if I buy the burgers today, when I don’t need them, they will go bad and lose the value. I want the money to store the value for me until I am ready for my hamburgers.

All currencies, even Canadian Tire dollars, serve both as a means of exchange and as a store of value. In that respect, currency is no different than any other commodity – burgers, bananas, airline tickets, gold – except that it is much more convenient and less likely to lose value rapidly (unlike those rotting bananas).

Bitcoin replicates this behaviour exactly; it is a currency through and through, but its implementation is somewhat different:

• Means of Exchange: Instead of having to go through financial institutions or physically transfers suitcases of cash, I can easily and directly send Bitcoin currency to someone across the room, across the street or across the world. It removes both an inconvenience and an expense.
• Store of Value: People buy and hold Bitcoins for some time. To some extent they have to, as the transactions take some time to clear. Because of the clear mathematical limitations on Bitcoin, the exposure to political currency fluctuations, usually inflationary, is eliminated.

Chris Larsen and Jed McCaleb, the founders of OpenCoin/Ripple realized that these two do not have to go hand-in-hand, perhaps even should not. People may complain about the politicization of currencies, monetizing debt, inflation, etc., yet they still buy and sell goods in real-world currencies, are likely to trust those currencies for far longer than an alternate like Bitcoin (if ever), and want to deal in those currencies. As messed up as the dollar has been lately, when the rest is a mess, we still speak of a “flight to safety” into the USD. Further, national governments are guaranteed to be highly jealous of their ability to control the currency, and tolerate alternates only on a small scale. In short, alternate currencies as a Store of Value are likely to face a big uphill regulatory and market battle to gain massive scale, if ever.

Yet the commercial institutions involved in transactions, even as functioning within and across national currencies, are inconvenient, slow and expensive. The market is open for a better Means of Exchange.

Attack the hated Means of Exchange, leave the Store of Value alone… take the market. That, in my opinion, is what Ripple is about.

The Jerusalem Post on Thursday 9 May 2013 had a simple op-ed on affordable housing in Israel. My interest here is not the political side of it – which is most of what the article addresses – but the good use of metrics the author, Ron Diller, uses to lead off on the article.

The author takes the average home sale price in Tel Aviv, average family income price, and relates the two.

• Average sale price of 3-4 bedroom apartment: $850,000 USD
• Average gross family income for Tel Aviv resident families: $52,038 USD

In the US, most long-term mortgages are 80% D/V (debt to value of the home), in Israel the most one can get is 75%, so he uses that number. 75% of the home value is $637,500. A 20-year mortgage at 4% therefore has a monthly payment of $3,863.12. By the way, this is different than in the article, where he gives $4,337. Clearly he made an error in APR calculation.

So, while his math may be off, and I have not had the opportunity to check his data sources, the net monthly payment, if his sources are correct is $3,683.12, for an annual payment of $46,357.50. For a family that has a total average gross income of $52,038, and “gross” means “before taxes”, to pay $46,357.50 in annual mortgage payments is simply impossible. Put in other terms, the average mortgage payment for a reasonable long-term mortgage on average housing is 89% of gross income, which was the point of the article.

One more weakness is the use of mean instead of median for average. Mean is usually a good average, but is highly susceptible to a few extreme outliers. Since there are a few extremely valuable apartments in Tel Aviv, and very wealthy individuals may own more than one, and the extremely wealthy are less susceptible to price fluctuations, this keeping the high end far above the average, the median sale price might have been materially lower with better insight.

For counterpoint, here are the numbers in the US in general and New York City in particular.

In 2011, median (not mean) household income in the US was ~$50,000, with mean income around $63,000. New York City had a median of ~$57,000 and a mean of ~$76,000.

For home prices, Trulia puts the median home sales price as $1.1MM, but more interestingly $1,292 per square foot, or $13,907 per square metre. Since the average Tel Aviv home listed above was, according to the author 120-150 square metres, we will take the midpoint of 135 square metres. A similar apartment in NYC would cost $1.8MM.

Put in other terms, with a mean income level of 46% higher than Tel Aviv, real estate is approximately 112% more expensive than Tel Aviv. On an apples to apples basis, New York City is more expensive to buy real estate, as a percentage of income, than Tel Aviv. One could argue that New York City is as unsustainable as Tel Aviv, or that there is some data that is missing here, e.g. median vs mean.

The story is somewhat better across the US. The lowest median home sales price across all reported months in the United States was $240,ooo USD. With median family income across the US around the same as in Tel Aviv, the median home price is slightly more than a quarter of Tel Aviv prices. But the US is a vast country with many different types of cities, suburbia and rural areas.

Either New York and Tel Aviv are equally sustainable, and we are missing something in the numbers, or they are equally unsustainable, and the author’s message is correct.

Either way, hats off to the author for using solid numbers to make his point. If only his math were a little better

Last week, I posted a detailed account of my experience trying, as a customer, to help Bauer Hockey improve their products and customer relations.

Today, I received a first-class email from Ken Covo, VP of R&D at Bauer Hockey. This was the most forthright, honest and learning contact I have ever received from a company.

Not only did Mr. Covo recognize the effort I put into helping them improve their products, for no remuneration at all, but he recognized that the incident showed that the product feedback process is broken, and that they need to change it so they can get, as he put it, a “consumer connection that is gold in today’s marketplace.” He was honest about where they fell short on product evaluation, and why, and that the new process doesn’t get fixed in a day. He didn’t mollify a customer with a promise that every real executive knows cannot be done. He was straightforward, honest, and learned from the experience.

Hats off to Ken Covo and Bauer Hockey.

In an online discussion on Bitcoin, kidmercury pointed out an error of mine, related to Bitcoin (BTC) and inflation.

In the earlier post, I mentioned that all fiat currencies, controlled by central bankers, are subject to inflation for technical reasons (bankers misjudge the amount of currency necessary), and political reasons (bankers know they need fewer dollars or euros, but by printing too much, they inflate the currency, reducing the cost of already outstanding debt to the government).

It is worth pointing out that the inflation trick only works for a short period of time. If you are a lender/investor who buys the bonds of country X, and inflation is running around 3% a year, you demand, say 5%, because you need to earn a real 2% on your loans (5% nominal interest – 3% inflation = 2% real interest). If this government’s debt starts getting a little out of control, the bankers are sorely tempted to print money. When they do, let’s say way too much, inflation surges to 10%. The nominal amount of the old debt (e.g. the $1000 they borrowed from you) is the same, but because of inflation, the value of that $1000 has gone down. In other terms, it takes less labour and services to pay it off. Seems like a good deal for the government. It is not a good deal for the citizens, since the value of heir hard earned savings just went down as well. Further, prices for most things will rise, but the average worker (which most citizens are) will have a tough negotiation for a higher wage, and the raise will lag. This is why Milton Friedman called inflation a “hidden tax.”

But it turns out it isn’t such a good deal for the government either. As soon as you figure out what the government has done, and they want to borrow more, you are still going to want your real 2% return. Add that to inflation, now 10% instead of 3%, and you will demand 12%! To boot, because they are behaving in such a risky fashion, you will want to get compensated for your risk, and your old 5% interest requirement just became 13%! This is a pretty bad deal for the government, too, but politicians need to think beyond today’s problems, something at which they are particularly poor.

How does that relate to BTC? As kidmercury pointed out, the number of BTC is mathematically limited. As such, eventually the number of BTC will be less than the demand, even if entire economies moved to BTC. Deflation is inevitable. Similarly, as the number of BTC grows at a predefined mathematical rate, the demand for BTC may not keep up, until it hits its ceiling, and inflation may ensure. Most likely, BTC will suffer periods of inflation and deflation, until the cap is reached and ongoing deflation occurs.

At the very least, corruptible as central banks are (because a central bank is nothing more or less than the sum of the people working there), they are likely to keep money supply within some growth range of economic activity. To be fair, that isn’t necessarily true; they didn’t do so in the late 1970s (inflation), early 2000s (inflation), 1930s (deflation), etc.

In order for BTC to be truly inflation and deflation free, it would require a different algorithm, one that adjusted mathematically to keep itself stable, sort of an algorithmic Taylor rule. I do not even know if that is possible without making it subject to manipulation.

In the end, we choose between a currency that responds to actual economic behaviour, however imperfectly, but is subject to potential and actual political manipulation, and one that is not subject at all, and thus will experience inflation and deflation, but at least predictably. This is a values question; one the market will answer.

I love a good metric, one that provides critical insight into how a business is operating in one glance. It is never the whole story, there are always caveats, but the usage of the right metric is incredibly insightful (and, for lax management, “inciteful”). It can also lead to a dramatic change in behaviour. I once proposed a “Deployment Velocity” metric for a cloud company: +1 for every successful deployment, -1 for every deployment that: has deployment issues, does not solve what it is supposed to solve, or break anything that worked before. When the head of app dev said, “that’s no good, we will just game the system by doing lots of small deployments!” I just smiled…

Two weeks ago, the three Israel-based carriers – Arkia, Israir and El Al – went on strike for two days to protest the government’s adoption of an Open Skies agreement with the EU. Although they claimed they wanted to protect their workers, they were surprisingly open about how the competition would hurt their jobs because it would lower prices and spur increased demand in EU-Israel flights… i.e. it would benefit the consumer.

Unsurprisingly, the flying public was up in arms, against the striking workers rather than the government for adopting measures that opened them up to more competition. It appears that the workers were surprised at the level of resentment towards them, expecting the public to fall in line.

My excellent travel agent and owner at Ziontours, Mark Feldman, published an article, at the very end of which he looks at the cost levels of El Al, the major Israeli long-haul airline, and its two largest US-based competitors, United Airlines and US Air. Rather than comparing prices, frequency of flights, partner network or quality of aircraft – all of which are valid for the revenue side of the house – Mark compares the average employee per airplane, which shows the level of efficiency. And, inevitably, a more efficient airline can afford to put more of its revenue into customer-facing investments, thus increasing its revenues, and so forth.

Here are the numbers. Employees include air crew, ground crew, sales, marketing, operations, maintenance, etc.:

• United: 88,253 employees and 1,258 aircraft, for an average of just over 70 employees per plane.
• US Air: 36,500 employees and 640 aircraft, for an average of 57 employees per plane.
• El Al: 6,000 employees and 38 aircraft, for an average of 158 employees per plane.

The numbers speak for themselves.