Twitter valuation is a bet on network value

No, I don't think Twitter is prima facie over-valued.

The following graphic from the WSJ (reproduced here because deep linking is discouraged) has been making the rounds, generally in support of the idea that Twitter's valuation is yet another finance mistake:

But here's the funny thing. Note how both LinkedIn and Twitter are apparently over-priced, and suddenly an alternative explanation appears: the market understands that, while right now the revenue models of these companies are not good, there is value in their networks that, either directly through advertising and other attention-monetizing strategies, or indirectly via the information value of the network, will eventually be captured. (Even if that requires a change of management, which sometimes it does.)

It's a bet on the future value of networks and their associated preference and communication data.*

As I mentioned in my post about the Skype acquisition, these companies are not just some black-box generators of revenue. In particular Twitter's resources include:

• Knowledge of the network to a level of detail that can be closed off to outsiders.
• Personnel and technology that allow for exploitation of the knowledge in the network; inasmuch as the data and technology have unique features, the personnel and the resources are partially locked into the company and are assets to be taken into account in valuation.
• An installed base that serves as a barrier to entry to competitors trying to build their network.

So, not being privy to the financial details, I cannot say whether the valuation is right or wrong, but I can certainly say that people who pass judgment on that valuation based on last year's revenue are terminally myopic. Sadly even people whom I respect seem to fall for this trap.

There's gold in those networks and the nerds who can analyze them.

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* A bet not dissimilar to that of Google trying to build their own social network with Google Plus and all the actions they take in other properties like YouTube trying to nudge people into using the social media affordances of Google Plus instead of the older comments and video responses (now discontinued, get your linkage on G+).

My phone is just as smart as you guys!

Dunning-Kruger Effect, the internet is your multiplier.

Anyone can search for anything, which makes knowing what to search for and how to interpret the results more important than ever. The comoditization of information increases the value of knowledge.

Early on in the most recent episode of The Big Bang Theory (season 7, episode 5, "The Workplace Proximity" *), Amy, Bernadette, and Penny are in Penny's apartment drinking wine and talking about Amy's temporary move to Caltech:

Amy: "I'm leading a study to see if deficiency of the monoamine oxydase enzyme leads to paralyzing fear in monkeys"

[Bernadette lets slip that she might have done that research with death row convicts, which she quickly denies because it would have been unethical.]

Penny: "Not many people know this, but the monoamine oxydase [mispronounced as "oxidize"] enzyme was discovered by a woman, Mary Bernheim.

[Bernadette and Amy are stunned.]

Penny: "That's right. My phone is just as smart as you guys."

And this captures a common confusion between knowledge and information. Note the pathologies illustrated in that vignette:

1. Who discovered MAO is irrelevant for the work Amy will be doing. Like Penny, many people pluck some vaguely related fact from the internet to interject into a discussion, in the illusion that they will appear knowledgeable. This behavior is becoming more and more common, especially with smartphones, but knowledge is a lot more than a simple collection of facts.

2. Penny searches for MAO because someone else brought up the topic. Without a framework of knowledge to integrate facts, people who depend on search don't know what to search for. In other words, the input for a meaningful search requires knowledge.

3. Even if Penny found useful MAO information, for example the mechanism by which it catalyzes the oxidation of monoamines and affects mood, she wouldn't be able to interpret the biochemistry and neuroscience involved. In other words the output of the search only gets meaning through knowledge.

Yes, I understand it's a joke. But this attitude that learning substantive material is passé, made unnecessary by the existence of search engines — an attitude that sadly can be found even among educators — is corrupting, corrosive, and counterproductive.

Without knowledge, information is useless. More people making knowledge-poor searches leads to more random facts being flung haphazardly into discussions; this makes having the knowledge to select and interpret the important facts more valuable than before.

Knowledge is power, the power to use information. Pity so few people know that.

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* Even though the general arc of the show has become a soap opera, there are still some good jokes in each episode, and the final joke in this one is among the best.

Digging too deeply into a Heisenberg (Physics not crystal meth) joke

Some days ago I saw and retweeted this joke:

Police officer: "Sir, do you realize you were going 67.58 MPH?
Werner Heisenberg: "Oh great. Now I'm lost."

Ok, it's a funny joke, provided you have a passing acquaintance with basic physics.

But here's my problem: a lot of people who kinda-sorta understand that joke have no idea what's really behind it. And that's a problem I've had for a while now with the "science fanclub that cannot do basic science" as I call them. (The people who think that Surely you're joking Mr. Feynman is a physics book and like to watch soap opera biographies of scientists, heavy on the drama, light on the actual science.)

[Added later] My problem with these people is that they perceive science as something that comes from authority and must not be questioned or further investigated by others. For example, they "know" that the position and the velocity of an elementary particle cannot be jointly determined with arbitrary precision; but when pressed about how they know that, they say something about "Cosmos" or mention a Richard Dawkins book (which of course would not cover this); they behave as acolytes to those they recognize as high priests of science, who – presumably – are anointed by a Council of Wise Ones. That's precisely the opposite of what gave science its success, the idea that anyone can question received wisdom and experiment or observation are the ultimate arbiters of correctness. [End of addition.]

A simplified form of Heisenberg's inequality, good enough for our purposes, is

$\qquad \Delta p \, \Delta x \ge h $

Going by orders of magnitude alone, assuming that the mass of Heisenberg plus car is in the order of 1000 kg, and noting that the speed is given to a precision of 0.01 mi/h, an order of magnitude of 10 m/s, with $h \approx 10^{-34}$ Js, we get a $\Delta x$ of the order of

$\qquad \Delta x  \approx \frac{ 10^{-34} }{10 000} = 10^{-38}$ m.

That's a lot of precision to consider oneself lost. For comparison, the width of a typical human hair is in the order of 10-100 micrometers, or $10^{-5}$ to $10^{-4}$ m.

Yes, these numbers show how stupid it would be to use Heisenberg's Uncertainty Principle for macroscopic observations. That's the joke; the fact that many members of the science-fanclub have no idea of the magnitudes involved but like to lord their science-fandom over others is part of my irritation.

I see this all the time in my job, with people who can't write Bayes's formula talking loudly about graphical models (should really be graphal models, BTW, since they are based on graphs, not graphics).

For better presentations, avoid most presentation advice

If you want to become a better presenter, you probably should avoid most advice about presentations.

Yes, here I am, an educator, apparently telling people to avoid sources of knowledge. The problem is that much presentation advice is not a source of knowledge; more like a source of sophistry that helps perpetuate some of the worst problems with presentations.

As an avid reader of books, articles, and blog posts about presentations, I identified a few pathologies from the mass of material available:

1. Presentationism. This is what I call the tendency of people who do presentation training or information design training to focus on the style and delivery of the presentation instead of the substantive material that the presentation is about. This is a form of professional deformation, but one that can become a serious obstacle to understanding the real value of presentation skills: usually that of changing the audience's mind, unless the presentation is being done for entertainment, legal, or other purposes.

2. Perfectionism. The idea that all presentations have to be done to the standard of excellence and that all presenters should put as much effort as needed into preparing, rehearsing, delivering, and clarifying every presentation. In reality there are many people who have to do presentations with minimal resources, for whom the time and effort required to create a better presentation represent a net loss of value.

3. Ideological purity. Instead of choosing the best tool for a given presentation, many authors are strict ideologues: the presentation should conform to their choice of tool and styles. This affects some famous authors in information design and presentation techniques, and has led to pointless arguments about which tool is better, tout court. Like arguing whether a hammer or a drill is a better tool, independently of the project, and equally pointless. This creates a subordinate problem:

4. Subject matter and audience independence. According to a plurality of authors, Einstein presenting to an audience of Princeton scientists and the Frito-Lay head of sales for northeast Kentucky reporting on the penetration of new chip varieties to a group of mid-level executives should prepare and deliver their presentations in about the same manner, with similar presentation support (typically, though not always, slides), and about the same effort. To be clear, these authors don't suggest that the substance of the presentation should be the same, but rather that the process of preparing and delivering these presentations and the style and design of the materials should be the same.

5. The "tricks and tips" distraction. Many authors offer only tricks and tips, which may be good or bad, but in general create a false sense of learning: the problem with most bad presentations is systemic, not something that a tip will solve. Similarly, a lot of authors use cherry-picked results from psychology to support their approach. As a general rule, unless you can read the original source and determine whether the result applies to your circumstances, it's better to ignore this.


So, what is someone who wants to become a better presenter to do? I've written about it (note the "most" in the title above, which is not "all" on purpose), and here are three further recommendations:

- James Humes's Speak like Churchill, Stand like Lincoln is a short, well thought-out book on public speaking.

- Edward Tufte's books, courses, and web site, despite a bit of ideological purity, are possibly the best source for people for whom getting complex messages across to their audience is important and worth the effort.

- Don Norman's critique of Tufte makes a good counterpoint piece for ET's works.

Above all, think critically about the advice being given; ask "does this make sense in my case?" Even the best advice has exceptions.

On hiatus

I'll be taking a break from blogging in order to finish a number of writing projects.

I'll probably tweet the occasional pithy thought and post any photos I find interesting. But long-form blogging is unlikely to continue in the previous form; when I return I'll probably be posting book notes or observations about coding in R.

How misleading "expected value" can be

The expression "expected value" can be highly misleading.

I was just writing some research results and used the expression "expected value" in relation to a discrete random walk of the form

$x[n+1] = \left\{ \begin{array}{ll}
   x[n] + 1 & \qquad \text{with prob. } 1/2 \\
  & \\
   x[n] -1 & \qquad \text{with prob. } 1/2
   \end{array}\right. $ .

This random walk is a martingale, so

$E\big[x[n+1]\big|x[n]\big] = x[n]$.

But from the above formula it's clear that it's never the case that $x[n+1] = x[n]$. Therefore, saying that $x[n+1]$'s expected value is $x[n]$ is misleading — in the sense that a large number of people may expect the event $x[n+1] = x[n]$ to occur rather frequently.

Mathematical language may share words with daily usage, but the meaning can be very different.

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Added Nov 27: In the random walk above, for any odd $k$, $x[n+k] \neq x[n]$. On the other hand, here's an example of a martingale where $x[n+1] = x[n]$ happens with probability $p$, just for illustration:


$x[n+1] = \left\{ \begin{array}{ll}
   x[n] + 1 & \qquad \text{with prob. } (1-p)/2 \\

  & \\
   x[n]  & \qquad \text{with prob. } p \\

  & \\
   x[n] -1 & \qquad \text{with prob. } (1-p)/2
   \end{array}\right. $ .

(Someone asked if it was possible to have such a martingale, which makes me fear for the future of the world. Also, I'm clearly going for popular appeal in this blog...)

Why I'm somewhat apprehensive about Apple's reshuffle

Though I'm not as pessimistic about the Apple executive shuffle as the markets and Joy Of Tech, I'm apprehensive regarding the future of Apple's products.

Jony Ive is a great industrial designer, but Human-Computer Interaction is not Industrial Design. And some of the design decisions in recent hardware (meaning Ive's decisions) seem to ignore realities on the field. Take the latest iMac.

The new iMac doesn't have an optical drive; some pundits (and, I think, Phil Schiller on the Apple event) say that's a normal evolution. After all there aren't floppy disks on computers any longer and Apple was the first to drop them. And look how pretty the tapered edges of the iMac are.

Floppy disks existed as part of a computer-only ecosystem. CDs, DVDs, and BluRay Discs are part of a much larger ecosystem, which includes dedicated players and big screen TVs, production and distribution chains for content, and a back catalog and personal inventory for which downloads are not a complete alternative. (Some movies and music are not available as downloads and people already have large collections of DVDs and BluRay Discs.)

Using floppy disks as an example of change, implying that it is repeated with optical drives, shows a complete disregard of the larger ecosystem and willful ignorance of the difference between the earlier situation and the current situation.

For a laptop, the absence of an optical drive may be an acceptable trade-off for lower weight; for a desktop, particularly one that is a "home" desktop with a HD screen, the lack of a BluRay/DVD/CD drive is a questionable decision.

But look how pretty the tapered edges are, here in the uncluttered Apple Store retail shelves — oops, those computers will be in cluttered real world environments, where the necessary external drive (what, no BluRay drive yet, Apple?) will add even more clutter.

But, on the empty tables and antiseptic environments of "minimalist" designers' imagined world, that tapered edge is really important.

In the rest of the world, there are scores of people who like watching really old movies (available on DVD, not as downloads or streaming — except illegally), new movies in 1080p discs with lots of special features (i.e. BluRay discs that they can buy cheaply in big box stores), or their own movies (which they already own, and could rip — in violation of the DMCA — for future perusal, as long as they want piles of external hard drives); or maybe they want to rip some music that isn't available in download format, say CDs they bought in Europe that aren't available in the US yet.

So, using a decision that is not isomorphic at all (dropping the floppy disk) as a justification, Apple ignores a big chunk of the value proposition (consumption of media that is not available via digital download) on behalf of elegance. And, perhaps some extra iTunes sales — probably too small to make a difference on the margin.

What will this type of philosophy do to software? As Donald Norman wrote in this piece, there's nothing particularly good about fetishizing simplicity. Even now, many power users of Apple products spend a lot of time developing work-arounds for Apple's unnecessary rigid limitations.

Steve Jobs's second stint at Apple had the advantage of his having failed twice before (his first stint at Apple and NeXT), which tempered him and made him aware of the power of ecosystems (not just network effects). This is a powerful learning experience for an executive. Jony Ive hasn't failed in this manner.

Yet.