Reading time: 3 – 5 minutes

Being back in school and taking statistics and finance classes again has reminded me how much I love data. I am not one of those crazy guys who loves data in an unhealthy way and thinks that more of it will solve of all of the problems in the world mind you.  Nor do I believe it can always be trusted. The world is too uncertain and it is often hard to use data to predict the “once every 10,000 years” events that often do the most to shape the world we live in (read The Black Swan by Nassim Taleb for more on that).

What is interesting to me as of late is that we really have reached the point of having free and ubiquitous data.  In fact, we probably have too much data. I would argue that the financial crisis happened partly due to the fact that too much data was available for humans to effectively analyze and understand. I mean, let’s get real, it isn’t like the data wasn’t there.  If you looked at the right data and crunched the numbers you could have seen, as some did, that we were in for a world of hurt.

So now that we are at the point where data is essentially a commodity of sorts we have to figure out better, faster and cheaper ways of analyzing and visualizing data.  The better we get at this the better decisions we’ll make and the more crises we can avert.

FlowingData posted a quote from Google’s Chief Economist Hal Varian that sums things up nicely:

I keep saying the sexy job in the next ten years will be statisticians. People think I’m joking, but who would’ve guessed that computer engineers would’ve been the sexy job of the 1990s?

The ability to take data—to be able to understand it, to process it, to extract value from it, to visualize it, to communicate it—that’s going to be a hugely important skill in the next decades, not only at the professional level but even at the educational level for elementary school kids, for high school kids, for college kids. Because now we really do have essentially free and ubiquitous data. So the complimentary scarce factor is the ability to understand that data and extract value from it.

I think statisticians are part of it, but it’s just a part. You also want to be able to visualize the data, communicate the data, and utilize it effectively. But I do think those skills—of being able to access, understand, and communicate the insights you get from data analysis—are going to be extremely important. Managers need to be able to access and understand the data themselves.

Hal Varian, The McKinsey Quarterly, January 2009

Since I have been thinking more about data and specifically how the financial crisis could have possibly been averted if we could have had a better handle on the mountain of data crammed into arcane forms like 10-Ks and 10-Qs, I have been reading up on XBRL.

XBRL, or Extensible Business Reporting Language, is an open standard for business reporting that I am very excited about.  It could do for financial data what feeds and xml did for content.  When all of the data is structured we can then start to set up smart software to analyze the large amounts of data that exist.  That’s a big deal.

The good news is that XBRL is slowly becoming mandated for public companies in the U.S. an abroad so we’re not far off from being able to analyze and visualize financial quickly and easily.

XBRL, as I tweeted earlier, is the intersection of some of my favorite things: software, structured data and finance.  I am planning on digging into XBRL much more and will probably write about my findings as I, well, find them. Stay tuned.

Reading time: 3 – 5 minutes

Being a long time student of finance (starting digging into the markets at the age of 13) I have been particularly interested in the financial crisis that we are in the midst of.  I have been thinking through why something as large as this crisis happens.  Of course, for something so large and complex, there are a number of things that had to come into play to create the scenario but one macro theme in particular leaped out at me.

The theme I am talking about is removing faces from finance.

What do I mean by that?  My thinking is this: once you remove relationships from financial transactions and instruments things start to get messy.

If you are once removed, for example when you buy the stock of a company that you don’t have any personal relationship with, you are probably OK and you hope that the management is giving you quality data to asses.  There’s trust there.  However, when you get further and further away from a face to face relationship with, say, derivatives like CDOs, things simply get out of hand.

I have never been a fan of derivatives and other “abstract” financial instruments.  I always found it odd that no one really knew what the underlying assets were.  Was it Joe’s house, Acme Corp., both? To the creators and traders of these securities it was just paper (digital “paper”) with an assigned value.

I am not the only one who was worried about the issues that could be caused by abstracting finance.  Warren Buffett was worried too.  He once referred to derivatives as “financial weapons of mass destruction.”  Buffett also referred to derivatives this way:

“There is an electronic herd of people around the world managing an amazing amount of money who make decisions based on minute-by-minute stimuli,” said Mr. Buffett, adding, “I think it’s a fool’s game.”

His partner Charlie Munger was also not a fan.  Munger once said:

“The accounting being deficient enormously contributes to the risk,” said Munger, lamenting that executives and shareholders were getting paid on “profits that don’t exist.”

Exactly. Profits that don’t exist and assets no one really understands or can put a face to is a recipe for disaster.

At this point I should note that when I say face to face I don’t necessarily mean it literally.  I am more or less referring to the relationship one has with an asset and how close they are to it.  That being said, let’s take a look at the banks.  I will keep it short since I all of you already know what I am going to say.

Banks, given the market’s appetite for CDOs, were able to grant loans and then immediately get rid of them to someone who would package them up and send them off to a big bank like Merril Lynch who would then create CDOs, etc. etc.  Do you see the issue here?

A bank’s business is to take in money in the form of savings and distribute it (and thus take on risk) in the form of loans on which they make their interest (i.e. their profit).  Normally the banks have to look someone in the eye and really figure out if the person will pay the bank back since the bank is stuck with a bad loan if the person doesn’t pay.  The loan default is the bank’s risk.

With CDOs the bank can make a loan and immediately offload their risk (although as we saw a lot of banks didn’t offload the risk fast enough).  Now, as you can see, the bank isn’t incented to look at borrowers as closely.  They are incented to give as many loans as they can and then ship them out the door.  That is when finance becomes faceless, and also “risk-less” for one party, and when one persons transaction is viewed as risk-less the outlook becomes bleak since nothing is really inherently risk-less (just like there is no such thing as a free lunch).

We need to get back to face to face finance where people make deals with people they know and trust and they have to since they have to hold that risk.  We should really think twice the next time we try to abstract finance and create derivatives.  While cool and intereting to finance wonks creating derivatives is probably not a good practice nor does it create long term value for society.

Reading time: 5 – 8 minutes

Having a sister who was very ill growing up and who spent a lot of time at Mass General Hospital because of her illness and subsequent surgery (which cured here by the way) my family and I have been in the situation of having to communicate things to our extended family from the hospital many times.

For those that have been there you’ll know that this isn’t an easy thing to do. Up until recently cell phones weren’t allowed to be used in most hospitals so extended family members had a hard time calling in for updates. However, even with cell phones the family is stuck making and answering a bunch of phone calls when they should and want to be focusing on the family member in trouble.

I started thinking about a better way for families to communicate in these types of situations about two years ago but still have yet to wrap my mind around how such a fix would look business wise. I had tried to work towards a solution with the help of my friend Rick Smith while I was back in Boston.

We thought that, to start out, kiosks placed in hospitals might make the most sense. I know, I know… that’s soooo mid-1990s but here was the thought process.

Since hospitals don’t offer wifi anywhere other than the lobbies and don’t want it interfering with their equipment we’d need to patch an internet line into the hospital and route it to terminals. We’d also be able to set the terminals up for the complete novice with features like memory card slots for each type of card and a quick 1 step picture upload if you wanted to upload pictures for your family. The interface would be dead simple so everyone could easily use it.

The product would be a web page that has permissions (like flickr) and could be edited out of the hospital on a standard computer as well just like a blog. Again, UI would be deal simple and would only have core functionality in it. Family members could then get alerted to updates via e-mail, feeds, text messages, etc.

Of course then we thought families in crisis may not be the best way to break into the market. What would be? Babies. We could have these “New Life” terminals, or so we called them, in the newborn areas of the hospital where families would want to get pictures and such out ASAP. The sites could even be set up in advance of coming to the hospital and then modified via the kiosks. After the newborn market solidified we’d try to move the concept to other places in the hospital (ICU, Surgery, etc.).

Now, to the problems:

- Getting buy in from the hospitals is nearly impossible.
- Maintaining kiosks is labor intensive.
- Customer turnover is very high.
- How in the heck do you monetize this thing?

Getting buy in from hospitals will always be a hurdle but I think as more technology is allowed in hospitals those barriers will break down.

Maintaining kiosks could be farmed out to a group like Geek Squad or other local repair and help service firms via contract.

Customer turnover is a big one that isn’t easily remedied. Since this service is very events based users would only use it once in a long while and for very short times when they do. This behavior would be touch to monetize with ads and such since you can’t predict where the impressions would be from day to day. (The babies thing might work better if you could convince parents to keep it up over time with new pictures and other info.)

Monetization, as referenced above, would be tough from an ad model standpoint but not impossible. Other than an ad supported model you could add the cost into hospital bills for those that want it. Since the value add for the hospital is that you are giving them a free service for their patients so you’d probably need to get patients or their families to pay for the service and, in crazy times, they probably won’t since they have too many things on their mind.

What got me thinking about this whole idea again was a discussion that I had with my girlfriend’s brother and his wife this weekend while in D.C. They had a similar idea in the elderly care space and I brought up all the same issues with it and we then tried to think of more creative solutions.

It is a frustrating situation since it is a large problem but when trying to solve it you run into so many issues. Perhaps a twitter-like service is useful. Even in that case you run into the issue that, in a time of tragedy, you may not be able to set up a system. You would really need to convince folks to have something set up in advance even though they may never need it. It’s like insurance in that sense but when they aren’t using it how are you making money?

Convincing the users to pay would be tough since the value isn’t immediately noticed until you have been in the situation before (i.e. my mom bought a beeper way back just in case my sister had issues but had she not been though it before she wouldn’t have purchased the beeper).

Running ads would be equally hard due to the long periods of inactivity on the sites created although once you had a big enough user base you would probably have a decent amount of inventory at any given time. Forecasting that would be hard though and you’d probably be considered “low rent” space by advertisers since people aren’t necessarily in buying moods. On the baby side though ads for baby related products would be a perfect fit and people would be in the mood to buy them. That still doesn’t solve the core issue of alerting family members to a persons condition on the ICU/surgery side of things though.

I’d love to hear all of your thoughts on this. It seems like something should be done to remove friction here but it seems like most solutions only add friction or come up against tough walls like hospital regulations.

Here’s one of my recent ideas on this (i.e. came up while I was writing this post): Perhaps you could create communties around current sufferers of certain illnesses or people having the same surgeries that would allow them and their family members to learn more and communicate with others in the same position.

In this case you could have links on the personal sites that would send people to more info about the condition/surgery and to forums that others in the same condition would be part of. That would cause more stickiness which would help with an ad related model. It would also drive people to the service who may be searching for info on certain illnesses or surgeries. Of course now you are faced with some content aggregation issues which leads me to wonder if this whole thing should be another piece of business for WebMD designed to drive more pageviews through their site.