Bits and bytes to blockchain: the far-reaching impact of an enigmatic technology

December 10, 2015 by Dale Legaspi Leave a Comment

Metro-Goldwyn-Mayer

Pay no attention to the man behind the curtain.

Dorothy and her travel companions didn’t listen, of course, and peeked behind that curtain to find out that the great wizard was just a man with a machine. The financial industry is experiencing the inverse, as it examines a machine that is run by a “man” who does “his” best to avoid existing.

More than 30 of the largest banks in the world are digging into what has been one of the most vexing technological advances of the past decade—the emergence and rise of bitcoin, the world’s most famous (or infamous) cryptocurrency, which was created by an individual under the pseudonym Satoshi Nakamoto.

With an etymology tied to the Greek word “kruptos” which means “hidden,” it’s not surprising that outside of a handful of techies and economists, cryptocurrencies are not well understood. However, for the first time, mainstream finance is taking notice of cryptocurrencies and trying to harness their algorithmic backbone—known as blockchain technology—before it challenges the entire industry’s structure by completely disrupting payment and banking.

Background on bitcoin and cryptocurrency
The main questions here are:

What, exactly, is it?
Who uses it?
Where did it come from?

What is bitcoin?
At its most basic form, a cryptocurrency is a digital medium of exchange that is regulated solely by computer coding. Algorithms determine both the creation of new units and the security of transactions made in the units already in circulation. The alpha of this virtual market, of course, is the anarchic, open-source, peer-to-peer (P2P) “currency” bitcoin, which came into existence under ambiguous circumstances—more on that in a second—in 2009.

Bitcoin operates by controlling supply. Its algorithm is set up to distribute 21 million units over the course of 10 years, so its value is determined solely by demand, which has grown over the first five years of its existence. Its value peaked in late 2013, reaching a value of more than $1,100 amid a corresponding spike in the amount of compute power dedicated to “mining” for new units.

New York Times

Of course, the cause of the demand and compute power spikes is an increasing number of people investing an obscene amount of money into unlocking new blocks of bitcoin, thereby pricing out much of the digital money’s previous user base of currency aficionados and hobbyists.

Who uses it now?
The second question of who uses bitcoin is where the story begins to get considerably more complicated. The short answer is that no one knows, exactly. Without a central regulator akin to the Federal Reserve or the International Monetary Fund, transactions are monitored by a distributed ledger, which is basically an algorithm that shares every proposed transaction with every node in the bitcoin network. The result is complete anonymity as transactions being placed into blocks that every bitcoin-capable machine can see and verify without shedding any light on the individuals or entities carrying out these transactions.

While transactions are secure in and of themselves, the lack of transparency into who is using this anonymous digital monetary system has made bitcoin a lightning rod in broader discussions about national/international security and criminal activity. Most notably, the anarchist founder of the online narcotics hub Silk Road was an early adopter and evangelist for bitcoin—not exactly an ideal advocate for a technology struggling to find mainstream success.

Nonetheless, illegal as Silk Road’s activities might have been, they were a huge source of bitcoin’s visibility and, thus, the primary driver of its demand-determined value.

When it comes to ambiguity, though, end users aren’t the only part of bitcoin that has been shrouded in mystery. The very source of the world’s preeminent cryptocurrency had been nothing more than a pseudonym—until last week.

Where did it come from?
From recent coverage in Wired and Gizmodo, it appears that the man behind the bitcoin curtain is a 44-year-old Australian named Craig Steven Wright, who “coincidentally” had his home and office raided by the Australian Taxation Office just this week. While authorities claim that the raid had nothing to do with the news that Wright was, in fact, the mysterious Nakamoto, the timing is certainly curious, and the fact that the bitcoin founder’s fortune is estimated by some to exceed $415 million certainly does not support that it is coincidental.

Regardless, the mystery appears to be solved, and no one seems to be debating the value of bitcoin now. In fact, a whole new set of stakeholders has emerged and is taking a good, hard look into its enabling technology—blockchain.

Taking blockchain mainstream
While they’re not interested in using bitcoin as is, 30 of the largest banks in the world are working as part of a collective evaluating whether or not its enabling blockchain technology and the distributed ledger it creates have wider-reaching uses within the financial services industry. This collective is operated by R3 CEV, a global financial tech company comprised of veteran financial professionals, technologists and tech entrepreneurs.

“This partnership signals a significant commitment by the banks to collaboratively evaluate and apply this emerging technology to the global financial system,” said David Rutter, CEO of R3. “Our bank partners recognize the promise of distributed ledger technologies and their potential to transform financial market technology platforms where standards must be secure, scalable and adaptable.”

In comparison to the other aspects of bitcoin, the blockchain and distributed ledger concept is fairly simple. When one user pays another in bitcoin, the transaction is known as a block and is announced to every node (compute device loaded with the appropriate software) on the bitcoin network. Every node then approves the block, which is added to a “chain” of other blocks, creating a running record of every transaction across the entire network. With every node in the network verifying every transaction, in real time, the entire system remains self-regulating.

Financial Times

The collective takes it as truth that some form of this blockchain and distributed ledger is going to become the norm in the banking industry but is looking to establish the necessary standards and protocols—common practice for an emerging technology that necessitates interoperability across multiple platforms (or in this case, the entire financial industry). These banks are essentially trying to implement this technology to virtualize their transactions with each other—analogous to businesses moving to the cloud as opposed to storing every bit of data on their own servers.

While the potential cost savings and scalability improvement are obvious from an infrastructure standpoint, it’s less clear how much additional investment would be required to perform the necessary network upgrades to increase reliability and security to meet the standards of the highly regulated finance industry.

“Right now you’re seeing significant money and time being spent on exploration of these technologies in a fractured way that lacks the strategic, coordinated vision so critical to timely success,” said Kevin Hanley, Director of Design at Royal Bank of Scotland. “The R3 model is changing the game.”

Financial Times

Furthermore, “the game” being changed has expanded into the way financial markets operate with banks frequently facing the question of how technologies such as cryptography and distributed ledgers can contribute to improvements.

“These new technologies could transform how financial transactions are recorded, reconciled and reported – all with additional security, lower error rates and significant cost reductions,” said Hu Liang, Senior Vice President and head of Emerging Technologies at State Street. “R3 has the people and approach to drive this effort and increase the likelihood of successfully advancing the new technology in the financial industry.”

Assuming this implementation is as inevitable as the R3 collective believes, the next question becomes one of how far the technology might go.

Disruptive potential
The holy grail for a new technology (or, in this case, the reemergence of an existing one), can be boiled down to one of the tech industry’s favorite buzzwords: disruption. Everyone wants to know what this technology is capable of doing to upend the way business is done.

The potential implications of blockchain and distributed ledgers as they pertain to transactions in commercial banking are intuitive, but as Liang and others have alluded to, these technologies threaten established practices well beyond.

Coincidentally, around the same time bitcoin was emerging, investment banks and other financial entities were engaged in an arms race to maximize compute power and, therefore, the speed with which they received information about the markets. Just as computers replaced phone calls and turned minutes into seconds on the trading floor, high-performance computer power was turning seconds into fractions of seconds, providing the edge to those who get the information first—even if that lead time is literally the blink of an eye.

The compute power is still of vital importance, and virtualizing the ledger process would theoretically speed up transactions even more by freeing bandwidth that could be reallocated to processing incoming data.

On a more micro level, the best disruption analogy is third-party payment services, which offered the first viable set of alternatives to cash or credit. PayPal gave users the first option for decoupling their bank accounts or credit cards from their online purchases. Mobile payment services from Google and Apple took this concept to smartphones, and Venmo extended it to person-to-person transactions.

Blockchain and its associated capabilities can have a similarly disruptive effect by redefining the process by which these transactions take place. By being agnostic to the endpoints of the transactions, the technology would eliminate the need for a payment company to be in the middle of every transaction.

Of course, the major question that remains as to how to get the different players in a competitive market to work together to develop the level of interoperability necessary to make this blockchain-backed ledger system a reality—a tall order, indeed.

When’s the last time Google and Apple worked together to make something interoperable?

It was certainly longer ago than the current collaboration among Bank of America, Wells Fargo and 28 of their competitors. Raise your hand if you ever thought of a scenario in which banks were more visionary than tech companies.

That might be the real magic trick.

When does a tech company cease to be a tech company?

December 3, 2015 by Dale Legaspi Leave a Comment

When it’s on its way to no longer being a company, period.

Yahoo CEO Marissa Mayer (from Fortune)

Once upon a time, Yahoo was the leader in Internet search, but now as it looks more like roadkill with Google’s and Facebook’s tire tracks over it. As a result, it is considering selling its Internet business, which would make it a…uh…different company.

Two major questions that come to mind are: 1. Why? And 2. What will this new Yahoo be?

The first question has an answer: an activist investor, in this case, New York hedge fund Starboard Value.

Starboard has been a vocal critic of Yahoo CEO Marissa Mayer, believing her tenure has been an abject failure to Yahoo investors, as net revenue has fallen despite industry-wide investment in digital marketing. Consequently, the fund is working to force her to accept defeat at the hands of rivals Facebook and her former employer, Google, and abandon what has been the company’s core business since its inception.

Jeff Smith, Starboard Value (from New York Times)

This Starboard-Mayer situation is certainly not the first time an activist investor and a CEO have gone toe-to-toe on business strategy, but there is frequently some sort of fight. In this case, with three and a half years of declining revenues, Mayer doesn’t really have a leg to stand on.

Further complicating the issue is the alternative to spinning out the Internet business—potentially paying astronomical tax bills in two different countries. Coincidentally, this also begins the discussion of the second (and unanswerable) question of what would become of Yahoo.

Yahoo bought a stake in Chinese e-commerce giant Alibaba for $1 billion in 2005—an outrageous sum of money at that point in time. Arbitrary nature of tech valuations aside, Alibaba went public last year with the largest tech IPO in history. Great news for Yahoo, right?

Wrong.

The stock has basically declined in value over the last year, and while Yahoo is still looking at a stake worth a bunch of money, it’s also looking at giant tax bills from both the U.S. and China if it tries to capitalize on that stake by spinning it out.

Initially, Mayer had thought that she and Yahoo might dodge the U.S. tax, which by some estimates, would total more than half of the value of its stake. Then the company might have to pay Chinese taxes on top of it.

Starboard’s stance is that Yahoo needs to cut its losses and dump its Internet and display ad business, much the way AOL did when it sold to Verizon earlier this year. Its demand letter alluded to a market for the business but didn’t elaborate.

Regardless, though, the consensus among those covering tech seems to be that the clock is ticking on Mayer, and this decision is likely to make or break her tenure.

Cost of cybercrime: does anyone actually know?

November 17, 2015 by Dale Legaspi Leave a Comment

Massive data breaches at Target and Home Depot. Edward Snowden and WikiLeaks. Anonymous a war with ISIS. Whether it’s the outright fraud of people stealing information from networks or the type of cyber vigilantism espoused by information leaks or “hacktivist” groups, cybercrime is all over the news.

But what does it all cost?

As much as $65 million per year for some organizations in the U.S., apparently.

So said the recently released 2015 Cost of Cyber Crime Study, produced by research house Ponemon Institute. The range for this year spanned from $1.9 million to that $65 million number—an average of $15 million per organization. The study also indicates that since 2009, the average per-organization cost of cybercrime has risen 82 percent.

Per HP Enterprise study

Given the fact that this study was also an advertisement for sponsored by HP Enterprise Security, the veracity of the survey methods may be debatable, but it’s not difficult to believe the number is significant—even if the data is not exact.

I was hoping to cross-reference by looking at other studies, but the only other one I could find that wasn’t outrageously expensive was not put together by an independent analyst firm either. It came from Intel Security brand McAfee and estimated the global cost of cybercrime to be between $375 billion and $575 billion.

Apparently the best we can do globally is to get within $200 billion of an actual value. (Students everywhere wish we were afforded that kind of margin for error.)

While the cost per organization in the U.S. and the total aggregate cost to the global economy are completely different, cybercrime is a huge issue with massive economic ramifications however you slice it.

Despite this dearth of objective information, businesses of all sizes acknowledge that cybercrime is a growing concern. It’s only logical in today’s digital era that as networks continue to advance and become more pervasive, threats do as well. Unfortunately, the threats have become more advanced than the network safeguards developed to keep them out.

The old model required a threat to be defined in order for a program to find and neutralize it, but as malicious code and network intrusion techniques have become more advanced, threats embed themselves into networks and simply reside undetected. Once they’re activated and recognizable as a defined threat, it’s too late for the threat to be neutralized before data is stolen.

Advanced techniques are more proactive in nature and are able to root out some of these dormant threats and patch vulnerabilities, but the arms race between cybersecurity professionals and hacker collectives is on. And the growing costs associated with this ongoing battle are not likely to slow down anytime soon.

The Jumpstart Stalls: How the JOBS Act is Missing on Crowdfunded Equity

November 3, 2015 by Dale Legaspi Leave a Comment

Signed into law on April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act aimed to energize startup businesses by leveling the investment playing field. By eliminating a number of the barriers that had previously prevented startups from formally seeking capital be selling equity, the investment game would, theoretically, become a more level playing field—no longer a realm solely inhabited by wealthy venture capitalists.

One problem, though.

The Securities Exchange Commission (SEC) has gotten through six of the seven titles in the JOBS Act, essentially removing all the barriers that had previously prevented startups from selling equity as a means of funding. However, the agency has been unsuccessful in giving individuals the most logical method of investing—funding portals. Consequently, the rest of the act remains in a holding pattern, waiting for potential investors to have a way to access these companies that are now able to seek funding in exchange for equity at any time.

Crowdfunding and Venture Capital

Spawned by the same so-called “collaborative economy” that produced a host of well-known peer-to-peer (P2P) businesses such as Uber and Airbnb, crowdfunding platforms are online portals that (as their name implies) enable startup companies or sole proprietors to seek funding from the masses. Aspiring entrepreneurs to set up pages to market their idea to the public in hopes that enough people want to contribute any amount of funding to help get it off the ground. The big-picture idea behind them is to democratize entrepreneurship by giving all startup businesses the same chance at raising funds, but strictly by donation. Those who contribute to the business venture get nothing in return.

Contrast that model with venture capital, in which these same aspiring entrepreneurs go straight to big money organizations that decide whether or not they will invest large sums in exchange for some measure of control over the company. VCs will own a significant percentage of the new company in exchange for funding, often times taking prominent seats on boards as another method of exercising ongoing control over day-to-day business operations. Of course, when one of their companies hits and goes public or is sold, VCs turn their shares into large sums of cash.

Background on the JOBS Act

Signed into law on April 5, 2012 (SEC), the Jumpstart Our Business Startups (JOBS) Act aims to promote economic growth by easing certain securities regulations and encouraging more funding of small businesses. As is usually the case with any sort of legislation, it led to legal wrangling and a stepped implementation that is still not complete today—more than three years after the act was initially signed. Titles I, V and VI essentially opened up new capital opportunities for job creators and were passed right away.

Titles II, III and IV—all of which involve crowdfunding in some way—have proven to be more problematic.

Title II, which was the first to allow early-stage companies to solicit investments without being listed publicly, went into effect September 23, 2013. Essentially, the SEC removed the gag order that previously prevented startup businesses from leveraging the capabilities of the digital age to broadcast to the masses that they’re looking for funding and could sell equity to get it. No longer do they need to be public companies.

Commonly known as Regulation A+, Title IV expanded Regulation A of the Securities Act of 1933 into two tiers: one for offerings up to $20 million over a 12-month period and one for offerings up to $50 million over a 12-month period. The SEC released its rules for Regulation A+ in March of this year, and the modified Regulation A became effective June 19, 2015. Essentially, a company’s funding goal no longer has to be so outrageous that it prices crowdfunding out of the question and requires VC money to participate.

Title III would enable crowdfunding platforms such as Kickstarter and Indiegogo (which the SEC refers to as funding portals) to become startups and equity crowdfunding, but it remains in a legislative quagmire (SEC Q&A).

Potential Impact on Startup Funding

While the JOBS Act has not yet seen all of the equity crowdfunding provisions come to fruition, two of the three major titles related to it are in practice today. Startup businesses are allowed to announce they are seeking funding and can raise up to $50 million in a calendar year from any investors—accredited or not.

From the investor’s standpoint, anyone now has the opportunity to purchase equity in any private company that makes it known they’re seeking funding. While they’d be doing so on a much smaller scale than that of traditional VCs, these individuals no longer face the requirement of making more than $200,000 of income of having $1 million in assets. In short, the entire process has (theoretically) been opened up to the 99 percent (Forbes).

Title/Party of Three

Many of the arguments the SEC was forced to navigate in approving Titles II and IV had to do with protecting investors, since they were altering or removing policies that had long been viewed as safeguards against bad investments. Legislators were skittish about removing the separation between small companies seeking funding and individuals who may or may not have known enough to make informed decisions about investing.

Perhaps paradoxically, Title III involves the funding portals that, in addition to being the enabling platforms behind these investment transactions, could also provide that sort of third-party guidance. Of course, they could also become de facto gatekeepers, deciding who “gets to” invest in certain companies. As the debate continues, the two most prominent potential funding portals watch from the sidelines, waiting to see what shakes out but with very different levels of interest.

Per an August article from gaming publication Polygon, Kickstarter expressed no plans to enter the equity crowdfunding fray. Indiegogo, however, has expressed interest since the SEC released its Regulation A+ rules early this year. While the two are direct competitors in “traditional” crowdfunding, Indiegogo positions itself as being broader in scope. Therefore, it is willing to be more aggressive in its methods for enabling entrepreneurship any way and anywhere.

“Indiegogo will have done its job when Silicon Valley is no longer perceived as the epicenter of entrepreneurship,” co-founder Danae Ringelmann said. “It’s not, and our job is simply to catalyze the entrepreneurial spirit that exists everywhere.”

The company is also more aspirational when it comes to this idea of democratizing funding. Ringelmann’s co-founder Slava Rubin didn’t shy away from the idea of leading the crowdfunding equity charge when reacting to the SEC’s Regulation A+ announcement last March (Fast Company).

“The balanced regulations announced yesterday will not only protect investors but allow anyone to invest in the ideas they believe in,” Rubin said. “Our mission at Indiegogo is to democratize finance, and we are continuing to explore how equity crowdfunding may play a role in our business model.” (Crowdfund Insider)

Unfortunately, until Title III finds its way into practice, Indiegogo’s vision for completely open, equity crowdfunding will remain solely aspirational.

Wider Economic Implications

With the country only a few years removed from its worst financial crisis since the Great Depression and employment numbers still lagging, the JOBS Act passed through Congress with nearly full bipartisan support. Small businesses (defined as having fewer than 500 employees) accounted for half of all US employment in 2012 and were clearly seen as the key to continued economic recovery.

Locking half of the economy out of being able to draw on peers for funding doesn’t seem to make much sense when the goal is growth. Furthermore, when more than 70 percent of the country’s GDP is based on consumption, while investment accounts for a little over 10 percent, opening up more opportunities for people to invest their money seems like a no-brainer.

Additionally, with the Fed keeping interests at their current levels, spending and investing is exactly the type of activity the government is encouraging. Federal regulators want investment in small business because it’s leading the economic recovery.

Yet, the current implementation of the JOBS Act still doesn’t include the one piece that is likely to organize this more open investment environment into a viable alternative to the current, VC-driven establishment. But if it does come into practice, there appears to be a challenger on the horizon, brandishing a bright magenta logo and millions of potential investors.

The 99 percent is ready to change the game as soon as the SEC can get out of the way and let them. Same old, same old in the startup game…today.

The Significance of Three Percent

October 19, 2015 by Dale Legaspi Leave a Comment

The field trip to the Port of Los Angeles solidified a number of the concepts we’d discussed in class with respect to international trade, but one particular aspect left me with more questions than answers: security.

Even with the massive number of containers being unloaded off multiple cargo ships, the port included only one relatively small area in which the contents of containers were checked. Otherwise, they were stacked, and loaded as efficiently as possible to get them onto trucks to have their contents distributed as quickly as possible.

According to Rep. Janice Hahn (D-Calif.), who introduced legislation that would reserve federal funds to improve port security, only three percent of incoming cargo is scanned.

With the passage of the Trans-Pacific Partnership, which will further open up US trade with other nations along the Pacific, west coast ports are likely to see a surge in traffic. Does that mean three percent turns into two or one?

Hahn’s Scan Containers Absolutely Now Act, commonly (and fortunately) known simply as the SCAN Act, was introduced in the House a little more than a year ago and, from a brief news search, was never heard from again. Despite the ridiculous name, the bill points to a very real—and thus far, unaddressed—issue.

We spent two hours touring and having multiple people tell us how critical the port is to the US economy and, by extension, the world. A trade agreement that will increase the amount of traffic to the west coast’s busiest ports has been passed just ahead of what is already the ports’ busiest time of year.

Did I mention that more than 95 percent of containers passing through ports go completely unchecked?

Given the US’s often frosty relationship with growing economic power China, that country’s increasingly friendly relations with its neighbors (see: Regional Cooperation Economic Partnership) and rising global tensions that include what basically amounts to a proxy war with China’s neighbor Russia, is it really that far-fetched to think that negligence on port security might be an actual problem?

Of course, authorities assuredly have security measures in place that are invisible to the public, but given the fact that local legislators felt the need address it in Washington, it seems that an issue may remain.

It just seems from the outside that the level of oversight doesn’t match the relative importance of the ports to global trade. Given the short-sightedness of most legislators, that seems unlikely to change.

An Economy-Agnostic Startup?

September 18, 2015 by Dale Legaspi Leave a Comment

In the mid-to-late 2000’s, a number of college students might have lamented graduating into the worst economy since the Great Depression.

Not Brenton Sullivan and Kai Sato—they launched a business in the face of a crashing financial market in 2008.

The 2007 USC graduates’ concept for what would become FieldLevel had been named “Best Business Plan” by the Marshall School of Business’s Lloyd Greif Center for Entrepreneurial Studies, and the pair had even received an offer of $1 million for an 80 percent stake in the company but we unmoved. Instead, they took the more difficult path, opting to bootstrap through the early part of their existence.

Numerous sleepless nights and pivots later, FieldLevel was accepted into the Los Angeles Dodgers’ Sports and Entertainment Accelerator—a distinction that came with $20,000 in funding—last month.

Sullivan and Sato maintained a cash flow positive business well ahead of being accepted into the accelerator. While cash flow positive and profitable are two very different distinctions, and the company still has a ton of work to do, the fact that FieldLevel has taken off in the face of a horrific economy is impressive.

Both entrepreneurs attribute their success against the adverse economy not only to their passion and flexible business model, but also to the generosity of friends and family, who provided them the initial funding that enabled them to avoid the typical path of venture capital (and reject the early offer to cede 80 percent of the control in their business).

Sullivan and Sato have always been leery of traveling down the VC path and seemed almost thankful that it’s nowhere near as established in this half of the state as it is up north in Silicon Valley. The tech industry, as a whole, has numerous stories of VC’s either making small investments as a means of basically stealing entrepreneurs’ ideas and putting them out as their own or as a takeover (the initial overture FieldLevel received).

Perhaps what makes this story most interesting, though, is the fact that at no point were economics a driver for this business. Ultimately, the business needs to transition from cash flow positive to profitable, but the duo is in no real hurry to make that happen.

To these two former high school athletes who were largely invisible to recruiters, it’s more important to get it right.

“Finding the right fit is the key,” Sullivan said. “I was probably a guy who should have been at a DIII school somewhere, but they had no way to find me. I would have had to go to them.”

FieldLevel is a free service that aims to bridge this disconnect, enabling coaches at all levels to have the same access to prospective players.

One major differentiator, though, is that college coaches would be connected to high school and travel team coaches—not to the players themselves. This (theoretically) shields college coaches from being spammed.

The other? It’s free.

“This is where the economy, I believe, worked in our favor,” Sullivan said. “Recruiting services are outrageously expensive and, generally, get minimal returns. College coaches we talked to hated them.”

The combination of frugality, recruiting service fatigue and use of prep coaches as a buffer enabled FieldLevel to amass the largest network of coaches in the industry quickly. But instead of rushing to “monetize” or “maximize valuation” like venture-backed Silicon Valley companies, Sullivan and Sato are looking to continue refining their business—a process aided by the Dodgers Accelerator.

“Developing this business has been an evolutionary process, and we’ve had a number of pivots along the way,” Sato said. “We needed a partner that understood that, which is why we chose to do the Dodgers Accelerator. We didn’t need the funding, but the collocation space with other entrepreneurs and the corresponding added brainpower are invaluable.”

The heavy focus on product and willingness to proceed in the face of a negative economy have been key to FieldLevel’s growth, but that doesn’t mean the entrepreneurial team behind the company hasn’t paid any attention.

“We grew our business in the face of an economic downturn, and sure our [friends, family and business model] made it possible, but there was also a lot of chatter on Capitol Hill about helping small business as the economy was at its worst point,” Sato said. “But even as we hired, we never saw any of it.”

True to startup culture, though, they refuse to spend any brainpower on it.

“It sucks, but we’re too busy building our business to worry about it,” Sato said. “We’re not taking the company public or anything like that, but we firmly believe that the best is yet to come for us.”

The economy and a couple high-profile flops have made the IPO market essentially stagnant over the last few years, but hopefully his optimism is not in vain. While he company will still face the dilemma of how to monetize a network of users, it can look to the successes (and failures) of predecessors like Facebook and Twitter (albeit on a much smaller and more targeted scale).

The economy might not have factored heavily into its growth to this point, but now that FieldLevel has taken on capital and is looking at adjacent business opportunities, it is unlikely that the company can continue to ignore it.

Chonieconomics: The Men’s Underwear Index

September 3, 2015 by Dale Legaspi Leave a Comment

Throughout the course of history, people have been caught with their pants down (so to speak) on various occasions by shifts in the economy—some sudden; some cyclical. Little did the gentlemen among these folks know that underneath said pants, was one of the more obscure metrics tracked as an indicator of the relative health of the economy.

The Men’s Underwear Index is, apparently, a real thing. So said Alan Greenspan in the 70’s.

The orangutan, the zebra and the stork clearly lived in economic prosperity.

As we’ve discussed in class, economics often gets a bad rap because many people’s exposure to it consists of a bunch of old, white guys on TV talking about the most widely used economic indicator—the stock market—in what sounds like an alien language. However, despite it including the synthesis of a lot of real-time information, the stock market is a leading indicator (a measure of what people think is going to happen) and is, by nature, speculative. To some extent, the talking heads on TV are guessing, and they know it.

Chonies as an indicator, on the other hand, are referred to as lagging. (I know…sorry, gents.) A lagging indicator is simply a compilation of data points from what has already happened—in this case, purchases of men’s underwear. This empirical measurement has been a fairly solid indicator of what has happened with the economy since it came into existence almost half a century ago.

Per Esquire (repurposed from Business Insider), men purchase an average of 3.4 pairs of underwear per year. That number has tended to increase in times of economic prosperity and decrease in difficult economic times.

What I don’t understand is why this is considered some genius insight. It makes sense that in a down economy people would not spend money, primarily because they don’t have it.

The best explanation I’ve been able to find is that underwear is deemed a necessity, which sets it apart from other clothing items and makes it a better baseline. That hasn’t stopped economists from developing other obscure indicators as well. Hemlines, dry cleaning, ties and lipstick have all been referenced to measure the health of the economy, but the common thread through all of them is that people purchase more when the economy is good and they have the money to do so. Regardless of what CNBC analysts tell you, it’s as simple as that.

Greenspan trolled us all, but I suppose I should thank him. He gave me a reason to write about underwear in a class blog.

MMM

Money Marks & Media - Spring 2014