Category Archives: Business

PS4 may not be as bad as everyone thinks

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The PS4 was announced yesterday, 2/20/2013, it was immediately pummeled by the media and on social networks. I think that this might be a touch premature. Why? I’ll list out a few different reasons and let the reader decide if I’m off my rocker.

First, streaming to the PS Vita. Commentators have already compared this to the Nvidia shield, while I think this is accurate, I think that misses part of the point behind this capability. The true purpose is to get people used to the idea of streaming a video game from one system onto another system. We are used to doing this with video already, but we aren’t used to truly playing something that is entirely run on a different system than the one we’re interacting with.

Second, play while downloading. This feature is again to help us get used to the idea of streaming a game from a server. Sony acquired Gaikai a while back which enables playing a game on the server. Initially offering only server side play while downloading is a very safe way for Sony to test system requirements on the server side, manage capacity needs by limiting the amount of concurrent users, and developing an understanding how game play feels when thousands of people are playing the same game over an internet connection.

Third, console gaming systems have always had lower specs than the bleeding edge PC games. However, the platform is stable and encourages developers to figure out new ways of exploiting the technology. They don’t have to worry about continually changing systems. On top of that, the developers will eventually begin to exploit the combination of the CPU and GPU using OpenCL and figure out new ways to eek more out of less using that technology.

Fourth, in 5 years it won’t matter what is underneath the hood of the PS4. Not because no one will be playing it, but because Sony will have acclimated users to streaming over the Vita. Sony will have acclimated users to streaming from a server through downloads. Sony will have determined server requirements to host all games and stream the game to the PS4. It’s likely that there will be some experimental games that will allow playing both client side or server side, but eventually there will be a game that will only be server side. It will be a big game and it will begin to push all other games to the server. At this point Sony will have optimized the hardware for the PS4 to display higher quality game play coming over the internet.

The PS4 is not the next console for Sony, it likely could be the “last” console for Sony as it develops new ways for users to access games and continually “upgrade” their console as the server side technology for game streaming continually matures. This of course eliminates the need to sync a disc to a specific system and even removes the need to download any content. You buy a short cut and you can play immediately.

So, is the PS4’s hardware going to be kill the PS4? No, the hardware on this system isn’t the point. The goal is to allow access to games that will be streamed from the cloud.

Apple and Quality

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I know I’m not always the biggest Apple fan on here. But there’s one thing I have to admit, they typically come out with a really well put together product. If they don’t, they are fairly quick about providing a free solution – such as the case for the iPhone with the antennae issues. However, this version doesn’t seem to be along the same lines. There’s the issue with iOS maps, which is pretty terrible, but there’s also another problem with the sapphire lens selected for the camera causes a purple tint and light flaring. Their solution is to simply point the camera away from the light and that this is normal behavior.

This type of quality issues in a product like this leaves a lot to be desired for some pretty obvious reasons. For a lot of people the cell phone is their only camera. I almost never take pictures, but when I do, it’s on my cell phone. If the pictures are defective by “design” then this is going to be a huge problem. I’m sure that the Instagram filter won’t look right when you add that to the picture as well.

I think that these two issues are starting to indicate a trend with Apple for the beginning of a decline in the perfectionism that most users associate with Apple products. To some extent it was never there the way people like to think that it was, but there was a lot of perfectionism that went into the designing and material selection for the phones.

You could argue that the tint is similar in defect type to the antennae issue, but I think this is different because the camera is such an integral part of the phone. Apple has been developing cameras for years whereas the antennae issue was related to a new skill set, an external antennae.

The next concern for Apple fans, is that the phone is their core product and they really dropped the quality in some ways. Without proper maps, the quality certainly suffers, users are used to the correct maps at a touch of a button, not seven. Will these issues prevent iPhone fans from buying this phone? No, I don’t think so. I think it might push some people away if they were on the fence about getting the same phone, again. I think the larger risk is in the long term. If Apple continues to produce the same products but continues to have quality issues with some expected features on a phone then Apple will begin to lose customers in droves.

For the iPhone6 Apple needs to come out with a different feeling phone, if they do, any issues like camera or whatever will be masked by the fact that it’s totally new. People will flock to it again. If Apple doesn’t come out with a new feeling and has issues, I think that will give more people pause about the whole company. We’re a year or two away from the iPhone6, so that may be premature. Customers and analysts aren’t friendly to stagnating firms. Apple surely doesn’t want to be in that group.

The Philosopher CEO

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In my group at work, we have been accused of having a group of philosophers and a group of doers. This is typically mentioned with some serious disgust. As if having a group of people thinking about how the business is run is a bad thing. I think part of it stems from the idea that this means that they aren’t doing anything productive or value added for the company. The perception is incorrect of course. The “philosophers” are actually a process improvement methodology team that provides course development, course training, mentoring for Lean Six Sigma certification, continual guidance for projects in flight and manages projects themselves. There are only two of them. That’s a tall order to be honest.

But the idea of a philosophy group really got me thinking. Would it be a bad thing to have a group that looks at the ethical, moral or sustainable behavior of the company? I lump sustainability in with the morality and ethical question, because in a lot of ways sustainability is not looking to be a social issue and is another way of looking at the ethics of recycling and energy usage. I’ve talked about morality and MBA’s specifically in my last post. Singling out the MBA crowd might not have been the fair as there is no reason why engineers couldn’t behave in unethical ways, there’s no requirement for engineers to take ethics courses.

Why does this matter? Well, we’ve seen a huge number of seemingly unethical choices coming out of companies. In some cases they may have been selected in a harmless way. For example the new MacBook Pros have a glued on battery, the choice may have been made to reduce the amount of time it takes to secure the battery. Putting a fast acting glue on the battery may have accomplished this, while screwing in the battery would take more time. This selection could have been made without the consideration of the repairability or replacability for components within the laptop. However, since this is Apple I’m talking about here, I find this unlikely. The next question would be, was this choice unethical? From a sustainability perspective it could be construed in that manner, which iFixit does do just that. The computer also lost its environmental certification by using the glue and some of the other design characteristics. This design also continues with Apple’s decisions to make it more difficult to upgrade or do anything with their product once you’ve bought. This increases the number of times you have to purchase their products and exasperates the throwaway culture of many other products.

Consumers are also starting to become more aware of the unethical behavior of companies. We’ve seen this with the recent banking scandals, we’ve seen this with the investigation into Foxconn and we’re likely to see it moving forward in other sectors. We’re starting to hear about more unethical behavior in the ag industries, in regard to their treatment of animals or in the case of Monsanto basically suing farmers when seeds of their crops land in their field. The increase in consumer awareness through the increased usage of social media and other social networking tools is going to significantly increase both information and disinformation about these topics.

It is likely that there will be an increase in the number of watch dog organizations in existence and more reliance on government agencies, like the Consumer Protection agency in the US now. The banks have argued for a long time that these regulations are unnecessary as they can regulate themselves. We do know that profit pressures can prevent ethical behavior and encourage unethical behavior. Perhaps it’s time that every organization has an Internal Affairs organization similar to what the police have. I do not believe that these organizations are perfect and can become corrupt (or have the appearance of being corrupt), but I think that they can be useful.

Penn State is going to have to set up an organization like this. I think for the University this was going to be required for them to even have a chance at ever regaining their credibility. The records for that group need to be wide open for everyone to view. I think this type of office needs to be in any publicly traded company. It will ensure greater transparency, allow watch dog groups and consumers to choose the actual ethical companies and these groups would be auditable. This could be a certification process similar to ISO9001 (a manufacturing document control quality system), where the members of the team are given ethics training in a wide range of topics including morality and then are expected to train the employees of the company, CEO included.

By creating organizations such as this, companies can greatly clarify how their behavior is ethical and moral. Once several large companies create agencies like this other companies will be shamed into doing it as well. Thus increasing the number of Philosopher CEOs out there.

MBAs, Ethics and Morals

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Yesterday on Facebook I started quite the little discussion after posting a discussion about MBA education based on an article on Bloomberg. The author of the article, a professor at the University of Chicago Booth School of Business. Essentially the article argues that the method used to discuss ethics results in amoral education. What this is saying isn’t that they are teaching a lack of morality, it’s that they aren’t teaching the actual moral result of these choices in a way that makes it clear that one option is moral while the other is not.   Without explicitly stating which option is moral or immoral, it can create ambiguity (we know that business people hate uncertainty) and the illusion that either one of the options could be moral.

Why does this cause a problem? First, not many people actually have any education in ethics to begin with. If someone put together a list of 8 must take classes ethics would be somewhere around 100. Ethics courses aren’t easy and they make you really look at how you think about things, figure out why you think that way and try to make you change the way you think. They aren’t always successful, but ethical thinking is like critical thinking, the more exposure you have to it the more you are able to practice it. The second reason why this is a problem, is that many people going into business school may have less scruples, be willing to take advantage of people or are amoral. Not everyone is, but we know from research that business leaders tend to have personality traits of psychopaths. We also know that in games like prisoner’s dilemma business leaders act the most ruthless (same goes for economists). The only question is the direction of causality. Does business school create these types of people, does it exacerbate these personality types or do these people go into business already behaving in these manners? I don’t know the answer to that question.

While I was in the Netherlands I listened to a seminar that discussed the way that ethics is taught within the Dutch military. All new recruits must go through ethics courses and then every so many years they are required to recertify on the ethics course. The goal is to bring in new officers with a sense of ethical norms that can prevent atrocities and allow officers to do the right thing when they need to. Of course the military believes there is a fine line between creating a thinking solider and a solider that ends up in analysis paralysis because they are going through too many ethical situations in their mind. The goal of the education is to ingrain many of these ethical situations so reaction is more instinctual even for the ethical choice.

I believe that there is a similar balance that needs to be considered in business. What are the social norms for ethical behavior in many institutions? Well, I think that this really does depend on the institution and the environment that they are in. I think there are no ethical norms within the big banks, which has been played out over and over again with the sub prime, then LIBOR and now HSBC’s money laundering. Perhaps the ethics are there, it’s just considered ethical to make as much money as you can without getting caught doing something that is obviously screwing someone over. The question becomes, can a truly ethical MBA graduate come into an environment and succeed? I think that they will be able to do well compared to your average person, but they will quickly be out shined by their unethical colleagues.  These are businessmen, they understand incentives well, so they will adjust their behavior based on their incentives. This is a normal and rational thing to do.

Are there ways to instill more ethical behavior at companies? I think there are ways. Some are through legal changes, which lower the bar for what is considered a crime when it comes to fraud and unethical behavior. This would either drive the behavior more underground (likely) or change some of it. Other ways would be through forcing a cultural norm where these companies are punished through lack of investment and loss of business. This one has a coordination issue. Many people have no qualms about ethical issues that would use a service like this. Additionally, the sheer number of firms behaving unethically makes it unrealistic for a person to buy ethically made products. I wrote about this at the Urban Times, noting that Apple is being singled out when the entire industry behaves in this manner.

Ethics needs to be taught at many different levels, it encourages critical thinking and self reflection. Developing ethical leaders in all respects of business and politics should be a goal of all universities. However, ethics courses are being cut and many people just don’t see the value in them.

Cash reserves, risks and innovation

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In my last post I discussed the large cash reserves that companies have been holding since the 2007 recession. As I mentioned there are several reasons for this, some of it has to do with lack of R&D investment. R&D is an expensive investment. This requires both train scientists and equipment to conduct the research. In addition there are extra requirements for technicians and other employees to support the R&D effort. This isn’t cheap. As we can see in the bottom half of the chart all types of research funding has decreased recently.

R&D is not a certain thing by any stretch of the imagination. This is why companies are paring with universities to share the burden of R&D. Universities are doing much of the basic and applied research, while industry is developing it into product. This is where the money is and the greatest amount of certainty. You can’t really blame companies for this, but they need to work to develop their own technologies regardless of the work being performed at universities. To compensate many companies do engage in corporate venturing. This is where they fund a start up to conduct research and get a product to a certain position and possibly buy that company after a certain maturity point, set up an exclusive license or license the technology once it’s mature. This reduces the large company’s risk exposure.


The final piece that has increased since the late 80’s has been the amount of litigation due to patent infringement. In 2011 the amount of money spent on patent litigation was $29 Billion. That is a lot of money. That’s a quarter of the money that Apple has in it’s reserves. We also know that Apple is one of the largest spenders on litigation. I know there are a lot of Apple lovers out there, but they could have invested that money into more products and reduced their risk of a flop with the next iPhone. We all know that iOS6 was a major disappointment for many people, spreading their revenue stream into more sources with some cool research could mitigate any fall out from that or if iOS7 is more of the same. 


Litigation is such an outsized risk because it can lead to your entire firm being shut down by a non-producing entity. This reduces the incentives for innovation and increases the incentives for hoarding cash.