Over the last few days a debate has flared up over the GPL (the GNU General Public License). Specifically, the debate relates to the refusal of DIYThemes to release its WordPress Thesis theme under the GPL.

The details of the debate encapsulate a major nerdfest, with legal and technical nerds crawling out of their boxes and greeting the world. But beyond this, the debate has much wider implications.

In fact, at Vox Sapiens we wonder whether this debate will be seen as the tipping point that identifies the crest of the Open Source wave. We think that, maybe, the strength of the Open Source movement will wane from this moment because of the fear and confusion that is being created.

The heart of the current debate itself centers upon what constitutes a derivative work, because the GPL license mandates that any derivative work of a GPL-licensed product must inherit the GPL license. The representatives from the WordPress developers claim that themes written for WordPress are derivative works – and therefore must be distributed under the terms of the GPL. This means that customers who pay for a premium theme are then able to give away copies of this theme (recipients of these copies would not be entitled to support from the theme developers).

Many premium theme developers have been persuaded to adopt the GPL, but DIYThemes refuses to do so and the representatives of the WordPress developers are being urged to take legal action.

The case of DIYThemes is, legally, a bit of a red herring because a former employee has admitted that lines of original WordPress code have been copied and pasted into the Thesis theme. So it is pretty clear that DIYThemes would lose a copyright case on this point. But many commentators are blurring the issue by not differentiating between the “copypasta” and the definition of a derivative work.

To make matters worse, many commentators are also suggesting that customers of DIYThemes are also legally liable for using the Thesis theme, even though the GPL applies to distribution and not users.

The Vox Sapiens opinion is that the debate has escalated into one with only one possible outcome – and that is lose-lose. Furthermore, we see this war as different to previous technical or legal disagreements in the Open Source arena, and we predict the slow decline of Open Source as a result.

The European Union parliament will vote next week on new legislation to curb bankers’ bonuses. The rules on bonuses are included within a larger proposal on capital requirements. According to the Financial Times, ‘lawmakers and EU officials welcomed the agreement and said it should help to reduce the “bonus culture” in the banking sector.’

Well here at Vox Sapiens, at risk of repeating ourselves (see Bankers’ bonuses – wrong target) we think the bonus culture should be increased, not reduced. This is because a properly designed bonus structure should align a banking employee’s goals with those of the employer. The problem is not one of a bonus culture, it is one of misalignment.

First, let’s consider where we find the most extreme bonus cultures. Is it in banking? Absolutely not. Instead, take a look at the “little man in the street” (or “little woman” – for reasons of brevity I will use only the masculine henceforth, but references to males should be read as equally applicable to females) that the authorities believe they are protecting by reducing his liability to bail out banks. Let us assume that this “little man” is self employed. So this “little man” generates business, performs some services, and receives payment. The business therefore generates a profit. How much of this profit is attributable to the “little man”? Well clearly, in the case of a sole trader, 100%. And for the vast majority of small limited liability businesses, also 100%.

Now let’s think about bankers. Typically around 50% of a bank’s profits are paid out to employees.

So where is the bonus culture strongest? Actually in the hundreds of thousands of “little men.”

So all this hot air about the banking bonus culture is completely wrong.

What is wrong, is the misalignment – paying bonuses from non-existent profits (not possible in the “little man” scenario), and/or developing bonus calculation mechanisms that reward employees for taking risks where the employee’s downside does not balance his upside (possible to a degree for the “little man” although the typical downside might be bankruptcy, which is far worse than being fired).

There will continue to be a clash while politicians and mandarins continue to pander to barely-informed populist agendas and rail against the bonus culture per se, rather than work on a serious framework to induce alignment between risk-based performance and reward.

The latest European passenger vehicle emissions standard (“Euro5″) was introduced in September 2009. Since that date, in Europe it has been illegal to sell new vehicles that do not meet this standard. Older models that only met the Euro4 standard can only be exported outside Europe to markets with more lenient standards. Within Europe the cars have little value – they can only be disassembled in order to reuse the components – and this value is therefore below cost.

This situation alone raises the possibility that dominant carmakers in the other markets will already be very suspicious of Euro4-compliant automakers. But it can get worse, much worse. Imagine that the government in another market introduced emissions standards that the locally dominant carmakers were not meeting, but with which the Euro4 vehicles were compliant. Imagine that, to compound that, the local market had only recently introduced a new emissions standard so many vehicles were in the early phases of their marketing cycles and the automaker had not had much time to prepare for the new emissions standard.

So the consequence is that the locally dominant carmakers find that (part of) their range is no longer legally saleable before they have achieved payback, plus they do not have new compliant models waiting for release to fill the gaps. And so the Euro4 compliant automakers find a hungry market for their formerly almost-worthless cars.

Well from July 2010, China will require compliance with Chinese5 emissions standards. And guess what? Chinese5 is basically the same as Euro4. So vehicles that become unsaleable in Europe last year remain compliant in China whilst some competing models in that market will be withdrawn from sale. And guess what else? Chinese3 emissions standards were only introduced in July 2008. So some of the vehicles to be withdrawn may have only been available for two years.

So perhaps there will be an opportunity for China to complain about dumping?

The US Senate has started to debate the Financial Reform bill. This bill proposes the most sweeping changes to US (and, therefore, global) financial markets regulatory practices since the Great Depression of the 1930s.

So one might think this an extremely important bill, right? So all the Senators have read it? Dream on!

The bill presented to the Senate is 1,300 pages long. How many people will read all of it? And even those few souls who do manage to read all the way through, will they really digest it, thoroughly, all of it? Of course they won’t.

So here we have what is possibly the most important piece of legislation relating to financial services for decades, and nobody fully understands it. Isn’t that frightening?

Perhaps in clauses hundreds of pages apart there are disparities that will keep lawyers employed for years.

In addition to its length, another problem is the breadth of the subject matter. Whilst all of the bill relates to financial markets in the broadest sense of the word, there are sections that are barely related to each other. A key risk here is that concessions and watering-down will be agreed in one section in order to gain support for a completely unrelated section. So, for example, the agreement to the derivatives section might affect regulation of deposits, or comments on naked insurance might impact international wire safeguards. These are just possible examples, the Vox Sapiens team hasn’t read the bill.

The US has an opportunity to show real leadership to the world here. It should cut the bill up into smaller sections that allow proper understanding of the consequences of each clause.

As Tolstoy said: “There is no greatness where there is not simplicity.” Is there greatness in this bill?

Let us hope that debating this bill doesn’t encourage many Senators to snore so that others can fleece us.

At Vox Sapiens we are disappointed by a recent FT article which appears to show sloppy research. We have long admired the quality of the research and analysis in the FT compared to many other newspapers. However, today’s article appears to have taken an idea from an old article and repeated it almost verbatim, thereby misleading the reader. We are using this as an example of how it is important to be careful when using the Internet for research.

The article in question relates to Toyota – When sorry is the hardest word. In the article the author states:

A related weakness, says Hisao Inoue, author of Toyota Shock, a book on Toyota’s recent problems, is that Toyota’s relentless growth has amplified its conservative culture, by favouring bureaucratic conformity and discouraging the sort of negative views that are vital to anticipating disaster. “People with contrary opinions used to be respected, but today’s managers have succeeded by getting along,” he explains.

So as readers we probably assume that the recent problems referred to in that quote are the recalls that started earlier this year? Well, unfortunately these problems are not the subject of Inoue’s book. Consider the following from June 2009:

Hisao Inoue, author of “Toyota Shock,” a book that chronicles the automaker’s recent troubles, said Toyota sorely needs what he called “a philosophy” or “a spirituality” that a founding family member like Akio Toyoda might offer.

Source: Japan Times, Toyota counting on family ties

So Inoue’s book was published before June 26 last year. But Toyota’s recall-related problems began to become a public problem when?

Well here at Vox Sapiens we actually discussed this matter in a previous post. The post Toy-woe-ta – Looks like a business school case study in the making was published in January this year. In the post, we don’t name the exact date when the issue regarding floor mats preventing accelerator pedal release became big news. But a quick search shows that this was September last year – three months after the Japan Times article. (See, for example, Toyota/Lexus Consumer Safety Advisory: Potential Floor Mat Interference with Accelerator Pedal.)

So Inoue cannot be referring to the floor mat recall nor subsequent problems.

Sorry FT, but this just isn’t good enough.

We would have made these comments on the FT.com website against the article in question, but unfortunately this article appeared not to have comments enabled.

The Consumer Watchdog April 21 asked the US Department of Justice (DOJ) to launch an antitrust action against Google. In its request it suggested that Google might be broken up.

While there is the potential for Google to develop into something that needs to be broken up, right now there is a candidate that is way higher in priority. And that is Paypal.

In a previous post I pointed out that the attacks on bankers’ bonuses missed the point (see Bankers’ bonuses – wrong target). The Consumer Watchdog has performed a similar trick here.

So why should Paypal be at the front of the queue?

1. It has become a monopoly – it demonstrates Metcalfe’s Law beautifully – and, if the allegations repeated below are true, is now abusing its status. Without Paypal you are unable to send money to or receive money from a very large proportion of Internet users. For sure there are competitors such as Google Checkout and 2CO. But if you can use only these, whilst most people are using Paypal, you are extremely restricted in your ability to engage in web-based financial transactions.
2. Paypal provides a service for which there is no viable alternative. You can’t realistically barter online, you need to use some form of electronic payment system.
3. Alledgedly Paypal has repeatedly misunderstood how dangerous false positives are to a person’s financial position. The web is full of stories of people who claim that Paypal has frozen their account without warning, usually on the basis of “suspicious transactions,” only to discover that the transactions are valid. Now this also happens a lot offline – personally I find my erratic credit card usage results in a new card approximately once every three months. But I can own 2 or 3 credit cards, and if one is cancelled I can use another. It is not so easy to have multiple Paypal accounts, and even if you do have more than one account, switching is not as easy as taking a different credit card out of your pocket. You need to modify your email address associations, so that Paypal transactions linked to the email address associated with the frozen account do not fail. If you are using Paypal buttons to sell, you need to recreate buttons to associate to your new account and update your website. For some people who make their living selling online, a frozen Paypal account can put them out of business in days – and for those working as sole traders or with personal guarantees to a separate incorporated business, the result can be much worse when supplier contracts cannot be immediately termninated.
4. Alledgedly Paypal is also reticient to reinstate accounts, potentially leaving people permanently excluded from the growing online economy.
5. Your online Paypal activities can impact your offline financial status too. Many people almost see Paypal as “play money” – especially if they are sending friends, say, 99 cents. What they don’t realise is that Paypal is linked into many of the credit reference agencies, and your offline creditworthiness can be decreased by your online activities. So your application for a mortgage might get refused, or the interest rate increase by a couple percentage points, because Paypal has reported “suspicious transactions.” For sure this is not all Paypal’s fault, but Paypal could do a better job of teaching people that they need to be as responsible with their Paypal account as they do with their bank account.

So what should be done about the situation?

1. Fungibility is required between Paypal and other online payment providers. I can setup an automated payment from a bank account in one country to deliver funds into a bank accounts in another country (with a few exceptions) – I am not restricted to depositing into accounts in foreign branches of my own bank. I should be able to send money between online payment providers.
2. Paypal needs better regulatory oversight. In particular, the issue of alleged indiscriminate account freezing must be investigated and addressed. This will require international coordination between regulators.

And if Paypal does not agree?

It should be split into three or four separate companies, each with the same international coverage as Paypal provides now, thereby giving consumers a choice of online payments provider. And by starting from a common position, IT system interconnectivity will be simple, and therefore fungibility can be built in from the beginning.

A condition of the licence to trade should be that fungibility should be maintained, even in the event that one of the baby-Paypals is bought by, for example, a commercial bank.

My personal expectation is that, under this scenario, one of the first buyers would be Google, which would merge the baby-Paypal with Google Checkout to take advantage of the fungibility with the other baby-Paypals – this might then provide grounds to investigate Google if it were to use the inaccessiblity of Google Checkout-only functionality in an anti-competitive manner.

Powertrain 2020! The EV vision! The lust for lithium! The fuss about fuel cells! The automotive industry is alive with a debate over the replacement of the gasoline powertrain.

This is an extremely important debate, and will have major impacts on the strategic positioning of the OEMs. For example, what would happen if the future is rechargeble batteries and in the future the electricity supply companies give away vehicles in exchange for exclusive recharging contracts? Don’t believe it could happen? Look at the mobile phone handset industry.

But creeping up quietly is another technological shift that could have even more impact

Telematics is likely to completely change the way consumers choose, use and maintain cars.

Telematics will feed frequent, perhaps daily, maintenance data feeds to the dealer network where analysis will determine service needs in a far more precise manner than the current mileage-based approach. The data will also be used to predict imminent component malfunctions.

Telematics will support the driver with applications that are orders of magnitude more advanced than the existing satellite navigation systems. Want to take a break? Well just lock into an automated convoy.

Telematics will bring to automotive accident investigations what the “black box” has brought to aircraft accident investigations.

Telematics will enable usage-based insurance – and not just “how many miles?,” “where?” and “when?” but also speeds, severity of breaking, amount of skidding, etc. – indicators of driving style that might be indicators of propensity to be involved in an accident (let’s wait for the cries of “unfair” regarding whether or not these indicators really are predictive).

And where in the list of “telematics will” did I mention gasoline or internal combustion engines? I didn’t. The vast majority of the telematics enhancements are powertrain-agnostic and will be incorporated into future vehicles irrespective of their means of propulsion.

Add to this the fact that the vast majority of car drivers really don’t understand the technical details of their vehicles – they assess them on cost, looks, ride quality and user interface. Telematics could be the determining factor for the final element in the list of criteria.

If I wanted to predict the winners to dominate the next generation of vehicles, I would be seriously examining the telematics suppliers.

The Icelandic Special Investigation Committee (SIC) yesterday (April 12th, 2010) delivered its report on the collapse of the three main banks in Iceland. It makes shocking reading.

It can be downloaded here.

At Vox Sapiens, our initial vision was of a couple Escher’s masterpieces.

“Ascending and Descending” depicts a monastery where half the monks are forever walking upstairs and half are forever walking downstairs.

“Waterfall” depicts a perpetual motion machine in which water runs forever downhill.

The business empires of the owners of the three large Icelandic banks – Landsbanki, Glitnir and Kaupthing – allegedly demonstrate similar features.

The banks’ owners are alleged to have borrowed money from their own banks, and to have used some of this money to buy shares in the banks, resulting in an increase in the share price. The SIC refers to this as “weak equity” and it grew to represent more than 25% of the banks’ capital base.

These shares were also used as collateral against loans, further leveraging the banks’ positions.

And the growth of the banks was out of all proportion when compared to the Icelandic economy and the ability of its officers to supervise the banks.

In seven years the banks grew to twenty times their size until their debt issuance exceeded the GDP of Iceland and grossly distorted the requirement for foreign currency reserves. The writedown in the value of the banks’ loans in 2008 was the equivalent of five years GDP.

At the same time, a country of only 320 000 people was not able to provide a sufficiently large and experienced banking oversight regime to handle three large banks.

Finally, there appears to have been insufficiently long arms when lending contracts were established. Not only were loans provided to the banks’ owners, but also to the owners’ other businesses. These other businesses also pledged icelandic shares when borrowing from foreign banks. As the icelandic share prices fell, the icelandic businesses had to repay the foreign banks, and the icelandic banks stepped in to replace this debt, further leveraging the icelandic economy. The SIC summary presentation at the press conference states that “these investment companies had an abnormally easy access to loans in the banks in the capacity of their ownership and influence within them.”

A sorry state indeed.

Note: These images are available for commercial reuse.
Ascending and Descending search
Waterfall search

They can be obtained from:
Waterfall: http://picasaweb.google.com/lh/photo/36X8UHueP5H6pycVt_JBEA and
Ascending and Descending: http://picasaweb.google.com/lh/photo/gwkazaD_DWA9EyY3W0LyfA

So Microsoft (presumably on the advice of lawyers) used the DCMA (Digital Millennium Copyright Act) to force Cryptome.org’s hosting provider, Network Solutions, to close down the website and keep a lock on the domain name to prevent the site being relocated. Then a day later the complaint was rescinded, allowing the site to be restored.

This was a bad thing to do? Why?

OK, where should I start?

Well firstly, it brought huge publicity to the situation, and the number of people aware of it is now many orders of magnitude greater than it would have been. Cryptome.org’s typical readership is a combination of technogeeks, political activists and privacy specialists. Most would have a good idea where to find a document that other parties might wish to keep out of cyberspace. So even if Microsoft had been successful in forcing the removal of the document from the Cryptome.org site, it would have appeared somewhere else, and the people really interested in it would still be able to get to see it.

Secondly, Microsoft has egg on its face. Such a sharp reversal of policy in 24 hours hints at a lack of crisis management expertise in Redmond. Theoretically this could impact the share price, particularly because Microsoft is not a stranger to legal battles, albeit ones that focus on monopolies rather than copyright.

Thirdly, it is another thing to think about when registering a domain name, and could impact the US-located domain registrars’ businesses. If Cryptome.org had been registered with a foreign domain registrar, it would have been out of the reach of the DCMA. I assume this is one reason behind the choice of registrar for Wikileaks. Even if you are a non-US business using a non-US server your site can still be brought down, permanantly, if the domain name is registered through a US registrar.

And fourthly, and most importantly, this will really scare a huge number of Microsoft customers and potential customers. By bringing this action, Microsoft has made the general public aware that it is keeping track of what they are doing, and archiving the information that it knows. Long term, this could be very costly indeed.

This is just the latest in a string of similar foolhardy activities. Why did people not learn from Bridgeport Hospital, from Julius Baer, from Royal Dutch Shell, and from many other large organisations?

When will lawyers learn that just become something is “the law” and their client is “in the right” there might be very good practical and strategic reasons to avoid attempting to enforce it. And when will the large organisations learn to manage their lawyers instead of being managed by them?

Greece uses the same currency as Germany. But Greek government bonds yield almost four per cent more than German government bonds, an all time record for the eurozone.

This is telling us something; really telling us something. The bond market is pricing in a high possibility of default by the Greek state.

Until recently, the market perceived barely any difference in credit risk between different European Union countries. The yields on bonds were pretty similar between countries – so low that some commentators suggested the differences should be greater. But the perceived wisdom was that the risk of default by an alleged profligate state (predominantly those with a mediterranean coastline) was very low, and that even if a default was imminent the other austere and prudent states would step in to help their prodigal sibling.

But Herr Brüderle, the German Economics Minister, put an end to those thoughts. First acknowledging, in a speech to German Members of Parliament (more similar to Representatives than to Senators), that “some euro states are showing dangerous weakness. This may have fatal effects on all states in the eurozone,” he then went on to add that “there should not be a collective bailout for lopsided developments at national level.”

There is likely to be plenty of coverage of the “will they, won’t they” predictions over the next few days. But say they won’t, and Greece defaults. What are the implications? Vox Sapiens will be following this closely and answering the question.

As a footnote, it is likely that the Ouzu crisis will appear as just a small ripple compared to the Shochu crisis. But that’s another post.

Toyota seems to have spent the last few weeks giving PR people a good example of how not to handle a negative story.

Firstly, there were the stories of floor mats preventing the release of the accelerator pedals and the potential for accidents.

Then, two days ago (on January 26, 2010), there is the halt to production in North America and the recall of another couple million vehicles.

But, worst of all, many consumers do not know that the latter recall is a separate problem because Toyota never managed to clearly articulate the fact. So many consumers do not appreciate that the reason for the second recall is nowhere near as dangerous as the first.

Let’s look at the state of the Toyota website on January 28, 2010.

http://pressroom.toyota.com/pr/tms/news.aspx is the main webpage (live).

Or click on the thumbnail to see a partial screenshot taken on January 28, 2010.

Shameful. Utterly shameful. Here at Vox Sapiens we have major concerns here that Toyota does not know the scale of its PR shortcomings and that there are big troubles ahead.

Vox Sapiens will be watching this closely and there may be more blog posts about Toyota.

During the last few days many of the large Investment Banks have announced staff bonuses. And in many cases these have been at, or near, record levels. This has led to public outcrys.

As a response, some governments have announced special taxes on these bonuses. And the triumverate of governments, central banks, and financial services industry regulators have all railed against the bonuses.

But why are the bonuses so high? Who should be the real target of the outrage?

Well unless you are a shareholder in one of these Investment Banks, it should not be the bankers. Bankers’ bonuses are just a transfer of wealth from Investment Bank owners (shareholders) to employees (bankers). Other than a miniscule drip-down effect introduced by higher earnings and dividends, there is no impact on the economy. And like all employees, all that the bankers are doing is getting as much out of their employers as they can do. This behaviour affects the average man in the street far more when sports stars do it (leading to higher and higher prices for admission tickets and replica kits) than when bankers do it.

But what allows bankers to demand such hefty bonuses? Extraordinarily high bank profits.

Just a year after virtual doomsday, and a blood-splattered Wall Street, Investment Banks are making hefty profits again. Why?

Because making profits in the last few months has been easier than taking candy from a baby.

Firstly, interest rates have been kept exceptionally low – near-zero in many developed economies. As a result, banks have been able to borrow costless money. And have banks suffered the same credit squeeze as other business? Not the big ones, not on your life. They have had money thrown at them in order to prime the pumps of the world’s economies (a task in which they failed, but that’s the subject of another post).

And secondly, banks have been handed “get out of jail free” cards on their bets that went wrong. Banks have been able to sell their toxic assets at prices higher than they could get in the market (i.e. more than they are worth, the difference in price being risk-free profit).

And who have been responsible for creating these über-benign conditions? Our good friends the governments, central banks and regulators.

No wonder they are so keen to keep the attention on the bankers’ bonuses – it deflects attention from the banking profits that they have helped create – the real transfer of wealth from the average Joe to the large Investment Bank. Joe Taxpayer forks out to support the banking system, and in return finds the recovering banking system taking more money. Do you think Joe Taxpayer might get a wee bit angry if he realized? So better that he didn’t, eh?

Dr Dieter Zetsche, CEO of Daimler AG (that produces Mercedes-Benz and Smart) is reported in Automotive News to have said of electric cars being on the immediate horizon that “we are at that tipping point now.”

Really? I disagree for several reasons. …

Insufficient range

How far can an electric vehicle travel between charges? About 80 km (50 miles)? That’s less than an hour on the open road, and a bit more in slower-moving urban areas. For many people that is not enough for the daily round-trip commute to work. So if you want a quick journey to visit the relatives who live just 170 km (105 miles) away (less than two hours down the freeway/motorway/autobahn), that means two charges on the journey there and two on the way back. Is that practical. A resounding NO.

No charging infrastructure

So we need to stop on the freeway every 80 km (50 miles).

Existing gas/petrol/filling stations are not equipped with charging mechanisms. How long will it take to roll out a complete infrastructure upgrade? A partial upgrade is no use – what do I do if I need to charge my vehicle every 80 km and the upgraded charging stations are located 100 km apart?

And I’m not sure that every freeway has filling stations every 80 km. So new buildings are also required, or signposted diversions into local charging stations are needed. How long will it take to build these new stations? And how economic will the business model become after the new stations cannibalize the non-fuel sales from the existing stations?

An alternative charging/refuelling process is required

How long does it take to refill a vehicle with gas/petrol/diesel? A couple of minutes?

How long does it take to recharge an electric vehicles’s battery pack? Much more than two minutes. Hours. Although I have heard that technology is advancing and super-fast charging techniques are being honed. Thankfully the existing filling stations tend to be hooked into the high-power grids that can deliver, say, 100 amps at 440 volts. But this sort of high-speed charging will never be possible for home-based use.

An alternative approach would be removable battery packs. You pull up at a charging station, underneath a hoist, and your existing battery pack is lifted out and a new pack is lowered in.

There are health and safety issues here to be overcome – but if we can allow people to squirt highly flammable liquids out of nozzles on pressurised hoses, then I doubt we will be stumped by an acceptable approach to lifting battery packs.

And another issue is to ensure that new packs are not removed and replaced by old ones, leaving the system overly expensive whilst the people responsible find themselves with high quality and readily saleable goods to quietly slip over the border into a different country.