Sunday, May 25, 2008

Wildflowers in the Prenzlauerberg spring

(Click to enlarge)

May 25th, 2008. A gorgeous afternoon in Prenzlauerberg, Berlin.

Me and my Nikon D40 were out to capture the beautiful wild flowers of Prenzlauerberg. Here are a few samples from the excursion.

Wednesday, May 21, 2008

Finally, the "Net" in Netflix; plus, the bandwidth question

Netflix has released a set-top box that users can use to receive movies directly over their broadband Internet connections. The box, developed by the silicon valley company Roku, has received good reviews on CNET and PC Magazine for its nice interface and more-or-less good performance over most home-broadband connections.

Advantages for users
  • No propagation delay from snail-mail shipping DVDs - no more waiting for 2 days.
  • No need to mail back DVDs.
  • Ability to switch to another movie or show - you are not stuck with that wrong movie you placed in your Netflix queue.
  • No extra cost except the broadband connection and the $99 cost of the box.
Advantages for Netflix
  • Savings in storage, handling, and shipping costs (to-and-fro) of the DVDs. Theoretically, if all Netflix subscribers switch to this technology then Netflix can close its nation-wide distribution centers and also save on postage costs: assuming that Netflix pays the standard first-class mail rate of $0.42 to USPS, thats a $0.84 saving per mailed DVD. I think that the present overall cost of circulating a DVD to a user may be well above a dollar for Netflix.
  • Centralized content control and the ability to speedily deploy new movies, shows etc.
  • Ability to expand beyond the US in a relatively painless way - no distribution centers to set up, no additional staffing costs (analogous to how iTunes operates in Europe).
And the Bandwidth cost?

The Netflix system delivers video streams at 2.2 Mbps, 1Mbps, and an even lower bit-rate depending on the connection between the server and the receiving box. The quality naturally degrades according to the lessening bitrate, but let us assume that a user has a great Internet connection and that no bandwidth bottleneck exists between the serving CDN and this user and so s/he can watch the best 2.2Mbps quality for the entire 120 minutes of a movie.

Size of the movie:
2.2 Mbps x 7200 seconds (i.e. 120 minutes) = 15840 Mb = 15840/8 MB = 1980MB = 1980/1000 GB

= 1.98 GB.

So downloading a movie at the best quality means the CDN serves about 2GB of data to the end-user's Netflix- Roku box.

To arrive on the bandwidth costs, lets go with the figures presented in this PBS article about CDN pricing. Disclaimer: This article is more than a year old, and I have been reading about CDN price wars all along. So the current cost of bandwidth may actually be lower than stated.

From the PBS article the costs for streaming a 2GB stream to a user (assuming volume wholesale pricing):

Single server: $0.26
Akamai : $0.32
P2P: $0.0024

Ok first off, I like the P2P number the most but lets ignore that because P2P may not be able to compete in quality with CDNs (See my paper on this). Even if Netflix uses the most expensive Akamai CDN, they are getting away with just $32 cents per movie instead of the dollar-plus cost in the DVD-mailing model. Even if we assume a few more cents of overhead per movie due to the technology costs, I think Netflix is well in the green with this.

The beauty of Netflix's strategy is that they will be able to gradually wean people from the DVD mailing model to the this online content delivery model because of the convenience of the latter. And this without jeopardizing the DVD mailing model because there is no cannibalization here - its perfect migration with one less DVD mailing customer corresponding to one more streaming customer. Every DVD streamed will add up and lead to a drastic reduction in Netflix's operating costs.

Meanwhile, Roku will probably make some money out of their $99 box.

Last question: And the ISP?
Thats for later. Enjoy your movies.

Update: Netflix bandwidth costs come to about $5cents as of June 2009, according to this article.

Tuesday, May 20, 2008

If there is a Microsoft Yahoo deal then startups will feel the pinch

Figure 1: Representative acquisitions of Yahoo, Google, and Microsoft (from this blog)

A Microsoft takeover of all or some of Yahoo will be a good thing for Microsoft in it's battle to unseat Google from the Internet's helm. Perhaps a later Microsoft-Facebook arrangement will finally present a credible challenge to Google. I doubt if the Yahoo board will now agree to anything less than the 72% premium over the original share price Microsoft had offered earlier, so Yahoo shareholders will also come out wealthier from the deal. End users are likely to benefit from a stronger alternative to Google as well.

But one quarter will suffer quietly in the short to medium term: startup companies. Yahoo and Microsoft are some of the most prolific startup acquirers (see Figure 1, from this blog). Yahoo merging with Microsoft removes a big buyer for many startup companies. Moreover, Microsoft will have that much less cash (approximately $44B less based on the first MS offer) to throw at startup acquisitions. With the credit supply tightening up and the economy slowing down, you can be sure of a capital drought ahead for many Internet and software startups.

Friday, May 16, 2008

Crude oil demand: India, China, and the USA

Figure 1: Crude oil imports of India, China, and the USA

Crude oil prices have never been higher (Brent sweet crude is trading at about $125 a barrel on the NYMEX as of this post). Part of the reason is attributed to the growing demand from emerging economies like India and China that is putting upward pressure on the price of oil. Alan Greenspan writes in his book that the annual world demand for for crude oil has grown by 1.6% since the late 80s while the production has only grown by 0.8% or so annually. The gap has lead investors to bid up crude oil futures in anticipation of the tightening supply, further driving up prices as the buffer between supply and demand has narrowed significantly.

I downloaded crude oil import data from the UN data website for India, China, and the USA and plotted it (Figure 1). Unsurprisingly, the USA imports far more crude oil than India or China. It is more interesting to note is that the growth in US crude oil imports has been of the same order or steeper than that of India and China. Therefore, demand is being driven higher more by the USA than by India or China.

In his book, Alan Greenspan speaks about the "crude oil intensity" of a nation, defined as its crude oil consumption normalized by its GDP. He states that this number is far higher for China and India than it is for the USA because the latter has shifted to a less oil-intensive service economy in the past few decades. From my perspective, I think that the real crude oil intensity of the USA may be much more than Greenspan computes it to be because of USA's large number of imports from China. For example, a plastic toy imported from China counts the crude oil used to manufacture it and transport it to the USA as crude oil used by China.

It seems clear that the biggest lever to reduce crude oil demand lies in the hands of the USA. India and China are emerging economies eager to lift 100s of millions of people out of poverty. As such, they may not have the political capital to cut back on their increasing (but still small) usage of crude oil. On the other hand, even a small percentage cutback in the USA will reduce demand significantly. Lets hope that the USA moves towards more efficient cars, better public transport systems and away from its suburban driving culture in order to keep crude oil within reach of poorer nations of the World.

Wednesday, May 14, 2008

On dear peer-to-peer

I will be presenting a paper* at the IEEE IwQoS early next month containing the analysis of a large scale peer-to-peer live video multicast streaming session on the Internet. Think of the P2P video multicast system as the Bittorrent for video streaming (instead of file-sharing). The system was sending a video stream of a baseball match to 10s of thousands of viewers on the Internet using P2P technology.

The presentation and paper are available online. Here are two results from the paper that in my opinion warrant particular notice.

Figure 1 shows the aggregate download and upload bandwidth consumed by the P2P system. Note the scale on the Y axis - Gbps! I am wondering, this is only 1 video stream. What happens to the Internet when 1000s of such streams become available online? Were networks designed for such usage?

An interesting artifact in this figure is that the aggregate download rate of all peers exceeds the aggregate upload rate of all peers. The difference was made up through "bandwidth injecting super-servers" of the content provider. Still, it is absolutely remarkable that the amount of additional bandwidth required is almost constant even as the number of peers increase (Figure 2).
Figure 1: Total bandwidth. Click to enlarge.

In Figure 2, you can see the number of concurrent peers in the P2P system over the time-period of the streamed game (hour 4 to hour 8). Look at the rate of change of peers in (peers joining, peers leaving) the P2P system. Keeping in mind that most of the bandwidth comes from these very peers, it is remarkable that this highly dynamic pool of peers is able to sustain the P2P system. Things get very exciting at the end of the baseball game (Hour 8): Everybody wants to leave. Now that is a big challenge for any P2P system.
Figure 2: Peer Dynamics. Click to Enlarge.

*Joint work with Jatinder Pal Singh (T-Labs) and Aditya Mavlankar, Pierpaolo Baccichet, and Bernd Girod (Stanford University)

Saturday, May 10, 2008

Spinning a a loom!

There was an incredible article in Fortune about the manufacturing process of the Boeing 787. The first plane is slated to fly before the end of the year and Boeing is already reporting that the 787 is the fastest selling jetliner of all times. In fact, Boeing is taking flak from customers for delaying the delivery of the aircraft for want of parts. Apparently, a handful of suppliers just cannot keep up with the demand!

But what fascinated me was that the aircraft's shell will not be made out of aluminum alloys. Instead, it is made of carbon composites. This material is created from carbon fibers that are spun in a way reminiscent of spinning thread (See picture below). Epoxy raisins and subsequent heat treatment creates the carbon composite material for the plane's body. The material is lighter, stronger, and amenable to better aerodynamic design. For example, the entire toilet of the 787 weighs just 170 lb!

Spinning the carbon fibers for the Boeing 787 (courtesy, Fortune). The complete slide-show is available here.

Needless to say, the light aircraft means it is significantly more fuel efficient. At the same time, the greater strength means that the cabin can be pressurized to about 6000ft, making flying more comfortable. The material also allows more comfortable humidity levels in the cabin because unlike metals, carbon does not corrode.

Kudos to the Boeing engineers for designing this marvel!

Friday, May 9, 2008

The recession and US housing prices early in the decade

Figure 1:Median and Average Sales Prices of New Homes Sold in United States. Up, up, and then recently, down.
Click to Enlarge

I came across an interesting statement in Alan Greenspan's book (1st ed., p 225) explaining the reasons for the relative mildness of the 2001 US recession :

"In the United States, homes had increased in value so much that households, feeling flush, seemed more willing to spend"

It is widely acknowledged now (2008) that housing prices were inflated artificially due to the easy credit available in the first half of the decade. For example, Figure 1 shows the average and median US home prices between 1980 and 2007 (source: US census). Notice the very rapid increase in new home prices between 2000 and 2006. And the most recent slowdown.

Greenspan has touched on the fundamental force responsible for the 2001 recession being so mild - the economy's white knight in shining armor was the US consumer with pockets full from the soaring house prices. All those refinancing dollars kept up the consumer spending. The 2000-01 dot com debacle was perhaps larger than it seemed; but the cushioning effect of housing prices made the pain a lot less, back then.

Does this mean that it is payback time now? Did we end up borrowing from the future in 2001? With housing prices plateauing and actually decreasing in some markets, I very much doubt of housing will bail out the economy this time.

Wanted: New knight in shining armor, preferably resilient to speculative forces.

Well I've read that the weak dollar is good for US exports and also makes foreign imports dearer (e.g. $120+ oil). Perhaps these two factors will buttress the US economy this time. Wait and watch.

Thursday, May 8, 2008

Alan Greenspan's book

The Guru's book (click to visit Amazon site). Picture courtesy Penguin.

I have been reading Alan Greenspan's "The Age of Turbulence: Adventures in a New World" (ISBN 1594201315) over the past couple of days. This book is part autobiography, but given the stature of the man, the book gives an unique insight into how the Global economy has progressed since the War from the perspective of the most well known central banker of all times.

In the book, Alan declares his unflinching faith in Adam Smith's capitalist ideas. Interestingly he admits being deeply influenced by Ayn Rand's (sometimes extreme) beliefs in laissez-faire capitalism. Perhaps the fall of the Soviet system prior to his writing the book stoked the ferocity of Alan's pro-market capitalism beliefs in the book. Whatever the reasons, the fact that market capitalism remains the only time-tested successful economic system makes me comfortable with much of what he says on this topic.

But the book has a lot more to it. One of the interesting features is the interplay of monetary policy and politics in Washington described in the book. It is absolutely remarkable that Alan Greenspan successfully navigated a continuous 18-year term as Fed Chairman with presidents from either side of the political spectrum. Although Alan is a republican, he plainly states his poor opinion of George Bush and extols Bill Clinton"s economic policies. I believe that his ability to work with multiple administrations may also explain his ability to successfully tackle situations like the 87' stock market crash and the post 9/11 economic landscape.

The book explains the basic workings of the Fed in an easy-to-comprehend manner. You learn of technicalities like the Fed Fund rate and the Discount rate, the organizational structure of the Federal Reserve and its relation to the US Treasury, its mandate, etc. While this information is also available elsewhere, Alan brings facts to life by introducing the workings of the Fed through anecdotes and examples from his experience.

I am still on page 200. This is one of those rare books about which I hesitate to comment more before better understanding what the Guru wants us to hear. Stay tuned for more commentary on this superb book.