Blockchain is a useless technology

Blockchain, a way of implementing a distributed ledger (distributed record-keeping), is a novel technology with little real-world practicality.  The original Bitcoin white paper published back in October 31, 2008 spurred little interest in distributed ledgers.  The distributed ledger was ignored for years until Bitcoin started receiving mainstream attention and a few years had passed.

I simply couldn’t find much evidence that distributed ledgers are useful for any real-world applications (other than speculative asset bubbles).  Once you understand that blockchains are bad at solving real-world problems, then you will understand why Bitcoin will fail.  The blockchain imposes limitations that makes Bitcoin a bad version of something that has been tried in the past: e-gold (description here and Wired profile here).

A company’s stance on blockchain can also serve as a test of a company’s management.  In my view, companies pushing blockchain technology (e.g. IBM, Microsoft, Intel, Oracle) are disconnected from customers’ actual needs and have mediocre management.  Companies that don’t talk about blockchain (e.g. Facebook, Amazon, Google, Apple) are more likely to produce sensible technology that will work in the real world.

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Data centers – Part 4 – The future of infrastructure?

I think that proprietary ecosystems like Amazon Web Services will continue to grow.  These ecosystems will be popular with small software developers because it saves a lot of time.  Larger developers will see less benefit from proprietary software because their problems tend to be more specialized and difficult.

The main benefit of pooled infrastructure for larger developers is higher server utilization.  Many of their workloads see fluctuating demand depending on the time of day, depending on the season, or depending on one-time events (e.g. ticketing companies will see a heavy server load when tickets for their most popular events first become available).  They should see their costs drop by taking advantage of the elasticity made possible by pooled infrastructure.

Data Centers – Part 3 – Pooled Infrastructure

One of the hot new growth areas in data centers is what I call “pooled infrastructure”.  The data center is a pool of interchangeable servers that can be rented out on a moment’s notice.  For example, a customer can rent out 30 servers during peak usage and 10 servers during off-peak usage.  Allowing customers to share a pool of servers greatly increases hardware utilization.

Along with the push towards renting out server capacity, the infrastructure providers are bundling value-added software with their infrastructure to save time administering and setting up the infrastructure.

Data centers – Part 1 – Overview

In data centers, the most interesting areas currently are in:

1. Software.  In particular, Amazon has been a pioneer in creating value-added software that helps software companies quickly setup databases and servers and backup storage.  Google, Microsoft, and IBM/SoftLayer are doing somewhat similar things.  The problem is that the data center segments of these companies likely will not move the needle much.
2. IT services.  Rackspace in particular is doing very interesting things.

The least interesting areas are companies that are mainly involved in selling space in a building because that business is a commodity.  Those companies will not  make a lot of money and they will not lose a lot of money.  While I think a lot of the data center REITs are overvalued and are suckering institutional investors into overpaying for their stock, they are not compelling shorts because they aren’t losing money quickly.  As well, many (legitimate) data center companies have been taken over at large premiums by companies like Verizon and Cogeco Cable at valuations I would disagree with.

*Disclosure: No positions.

Notes on cable – Part 5 – The future winners of Internet TV

The future winners of Internet TV will likely be the companies that can:

1. Intelligently buy undervalued content.
2. Achieve scale (or have scale).
3. Create good software

The future of advertising

Summary:

• Online advertisers should be able to monetize their ads more effectively in the future.  This will be a huge tailwind.
• Scale will be a moat.
• Youtube has a bright future ahead of it.
• I suspect that television advertising and ad agencies will face serious headwinds.

An investor’s guide to search engine optimization (SEO)

Search engine optimization is about getting a website to rank higher in search engines.  The goal is to increase web traffic without having to pay for ads.

This primer on search engine optimization is relevant to these stocks:

• RetailMeNot (SALE)
• Demand Media (DMD)
• Search engines (GOOG, Yahoo Japan, IACI/Ask.com, MSFT/Bing)
• Phone book companies (YLO.TO, DXM)
• Somewhat relevant to online e-commerce companies (AMZN)