Ultimi Barbarorum

I find my thoughts drifting less and less towards philosophy, Bento. I did feel bad about this for a while, but then I more or less reconciled myself to it. Philosophy requires contemplation, and there is little room in my life for contemplation at the moment. Rather, I am geared towards action, more specifically, actions that will help me survive and prosper in the extreme circumstances of the current moment. I rather like this, I have to admit. It is simple and direct. While the process is complex (lots of financial models and the like), the goal itself is not. Rather like hunting a mammoth, I imagine, which is what after all our pale cro magnon forefathers evolved to do.

In this type of existenial activity, this modern mammoth hunting, then, we are still close to ourselves, our conatus, our true nature. Sticking to what we are and being as much of it as possible, this is what Spinoza suggests we do to attain happiness. I have evolved as a thinking machine, and it is in thinking that I am doing, if you see what I mean. Just as dogs are woofing machines, and are happiest when woofing, and lions probably cheer up when they sink their claws into zebras on the hoof. Though “evolved” may be an anachronism; I have often wondered how Spinoza’s ideas would have changed (if at all) had he somehow managed to read Darwin.

So I tell myself I am not in fact “betraying Spinoza” by abandoning philosophy temporarily (although I have started reading Montaigne who is like totally the first ever blogger, Bento, it is quite incredible); I am using the same tools, the same critical faculties that I need for thinking “deep” thoughts about Spinoza, to think about how to keep my job. Paradoxically I have a job which is 95% thought (which stocks to buy?) and 5% action (actually buying the stupid things, and making tea). If I was a lumberjack things might be different. It may look like I have completely contradicted what I said in the 1st paragraph of this post, but I don’t feel like I have – for me thought really is action, or rather, my current thought is action-oriented.

Not so for the subject of this post, the amazing KVOND, the blogger you told me about, Bento. His is a fundamental contemplative Spinozism to the extent of actually working out how to grind lenses! Kvond even has a theory that the Huygens microscope, based on some type of bead lens, if I have this right, was somehow snaffled from Spinoza’s estate, implying that if he had lived longer we may be thanking Spinoza for a lot of microbiology as well as his philosophical contribution. He understands (or seems to) detail like this:

This reported Spinoza lens is much shorter in focal length than three known to have been made in 1686 by Constantijn: w/ diameters 195, 210 and 230 mm, and w/ focal lengths of 122, 170 and 210 ft.; each ”made from the same very poor glass - a heterogeneous and discoloured potash-rich, but essentially lead-free `forest glass’.”

This is seriously cool, of course.

It is very different from our little endeavour here, a good thing. kvond’s more philosophical posts tend to have an quite Wittgensteinian tilt, not necessarily something I can get my head around, and I detect a more literary focus to his posts. I feel they are more about inner life, while ours tend to be more current affairs-focsed, very outwards-looking. Baldly put, his is the Spinoza of the Ethics, ours the Treatise.

We are both, I think, very happy to find another up-to-date Spinoza focused blog, are we not?

Fellow Collegiant Ramster doubts Baruch, and writes:

So if the iPhone is such a gamble for Apple, what’s the alternative? Stay out of the phone business entirely?

Ramster also questions whether Apple really needs to go mass market. There’ll be enough fanboys out there, he opines, to create

 . . . a pretty decent sized niche…which leads to the question of scale that you mention. It strikes me that when a few hundred million handsets are being sold per year, a niche market can still hit numbers that would be considered mass market in any other space (e.g. 10s of millions of units/yr).

Well, Ramster, for your first question, there IS no alternative to iPhone for Apple, is there? Other than sitting on the iPod franchise and milking it for cash and managing its decline. But of course that would be a bit of a multiple shrinker.

In that sense I guess is not strictly speaking a gamble, or at least one with any optionality. It just proves that Apple may not have been in quite as strong a position as we thought.

But your second question goes to the heart of the Apple thesis I propound, and is why answering your question is deserving of a post by itself. I fear there is much misunderstanding here.

Let’s do a thought experiment. Let’s say Apple flogs “10s of millions of units/year”: 20m iPhones at USD500 a pop wholesale, which is USD 2 bn in revenues. Say Apple makes a 50% GM (I’m being generous), but has to pay 500m in R&D and 300m in SG&A (these totals may not be enough, they are just illustrative). That means Apple makes USD 200m in EBIT, a 10% margin for Apple. Oh dear. Wailing and gnashing of teeth.

But just sell 5m more units and you make 450m in EBIT, a 22.5% margin. Got that? 20% more units gives you over 100% your profit. Once you cover your cost it drops straight through to the bottom line. Or you can keep the same margin and spend more in R&D or have a cooler ad campaign or build a distribution network in Mongolia or wherever. This is what we call operational leverage. It comes from scale.

Without scale, other people with scale can come in and eat your lunch. Let’s ignore SG&A, even though it’s equally important, and just concentrate on R&D instead. Nokia spends 12 BILLION fricking dollars on R&D per year. And still has a 20% margin. If its R&D was only half as efficient they could outspend Apple’s illustrative business model above by diverting just 10% of that. Not straight away, but over 6 months, over 12 months, you’d see Nokia start to have better features than Apple, in iPhone-like models that are released before Apple’s. Moreover, Nokia would start to offer more variants to fit different tastes and budgets, and extend the business into new customer segments.

Soon Nokia will be selling more units and making more money, free EBIT to spend more on R&D. The advantage thus becomes self supporting, a virtuous circle for Nokia, a more vicious one for Apple. Eventually they have to drop out of the handset market. This is not a fanciful example. This is exactly what Nokia did to Panasonic, Ericsson, Sony, BenQ, Siemens, and Motorola. It’s why they have a 45%+ share, 3x more than anyone else.

And that’s why Apple needs to go mass market.

I spend my time investing in handset companies Bento: understanding the industry is my job, and I am quite good at it. So I try to educate my public, point out to them that not all about the iPhone launch is quite as it seems, to let them know it’s OK not to be a fanboy. Expecting adulation I receive instead a deafening silence. No calls, no interviews, just a few comments from enlightened individuals. Unlike Spinoza I have no coterie of supporters to cheer me on, no faithful, like-minded friends. Moreover, Bento, I know you are one of the glazed-eyed pod-people (iPod people).

Of all the articles written about this sodding iPhone in the press, most of which are silly, factually challenged Apple fluffer pieces, I have finally found one, ONE, which gets it. Some of the comments are good too. Never mind the editor chose a photo of the author that makes him look like he has busting for a pee, and has just found a toilet:

Why can’t they just have normal, non-smirky photos? I am sure the guy looks quite normal in real life. But never mind! Smirky or not, this guy understands that the iPhone venture is a risky one for Apple, a venture into shark-infested waters, where two types of sharks swim, jealous operators and frantic handset vendors. He writes:

the iPhone’s new business model is an aggressive attempt to place Apple at the center of the consumer wireless market, increase the company’s competitive power and diminish the role of the wireless carriers.

Given the tough dog-eat-dog dynamics of the telecommunications industry, that is a heck of a big bet that even Steve Jobs might lose.

The operators are the main barrier to greatness:

while Apple talks about “partnerships” with carriers, the carrier really is just a necessary distribution mechanism for the iPhone and the Apple brand. In effect, Apple sees the carrier as a competitor for the customer’s wallet whose power will diminish over time as the iPhone catches on. . .

Apple’s battle with the music labels was like a fistfight with neighborhood punks. Taking on the telecommunications industry is more like nuclear Armageddon.

Me, I think the handset competitors aren’t going to go quietly. Neither does Herr Newmark.

The handset business is ferociously competitive. At the high end, Research in Motion and Nokia. At other price points: Samsung, LG, Motorola, Sony, the new Chinese entrants. Today, Apple’s iPhone may have unbeatable design and functionality. And that may be enough to attract loyal Apple customers and the phone-as-fashion-accessory crowd. But it isn’t enough. Apple must win over the mass-market consumer. Here the going will be tougher. . .

It could get pretty bad. Remember the market for personal computers? Crushing price pressure and rapid commoditization left only a few mass-market competitors, such as Dell, Hewlett-Packard and Lenovo, standing. Along with who else? Apple of course–which survived by playing by its own rules and carving out a profitable niche.

Spot on analysis. I wonder if he read me first, one month ago? It is possible to come to the same conclusion independently. Leibniz and Newton invented calculus at the same time, didn’t they?

UPDATE: actually, Felix looks like he is not drinking the iKool Aid, either. Healthy scepticism levels there. I’d probably still buy one, though. Hey, in the UK, you get one for “free” (OK for 45 squids a month). My lizard brain says “oh me get good deal!”

If ever we needed proof that Steve Jobs seems to have put the blinkers on the press, Bento, and somehow persuaded them to withhold the incisive critical analysis they have shown in other issues, such as the war in Iraq, Bento, this is it. The article strikes me as quite, quite wrong; clearly the grasp of basic commerce at the Torygraph is somewhat lacking. They have not been reading the excellent coverage of just this issue at Ultimi Barbarorum. The article is one of those “lead-up to the new iPhone” puff-pieces every serious newspaper feels it has to run ahead of this week’s product release. It states:

In a bid to take the phone to the mass market, Apple chief executive Steve Jobs has dropped his resistance to the sales techniques that have made the mobile phone the best-selling consumer electronics device of all time.

In return for allowing networks to subsidise the iPhone, it is thought that Apple will take a higher proportion of the ongoing revenues from customer usage of the phones.

The mind boggles. Presumably Apple “allowed” its executives to exercise jus primae noctis with the prettier O2 staff members as well.

Baruch! I almost choked on my oatmeal porridge just now when I discovered that there is such a thing as the Spinoza Prize in the Netherlands — for literature, microbiology, physics and medicine — and that the organizers, the Netherlands Organisation for Scientific Research (NWO), are keen to call them the “Dutch Nobel Prizes”. Must be a big deal, you’d think?

Not really. First, you can forget about winning the prize if you’re not Dutch. (That’s not very Nobel of them, now is it?) Second, check out what they’re winning it for. The winner for the microbiology prize?

His research has led to the development of lactic acid bacteria that can improve the taste and shelf life of cheese.

Yes indeed, in Holland you get a $1.5 million euro prize for inventing longer-lasting cheese. In our name, Baruch!

Cool profile of Taleb here in my sunday paper, Bento.

Did you ever read any of his books yet? I’ve posted on him enough for you maybe to have noticed. I’m quite looking forward to his next book, on the value of aimless tinkering around.

Peter Woit: “The LHC has to have a winter shutdown so that the residents of Geneva don’t freeze to death, and that will start in late November.”

Spinoza wouldn’t have minded a lack of electricity. Oh how modern technology makes us weak and spoiled. Genevois, grow some backbone already for the sake of science.

It is customary to live-blog the Eurovision song contest on this site. It is what Spinoza would have wanted, great European that he was. It won’t mean anything at all to most of you, especially if you are US-based financial people, but then we only really blog for ourselves, so that’s OK. But it should mean something. Eurovision is a great window onto the current state of Europe, into the state of its development, and the mindsets of countries we know hardly at all.

More than that, for us it has largely replaced war. You Americans should try it. Have a geopolitical song contest with North Korea and Iran.

Annoyingly for you if you are interested, I’ll only be able to blog the first part, coz I have to tootle off to  the airport later and pick up a friend, who I will then have to entertain. But I’ll hopefully pick it up later.

First overall impression. Those hoping to sneer at the traditional kitsch of the Eurovision are in for a major disappointment. The songs are really really good! There’s no hopeless Balkan leather clad duffness with whips and over-acting. Even the Albanian entry was good. There hasn’t been a clunker so far, and we’re 12 songs in!! Turkey is on now, and we’re normally treated to something crap, but they are singing a really good rock ballad. I think this is extremely hopeful for our common European future! I feel more likely to support their entry into the EU, this is PROOF they can integrate! Keep reading →

AP reports: Vatican: It’s OK to believe in aliens

The Rev. Jose Gabriel Funes, the Jesuit director of the Vatican Observatory, says that the vastness of the universe means it is possible there could be other forms of life outside Earth, even intelligent ones.

In an interview published Tuesday by Vatican newspaper L’Osservatore Romano, Funes says that such a notion “doesn’t contradict our faith” because aliens would still be God’s creatures.

Imagine the shock Funes will get when said aliens arrive on Earth and they have no idea what this god thing is he keeps on going on about. Or even worse, perhaps the aliens imagine themselves to be gods, and that we are their creatures. Perhaps it might even be true, and they are just checking up on us. Maybe they’ve got Jesus and Mohammed coming along for the ride. I feel a South Park episode coming on.

Seriously though, I think it much more likely that there are aliens around than that transubstantiation works, the dead can be resurrected and miracles happen — mainly because you don’t need to suspend the laws of physics for aliens to exist.

Update: The BBC carries much more from the interview, including the revelation that aliens may be free from original sin. Try telling that to Ripley.

Baruch! Albert Einstein, world-famous physicist but little-known fellow Spinozist, is having a letter sold at auction this week whose contents should finally put to rest that silly notion that Einstein was religious.

We know Spinoza left a strong impact on Einstein. I visited Spinoza’s home in Rijnsburg a few years ago and saw with my own eyes Einstein’s signature in the visitor’s book, dated 1920. In 1929 a Rabbi alarmed by the suggestion that Einstein’s theory of relativity might present a slippery slope to atheism asked Einstein for a clarification of his beliefs:

New York’s Rabbi Herbert S. Goldstein asked Einstein by telegram: “Do you believe in God? Stop. Answer paid 50 words.” In his response, for which Einstein needed but twenty-five (German) words, he stated his beliefs succinctly: “I believe in Spinoza’s God, Who reveals Himself in the lawful harmony of the world, not in a God Who concerns Himself with the fate and the doings of mankind.”

Spinoza’s God, of course, is exactly analogous to “Nature”. Unlike anyone else before him, Spinoza maintained that “God, or nature” is intrinsic to the universe (as opposed to extrinsic, e.g. a God that can create a universe). Thus, postulating the existence of God is no different than postulating the existence of a universe governed by physical laws. And that is something atheists can live with.

So what does the letter being sold at auction this week reveal about Einstein’s religious views? Einstein was writing in 1954 to the philosopher Eric Gutkind, and here is what he wrote, among other things:

The word god is for me nothing more than the expression and product of human weaknesses, the Bible a collection of honourable, but still primitive legends which are nevertheless pretty childish. No interpretation no matter how subtle can (for me) change this.

[...] For me the Jewish religion like all others is an incarnation of the most childish superstitions. And the Jewish people to whom I gladly belong and with whose mentality I have a deep affinity have no different quality for me than all other people. As far as my experience goes, they are no better than other human groups, although they are protected from the worst cancers by a lack of power. Otherwise I cannot see anything ‘chosen’ about them.

Those words could have been uttered by Spinoza 300 years earlier, and indeed Spinoza’s writings make those very same arguments. At one point, Spinoza writes that perhaps not everyone has the mental fortitude to abandon conventional religion — that his abstract notion of God = Nature may only really be accessible to a philosophical elite — and that conventional religion would suffice to bring happiness to the rest. In Steven Nadler’s Spinoza: A Life (p.290) we get this response from Spinoza to his landlady when she asked him if she has chosen the right religion:

One day, when Van der Spyck’s wife asked Spinoza whether he thought she could be saved in the religion that she professed, he replied: “Your religion is good, and you need not search for another one in order to be saved, as long as you apply yourself to a peaceful and pious life.”

In other words, belief is merely a means to an end; what is more important is good deeds. Still, you might think Spinoza is being a bit patronizing here to a good but not particularly clever soul.

Myself, I am a little less sanguine about belief — happiness at the expense of a realistic world view seems like too high a price to pay. Perhaps, however, I’ve been lucky, and I can’t fathom the kinds of misery that make the crutch of religion a necessity for many.