The capacity limitation of bitcoin blockchain

Bitcoin is poised to be a digital currency that can be used broadly ranging from daily purchase transaction to international money transfer. However, based on the current analysis, bitcoin is unsuitable for such kind of tasks due to the intrinsic flaws in the bitcoin protocol.

In the bitcoin protocol, each transaction will be broadcasted to the whole bitcoin network, once confirmed by a certain number of nodes, the new transaction will be stored in a new block permanently. Currently, each block is generated in about 10 minutes with the block size of 1 MB. This only allows about 7 transactions per second. For Visa credit card, currently it handles 2000 transactions per second with a peak value of 4000 transactions per second. If bitcoin is really poised to be a world currency, its protocol needs to scale 600 times.

The most common proposal to increase the scalability of bitcoin network is to increase the size of the blockchain. The blockchain can be increase to 2 MB or even 20 MB. However, there are significantly downfall of this approach. First, it still won't be able to scale 600 times. Second, increasing the blockchain size will slowdown the network tremendously, let alone the increased storage.

More creative solutions for this problem is crucial for making bitcoin a mainstream success.

The innovation of wechat

Wechat is a popular online chatting software/service made by Tencent. It has a few novel features which enables people to engage with each other in a new ways.

The first feature is called moments. The moments features enables customers to post microblogs with pictures, very similar to twitter or weibo. The difference is that by default the momments are only visible to the "friends" of the customer. In some sense, it is a private twitter.

The second feature is called group. In the wechat groups, customers can chat real time with groups of authorized people. This groups are typically focused on specific topics or tied with specific groups of people, such as alumni from the same school. These natural grouping enhances the trust among the users.

The third feature is called voice messaging, similar to voice mail, it enables people to chat by sending voice messages to each other in real time.

These three features enables powerful new ways to get people engaged and communicate.

Hackathon as a process of creating innovative product

Very well managed software organization typically have established process and routines. Following these established processes are imperative to deliver the commercial software on time with the quality requirements. However, improvised innovation quite often falls into the cracks of the large shipments. A few companies is capable of continuously churning out innovative products over the years, one of them is facebook.

How does facebook create so many innovative products? The answer is hackathon. At facebook hackathon, the engineers are temporarily abstained from the daily responsibilities and are empowered with the freedom to pursue the projects that are interesting to them.  Innovation is actually a part of human nature, under the right scenario or an innovation supportive environment, the hurdles of innovation are lifted and people become creative.

The benefits of Hackathon model vs traditional grant based model is compared here.

The first is about scheduling, during Hackathon, which typically last no more than a few days, you can make the call whether this project will make the cut. The traditional grant based model typically will take the applicants months even years to get approval.

The second is about communication, in Hackathon Model, the project description is not required, the end result is a demo of the prototype of the project. In grand based model, the grant application itself can be tens even hundreds of pages. The concepts and methods needs to make sense to the grant reviewer in order to pass. In order to increase the chance of getting approved, grant applicants sometime are reluctant to put ideas that require some leap of faith.

Hackathon is a great alternative model to introduce innovation into the product without significant investments.

The innovation and competition of Netflix

The stock of Netflix (NFLX) is one of the best performing security in 2015. However, this year (2016), NFLX has experienced set backs. This blog post describes the innovations that Netflix has brought and the challenges that Netflix is facing. 

Prior to Netflix, the primary way for people to watch video for entertainment is through TV and DVD/VHS. 

With the prevalence, Netflix leads the wave of video entertainment by providing a monthly subscription based viewing plan. A consumer can pay 9$ per month for unlimited access of the video that Netflix provides. Facing competition from Hulu, Amazon Prime and a high P/E ratio, the question we are asking is "Does Netflix has a durable competitive advantage?". 

This question can be separated into two parts, a. content, b. technology. From technology perspective, there is very little substantial differences between Amazon Prime, Hulu and Netflix. If one feature is implemented in one of them, the others will quickly adopt it. In the end, video playing is not as complicated as operating a word processor. The second is content, from what I found, Netflix is not competitive in terms of content, many well received movies or shows are not available through streaming. Netflix is striving to compensate this via producing original shows such as "House of Cards" and acquiring shows that are exclusive to Netflix. Amazon Prime is following a similar path. Although this may mitigate the content shortage problem, it is doubtful whether this is a sustainable economic model. 

Because of the traction of online streaming, the traditional video media are losing mindshare from their customers, as a result, they are reluctant to collaborate with the new comers. Instead, they like to put the their content online by themselves, for example HBO online. It seems it is not that hard to setup a video website, the differentiator of the online streaming business is the content. As a result, unless Netflix finds a creative and sustainable revenue to solve the content problem, the challenge that it is facing will persist into the forseeable future. 

The innovation of Pokemon Go

Pokemon Go is a rising mobile game which let players to catch pokemon at specified locations. This provides motivations for people to move around, have fun and enjoy the benefits of physical activity. Since the public adoption of Internet, the increasingly addictive websites/apps are often depicted as the cause of reduced physical activities and the damages to human bodies. Pokemon Go game has changed. Players often reports that they can easily reach their daily exercise goal with a little bit playing.

From innovation perspective, the interesting question is what is new? Geographic active app is not entirely new, for example, four square, waze, yelp allow users to write reviews, feedbacks, report findings on the mobile devices. Mobile game is also not new. What is new is the integration among mobile gaming, augment reality and geographic activity. These ingredients altogether create a compelling user experience with very high return rate.

However, none of these technologies are strictly proprietary, we can expect in near future, augment reality games will comprise a bigger share of the gaming market as well as mobile Internet attention.

Innovations that increase the competitive advantage

There are two types of innovation that increases the competitive advantage. The first type is the attracter of the customer, the second type is the renter of the customer. The attracter of the customer can fullfill an unmet customer needs, it be a new function, a specific design or cost. The retender can be membership, customer resource investment or departure penalty.

For the bridge, you can put lights on the bridge to make it more attractive to those curious. You can also make the bridge wider, on festivals, you can let vendors to sell arts/crafts, ice cream, pop corn on the bridge, basically converting the bridge into a night market. It becomes not only the best place to cross the bridge but also a good place to hang out with friends and family. These are all the attractors of bridge. There can also be a point card, the more you spend on the bridge, the more points you get. There is also a fast lane, that you can pay and receive a bill later on. Basically,  you do need to pay for a fee for passing the bridge, but you feel the bridge is well worth the money.

The retender can be multipass of the bridge, switching discount (if you ask to terminate the multipass, you can be offered a discount for next year's multipass, etc) , loss of the accumulated points.

How to innovate an operating system when there is a free one there.

A computer operating system is a piece of software that turns the hardware alive. In history, both Apple and Windows operating system have made huge amount of money. However, in recent years, because of the competition from free Linux and Android, operating system are in danger of becoming of low margin business. What could an operating system innovate to keep on fending off the competition from the cheaper ones?

The first one is to improve the customer experience.

Basically, there should be richer open box experiences available on proprietary Operation System than a free operating system. All the software companies that are interested in running promotion should be able to give their free trials installed on the proprietary operating system.

The second one is to improve the developer experience.

In order to improve the developer experience, there are developers who wants to innovate, you got to empower them to innovate on the proprietary operating system because you can provide more components that can be re-used just as is. You got to make better documentation of the API, provide more extensive sample code, keep on enhancing the functionality of the existing API. Implement expensive and widely used algorithm, e.g. singular value decomposition, deep learning, at the low level, so that others love the proprietary implementation better than others.

The third one is to reduce the total cost of ownership.

Owning a computer is not only about acquisition cost. Although the acquisition cost for Linux is zero, maintaining it is not. Focusing on improving the tools that are important to manage each component will likely to reduce the total cost ownership. For example, there should be a dash board for network, dashboard for printing, dashboard for file sharing, dashboard for Internet usage, dashboard for security.

Creating innovative product via building minimal viable product

Innovation is hard because resources are often tied to the activities that generates cashflow or pre-existing business endeavors. As a result, it is of critical importance to create a minimal viable product(MVP) with the focus. Leverage on the demonstration of the MVP, you can harness more resources to mature the product.

How to build a minimal viable product? The primary element of creating a minimal viable product is focus. You should always keep a priority list and always focus on your number one priority.

First, you need to identify the customer scenarios. What are the minimal customer/product interaction are needed.

Second, how can you find the most basic solutions to satisfy the minimal customer/product interaction.

When you completed these two parts, you are already half way through the building of the MVP.

Afterwards, you should cost the efforts to actually implement the MVP and budget resources to realize it.

Which one of the Presidential candidates is the most pro innovation one?

As of February of 2016, there are four front runners of the 2016 President Election. Hillary Clinton and Bernie Sanders are the leaders among democratic party candidates. Donald Trump and Ted Cruz are the leading candidates of republican party. Each of them has distinctive economic policy. Although they all claim to revive the US economy, each of their policies do have a different propensity towards the type of the economy their policy are going to benefit most.

Among these four candidates, Bernie Sanders and Donald Trump have more polarized economy policies than Hillary Clinton and Ted Cruz. The primary policy of Bernie Sanders is to provide free healthcare to everyone. If this policy is implemented, we would expect less price competition among healthcare providers. This will likely slow down the innovation in the healthcare sector. Donald Trump advocates heavy tariff against China and Mexico, which will benefit the economy in the short term due to the decreases of the out sourcing. However, in the long term, it will reduce the competitiveness of US economy due to the protection of the government. Donald Trump's policy is also not pro innovation.

Ted Cruz advocates broad tax reduction, however, the scale of the tax cut is so big that people will doubt about the financial feasibility of the plan. In addition, it is not obvious how the innovative product or service is going to benefit from this plan uniquely.

Hillary Clinton's economic policy is more progressive, she focuses on growing small business with less red tape. Given most of the startup companies all starts small, I think her policy is probably the most innovation one among all.

The innovations that do not matter

Innovations do not always lead to the increase of the competitive advantage, market share or profitability.

Using the Island Bridge model, when the second bridge is built, the traffic starts to distribute between the two bridge, so the revenue of the first bridge falls. The first bridge now has the pressure to innovate in order to attract more customers, one of the employee suggest that they replace all the traditional light bulb with the new LED lights, so that it will look cooler. In the meanwhile, the second bridge is not stopping as well, they performed a customer survey and found out that many customers do not like walking in the rain, so they install a shield on top of the bridge, so that Pedestrians can walk on the bridge without the need of an umbrella. The result is that more people are choosing the second bridge in lieu of the rain.

From this story, we can see, not all the innovation can help the product to gain a competitive advantage, only those innovation that can address the customer needs directly (new function, such a the shield) or indirectly (e.g. new processes to reduce the cost for cost sensitive product/service) will matter from a business prospective.

Profit, Monopoly, Competition and Innovation

In this article, we will discuss the relationship between profit, competition, monopoly and innovation using the previously establish Island Town (IT) model.

Between the IT and ML, there is a highly profitable toll bridge (TB) running by Bridge Co.(BC) The profit from the TB attracts competition. Another company Competitive Transportation (CT) decides to build another bridge(AB) and only charge half of the price of the original toll bridge. In order to keep on attracting passengers, BC is forced to lower the price of TB. This hurts the profitability of BC. From this example, we can see, profits attract competition which reduces the profit margin of the industry.

There are a few options for BC to continue enjoying the high profit margin. The first option is to purchase CT and remove/limit the second bridge. This kind of purchase of large scale will often cause suspicions of the violation of antitrust regulations by the government. Indeed, monopoly is unhealthy for the economy.

The second option is to lock in the passenger, so that they cannot easily switch to the second bridge. For example, if the passenger like to ride bus, they can convince the city to route the bus via their bridge instead of the other. Alternatively, if there is a ticket booth for the theme park on the island, they can place the ticket booth at the end of their bridge, so it becomes inconvenient to use AB. This type of customer lock in is in the gray area of the antitrust regulation, you can actually see that here and there once in a while.

The third option is to provide more customer value on the bridge. For example, BC can install festival lights on TB to make it not just a transportation site but also a tourist site. BC can put up some booth for farmers to sell their produce on the bridge which makes the bridge literally a farmers market. BC can set up a car wash machine at the end of the bridge, for those paid the toll, they can enjoy a complimentary car washing service. With all these added values, TB becomes a consumer monopoly. Although BC do not enforce consumers to choose TB, practically, the majority of the consumers choose TB and pay a premium for it. This type of value based consumer monopoly strengthens economy by creating both highly paid jobs and value add on products and services. This is the innovation that we all strive for.

Island Town(IT) as a model system to study Innovation

In the economic system, each industry sector even product line have unique characteristics, which make the problem of innovation both interesting and hard to generalize at the same time. Here, we introduce a model system Island Town (IT) to study the strategies of innovation, monopoly and profitability.

There is a small town called Island Town located on a Island that is detached from the mainland (ML). This island town has many attractions such as restaurants and parks, people on the ML often love to spend time on the island. Since it is a small town, it does not have a full spectrum of industries, as a result, it relies on many businesses on the main land to survive such as post office, banks, etc. The best way to commute between the island town and the main land is a bridge which is owned by a private company Bridge Co (BC). BC installed a toll on the bridge to charge a fee. Because this is the only bridge between the IT and ML, they can charge a hefty fee for passing the bridge, thus the bridge became a profitable business for BC.

Managing Innovation Conversation With Employees

When an employee brings up the topic of doing innovative work, the management should try to provide supports and guidance to foster a innovative culture. Here are some examples of innovative conversations that have gone bad.

Employee : "I wanna work on project XXX because that will be an innovation."
Employer : "Are you not interested in your current work? Maybe you should consider a career out side of our team. "

Employee : "I wanna work on project XXX because that will be an innovation."
Employer : "You are currently working on YYY, how about let's do YYY +0.001 XXX. Will that be innovative enough?"

Employee : "I wanna work on project XXX because that will be an innovation."
Employer : "If you wanna work on XXX, you got to learn ZZZ, WWW, OOO techniques, after learning all those, we can talk. " (Those techniques are not essential, and complete mastering them are neither necessary nor sufficient for the projects.)

Comments like these can dishearten the motivated employees who wishes nothing but doing innovative work for the organization.  Here, I prescribe a few conversation patterns that can be used to facilitate a healthy conversation with the employee. The basic pattern is called confirmation, encouragement and guidance(CEG).

"This sounds like a very interesting idea(Confirmation, Encouragement), how about let's build some prototype in your spare time. When you gets it ready to a certain stage that we can demo it, lets show it to other people in the team to see whether we can get it funded and move to the next level. (Guidance) "

"Wow, you mean you want to do XXX? (Confirmation). This is way cool! (Encouragement) I know a few folks in team aaa are also interested in it. Let me get you guys connected. Wait for my email tonight. (Guidance)"


When management are trained using CEG to manage innovation conversation, the innovation culture will grow gradually.

Innovation Strategies in Large Corporations

Innovation is the process of inventing new businesses and technologies. This article describes the strategies and processes that organizations can employee to create a culture of innovation.

Creating an innovation culture in the organization includes three parts. The first part is to remove the hurdles of innovation, the second part is to provide incentives for innovation, the third part is to creating innovation momentum in the organization. 

The first step to accelerate innovation is to remove the hurdles of innovation. The common hurdles for innovation include the inaccessibility of human resources, facilities, and  unmotivated management. 

In some IT companies, to encourage the exploration of new ideas,  the employers allow employees to spend 20% of their paid time to work on projects that are not in the regular plan. To build collaborations between employees who share similar interests,  employer can also build employee skill database and share it across the whole organization.

Unmotivated management can be discouraging for motivated employee. It is beneficial to train the management on managing innovation related conversations. For example, when an employee brings up an innovative idea, the management should provide support and guidance even if the specific idea is not entirely practical at that moment. 

The second step to accelerate innovation is to provide incentives for innovation. In traditional organization, the compensations are not necessarily tied with employee's ability to innovate. As a result, the organization can establish innovation themed award independent from the regular compensation scheme. 

Other than financial incentive, innovators can also be awarded with publicity on internal publications. 

The third step to accelerate the innovation is to create momentum. To create a culture of innovation, the organization can organize innovation themed activities such as Hackathon, product fair/competition, intrapreneurship competition. 

Welcome to my new blog!

Hi there, welcome to my new blog. Since I left Microsoft last year, it seems MSDN has terminated my access to my previous blog http://blogs.msdn.com/b/gongcheng/ . Fine,  I am moving here to continue my writing about innovation and it won't be limited to IT anymore.