Even Keeled

A coworker and I bet that gas prices in the San Francisco Bay Area will average $6/gallon by 8/1/2008. The irony is only in the when, not the if (loser fills the winners tank with Gas). I’m taking the over. I strongly believe we’ve smashed through whatever theoretical barrier kept oil prices in check for the last 8-10 years and have now entered a period of compounding price increases.

There is actually a fairly well known theory that predicted the inflection point, Hubbert’s Peak, or Peak Oil.

Peak oil as a proper noun, or “Hubbert’s peak” applied more generally, refers to a singular event in history: the peak of the entire planet’s oil production. After Peak Oil, according to the Hubbert Peak Theory, the rate of oil production on Earth will enter a terminal decline. Based on his theory, in a paper he presented to the American Petroleum Institute in 1956, Hubbert predicted that production of oil from conventional sources would peak in the continental United States around 1965-1970 (actual peak was 1970). Hubbert further predicted a worldwide peak at “about half a century” from publication and approximately 12 gigabarrels (GB) a year in magnitude.

Turns out Hubbert was fairly accurate. The doomsday-ers have co-opted the theory and started a website called, smartly enough, PeakOil. There was an article recently in the NYTimes about survivalists moving off the grid and becoming self-sufficient driven by the fear that roving droves of gas seekers will storm their homes.. (Guns! Wack Jobs! Wacko Texas Revisited!). What I find interesting is the similarities with many green movements: locally grown foods, reduction in carbon footprint, reduced use of motor-vehicles, etc. In other words, the fringe is less fringy these days.

Below are a few charts which highlight the recent rapid rise of gas, along with an interesting chart that compares with crude oil prices. If I had the time, and honestly the aptitude, I’d like to pull apart the annual high/low delta. It seems there are three key price points: 1) ~mid-December which is the yearly low point, 2) early May which is the pre-summer peak, 3) early August which is the summer high before a run towards the December valley.

Chart with just gas (5 year)

With crude oil:

What is really interesting (scary?) is the fact crude prices appear to be increasing faster than gas at the pump. To me, this indicates there is the potential for gas prices to increase even more if they were to keep their historical correlation to crude. I won’t go into the whole “oil companies are evil and stealing from the public”. They are stockpiling profits. To do any less would be irresponsible to their shareholders. They claim this is required to fund present and future investments in alternative fuels. Lets all hope this is true. In the the meantime, public transportation and other forms of getting to around are now much more viable. A positive and natural outcome.

There are tons of ways to start cutting this data and looking at correlations, both obvious and obtuse. From a purely intellectual perspective, the (recent) oil crisis may be one of the more interesting challenges to surface in the last 50 years. (Passion! Profits! Hippies! More at 11!)

The New York Times had a very interesting piece on innovation, specifically how looking at existing habits and adapting new ones helps creativity and problem solving. By forcing change into our lives, we become more effective at overcoming the challenges we face on a daily basis. Successful problem solving results in breaking through barriers and opening up new ideas. A virtuous cycle which keeps the brain from atrophying, literally.

Not all “new thinking” leads to success, sometimes the failures are catastrophic and long lingering in our collective memory. Today is the 71st anniversary of the Hindenburg disaster, a frequent reference for any project that is not well planned and poorly executed with a very public collapse. However, it is also the anniversary of the 4 minute mile barrier being broken by Roger Bannister. Bannister initially faced failure during the 1952 Olympics and considered quiting competitive running entirely. But, he instead he looked the the 4 minute mile as a challenge, something to retrain his mind and body to overcome. Success followed. Bannister looked at this as just one milestone in his life however, and now looks at his achievements in the area of medicine and neurology as more important than any timed race.

My boss Omar posted a very thoughtful and comprehensive review of the current mobile landscape on the AdMob blog last week. Basically a fundamental shift has occurred in mobile where engineering and technology solutions are now the primary components of success for any product (and company). Previously business development skills, specifically negotiating carrier relationships, were the key criteria for mobile tech companies.

For me, this is really what signals the onset of Mobile 2.0. Innovation can now be put directly in front of users/customers. The feedback loop for making incremental, or wholesale improvements is near frictionless; technologic Darwinism is now in play.

The broader Internet went through a very similar transformation albeit on the engineering side. Web 2.0 was about having the tools and infrastructure to enable rapid development of ideas into services. Good ones thrived; bad ones were either modified or tossed by the wayside. Of course there are still huge challenges facing mobile developers, entrepreneurs, users, etc, but those challenges can now be translated into solutions.

Lots of bloggers and industry folks are continually talking about a ‘bubble’ in Silicon Valley tech (venture funded private companies). Personally, I don’t think anything could be further from the truth. The people I know involved in mobile companies have a passion for innovation and a pretty good understanding of how to succeed. Nearly all have worked both start-ups and the ones who are moving here bring a similar mindset. Show me the problem, let’s figure out a good way to solve it and than get shit done. That’s not a recipe for a bubble; it’s the foundation of practically every society around the world.

As I read about Microsoft’s decision to abandon their acquisition of Yahoo!, I couldn’t help but think how solid a choice that will turn out to be. Microsoft wasn’t buying technology, innovation or engineers; most good ones already left and those that remain will find no shortage of opportunities. They were buying reach and visitors, fools gold in today’s web application space. Yahoo! never understand how to foster innovation, at least during the time I worked there.

I wrote but never posted a long piece on why Y! lost their way. Thinking about it now, it’s not necessary. Res ipsa loquitor. While they might have the number one property in various categories (i.e. Web email), that hasn’t translated into a successful business model. Nor were the products they released ever revolutionary. Compounded by a corporate culture that rewarded sycophant behavior rather than effective problem solving and teamwork, the death spiral began long ago and cannot be reversed. My guess is their stock will get hammered Monday morning, followed by another round of layoffs leading to a further retraction in product originality.

They’ll be talk of future upside, organizational improvements and a unrealistic grasping to the straws of the ideals of the past. But all that’s moot. A friends father once told me an interesting parable in high school. I don’t think I ever really understood it, till recently.

A farmer kept his sheep in a pasture for years. There was plenty of grass, water and a shaded area for the sheep to hide from the mid-day sun. One day, someone accidentally left the gate open and all the sheep ran out. The farmer herded them all back into the pasture and closed the gate, now secured with a lock. The next morning the farmer went outside and realized the sheep had all jumped the fence and taken off, no where to be found.

Nameste.