Isegoria

High-frequency traders are reaping the rewards of not-quite-insider trading:

It was July 15, and Intel, the computer chip giant, had reporting robust earnings the night before. Some investors, smelling opportunity, set out to buy shares in the semiconductor company Broadcom. (Their activities were described by an investor at a major Wall Street firm who spoke on the condition of anonymity to protect his job.) The slower traders faced a quandary: If they sought to buy a large number of shares at once, they would tip their hand and risk driving up Broadcom’s price. So, as is often the case on Wall Street, they divided their orders into dozens of small batches, hoping to cover their tracks. One second after the market opened, shares of Broadcom started changing hands at $26.20.

The slower traders began issuing buy orders. But rather than being shown to all potential sellers at the same time, some of those orders were most likely routed to a collection of high-frequency traders for just 30 milliseconds — 0.03 seconds — in what are known as flash orders. While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee.

In less than half a second, high-frequency traders gained a valuable insight: the hunger for Broadcom was growing. Their computers began buying up Broadcom shares and then reselling them to the slower investors at higher prices. The overall price of Broadcom began to rise.

Soon, thousands of orders began flooding the markets as high-frequency software went into high gear. Automatic programs began issuing and canceling tiny orders within milliseconds to determine how much the slower traders were willing to pay. The high-frequency computers quickly determined that some investors’ upper limit was $26.40. The price shot to $26.39, and high-frequency programs began offering to sell hundreds of thousands of shares.

The result is that the slower-moving investors paid $1.4 million for about 56,000 shares, or $7,800 more than if they had been able to move as quickly as the high-frequency traders.

Multiply such trades across thousands of stocks a day, and the profits are substantial. High-frequency traders generated about $21 billion in profits last year, the Tabb Group, a research firm, estimates.

Japanese phones suffer from Galápagos syndrome:

Japan’s cellphones are like the endemic species that Darwin encountered on the Galápagos Islands — fantastically evolved and divergent from their mainland cousins — explains Takeshi Natsuno, who teaches at Tokyo’s Keio University.
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Yet Japan’s lack of global clout is all the more surprising because its cellphones set the pace in almost every industry innovation: e-mail capabilities in 1999, camera phones in 2000, third-generation networks in 2001, full music downloads in 2002, electronic payments in 2004 and digital TV in 2005.

Japan has 100 million users of advanced third-generation smartphones, twice the number used in the United States, a much larger market. Many Japanese rely on their phones, not a PC, for Internet access.

Indeed, Japanese makers thought they had positioned themselves to dominate the age of digital data. But Japanese cellphone makers were a little too clever. The industry turned increasingly inward. In the 1990s, they set a standard for the second-generation network that was rejected everywhere else. Carriers created fenced-in Web services, like i-Mode. Those mobile Web universes fostered huge e-commerce and content markets within Japan, but they have also increased the country’s isolation from the global market.

Then Japan quickly adopted a third-generation standard in 2001. The rest of the world dallied, essentially making Japanese phones too advanced for most markets.

At the same time, the rapid growth of Japan’s cellphone market in the late 1990s and early 2000s gave Japanese companies little incentive to market overseas. But now the market is shrinking significantly, hit by a recession and a graying economy; makers shipped 19 percent fewer handsets in 2008 and expect to ship even fewer in 2009. The industry remains fragmented, with eight cellphone makers vying for part of a market that will be less than 30 million units this year.

Teens don’t twitter, Cringely notes — not even the ones who send and receive 14,000 SMS text messages per month, like a girl named Echo:

Yes, Echo has unlimited texting, but among her friends this behavior isn’t unusual and it says a lot about how media habits — good and bad — are changing in our culture.

If a typical month has 30 days that’s 720 hours, a third of which we’ll guess Echo spends asleep, giving her 480 hours of texting time per month. Fourteen thousand texts (the number was actually higher, but we’ll round it down for simplicity) divided into 480 hours is about 29 texts per hour or about one every two minutes. Since texting is usually a binary activity (the texter sends a text for every text they receive) we can guess that Echo writes about 7,000 text messages per month, with writing probably taking twice as much time as reading. Half an hour at the mall with a stopwatch told me the average teenage SMS message takes about 20 seconds to type (if you can call it typing) suggesting that Echo is spending about a quarter of her waking time on texting.

According to both Neilsen and the Pew Internet Life Project, Echo is an outlier, a user of texting at prodigious levels beyond her peers. A Neilsen study from the second quarter of 2008, for example, says that mobile phone users age 13-17 send or receive an average of 1742 texts per month, which would only require 7.25 hours by my reckoning. So Echo is an outlier, but on the other hand her data is fresher and texting IS rising at a rapid pace.

So who cares? Advertisers care. Kids who are texting aren’t attending to TV ads while they are doing it, nor are they reading magazines or newspapers (what are those?). So advertising is coming quickly to SMS.

TV executives care. Remember those words “standard text messaging rates apply” at the end of every American Idol episode? Well for reality television, texting means revenue. Idol averages 30 million voters per week of which a quarter are using SMS that reportedly yields a nickel per vote to the TV producers. Seven and a half million messages per week and 12 weeks of voting yields another $4.5 million per season for Simon and the gang.

Educators care because texting competes with other activities like paying attention at school and doing homework. Keeping kids from texting in school is almost impossible.

To really understand the Echo phenomenon, though, you have to appreciate that she’s a very pretty girl living in a semi-rural area where kids like to complain that there isn’t anything to do. So they gossip. If teens twittered, which studies show they don’t, Echo would be a twitterer because her peers are interested in her life. And that’s what really makes her an outlier, because Echo is an opinion leader and a trend-setter and SMS — generally a one-to-one technology — isn’t well-suited for that. So the poor girl has to work really hard to keep all her friends informed, using an antiquated interpersonal communication technology as an ad hoc social network.

What’s most interesting to me about this phenomenon is the part about teens not twittering. All the studies show that’s true but don’t seem to look for causality. They miss the simple point that twittering is public behavior (one-way at that!) and texting is private and bi-directional. An adult or a teen celebrity might twitter but most regular kids see what they are communicating as too private to share with anyone other than the person for whom it is intended, much less any old creep who chooses to subscribe. And divas like Echo, who might happily embrace a more public channel, are trapped by the tools of their audience.

Girls age 13-17 are interested in relationships (who likes who) and boys age 13-17, who would normally be interested more in things, also happen to be generally obsessed with girls age 13-17, effectively dragging boys into the sway of SMS, too, sustaining an industry.

There’s clearly a new product opportunity in here, somewhere.

Jared Schiffman and Phillip Tiongson, co-founders of Potion, have developed an interactive wine bar that transforms floors, walls, and furniture into communal screens that are controlled by gestures.

Tom Weber argues that the real genius of the Kindle is what it doesn’t do:

When my Kindle arrived from Amazon earlier this year, it felt at first like a severely crippled computer. After all, it has a display screen, a keyboard — even a wireless connection and a web browser of sorts. But every time I tried to indulge my digital-media-trained attention span, pausing in the middle of a book or article to check baseball scores or skim a few blogs, the experience was too cumbersome to enjoy.

Over a few weeks, I rediscovered my ability to simply read the book or article I had punched up in the first place. (Just like — gasp! — old-fashioned printed matter.) It’s particularly enjoyable when reading a newspaper or magazine — enough so that I’ve been routinely purchasing some of these publications when I could have grabbed my laptop and read them for free on the web. In effect, I’m paying for the lack of distraction.