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Why Netflix is betting on Apps over Channels: It's All About Being 'Native'

Netflix

"Look at the bigger picture." 
- Francis Underwood, House of Cards

Netflix CEO Reed Hastings has written an 11-page essay that's embedded below. It's quite excellent, and lays out his vision for the future of Internet TV (Peter Kafka of AllThingsD has a crisp summary of the key bullet points HERE). 

In particular, it underscores why Hastings' Netflix deserves to be mentioned in the same reverential tones as Apple, Amazon and Google.

For one, there is the clear articulation of a 'North Star' that guides the company forward; namely, winning more of their members 'moments of truth' - i.e., those times when a consumer could play a game, read a book, chat on the phone or watch conventional TV, but chooses Netflix instead.

The virtue of having a North Star is that it instructs clear narrative-driven thinking, tightening focus, process and execution. It is one reason that we readily associate Apple, Amazon and Google as the gold standard companies of their industry, and so few others.

It's also one reason that it almost feels inevitable that at some point, Google (4.3% of their market cap), Apple (2.8% of their market cap) or Amazon (10.3% of their market cap) will **need** to acquire Netflix (I'd add Disney as a dark horse candidate).

After all, TV viewing captures a billion hours a day of consumers' time, and Netflix has created a model whereby 30 million of these consumers are paying a monthly subscription fee for access to the service.

In other words, despite all of the various activities that fight for consumers attention, Netflix is winning at: A) securing members; B) monetizing those members; and C) growing their base through differentiation. 

Talk about **earned attention.**

Netflix is Betting BIG on Apps

Netflix_CompanyFacts

It is with that backdrop that I took particular interest in Hastings' assertion that Apps -- not streams -- but Apps --will replace Channels as the primary construct for delivering Internet TV. He mentioned the term 25 times in the document, no less.

I think that there are two things that one needs to keep in mind relative to the "apps" versus "channels" topic. 

One is that a channel is simply a payload, and an app is simply a wrapper for delivering that payload.

It's no different in that context from saying that Apple turned the phone into an app. We don't need to think about it in that context because the phone app does what a phone is supposed to do.

Quite the contrary. We now think of the iPhone as much more than a phone, right?

Two, is the unlike a simple envelope, the wrapper of an app can actually enable to DO stuff; namely, show you related content, extend the context with communications, enable you to share the content, rate it, excerpt it, roll it into a play list, etc.

The point is that an app can do things that a simple stream can not, and Hastings clearly groks that this is about delivering **native experiences.**

This is also why a show like 'House of Cards' launched with the entire Season 1. In Netflix, binge viewing is a native behavior, right?

Along these lines, Hastings specifically dispels the idea of Netflix even having a fixed notion of what constitutes a 'season' in their model.

It's all about being native, something that I have written extensively about, most recently HERE.

Related:

  1. Apple’s North Star vs. Earth’s Gravity: Four Takeaways from Apple’s Earnings Call
  2. Built-to-Thrive - The Standard Bearers: Apple, Google, Amazon
  3. Mobile 'native' publishing: Why our concept of content must evolve in the post-PC era

Netflix Ir Letter

May 03, 2013 in Amazon, Apple, Digital Media, Entertainment, Media, Mobile, Pattern Recognition, Post-PC, Streams and Nuggets, Television | Permalink | 0 Comments | TrackBack (0)

Apple's iTV and the implications of what Steve said (O'Reilly Radar)

ITV

If I accept conventional wisdom, Apple is getting into the TV-making business because:

  1. The living room is the last consumer segment that Apple has yet to completely remake in its image.
  2. Apple creates new markets where none exist, and it isn't satisfied with merely improving upon existing ones.
  3. Steve Jobs allegedly said that he'd cracked the code for creating an integrated TV set.
  4. If the iPad is really "just" a big iPod Touch, and has already sold 55 million units, then a TV that is "just" a big iPad could do gonzo business.
  5. The business of making TVs is broken, and Apple has to fix it.
  6. Cable and satellite providers are evil, and Apple has to liberate consumers.
  7. Tim Cook "needs" a hit.

As I stated in my last post following Apple's gaudy earnings numbers, I don't accept conventional wisdom because conventional wisdom is dead! Apple killed it.

Read the entire piece here.

UPDATE:

  1. UK's ITV reportedly warns Apple not to brand their yet-unannounced smart television, 'iTV.' Meanwhile, Google updates YouTube for a better experience on Google TV.
  2. MIT Technology Review cites my Apple iTV article in assessing Apple's TV plans.

Related:

  1. The magic adapter: Apple TV and the battle for the living room
  2. It’s Time to ‘Think Different’ because Conventional Wisdom is Dead: Thoughts on Apple’s Q1 Earnings Call
  3. Apple's Segmentation Strategy (and the Folly of Conventional Wisdom) 
  4. Apple, TV and the Smart, Connected Living Room

February 13, 2012 in Apple, Digital Media, Entertainment, iOS, Music, Post-PC, Streams and Nuggets, Television | Permalink | 0 Comments | TrackBack (0)

The Netflix 'narrative' problem, and how to fix it

Netflix-AppleTV-HiRes
A brand is a distillation of the 'narratives' that a company pledges to satisfy for its constituency base of customers, partners, employees and investors.

These narratives speak to the company's value proposition, including the core jobs it is hired for and outcomes that it delivers, and equally, represents a commitment to deliver same consistently. 

When well-managed, the brand creates a trusted bond that can materially increase customer loyalty and operating margins, while reducing the cost to acquire new customers. In the process, such brand equity is tantamount to free advertising, and also inures a nice 'halo' effect on the company's stock.

But, when a brand appears to disregard the promises behind its narratives, irreparable damage can come to the business.

In the packaged goods realm, Perrier is a textbook example of a company doing everything wrong in living up to the standards of its brand (when reports leaked out about the cancer-causing chemical Benzene polluting its sparkling water product), and never rebounding from this disconnect.

Tylenol, by contrast, is a textbook case of a brand coming back stronger than ever by living to its credo in the face of dark circumstances (when pills tainted with Cyanide lead to several deaths of Tylenol users).

Enter Netflix, who faces a comparably life-threatening disaster (to their brand, not consumers' lives) to that faced by Perrier and Tylenol some time back, prompting the obvious question. Is the Netflix story destined to play out like Perrier or Tylenol?

But first, two disclaimers. One, I am a very happy current Netflix streaming customer and a former Netflix DVD customer, having quit the latter when the pricing model changed (I did not see enough value to continue, given my family's usage patterns).

My happiness with streaming stems from the fact that Netflix's streaming catalog is sufficiently wide and deep (although obviously not to the level of the DVD offering), and the service is sufficiently rich and enjoyable that my entire family accesses its programming on a near-daily basis.

As such, Netflix streaming has earned a spot in my living room, and in fact, is the primary usage anchor to my Apple TV.

I state this upfront, as I know many who don't see the streaming programming in a similar wide/deep/good enough light. Your mileage may vary.

The second disclaimer is that when I first trialed the Netflix hybrid service a few months back (yes, I ignored Netflix marketing for YEARS), I contacted DIRECTV, my satellite service, to tell them that I was canceling my Starz pack.

“Why?” Asked the DIRECTV support person. When I told them that I was allocating those dollars to Netflix, I promptly got a significant discount not to cancel Starz, which tells you all that you need to know about how DIRECTV views Netflix competitively.

These two data points provide some context for understanding Reed Hasting’s most recent shareholder letter, where he adroitly positions Netflix streaming as in the 'HBO bucket' (@ $8/month vs. HBO @ $12/month), as Peter Kafka notes in this extended excerpt Hasting's letter in Kafka's excellent ‘Comeback Plan’ piece. Says Hasting:

In television… the networks (ABC, FX, etc.) have long relied upon exclusive content to differentiate among themselves. As video moves online, so too has this practice of exclusive content. HBO has an exclusive license to recent Universal movies that includes its online HBO GO, for example. Netflix has signed exclusive licenses for DreamWorks Animation, for Relativity, and others. In episodic television, exclusives are also the norm. Netflix doesn’t license “Deadwood” from HBO because they see strategic value in keeping it exclusive. Netflix licenses “Mad Men” and “House of Cards” exclusively for much the same reason.

…We don’t have to “beat” Starz or other networks to succeed…We won’t have every movie or TV series; but we do provide enough value that consumers also want to subscribe to Netflix.

Any given consumer will have only one of DirecTV or Comcast, say, for their video service. That is classic either‐or competition. But with premium television networks like Netflix, the more good experiences there are, the more consumers are willing to spend to have multiple channels from which to get enjoyment.

Netflix Faces an Interesting Quandary

But, pursuing such an opportunity is not without peril.

On the one hand, Netflix is well-positioned to go after the HBO ‘premium channel’ bucket. Their long-tail catalog is relatively cheap and deep (in contrast to movie blockbuster programming), and they seem to have a good process in place for locking down that content.

In the big picture, it makes Netflix streaming better value and more enjoyable than HBO, save for HBO's hit series and new movie releases (which is 70-80% of my viewing time on HBO). 

At the same time, it seems very plausible that Netflix can "sprinkle in" enough 'must see' programming to secure a major foothold in this market.

If they can, then being on-demand, having wide distribution and delivering the composite viewing experience that Netflix offers (in tandem with the aforementioned) is a compelling value proposition for their rapidly growing 20M+ base of subscribers.

The quandary, however, is that streaming is diametrically opposed to DVD (and vice-versa), not only in terms of business model, but customer base as well.

It's the proverbial fork in the road, which is why they wanted to get rid of DVD in the first place. However, in being so ready to kick their loyal DVD customer base to second-tier status, they essentially dumped their long-term spouse to run off with the 'hot blonde,' which is tantamount to betrayal.

Is it any wonder that their brand image, stock and subscriber base has taken such a serious hit?

Now, I have a theory as to why they would act so dispassionately (economics aside), but more on that in a moment.

Either way, streaming is now the dog, and DVD is now the tail, and there is no use in pretending that it is otherwise. You can't fully put humpty-dumpty back together again.

For the DVD user, this is a perfect opportunity to see if the grass is greener elsewhere, and if it's not, take some solace that Netflix had their come to Jesus moment, and is re-committing to you. Forgive, but don't forget.

For the non-DVD Netflix user, other than the WTF aspect of how poorly orchestrated this was and the corresponding questions it raises about Netflix's once-pristine stewardship, it's mostly a non-event.

For investors, however, it's a value reset (as Felix Salmon notes at Reuters), for which there are no easy answers, save for time. The stock is down 75% since mid-year, and could go up, down, or sideways. It's anyone's guess. What is HBO worth, anyway?

In a perfect world, Netflix would operate the DVD service going forward (so as to maintain their brand equity), but someone else would own the business, maybe private equity.

What about Warren Buffett? He likes great brands. What about the DVD device makers, who need to extend the useful life of DVDs? 

Pursuing such a move would be Amazon-like in terms of knowing your core business, but being platform-minded and thinking outside the box in terms of growing and mainting the mindshare of your constituency.

Until they reconcile this intellectually, I suspect their body language is going to be akin to the unhappy couple that stays married for the benefit of the kids. Everyone's unhappy, including the kids.

A Brand Collision with Corporate Culture

10a_Images_DevicesI read a particularly harsh take on Netflix’s corporate culture called ‘Netflix: Terror at the Top?’

It argues that Netflix has a fear-based management culture where people are pretty readily discarded if they don’t live up to expectations.

There's good and bad in this. Great companies demand peak performance from their personnel, regardless of whether it’s someone operating at customer-facing, production, business development, marketing or management levels.

'A' players hire 'A' players. 'B's' hire 'C's,' and so on. While there's nothing warm and fuzzy about this, the fact remains that it often leads to better products and solutions.

But, one gets the sense that Netflix is dogmatic about this to the point that people are pushed out if/when they disappoint, and sooner or later, everyone disappoints, which creates a bit of schizophrenia, even if it has (clearly) served Netflix well -- prior to the current cluster-f-ck. 

In this context, one can see how pragmatic, intellectually-focused Reed Hastings sees one business materially contracting, and another showing substantial growth. He sees fundamentally different customer bases (color me dubious on this assertion of his) and different economics + licensing rights.

Were he a cynic, he could simply milk the business AOL-style, and keep his mouth shut. But, then how to position a service where the DVD narrative confuses the messaging, positioning and business approach of Streaming, especially when heretofore, the conventional wisdom was that Streaming was something free bundled on DVD?

Thus, the Qwikster moniker could be looked at one of two ways. As a company intentionally tarring their old business, so as to better segment their new business. 

Or, as a realization that as 'NOT Netflix,' the footprint of jobs that the service could target might change. They have already talked about games, but why not incorporate game consoles and Blue-Ray players, for example?

Either way, they now have a profitable, variable cost business with no uptick in subscriber acquisition cost to maintain.

It’s like saying, “DVD you can come if you want, but streaming is who we're courting.” Hastings basically compares DVD to the aforementioned AOL dialup business in ther earnings call.

Envisioning a Native Controller Client

Netflix-Controller

Here's where's the company can start turning the page. Namely, by showing how, as a native IP streaming service, Netflix has the potential to create new extensions to its core offering that make it more:

  • Social
  • Manage-able
  • Synchronized

The above Netflix Controller client that I've mocked up shows how such an experience might come together.

On the social front, the client makes it easy to broadcast what you are watching now to friends, including one-click access to that current scene/sequence that you are watching now for synchronized viewing, something that can't be readily done with DVDs.

A structured chat interface makes it easy to communicate in a way that is synchronous, shared and contextually linked to the specific content being watched, which opens to door to all sorts of news ways to both discover content and connect with like minds in real-time.

The ability to tie favorite scenes, movie trailers and favorite reviews together into a sort of IMDB on steroids type of listing is the third leg that makes this type of experience fresh and alive.

It hearkens back to a classic old Logitech ad introducing the wireless mouse where they contrast wired vs. wireless by showing a baby wearing a diaper (as the wired proxy), with the label 'Good' above the picture.

Adjacent to it, is the label 'Better,' with a diaper-less, giddy baby peeing a stream in the air. The message being that wireless is liberating.

Netting it out: Netflix needs to play a bit of three-dimensional chess so that its legacy DVD customers, who made the brand what it is, don't irreversibly pollute it, as many are emotionally prepared to do.

In parallel, it needs to spend some with its investor base articulating why Netflix's updated vision is a greater outcome than simply milking legacy (including better articulation of the likely 'honest outcome' for DVD).

And it needs to get back on offense by showcasing what a native IP streaming service can do that neither a legacy DVD biz nor a premium cable/satellite channel can touch.

Related:

  1. The Magic Adapter: Apple TV and the battle for the living room
  2. Apple, TV and the Smart, Connected Living Room
  3. Is Facebook a Brand that You Can Trust?

 

October 26, 2011 in Amazon, Apple, Branding, Coaching, Digital Media, Entertainment, Media, Pattern Recognition, Post-PC | Permalink | 0 Comments | TrackBack (0)

Jolly & Roger's Misguided Adventures: An iPad eBook Adventure Like No Other

J-R-Title_Screen_01_Rev

Produced by Unicorn Labs (Spot the Dot, Rabbit and Turtle's Amazing Race, Unicorn Disco), and created by Stephen Silver (Kim Possible, Danny Phantom) and Frank Rocco (Fairly Odd Parents, Wow Wow Wubbzy), Jolly & Roger's Misguided Adventures is an interactive ebook that is built from the ground up for the iPad.

It features beautiful, hand-drawn art, classic keyframe animations, and a treasure chest full of surprises, including quirky touch interactions, and wondrous, ambient sounds.

Jolly & Roger's is the first chapter in a continuing saga - a story of dueling pirates, a curse, and the quest for redemption. It is also a story about youth and innocence, of a little boy, and his dream to become a pirate.

The book is in late production, and due to ship later this month.

What follows is a short video trailer on the book, and below that, a sneak peek into the world of Jolly & Roger.

eBook Video Trailer

"Sneak Peek" Video

Related Posts:

  1. Rebooting the Book: One iPad at a Time (O'Reilly Radar)
  2. The Five Keys to a Successful eBook Production: The Story of Spot the Dot
  3. Kirkus Reviews gives Spot the Dot a Kirkus Star as a Book of Remarkable Merit

August 04, 2011 in Books, Digital Media, Entertainment, iOS, Media | Permalink | 0 Comments | TrackBack (0)

Comic-Con, Convergence and the Rise of Integrated Media

Comic-Con

"Here’s my prediction: Almost every dotcom idea from 10 years ago that failed will succeed." - Marc Andreessen

When I got into tech back in 1994, convergence was was the holy grail.

It was borne of the idea that one day the then-immovable boundaries between the following industries would collapse, enabling a new kind of integrated value chain to emerge:

  • Television
  • Motion Pictures
  • Music
  • Consumer Electronics
  • Internet
  • Telephony
  • Print Media
  • Advertising
  • Videogames
  • Computing

The promise of this concept led Sony, the inventor of the Walkman, to acquire Columbia Pictures. It led regional phone service provider, Bell Atlantic, seeking to re-factor the communications and entertainment landscape, to pursue a merger with cable TV giant, TCI.

In fact, over the next decade, the 'promised land' of convergence drove a flurry of mergers and acquisitions, reaching its apex when Time Warner merged with AOL.

AOL-TW

That many of these deals failed disastrously (in the case of AOL Time Warner) or were never consummated (in the case of Bell Atlantic-TCI) is besides the point.

Poor execution aside, the pursuers of convergence were simply ahead of their time, a truth bounded by the way that:

  1. Apple has reshaped so many of these industries by vertically integrating them across media, mobile and tablet device form-factors from distribution channel to software platform, apps and media marketplace.
  2. Comcast has leveraged physical connectivity to so many homes (and a commensurate billing relationship) into owning NBCUniversal, extensive cable channel holdings and a growing telephony business.
  3. Amazon has emerged as Walmart, Cloud Computing platform and Kindle/tablet maker, rolled into one.

Put another way, as a VC friend of mine once said, "It's as lethal to be too early, as it is to be wrong."

It's this truth that gives folks like Marc Andreesseen the confidence to predict that many of the lamest ideas of the dotcom period will yet be vindicated (I think that he's right on this one), and it's this same truth that was on display at Comic-Con 2011 aka San Diego Comic-Con International.

A Snapshot of how 'Integrated' Media has Become

Comic-Con-Souvenir For me, the AHA moment in planning my Comic-Con experience was attempting to digest a priori an event guide that was almost 200 pages, and it was full of...actual events!

Consider, a four-day long event that literally envelops the city and county of San Diego, bringing in over 130,000 fans of comic books, horror, animation, manga, games and fantasy, making it the single largest convention in America.

If you want to see how integrated media has become (and can become), ponder an event that provides a unified sandbox for:

  1. Content Producers to showcase, screen and publicize their new Comic Books, Movie Releases, Cable TV shows, Videogames and Toys;
  2. Fans to meet cast members, industry luminaries and their favorite artists, and get their autographs; see their latest projects and hear them talk about them; and, oh yeah, dress up as their favorite characters;
  3. Vendors to sell Books, T-Shirts, Posters, Toys, Artwork, Comics and other industry paraphanelia;
  4. Artists to present their portoflios for review and potential hire by content producers.

CafeDiem Btw, if you're familiar with the integrated media unit known as a "home page takeover" on a web site, consider what Syfy channel did in taking over an actual, physical restaurant (Maryjane's Coffee Shop in Hard Rock Hotel), and rebranding it for the event as Syfy's CafeDiem, down to the signage, tabletops and menus.

One can only wonder if the boring, staid Oscars and Emmy Awards events were reinvisioned as a like-type festival for producers, fans, vendors and artists alike if, maybe, just maybe, the industry would foment a deeper bond between their audience and their slate of programs/movie releases, not to mention the publicity and promotion food chain.

The Moral of the Story

Apple logo blue When I think of the enormous success of Comic-Con (especially relative to the general lameness of the trade show industry in general), and I ponder the recent blowout earnings of both Amazon and Apple, I think about how often conventional wisdom gets things wrong specifically by creating false 'Either/OR' dichotomies.

In the tech business, for the longest time it was not only conventional wisdom, but it was the gospel and hardline religion, that you had to be horizontally organized, and focused on one thing, one discrete line of business, or you were destined to the scrap heap of history.

The truth of the matter is that a lot has to go right, both tactically and culturally, for convergence and integration to work.

But seeing how much of a win (for all types of users) such integrated platforms are across Post-PC (Apple), Commerce (Amazon) and Media (Comic-Con), I think that it's just a matter of time before the next wave - Convergence 2.0 - is born.

After all, where visionary leaders show the way, smart students will follow.

Related Posts:

  1. Ruminations on MacWorld 2011 and the Future of Trade Shows
  2. The Programmable Fan Site: A New Media/Ad Unit Model
  3. Apple's Segmentation Strategy (and the Folly of Conventional Wisdom)
  4. Thoughts on Book Expo America trade show: Rebooting the Book - Part Two

 

July 28, 2011 in Advertising, Amazon, Apple, Books, Digital Media, Entertainment, Games, Marketing, Media, Pattern Recognition, Post-PC, Television | Permalink | 0 Comments | TrackBack (0)

(BEAUTIFUL ART) Jolly & Roger's Misguided Adventures is our next ebook for iPad

J&R-sharp-crop

Jolly & Roger's Misguided Adventures is our next ebook for iPad. It's a really cool story about dueling pirates, a dark curse, and a little boy named Roger, who just wants to be a pirate. Here is some original art that captures the beauty of this book. (Ages 5 & up)

July 25, 2011 in Books, Entertainment, iOS | Permalink | 0 Comments | TrackBack (0)

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