A surprising corporate giant

What company, according to Fortune, is the eighth largest employer in the world, with over 549,000 employees globally?

The answer shocked me: Volkswagen. That's just the tip of the iceberg in terms of fascinating tidbits from this mini profile.

Efficiency experts will tell you that on an employee-per-vehicle basis, Volkswagen looks hopelessly inefficient. Financial analysts will tell you that the company woefully trails its competitors on a revenue-per-employee basis. But VW will tell you that it makes more money than any other automaker – by far.

While VW's stated goal is to become the world's largest car company by 2018, it's already there if you measure it by revenue and profits. Its revenue of $200 billion is greater than every other OEM. Last year's operating profit of $14 billion is the kind of performance you expect from Big Oil companies, not automakers.

Last year's operating profit of $14 billion is the kind of performance you expect from Big Oil companies, not automakers.

How can this be possible? How can VW look so uncompetitive from a productivity standpoint, yet out-earn all of its competitors?

Ah, that's the magic of VW's corporate structure. While business schools teach future MBAs that centralized operations can cut cost by eliminating overlapping work and duplication, VW maintains strongly decentralized operations with lots of overlap. While business schools preach the benefits of outsourcing to cut cost, VW is very vertically integrated.

Anytime a car company buys a component from a supplier, that supplier has to charge a profit. If an automaker can make those components in-house, it gets to keep that profit. VW is building a lot of components in-house.

To dominate you need multiple brands, and VW has more than anyone else.

If an automaker truly wants to dominate the market, it has to accept a certain amount of overlap and duplication. It just goes with the territory. To dominate you need multiple brands, and VW has more than anyone else, which admittedly overlap at the edges. But to VW they are more than just brands.

All of VW's brands (VW, Audi, Seat, Skoda, Bentley, Lamborghini, Ducati, Porsche, Bugatti, MAN, Scania, and VW Commercial) are treated as stand-alone companies. They have their own boards of directors, their own profit & loss statements, and their own annual reports. They even have their own separate design, engineering and manufacturing facilities. Yes, they do share some platforms and powertrains and purchasing, but other than that they're on their own.

Anyone who works in technology will hear an echo in much of this strategy. Volkswagen's model of of running all its brands as independent companies is an example how the biggest tech companies try to push decision-making to the edges, to the teams running a variety of product lines, as a way of trying to remain entrepreneurial, innovative, and nimble. 

The way Volkswagen has vertically integrated is reminiscent of the way Apple has, over time, taken over more and more of the computing value chain, down to opening their own retail stores. Given how Samsung is also vertically integrating and competing head on with Apple in the mobile computing market, it would be surprising if Apple didn't stop sourcing chips from Samsung and take their business elsewhere, to a partner less vertically integrated, like Taiwan Semiconductor.

Volkswagen, by dint of its vertical integration, can capture value wherever it occurs in the value chain, and as the sources of value shift as it often does over the life cycle of technology products, Volkswagen retains its cut. On a related note, look at the last chart on this post at Asymco. Stunningly, Samsung makes more operating income from Android than Google is! In this mobile computing war, Samsung is making money off of both Google and Apple. After Apple, it's difficult to name another company that has profited more from the mobile computing revolution.

Volkswagen is the answer to the subject of this post, but Samsung is nearly as shocking a dark horse of a corporate behemoth.

Participation rate and user backlash

As many have pointed out, the reach of Instagram's TOS aren't significantly different than those of services like YouTube and Twitter. But users don't view all social services as equal (and yes, I treat YouTube as a nascent high potential social service, perhaps Google's best chance to build an elite social network). I don't think Twitter users ever worry about their tweets being turned into advertisements, the concept seems extremely unlikely. As for YouTube, from its earliest days the value of having a video hosting service that offers global distribution immediately, for free, seemed worth any amount of advertising.

More importantly, though, I hypothesize one reason the outcry over the modifications to Instagram's TOS have been so much louder is that the ratio of content creation to content consumption on Instagram is higher than for those other services, or for just about any other social network I use. Almost everyone I follow on Instagram seems to post photos from time to time, certainly more than write on Twitter or post videos to YouTube regularly. We need a name for this metric for content sharing social networks:

Number of users who create content / Number of active users on that content network

I'll just call it participation rate for now. My guess is the higher the participation rate on a content social network, the more the users feel like they're creating the bulk of the value on that network. I don't think that's fair to Instagram as they were nearly perfect in creating the purest of social networks, and they do host and distribute a gazillion photos a day. But no matter, that's how users feel, and how they feel determines how they react when the company imposes a value capture mechanism (or in this case, hints at how they'll do it).

What exacerbated the issue was that the new TOS had language that implied that Instagram was going to use your photos to earn money and not provide you with any financial compensation. The users already felt like they'd created a huge percentage of the value in the network, and now it sounded like they'd be exploited to make the company's owners, who had already earned enough money to live out the rest of their days like some of their more well-heeled users, even more money.

[Note that for professional photographers and celebrities on the service, this is actually a serious monetary issue. Naysayers kept mocking regular users for thinking their terrible food and sunset photos would be monetizable in any way, but I follow a bunch of professional photographers and celebrities who make a huge percentage of their living off of monetizing their photographs, and the idea that Instagram could just jump in and take that is absolutely a non-starter. I hope they don't all flee because where else am I going to get my regular fix of pics from the fairy tale life of baddiebey to leave in a constant state of capitalist envy?]

Without knowing what the participation rate is for the leading social networks, it's difficult to test this hypothesis, but one other way to test this would be to look at those who grumbled the most. I suspect they came largely from those who actively post photos instead of just consuming them.

If anyone has any data on this, I'd love to hear it. Namely, it would be fascinating to compare Instagram to two services which I'm guessing have much lower participation rates: Flickr and 500px. Both of those services embrace what I suspect is an audience composed more of a large population of viewers and only partially of contributors (those who upload lots of photos). Both have designed their service with that user distribution in mind, choosing to monetize by targeting only the power users, that sliver of their population that actually upload high-res photos in volume and who value things like higher upload capacity or limits.

It doesn't seem like a strategy Instagram can easily borrow given their viewer/contributor distribution. What fraction of their users could they tax, and for what features? If it's true they have a more evenly distributed base of contributors, i.e. a high participation rate, it may be easier for them to just show ads for all their viewers. That seems the most likely path.

3D and deep focus

I generally shy away from 3D movies. I find a lot of things about them problematic. One is that polarized glasses, as with all polarized filters, cut at least 2/3 a stop of light. Most theaters don't project the movie bright enough to compensate, so the entire movie looks dark, murky.

Another problem is that a lot of 3D projection, for whatever reason, leaves a lot of the image blurred or ghosted. Perhaps it's shoddy 3D conversion of material not shot in 3D, or perhaps it's poor projection. Maybe you have to sit perfectly in the center of the theater for optimal clarity. Some of the glasses are not comfortable, and often parts of the plastic frame obstruct my angle of view.

Last week Marie invited me to a friends and family screening of Monsters Inc 3D at Pixar. I hadn't seen the movie in years, and it's one of the underrated gems of the Pixar canon, but what surprised me was how much I enjoyed the Dolby Digital 3D. It was quite stunning.

Now, Pixar's main screening theater, in the newly dubbed Steve Jobs building, is calibrated perfectly, as you'd expect, so that's part of it. But as this was an early Pixar movie, digitally animated, I hypothesize that a unique quality of the movie contributed to a superior 3D experience, and perhaps live action films can learn from it: deep focus.

I believe in some later Pixar movies they tried to simulate the shallower focus more common in live action films shot with actual glass lenses. But in Monsters Inc, everything is sharp, all the way back to the furthest horizon in the background. In live action 3D movies, especially those converted from 2D, shallow focus shots are frustrating because they try to convey a 3D space, but as your eye wanders the screen to out of focus areas, they remain out of focus. In real life, though, as your eye moves, the center of your field of view constantly moves into focus. Since Monsters Inc. in 3D respected that convention, it felt very comfortable to let my eye wander around the frame, picking up humorous details of the imaginary world and virtual production design. 

I suspect that one reason I enjoyed seeing Life of Pi in 3D was that much of the movie was set on the ocean, with a very simple background of just ocean and sky. Because the background was so simple, my eye wandered less, and the fixed aspect of the shallow focus didn't distract me as much.

This is problematic, of course, for live action movies since very few of them are shot to only screen in 3D. So most cinematographers are going to shoot with shallow focus to optimized for 2D projection, and from that you can't bring out of focus areas back into focus. And so for the vast majority of those movies, I'll continue to prefer the 2D versions.

I'll be curious to see if I continue to prefer deep focus shots for 3D movies. I suspect that as filmmakers continue to experiment with 3D shooting and projection (for example Peter Jackson with high frame rate 3D for The Hobbit) we'll see cinematographers learn how to optimize the lighting and production design and depth of field to maximize the technique. For now it's largely a gimmick, one often used to try to drive up the average ticket price, and most viewers would do better by steering clear.

Narrative volume imperative

I love Grantland's annual TV roundup which they structure as a series of short essays on various pairs of shows. Chuck Klosterman bats leadoff and takes the job of comparing Homeland to a pair of shows that also ran in its timeslot at various parts of the year, Breaking Bad and Mad Men.

For a variety for reasons, 10 p.m. on Sunday is where great shows are now supposed to live. The only snag is that one of these aforementioned shows is not, technically, "great." Homeland is merely "good" (sometimes "very good," for never more than). And I think I've figured out why.

On Homeland, something always needs to happen.

It's a very succinct summary of why Homeland doesn't belong in the pantheon. Homeland is, essentially, a genre show, with a self-imposed pressure to meet some quota of narrative twists per episode.

This shouldn't surprise anyone since the showrunners are the same ones from 24. That was also a program that started with a bang-up first season but then withered over the years as it confined itself to the narrative gimmick of occurring in real time across 24 hours.

In fact, both of the leading programs on Showtime, Dexter and Homeland, suffer from their slavish devotion to their core narrative conceits. What would improve both shows is recognizing that what is great about them is organic surprise, not the form in which it's packaged.

Programmed aging

In the whole Instagram TOS kerfuffle, Flickr got a lot of mention. I've had a Pro account with Flickr for years, though my annual subscription payment has felt like a charitable contribution the past few years. For what it's worth, I hope Flickr can start to justify the subscription.

I joked that Flickr had been around so long my photos there had naturally taken on an aged tone. But in all seriousness, I would love to use a service that could digitally simulate the effects of the passage of time on content I had produced, whether it was photos, my writing, music or video. Instead of applying the effect all at once, though, I'd love to see it aged gradually, as if the asset existed in the real world. As I'd revisit my photos or videos, the color tint would change, small scratches might accumulate on the video. The background of my blog might start to yellow a bit, like old parchment.

Since the original is digital, it would always be recoverable, but there would only be one aged copy and it would constantly be evolving. So much of how I mark large periods of time in my life is through the tangible aging artifacts of products that have been with me throughout, and some of that awareness of time's movement is lost in this digital age where everything remains frozen permanently in a pristine state.