At 4:58 PM +0000 6/13/00, Anonymous wrote:
> > Personally, I think the market for casual-grade untraceability is
>> limited. Which is not to say that the market for high-grade
>> untraceabily is any better. Most people don't think much about
>> security.
>
>You'd think the one area where there would be a market for reasonably good
>untraceability is online discussion boards, particularly the financial
>forums. Every week there is an article about another company suing its
>online critics. And so far the yahoos and aols have just rolled over and
>provided the real identities behind the flimsy protection of nicknames.
But most people obviously don't _think_ they're going to be sued. In
fact, there are tens of thousands of chatters in groups/boards like
Raging Bull, Silicon Investor, misc.invest, and so on, and yet only a
small number actually get sued.
Unless and until ZKS spreads more FUD--which is probably a good
marketing ploy--most users will be happy with very casual security.
(And as I will be discussing below, even if ZKS were to successfully
scare a lot of users into adopting their product, I question whether
the _numbers_ of customers needed to make ZKS a wise investment will
ever be seen. I calculate, below, that ZKS will need about 300,000
Freedom customers per year to do even moderately well. Fewer than
about that number and they are burning through their cash. Way above
that number and they may do very well indeed.)
Silicon Investor charges money. I got in on the "free account" deal
when SI started...then they claimed to have no record of me and now
they want $125 a year for membership. (The level of discourse is
abysmal. Most posts are one-liners, due to lack of good quoting
software and due, I presume, to the "repartee" mode. Articles like
mine, like this one, are longer than all but a very few SI posts.
Why bother? I certainly am not going to pay SI any money.)
SI is now bundling memberships with E-trade sign-ups. Even finding
out how to pay them the $125 is not easy to find on their Web site.
My assumption is that so few folks are shelling out $125 to joint a
chat room that they are de-emphasizing this mode.
(TheStreet.com is also finding that most customers won't pay for
their Web site. They are structuring their business plan.)
The issue they face, and Web sites face, and PGP/NAI faces, and ZKS
faces, is that most people simply don't want to be bothered with
paying for things they aren't convinced they'll need. And most Web
sites are not needed.
I said many years ago that computer security will be driven,
eventually, by insurance costs. As with safes (vaults), better safes
were bought because insurance premiums were lower with better safes.
Insurance companies have a way of calculating costs and computing the
net present value (NPV) of buying a better safe. The merchant who has
never been robbed and so thinks he never _will_ be robbed is not the
guy driving the development of better safes. Analogies with crypto
are obvious.
Joe Sixpack is not likely to pay anything for PGP and probably won't
pay ZKS $50 for the privilege of having pseudonyms. Terry the
Terrorist may, but only if the system is truly robust. Perry the
Pedophile almost certainly will, but will get royally pissed if ZKS
cancels his nym for "abuse."
(I told Austin and Hammie a year and a half ago that one of the first
accounts I plan to set up with ZKS will be accounts like these. Not
necessarily real terrorism or real pedophile uses, but the
_appearance_ of such uses. Then I'll report to the world what happens
to them. Not because I want ZKS to fail, but because a nym system
which cannot even be used thusly is doomed.)
Hey, I have real problems figuring out how ZKS ever makes money by
collecting only $50, if they get even that, for customers for life.
Crunching the numbers for their burn rate, the expected ROI on the X
million they've raised, numbers of customers, etc., is not something
I'm going to do unless more hard numbers come my way, but the basics
are clear: just the annual bond yield on, for example, $50 million,
would be about $4 - 7 million, depending. And their 100 or more
employees, plus office space, plus other costs, must be running above
$10 million a year. (Figuring a loaded rate of at least $100K per
employee. This may be lower if stock options are considered, but not
by too much. And it coudl be higher, depending on office lease rates
up there.)
So, investors face a "delta" between what they could have done with
their money and what they actually did with it of about $15 million
on a ballpark figure of $50m in investments. The customers must pay
fees sufficient to make up the difference.
(This is a weird way of computing ROI, I'll grant you. But I'm making
so many assumptions, based on ballpark estimates, that this "back way
in" is the only way that makes sense right now. How many customers
does ZKS need to meet even the basics of paying their staff and not
eating into the VC money at too great a rate.)
So, if ZKS can sign up 300,000 new Freedom customers per year, they
sort of break even. They pay their salaries and office rentals and
some amount of overhead, and they pay their investors a modest return
on their investment. Or at least they're not burning the VC money at
too great a rate.
(No, they don't actually pay their investors. Their investors are
hoping for a 3-10x return on their money. Through an IPO, typically.
But this calculation shows that if ZKS doesn't get at least a few
hundred thousand customers per year, at $50 bucks apiece, then the
economics just don't work.)
Another, similar, way to look at the economics is to calculate the
cost per customer. This is how cable t.v., ISP, and Amazon figures
are often looked at.
Now if ZKS were to become The Next Big Thing, signing up tens of
millions of customers, then the incoming money flow would be vastly
greater than the burn rates calculated above. The investors would see
the 3-10x return they're hoping for, the salaries would all get paid,
and the business would be a success.
Will they sign up tens of millions?
Myself, I'm wondering if they'll sign up a fraction of the 300,000
they need at minimum. Ever, not just per year.
It's a tough business. Glad my money isn't involved.
--Tim May
--
---------:---------:---------:---------:---------:---------:---------:----
Timothy C. May | Crypto Anarchy: encryption, digital money,
ComSec 3DES: 831-728-0152 | anonymous networks, digital pseudonyms, zero
W.A.S.T.E.: Corralitos, CA | knowledge, reputations, information markets,
"Cyphernomicon" | black markets, collapse of governments.
