Samsung apartment cluster in Seoul. It looks like those towers in The Matrix...

The word zaibatsu (財閥) in Japanese, or chaebol (재벌) in Korean, translates most closely to ‘business conglomerate’, but there are some important differences than what Americans or Europeans might understand: zaibatsu are very close-knit to their partner companies, often exchanging shares, emphasis is placed on vertical integration wherever possible, money can slosh around internally much more easily than modern Western law would allow.  While the zaibatsu were broken up after WWII by MacArthur, their shells continue on in Japan: Mitsui, Mitsubishi, Sumitomo. (side note: Mitsui and Mitsubishi each own either side of downtown Tokyo).  In Korea, the Chaebols are even tighter, usually family-run affairs, and pretty much stitch up +80% of the Korean economy.  Perhaps you’ve heard of a few: Hyundai, Smansung, LG, Lotte.

We are now starting to see the rise of the Internet Zaibatsu: Amazon, and Google lead the pack, with Liberty Media, IAC, and other smalle companies following close behind.  These organizations share many of the same qualities of a classic zaibatsu (that sets them apart from just being a conglomerate):

• sympathetic data swapping among properties (either product data or personalized customer profiles) is a central goal in order to maximize economies of scope.  This can bring great seamless integration, or it can dunk you into an opt-in email hell from “partner companies”.
• IT infrastructure is shared wherever possible for economies of scale
• Properties are free to do what they want to meet P&L goals, as long as part of those goals serve the larger good by extending functionality or getting new data sets into the graph.

So far so good, right?  Here’s the thing: zaibatsu are simultaneously tremendous pools of capital and research innovation, but they are also desperately smothering to the environment around them.  The mere hint of a zaibatsu contemplating entry into a market is enough to scare the crap out of the mid-level players.  I am not stating that they are monopolists or oligarchs, just that the zaibatsu structure makes these tough companies to beat.

To a certain extent, the confidence (arrogance) that comes with being a zaibatsu can lead a company into strange directions.  At the extreme edges of the vertical integration strategy, zaibatsu companies will get into businesses where they probably don’t belong.  For example, Samsung specializes in heavy equipment and manufacturing, which lead them to electronics and appliances and all sorts of robots and then data control and professional services.  In the process, Samsung has also bought up huge tracts of land in Korea, which in turn got them into the apartment housing and farming business.  Strange bedfellows.

Google, in a search for ever-more efficient data centers, has gotten itself into the hardware business, data center construction, and overall power management.  Some eyebrows went up, however, when Google started to publicly state it was investigating new ideas toward Fusion power and other nuclear designs.  Is that a natural extension to address their electrical grid needs, or is it just hubris to think they’re so smart they can bring us Mr. Fusion?  Most recently, Google has announced boutiques.com, which may actually put them very close to the line of direct competition with the advertisers that pay the bills.  In terms of competition with Facebook or Amazon, boutiques.com makes perfect sense.  In terms of ’sticking to the core business model’ however, it may stray from the path, IMHO.

Amazon started with books.  Amazon then became such a great early ecommerce store that they branched out to other forms of media.  Soon, Amazon sold everything, including some things that probably don’t make sense, or didn’t really catch fire (like groceries).  That was all horizontal expansion.  The vertical expansion has gone both up the chain and down the layers: Amazon has spent a lot of time and effort to monetize and commoditize as much of their infrastructure as possible.  Their servers, their OS, their digital storage, their shipping are all now services for sale (independent of you being an Amazon merchant).  Shipping, warehousing and business metrics are all available from Amazon.  I’m surprised they haven’t pursued nuclear power like their friends in in Mountain View, yet.

In the end, which model is better?  One school of thought says that the Internet market loves specialization.  As an employee of shoes.com, the day we saw our competitors start stocking watches and trinkets and other chotchkies on their homepages was a good day.  Every day that Zappos moves more toward general merchandise is better for a shoe-only website, right?  The other school (the zaibatsu school) says that it’s all about customer wallet-share.  Anything an organization can do to satisfy more of the needs of their customers is a good thing.

Personally, I am not passing good/bad judgement on either model.  I am just trying to re-introduce a Japanese/Korean term for what we’re seeing lately.

Dilettantes. Middle-class schnooks with some disposable money chasing the big payoff but not enough patience nor smarts to really pull it off. They’re not the suckers down at the Cash-n-Go, and they’re not the rational thinkers at Morgan Stanley, they’re in-between. They know someone really rich, and think that they are just as smart (but they’re not). They work, and they probably save, but not enough. They invest, but regret those investments because they didn’t buy Google.

The Dilettantes come in waves. They were multi-level marketers in the 80s, day-traders in the late 90s, and web developers soon after. The Dilettante Economy revolves around, provides the toolsets for, and celebrates the rare winners (just like a Casino billboard on the freeway that promises you Freedom) within this demographic. Shows like “Flip This House” and “Property Ladder” fed on this, just as Countrywide Loans and all those other loose finance companies made real dollars enabling all this poor behaviour. Before this wave, eTrade, Charles Schwab, and Ameritrade made their mark with fees from the day-traders, and NuSkin, Avon, and Amway before then. Hell, I could trace this economy all the way back to Levi Strauss: the California Gold Rush of 1849 brought a lot of dilettantes, but it was ole’ Levi who got rich by selling them blue jeans sewn from the surplus sailing canvas torn from the ships rotting in San Fransisco Bay.

The New York Times picked this up (and actually did some interviews, unlike my cheap rants here):

“That is an income Randy Haddadin would have welcomed. Mr. Haddadin, 38, moved to Miami Beach in December 2003 from Washington, after leaving a job in information technology. He promptly got his real estate license.
[...]
Mr. Haddadin is now weighing his options. He might seek a job in information technology again, or perhaps help a friend open an Italian restaurant in Miami Beach, while selling real estate on the side.”

In other words, this guy jumped on the IT thing when that was hip, burned out when his skillz weren’t enough, then hawked property. I hope his pesto sauce actually has some punch behind it, because he sure sounds like a Dilettante to me.

So, now that the Dilettantes can no longer feed on each other and the suckers below them, now that the interest-only floating-rate NINJA loans are gone, what is the next big thing?

My guess: debt collection and repo men. I am working on my ‘How to Succeed at Finance Recovery’ kit right now. It goes on sale next month for $499.

Scott saved my soul on more than one occasion. he showed me there is meaning in life– the meaning is living itself. Scott made me watch “The Razor’s Edge” at least twice, until I got it: Life is life– not to be squandered. In this movie, two characters sit in a foxhole in WWI, lamenting the loss of their close friend, who only moments before jumped on top of a grenade to save their lives. In some odd ritual, they listed out the vices of their dead friend, and– through their tears– tell each other that he will not be missed.

Scott lost a battle to cancer last month. He was 38. He likely lived more in those 38 years than many many of us could even hope to do in a hundred years. Scott was brash, smart, quick, and charming. he could cut quick with a comment, but follow up with a trusting support that let others knew he would back them no matter what. Scott was one of my oldest and closest friends.

He will be missed.

If you have a news story or lead you think worth pursuing– please email me here or submit the story yourself at the site. Enjoy!

Well, Seoul is smack in the middle of a bubble herself…

One need only read the local rags to see a daily argument over insane measures going on in Gangnam on the south side, from kidnappings, to school threats (so parents can get their own kids in), to ’stingent measures’ from the government to cool off prices, that– if they don’t work, will be followed by ‘even more stringent measures’. (oooh. we’re scared now!) One telling statistic: 67.2% of the population sees property as the best means to increase wealth (history shows it is the stock market), but this is understandable after the Korean market melted 5 years ago. No stock is as safe as a high rise on the south-side of the river, right?

Every day some pop-off gives his 20 won on the whole thing, but these amount to little more than handwringing and empty rhetoric. From today: “By whatever means, the government needs to deal with speculation. But a path should be left open for investment” and “To open the path of retreat and prevent money from gathering mold is the role of politics.” Whatever.

KoreaTelecom recently laid off 5000, and more will soon follow from the other leading manufacturers. This, to me, is the sign of a coming pop. I give it about 4-5 months more. Right when those guys unemployment benefits start running out, and their credit starts to collapse along with it, we’ll see investment companies call in their mortgages or try to consolidate their holdings, and the whole thing will come crashing down.

Careful with that stick…

I forgot my scissors, so I just hung out by the plate and ate with my chopsticks. The next day, we went for a long drive to see the colors, which was nice, but man– it was a long drive with a bad driver (there, I said it).

All in all it was a nice weekend from the grime of Seoul. It was relaxing to basically sit around and eat for two days, even thought I understood maybe 10% of what was being said around me. They could have all been making fun of me right ther in front of me, but I doubt it. Koreans are warm people once you get to know them.

The more I thought about it, and the more I hang out in Seoul, the more I think he hit the nail on the head. Tokyo has restaurants, markets, museums, shops, (and did i mention restaurants?) that blow your mind. Many is the weekend where I pick a random stop on the Yamanote line and just walk around. There is a magazine that is geared toward doing just that, named “Tokyo Walker“, oddly enough.

Seoul. People in Seoul aren`t so concerned about the restaurants where they have dinner. They don`t care about using their cellphones on the train (strictly verbotten in Tokyo). The entire population here seems like ot buys shirts from KMart– but that`s okay, because it`s _everyone_, so no one really sticks out as underdressed. Just yesterday I bought 4 shirts on the street for $5 each– these aren`t Ralph Lauren, but their pretty close to Van Heusen (gaach, did I just write that?)

Next week I`ll be in Tokyo. It will be good to be home. When I get back to Seoul, it will be good to be here again too.