Check out this video of my friend Ginger Costa Jackson singing in Verbier, Switzerland with Rufus Wainwright! I was so delighted by this I just had to share it. Ginger is one of the most talented and beautiful young opera singers.

I met her in Utah and she once gave us a little performance at our house. Set on the side of a huge mountain, this is a rather large house with a cavernous living room. She shook the rafters. The sound of her powerful voice traveled through my open windows, down the mountain and caused all the neighborhood dogs to howl. Astounding.

Ginger now performs all over the world and in New York City at The Metropolitan Opera.

This also happens to be my favorite song from Rufus. Little Sister is a sad song set in paradoxically cheerful music. The lyrics are bizarre but profound if you dig deep.

Beatles tracks are widely pirated on P2P networks. Even Paul McCartney doesn’t object to people downloading Beatles music illegally. The suits at EMI need to learn that having a tiny percentage of something is better than having a lot of nothing.

It’s been a busy year and I haven’t been able to catch as many Red Sox games as I would have liked. Granted, the urgency has been diminished by two championships in the last four years after a near century of long-suffering from close calls and dramatic second-place denouements. The championship in 2004, which broke the slump, was highly cathartic and wonderfully expressed by this surprisingly sympathetic and understanding Nike (NKE) commercial. I cry every time I watch it. Since that 2004 campaign, I’ve watched the franchise grow in sophistication. The team’s use of sabermetrics and shrewd market operations has made it the closest thing to a dynasty in Major League Baseball.

This year, my precious Boston Red Sox are once again in the playoffs and are on the verge of eliminating the Los Angeles Angels from the first round. Jon Lester, the young pitcher and cancer survivor, spun a marvelous Game 1 against the Angels and looks like he will become another ace for my boys from Beantown. His pursuit of excellence in the face of great challenge serves as motive inspiration. J.D. Drew, the marvelously talented but oft-injured outfielder, hit a late tie-breaking home run in Game 2 for the victory. Odds are, the Red Sox will win this series as few have ever come back from a two game deficit in a five game set.

The Red Sox enter the playoffs as this year’s Wild Card in the American League and many unsophisticated “gurus” or analysts would have you believe they are no longer the best team in baseball. Disney’s (DIS) ESPN staff of “experts” has put together a Power Rankings list that has the Red Sox ranked as the fourth-best team. They couldn’t be more wrong. I’m going to argue that the Red Sox are indeed the best team in baseball.

Sure, they did not finish with the best record, but wins and losses are only one way to look at dominance. I’m looking for an approach that reveals more truth by looking at the numbers behind the numbers. Much like the superiority of On Base Percentage + Slugging Percentage (OPS) as a tool for analysis over the simplistic Batting Average, which was nicely documented by the oft-cited Moneyball by Michael Lewis. Winning Percentage, and more accurately, winning percentage in the playoffs, is the only thing that counts in the end, but I think we can gain a deeper appreciation for a team’s record by looking at more nuanced numbers. At the same time, I’ll try to keep in mind jazz musician and civil rights activist Charles Mingus’ timeless insight; “Anyone can make the simple complicated. Creativity is making the complicated simple.”

Another way to look at dominance is to examine the Run Differential each team achieves. Run Differential is simply the total offense (runs scored) minus the total defense (runs allowed) over the course of a 162 game season. It stands to reason that a team that score more runs than it allows to opponents, over the course of a whole season, is a winning team. The degree to which it can score runs and limit opponents’ run-scoring should determine its level of success. The greater the Run Differential, the better the team and the more dominant its victories. A seasonal Run Differential is a measurement of a team’s sustained ability to win or dominate. The table below shows the records of the eight playoff teams.

By Run Differential then, the Red Sox should only be the second best team in baseball. ESPN has a standings report that shows the Chicago Cubs finishing the regular season with the best run differential. The lovable losers from the Windy City scored 184 runs more than they surrendered. The Red Sox only managed to score 151 more runs than their opponents. The Philadelphia Phillies rank third with a run differential of 119 runs. The emerging Tampa Bay Rays have 103 runs more than their foes. Interestingly, the team with the best record in the regular season, the Angels, only managed to score 68 runs more than they gave up.

We can’t stop at Run Differential. What if the American League is the league with better teams and thus tougher competition? What if the National League contains better talent? We need to look at what I am inclined to call Relative Dominance, Adjusted Run Differential, or something to similar effect. With the unbalanced schedule, teams play opponents from their own division more frequently. So an examination of the competition within each division could give us clues as to who is relatively more dominant. For example, the Red Sox and Rays both play in the same division and face each other more frequently. They had to assemble good records while engaged in this battle of behemoths. Perhaps the Angels achieved their best record by playing against relatively weak division rivals out West.

The idea is to award teams that assembled winning records against tough divisional competition and to penalize teams that achieved winning records against futile divisional competition. What if we simply tallied up a division’s cumulative Run Differential and added it to the playoff team’s Run Differential. In the American League East for example, we take all the teams in the division and add up their cumulative Run Differentials and get a +333 value. Then we add in the Tampa Bay Rays’ Run Differential of +103 to get a +436 value. When we do the same process for the Los Angeles Dodgers, we end up with a -203 value! The Dodgers beat up on a bunch of sissies. Below is a table of this analysis.

It is interesting to see that the team with the best record entering the playoffs, the Los Angeles Angels, and the team with the weakest record to make the playoffs, the Los Angeles Dodgers, both have a negative value for Relative Dominance. They both beat up on hapless division rivals. But Relative Dominance tells us, surprisingly, that the Angels are a lot weaker than their record suggests, given they achieved the best Winning Percentage in the American League.

The Red Sox, despite entering the playoffs as the Wild Card, is the strongest team when measured by Relative Dominance. They scored the biggest Run Differential in the toughest division, a division that included the wildly successful Tampa Bay Rays, the hated New York Yankees, and the tough luck Toronto Blue Jays. Only the Baltimore Orioles had a losing record and negative Run Differential.

I acknowledge that this is only one way to look at a team’s record.  I’m sure there are more robust methods out there like Bill James’ Pythagorean Theorem.  Are there other methods that could better describe a team’s winning record?

Of course, we still have to play the games on the field. Many say that baseball is unpredictable. I say baseball is mostly predictable but there are occasional surprises. The Chicago Cubs, the team with the strongest Run Differential during the regular season, were just eliminated by the Los Angeles Dodgers. This was a huge surprise and an Herculean feat pulled off by the Dodgers.

The Red Sox and Tampa Bay Rays are on the verge of advancing to the next round. Their matchup in the American League Championship Series will be the real World Series as they are the two strongest teams on paper. As a member of Red Sox Nation, I’m most nervous going into this next round with the Rays. The Rays are younger and hungrier – you can never discount that in life. Whoever wins the American League pennant will be the favorite to beat the National League champion. We shall see.

If the Red Sox win it all again for the third time this century, general manager Theo Epstein and owner John Henry will truly have built a dynasty. This post-catharsis dominance has been an enjoyable departure from a long bout of depressing close calls.

This post is not really about politics. Sure the presidential campaign continues marching towards an exciting conclusion. Sure a sudden bevy of vocal, cynical, and amateurish political observers and bloggers are loudly decrying the two presidential candidates as basically undifferentiated “clowns.” There are major differences between the two parties and the two candidates – would we really be so divided as a nation and would our political debates be as heated if they are essentially the same? Please people, let’s be respectful of our diverse differences and acknowledge that there are a mosaic of opinions on how best to govern this country. Often, these opinions diverge widely.

The Left vs. Right Phenomenon
This post is actually about the dichotomy of “right-brained” people who think intuitively and creatively vs. “left-brained” people who think analytically and logically. There are proponents on both sides who contend that their side is better (not unlike our political pundits). Books such as A Whole New Mind: Why Right-Brainers Will Rule the Future and The Rise of the Creative Class make a forceful case for the right-brainers. Other books such as Building Left-Brain Power and Being Logical make an equally convincing case for the left-brainers.

We are Divided
In my work at Design Engine Lab, I interact with designers who believe that creativity and art reign supreme. They dismiss “soulless” businesspeople and “middle-managers” who think logically. When I interact with businesspeople in the venture capital or private equity worlds, they pay little attention to “frivolous” artists who speak in soft language and cannot deliver against measurable hard metrics and milestones. Both sides contain some truth but they are more wrong than right.

Connecting the Dots
The fervent advocacy of the different hemispheres of thinking by their respective fanatics threatens to create a shortage of generalists or whole-brainers. In this increasingly competitive world, we need generalists who can traverse both sides of the fence with aplomb and deft agility. The ability to communicate and “connect the dots” or weave multi-disciplinary fields of knowledge will emerge as the premium skills of this century. Effective communication has always been a desired skill but we will increasingly need leaders who can communicate with engineers and financial analysts on the left side along with artists and storytellers on the right side. Leaders will need to tell compelling stories and extract critical analytic insight from a swamp of data with equal mastery.

Mental Agility
This video makes a quick and fun exercise to explore whether you are right-brained or left-brained. How does the figure rotate? Do you see it rotating clockwise or counter-clockwise? I can make it spin either way in my vision.

I’ve tried all my life to expose myself to a myriad of wide-ranging experiences. If you look at my diverse background of life and career experiences, you’ll find it very difficult to typecast me in any single role. My goal is to be able to add value and lead whether I’m in a crowd of industrial designers or a crowd of database programmers.

The ability to synthesize disparate fields of knowledge leads to innovative thinking and innovative breakthroughs. Innovation arises strongest as a result of the combination of logical and intuitive thinking models. Thus, engineers can think innovatively, think creatively, and make beautiful things. Artists can use logic to create works of art that are beautiful and structured at the same time. The ultimate goal is innovation, not the singular domination of left or right brain modes of thinking.

To conclude, enjoy this painting by Georges Seurat. A Sunday Afternoon on the Island of La Grande Jatte was painted entirely in dots, what is known as pointillism or divisionism. This was a drastic departure from the tradition of painting in strokes. Today, the pixels in our computer screens follow Seurat’s original insight.

Georges Seurat – A Sunday Afternoon on the Island of La Grande Jatte

The Web is changing. The current Web is designed to allow computers to retrieve and deliver documents from other computers for the end user to view, read, and interpret. As anyone who has used Google’s (GOOG), Yahoo’s (YHOO) and Microsoft’s (MSFT) search engines can attest, sometimes the retrieval of desired documents and information is accurate and sometimes it is way off base. The Semantic Web, others prefer to call it Web 3.0, has the potential to change the game completely. In the Semantic Web, computers have the ability to understand the meaning of things, content, and documents. In essence, computers can read and interpret information, thereby lightening or shortening one of the steps human users have to perform in order to obtain, discover, and understand information online.

The game is changing but it has just begun.
The transition to Web 3.0 is in its nascent stages. Much work remains before it becomes a widespread reality but the promise is enormous. Some potential breakthroughs include a deeper understanding of user behavior, understanding what matters to them, and a revolutionary improvement in search. A lot of my work centers around health informatics, privacy of data, and multi-dimensional messaging. Much of it would be helped tremendously with the more intelligent approach promised by the Semantic Web.

Everyone is a publisher.
Google made a quantum leap over existing search engines when it launched. As the Web grows and everyone has become a publisher, I’m sure you’ve noticed that the search results have deteriorated in quality. This is because Google’s search engine cannot extrapolate or extract meaning from the web pages it scans and indexes. It can only match the words you type into the query field with the millions of web pages or documents that contain those same words. The next great search engine will be a semantic search engine. This could still be Google, but it will be a completely different Google from what we’re used to now.

Learning more about the Semantic Web.
Jupitermedia Corporation (JUPM) is producing the first ever Web 3.0 Conference & Expo this October in Silicon Valley. Some of the cutting edge companies pioneering advances in attendance include Dapper, Delve Networks, Metaweb Technologies, Powerset (recently bought by Microsoft – maybe Gates and Company get it after all, despite the bad Seinfeld commercials), Hakia, Peer39, and Zemanta. It’s exciting to see significant sums of venture capital being devoted to this opportunity to radically change search and the Web in general. I will be speaking in the Enterprise Information Management session.

Even the mighty are falling. The last two major independent investment banks on Wall Street, Goldman Sachs (GS) and Morgan Stanley (MS), have received permission from the Federal Reserve to convert from traditional investment banks into commercial banks or bank holding companies. Plenty of ink, digital or otherwise, has been spilled about the disappearance of investment banks so I won’t dwell much on that. We’ve seen the collapse of Lehman Brothers (LEH) and Bear Stearns. Still somehow, I’m sure there were some who sentimentally held out hope that the two shiniest of white shoe firms in investment banking would survive relatively unchanged. Disappointingly, Goldman Sachs and Morgan Stanley will now join the ranks of Bank of America (BAC) and Wachovia (WB) as large commercial money center banks serving the retail masses.

It remains to be seen what will happen to the investment banking businesses of Goldman and Morgan. Other commercial money center banks like Bank of America and Citigroup (C) have been able to operate smaller investment banking divisions within the corporate umbrella. While the market is caught up in short-term financial myopia (worthwhile because some fear a total meltdown), I’m more interested in the long term strategic implications.

Survival – It is clear that the decision to convert to a commercial bank was spurred in part by a need to raise capital and survive. Becoming commercial banks allows Goldman and Morgan to tap the emergency funds that the Fed has made available. Goldman has also reached an agreement to secure private funding as well from Warren Buffett, the head honcho at Berkshire Hathaway (BRK-A). Morgan has agreed to sell a piece of itself to Mitsubishi UFJ Financial Group (MTU), in a move reminiscent of the Japanese shopping spree of the 1980s. In the panicked rush to shore up our faltering financial system and institutions, have we given enough thought to these combinations and their future implications?

Initial Public Offerings – Goldman Sachs and Morgan Stanley consistently topped the league tables as the best bulge bracket firms with the power and reach to handle large IPOs. No one is thinking of going public in this market environment but there will come a time when all is right again and innovative businesses will want to go public. Who will be there to sell the hype and coordinate the logistics?

Pure Investment Banks – Will there be a changing of the guard? The investment banking divisions within commercial bank holding companies have never been able to win more business than the Goldmans and Morgans and Lehmans that focused deeply on investment banking and merchant banking. Is it reasonable to assume that Goldman and Morgan will maintain their dominance of investment banking while converting into commercial banks? I think there is merit in the focus of pure investment banking. It will be interesting to watch if other players like Jefferies Group (JEF), Greenhill & Company (GHL), and Stifel Financial (SF) can aggressively move to fill the void. I think these stocks will perform well over the long term as they jockey to become the next white shoe firm (so long as they haven’t gotten involved with all the toxic financial instruments floating out there).

Talent Exodus – Look to the Yahoo! (YHOO) saga to see that Talent (with a capital T) goes where the opportunity is best and where it can operate with the least restraint. Goldman and Morgan will see their cream of the crop flee to hedge funds or the remaining smaller, albeit pure play, investment banks to ply their trade. Goldman’s proprietary traders generated a majority of the firm’s profits so I expect those guys will find happy homes at hedge funds. Why would any truly good trader want to be a part of Goldman Sachs now? On the other hand, I’ve rarely seen a guy from the sell side of investment banking be able to withstand the ruthless performance pressures of the buy side though so I expect there will be a ton of unemployed investment bankers. My how MBA programs will be flooded with applications. Brush up on those GMATs cause you’re going to be competing against a horde of former ibankers. Why would any truly good trader want to be a part of Goldman Sachs now?

There is a lot of knee-jerk anger and many hyperventilating voices calling for change and placing blame on government, government officials, greedy business executives, mindless consumers, etc. I’m over that already, in fact, I’ve never been there in the first place. I’m only interested in profiting from what the future will bring and what we can learn from history. In that light, let me end by quoting one of the great Founding Fathers.

“All human situations have their inconveniences. We feel those of the present but neither see nor feel those of the future; and hence we often make troublesome changes without amendment, and frequently for the worse.” – Benjamin Franklin (1706 – 1790)

This video on YouTube, apparently uploaded by employees at Overstock.com, does a good job summarizing the Byrne Saga and the reactions of incredulous journalists. A few highlights:

• “It’s going to be something (naked short selling) that makes Enron look like a tea party.” The Bloomberg interviewer responds with skepticism and says, “That’s a pretty powerful thing to say, Enron was a $100+ billion company.” To which Byrne replies, “This is bigger.” — The market has collectively lost trillions and we’ve seen the collapse of some of our most prestigious and once-profitable financial institutions.
• The Money Honey, Maria Bartiromo’s expression of disbelief is priceless, “House of cards?!?!” — She has a deficit of imagination that prevented her from even entertaining the possibility that Byrne had a chance at being right.
• Dylan Ratigan, the host of Fast Money, illogically equates warning about the potentially damaging consequences of naked short selling with “not giving the market any credit for the prosperity that has been created.” — Ratigan is an entertaining fellow is the best I can say about him.

To be sure, naked short selling is not the only culprit in this financial market meltdown. I also don’t agree with Byrne that cheap money is another problem; inflation rates in the recent past has been manageable and well within safe ranges. In my opinion (which I have put money on by being short or in cash during the last couple quarters), the problem stems from financial institutions’ ability to employ unprecedented levels of leverage. Sure, cheap money increases the attractiveness of borrowing but that does not excuse the absence of common sense and sound risk management indicated by debt-principal ratios of up to twenty times! I will watch for headlines about the demise of hedge funds that were overaggressive with margin; they have been notably missing from the recent obituaries.

William Holbrook Beard – The Bear Dance

Plenty of attention has been paid to the exotic derivatives instruments that is the fuel to this financial fire, so I won’t dwell too much on the specifics. Warren Buffett has called exotic derivatives “financial weapons of mass destruction.” My main point here is that naked short selling is in essence a method of creating derivatives instruments. Derivatives are contracts that represent an underlying security; they are loosely or tightly tied to a certain asset, but they are not the real thing. Naked short selling is the practice of selling stock short without first borrowing the underlying shares or ensuring that the underlying shares can be borrowed as is done in a conventional short sale. When someone shorts a stock without first borrowing it, that act is essentially the creation of a put derivative on the underlying stock. When a bunch of “naked bears” pile in to short a stock that isn’t balanced by corresponding borrowed shares, we have, in reality, a malicious multiplier effect. At its most logical extreme, you cannot short more shares than actually exist for a company.

I short but I do it fully clothed. I use leverage on occasion and only when I’m way ahead of my benchmarks. But as a little guy I cannot leverage up 10x like the big institutions do. Nor would I want to do that even if I am able to. Patrick Byrne was right to have shone a light on abusive shorting practices. His predictions have been right on target as well. Bittersweet vindication.

Don’t make a run to your bank and demand to close out your savings and checking accounts. If you panic and start trying to cash out your 401(k) and your other investment accounts, you will be part of the self-fulfilling prophecy and contribute to the downward spiral or vicious cycle that is concomitant to all financial panics. Whatever you do, don’t panic.

Please don’t be a newb. Act like you’ve been here before. You might vaguely remember the Russian credit crisis, the Southeast Asian tiger economies melting down, the spectacular dotcom bust, and 1987′s Black Monday. Those crises, as frightening as they seemed, eventually passed. I’m not saying things are going to get better any time soon. We might go into a full-fledged recession. You could lose your job. On the other hand, maybe someone invents teleportation and ushers in a new economic boom. No one knows what the future will bring. Whatever you do, don’t panic.

A few days ago, I wrote about the commoditization of social networks or rather the social networking feature sets that currently make Myspace and Facebook so unique and neat. Pioneers in social networking like Friendster and Myspace introduced a new data and software architecture that, at the same time clumsily and elegantly, met Internet users’ desire to interact and share content with each other. Finding old friends, connecting with new friends, sharing music and videos, playing collaborative games, and expressing oneself to virtual audiences of thousands all were groundbreaking features or functions that captivated a whole new generation of Web users.

These features generated higher levels of engagement (or stickiness) many times greater than traditional web properties. This stickiness in turn attracted marketers and advertisers who wanted to be where the people were. This stickiness premium netted the founders of social networking startups wealth reminiscent of the dotcom bubble. Myspace sold for nearly $600 million in a buyout by News Corporation (NWS-A), Facebook was valued at $15 billion by Microsoft (MSFT), and Bebo’s owners sold out to AOL (TWX) for $850 million.

With great rewards come hordes of wannabes and copycats. Many people are staking their future on social networking. Some are attempting to create me-too social networks. Others are pimping themselves as “experts” in social networking and offering their “consulting” services. I did the same with my SocialOptimize startup. Although my now defunct startup was able to deliver good social networking applications to prominent venture-funded startups, I soon realized that social networking would become a game with few winners and many losers. I argued that once Web 2.0 methodologies become widely adopted and social networks become a feature set rather than destinations, those same Web 2.0 methods will become standardized commodities.

That march to commoditization may occur faster than anticipated. Google (GOOG) recently announced its Friend Connect program, which allows virtually any website to plug in a turnkey social networking suite. Owners of websites can, like Google’s AdSense product, embed a snippet of code in their webpages and immediately enjoy the benefits of offering social networking features to their site customers or visitors. Think of Google Friend Connect as a more powerful Google AdSense, but instead of offering relevant text ads it offers your site visitors the ability to connect with their friends, connect with new friends, interact with each other with messages, and share content.

Here are the search engine giant’s stated high-order benefits of Google Friend Connect (GFC):

• Anyone with a basic understanding of the Web can implement GFC, no need to hire an expensive programmer or self-branded “social media guru.”
• Drive traffic: people who discover interesting sites can bring their friends with them, and can opt-in to publish their activities on those sites back into their social network, attracting even more visitors.
• Increase engagement: access to friends and OpenSocial applications provides more interesting content and richer social experiences.
• Less work: any site can have social components without hiring a programming team or becoming a social network.

That last point is key. Google doesn’t want more “social networks” per se – it just wants more websites to have social features. A while ago, it signed a deal with Myspace to serve Google ads. At the time, Google paid a huge premium and there are reports that claim the Mountain View, CA behemoth has not recouped its cost. Signing advertising deals with mass market social networks can be expensive. Helping mom and pop sites to have social networking features will, in the long run, give Google a cheaper alternative. Google is simply facilitating the creation of more web pages (places to serve its ubiquitous ads), pageviews, and advertising inventory.

The message is clear. You don’t need to become a social network; social networking features are a commodity. Here, have a few social networking features for free.