Since as long as ten or twelve years ago, observers at the bleeding edge of technology have predicted the coming of something called convergence: as long as "bits are bits," television and computing, voice and data, and gaming and the Internet can somehow combine. Convergence was implied to be an end state, the logical extreme of which would be a master device capable of informing, educating, communicating with, and entertaining the owner at his or her whim.
The verdict on convergence is mixed. NTSC television, a standard over 50 years old, remains America's dominant medium. The most successful consumer electronics product of the last five years, the iPod, performs a single function elegantly. Fear and some would say ignorance on the part of content owners like movie studios and record labels has led to a lot of money and energy being devoted to inhibiting convergence through legal, technical, and other means.
On the positive side of the convergence ledger, the tendency toward content and device independence continues to increase. The daily newspaper can be read in a number of forms. Music is available streaming or by download, and on radio transmissions coming via analog airwave, internet, satellite, or digital airwave. Voice can be sent through a wide variety of technologies.
What does this tendency hold in store? Verizon and SBC have been aggressive in challenging the cable companies with fiber near (SBC) or to (Verizon) the premise. In both cases, Microsoft has announced it will supply the operating system for the set-top box, which can include Tivo-like digital video recording. Verizon has announced content partnerships with the likes of HBO, Starz, and other mainstream programmers, meaning that the same company might be collecting for a household's voice, Internet, mobile, and video connectivity.
A mere 15 years ago, a typical American household had as few as four monthly "utility" bills: electricity, telephone, water/sewage, and fuel. It's now possible to have as many as nine: Internet, mobile, local voice, long distance voice, electric transport, electric generation, water/sewage, cable or satellite, and fuel. How people choose to manage the communications components of this portfolio will shape the financial future of some of America's largest companies, including AOL/Time Warner, GE, Viacom, Disney, Motorola, and Comcast, as well as the aforementioned Microsoft, SBC, and Verizon.
One factor in that decision will result from choices as to platforms: how will people manage convergence? Will the model tilt predominately toward a single master device, possibly a Microsoft/Dell PC+TV? (Check out what Dell is doing to TV monitor pricing, by the way: their efficient supply chain is radically undercutting the likes of Sony, and on the global market, flat-panel manufacturers like Samsung and especially Philips are suffering from oversupply, selling at prices below the cost of production.)
Or will the U.S. follow other countries into increasing reliance on a mobile platform? As I pointed out on Bloomberg radio last week, Apple feels justifiably proud of moving about 5 million iPods per quarter. This year, though, we'll start to see phones with hard drives: even if 3% of global units impinge on the Apple domain, that's about 20 million units right there. Steve Jobs is skating along the edge between running a tech stock and running a consumer electronics company. Once he moves the company into the latter markets, volumes can get frighteningly big.
Apart from consumer preference, the other factor to watch will be the fight over who "owns" the customer. Is it really immaterial to Disney whether a viewer watches ESPN over satellite, cable, telco fiber, or on a cell phone? AOL used to be more vertically integrated than they became after selling off the cable properties: will they regret having to buy their way into people's houses on someone else's wires? And what of Microsoft: once they build the OS for the set-top box and maybe the smartphone, will the company be content to run "under" SBC's Cingular and Lightspeed logos? Everyone remembers the outcome when IBM let them do a similar thing on PCs 25 years ago.
Regardless of who ends up on which tier of the pecking order from a vendor perspective, the potential combinations will be fascinating to watch. Some people may opt for a single supplier (Google? Microsoft? Yahoo? SBC?) to eliminate the confusion and tedium of managing multiple logins or information repositories, for example. Others may pledge allegiance to a device (like the Danger Hiptop) regardless of which network it runs on. Finally, a customer's primary task may lead to a particular platform: convergence may mean little to someone who places high value on mobile text messaging.
Convergence implies tradeoffs. Just because you can watch TV on your computer, or read e-mail on your TV, doesn't mean the experience is completely fungible. Maybe the most popular convergence will be two-way rather than an n-way rollup into the "master" device. After all, you can open cans, uncork wine bottles, peel carrots, and cut meat with a Swiss army knife, but very few kitchens subsist on that one tool. Being able to carry voice and e-mail has made the Blackberry quite popular: it's unclear whether playing music would make it more so. The sales of cameraphones don't seem to be displacing standalone cameras, but that could change. Looking forward, will the mobile phone emerge as a serious gaming, wayfinding (GPS), image-capture, voice, messaging, data display, and music platform? Just from a user interface standpoint, it's hard to imagine how one would "naturally" use such a device for such different functions.
So there will be a lot to watch in the next few years. Verizon wants to connect 3 million homes with fiber by the end of this year. Samsung will be shipping 3 GB hard drives on cell phones this year, based on what they showed at CeBIT. Intel and Fujitsu will both sell WiMax chipsets in the near future, making fixed broadband wireless a further element in the connection mix. Handset manufacturers are relentlessly improving, and sometimes innovating. The next-generation DVD will arrive soon once the standard is finalized; HDTV is already here. In short, the technology landscape, particularly in the consumer markets, remains highly volatile, and the stakes look to be higher than ever.
If a company can turn convergence into economic consolidation, the payoff looks to be handsome -- which explains the ambition of the plays being made by most of the companies already noted: Motorola has Canopy, Verizon has FiOS, lots of folks have huge investments in search, and the list goes on. These are bet-the-business investments in most cases, so punishment for the also-rans will be harsh. Fortunately for most of us, it's plenty rewarding watching the story unfold.
Friday, April 22, 2005
Thursday, March 31, 2005
March 2005 Early Indications II: Information Gumbo
The world of data has entered a notably rich period of evolution. Search technologists at a variety of startups and deep-pocketed incumbents are engaged in an arms race, with new tools and capabilities appearing almost weekly. (Examples include A9's Open Search, Ziggs, Picasa, Browster, Oodle, and EVDB.) RSS is expanding beyond news and blog feeds. Tagging and other bottom-up classification methods, including wikis, are growing at a phenomenal rate.
Why do these matter? Taken in the aggregate, they reflect a new set of assumptions about people and what they do with information. Depending on how things unfold, we might get much closer to wide usability than the hard-coded obtuseness of a relational database or enterprise application typically allows. Rather than having to know some arbitrarily defined, precise syntax to get from A to B, for example, people can both name and define something themselves and then trust new search and display techniques to learn what they need to know.
In no logical order, here are some areas of innovation:
1) Data and applications can now interact in new ways. In public examples such as Google Maps and Gmail's spellchecker and lookahead address book, it's easy to see that browser windows can deliver surprisingly rich functionality without plug-ins. The buzzword to describe this is Ajax: Asynchronous JavaScript and XML. I won't dive into technical explanations here, but suffice it to say that Ajax avoids the lag associated with an HTTP call back to the server across an unpredictable network. Instead, Ajax embeds scripting that allows the browser to change what the viewer sees - instantaneously. One of many relevant outcomes: dynamic visual representations of information (like Musicplasma) become more feasible. (For more, see this explanation.)
2) Information we look for and information we want to find us generally differ in size, timeliness, and need for context. The need for so-called "glanceable" information drove Microsoft's SPOT watch initiative, and the same kind of information is also now available in a more elegant fashion on glowing cubes and eggs from Ambient Devices: the orb's color indicates the overall health of a stock market or portfolio, with green being healthy and red being dangerous.
The weather cube works exactly like the old John Hancock building spire in Boston on which glowing blue means a nice day in the forecast; by contrast, flashing red means snow.(1) Glanceable information like the time, temperatures, or sports scores needs little context, whereas what might be called "intentional" information - things one looks for - usually requires some scaffolding for it to be meaningful: which analyst rated the stock a "buy"? What's her track record? What's today's stock price? How does that stack up with yesterday or a year ago, or with the sector generally? With a nod to Les McCann and Eddie Harris, this is the "compared to what?" issue.
Once that context is in place, new categories can grow more amenable to glanceable representation. For example, once we get accustomed to a given news or opinion source, it can be nice to have it pushed to a newsreader with RSS so when I ask "what did blogger X have to say about the State of the Union Address?" I can pluck the entry out of a list rather than mount a more traditional surf or search. Thus intentionality and glanceability are unstable and personalized categories of information. It's very early, but RSS is evolving into an enterprise tool with uses beyond automating the distribution of corporate communications. Consider sales forces: RSS can be used to push price changes out to Blackberries in the field, or to aggregate inbound orders and lead reports into a format far easier to manage than faxes or e-mail. More convenient access can make formerly cumbersome query data glanceable: the technology can change the usefulness and ease of integration of the information.
3) Traditionally, organizing information has been a top-down affair; we've previously discussed the Library of Congress cataloguing scheme as an example. Another source of context for data can come from the bottom up as people who know something about that datum under discussion contribute what they know. The Flickr photo service provides one example, Wikipedia another. Yet another current buzzword - folksonomies - differentiates bottom-up from top-down information architectures.
The open-source model shows that groups can in fact be organized, and self-organize, to do amazingly large amounts of work on an ad hoc and often volunteer basis. It's also worth asking, however, how voluntarism translates to commercialization: the Gracenote database that helps make iTunes so easy to use began as a volunteer effort, but the early contributors received nothing from the commercial success of the company. What will happen with Wikipedia when the expenses and perhaps the profit potential of the effort outstrip the donation model? Servers and bandwidth aren't free even if the content is, so when might commercial apparatus like lawyers, bankers, and managers alter the project?
4) The iPod illustrates a complex information dynamic: sometimes what we want isn't amenable to formulation in a search string. As a friend pointed out, Apple brilliantly turned the iPod Shuffle's lack of a display into a feature, selling randomness as a benefit. Serendipity matters for many kinds of information: there are times when the next song in a randomized playlist is "right" for reasons the listener could not have specified beforehand, or the webpage you found while looking for something else can have a major impact.
Another class of information relates to things for which either there is no name (industrial parts known mainly through numbers which do not appear on the part itself, for example) or the name is unavailable to the person who needs to find the thing that bears the name. Here, folksonomies hold both promise and peril: right now the process by which a term becomes standardized is, in Google VP of Engineering Adam Bosworth's term, "sloppy." That's good, in that committees don't have to form for work to get done, but bad in that the sloppiness introduces the prospect of s-p-a-m and other externalities of an open, networked process.
Right now, the numbers and more important the culture of the wikipedia community are manageable, with rare exceptions like the trauma of the George W. Bush entry, which was constantly redacted by editors with opposing viewpoints. If I need to find the name of something before I can search for it, and the name is unnecessarily arbitrary and/or fluid, it's going to cause problems. There's also the question of scalability: is there a threshold of participation past which there are just too many chefs in the kitchen? At the same time, if search looks more for keywords and semantic context as opposed to precise textual or numerical matches a la SQL, the noise in a community-driven system will aid processor- and algorithm-intensive search engines in steering people to what they need - which may or may not be what they articulated in the search bar. The contrasting strengths and weaknesses of folksonomies and XML namespaces are probably educational.
All in all, it's hard to project where the co-evolution of wikis, tags, XML, search, and databases will lead. Google has shown that relational databases don't scale infinitely, but indexing and search just might. In the other corner of the heavyweight boxing ring, Yahoo's purchase of Flickr gives it access to new technologies and not accidentally a way of looking at the world that will certainly bear fruits in the future. On the client side, new technologies in cell phones have the potential to add location to the context equation, with huge implications for both privacy and relevance. Having end-user appliances that are simultaneously a sensor (whether fixed, like the A9 search history, or mobile) and an input/output device changes the game still further.
To a greater degree than in the past few years, the technology market's "buzzing, blooming confusion" (to crib from William James, himself no slouch in the human-use-of-information department) leaves room for some new entrants to make a potentially enormous impact. It's hard to imagine IBM, Oracle, or Microsoft creating the ''next big thing" from this emerging toolbox, precisely because they're accustomed to avoiding the very sloppiness that drove its invention in the first place.
(1) Fineliving.com includes a mnemonic for the Boston weather spire with some relevant addenda:
Steady blue, clear view
Flashing blue, clouds due
Steady red, rain ahead
Flashing red, snow instead.
Remember, however, that in summer, a flashing red light means that the upcoming Red Sox game has been canceled. And if the lights flash blue and red simultaneously, as happened for the first time October, 2004 it means the Red Sox won the World Series.
Why do these matter? Taken in the aggregate, they reflect a new set of assumptions about people and what they do with information. Depending on how things unfold, we might get much closer to wide usability than the hard-coded obtuseness of a relational database or enterprise application typically allows. Rather than having to know some arbitrarily defined, precise syntax to get from A to B, for example, people can both name and define something themselves and then trust new search and display techniques to learn what they need to know.
In no logical order, here are some areas of innovation:
1) Data and applications can now interact in new ways. In public examples such as Google Maps and Gmail's spellchecker and lookahead address book, it's easy to see that browser windows can deliver surprisingly rich functionality without plug-ins. The buzzword to describe this is Ajax: Asynchronous JavaScript and XML. I won't dive into technical explanations here, but suffice it to say that Ajax avoids the lag associated with an HTTP call back to the server across an unpredictable network. Instead, Ajax embeds scripting that allows the browser to change what the viewer sees - instantaneously. One of many relevant outcomes: dynamic visual representations of information (like Musicplasma) become more feasible. (For more, see this explanation.)
2) Information we look for and information we want to find us generally differ in size, timeliness, and need for context. The need for so-called "glanceable" information drove Microsoft's SPOT watch initiative, and the same kind of information is also now available in a more elegant fashion on glowing cubes and eggs from Ambient Devices: the orb's color indicates the overall health of a stock market or portfolio, with green being healthy and red being dangerous.
The weather cube works exactly like the old John Hancock building spire in Boston on which glowing blue means a nice day in the forecast; by contrast, flashing red means snow.(1) Glanceable information like the time, temperatures, or sports scores needs little context, whereas what might be called "intentional" information - things one looks for - usually requires some scaffolding for it to be meaningful: which analyst rated the stock a "buy"? What's her track record? What's today's stock price? How does that stack up with yesterday or a year ago, or with the sector generally? With a nod to Les McCann and Eddie Harris, this is the "compared to what?" issue.
Once that context is in place, new categories can grow more amenable to glanceable representation. For example, once we get accustomed to a given news or opinion source, it can be nice to have it pushed to a newsreader with RSS so when I ask "what did blogger X have to say about the State of the Union Address?" I can pluck the entry out of a list rather than mount a more traditional surf or search. Thus intentionality and glanceability are unstable and personalized categories of information. It's very early, but RSS is evolving into an enterprise tool with uses beyond automating the distribution of corporate communications. Consider sales forces: RSS can be used to push price changes out to Blackberries in the field, or to aggregate inbound orders and lead reports into a format far easier to manage than faxes or e-mail. More convenient access can make formerly cumbersome query data glanceable: the technology can change the usefulness and ease of integration of the information.
3) Traditionally, organizing information has been a top-down affair; we've previously discussed the Library of Congress cataloguing scheme as an example. Another source of context for data can come from the bottom up as people who know something about that datum under discussion contribute what they know. The Flickr photo service provides one example, Wikipedia another. Yet another current buzzword - folksonomies - differentiates bottom-up from top-down information architectures.
The open-source model shows that groups can in fact be organized, and self-organize, to do amazingly large amounts of work on an ad hoc and often volunteer basis. It's also worth asking, however, how voluntarism translates to commercialization: the Gracenote database that helps make iTunes so easy to use began as a volunteer effort, but the early contributors received nothing from the commercial success of the company. What will happen with Wikipedia when the expenses and perhaps the profit potential of the effort outstrip the donation model? Servers and bandwidth aren't free even if the content is, so when might commercial apparatus like lawyers, bankers, and managers alter the project?
4) The iPod illustrates a complex information dynamic: sometimes what we want isn't amenable to formulation in a search string. As a friend pointed out, Apple brilliantly turned the iPod Shuffle's lack of a display into a feature, selling randomness as a benefit. Serendipity matters for many kinds of information: there are times when the next song in a randomized playlist is "right" for reasons the listener could not have specified beforehand, or the webpage you found while looking for something else can have a major impact.
Another class of information relates to things for which either there is no name (industrial parts known mainly through numbers which do not appear on the part itself, for example) or the name is unavailable to the person who needs to find the thing that bears the name. Here, folksonomies hold both promise and peril: right now the process by which a term becomes standardized is, in Google VP of Engineering Adam Bosworth's term, "sloppy." That's good, in that committees don't have to form for work to get done, but bad in that the sloppiness introduces the prospect of s-p-a-m and other externalities of an open, networked process.
Right now, the numbers and more important the culture of the wikipedia community are manageable, with rare exceptions like the trauma of the George W. Bush entry, which was constantly redacted by editors with opposing viewpoints. If I need to find the name of something before I can search for it, and the name is unnecessarily arbitrary and/or fluid, it's going to cause problems. There's also the question of scalability: is there a threshold of participation past which there are just too many chefs in the kitchen? At the same time, if search looks more for keywords and semantic context as opposed to precise textual or numerical matches a la SQL, the noise in a community-driven system will aid processor- and algorithm-intensive search engines in steering people to what they need - which may or may not be what they articulated in the search bar. The contrasting strengths and weaknesses of folksonomies and XML namespaces are probably educational.
All in all, it's hard to project where the co-evolution of wikis, tags, XML, search, and databases will lead. Google has shown that relational databases don't scale infinitely, but indexing and search just might. In the other corner of the heavyweight boxing ring, Yahoo's purchase of Flickr gives it access to new technologies and not accidentally a way of looking at the world that will certainly bear fruits in the future. On the client side, new technologies in cell phones have the potential to add location to the context equation, with huge implications for both privacy and relevance. Having end-user appliances that are simultaneously a sensor (whether fixed, like the A9 search history, or mobile) and an input/output device changes the game still further.
To a greater degree than in the past few years, the technology market's "buzzing, blooming confusion" (to crib from William James, himself no slouch in the human-use-of-information department) leaves room for some new entrants to make a potentially enormous impact. It's hard to imagine IBM, Oracle, or Microsoft creating the ''next big thing" from this emerging toolbox, precisely because they're accustomed to avoiding the very sloppiness that drove its invention in the first place.
(1) Fineliving.com includes a mnemonic for the Boston weather spire with some relevant addenda:
Steady blue, clear view
Flashing blue, clouds due
Steady red, rain ahead
Flashing red, snow instead.
Remember, however, that in summer, a flashing red light means that the upcoming Red Sox game has been canceled. And if the lights flash blue and red simultaneously, as happened for the first time October, 2004 it means the Red Sox won the World Series.
Friday, March 18, 2005
March 2005 Early Indications I: Being Analog
The march of digital processes and devices to fill spaces formerly occupied by analog technologies proceeds apace. Some examples follow:
-paper memos to e-mail
-"regular" cable to digital cable
-VHS to DVD and TiVo
-film to digital photography
-VGA and component video to DVI and HDMI
-LPs and cassette tapes to CDs and MP3s
-circuit-switched voice to Voice over Internet Protocols
-AM and FM radio to terrestrial digital and satellite services.
Many observers make the mistake of classifying a digital technology as "better" if only by the virtue of modernity. It's more useful, however, to treat any technology comparison as a contrast between different sets of costs and benefits. Furthermore, every development has unintended consequences that its creators could not have predicted, and these need to be considered as well.
A key factor in any digital technology is the ability to move artifacts over a wire. Compared to physical postage or even fax, various services on the Internet can move music, text, and images quickly and at high levels of fidelity. This capability in turn can be regarded as desirable or not. Is digital photography "better" than film? Artistic control over the final image, portability, and cost and speed of print turnaround are pluses, while film may have an edge in equipment cost, image quality, and privacy. (As for the last aspect, run a Google image search on DCP000[fill in a number - it's a default Kodak numbering scheme] then consider how many people want complete strangers viewing their snapshots? What happens when a) the hosting service goes out of business or b) the hosting service leaves up your images after you quit?)
Another core aspect of digital artifacts is their ability to be manipulated. In the case of Voice over IP and e-mail, encryption gives the bad guys an advantage over the law enforcement types who want to be able to monitor them. Digital cable TV, meanwhile, is most noteworthy not for image quality but for compression, which increases the providers' usable bandwidth substantially. Subscribers can get more channels over the same wire, but image quality (until HDTV) was limited primarily by the 50-year-old NTSC standard. Analog signal processing is an entirely different kettle of fish, with fewer possibilities.
As numerous executives have discovered to their dismay, e-mail is not secure, controllable, or ephemeral. Harry Stonecipher's departure from Boeing is difficult to imagine in a paper memo scenario: few people would use a workplace communications medium for romantic correspondence, and tipsters would not have automated (or other) access to it even if they did. In this instance, analog has clear benefits and can be the medium of choice when privacy matters.
For a variety of reasons, analog and digital options often aren't equally available. Music companies did what they could - closed LP pressing plants, for example - in the late 1980s and early '90s to make customers repurchase music they liked. The CD format's limited copy protection, however, made duplication and distribution extremely easy. Now, as the studios want to spur a new age of multi-channel audio, both Super Audio CD and DVD-Audio formats have highly effective copy protection. The tension between improved sound quality and inconvenience - and a competing standard - plays a role in the pathetic adoption rates.
We can see a similar transition in photography. Kodak will no longer process its legendary Kodachrome slide film, for example. Great film cameras are available in the secondary market - you can get a Hasselblad with lens for about $1000 - but the question is how long processing will be cost-effective and convenient. Processors are in a tough spot: as volumes decline, their assumptions about economies of scale have to be refigured, and the true cost of toxic waste disposal gets more explicit every year.
VCR sales are dropping worldwide, and several major electronics retailers have stopped carrying them. The content providers talk about "plugging the analog hole" - links in the chain of components where unencrypted signal can be digitized buy "unauthorized" parties. Thus the market dynamic is gladly accelerated by content providers only too happy to try to close the barn door before all the horses escape. The lack of backward compatibility means that dual-drive VCR+DVD machines are still offered, but the gap in image quality between analog and digital video, not to mention the greater permanence of polycarbonate over mylar and ferrous oxide, means that analog VHS has limited appeal.
In consumer markets, the easy mobility of digital artifacts has led to copy protection and encryption being primary engineering criteria for the manufacturers and copyright holders. Customers for such equipment have little choice but to pay for expensive functionality that does nothing to improve - and could possibly impair - the experience of using the equipment. It's obvious that Sony has impaled the fate of the company on the horns of this dilemma, but if anyone can resolve it, Howard Stringer is the guy.
Behind the scenes, the analog-digital transition is in some ways profound. Without consumer-grade copy protection to consider, digital tools are remaking medicine, music recording, and architecture, to name but three fields.
-To take only one area of medicine, digital mammography uses hardware (in which lower radiation doses are needed), software (image manipulation to increase contrast or zoom in), and data storage (including data mining) to improve on the performance of film. It's also easier to movie digital files, albeit large ones, than physical films, which is part of the process of outsourcing radiological readings to India and elsewhere. At the same time, merely capturing pictures of physicians' notes or orders means little without metadata to facilitate indexing, searching, and retrieval. Some digital systems are actually harder to use and less reliable than paper files in this phase of their evolution.
-Recording studios (including the Hit Factory in New York) are closing, in part because hard-drive-based editing systems allow musicians to make their own demo and even master tapes using software like Digidesign's ProTools. Even though it is favored by many respected engineers and performers, analog magnetic tape is getting scarce: Quantegy, the last manufacturer of pro-grade audio tape, shut down operations late last year. As studios convert to digital, pro-grade gear from such manufacturers as Studer and Otari is readily available - but with what future?
-The work of architects and designers has been reinvented. Just as word processors allowed writers numerous opportunities to edit and move text without the tedium of retyping, CAD tools make erasing and redrawing tasks of the past. 3D renderings of finished spaces and structures have become incredibly realistic. Construction documents and specifications have also become more automated.
The undeniable benefits of every digital technology raise important follow-up questions. Do we have better buildings because of AutoCAD? Are breast cancer detection and cure rates changing as a result of different diagnostic technology? Does getting copied on thousands of communications that would be impossible to distribute in paper make anyone more efficient or effective? Finally, it would appear that there are digital technologies with nearly unalloyed benefits (such as mammography), while many (e-mail, voice over IP, digital audio) are more complicated in their impact.
As the tools change, it's a fact of anthropological life that the tool-users will change along with them, but this is something we're less good at studying. Nicholas Negroponte deserves plenty of credit for the thinking that culminated in Being Digital (which is ten years old!), but now we have the far more difficult task of untangling what it meant to live in analog when it was the only option, and what it now means to be hybrids between the worlds of bits and atoms.
-paper memos to e-mail
-"regular" cable to digital cable
-VHS to DVD and TiVo
-film to digital photography
-VGA and component video to DVI and HDMI
-LPs and cassette tapes to CDs and MP3s
-circuit-switched voice to Voice over Internet Protocols
-AM and FM radio to terrestrial digital and satellite services.
Many observers make the mistake of classifying a digital technology as "better" if only by the virtue of modernity. It's more useful, however, to treat any technology comparison as a contrast between different sets of costs and benefits. Furthermore, every development has unintended consequences that its creators could not have predicted, and these need to be considered as well.
A key factor in any digital technology is the ability to move artifacts over a wire. Compared to physical postage or even fax, various services on the Internet can move music, text, and images quickly and at high levels of fidelity. This capability in turn can be regarded as desirable or not. Is digital photography "better" than film? Artistic control over the final image, portability, and cost and speed of print turnaround are pluses, while film may have an edge in equipment cost, image quality, and privacy. (As for the last aspect, run a Google image search on DCP000[fill in a number - it's a default Kodak numbering scheme] then consider how many people want complete strangers viewing their snapshots? What happens when a) the hosting service goes out of business or b) the hosting service leaves up your images after you quit?)
Another core aspect of digital artifacts is their ability to be manipulated. In the case of Voice over IP and e-mail, encryption gives the bad guys an advantage over the law enforcement types who want to be able to monitor them. Digital cable TV, meanwhile, is most noteworthy not for image quality but for compression, which increases the providers' usable bandwidth substantially. Subscribers can get more channels over the same wire, but image quality (until HDTV) was limited primarily by the 50-year-old NTSC standard. Analog signal processing is an entirely different kettle of fish, with fewer possibilities.
As numerous executives have discovered to their dismay, e-mail is not secure, controllable, or ephemeral. Harry Stonecipher's departure from Boeing is difficult to imagine in a paper memo scenario: few people would use a workplace communications medium for romantic correspondence, and tipsters would not have automated (or other) access to it even if they did. In this instance, analog has clear benefits and can be the medium of choice when privacy matters.
For a variety of reasons, analog and digital options often aren't equally available. Music companies did what they could - closed LP pressing plants, for example - in the late 1980s and early '90s to make customers repurchase music they liked. The CD format's limited copy protection, however, made duplication and distribution extremely easy. Now, as the studios want to spur a new age of multi-channel audio, both Super Audio CD and DVD-Audio formats have highly effective copy protection. The tension between improved sound quality and inconvenience - and a competing standard - plays a role in the pathetic adoption rates.
We can see a similar transition in photography. Kodak will no longer process its legendary Kodachrome slide film, for example. Great film cameras are available in the secondary market - you can get a Hasselblad with lens for about $1000 - but the question is how long processing will be cost-effective and convenient. Processors are in a tough spot: as volumes decline, their assumptions about economies of scale have to be refigured, and the true cost of toxic waste disposal gets more explicit every year.
VCR sales are dropping worldwide, and several major electronics retailers have stopped carrying them. The content providers talk about "plugging the analog hole" - links in the chain of components where unencrypted signal can be digitized buy "unauthorized" parties. Thus the market dynamic is gladly accelerated by content providers only too happy to try to close the barn door before all the horses escape. The lack of backward compatibility means that dual-drive VCR+DVD machines are still offered, but the gap in image quality between analog and digital video, not to mention the greater permanence of polycarbonate over mylar and ferrous oxide, means that analog VHS has limited appeal.
In consumer markets, the easy mobility of digital artifacts has led to copy protection and encryption being primary engineering criteria for the manufacturers and copyright holders. Customers for such equipment have little choice but to pay for expensive functionality that does nothing to improve - and could possibly impair - the experience of using the equipment. It's obvious that Sony has impaled the fate of the company on the horns of this dilemma, but if anyone can resolve it, Howard Stringer is the guy.
Behind the scenes, the analog-digital transition is in some ways profound. Without consumer-grade copy protection to consider, digital tools are remaking medicine, music recording, and architecture, to name but three fields.
-To take only one area of medicine, digital mammography uses hardware (in which lower radiation doses are needed), software (image manipulation to increase contrast or zoom in), and data storage (including data mining) to improve on the performance of film. It's also easier to movie digital files, albeit large ones, than physical films, which is part of the process of outsourcing radiological readings to India and elsewhere. At the same time, merely capturing pictures of physicians' notes or orders means little without metadata to facilitate indexing, searching, and retrieval. Some digital systems are actually harder to use and less reliable than paper files in this phase of their evolution.
-Recording studios (including the Hit Factory in New York) are closing, in part because hard-drive-based editing systems allow musicians to make their own demo and even master tapes using software like Digidesign's ProTools. Even though it is favored by many respected engineers and performers, analog magnetic tape is getting scarce: Quantegy, the last manufacturer of pro-grade audio tape, shut down operations late last year. As studios convert to digital, pro-grade gear from such manufacturers as Studer and Otari is readily available - but with what future?
-The work of architects and designers has been reinvented. Just as word processors allowed writers numerous opportunities to edit and move text without the tedium of retyping, CAD tools make erasing and redrawing tasks of the past. 3D renderings of finished spaces and structures have become incredibly realistic. Construction documents and specifications have also become more automated.
The undeniable benefits of every digital technology raise important follow-up questions. Do we have better buildings because of AutoCAD? Are breast cancer detection and cure rates changing as a result of different diagnostic technology? Does getting copied on thousands of communications that would be impossible to distribute in paper make anyone more efficient or effective? Finally, it would appear that there are digital technologies with nearly unalloyed benefits (such as mammography), while many (e-mail, voice over IP, digital audio) are more complicated in their impact.
As the tools change, it's a fact of anthropological life that the tool-users will change along with them, but this is something we're less good at studying. Nicholas Negroponte deserves plenty of credit for the thinking that culminated in Being Digital (which is ten years old!), but now we have the far more difficult task of untangling what it meant to live in analog when it was the only option, and what it now means to be hybrids between the worlds of bits and atoms.
Monday, February 28, 2005
February 2005 Early Indications II: Make Magazine review
Tim O'Reilly has always been an atypical technical publisher,
beginning with his training: a bachelor's in classics from Harvard.
For over 25 years O'Reilly Media has been in the vanguard of
computing, and it helped launch the open-source software community.
This was not altruism: O'Reilly both helped get the name into common
usage and demonstrated that there was a viable economic model
associated with Apache and Linux. The company's guides to everything
from Google to Python to .net illustrate both a technical agnosticism
and the commercial realization of a simple fact: people want to make
technology work, preferably on the human's terms. For some, this
means rewriting an operating system kernel, for others, getting a
printer to stop spitting out gibberish.
And then there is the hard core of hackers, in the MIT sense of the
word: people who create "an appropriate application of ingenuity."
The open-source ideal -- that anyone associated with a technology can
see into its workings and non-maliciously modify them -- is not really
new, either in connection with software or with the American made
environment in general. (I won't generalize about other countries and
cultures because I lack context to do so, but clearly there are many
places where hacking is practiced and even venerated.) While hacking
everyday objects in some ways gets harder in the digital age, the
practice builds on centuries of curiosity, adaptiveness, and
creativity.
American publishers have appealed to this impulse for decades. The
early PC magazines, by necessity, helped users untangle the
intricacies of command-line interfaces and often maddening device
driver issues. Before that, the market supported magazines devoted to
modifying everything from radios to cars to guitars to hi-fis. Such
titles as Popular Science (founded in 1872), CQ (for ham radio),
Mechanix Illustrated, Car Craft, and countless others were premised on
a readership that wanted to understand and modify its technologies.
But proprietary connectors, voidable product warranties, and
non-intuitive technologies such as engine-management chips curbed many
customers' desires for tinkering, and DIY readership plunged as some
publications migrated toward gadget worship if they survived at all.
Which brings us to Make, O'Reilly's new quarterly publication.
Combining old-fashioned re-use of everyday materials (a self-timer for
a disposable camera suspended from a kite for aerial photography is
made from Silly Putty) with serious but understandable computer
science, Make sets a high bar with its first issue. Reasonably simple
projects answer both "I've always wondered about that" and "hey that's
really clever" impulses in the reader. The common thread is access:
the magazine is devoted to the premise that users of technology are
makers rather than "mere consumers" of it, as the publisher's note
puts it. It's no accident that Make devotes significant attention to
tools for unscrewing non-standard fasteners: getting under the hood is
harder than it used to be, but can be accomplished as a more than
symbolic first step.
The editors have open-source sympathies in that reader involvement is
invited, or perhaps even mandated, if the enterprise is to succeed.
Make has no standing team of experts, no labs or test kitchens; it has
instead a network of people who are both capable and eager to share
their competence. A long section of the magazine is quite similar to
Kevin Kelly's Cool Tools blog: what are the essential, offbeat, or
otherwise noteworthy tools you particularly value? Examples here
include a Delta benchtop sander, a $160 mil-spec LED flashlight, and a
CO2-powered drain plunger. Fittingly, a supercharged Swiss Army knife
also makes an appearance. Elsewhere, such commonplace artifacts as
iPods, Airports, and Excel are enhanced with clever tricks.
The quality of the contributors is outstanding; the trick will be to
maintain it at that level. Neil Gershenfeld from MIT discusses his
work in small-scale fabrication labs set up in rural India, Norway,
Ghana, and Boston's South End. Bunnie Huang, who made his fame
reverse-engineering a Microsoft Xbox, explains how to create,
electronically, the same effects made by a dancer whirling around in
the dark holding glowsticks. Science fiction icon Bruce Sterling
explains the various schools of thought among modern re-creators of
Stone Age flint tools.
The flagship article on kite-borne aerial photography evokes both
sides of the Make duality: the Everyman "I could do that" and an
awe-struck "wow he's good" admiration. Kites are universal icons (as
evidenced by the recent prize-winning novel set in Afghanistan, for
example, not to mention their popularity from Cape Cod to Brazil to
Japan), and the eye-in-the-sky whimsy of the project combines with the
author's skill, on display in a gallery of professional photos, to set
up a lovely dynamic in the do-it-yourself instructions for using a
disposable camera. The stakes are low, the appeal intuitive, and the
results potentially addictive.
For me, one of the foremost contributions of Make is its reconnection
to the hands-on, project-centric literature that has for a variety of
reasons lain fallow for the past decade or two. Websites devoted to
hacking Furbies, Roombas, or TiVos (or Xboxes for that matter) have
never attracted wide emulation, and the over-clocker community --
today's inheritors of the hot rod legacy -- has failed, probably by
design, to escape from the lunatic fringe. What Make should do is
drive people to their parts drawers, to eBay, and to the workbench,
emboldened by a notion that the made environment is plastic. Knowing
that they can grasp a range of tools both analog and digital, hard and
soft, readers can reclaim their share of the creative identity that
has birthed multiple waves of technical progress. Hats off to the
O'Reilly team for a great launch of a valuable publication.
beginning with his training: a bachelor's in classics from Harvard.
For over 25 years O'Reilly Media has been in the vanguard of
computing, and it helped launch the open-source software community.
This was not altruism: O'Reilly both helped get the name into common
usage and demonstrated that there was a viable economic model
associated with Apache and Linux. The company's guides to everything
from Google to Python to .net illustrate both a technical agnosticism
and the commercial realization of a simple fact: people want to make
technology work, preferably on the human's terms. For some, this
means rewriting an operating system kernel, for others, getting a
printer to stop spitting out gibberish.
And then there is the hard core of hackers, in the MIT sense of the
word: people who create "an appropriate application of ingenuity."
The open-source ideal -- that anyone associated with a technology can
see into its workings and non-maliciously modify them -- is not really
new, either in connection with software or with the American made
environment in general. (I won't generalize about other countries and
cultures because I lack context to do so, but clearly there are many
places where hacking is practiced and even venerated.) While hacking
everyday objects in some ways gets harder in the digital age, the
practice builds on centuries of curiosity, adaptiveness, and
creativity.
American publishers have appealed to this impulse for decades. The
early PC magazines, by necessity, helped users untangle the
intricacies of command-line interfaces and often maddening device
driver issues. Before that, the market supported magazines devoted to
modifying everything from radios to cars to guitars to hi-fis. Such
titles as Popular Science (founded in 1872), CQ (for ham radio),
Mechanix Illustrated, Car Craft, and countless others were premised on
a readership that wanted to understand and modify its technologies.
But proprietary connectors, voidable product warranties, and
non-intuitive technologies such as engine-management chips curbed many
customers' desires for tinkering, and DIY readership plunged as some
publications migrated toward gadget worship if they survived at all.
Which brings us to Make, O'Reilly's new quarterly publication.
Combining old-fashioned re-use of everyday materials (a self-timer for
a disposable camera suspended from a kite for aerial photography is
made from Silly Putty) with serious but understandable computer
science, Make sets a high bar with its first issue. Reasonably simple
projects answer both "I've always wondered about that" and "hey that's
really clever" impulses in the reader. The common thread is access:
the magazine is devoted to the premise that users of technology are
makers rather than "mere consumers" of it, as the publisher's note
puts it. It's no accident that Make devotes significant attention to
tools for unscrewing non-standard fasteners: getting under the hood is
harder than it used to be, but can be accomplished as a more than
symbolic first step.
The editors have open-source sympathies in that reader involvement is
invited, or perhaps even mandated, if the enterprise is to succeed.
Make has no standing team of experts, no labs or test kitchens; it has
instead a network of people who are both capable and eager to share
their competence. A long section of the magazine is quite similar to
Kevin Kelly's Cool Tools blog: what are the essential, offbeat, or
otherwise noteworthy tools you particularly value? Examples here
include a Delta benchtop sander, a $160 mil-spec LED flashlight, and a
CO2-powered drain plunger. Fittingly, a supercharged Swiss Army knife
also makes an appearance. Elsewhere, such commonplace artifacts as
iPods, Airports, and Excel are enhanced with clever tricks.
The quality of the contributors is outstanding; the trick will be to
maintain it at that level. Neil Gershenfeld from MIT discusses his
work in small-scale fabrication labs set up in rural India, Norway,
Ghana, and Boston's South End. Bunnie Huang, who made his fame
reverse-engineering a Microsoft Xbox, explains how to create,
electronically, the same effects made by a dancer whirling around in
the dark holding glowsticks. Science fiction icon Bruce Sterling
explains the various schools of thought among modern re-creators of
Stone Age flint tools.
The flagship article on kite-borne aerial photography evokes both
sides of the Make duality: the Everyman "I could do that" and an
awe-struck "wow he's good" admiration. Kites are universal icons (as
evidenced by the recent prize-winning novel set in Afghanistan, for
example, not to mention their popularity from Cape Cod to Brazil to
Japan), and the eye-in-the-sky whimsy of the project combines with the
author's skill, on display in a gallery of professional photos, to set
up a lovely dynamic in the do-it-yourself instructions for using a
disposable camera. The stakes are low, the appeal intuitive, and the
results potentially addictive.
For me, one of the foremost contributions of Make is its reconnection
to the hands-on, project-centric literature that has for a variety of
reasons lain fallow for the past decade or two. Websites devoted to
hacking Furbies, Roombas, or TiVos (or Xboxes for that matter) have
never attracted wide emulation, and the over-clocker community --
today's inheritors of the hot rod legacy -- has failed, probably by
design, to escape from the lunatic fringe. What Make should do is
drive people to their parts drawers, to eBay, and to the workbench,
emboldened by a notion that the made environment is plastic. Knowing
that they can grasp a range of tools both analog and digital, hard and
soft, readers can reclaim their share of the creative identity that
has birthed multiple waves of technical progress. Hats off to the
O'Reilly team for a great launch of a valuable publication.
Friday, February 18, 2005
February 2005 Early Indications I: Demo trip report
Demo trip report
The mood in Phoenix was celebratory this year as the Demo conference put on a party to mark 15 years of innovative product launches. The final dinner honored industry deities including Dan Bricklin of Visicalc fame, Donna Dubinsky and Jeff Hawkins of Palm, conference favorite Kai Krause (Kai's Power Tools), and Demo founder Stewart Alsop. Before that, however, the 700 people in attendance got a close look at over 70 new products, many of which were both exciting and substantial, and few of which could be clustered in the same sector.
These two factors made the conference noteworthy in my view: I witnessed little "just out of beta" bugginess, and it was refreshing to see everything from cell phones to explosives detection and video production to haptic interfaces represented. Thus the combination of quality, breadth, and outright cleverness, along with the march of the legends at the final ceremony, made this a Demo that stood apart.
To begin, let me tip my hat to the four products that stood out for me as extraordinarily slick and/or important. In no particular order they were the following:
-MDA is a Canadian aerospace contractor that builds among other things robot arms for the space shuttle. They demonstrated an infrared camera to detect wing icing at airports, as well as a stereo camera that captures a scene and generates a 3-D graphical model of, in the case of their demo, a crime reconstruction or an underground mine. What would have required long renderings on a Silicon Graphics box not that many years ago showed up in seconds off a laptop. Demo crowds are anything but naive and can be pretty hard-boiled, but this was one of the few technologies that has generated an audible gasp from the audience in my years of attendance. The products aren't for sale - the company seeks commercialization partners.
http://www.mdrobotics.ca
-Digital Railroad is attacking the entrenched powers, namely Corbis and Getty, in the stock photography market. In a clear case of disintermediation (remember that?), the company uses RSS as part of a push and pull combination to connect photographers with editors, who can request feeds of low-resolution images for review based on rules, themes, or keywords. Photographers in turn have electronic storefronts where the high-rez images can be purchased. It was invigorating to see such an apt combination of technology and business-model innovation - it's been a while.
http://www.digitalrailroad.net
-Another nice piece of business-model innovation came from Smart Online. Their OneBiz Conductor is a one-stop ASP model for small businesses. One reason they've got a quiet brand despite being around for over a decade is that their software and services power big-name sites: JPMorgan Chase, Union Bank of California, and Inc. magazine under a private-label model. Such key functionality as audit trails, access control, and internal and regulatory reporting is now available to small and medium business who don't want to be distracted from their main mission in life, which is rarely to be a systems integrator.
http://www.smartonline.com
-The one product that for me has the most potential to define a whole new market is Streambase. The company has devised and implemented a feed-based model for data handling: the goal is to react to time-based data, not to store it. To this end, Streambase can handle 100,000 messages per second on commodity hardware, using a model that eschews input/output for sophisticated caching: cheap memory is a boon for this company. In addition to stock ticker feeds, the technology is envisioned for network traffic analysis, manufacturing systems, and credit card fraud monitoring. Lest anyone question the company's pedigree, the CTO is Mike Stonebraker, who merely invented key variations of the relational, object-relational, and federated database.
http://www.streambase.com
An education breakthrough
As a former professor, I get tired of many well-meaning but uninformed discussions of how computers are going to transform education, and have seen few technologies that showed much promise of improving on well-executed classical pedagogy. A stunning exception is an Australian spinout from the Adelaide Symphony Orchestra called In the Chair. It's a video game format for classical musician students that blends a "follow the bouncing ball" score with a video of a conductor and feedback on the musician's performance: timing, pitch, volume can be compared to those of a professional player. Theory, composition, and reading can be taught through layers of information embedded in the score. The original In the Chair was a physical program for music students that's been hugely successful, and the Digital Monkey web design firm has done a nice job creating a software version.
http://www.digitalmonkey.com.au
http://www.inthechair.com
Consumer stuff
Demo producer Chris Shipley noted that this was a particularly expensive Demo in that she wanted to buy many of the technologies. I concur.
At the top of the list is Novint, which is bringing the same touch-based technology used in $15,000 surgical simulators to the gaming market for about $100. Being able to have visual elements push back and possess the elements of mass and velocity through your fingertips is amazing, and the company's demo station was constantly busy. VKB uses Bluetooth and laser projection to put a virtual keyboard anywhere there's a flat surface - and the big news is that it will be available at Radio Shack sometime soon.
http://www.novint.com
http://www.vkb-tech.com/
AutoXRay is the first Demo product I've seen whose channel is Autozone and Pepboys. The OBD II diagnostic port on every car manufactured in the past decade or so can now be read by mere mortals rather than by $100/hr mechanics. The suggested retail for the hand-held device is about $150, which will sell well, I imagine. The other unlikely channel for a Demo technology is Macy's. Intellifit makes a body scanner that derives a clothed person's fit information while they stand in a 6-foot cylinder. The company gave everyone at the conference a free pair of custom-fit (not custom-tailored) Levis, and the response was overwhelming: there was a line all the time for people to get measured. It was fascinating to hear how people trusted or doubted the system: several attendees I polled said that they over-rode the scanner measurements on the website where you place the order, while I took it at its (disappointingly generous) word and will see how well the technology works.
http://www.autoxray.com
http://www.intellifit.com
Photoleap is the best picture-shaping application I've ever seen. Based on an e-mail client metaphor, it compresses big files then unzips them upon receipt through a similar interface on the other end. It's dead easy and so appealing that it's prompting a new digital camera purchase in this household. Mirra isn't a new company, but was showing (as a sponsor) an extremely simple and reassuring network backup server: you just plug it into a Windows environment and it takes case of automatic backup, secure remote file access, and file versioning.
http://www.photoleap.com/
http://www.mirra.com
Motorola seems to be on a tear under new CEO Ed Zander. The Razor cell phone is selling well, and the company showed a somewhat mysterious music service that connects home, car, and walking modes via the cell phone. The presenter smiled but said nothing except "I've seen some amazing things in our labs" when I asked about the iPod agreement Moto signed last year, as well as the prospect of cell phones managing miniature hard drives later this year. iRadio certainly looked appealing: digital Internet radio (whether wired, terrestrial, or satellite wasn't clear) connected by Bluetooth to whatever player you chose, including TiVo-like pause and resume across devices: park the car, walk into the office, and pick up the same song where you had stopped it.
http://www.motorola.com/mediacenter/news/detail/0,,5178_5172_23,00.html
Finally, in the web client enhancement department, Browster pre-loads list results: imagine mousing over the first entry of a Google list, having the page pop up, seeing that it didn't apply, then rolling off the image and having it disappear. Pluck and Onfolio (JJ Allaire's new company) are designed for researchers - supercharged bookmarking, filing, and sharing tools. XFire is a tool for gamers that allows in-game instant messaging as well as managed patch and upgrade deployment: they asserted that gamers download 500 MB a month, so there's a lot of bandwidth consumption to optimize if that's the case.
http://www.browster.com/
http://www.pluck.com/
http://www.onfolio.com/
http://www.xfire.com/
A brief tour of enterprise offerings
Elliott Spitzer was the unspoken presence for several demonstrations: the Enron e-mail evidence is somehow available, and two companies used it to demonstrate products aimed at curtailing messages that could get a company in trouble. Fortiva and Inboxer both had products in the e-mail security neighborhood; Cloudmark demonstrated a community-based approach to identifying phishing attacks. Cenzic and IPLocks test and monitor web-based applications for security, the former from the outside in and the latter from the inside out. Satori Labs has a nice PDA-based handwriting capture system for doctors who resist kiosks and other intrusions on the patient care process. Adomo lets telecom administrators manage voice services with tools like LDAP that are typically more robust and automated than conventional PBX technologies - e-mail and voicemail are integrated (good) within Exchange (questionable from a security standpoint).
Stan Davis has long argued that the currency of the 1980s and 90s -- words and numbers -- would be joined by sounds and images as richer tools for business communications in the new century. Several tools aim to accelerate that process. Infomersion facilitates live graphing within Powerpoint with interactive sliders to allow "what if" assumption testing. Blazent maps enterprise hardware and software assets so CIOs can manage important things (like software licenses or antivirus updates) that are usually poorly measured. Impact Engine and Serious Magic both ramp up Powerpoint's look and feel. NewTek's Tricaster is a $5000 miniature video production truck with stills, fades, B-roll, audio, and many other pro-grade tools that can be easily ported to webcast, projection, or video (hence the name). Similarly, Serious Magic also showed a $99 production suite for video blogging that was fun and easy, using a variety of imported backgrounds and a teleprompter metaphor to synch graphics and audio.
In terms of social software, I continue to have major skepticism about the prospects for mass adoption of enterprise blogging, particularly in industries undergoing Spitzer-like scrutiny. But Jotspot, about which I wrote in October, is getting better every time I see it. The tool uses wikis, e-mail, and very clever scripting to create a lightweight, flexible management platform for many types of projects. While Groove has its place (particularly in high-security distributed projects), my sense is that Jotspot will suffice in most settings.
If you have further questions, don't hesitate to contact me.
The mood in Phoenix was celebratory this year as the Demo conference put on a party to mark 15 years of innovative product launches. The final dinner honored industry deities including Dan Bricklin of Visicalc fame, Donna Dubinsky and Jeff Hawkins of Palm, conference favorite Kai Krause (Kai's Power Tools), and Demo founder Stewart Alsop. Before that, however, the 700 people in attendance got a close look at over 70 new products, many of which were both exciting and substantial, and few of which could be clustered in the same sector.
These two factors made the conference noteworthy in my view: I witnessed little "just out of beta" bugginess, and it was refreshing to see everything from cell phones to explosives detection and video production to haptic interfaces represented. Thus the combination of quality, breadth, and outright cleverness, along with the march of the legends at the final ceremony, made this a Demo that stood apart.
To begin, let me tip my hat to the four products that stood out for me as extraordinarily slick and/or important. In no particular order they were the following:
-MDA is a Canadian aerospace contractor that builds among other things robot arms for the space shuttle. They demonstrated an infrared camera to detect wing icing at airports, as well as a stereo camera that captures a scene and generates a 3-D graphical model of, in the case of their demo, a crime reconstruction or an underground mine. What would have required long renderings on a Silicon Graphics box not that many years ago showed up in seconds off a laptop. Demo crowds are anything but naive and can be pretty hard-boiled, but this was one of the few technologies that has generated an audible gasp from the audience in my years of attendance. The products aren't for sale - the company seeks commercialization partners.
http://www.mdrobotics.ca
-Digital Railroad is attacking the entrenched powers, namely Corbis and Getty, in the stock photography market. In a clear case of disintermediation (remember that?), the company uses RSS as part of a push and pull combination to connect photographers with editors, who can request feeds of low-resolution images for review based on rules, themes, or keywords. Photographers in turn have electronic storefronts where the high-rez images can be purchased. It was invigorating to see such an apt combination of technology and business-model innovation - it's been a while.
http://www.digitalrailroad.net
-Another nice piece of business-model innovation came from Smart Online. Their OneBiz Conductor is a one-stop ASP model for small businesses. One reason they've got a quiet brand despite being around for over a decade is that their software and services power big-name sites: JPMorgan Chase, Union Bank of California, and Inc. magazine under a private-label model. Such key functionality as audit trails, access control, and internal and regulatory reporting is now available to small and medium business who don't want to be distracted from their main mission in life, which is rarely to be a systems integrator.
http://www.smartonline.com
-The one product that for me has the most potential to define a whole new market is Streambase. The company has devised and implemented a feed-based model for data handling: the goal is to react to time-based data, not to store it. To this end, Streambase can handle 100,000 messages per second on commodity hardware, using a model that eschews input/output for sophisticated caching: cheap memory is a boon for this company. In addition to stock ticker feeds, the technology is envisioned for network traffic analysis, manufacturing systems, and credit card fraud monitoring. Lest anyone question the company's pedigree, the CTO is Mike Stonebraker, who merely invented key variations of the relational, object-relational, and federated database.
http://www.streambase.com
An education breakthrough
As a former professor, I get tired of many well-meaning but uninformed discussions of how computers are going to transform education, and have seen few technologies that showed much promise of improving on well-executed classical pedagogy. A stunning exception is an Australian spinout from the Adelaide Symphony Orchestra called In the Chair. It's a video game format for classical musician students that blends a "follow the bouncing ball" score with a video of a conductor and feedback on the musician's performance: timing, pitch, volume can be compared to those of a professional player. Theory, composition, and reading can be taught through layers of information embedded in the score. The original In the Chair was a physical program for music students that's been hugely successful, and the Digital Monkey web design firm has done a nice job creating a software version.
http://www.digitalmonkey.com.au
http://www.inthechair.com
Consumer stuff
Demo producer Chris Shipley noted that this was a particularly expensive Demo in that she wanted to buy many of the technologies. I concur.
At the top of the list is Novint, which is bringing the same touch-based technology used in $15,000 surgical simulators to the gaming market for about $100. Being able to have visual elements push back and possess the elements of mass and velocity through your fingertips is amazing, and the company's demo station was constantly busy. VKB uses Bluetooth and laser projection to put a virtual keyboard anywhere there's a flat surface - and the big news is that it will be available at Radio Shack sometime soon.
http://www.novint.com
http://www.vkb-tech.com/
AutoXRay is the first Demo product I've seen whose channel is Autozone and Pepboys. The OBD II diagnostic port on every car manufactured in the past decade or so can now be read by mere mortals rather than by $100/hr mechanics. The suggested retail for the hand-held device is about $150, which will sell well, I imagine. The other unlikely channel for a Demo technology is Macy's. Intellifit makes a body scanner that derives a clothed person's fit information while they stand in a 6-foot cylinder. The company gave everyone at the conference a free pair of custom-fit (not custom-tailored) Levis, and the response was overwhelming: there was a line all the time for people to get measured. It was fascinating to hear how people trusted or doubted the system: several attendees I polled said that they over-rode the scanner measurements on the website where you place the order, while I took it at its (disappointingly generous) word and will see how well the technology works.
http://www.autoxray.com
http://www.intellifit.com
Photoleap is the best picture-shaping application I've ever seen. Based on an e-mail client metaphor, it compresses big files then unzips them upon receipt through a similar interface on the other end. It's dead easy and so appealing that it's prompting a new digital camera purchase in this household. Mirra isn't a new company, but was showing (as a sponsor) an extremely simple and reassuring network backup server: you just plug it into a Windows environment and it takes case of automatic backup, secure remote file access, and file versioning.
http://www.photoleap.com/
http://www.mirra.com
Motorola seems to be on a tear under new CEO Ed Zander. The Razor cell phone is selling well, and the company showed a somewhat mysterious music service that connects home, car, and walking modes via the cell phone. The presenter smiled but said nothing except "I've seen some amazing things in our labs" when I asked about the iPod agreement Moto signed last year, as well as the prospect of cell phones managing miniature hard drives later this year. iRadio certainly looked appealing: digital Internet radio (whether wired, terrestrial, or satellite wasn't clear) connected by Bluetooth to whatever player you chose, including TiVo-like pause and resume across devices: park the car, walk into the office, and pick up the same song where you had stopped it.
http://www.motorola.com/mediacenter/news/detail/0,,5178_5172_23,00.html
Finally, in the web client enhancement department, Browster pre-loads list results: imagine mousing over the first entry of a Google list, having the page pop up, seeing that it didn't apply, then rolling off the image and having it disappear. Pluck and Onfolio (JJ Allaire's new company) are designed for researchers - supercharged bookmarking, filing, and sharing tools. XFire is a tool for gamers that allows in-game instant messaging as well as managed patch and upgrade deployment: they asserted that gamers download 500 MB a month, so there's a lot of bandwidth consumption to optimize if that's the case.
http://www.browster.com/
http://www.pluck.com/
http://www.onfolio.com/
http://www.xfire.com/
A brief tour of enterprise offerings
Elliott Spitzer was the unspoken presence for several demonstrations: the Enron e-mail evidence is somehow available, and two companies used it to demonstrate products aimed at curtailing messages that could get a company in trouble. Fortiva and Inboxer both had products in the e-mail security neighborhood; Cloudmark demonstrated a community-based approach to identifying phishing attacks. Cenzic and IPLocks test and monitor web-based applications for security, the former from the outside in and the latter from the inside out. Satori Labs has a nice PDA-based handwriting capture system for doctors who resist kiosks and other intrusions on the patient care process. Adomo lets telecom administrators manage voice services with tools like LDAP that are typically more robust and automated than conventional PBX technologies - e-mail and voicemail are integrated (good) within Exchange (questionable from a security standpoint).
Stan Davis has long argued that the currency of the 1980s and 90s -- words and numbers -- would be joined by sounds and images as richer tools for business communications in the new century. Several tools aim to accelerate that process. Infomersion facilitates live graphing within Powerpoint with interactive sliders to allow "what if" assumption testing. Blazent maps enterprise hardware and software assets so CIOs can manage important things (like software licenses or antivirus updates) that are usually poorly measured. Impact Engine and Serious Magic both ramp up Powerpoint's look and feel. NewTek's Tricaster is a $5000 miniature video production truck with stills, fades, B-roll, audio, and many other pro-grade tools that can be easily ported to webcast, projection, or video (hence the name). Similarly, Serious Magic also showed a $99 production suite for video blogging that was fun and easy, using a variety of imported backgrounds and a teleprompter metaphor to synch graphics and audio.
In terms of social software, I continue to have major skepticism about the prospects for mass adoption of enterprise blogging, particularly in industries undergoing Spitzer-like scrutiny. But Jotspot, about which I wrote in October, is getting better every time I see it. The tool uses wikis, e-mail, and very clever scripting to create a lightweight, flexible management platform for many types of projects. While Groove has its place (particularly in high-security distributed projects), my sense is that Jotspot will suffice in most settings.
If you have further questions, don't hesitate to contact me.
Monday, January 31, 2005
January 2005 Early Indications II: The Battle for the Wire
In the beginning was the wire: a telephone connection to the home or business, owned and operated by AT&T with government regulation over what was determined, in 1907, to be a natural monopoly. The poles, cables, switches, and the voice service belonged to AT&T. What would later be named "content businesses" were the province of radio and later television networks, regional newspapers, and publishers like Time-Life and McGraw-Hill, none of which connected by wire to their customers. AT&T was more powerful than the leaders in any of these sectors until GE bought RCA in 1985 to acquire NBC.
In 1984, anti-trust authorities determined that while local service was still a monopoly, long-distance service should be opened and deregulated. Accordingly long-distance was provided by AT&T and competitors like MCI while local service was shifted to one of seven newly-created Regional Bell Operating Companies (RBOCs), which were geographically delimited and didn't have any notable competitors. Who you paid, and how much, depended on how far away you were calling and how long the connection lasted. Coincidental with, but hardly irrelevant to divestiture was the rise of the fax machine as a second source of traffic over the wires.
Ownership of the wire was thought to confer great advantage. During this period, according to Frances Cairncross in The Death of Distance, AT&T was told by a certain firm of strategy consultants that the total market for mobile phones would be 900,000 two decades later, so it exited that business only to expensively re-enter it in the 1990s by buying McCaw, that it later had to sell to raise cash. In part, this transaction allowed AT&T direct access to consumer markets. (By 2003, meanwhile, there were over 500 million cell phone users worldwide - McKinsey was wrong by a mile.)
Without direct connection to wireline customers, AT&T tried repeatedly, and often successfully, to add consumer presence to its already impressive corporate customer base. Over the years AT&T launched a brilliant credit card program that it later sold to Citicorp, as well as a potentially competitive Internet Service Provider that it soon effectively abandoned. AT&T also bought a computer company (NCR) that it mismanaged and later divested, and two very expensive cable TV properties that it - not surprisingly - later sold at a loss. AT&T also spun out its equipment-manufacturing group as Lucent Technologies as it struggled to find a business model for capitalizing on its place in the communications ecosystem. Arguably the most powerful company in the world at its peak when it employed over a million people, AT&T repeatedly stumbled as it tried to reinvent its business model in the aftermath of deregulation.
The U.S. Congress passed legislation that was supposed to sort out rules of communications competition in 1996, but that law's interpretation has been contentious, uneven, and protracted. In the meantime, several rapidly evolving technologies - including voice over IP, wireless data transmission, encryption, and search - have made many of the Act's provisions "quaint" and "obsolete," as they say in Washington. As of late last year, the rules for who could do what were not fully in place. Directly because of this confusion and delay, the U.S. now lags over a dozen other nations in the speed and quality of its high-speed connections, and many commentators assert that this policy faux pas has major implications for trade and national competitiveness.
The fight for the wire has created new competitors whose actions are often front-page news: FCC chairman Michael Powell is stepping down and leaves a jumble of regulations, litigation, and lobbyist complaints that will have to be sorted out by his successor, the courts, and perhaps Congress if it revisits the Telecom Act. SBC (itself an amalgamation of three of those seven RBOCs) finalized arrangements to acquire AT&T. Comcast and the other cable companies are striving to define their place in the new world, knocking heads with everyone from Fox to Disney to Verizon to AOL/TimeWarner. Google hired some key Firefox developers, renewing last year's speculation that Google could elbow its way into the browser wars. Cisco is installing tens of thousands of corporate VoIP phones at a shot. Apple just reported robust earnings, as did Yahoo.
Control of the wire remains highly contested and economically central, but the competitors and the areas of competition have both evolved. In the 1990s, long discussions were held over the relative merits of content and connectivity - the ExciteAtHome debacle remains memorialized in its infamous real estate in Silicon Valley. But rather than inhabiting a binary universe, the parties concerned with the wire now appear to be distinguished as at least four camps. Whether and how it's possible to make money in each of these are still open, and urgent, questions.
Transport
The first group of companies are the owners of the wire, the daughters of Ma Bell and their competitors. Thus far, it's proven to be next to impossible to make money here. Upgrading the physical network is expensive, and payback is uncertain, largely because of the Telecom Act. In a closely-watched pilot deployment, Verizon is attempting to invest well over $1000 per house in fiber-optic connections to customer premises, and they've had rapid uptake from gamers in particular who will pay a premium price for a fast raw connection. The company may not be able to afford to expand beyond the trials for any number of reasons: investor revolt, regulatory setbacks, technological innovation in wireless, or competitive pre-emption of its planned video services. Across the landscape, carriers face what David Isenberg (following equity analyst Roxane Googin) has called the paradox of the best network: you apparently can't make money delivering the kinds of fast, "featureless" connections that make possible rapid innovation and appealing - from the users' perspective - cost/performance curves.
Applications
Even though they own a different wire into the house, I wouldn't lump the cable operators into the first group. Instead, they own an application - television - that's popular and almost immune from either competition or pricing pressure: monthly bills keep climbing despite a slow economy and aggressive competition from satellite dish networks. Cable is lightly regulated, particularly in contrast to the RBOCs. That the cable operators also own a wire is gravy because they can add mid-band Internet connection and voice service, two additional popular applications, to the already-profitable television core. In response, it shouldn't be a surprise that Verizon hopes to deploy video over the aforementioned fiber, but that move would still leave them needing content.
Other application owners include Apple, whose iTunes service lets companies like SBC or Cablevision build infrastructure, bill customers, and do other unappealing heavy lifting: the hyper-profitable iPod hardware play bundles hardware, an application, and a content base, the latter two of which rely on the network for their existence but do not by themselves turn a profit. A final noteworthy application that has yet to drive revenue is instant messaging.
A content area looking for a predominant application is digital photography. Adobe and Google (Picasa), among others, have strong offerings here, and Kodak is trying to enrich its Ofoto property even as Flickr tries to make noise as an upstart by making the photo application more social. It's hard to see many areas with more promise, and I can't imagine that a leader won't emerge in the next 18 months.
The transition of voice service from its state circa 1980 to what it will be by 2010 is simply stunning. First, billing by duration of call and distance of connection is eroding rapidly. Second, the ability of voice service to be disconnected from a wall jack is changing people's habits and industry economics. Significantly, much as fax rose on top of the circuit-switched infrastructure by being modulated into audio, data in the form of text messages is now an increasing percentage of cellular traffic: what started life as a voice network became, with the help of generational changes and cultural shifts, a data service that utilized the existing infrastructure, from the 12-key dialpad onward. Meanwhile, Verizon's profitability last quarter depended disproportionately on its stake in the wireless business.
Sometimes the customer connection is not a wire at all, but companies in this space (pun intended) are still directly relevant to the fight for the wire. Sirius and XM, the two primary satellite radio providers, have clearly been affected by the iPod's success. It's fascinating to watch Apple ease into the car audio market, initially via a cable from their hardware to a BMW's factory stereo, at the same time that XM and Sirius try to go after both the indoor connected listener and the mobile exercise segment with the XM2go devices that compete directly with the iPod in its core market. Unlike Apple, however, XM and Sirius aren't shooting for hardware sales, but for ongoing subscription revenues.
Content
Information, including metadata or information about information, comprises the third industry directly related to the wire. Whether it's Yahoo selling advertising space, Dow Jones or Hoovers selling investment data, or Google, Amazon, and Microsoft fighting for search supremacy as the gateway to billions of pages of content, many companies have staked their claim in the information market. AOL/TimeWarner, the TV networks, and others must often deal either with intermediaries (such as Cox) or with competitors because barriers to entry can be low. Comcast and other cable providers are integrating upstream, getting into the content business by buying interests in professional sports teams: good luck watching the Philadelphia 76ers regular-season basketball games on satellite TV, given that Comcast, which is 11.5% owned by Microsoft, owns the team. There are many other similar arrangements. The answer to the age-old question as to which layer in the cake commands the highest brand premium is of course "it depends," but clearly content appears to have an upper hand over transport.
Hardware
Building - and profiting from - the equipment connected to the wires can be a frustrating proposition. Cisco has clearly prospered in this niche, but such strong firms as HP, Sony, and Ericsson have had at best mixed success. Samsung appears to be well positioned for future growth, in part because it can market to the world with different product mixes. We mentioned Apple earlier, but apart from that, it's hard to find any hardware producer except Dell who's maintained margins while increasing volume. Intel recently reorganized, in part to address precisely this question of how processing relates to communications.
In the business-to-business domain, the growth of Linux (another product of the Wire) has driven proprietary, expensive iron from HP and Sun into new competitive positions as commodity "white boxes" serve admirably and often disposably. Storage becomes a different business when networks are central to its architecture and deployment, and here again Cisco appears to be blurring the line further. IBM and HP want to sell computing as a service over the wire, but this market is still nascent.
Conclusions
What can we draw from this discussion? First of all, the companies best positioned for a new market often have the most to lose from repositioning their existing assets. AT&T and Kodak are important examples here: technological innovation made them great; greatness translated to size, bureaucracy, and turf wars; and their research labs had important new intellectual property to undergird the next generation that often went overlooked or underappreciated. But the classic innovator's dilemma, precisely as described by Clayton Christensen, froze them in agonizing ambivalence. Caught between trying to build fences of every possible description -- patents, regulation, branding, price-cutting, alliances -- around the existing franchise and seeing that change was accelerating, these companies' executives and the corporate culture prevented the weeding, pruning, hybridization, and seeding that could produce new growth.
Second, there appears to be a two-way street regarding bundling with adjoining layers in the model: Comcast and Apple use two or even three of the four to build an offering stronger (or more coercive) than any one piece standing alone. Conversely, when AT&T lost hegemony over the voice application and was relegated to more and more a pure transport role, it lost momentum, margin, and ultimately direction. Finally, innovation that disrupts existing revenue streams - in either direction - is seldom obvious to incumbents. Time-Life, owners of Sports Illustrated, didn't see ESPN coming, nor did Atlantic Records anticipate the impact of MTV until long after it was established. For SBC, whose chairman and CEO Ed Whitacre is staking his legacy on the AT&T deal, the potential for similarly disruptive change is certainly ample.
We began at the beginning; where are we now? The economics of networks can behave with extreme speed, it is true, but the most persistent lesson of the wire and its impact relates to the human propensity to see what we want to see: the light at the end of the tunnel, the turn in the road to profitability, the upstart competitor as an object of pity or derision. The distinctly American invention of the late-20th-century corporation has been exposed, in many of its variations, as nearly immune to intentional change, even in the face of massive market evidence pointing to substantial threats and opportunities. Forensic autopsies of AT&T will be fascinating to read, but they will merely confirm what's been evident for decades. In the end what doomed the company had far less to do with wires and protocols than attitudes and habits.
In 1984, anti-trust authorities determined that while local service was still a monopoly, long-distance service should be opened and deregulated. Accordingly long-distance was provided by AT&T and competitors like MCI while local service was shifted to one of seven newly-created Regional Bell Operating Companies (RBOCs), which were geographically delimited and didn't have any notable competitors. Who you paid, and how much, depended on how far away you were calling and how long the connection lasted. Coincidental with, but hardly irrelevant to divestiture was the rise of the fax machine as a second source of traffic over the wires.
Ownership of the wire was thought to confer great advantage. During this period, according to Frances Cairncross in The Death of Distance, AT&T was told by a certain firm of strategy consultants that the total market for mobile phones would be 900,000 two decades later, so it exited that business only to expensively re-enter it in the 1990s by buying McCaw, that it later had to sell to raise cash. In part, this transaction allowed AT&T direct access to consumer markets. (By 2003, meanwhile, there were over 500 million cell phone users worldwide - McKinsey was wrong by a mile.)
Without direct connection to wireline customers, AT&T tried repeatedly, and often successfully, to add consumer presence to its already impressive corporate customer base. Over the years AT&T launched a brilliant credit card program that it later sold to Citicorp, as well as a potentially competitive Internet Service Provider that it soon effectively abandoned. AT&T also bought a computer company (NCR) that it mismanaged and later divested, and two very expensive cable TV properties that it - not surprisingly - later sold at a loss. AT&T also spun out its equipment-manufacturing group as Lucent Technologies as it struggled to find a business model for capitalizing on its place in the communications ecosystem. Arguably the most powerful company in the world at its peak when it employed over a million people, AT&T repeatedly stumbled as it tried to reinvent its business model in the aftermath of deregulation.
The U.S. Congress passed legislation that was supposed to sort out rules of communications competition in 1996, but that law's interpretation has been contentious, uneven, and protracted. In the meantime, several rapidly evolving technologies - including voice over IP, wireless data transmission, encryption, and search - have made many of the Act's provisions "quaint" and "obsolete," as they say in Washington. As of late last year, the rules for who could do what were not fully in place. Directly because of this confusion and delay, the U.S. now lags over a dozen other nations in the speed and quality of its high-speed connections, and many commentators assert that this policy faux pas has major implications for trade and national competitiveness.
The fight for the wire has created new competitors whose actions are often front-page news: FCC chairman Michael Powell is stepping down and leaves a jumble of regulations, litigation, and lobbyist complaints that will have to be sorted out by his successor, the courts, and perhaps Congress if it revisits the Telecom Act. SBC (itself an amalgamation of three of those seven RBOCs) finalized arrangements to acquire AT&T. Comcast and the other cable companies are striving to define their place in the new world, knocking heads with everyone from Fox to Disney to Verizon to AOL/TimeWarner. Google hired some key Firefox developers, renewing last year's speculation that Google could elbow its way into the browser wars. Cisco is installing tens of thousands of corporate VoIP phones at a shot. Apple just reported robust earnings, as did Yahoo.
Control of the wire remains highly contested and economically central, but the competitors and the areas of competition have both evolved. In the 1990s, long discussions were held over the relative merits of content and connectivity - the ExciteAtHome debacle remains memorialized in its infamous real estate in Silicon Valley. But rather than inhabiting a binary universe, the parties concerned with the wire now appear to be distinguished as at least four camps. Whether and how it's possible to make money in each of these are still open, and urgent, questions.
Transport
The first group of companies are the owners of the wire, the daughters of Ma Bell and their competitors. Thus far, it's proven to be next to impossible to make money here. Upgrading the physical network is expensive, and payback is uncertain, largely because of the Telecom Act. In a closely-watched pilot deployment, Verizon is attempting to invest well over $1000 per house in fiber-optic connections to customer premises, and they've had rapid uptake from gamers in particular who will pay a premium price for a fast raw connection. The company may not be able to afford to expand beyond the trials for any number of reasons: investor revolt, regulatory setbacks, technological innovation in wireless, or competitive pre-emption of its planned video services. Across the landscape, carriers face what David Isenberg (following equity analyst Roxane Googin) has called the paradox of the best network: you apparently can't make money delivering the kinds of fast, "featureless" connections that make possible rapid innovation and appealing - from the users' perspective - cost/performance curves.
Applications
Even though they own a different wire into the house, I wouldn't lump the cable operators into the first group. Instead, they own an application - television - that's popular and almost immune from either competition or pricing pressure: monthly bills keep climbing despite a slow economy and aggressive competition from satellite dish networks. Cable is lightly regulated, particularly in contrast to the RBOCs. That the cable operators also own a wire is gravy because they can add mid-band Internet connection and voice service, two additional popular applications, to the already-profitable television core. In response, it shouldn't be a surprise that Verizon hopes to deploy video over the aforementioned fiber, but that move would still leave them needing content.
Other application owners include Apple, whose iTunes service lets companies like SBC or Cablevision build infrastructure, bill customers, and do other unappealing heavy lifting: the hyper-profitable iPod hardware play bundles hardware, an application, and a content base, the latter two of which rely on the network for their existence but do not by themselves turn a profit. A final noteworthy application that has yet to drive revenue is instant messaging.
A content area looking for a predominant application is digital photography. Adobe and Google (Picasa), among others, have strong offerings here, and Kodak is trying to enrich its Ofoto property even as Flickr tries to make noise as an upstart by making the photo application more social. It's hard to see many areas with more promise, and I can't imagine that a leader won't emerge in the next 18 months.
The transition of voice service from its state circa 1980 to what it will be by 2010 is simply stunning. First, billing by duration of call and distance of connection is eroding rapidly. Second, the ability of voice service to be disconnected from a wall jack is changing people's habits and industry economics. Significantly, much as fax rose on top of the circuit-switched infrastructure by being modulated into audio, data in the form of text messages is now an increasing percentage of cellular traffic: what started life as a voice network became, with the help of generational changes and cultural shifts, a data service that utilized the existing infrastructure, from the 12-key dialpad onward. Meanwhile, Verizon's profitability last quarter depended disproportionately on its stake in the wireless business.
Sometimes the customer connection is not a wire at all, but companies in this space (pun intended) are still directly relevant to the fight for the wire. Sirius and XM, the two primary satellite radio providers, have clearly been affected by the iPod's success. It's fascinating to watch Apple ease into the car audio market, initially via a cable from their hardware to a BMW's factory stereo, at the same time that XM and Sirius try to go after both the indoor connected listener and the mobile exercise segment with the XM2go devices that compete directly with the iPod in its core market. Unlike Apple, however, XM and Sirius aren't shooting for hardware sales, but for ongoing subscription revenues.
Content
Information, including metadata or information about information, comprises the third industry directly related to the wire. Whether it's Yahoo selling advertising space, Dow Jones or Hoovers selling investment data, or Google, Amazon, and Microsoft fighting for search supremacy as the gateway to billions of pages of content, many companies have staked their claim in the information market. AOL/TimeWarner, the TV networks, and others must often deal either with intermediaries (such as Cox) or with competitors because barriers to entry can be low. Comcast and other cable providers are integrating upstream, getting into the content business by buying interests in professional sports teams: good luck watching the Philadelphia 76ers regular-season basketball games on satellite TV, given that Comcast, which is 11.5% owned by Microsoft, owns the team. There are many other similar arrangements. The answer to the age-old question as to which layer in the cake commands the highest brand premium is of course "it depends," but clearly content appears to have an upper hand over transport.
Hardware
Building - and profiting from - the equipment connected to the wires can be a frustrating proposition. Cisco has clearly prospered in this niche, but such strong firms as HP, Sony, and Ericsson have had at best mixed success. Samsung appears to be well positioned for future growth, in part because it can market to the world with different product mixes. We mentioned Apple earlier, but apart from that, it's hard to find any hardware producer except Dell who's maintained margins while increasing volume. Intel recently reorganized, in part to address precisely this question of how processing relates to communications.
In the business-to-business domain, the growth of Linux (another product of the Wire) has driven proprietary, expensive iron from HP and Sun into new competitive positions as commodity "white boxes" serve admirably and often disposably. Storage becomes a different business when networks are central to its architecture and deployment, and here again Cisco appears to be blurring the line further. IBM and HP want to sell computing as a service over the wire, but this market is still nascent.
Conclusions
What can we draw from this discussion? First of all, the companies best positioned for a new market often have the most to lose from repositioning their existing assets. AT&T and Kodak are important examples here: technological innovation made them great; greatness translated to size, bureaucracy, and turf wars; and their research labs had important new intellectual property to undergird the next generation that often went overlooked or underappreciated. But the classic innovator's dilemma, precisely as described by Clayton Christensen, froze them in agonizing ambivalence. Caught between trying to build fences of every possible description -- patents, regulation, branding, price-cutting, alliances -- around the existing franchise and seeing that change was accelerating, these companies' executives and the corporate culture prevented the weeding, pruning, hybridization, and seeding that could produce new growth.
Second, there appears to be a two-way street regarding bundling with adjoining layers in the model: Comcast and Apple use two or even three of the four to build an offering stronger (or more coercive) than any one piece standing alone. Conversely, when AT&T lost hegemony over the voice application and was relegated to more and more a pure transport role, it lost momentum, margin, and ultimately direction. Finally, innovation that disrupts existing revenue streams - in either direction - is seldom obvious to incumbents. Time-Life, owners of Sports Illustrated, didn't see ESPN coming, nor did Atlantic Records anticipate the impact of MTV until long after it was established. For SBC, whose chairman and CEO Ed Whitacre is staking his legacy on the AT&T deal, the potential for similarly disruptive change is certainly ample.
We began at the beginning; where are we now? The economics of networks can behave with extreme speed, it is true, but the most persistent lesson of the wire and its impact relates to the human propensity to see what we want to see: the light at the end of the tunnel, the turn in the road to profitability, the upstart competitor as an object of pity or derision. The distinctly American invention of the late-20th-century corporation has been exposed, in many of its variations, as nearly immune to intentional change, even in the face of massive market evidence pointing to substantial threats and opportunities. Forensic autopsies of AT&T will be fascinating to read, but they will merely confirm what's been evident for decades. In the end what doomed the company had far less to do with wires and protocols than attitudes and habits.
Sunday, January 16, 2005
What to Expect from Consolidation
January 2005 Early Indications I
Early Indications is published twice monthly by John Jordan. He holds no direct financial positions in any of the companies mentioned. Questions and subscription requests should be directed to jordanjohn5(at)netscape(dot)net
What to Expect from Consolidation
Last Friday Oracle told an estimated 6,000 employees, most of them ex-Peoplesoft, that they're being terminated - via express letters. Survivors among the original 11,000 Peoplesoft employees were also being mailed the good news in the form of an Oracle employment contract. There's a certain sad irony in employees of an HR software company being treated to breakthrough techniques in layoff management. Employee issues aside, I've had a lot of questions from investment analysts, journalists, and others as to what this acquisition could mean. Here are a few thoughts.
Historical Consolidations
Looking to the past, it's hard to find a consolidation that increased innovation. The United States' "Big Three" automakers, for example, were effectively a cartel for decades, and created extremely high barriers to market entry. Later, outsiders to the industry - initially the Japanese - revolutionized it beginning in the 1960s. Even now, more than 30 years later, North American operations cannot match the new offerings (such as hybrids), product quality, or financial profitability of Japanese automakers. In addition, such important innovations as all-wheel drive and anti-lock brakes were commercialized by foreign automakers, despite Chrysler, Ford, and GM's size advantage. More recently, Daimler-Benz's takeover of Chrysler has taken much longer than promised to deliver shareholder benefits, though there are encouraging signs on the North American front.
In some services industries, it's apparently possible to gain economies of scale through mergers and acquisitions, but I don't have first-hand information on customer satisfaction in the big banks or brokerages that have attempted to do so. Similarly, I don't have sufficient insight into managed care to rate US Healthcare and Aetna, but the clear winners in the Anthem/Wellpoint deal look to be a small group of top managers rather than shareholders, care providers, or patients.
In telecom, MCI plus Worldcom did not equal a win by any measure whereas SBC seems to have quietly and thus successfully swallowed Ameritech. Airlines that consolidated (USAir being a prime example) don't appear to have outperformed most airlines that grew organically. In the hardware business, Cisco has bought complements (Linksys and Airespace) rather than doing a megamerger with companies like 3Com or Alcatel. HP, on the other hand, tried to consolidate with Compaq/Digital/Tandem, but thus far few results suggest this was the best use of shareholder capital. In software, Peoplesoft appears to have made the JD Edwards acquisition pay off with access to new customers and cash flow from existing ones.
Questions to be Answered
In some ways, this consolidation is a diversification insofar as Oracle is still at its cultural and financial core a database company. It's possible that Oracle could find itself with strong traditional competition from IBM (in databases), SAP (in both large and SMB markets), and Lawson in SMB. Fighting a three-front war, as well as engaging new competitors (see below) could prove distracting, or worse. Engineering, branding, and sales decisions are all involved, and possible to get wrong.
Judging from statements of intention, it looks as though Oracle will incur development and support costs for new Peoplesoft and JD Edwards products at the same time that Peoplesoft's revenues have been soft. While prior acquisitions at other companies have imposed considerable debt loads, in this instance Oracle hasn't to my knowledge specified how much it's going to borrow to fund the $10 billion cash transaction, but expects to pay it off within two years.
Potentially to its advantage, Oracle's acquisition could raise barriers to entry, slow the pace of market innovation, and increase pricing power. At the same time, existing Peoplesoft and Oracle customers are vocally unhappy with their respective vendors' maintenance and support pricing. From the sales side, having one fewer competitor in the market may seem to make it easier to maintain pricing pressure. From the demand side, unexpected and unwelcome price changes could drive buyers to consider alternatives.
Software and Core Competencies
HR functionality in particular isn't typically regarded as a core capability, and is thus ripe for outsourcing to a Hewitt or Fidelity - who unlike Peoplesoft/Oracle both knows the HR process from the execution side and can warranty their offering in a way software vendors cannot. For Peoplesoft/Oracle to win at a potential new customer, their sales team must persuade the top management, which doesn't usually like spending time on HR questions to begin with, that the system integrator and/or in-house IT department can deliver all the available functionality; the quality of the software, whatever it is, must be filtered through a deployment team over which the software vendor has limited influence and less control.
One factor that could influence buyers in the software direction is integration. Let's say that a utility wanted to minimize overtime in field service. Connecting a time clock application with scheduling and customer service could deliver cost savings and potentially improve quality of service. If HR is outsourced, integrating (let's say) Fidelity's process outsourcing with the utility's in-house systems could be expensive and/or technically impossible. As opposed to CRM or other applications, however, HR is usually not near the top of the list of applications from which line of business managers see benefits of connection.
In something as complex and evolving as enterprise software, there's reason to believe that predictions of market consolidation will be challenged by entry by new competitors, particularly process outsourcers. With RFID, for example, most companies are avoiding heavy investment in process change as they comply with the Wal-Mart mandate with so-called "slap and ship" techniques. If Ryder or Fedex can take my RFID compliance problem off my hands, that could be pretty appealing. Assuming the third-party logistics provider can take on that role, there are fewer companies in the market for Manugistics/Manhattan/i2 licenses. More and more business processes will move to outsourcers, I believe, especially as the satisfaction level with -- and thus confidence level in -- enterprise IT organizations remains low in most companies. Salesforce.com may or may not thrive, but the company's key message - "no software" - is clearly striking a nerve.
For Oracle, one question will be how to counter that sentiment with both software and people associated with its care and feeding that can restore corporate confidence. For Oracle's existing and new customers, the question will be to what extent the merged entity can allay fears of product desupport and arbitrary price increases. From every perspective, Oracle faces a situation in which it must execute at a high level to gain the goodwill of multiple constituencies - employees, investors, customers, and integration partners - who until further notice hold it under a microscope. The final and biggest question is whether Oracle consolidated an industry past its peak and thus gained the costs and benefits of scale at a time when it may be more profitable to possess speed and agility.
Early Indications is published twice monthly by John Jordan. He holds no direct financial positions in any of the companies mentioned. Questions and subscription requests should be directed to jordanjohn5(at)netscape(dot)net
What to Expect from Consolidation
Last Friday Oracle told an estimated 6,000 employees, most of them ex-Peoplesoft, that they're being terminated - via express letters. Survivors among the original 11,000 Peoplesoft employees were also being mailed the good news in the form of an Oracle employment contract. There's a certain sad irony in employees of an HR software company being treated to breakthrough techniques in layoff management. Employee issues aside, I've had a lot of questions from investment analysts, journalists, and others as to what this acquisition could mean. Here are a few thoughts.
Historical Consolidations
Looking to the past, it's hard to find a consolidation that increased innovation. The United States' "Big Three" automakers, for example, were effectively a cartel for decades, and created extremely high barriers to market entry. Later, outsiders to the industry - initially the Japanese - revolutionized it beginning in the 1960s. Even now, more than 30 years later, North American operations cannot match the new offerings (such as hybrids), product quality, or financial profitability of Japanese automakers. In addition, such important innovations as all-wheel drive and anti-lock brakes were commercialized by foreign automakers, despite Chrysler, Ford, and GM's size advantage. More recently, Daimler-Benz's takeover of Chrysler has taken much longer than promised to deliver shareholder benefits, though there are encouraging signs on the North American front.
In some services industries, it's apparently possible to gain economies of scale through mergers and acquisitions, but I don't have first-hand information on customer satisfaction in the big banks or brokerages that have attempted to do so. Similarly, I don't have sufficient insight into managed care to rate US Healthcare and Aetna, but the clear winners in the Anthem/Wellpoint deal look to be a small group of top managers rather than shareholders, care providers, or patients.
In telecom, MCI plus Worldcom did not equal a win by any measure whereas SBC seems to have quietly and thus successfully swallowed Ameritech. Airlines that consolidated (USAir being a prime example) don't appear to have outperformed most airlines that grew organically. In the hardware business, Cisco has bought complements (Linksys and Airespace) rather than doing a megamerger with companies like 3Com or Alcatel. HP, on the other hand, tried to consolidate with Compaq/Digital/Tandem, but thus far few results suggest this was the best use of shareholder capital. In software, Peoplesoft appears to have made the JD Edwards acquisition pay off with access to new customers and cash flow from existing ones.
Questions to be Answered
In some ways, this consolidation is a diversification insofar as Oracle is still at its cultural and financial core a database company. It's possible that Oracle could find itself with strong traditional competition from IBM (in databases), SAP (in both large and SMB markets), and Lawson in SMB. Fighting a three-front war, as well as engaging new competitors (see below) could prove distracting, or worse. Engineering, branding, and sales decisions are all involved, and possible to get wrong.
Judging from statements of intention, it looks as though Oracle will incur development and support costs for new Peoplesoft and JD Edwards products at the same time that Peoplesoft's revenues have been soft. While prior acquisitions at other companies have imposed considerable debt loads, in this instance Oracle hasn't to my knowledge specified how much it's going to borrow to fund the $10 billion cash transaction, but expects to pay it off within two years.
Potentially to its advantage, Oracle's acquisition could raise barriers to entry, slow the pace of market innovation, and increase pricing power. At the same time, existing Peoplesoft and Oracle customers are vocally unhappy with their respective vendors' maintenance and support pricing. From the sales side, having one fewer competitor in the market may seem to make it easier to maintain pricing pressure. From the demand side, unexpected and unwelcome price changes could drive buyers to consider alternatives.
Software and Core Competencies
HR functionality in particular isn't typically regarded as a core capability, and is thus ripe for outsourcing to a Hewitt or Fidelity - who unlike Peoplesoft/Oracle both knows the HR process from the execution side and can warranty their offering in a way software vendors cannot. For Peoplesoft/Oracle to win at a potential new customer, their sales team must persuade the top management, which doesn't usually like spending time on HR questions to begin with, that the system integrator and/or in-house IT department can deliver all the available functionality; the quality of the software, whatever it is, must be filtered through a deployment team over which the software vendor has limited influence and less control.
One factor that could influence buyers in the software direction is integration. Let's say that a utility wanted to minimize overtime in field service. Connecting a time clock application with scheduling and customer service could deliver cost savings and potentially improve quality of service. If HR is outsourced, integrating (let's say) Fidelity's process outsourcing with the utility's in-house systems could be expensive and/or technically impossible. As opposed to CRM or other applications, however, HR is usually not near the top of the list of applications from which line of business managers see benefits of connection.
In something as complex and evolving as enterprise software, there's reason to believe that predictions of market consolidation will be challenged by entry by new competitors, particularly process outsourcers. With RFID, for example, most companies are avoiding heavy investment in process change as they comply with the Wal-Mart mandate with so-called "slap and ship" techniques. If Ryder or Fedex can take my RFID compliance problem off my hands, that could be pretty appealing. Assuming the third-party logistics provider can take on that role, there are fewer companies in the market for Manugistics/Manhattan/i2 licenses. More and more business processes will move to outsourcers, I believe, especially as the satisfaction level with -- and thus confidence level in -- enterprise IT organizations remains low in most companies. Salesforce.com may or may not thrive, but the company's key message - "no software" - is clearly striking a nerve.
For Oracle, one question will be how to counter that sentiment with both software and people associated with its care and feeding that can restore corporate confidence. For Oracle's existing and new customers, the question will be to what extent the merged entity can allay fears of product desupport and arbitrary price increases. From every perspective, Oracle faces a situation in which it must execute at a high level to gain the goodwill of multiple constituencies - employees, investors, customers, and integration partners - who until further notice hold it under a microscope. The final and biggest question is whether Oracle consolidated an industry past its peak and thus gained the costs and benefits of scale at a time when it may be more profitable to possess speed and agility.
Wednesday, December 22, 2004
December newsletter II: 2005 predictions, A-Z
Early Indications is published twice monthly by John Jordan. He holds no direct financial positions in any company mentioned. Back issues are currently archived at http://us.capgemini.com/cto
2005 Predictions
By now many observers have issued their 2005 predictions, so I decided to follow suit, utilizing an alphabetical format to address some of next year's most intriguing issues. In the spirit of full disclosure, many of these predictions are actually questions.
A is for Apple, which has to address some big questions. Having reinvented the mass-storage maket by equipping the iPod with a great interface and compelling legal content, the leadership must anticipate the eventual margin erosion in the hand-held segment and decide how long to ride the premium-price position in computational jewelry (i.e., what used to be called PCs).
B is for business intelligence, the fancy name for data warehousing. For information to enhance business outcomes, it has to fit more closely into real processes. The MBA analyzing data cubes has far less leverage than the people at the point of customer activity making better decisions in the moment. That objective means that data analysis tools will have to become more industry- and process-specific rather than generic, and they can no longer be so detached from operational systems.
C is for consumer devices, which are gradually having an impact on enterprise systems, which can no longer assume an inside-the-wall, locked-down configuration. Wireless data access is a prime example, but so are things like gaming interfaces, iPods as oversized USB drives, and instant messaging.
D is for distributed development. The issue isn't really India per se, because there will be new low-cost environments for certain kinds of work as India develops inflation, a middle class, and/or heightened political tensions with Pakistan. Managing distributed development is a more general issue than merely signing up resources in India or Spain or Estonia, and the tools for doing so are still genreally immature.
E is for energy, which remains a constraint for everything from mobility, in the form of battery life, to data centers, in the form of heat. Intel recently had to switch over to dual-core processors to maintain its stream of new microprocessor introductions because of heat, and the marketing strategy for Centrino (slower clock speed, better battery life) doesn't immediately translate into a parallel pitch for desktop and server chips that will no longer be positioned solely on speed.
F is for fiber optics, which remain a wild card in the the quest for widespread residential broadband access. Relatively speaking, Verizon is taking an aggressive position with fiber to the premise (rather than the node) in the Keller, Texas trial. Longer term, both capital and regulatory uncertainty loom. Meanwhile, wireless broadband deploys far faster and at lower cost, and it's completely possible that anyone who spends billions of dollars digging up yards in 2005 could be aced out by a wireless carrier within five years.
G is for gaming, in both the Vegas sense (a euphemism for gambling) and the Nintendo sense of the word. It's not clear how long state and federal governments will forego potential tax revenues from Internet casinos: for all the talk about the presidential election's being a contest of values, many states that voted for Bush have aggressively adopted lotteries, casinos, and other betting. Meanwhile, the battle for handheld console supremacy between Sony's PSP and Nintendo DS will have global implications for telcos, movie studios, hardware manufacturers, and other parties.
H is for health record, electronic. In the midst of federal budgeting, President Bush has to balance conflicting promises: to push for better use of digital record-keeping technologies in healthcare, and to reduce the deficit. It's too early to tell how the battle will play out, but to date few legislators have seen support for electronic medical records as a way to impress their constituencies.
I is for industry consolidation. Oracle's takeover of Peoplesoft will by no means end this trend, and 2005 may see such companies as Siebel, BEA, Cognos, Hyperion, and Lawson dealing with acquisition efforts. On the services side, it's less clear that a) bigness equals profitability and b) growth by acquisition works for human assets.
J is for jail. Sarbanes-Oxley section 409 is still being interpreted, but some provisions for timely disclosure took effect in August. The legislation uses the terms "real time" and "urgent" for these disclosures, which will add to the CIO's already substantial compliance burden - and provide tough penalties for failure. "Real time" for some purposes is four days, but retrieving a given e-mail or category of instant messages, for example, within that time is impossible for most organizations.
K is for killer application, or more properly the lack thereof. Intel has suffered as both consumers and business users find it difficult to justify new hardware purchases for such predominant tasks as e-mail, web browsing, and spreadsheets. On mobile platforms, meanwhile, cultural differences drive divergent adoption patterns of everything from mobile messaging to cameraphones to geolocation. Personal digital media management, in the form of iPods and TiVos, has sold well, but not all that well. In a global market, it's worth reflecting on total TiVo sales: 4.6 million for 2003, and probably less than 10 million total worldwide as of mid-2004.
L is for license revolt. Enterprise software buyers uniformly resist the move by enterprise software companies to counter declining new seat sales with increased support and maintenance fees. open source is one strand of the movement to limit the power of the vendors, but there are others: 3rd-party support firms, self-support, and refusal to buy upgrades. With increased vendor consolidation, expect to see the stakes increase, and customer resistance grow more vigorous.
M is for management software. Given that headcount remains a large and, thanks to health care costs, growing component of IT budgets, and given that the complexity of the IT shop is still growing despite efforts to rein it in, better tools for running the IT business are essential. Some are in early deployment. Consider that front office, back office, sales force, shopfloor, and field service all have been automated, but the IT organization typically runs on spreadsheets rather than audit-able, robust enterprise systems.
N is for network topology, inverting. Currently, most data network traffic flows outward, from servers to the edge. With the stunning growth in RFID and other sensors, voice over IP, music uploads, and networked games, that pattern is in flux. IDC predicts that edge-in traffic will outstrip inside-out flows in less than ten years, necessitating new approaches to security, reliability, and flexibility.
O is for open source. Linux and Apache are old news; 2005 could be the year that the MySQL database and JBoss application server move out of stealth mode and into more active market penetration.
P is for personalization. Amazon's consumer site is custom-generated on the fly for every registered visitor, representing an integration of cookies, behavioral profiling, databases, dynamic site-serving, and other technologies. That kind of performance and relevance will be expected as the norm in more settings. At the same time, the limits of the username+password model are being exceeded, and new identity solutions will get at least trial deployments in 2005.
Q is for QWERTY, or the keyboard paradox. For years, Bill Gates and others have predicted that voice-recognition and realistic speech synthesis are on the horizon. But a funny thing happened: young users of mobile voice devices have exhibited a preference for text input rather than speech. Demographics, Moore's law, and cultural norms will all shape the next wave of input preferences, but none will be exactly what the visionaries at Dragon and Lernout & Hauspie predicted back in the mid-1990s.
R is for RFID. Retailers already have the business case and many of the business practices in place to exploit the consumer-products and pharmaceutical tags; what will change dramatically are the behaviors and expectations in such places as hospitals, unionized warehouses, and courts. What are the rules for using tags (or automobile "black boxes") as evidence? What are the privacy rights of an employee suspected of theft or even of slacking? How will the black market adapt to the presence of tagged Oxycontin in both legitimate and shadow supply chains?
S is for search. Google's ambition and capability are both formidable: their agreement with leading university libraries to digitize some of their holdings parallels a less-visible effort at the Internet Archive and will be a landmark in information access. Yahoo, Amazon, and Microsoft, meanwhile, are devoting major investment and brainpower to various categories of search challenges. Given the magnitude of information volumes both at rest and in motion, traditional methods for storing, finding, and manipulating data will have to be reinvented - and more layers (in the form of geospatial, audio, and other aspects) are still in the queue.
T is for telephony. Voice over IP is changing the economics of the large national and Bell carriers, it's changing law enforcement, it's changing marketing, and it's changing enterprise computing. How it's changing these various things is not yet clear: regulators, lawyers, taxing authorities, and courts will have much to say about the eventual patterns of adoption. For example, the U.S. federal government took in over $5 billion in telephone tax receipts in 1999. Replacing that stream, along with a probably larger flow to states, will be controversial, more so in an age of deficits.
U is for unsolicited bulk e-mail, aka spam. The volumes keep increasing even in the face of potential penalties, but user dissatisfaction is growing even faster, to the point where e-mail is threatened with obsolescence as users simply give up and rely on voice or instant messenger (even with its obvious temporal limits). Vendors, meanwhile, continue to negotiate about control and related issues. The big issue is trust, a commodity in short supply these days.
V is for virtualization. Enterprise hardware utilization is low, and expensive. Making computing resources more fungible can increase performance while lowering costs. Rhetoric thus far outruns reality, and there remain many engineering and economic issues before this cluster of technologies (pun intended) lives up to its potential. One example: if Oracle charges per processor, how does it figure my bill if I run 11i on a blade server, devoting varying numbers of processors to different tasks as demand rises and falls?
W is for Windows, still the world's most profitable software franchise. Security remains a major question mark, as does the issue of platform extension: how can Microsoft most successfully maintain look, feel, and branding across PCs, cell phones, game consoles, TV set-top boxes, MP3 players, handhelds, and home entertainment centers? Where does extension inhibit rather than enhance entry into new markets?
X is for XML. Specialized variants, including BPEL (Business Process Execution Language) and XBRL(eXtensible Business Reporting Language) are entering the basic toolkit of various professions and task groups. RSS is reintroducing "push" media. We're well past the hype stage and into the gritty details of implementation.
Y is for Yahoo! The fate of this company will dictate and indicate a great deal about the industry dynamics of what used to be called the Internet sector. Structurally speaking, is Yahoo closer to Disney or to Google? Is Amazon closer to Wal-Mart or InterActive Corp? Is eBay a tech stock in any meaningful way? Ultimately, how much of the essence of the Internet will belong to Hollywood or New York and how much to Silicon Valley?
Z is for zero latency, otherwise known as real time enterprise. Driven by compliance requirements, customer requirements, and competitors, often from unfamiliar sectors, businesses often confront "impossible" performance requirements that can't be met simply by tweaking existing processes and procedures. As with so many other technologies, the really tough part of real time is behavioral and cultural rather than engineering.
2005 Predictions
By now many observers have issued their 2005 predictions, so I decided to follow suit, utilizing an alphabetical format to address some of next year's most intriguing issues. In the spirit of full disclosure, many of these predictions are actually questions.
A is for Apple, which has to address some big questions. Having reinvented the mass-storage maket by equipping the iPod with a great interface and compelling legal content, the leadership must anticipate the eventual margin erosion in the hand-held segment and decide how long to ride the premium-price position in computational jewelry (i.e., what used to be called PCs).
B is for business intelligence, the fancy name for data warehousing. For information to enhance business outcomes, it has to fit more closely into real processes. The MBA analyzing data cubes has far less leverage than the people at the point of customer activity making better decisions in the moment. That objective means that data analysis tools will have to become more industry- and process-specific rather than generic, and they can no longer be so detached from operational systems.
C is for consumer devices, which are gradually having an impact on enterprise systems, which can no longer assume an inside-the-wall, locked-down configuration. Wireless data access is a prime example, but so are things like gaming interfaces, iPods as oversized USB drives, and instant messaging.
D is for distributed development. The issue isn't really India per se, because there will be new low-cost environments for certain kinds of work as India develops inflation, a middle class, and/or heightened political tensions with Pakistan. Managing distributed development is a more general issue than merely signing up resources in India or Spain or Estonia, and the tools for doing so are still genreally immature.
E is for energy, which remains a constraint for everything from mobility, in the form of battery life, to data centers, in the form of heat. Intel recently had to switch over to dual-core processors to maintain its stream of new microprocessor introductions because of heat, and the marketing strategy for Centrino (slower clock speed, better battery life) doesn't immediately translate into a parallel pitch for desktop and server chips that will no longer be positioned solely on speed.
F is for fiber optics, which remain a wild card in the the quest for widespread residential broadband access. Relatively speaking, Verizon is taking an aggressive position with fiber to the premise (rather than the node) in the Keller, Texas trial. Longer term, both capital and regulatory uncertainty loom. Meanwhile, wireless broadband deploys far faster and at lower cost, and it's completely possible that anyone who spends billions of dollars digging up yards in 2005 could be aced out by a wireless carrier within five years.
G is for gaming, in both the Vegas sense (a euphemism for gambling) and the Nintendo sense of the word. It's not clear how long state and federal governments will forego potential tax revenues from Internet casinos: for all the talk about the presidential election's being a contest of values, many states that voted for Bush have aggressively adopted lotteries, casinos, and other betting. Meanwhile, the battle for handheld console supremacy between Sony's PSP and Nintendo DS will have global implications for telcos, movie studios, hardware manufacturers, and other parties.
H is for health record, electronic. In the midst of federal budgeting, President Bush has to balance conflicting promises: to push for better use of digital record-keeping technologies in healthcare, and to reduce the deficit. It's too early to tell how the battle will play out, but to date few legislators have seen support for electronic medical records as a way to impress their constituencies.
I is for industry consolidation. Oracle's takeover of Peoplesoft will by no means end this trend, and 2005 may see such companies as Siebel, BEA, Cognos, Hyperion, and Lawson dealing with acquisition efforts. On the services side, it's less clear that a) bigness equals profitability and b) growth by acquisition works for human assets.
J is for jail. Sarbanes-Oxley section 409 is still being interpreted, but some provisions for timely disclosure took effect in August. The legislation uses the terms "real time" and "urgent" for these disclosures, which will add to the CIO's already substantial compliance burden - and provide tough penalties for failure. "Real time" for some purposes is four days, but retrieving a given e-mail or category of instant messages, for example, within that time is impossible for most organizations.
K is for killer application, or more properly the lack thereof. Intel has suffered as both consumers and business users find it difficult to justify new hardware purchases for such predominant tasks as e-mail, web browsing, and spreadsheets. On mobile platforms, meanwhile, cultural differences drive divergent adoption patterns of everything from mobile messaging to cameraphones to geolocation. Personal digital media management, in the form of iPods and TiVos, has sold well, but not all that well. In a global market, it's worth reflecting on total TiVo sales: 4.6 million for 2003, and probably less than 10 million total worldwide as of mid-2004.
L is for license revolt. Enterprise software buyers uniformly resist the move by enterprise software companies to counter declining new seat sales with increased support and maintenance fees. open source is one strand of the movement to limit the power of the vendors, but there are others: 3rd-party support firms, self-support, and refusal to buy upgrades. With increased vendor consolidation, expect to see the stakes increase, and customer resistance grow more vigorous.
M is for management software. Given that headcount remains a large and, thanks to health care costs, growing component of IT budgets, and given that the complexity of the IT shop is still growing despite efforts to rein it in, better tools for running the IT business are essential. Some are in early deployment. Consider that front office, back office, sales force, shopfloor, and field service all have been automated, but the IT organization typically runs on spreadsheets rather than audit-able, robust enterprise systems.
N is for network topology, inverting. Currently, most data network traffic flows outward, from servers to the edge. With the stunning growth in RFID and other sensors, voice over IP, music uploads, and networked games, that pattern is in flux. IDC predicts that edge-in traffic will outstrip inside-out flows in less than ten years, necessitating new approaches to security, reliability, and flexibility.
O is for open source. Linux and Apache are old news; 2005 could be the year that the MySQL database and JBoss application server move out of stealth mode and into more active market penetration.
P is for personalization. Amazon's consumer site is custom-generated on the fly for every registered visitor, representing an integration of cookies, behavioral profiling, databases, dynamic site-serving, and other technologies. That kind of performance and relevance will be expected as the norm in more settings. At the same time, the limits of the username+password model are being exceeded, and new identity solutions will get at least trial deployments in 2005.
Q is for QWERTY, or the keyboard paradox. For years, Bill Gates and others have predicted that voice-recognition and realistic speech synthesis are on the horizon. But a funny thing happened: young users of mobile voice devices have exhibited a preference for text input rather than speech. Demographics, Moore's law, and cultural norms will all shape the next wave of input preferences, but none will be exactly what the visionaries at Dragon and Lernout & Hauspie predicted back in the mid-1990s.
R is for RFID. Retailers already have the business case and many of the business practices in place to exploit the consumer-products and pharmaceutical tags; what will change dramatically are the behaviors and expectations in such places as hospitals, unionized warehouses, and courts. What are the rules for using tags (or automobile "black boxes") as evidence? What are the privacy rights of an employee suspected of theft or even of slacking? How will the black market adapt to the presence of tagged Oxycontin in both legitimate and shadow supply chains?
S is for search. Google's ambition and capability are both formidable: their agreement with leading university libraries to digitize some of their holdings parallels a less-visible effort at the Internet Archive and will be a landmark in information access. Yahoo, Amazon, and Microsoft, meanwhile, are devoting major investment and brainpower to various categories of search challenges. Given the magnitude of information volumes both at rest and in motion, traditional methods for storing, finding, and manipulating data will have to be reinvented - and more layers (in the form of geospatial, audio, and other aspects) are still in the queue.
T is for telephony. Voice over IP is changing the economics of the large national and Bell carriers, it's changing law enforcement, it's changing marketing, and it's changing enterprise computing. How it's changing these various things is not yet clear: regulators, lawyers, taxing authorities, and courts will have much to say about the eventual patterns of adoption. For example, the U.S. federal government took in over $5 billion in telephone tax receipts in 1999. Replacing that stream, along with a probably larger flow to states, will be controversial, more so in an age of deficits.
U is for unsolicited bulk e-mail, aka spam. The volumes keep increasing even in the face of potential penalties, but user dissatisfaction is growing even faster, to the point where e-mail is threatened with obsolescence as users simply give up and rely on voice or instant messenger (even with its obvious temporal limits). Vendors, meanwhile, continue to negotiate about control and related issues. The big issue is trust, a commodity in short supply these days.
V is for virtualization. Enterprise hardware utilization is low, and expensive. Making computing resources more fungible can increase performance while lowering costs. Rhetoric thus far outruns reality, and there remain many engineering and economic issues before this cluster of technologies (pun intended) lives up to its potential. One example: if Oracle charges per processor, how does it figure my bill if I run 11i on a blade server, devoting varying numbers of processors to different tasks as demand rises and falls?
W is for Windows, still the world's most profitable software franchise. Security remains a major question mark, as does the issue of platform extension: how can Microsoft most successfully maintain look, feel, and branding across PCs, cell phones, game consoles, TV set-top boxes, MP3 players, handhelds, and home entertainment centers? Where does extension inhibit rather than enhance entry into new markets?
X is for XML. Specialized variants, including BPEL (Business Process Execution Language) and XBRL(eXtensible Business Reporting Language) are entering the basic toolkit of various professions and task groups. RSS is reintroducing "push" media. We're well past the hype stage and into the gritty details of implementation.
Y is for Yahoo! The fate of this company will dictate and indicate a great deal about the industry dynamics of what used to be called the Internet sector. Structurally speaking, is Yahoo closer to Disney or to Google? Is Amazon closer to Wal-Mart or InterActive Corp? Is eBay a tech stock in any meaningful way? Ultimately, how much of the essence of the Internet will belong to Hollywood or New York and how much to Silicon Valley?
Z is for zero latency, otherwise known as real time enterprise. Driven by compliance requirements, customer requirements, and competitors, often from unfamiliar sectors, businesses often confront "impossible" performance requirements that can't be met simply by tweaking existing processes and procedures. As with so many other technologies, the really tough part of real time is behavioral and cultural rather than engineering.
Friday, December 10, 2004
Thursday, December 02, 2004
December newsletter I - Trends 2004: Prediction Scorecard
Despite using or implying many automotive metaphors regarding dashboards, headlights, and rear-view mirrors, the technology prediction industry doesn't spend much time keeping itself honest about its hits and misses. Given that every other economic segment is being subjected to tighter scrutiny, we'll do likewise: here's a look at how we and other predictors (harvested from multiple sources) fared this year.
1) A lot of these developments were well underway a year ago, so something like an upswing in flat-panel display sales was no surprise. Similarly, megapixel cameraphones were linear extrapolations of previous results and R&D investment. Continuing the "correct, but no surprise" category I'd list the following:
-Big money in search technology. The Google IPO and Microsoft investments were in the works for some time, and Amazon's A9, while fascinating, didn't change the established order of things
-RFID: Wal-Mart announced its mandate in mid-2003, so nothing snuck under radar.
-Increased investment in offshore capabilities - but John Kerry's campaign rhetoric made companies shy about public announcements.
-Price pressure across the tech sector
-Increased speed of cellular connections
2) A few predictions may or may not have come true, but confirming data aren't available yet:
-A 2x increase in the number of wi-fi hotspots. Anecdotally, I don't see anywhere near twice the coverage in my habit trails.
-Bluetooth, by contrast, feels more prevalent than it was a year ago, particularly in Europe. There, shipments of mobile phones with Bluetooth have nearly tripled in the third quarter vs. last year.
3) A few tech predictions simply didn't pan out:
-Enterprises have been wary of or even downright hostile to the idea of using peer-to-peer technologies for storage, distribution, and even cycle harvesting. Security, defined fairly conventionally and often oversimplistically, still trumps most discussions.
-Micropayments remain in the same category as voice interfaces: a good idea that people will embrace any time now. Except they don't
-Really Simple Syndication (RSS) is still overwhelmingly used for weblogs rather than enterprise content. There are some early adopters, but outside of media companies pushing news feeds, it's hard to find many instances of RSS in the general corporate population. Cisco, for example, uses the technology to distribute press releases.
-The Apple iPod completely dominated the MP3 player market; forecasts of credible competition and price erosion at Apple simply didn't happen. iPod shipments this holiday season will be counted in millions, Windows-based players in thousands.
-PCs and TVs, in the mass market, are different animals. HDTV is getting hot, but not with a lot of PC infrastructure.
4) The hits among the misses: predictions that appear to have come to fruition.
-Voice over IP is in hypergrowth mode, along multiple axes: corporate (Cisco), wild-card (Skype), old Bell (AT&T), ISP (Earthlink/Vonage), cable TV (Cox), and RBOC (SBC).
-Weblogging continues to increase, but the rate of abandonment is still high: about 1 in 2 blogs gets left to die after 6 months. The presidential campaign showed how blogs, in the aggregate, can be front-page news.
-Personal digital media storage (TiVo and iPod) continued to grow faster than most technologies. With small high-capacity hard drives and capacitive scroll-wheel interfaces like the iPod's now coming to cell phones, the market reaction will be fun to watch.
-Computer gaming in its many forms - portable, online, console- and PC-based - continues to grow dramatically, to the point where the industry is bigger than first-run Hollywood movies and also a cultural vector for norms and fads. Last month, for example, Microsoft's launch of Halo 2 brought in $125 million in sales - for the first day of availability.
-AMD capitalized on both good strategic bets and Intel's poor execution to make the general-purpose microprocessor market a two-horse race for the first time in years.
Looking closer to home, this list of six mnemonic "M"s summarizes what Americas CTO John Parkinson and I predicted last November for the 2004-07 period:
-Miniaturization: "mobile networking, presence awareness (primarily via GPS), and machine-to-machine data and communications standards will co-evolve with advances in miniaturization, with the result that each realm delivers useful capabilities to the others."
-Mobility: "we can create many new types of mobile capabilities – and make both 'location' and 'locality' key properties of our business processes. Especially in North America, expect a lot of these developments to incorporate links through vehicles – which, as well as being robust mobile platforms that can shield their occupants from radiation, have the supreme advantage of acting as electricity generators. . . . more and more network traffic well be 'Device-to-Device' with software agents (rather than people) communicating with each other; when you’re talking on the scale of hundreds of millions of entities, human intervention just isn’t a possibility. The other requirement will be for giant directories, much like today’s Domain Name Service, to keep track of what’s where, where things are headed, and who’s allowed to see what information about a given thing."
-Mesh: "We will need new network topologies that are highly connected locally but only loosely connected regionally and globally. Networks designed like this have many powerful properties (self diagnosis and automatic repair, for example) and can be made to be extremely flexible and highly scalable [and] . . . eventually they will become the topology of choice for just about everything at the 'edge' of the Internet of Things."
-Management: "There are two facets to the management issue. First, keeping track and taking care of all the emerging varieties of mobile and/or connected computing devices will require new approaches to asset utilization, system design, and maintenance. The sheer volume of the world’s digital data production . . . means that metadata will have to become more serious business. . . . The other aspect of management will empower people to make better business decisions. . . . The complete emergence of the 'Real Time Enterprise' will probably take longer than our five year horizon, but most of the technologies we need already exist – and significant productivity gains are already accruing to businesses that embrace the feedback and control processes that make “real time” ideas work. . . . Adoption of real-time ideas is more likely to be constrained by the need to learn new working habits – and to become comfortable with constant monitoring and feedback – than by the availability of enabling technologies."
-Microsoft: "Over 95% of personal computers run a version of Windows, an operating system written for a hardware platform defined in the 1980s. Hardware has made such strides since then that the software now can’t take advantage of many of the available features – and attempts to do so have created obvious complexity and significant, expensive fragility as a result. It’s time to do something about this – and sometime in 2006, Microsoft will do so. The next release of Windows, currently code-named Longhorn, will significantly simplify how things work and at the same time expose many new capabilities from which to assemble a whole new experience when interacting with the technology. . . . This will of course have both intended and unintended consequences, but it’s worth recalling how important Windows 95’s embedded TCP/IP was for the growth of the Internet: Longhorn could well help unlock change of similar magnitude."
-Maturity: "Many industry observers ask if the technology sector is 'mature,' meaning, are triple-digit growth rates and investment returns still possible, or do hardware and software increasingly have the economics of automobiles or frozen carrots? Our take on the question is slightly different.
Let’s begin by looking at the core characteristic of information technology (and most other classes of technology) over its first fifty years: IT was scarce, and commanded the concomitant price premium. . . . The operating assumptions and design principles of a connected, mobile environment now revolve more around standards than differentiation, around services on a network than applications on a processor, around quality of decisions rather than quantity of throughput.
In short, rather than leaving some golden age of economic alchemy – of turning silicon into gold, as it were – the IT industry now addresses its most educated base of customers, who are competing for the highest possible stakes with ever more powerful and flexible technologies. The second fifty years of IT history promise to be far more dramatic than the first, and given possibilities in biology, education, politics, and transportation just for starters, it’s impossibly premature to write off the information technology market as a locus for growth and radical innovation."
Self-critique
So how did we do? Overall, reading a four-year prediction one year in should provide plenty of wiggle room. Nothing jumps out as truly bone-headed: software agents are probably more utilized than talked about, for example, and miniaturization is certainly driving solid growth in cell phones and iPods. Research into mesh network topologies is proceeding apace. If anything the organizational barriers to real-time technologies are even higher than we warned of. Margin erosion at most IT vendors keeps the maturity question front and center. IT management - of assets, people, and portfolios - remains a primary opportunity for both hardware and software vendors.
On the other hand, Microsoft's announcement that it was leaving WinFS out of Longhorn in order to make a 2006 ship date removes some of that OS's projected impact; some have referred to the modified release as "Shorthorn." Some of the biggest news of the year, such as new supercomputers, came from the Open-Source world. Google, meanwhile, is building much more than a search tool, and even the search facet got short shrift in our discussions of metadata and directories. Security, often the simplististic versions noted above, is still driving more behavior than we predicted, particularly in the adoption of web services and grid technologies. Mobility remains primarily a consumer rather than enterprise phenomenon. Overall, give us a B.
What do I think is coming for 2005? That's a topic for the next issue.
1) A lot of these developments were well underway a year ago, so something like an upswing in flat-panel display sales was no surprise. Similarly, megapixel cameraphones were linear extrapolations of previous results and R&D investment. Continuing the "correct, but no surprise" category I'd list the following:
-Big money in search technology. The Google IPO and Microsoft investments were in the works for some time, and Amazon's A9, while fascinating, didn't change the established order of things
-RFID: Wal-Mart announced its mandate in mid-2003, so nothing snuck under radar.
-Increased investment in offshore capabilities - but John Kerry's campaign rhetoric made companies shy about public announcements.
-Price pressure across the tech sector
-Increased speed of cellular connections
2) A few predictions may or may not have come true, but confirming data aren't available yet:
-A 2x increase in the number of wi-fi hotspots. Anecdotally, I don't see anywhere near twice the coverage in my habit trails.
-Bluetooth, by contrast, feels more prevalent than it was a year ago, particularly in Europe. There, shipments of mobile phones with Bluetooth have nearly tripled in the third quarter vs. last year.
3) A few tech predictions simply didn't pan out:
-Enterprises have been wary of or even downright hostile to the idea of using peer-to-peer technologies for storage, distribution, and even cycle harvesting. Security, defined fairly conventionally and often oversimplistically, still trumps most discussions.
-Micropayments remain in the same category as voice interfaces: a good idea that people will embrace any time now. Except they don't
-Really Simple Syndication (RSS) is still overwhelmingly used for weblogs rather than enterprise content. There are some early adopters, but outside of media companies pushing news feeds, it's hard to find many instances of RSS in the general corporate population. Cisco, for example, uses the technology to distribute press releases.
-The Apple iPod completely dominated the MP3 player market; forecasts of credible competition and price erosion at Apple simply didn't happen. iPod shipments this holiday season will be counted in millions, Windows-based players in thousands.
-PCs and TVs, in the mass market, are different animals. HDTV is getting hot, but not with a lot of PC infrastructure.
4) The hits among the misses: predictions that appear to have come to fruition.
-Voice over IP is in hypergrowth mode, along multiple axes: corporate (Cisco), wild-card (Skype), old Bell (AT&T), ISP (Earthlink/Vonage), cable TV (Cox), and RBOC (SBC).
-Weblogging continues to increase, but the rate of abandonment is still high: about 1 in 2 blogs gets left to die after 6 months. The presidential campaign showed how blogs, in the aggregate, can be front-page news.
-Personal digital media storage (TiVo and iPod) continued to grow faster than most technologies. With small high-capacity hard drives and capacitive scroll-wheel interfaces like the iPod's now coming to cell phones, the market reaction will be fun to watch.
-Computer gaming in its many forms - portable, online, console- and PC-based - continues to grow dramatically, to the point where the industry is bigger than first-run Hollywood movies and also a cultural vector for norms and fads. Last month, for example, Microsoft's launch of Halo 2 brought in $125 million in sales - for the first day of availability.
-AMD capitalized on both good strategic bets and Intel's poor execution to make the general-purpose microprocessor market a two-horse race for the first time in years.
Looking closer to home, this list of six mnemonic "M"s summarizes what Americas CTO John Parkinson and I predicted last November for the 2004-07 period:
-Miniaturization: "mobile networking, presence awareness (primarily via GPS), and machine-to-machine data and communications standards will co-evolve with advances in miniaturization, with the result that each realm delivers useful capabilities to the others."
-Mobility: "we can create many new types of mobile capabilities – and make both 'location' and 'locality' key properties of our business processes. Especially in North America, expect a lot of these developments to incorporate links through vehicles – which, as well as being robust mobile platforms that can shield their occupants from radiation, have the supreme advantage of acting as electricity generators. . . . more and more network traffic well be 'Device-to-Device' with software agents (rather than people) communicating with each other; when you’re talking on the scale of hundreds of millions of entities, human intervention just isn’t a possibility. The other requirement will be for giant directories, much like today’s Domain Name Service, to keep track of what’s where, where things are headed, and who’s allowed to see what information about a given thing."
-Mesh: "We will need new network topologies that are highly connected locally but only loosely connected regionally and globally. Networks designed like this have many powerful properties (self diagnosis and automatic repair, for example) and can be made to be extremely flexible and highly scalable [and] . . . eventually they will become the topology of choice for just about everything at the 'edge' of the Internet of Things."
-Management: "There are two facets to the management issue. First, keeping track and taking care of all the emerging varieties of mobile and/or connected computing devices will require new approaches to asset utilization, system design, and maintenance. The sheer volume of the world’s digital data production . . . means that metadata will have to become more serious business. . . . The other aspect of management will empower people to make better business decisions. . . . The complete emergence of the 'Real Time Enterprise' will probably take longer than our five year horizon, but most of the technologies we need already exist – and significant productivity gains are already accruing to businesses that embrace the feedback and control processes that make “real time” ideas work. . . . Adoption of real-time ideas is more likely to be constrained by the need to learn new working habits – and to become comfortable with constant monitoring and feedback – than by the availability of enabling technologies."
-Microsoft: "Over 95% of personal computers run a version of Windows, an operating system written for a hardware platform defined in the 1980s. Hardware has made such strides since then that the software now can’t take advantage of many of the available features – and attempts to do so have created obvious complexity and significant, expensive fragility as a result. It’s time to do something about this – and sometime in 2006, Microsoft will do so. The next release of Windows, currently code-named Longhorn, will significantly simplify how things work and at the same time expose many new capabilities from which to assemble a whole new experience when interacting with the technology. . . . This will of course have both intended and unintended consequences, but it’s worth recalling how important Windows 95’s embedded TCP/IP was for the growth of the Internet: Longhorn could well help unlock change of similar magnitude."
-Maturity: "Many industry observers ask if the technology sector is 'mature,' meaning, are triple-digit growth rates and investment returns still possible, or do hardware and software increasingly have the economics of automobiles or frozen carrots? Our take on the question is slightly different.
Let’s begin by looking at the core characteristic of information technology (and most other classes of technology) over its first fifty years: IT was scarce, and commanded the concomitant price premium. . . . The operating assumptions and design principles of a connected, mobile environment now revolve more around standards than differentiation, around services on a network than applications on a processor, around quality of decisions rather than quantity of throughput.
In short, rather than leaving some golden age of economic alchemy – of turning silicon into gold, as it were – the IT industry now addresses its most educated base of customers, who are competing for the highest possible stakes with ever more powerful and flexible technologies. The second fifty years of IT history promise to be far more dramatic than the first, and given possibilities in biology, education, politics, and transportation just for starters, it’s impossibly premature to write off the information technology market as a locus for growth and radical innovation."
Self-critique
So how did we do? Overall, reading a four-year prediction one year in should provide plenty of wiggle room. Nothing jumps out as truly bone-headed: software agents are probably more utilized than talked about, for example, and miniaturization is certainly driving solid growth in cell phones and iPods. Research into mesh network topologies is proceeding apace. If anything the organizational barriers to real-time technologies are even higher than we warned of. Margin erosion at most IT vendors keeps the maturity question front and center. IT management - of assets, people, and portfolios - remains a primary opportunity for both hardware and software vendors.
On the other hand, Microsoft's announcement that it was leaving WinFS out of Longhorn in order to make a 2006 ship date removes some of that OS's projected impact; some have referred to the modified release as "Shorthorn." Some of the biggest news of the year, such as new supercomputers, came from the Open-Source world. Google, meanwhile, is building much more than a search tool, and even the search facet got short shrift in our discussions of metadata and directories. Security, often the simplististic versions noted above, is still driving more behavior than we predicted, particularly in the adoption of web services and grid technologies. Mobility remains primarily a consumer rather than enterprise phenomenon. Overall, give us a B.
What do I think is coming for 2005? That's a topic for the next issue.
Wednesday, December 01, 2004
November newsletter: Ten Years On
Last month, Silicon Valley's Churchill Club held its annual Top Ten Technology Trends dinner, featuring VCs John Doerr from Kleiner Perkins, Esther Dyson, Roger McNamee from Silver Lake Partners & Integral Capital Partners, and Joe Schoendorf from Accel. Doerr started things off by positing that the internet was in fact underhyped. The browser is over ten years old and showing its age, but there's a burst of innovation in such areas as search, localization and mapping, and messaging. What he called the NextWeb (or Web 2.0 in others' nomenclature) has enormous potential. For example, Google recently bought Keyhole, the spectacular mapping site that does truly breathtaking things with satellite images; here's a free trial version: There's a lot to think about if you combine Google's search acumen with this dazzling visual capability.
History suggests Doerr is right. Carlota Perez, an economic historian at the University of Sussex, studied the persistent patterns underlying five techo-economic eras: the industrial revolution; steam and railways; steel, electricity, and heavy engineering; oil, cars, and mass production; and information and communications technologies. Each of these sometimes overlapping periods has followed a rough sequence of four phases: a new technology appears in the market, often disrupting existing arrangements. There's a period of rapid, often silly adoption from which a bubble emerges. After the speculative excesses burn off, the economic potential of the new technology is explored and exploited, until such time as the market matures and the potential is exhausted, often by a new technology paradigm. Speaking of "paradigm shifts," Perez's work might be seen as a close, and useful, parallel to Thomas Kuhn's classic The Structure of Scientific Revolutions.
Doerr is also probably right because we're still too close to the original event to have much perspective. Most of us can still remember seeing our first website or sending our first e-mail, and much of the first wave of any innovation typically automates existing practices: early cars were horseless horse carriages, television initially broadcast actors reading radio scripts, and oil from the Pennsylvania boom was first used for lighting more than locomotion. It's no surprise that the 1990s Internet accelerated existing processes of finding things: travel-related information, materials specifications, and undifferentiated goods like books or stocks. Now, technology promises to help people change many other activities. Compare how far we've come in a decade to the half-century it took for the automobile to reshape America's cities after the passage of the Federal-Aid Highway Act of 1952 that initiated the Interstates that both partitioned the inner cities of the North and created suburbs abound every major city.
We are now living through our own variety of unexpected consequences, including whole new processes invented in the past ten years that could not have occurred at any prior historical moment. Here's a short list:
*New economics of production and distribution
Linux and other forms of open-source software could not have been developed and tested with postage rather than electronic communication. Hedge funds and other hair-trigger financial arrangements exploited instant messaging and cheap computation; some have suggested the first chapter of this story is the invention of the spreadsheet about twenty years ago. Online movement of digital music (and soon video) is forcing Hollywood to reinvent its core business model and trading practices. The migration from proprietary to open networks and protocols is forcing some of the world's oldest and most visible companies - AT&T for starters - to completely reinvent their cost structure, go-to-market position, and customer set.
But as an excellent survey in the November 13 Economist illustrates, perhaps the most powerful economic upheaval caused by our technology is in the globalization of white-collar work. Detroit and Pittsburgh long ago lost their primacy as the world's factories; heavy industry has been migrating offshore for decades. What's shocking now is how fast such skilled positions as call-center troubleshooter, radiologist, and R&D engineer are moving to India, China, and the former Soviet Union. As with Linux, this trend would be severely inhibited if the Internet had not fueled education, communications, and aspirations in the developing world. The article points out that Toyota must allow between 25 and 37 days for an engine to move from Nagoya to Chicago, but communication of white-collar "products" faces very different and smaller uncertainties. For example, if a manager includes breaks for Thanksgiving, Christmas, and New Year's in a 12-week project plan, when are the holidays in India, Canada, or China during that same time span? If code is being written, how can the U.S. customer be assured that the offshore test setup is identical to the deployment environment?
There are some who think that this speed factor will accelerate the globalization of work, and indeed, a new report from a bipartisan Congressional commission, to be released in January, estimates the U.S. 2004 job loss at slightly over 400,000 - twice the estimate of the national Chamber of Commerce. While any estimates of job migration will be subject to wide variation in interpretation and credibility, 400,000 is nearly a quarter of the 1.8 million new jobs thought to be created in the same period, a number big enough to make a difference. Economists are busy fighting over whether migration of work to low-cost producers ultimately creates more and better new jobs higher up the stack in the country that lost the jobs, but nobody has conclusive results. A number of facts are beyond dispute: 1) workers are not immediately fungible (a call-center operator in Omaha typically can't answer a help-wanted ad in Sacramento for oncology nurses); 2) the process of job migration and invention takes time and ripples throughout an economy in unpredictable ways: education, health care, housing, and numerous other areas feel the impact; 3) low-cost producers face inflationary pressures (15-17% annually for wages at Wipro and Infosys, for example) and have limited barriers to erect against subsequent global competition. All in all, there's a lot of disruption still ahead of us.
Finally, as the Economist survey rightly insists, even though you can use one to do the other, there are substantial differences between sending work and/or jobs overseas (offshoring), and hiring someone else to do them (outsourcing). For example, Steven Bigari is a McDonald’s franchisee who used outsourcing of a business process - order-taking at the drive-through window - to increase the efficiency of his 12 McDonald's locations: drive-through order time dropped by 30 seconds to a little more than one-minute per transaction, which beats the chain's average of two-minutes thirty six seconds. Drivers are actually talking to a call center in Colorado Springs rather than to an employee at the restaurant, which are located in several states including Colorado. Doing so has helped increase the number of cars his drive-throughs handle by 15%, from 226 cars per hour to 260 cars. Other franchisees are buying the service from him as well.
*Warfare
The distributed, firewalled nature of radical Islamic cells makes them difficult to monitor and infiltrate. Ad-hoc modes of coordination, using principles similar to those underlying packet-based networks, prevent a simple quest to kill off the head so the body will die. What the defense analyst John Robb calls "global guerrillas" are also students of network theory in their target selection, particularly in regard to social networks (especially foreign infrastructure-support workers), the power of publicity, and oil pipeline topologies. It is no surprise that Gulf War II is behaving very differently from the first such conflict, if only because of the technologies involved.
From the U.S. perspective, re-orienting the armed services both to fight non-nation-state actors (albeit highly coordinated ones) and to fight so-called network-centric warfare (NCW) against more conventional enemies has been difficult. The very fact that NCW cannot be defined succinctly or consistently starts a long list of issues; other factors include the "revolving door" between the Pentagon and its suppliers that creates habits that are tough to break, and the hardened career paths that culminate in the command of very large and not terrifically mobile fighting assets. Military prestige continues to collect near the likes of aircraft carriers rather than squadrons of drones or software agents.
*Culture
The iPod as a form factor is changing how people hear music, books, and other material; I'd probably rate it the most important tech development of the century so far. The mini-movies at BMW and Amazon, or the non-studio breakthroughs like 405 or Homestar Runner, give us a taste of what might come next, but it's hard to see the endgame in these early developments that have yet to truly unseat TV from its prime position. Many people predict photography will be the next "killer application" for the Internet, and Kodak's sad fortunes already testify to the technology displacement that's underway.
The daily newspaper is under heavy, multi-pronged attack: job seekers migrate to Monster, sports fans to ESPN and CNN/SI, stock-pickers to Yahoo! or any of a dozen other sites, car-researchers to Edmunds, and hard-news addicts to either serious outlets like the New York Times or BBC or to highly focused weblogs. Hobbyists that get only a nod from the dailies (gardeners, cooks, chess players, classical music enthusiasts) can get a firehose of information directed at any particular interest. Personal ads are similarly moving to consolidated Internet operators like Match.com, Yahoo, and e-Harmony. Where does that leave the mid-market daily paper? The fact that so many print media companies have been caught lying about circulation is no accident: many are caught in a race to see who will leave first, a critical mass of advertisers or readers.
Here's another reminder of how early we are in the Internet's lifecycle. In his book The Rise of the Novel, Ian Watt shows how the narrative form we now call the novel arose only after cheap printing presses and generalized literacy had made broad advances in a nascent middle class. Before Gutenberg, oral traditions gave the West epics and the Bible; it was impossible for authors to get an audience without the literal wrist-power of the clergy. Thinking in century-long cycles, what kinds of literacy and literature will we or our progeny invent to stand alongside the 30-second TV spot, the two-minute-thirty-second AM radio single, or even the sonnet or the epic?
*New forms of social interaction
Flash mobs, whether on line or connected by mobile phones, rely on the many-to-many capabilities that pen and paper and wireline telephony cannot mimic. Community, a word I've always distrusted in the Internet context, is in fact emerging as people meet and learn about each other online, to the point where a strong desire for physical meetings is not uncommon. Fark, a satirical site featuring news and user-driven commentary, has regular meet-ups in cities across the US and often Europe. Fine Homebuilding, a magazine aimed at high-end builders and architects, has a superb web operation in which tradespeople swap tips and approaches; earlier this summer 70 people, many of them physical strangers, met in person for a lobster cookout in Jamestown, Rhode Island. Webloggers frequently convene, and document the convocation, when physical schedules overlap.
Online interactions don't merely automate existing traffic. Think of how the cc: field is used and abused in corporate e-mail, then imagine trying to generate and distribute that many physical memos. Or as the ever-astute Clay Shirky argues, while it's common to think of flaming in online communities as a bug in the system, he says instead that such behavior is an innate part of the architecture, albeit an unexpected and not particularly pleasant one. We as an industry (broadly defined) are still learning how software behaves in conjunction with both particular users and groups. Massively multiplayer games, or worlds, are examples of environments that were inconceivable only a few years ago, and that do not automate any known pattern of interaction. The same can be said for eBay auctions, for that matter.
Clearly a lot of the utopians' hopes for the Internet to enrich their lives and their politics are silly, or worse. At the same time, webloggers both as news reporters and as fact-checkers (in a strong parallel to the open-source development model) had a marked impact on the recent election. Regarding news reporting, it was a dismal performance, one not approximated by the tired old media that waited for verification from real rather than phantom and/or wish-fulfilling sources. Dan Gillmor's We the Media (a book about bloggers as news sources) may be 60, 70, or 80% wrong - but it would be folly not to watch the trends he's describing to see what happens with regard to the parts he got right.
In a quarter-to-quarter business timescape, it's often difficult to assess these sorts of long-wave transitions. That is, unless there's a spike in some metric of usage, it's hard to realize when we're in the midst of change that will take decades to play out. The market for prediction remains more robust than that for assessment. Exercises in reflection are valuable, but the first one that comes to mind - James Gleick's What Just Happened - was disappointing. The alternative, for the moment, is to suspend consciousness long enough to remember what the world looked like before Amazon, before Google, before AOL - and try to make sense of where the road could lead from here.
Sources:
*Carlota Perez, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages (ISBN: 1843763311)
*Economist survey of outsourcing: http://www.economist.com/surveys/PrinterFriendly.cfm?Story_ID=3351416
*2004 offshore job losses: Kimberly Blanton, "Offshoring accelerating," Boston Globe, November 15, 2004
*McDonalds process outsourcing: New York Times, July 18, 2004 and http://www.biz-architect.com/breakthroughs_at_drivethroughs.htm
*For more on outsourcing, see also Tom Malone's book, The Future of Work, which may be more accurately called "the future of organization structures") and
http://www.boston.com/business/personalfinance/articles/2004/03/14/mit_professor_sees_far_flung_future_workplace/
*John Robb: http://globalguerrillas.typepad.com/globalguerrillas/
*Clay Shirky: http://ernie.webservepro.com/pipermail/nec/2004-November.txt
History suggests Doerr is right. Carlota Perez, an economic historian at the University of Sussex, studied the persistent patterns underlying five techo-economic eras: the industrial revolution; steam and railways; steel, electricity, and heavy engineering; oil, cars, and mass production; and information and communications technologies. Each of these sometimes overlapping periods has followed a rough sequence of four phases: a new technology appears in the market, often disrupting existing arrangements. There's a period of rapid, often silly adoption from which a bubble emerges. After the speculative excesses burn off, the economic potential of the new technology is explored and exploited, until such time as the market matures and the potential is exhausted, often by a new technology paradigm. Speaking of "paradigm shifts," Perez's work might be seen as a close, and useful, parallel to Thomas Kuhn's classic The Structure of Scientific Revolutions.
Doerr is also probably right because we're still too close to the original event to have much perspective. Most of us can still remember seeing our first website or sending our first e-mail, and much of the first wave of any innovation typically automates existing practices: early cars were horseless horse carriages, television initially broadcast actors reading radio scripts, and oil from the Pennsylvania boom was first used for lighting more than locomotion. It's no surprise that the 1990s Internet accelerated existing processes of finding things: travel-related information, materials specifications, and undifferentiated goods like books or stocks. Now, technology promises to help people change many other activities. Compare how far we've come in a decade to the half-century it took for the automobile to reshape America's cities after the passage of the Federal-Aid Highway Act of 1952 that initiated the Interstates that both partitioned the inner cities of the North and created suburbs abound every major city.
We are now living through our own variety of unexpected consequences, including whole new processes invented in the past ten years that could not have occurred at any prior historical moment. Here's a short list:
*New economics of production and distribution
Linux and other forms of open-source software could not have been developed and tested with postage rather than electronic communication. Hedge funds and other hair-trigger financial arrangements exploited instant messaging and cheap computation; some have suggested the first chapter of this story is the invention of the spreadsheet about twenty years ago. Online movement of digital music (and soon video) is forcing Hollywood to reinvent its core business model and trading practices. The migration from proprietary to open networks and protocols is forcing some of the world's oldest and most visible companies - AT&T for starters - to completely reinvent their cost structure, go-to-market position, and customer set.
But as an excellent survey in the November 13 Economist illustrates, perhaps the most powerful economic upheaval caused by our technology is in the globalization of white-collar work. Detroit and Pittsburgh long ago lost their primacy as the world's factories; heavy industry has been migrating offshore for decades. What's shocking now is how fast such skilled positions as call-center troubleshooter, radiologist, and R&D engineer are moving to India, China, and the former Soviet Union. As with Linux, this trend would be severely inhibited if the Internet had not fueled education, communications, and aspirations in the developing world. The article points out that Toyota must allow between 25 and 37 days for an engine to move from Nagoya to Chicago, but communication of white-collar "products" faces very different and smaller uncertainties. For example, if a manager includes breaks for Thanksgiving, Christmas, and New Year's in a 12-week project plan, when are the holidays in India, Canada, or China during that same time span? If code is being written, how can the U.S. customer be assured that the offshore test setup is identical to the deployment environment?
There are some who think that this speed factor will accelerate the globalization of work, and indeed, a new report from a bipartisan Congressional commission, to be released in January, estimates the U.S. 2004 job loss at slightly over 400,000 - twice the estimate of the national Chamber of Commerce. While any estimates of job migration will be subject to wide variation in interpretation and credibility, 400,000 is nearly a quarter of the 1.8 million new jobs thought to be created in the same period, a number big enough to make a difference. Economists are busy fighting over whether migration of work to low-cost producers ultimately creates more and better new jobs higher up the stack in the country that lost the jobs, but nobody has conclusive results. A number of facts are beyond dispute: 1) workers are not immediately fungible (a call-center operator in Omaha typically can't answer a help-wanted ad in Sacramento for oncology nurses); 2) the process of job migration and invention takes time and ripples throughout an economy in unpredictable ways: education, health care, housing, and numerous other areas feel the impact; 3) low-cost producers face inflationary pressures (15-17% annually for wages at Wipro and Infosys, for example) and have limited barriers to erect against subsequent global competition. All in all, there's a lot of disruption still ahead of us.
Finally, as the Economist survey rightly insists, even though you can use one to do the other, there are substantial differences between sending work and/or jobs overseas (offshoring), and hiring someone else to do them (outsourcing). For example, Steven Bigari is a McDonald’s franchisee who used outsourcing of a business process - order-taking at the drive-through window - to increase the efficiency of his 12 McDonald's locations: drive-through order time dropped by 30 seconds to a little more than one-minute per transaction, which beats the chain's average of two-minutes thirty six seconds. Drivers are actually talking to a call center in Colorado Springs rather than to an employee at the restaurant, which are located in several states including Colorado. Doing so has helped increase the number of cars his drive-throughs handle by 15%, from 226 cars per hour to 260 cars. Other franchisees are buying the service from him as well.
*Warfare
The distributed, firewalled nature of radical Islamic cells makes them difficult to monitor and infiltrate. Ad-hoc modes of coordination, using principles similar to those underlying packet-based networks, prevent a simple quest to kill off the head so the body will die. What the defense analyst John Robb calls "global guerrillas" are also students of network theory in their target selection, particularly in regard to social networks (especially foreign infrastructure-support workers), the power of publicity, and oil pipeline topologies. It is no surprise that Gulf War II is behaving very differently from the first such conflict, if only because of the technologies involved.
From the U.S. perspective, re-orienting the armed services both to fight non-nation-state actors (albeit highly coordinated ones) and to fight so-called network-centric warfare (NCW) against more conventional enemies has been difficult. The very fact that NCW cannot be defined succinctly or consistently starts a long list of issues; other factors include the "revolving door" between the Pentagon and its suppliers that creates habits that are tough to break, and the hardened career paths that culminate in the command of very large and not terrifically mobile fighting assets. Military prestige continues to collect near the likes of aircraft carriers rather than squadrons of drones or software agents.
*Culture
The iPod as a form factor is changing how people hear music, books, and other material; I'd probably rate it the most important tech development of the century so far. The mini-movies at BMW and Amazon, or the non-studio breakthroughs like 405 or Homestar Runner, give us a taste of what might come next, but it's hard to see the endgame in these early developments that have yet to truly unseat TV from its prime position. Many people predict photography will be the next "killer application" for the Internet, and Kodak's sad fortunes already testify to the technology displacement that's underway.
The daily newspaper is under heavy, multi-pronged attack: job seekers migrate to Monster, sports fans to ESPN and CNN/SI, stock-pickers to Yahoo! or any of a dozen other sites, car-researchers to Edmunds, and hard-news addicts to either serious outlets like the New York Times or BBC or to highly focused weblogs. Hobbyists that get only a nod from the dailies (gardeners, cooks, chess players, classical music enthusiasts) can get a firehose of information directed at any particular interest. Personal ads are similarly moving to consolidated Internet operators like Match.com, Yahoo, and e-Harmony. Where does that leave the mid-market daily paper? The fact that so many print media companies have been caught lying about circulation is no accident: many are caught in a race to see who will leave first, a critical mass of advertisers or readers.
Here's another reminder of how early we are in the Internet's lifecycle. In his book The Rise of the Novel, Ian Watt shows how the narrative form we now call the novel arose only after cheap printing presses and generalized literacy had made broad advances in a nascent middle class. Before Gutenberg, oral traditions gave the West epics and the Bible; it was impossible for authors to get an audience without the literal wrist-power of the clergy. Thinking in century-long cycles, what kinds of literacy and literature will we or our progeny invent to stand alongside the 30-second TV spot, the two-minute-thirty-second AM radio single, or even the sonnet or the epic?
*New forms of social interaction
Flash mobs, whether on line or connected by mobile phones, rely on the many-to-many capabilities that pen and paper and wireline telephony cannot mimic. Community, a word I've always distrusted in the Internet context, is in fact emerging as people meet and learn about each other online, to the point where a strong desire for physical meetings is not uncommon. Fark, a satirical site featuring news and user-driven commentary, has regular meet-ups in cities across the US and often Europe. Fine Homebuilding, a magazine aimed at high-end builders and architects, has a superb web operation in which tradespeople swap tips and approaches; earlier this summer 70 people, many of them physical strangers, met in person for a lobster cookout in Jamestown, Rhode Island. Webloggers frequently convene, and document the convocation, when physical schedules overlap.
Online interactions don't merely automate existing traffic. Think of how the cc: field is used and abused in corporate e-mail, then imagine trying to generate and distribute that many physical memos. Or as the ever-astute Clay Shirky argues, while it's common to think of flaming in online communities as a bug in the system, he says instead that such behavior is an innate part of the architecture, albeit an unexpected and not particularly pleasant one. We as an industry (broadly defined) are still learning how software behaves in conjunction with both particular users and groups. Massively multiplayer games, or worlds, are examples of environments that were inconceivable only a few years ago, and that do not automate any known pattern of interaction. The same can be said for eBay auctions, for that matter.
Clearly a lot of the utopians' hopes for the Internet to enrich their lives and their politics are silly, or worse. At the same time, webloggers both as news reporters and as fact-checkers (in a strong parallel to the open-source development model) had a marked impact on the recent election. Regarding news reporting, it was a dismal performance, one not approximated by the tired old media that waited for verification from real rather than phantom and/or wish-fulfilling sources. Dan Gillmor's We the Media (a book about bloggers as news sources) may be 60, 70, or 80% wrong - but it would be folly not to watch the trends he's describing to see what happens with regard to the parts he got right.
In a quarter-to-quarter business timescape, it's often difficult to assess these sorts of long-wave transitions. That is, unless there's a spike in some metric of usage, it's hard to realize when we're in the midst of change that will take decades to play out. The market for prediction remains more robust than that for assessment. Exercises in reflection are valuable, but the first one that comes to mind - James Gleick's What Just Happened - was disappointing. The alternative, for the moment, is to suspend consciousness long enough to remember what the world looked like before Amazon, before Google, before AOL - and try to make sense of where the road could lead from here.
Sources:
*Carlota Perez, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages (ISBN: 1843763311)
*Economist survey of outsourcing: http://www.economist.com/surveys/PrinterFriendly.cfm?Story_ID=3351416
*2004 offshore job losses: Kimberly Blanton, "Offshoring accelerating," Boston Globe, November 15, 2004
*McDonalds process outsourcing: New York Times, July 18, 2004 and http://www.biz-architect.com/breakthroughs_at_drivethroughs.htm
*For more on outsourcing, see also Tom Malone's book, The Future of Work, which may be more accurately called "the future of organization structures") and
http://www.boston.com/business/personalfinance/articles/2004/03/14/mit_professor_sees_far_flung_future_workplace/
*John Robb: http://globalguerrillas.typepad.com/globalguerrillas/
*Clay Shirky: http://ernie.webservepro.com/pipermail/nec/2004-November.txt
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