Last month, we discussed the fact that the planet has crossed the 3.3 billion cellphone mark, which, if equally distributed, would supply a phone to every second person in the world. This month, we are reminded that technologies of communications have long developed in parallel with technologies of violence. Michael Hodges, a British journalist, recently documented the history of the AK47 assault rifle, a technology that also has achieved wide distribution all over the world. The story of the gun, and of its many implications, provides a sobering counterpoint to the achievements and potentialities of mass mobile communications.
Hodges ranges widely, but several salient facts about the weapon grab the reader's attention:
-Between 70 and 100 million AK47s are in circulation worldwide (to put this in perspective, there are at least enough weapons to arm the Chinese People's Liberation Army, the world's largest, and its reservists at least 25 times over). About 8 million more guns a year are sold, more than all M16s made in nearly 50 years.
-The weapon fires 650 rounds per minute; a clip of 30 takes about 3 seconds on full automatic.
-The AK47 was designed to be simple enough for even illiterate recruits to learn, maintain, and fire.
-The rifle has proved amazingly reliable, performing for 60 years in nearly all operating conditions -- cold, rain, sand, mud, jungles, and cities -- with minimal maintenance.
-The AK47 was invented in Russia but was later manufactured, royalty-free, in many other countries. (This makes the weapon an early example of open-source hardware, before anyone called it that.)
-With a mere eight moving parts, machined only to loose tolerances, the gun can be readily repaired in or near the field (but this design choice also exacts a cost in accuracy).
Numerous examples testify to the AK47's effectiveness, longevity, and cost-effectiveness. In Afghanistan, after Soviet forces grew tired of being ambushed with their own rifle, convoys drove when possible on roads cleared of cover for 300 yards on either side in deference to the weapon's effective range. In Viet Nam, U.S. soldiers often grew frustrated with their M16s, which jammed in wet conditions, and took up AK47s when they were recovered from enemy casualties or POWs. More recently, when the U.S. needed to arm the re-formed Iraqi security forces, the contract was awarded to a Bulgarian manufacturer of Kalashnikovs selling for $100 apiece.
But Hodges is not interested in strictly military history. His story of what he calls "the people's gun" has several facets, some of which prove more persuasive than others. The assertion that the weapon, and its distinctive silhouette, have become a global brand, alongside Coke and Sony, feels slightly underdeveloped but also only marginally relevant. That the AK47 has become a political totem, a "signifier" (to use the jargon of literary theory), is undeniable. From Afghanistan, where Osama Bin Laden poses with different variants of the weapon in his video missives to the world, to Mozambique, whose 1983 flag features an AK crossed with a hoe, the gun has a long history of symbolic potency.
For our purposes, it is not symbolism but very physical implications of the gun that matter. At the same time that mobile phones connect families, market participants, and community resources such as ambulances in India or banks in Bangladesh, wide availability of assault weapons counteracts these tendencies. Grudges and tribal antagonisms intensify; desperation among people without hope is given violent outlet. Gang wars mixing some combination of rites of passage, turf conflict, drugs, and gunplay (whether in Pakistan, Columbia, Sudan, or U.S. inner cities) both grow deadlier and trigger waves of payback and escalation. The cycle of recruitment, killing, retribution -- and collateral damage -- can spiral out of control as gangsters outgun most peacekeepers.
Hodges is grimly persuasive when he writes of "Kalshnikov cultures," places where poverty, heavily armed combatants, and radical politics combine to render rule of law and even basic notions of civil society moot. On particularly depressing outgrowth of such cultures is the recruitment of [often orphaned] children, who are placed in the first wave of attacks since they are light enough to not trip land mines. The AK47's ease of use makes such a scenario possible. Indeed, when a weapon becomes "the people's gun" and stops being "the army's gun," many basic rules of social interaction are rewritten or, more accurately, erased.
Because AK47s circulate beyond the locked armories and strict rules of a typical army, the story of their distribution is an exercise in social networking of a lethal sort: most parties who want a weapon are well within "six degrees" of obtaining one. Between the open-source hardware mentioned above, and the weapon's nondescript footprint which lacks radiation or radio frequency emissions, it is virtually impossible to track. Finally, because of their proven durability, decades-old rifles still pose a threat to life and limb: even if manufacturing were to be curtailed tomorrow, the size of the weapons population would continue to shape crime, politics, and terror well into the 21st century. Changing the impact of the gun will be an exercise in changing minds, not controlling the technology.
As powerfully as it explains key facets of contemporary terror, Hodges' story also reminds us that technologies of communications and killing have frequently developed in parallel: radio and mustard gas were commercialized within a few years of each other. Gunpowder and a new style of musical notation were roughly contemporaneous, and the first cast-iron gun predated European movable type by about 20 years. To give credit where it is due, Mikhail Kalashnikov invented a technology that did what it was designed to do, under adverse conditions, for over six decades, at low cost.* It also changed the face of both warfare and politics, a claim that can be made by few inventors, of any era.
*At a much higher price tag, the B-52 bomber has achieved similar longevity: several grandchildren of the original pilots are now operating these aircraft in various theaters.
Michael Hodges, AK47: The Story of a Gun. San Francisco: MacAdam Cage, 2008.
Friday, July 25, 2008
Thursday, June 26, 2008
June 2008 Early Indications: Crossing Over
Rather than looking at the somewhat ambiguous "tipping points" that Malcolm Gladwell helped popularize (much to my colleague David McIntosh's despair; see also here), I'd like to look this month at several crossover points: moments in history where one way of doing something overtakes a previous one. Three broad areas come into play: performing a task on a PC, connecting to another person, and making a living.
1) PCs
Sometime in the past five years, more people completed a task using software based elsewhere than did people who utilized an application running locally. Here are the numbers: according to comScore data from August 2007, 754 million unique searchers averaged 80 searches for the month. (Rolled up, that's 61 billion searches per month, 37 billion served by Google.) While figures for desktop-resident applications are harder to come by, Microsoft estimated in 2003 that 150 million copies of Office had been sold, 80 million of them Office XP. This breakout suggests that there might be double counting as customers migrated through various versions: by myself I own three current licenses, never mind how many past versions that were attached to me at different times. More recently, a March press release spoke of 500 million Office users worldwide. ERP seats and PC games (#1 all time is The Sims), both at roughly 100 million, don't even come close.
Taking that Microsoft number at face value and assuming no double-counting, and not including web browsers as application software, as of last year 50% more people completed a task on a remote server compared to the number using the leading resident application.
Why does this crossover matter? As PCs become more affordable and can be purchased by more people, the advantages of non-resident processing will become more pronounced: upgrades do not require downloads or shipments of physical disks, training requirements are reduced, and the utility of the PC can often be enhanced by offloading processing-intensive activities to a server somewhere. In some ways this is bad news for Intel and AMD as devices for the developing world will require low price points and moderate processing power, with concomitantly lower margins.
It's also fitting that Bill Gates is retiring from Microsoft at the precise moment when the desktop software model is being forced to evolve. No company has more at stake in the transition to new generations of networked computing, and the handoff to Ray Ozzie as the architect (literally and figuratively) of Microsoft's future occurred when the company's desktop franchise was quantitatively eclipsed by a model that remains foreign to the company's historical financial, technical, and brand fundamentals.
2) Connections
The world is going a) untethered and b) toward video. a) Depending on who's doing the counting, last year or this the world is crossing the point where more than 3.3 billion mobile phones are in use. While they are not distributed this way, that's one mobile for every second person on the planet. Because of unequal distribution, however, there's another crossover: more than 250 million people live in countries with more cellphones than people. b) According to Cisco figures analyzed by Morgan Stanley, consumer Internet traffic will overtake commercial traffic this year. YouTube (the #3 destination on the Web, according to Alexa) and related services are driving much of this growth, estimated at 58% annually.
Several noteworthy stories are embedded here.
-The distribution of countries with teledensity over 100 is most surprising. According to International Telecommunications Union figures from 2006, over thirty countries qualify. No, wealthy Luxembourg is not a shock -- but the figure of 151 phones per 100 people is. Sweden is surprisingly listed at only 100.5, while Portugal recorded a figure of 116 for 2006. Perhaps the most stunning entry is Germany, by far the biggest country in the 100+ club: a nation of 82 million citizens (compared to 5-10 million for the Nordics and 20 million for Australia) had 102 cellphones per 100 population as of two years ago.
-The geographic spread of 100+ teledensities also comes as a surprise. Qatar and the UAE represent the Middle East/North Africa, Aruba and Trinidad and Tobago the Caribbean, and Singapore Asia. As one colleague from this part of the world told me, many Mediterranean cultures love to talk, and they literally put their money where their mouths are: Italy (123), Spain (106), Israel (123), Greece (100), and the aforementioned Portugal uphold the stereotype.
-About 100 years ago, the economist Thorstein Veblen posited that there are penalties for technological leadership, largely because any generation of technology imposes switching costs on the adoption of something newer. Many states are proving his point as they leapfrog poor wireline infrastructure by building wireless capacity at blinding speed: Lithuania had a fixed line teledensity of only 32 as of 2000, but a mobile quotient of 138 only six years later.
-According to the ITU, the number of cellphone subscribers worldwide passed the number of wireline subscribers in 2001. In developed countries, landline conventional connections are dropping, which serves to accentuate the shift toward mobility. The best countries at wireline broadband (the Nordics and Korea) only reach about a third of their populations, suggesting that wireless broadband could behave similarly to wireless voice -- which is to say, wireless broadband could devalue still more fixed-line assets in the coming years.
Making a Living
According to the most recent "Key Indicators of the Labour Market" published in September 2007 by the International Labour Organization (part of the UN), humanity crossed a significant milestone: for the first time since people learned to stay and farm rather than hunt and gather, agriculture was not the dominant focus of human endeavor. In a development that would have been unforeseen even 30 years ago, it was not manufacturing but services sectors that claimed the mantle.
The KILM document is worth quoting at length:
In recent years agriculture has lost its place as the main sector of employment and has been replaced by the services sector, which in 2006 constituted 42.0 per cent of world employment compared to 36.1 per cent for agriculture. As for the industry sector, it represented 21.9 per cent of total employment, which is almost unchanged from ten years ago. Although textbook theory suggests that economic development entails a structural transformation with a shift away from agriculture to the industry sector, this no longer seems to be reflected in reality. Instead of moving into high-productivity jobs in the industry sector, people are moving directly into the services sector, which consists of both high- and low-productivity jobs. Therefore, it is unclear if the sectoral shift goes hand in hand with productivity increases and thereby a better utilization of the workforce. (KILM, 5th edition, section 4, p. 6)
Numerous implications cascade from this transition. As the quotation suggests, measuring productivity of many services -- whether school teaching, nursing, litigation, or government activities -- can be nearly impossible. Economies of scope and scale behave very differently compared to manufacturing. Services sectors can change more rapidly than manufacturing because so much of the capital base is intellectual rather than physical: compare Google's rate of change to Intel's, much less GE's or GM's. Education and mid-career reorientation become more important for service-sector labor forces.
Perhaps most important, the state of computing and communications allows many services to be performed remotely from their customers. Compared to classical economics, in which the haircut often stands as a proxy for everything from an oil change to psychotherapy, some services do not have to be performed with both parties in the same place at the same time. As the economist Alan Blinder suggested in Foreign Affairs a few months back, the implications of services mobility will be as big as the Industrial Revolution. Equity analysis, credit scoring, and radiographic interpretation are being done in Australia, India, and Estonia even though the client/applicant/patient lives thousands of miles away.
Other changes that follow from the new primacy of services are promising. Compared to pollution and other forms of environmental degradation that typically accompany factories -- China surpassed the U.S. as the planet's largest emitter of CO2 in 2006 -- the externalities of services sectors have tended to be positive: spillover economic productivity, for example.
Adding It Up
Big, messy questions emerge as we consider these changes in parallel. What is the impact of information and communications technologies, most of which have emerged in the past 50 years, on the shift to predominance of services employment, which was tens of thousands of years in the making? How will global mobility of computing and telecommunications shape existing and future services industries? How will an increasingly searchable base of knowledge and information affect interpersonal relationships and employment patterns, not to mention notions of privacy, ownership, and redress?
As government becomes a major services sector in its own right, how will it generate sufficient revenues without killing off fragile but fast-growing industries? African countries have for decades depended on the hard currency brought into the nation by long-distance interconnect charges. With the decline of transatlantic faxes and the rise of Skype, for example, those revenues must be replaced. A promising revenue source, from the government's perspective, is the mobile phone industry: in such countries as Malawi and Ghana, over 1/3 of the cost of mobile phone ownership is tax, according to the GSM trade association.
This is not new. At the time of the 3G spectrum auctions in the UK in 2000, major debates were concerned with what to do with the 37-billion Euro windfall: not without controversy, it went to pay off national debt, rather than improve the Health Service, cut taxes, or rebuild infrastructure. In manufacturing industries, it's difficult to imagine similar tax booms -- although resources can pay off handsomely, insofar as North Sea oil has behaved similarly for England and Norway, for example.
Lots of questions remain, probably best discussed non-virtually, over a beer. Until we can approximate that scenario, what do you think will be the next historic crossover? Given sufficient input I'll build the next letter on the answers.
1) PCs
Sometime in the past five years, more people completed a task using software based elsewhere than did people who utilized an application running locally. Here are the numbers: according to comScore data from August 2007, 754 million unique searchers averaged 80 searches for the month. (Rolled up, that's 61 billion searches per month, 37 billion served by Google.) While figures for desktop-resident applications are harder to come by, Microsoft estimated in 2003 that 150 million copies of Office had been sold, 80 million of them Office XP. This breakout suggests that there might be double counting as customers migrated through various versions: by myself I own three current licenses, never mind how many past versions that were attached to me at different times. More recently, a March press release spoke of 500 million Office users worldwide. ERP seats and PC games (#1 all time is The Sims), both at roughly 100 million, don't even come close.
Taking that Microsoft number at face value and assuming no double-counting, and not including web browsers as application software, as of last year 50% more people completed a task on a remote server compared to the number using the leading resident application.
Why does this crossover matter? As PCs become more affordable and can be purchased by more people, the advantages of non-resident processing will become more pronounced: upgrades do not require downloads or shipments of physical disks, training requirements are reduced, and the utility of the PC can often be enhanced by offloading processing-intensive activities to a server somewhere. In some ways this is bad news for Intel and AMD as devices for the developing world will require low price points and moderate processing power, with concomitantly lower margins.
It's also fitting that Bill Gates is retiring from Microsoft at the precise moment when the desktop software model is being forced to evolve. No company has more at stake in the transition to new generations of networked computing, and the handoff to Ray Ozzie as the architect (literally and figuratively) of Microsoft's future occurred when the company's desktop franchise was quantitatively eclipsed by a model that remains foreign to the company's historical financial, technical, and brand fundamentals.
2) Connections
The world is going a) untethered and b) toward video. a) Depending on who's doing the counting, last year or this the world is crossing the point where more than 3.3 billion mobile phones are in use. While they are not distributed this way, that's one mobile for every second person on the planet. Because of unequal distribution, however, there's another crossover: more than 250 million people live in countries with more cellphones than people. b) According to Cisco figures analyzed by Morgan Stanley, consumer Internet traffic will overtake commercial traffic this year. YouTube (the #3 destination on the Web, according to Alexa) and related services are driving much of this growth, estimated at 58% annually.
Several noteworthy stories are embedded here.
-The distribution of countries with teledensity over 100 is most surprising. According to International Telecommunications Union figures from 2006, over thirty countries qualify. No, wealthy Luxembourg is not a shock -- but the figure of 151 phones per 100 people is. Sweden is surprisingly listed at only 100.5, while Portugal recorded a figure of 116 for 2006. Perhaps the most stunning entry is Germany, by far the biggest country in the 100+ club: a nation of 82 million citizens (compared to 5-10 million for the Nordics and 20 million for Australia) had 102 cellphones per 100 population as of two years ago.
-The geographic spread of 100+ teledensities also comes as a surprise. Qatar and the UAE represent the Middle East/North Africa, Aruba and Trinidad and Tobago the Caribbean, and Singapore Asia. As one colleague from this part of the world told me, many Mediterranean cultures love to talk, and they literally put their money where their mouths are: Italy (123), Spain (106), Israel (123), Greece (100), and the aforementioned Portugal uphold the stereotype.
-About 100 years ago, the economist Thorstein Veblen posited that there are penalties for technological leadership, largely because any generation of technology imposes switching costs on the adoption of something newer. Many states are proving his point as they leapfrog poor wireline infrastructure by building wireless capacity at blinding speed: Lithuania had a fixed line teledensity of only 32 as of 2000, but a mobile quotient of 138 only six years later.
-According to the ITU, the number of cellphone subscribers worldwide passed the number of wireline subscribers in 2001. In developed countries, landline conventional connections are dropping, which serves to accentuate the shift toward mobility. The best countries at wireline broadband (the Nordics and Korea) only reach about a third of their populations, suggesting that wireless broadband could behave similarly to wireless voice -- which is to say, wireless broadband could devalue still more fixed-line assets in the coming years.
Making a Living
According to the most recent "Key Indicators of the Labour Market" published in September 2007 by the International Labour Organization (part of the UN), humanity crossed a significant milestone: for the first time since people learned to stay and farm rather than hunt and gather, agriculture was not the dominant focus of human endeavor. In a development that would have been unforeseen even 30 years ago, it was not manufacturing but services sectors that claimed the mantle.
The KILM document is worth quoting at length:
In recent years agriculture has lost its place as the main sector of employment and has been replaced by the services sector, which in 2006 constituted 42.0 per cent of world employment compared to 36.1 per cent for agriculture. As for the industry sector, it represented 21.9 per cent of total employment, which is almost unchanged from ten years ago. Although textbook theory suggests that economic development entails a structural transformation with a shift away from agriculture to the industry sector, this no longer seems to be reflected in reality. Instead of moving into high-productivity jobs in the industry sector, people are moving directly into the services sector, which consists of both high- and low-productivity jobs. Therefore, it is unclear if the sectoral shift goes hand in hand with productivity increases and thereby a better utilization of the workforce. (KILM, 5th edition, section 4, p. 6)
Numerous implications cascade from this transition. As the quotation suggests, measuring productivity of many services -- whether school teaching, nursing, litigation, or government activities -- can be nearly impossible. Economies of scope and scale behave very differently compared to manufacturing. Services sectors can change more rapidly than manufacturing because so much of the capital base is intellectual rather than physical: compare Google's rate of change to Intel's, much less GE's or GM's. Education and mid-career reorientation become more important for service-sector labor forces.
Perhaps most important, the state of computing and communications allows many services to be performed remotely from their customers. Compared to classical economics, in which the haircut often stands as a proxy for everything from an oil change to psychotherapy, some services do not have to be performed with both parties in the same place at the same time. As the economist Alan Blinder suggested in Foreign Affairs a few months back, the implications of services mobility will be as big as the Industrial Revolution. Equity analysis, credit scoring, and radiographic interpretation are being done in Australia, India, and Estonia even though the client/applicant/patient lives thousands of miles away.
Other changes that follow from the new primacy of services are promising. Compared to pollution and other forms of environmental degradation that typically accompany factories -- China surpassed the U.S. as the planet's largest emitter of CO2 in 2006 -- the externalities of services sectors have tended to be positive: spillover economic productivity, for example.
Adding It Up
Big, messy questions emerge as we consider these changes in parallel. What is the impact of information and communications technologies, most of which have emerged in the past 50 years, on the shift to predominance of services employment, which was tens of thousands of years in the making? How will global mobility of computing and telecommunications shape existing and future services industries? How will an increasingly searchable base of knowledge and information affect interpersonal relationships and employment patterns, not to mention notions of privacy, ownership, and redress?
As government becomes a major services sector in its own right, how will it generate sufficient revenues without killing off fragile but fast-growing industries? African countries have for decades depended on the hard currency brought into the nation by long-distance interconnect charges. With the decline of transatlantic faxes and the rise of Skype, for example, those revenues must be replaced. A promising revenue source, from the government's perspective, is the mobile phone industry: in such countries as Malawi and Ghana, over 1/3 of the cost of mobile phone ownership is tax, according to the GSM trade association.
This is not new. At the time of the 3G spectrum auctions in the UK in 2000, major debates were concerned with what to do with the 37-billion Euro windfall: not without controversy, it went to pay off national debt, rather than improve the Health Service, cut taxes, or rebuild infrastructure. In manufacturing industries, it's difficult to imagine similar tax booms -- although resources can pay off handsomely, insofar as North Sea oil has behaved similarly for England and Norway, for example.
Lots of questions remain, probably best discussed non-virtually, over a beer. Until we can approximate that scenario, what do you think will be the next historic crossover? Given sufficient input I'll build the next letter on the answers.
Thursday, May 29, 2008
May 2008 Early Indications: Book reviews
Nicholas Carr, The Big Switch: Rewiring the World, From Edison to Google (New York: Norton, 2008)
Clay Shirky, Here Comes Everybody: The Power of Organizing Without Organizations (New York: Penguin, 2008)
In many ways, Nick Carr and Clay Shirky are mirror images of each other. Carr attended and later worked at Harvard; Shirky graduated from Yale and teaches at NYU. Carr worked at Mercer Management Consulting, Shirky at a web startup. Both publish heavily visited blogs. Carr sits on the Encyclopedia Britannica editorial board; Shirky contributes to Wikipedia. Each published in "old media" earlier this year, their books appearing mere weeks apart. They address many of the same issues, but often draw different conclusions. In doing so, they situate themselves in a timeless dialogue about the nature and cost of technological progress.
Judging by the rapid sales of the book based on his "Last Lecture" at Carnegie Mellon, computer science professor and terminal cancer patient Randy Pausch has clearly struck a mass-market nerve. The book elaborates on the themes addressed in the lecture and in subsequent national television appearances, imparting life lessons from the perspective of a dying 47-year-old who will not watch his children mature, marry, or multiply. For our purposes, the key point of the book is Pausch's distinction between two kinds of people: Tiggers and Eeyores, based on the characters from the world of Winnie the Pooh.
Carr exhibits many traits of an Eeyore. After arguing that computing (via Google, Amazon web services, and other instances of "the World Wide Computer") has become a utility sharing many attributes with Edison's successful flavor of electricity, Carr shifts the book's focus. On page 110, he states that the consequences of grid/utility computing "are the subject of the rest of this book." After that point, the news is often interpreted as bleak. More on Carr's inner Eeyore in a moment.
Carr's treatment of the electricity metaphor is less than robust. "In contrast to the switch-over to electric utilities," he notes, "buyers don't face an all-or-nothing choice when it comes to computing."(117) Two immediate problems emerge. First of all, the invention of electrical distribution wasn't a switch-over: for most consumers, radio, television, and air conditioning were not "switchovers" from other tools but appeared sui generis, and the move from candles or oil lamps to light bulbs was more momentous than an economist's substitution. Secondly, people and enterprises often face real alternatives among utilities: ovens and clothes dryers and even air conditioners frequently run on gas, and furnaces run on oil or propane. Automobiles generate power off the grid; batteries store it.
The more important point here is that even though utility models allow capability to run through a pipe or wire, there remains considerable expertise in the construction of the appliances that run on the utility. But information, and information processing, differ substantially from electric current even though all three can run over networks; an information appliance may not compare neatly to a toaster. I think Carr is wrong, and focused on the technology rather than the information, when he asserts that "Business units and even individual employees will be able to control the processing of information directly, without the need for legions of technical specialists." (118) I suppose there is wiggle room, depending on how you define "legions," but the complexity of enterprise information -- its politics, accounting, and governance much more than its hardware du jour -- will not be eliminated any time soon.
Carr's overall point about information processing as a utility covers familiar ground, which is not to say he's off base: the scale of investment by major firms (from Amazon to Yahoo) in massive data centers is well worth contemplating and analyzing. The Big Switch he's talking about most passionately, however, is off the grid: regardless of the fate of corporate IT shops, utility computing is a Bad Thing for individuals. Consider:
-Privacy becomes obsolete:
"Soon, the World Wide Computer will know where we are and what we're doing at almost every instant of the day." (123)
-Inequality is amplified:
"[The Long Tail] is a vision of a world in which more and more of the wealth produced by markets is likely to be funneled to 'a small fraction' of particularly talented individuals." (147)
-Most people's jobs will lose meaning or even disappear:
"Computerization creates new work, but it's work that can be done by machines. People aren't necessary." (136)
-Great works of art will be marginalized:
"We may find that the culture of abundance being produced by the World Wide Computer is really just a culture of mediocrity - many miles wide but only a fraction of an inch deep." (157) and
"Two of the hopes most dear to the Internet optimists -- that the web will create a more bountiful culture and that it will promote greater harmony and understanding -- should be treated with skepticism. Cultural impoverishment and social fragmentation seem equally likely outcomes." (167)
-Evil will run rampant:
"There is reason to believe that our cybernetic meadow [itself the creation of "techno-utopians" like John Perry Barlow, who Carr implies are taken seriously] may be something less than a new Eden." (125) and
"The very qualities that make the World Wide Computer so useful to many -- its universality and its openness -- make it dangerous as well." (171)
-In the end, death is the last refuge for the inheritors of the Old Ways:
"The full power and consequence of a new technology are unleashed only when those who have grown up with it become adults and begin to push their outdated parents to the margins. As the older generations die, they take with them their knowledge of what was lost when the new technology arrived, and only the sense of what was gained remains." (233)
In relation to such a grim vision, it's not hard to position Shirky as a bit of a Tigger (something Carr does in his blog from time to time). Even his book's title -- Here Comes Everybody -- begs for an exclamation point. Inside, the stories cover much the same ground as Carr's:
-Amateurs can reach wide audiences and are eroding traditional business models, particularly for newspapers. (55 ff.) Shirky gives bloggers too much credit, however: for every story they uncover or refuse to let die, there are hundreds of traditional media postings that merely get linked or maybe piled onto in the blogosphere. Opinion, both informed and un-, is easy to find; news is a different story. Operating news bureaus is expensive, and writing hard or investigative news reliably and well difficult, so it's hard to imagine a world without professional reporters. That there will be fewer than there used to be, however, is not necessarily cause for alarm.
-Amateur publishing, formerly a contradiction in terms, is a function of the "scale-free" nature of the Internet: "the old habit of treating communications tools like the phone differently from broadcast tools like television no longer makes sense." (99) This in turn leads to the need for new filtering tools to allow people to cope with the glut of content. Shirky argues, not fully persuasively, that social filtering will address the need. For certain activities (he names hobbies), the crowd can definitely help. For others, the jury is still out. Holocaust deniers, Columbine re-enactors, and people ill at ease with modernity can find ample evidence (and audience) for their views regarding everything from the moon landing to climate change to black helicopters.
-These new communications tools make possible new sizes and types of social networks. These networks can organize and mobilize human knowledge to accomplish new things, both grand (Wikipedia) and small (organize a group dinner). Shirky's example of Voice of the Faithful (143-148), a Boston-based group of Catholic laypeople responding to the local diocese's treatment of pedophilic priests, is a strong point of the book. On the other hand, passionate hoards are sometimes just mobs -- it's difficult to see the output of sports talk radio and websites, to take one example, as Jeffersonian democracy incarnate.
-We are entering a phase in which the implications of modern technologies are playing out in deeper layers. On this, everyone here agrees: as Shirky states, "Communications tools don't get socially interesting until they get technologically boring." (105) There's an old saying that there's nothing so invisible as the familiar. Particularly for the generation currently about 30 and under (increasingly, a demographic independent of geography) cell phones, Facebook, Google, et al are as invisible as oxygen -- and typically as essential.
In contrast to Carr's conclusion which mourns (almost audibly) a lost golden era, Shirky's is upbeat: "Our social tools are improving our ability to share, cooperate, and act together." (304) This view could be construed as techno-utopianism, given that those same tools simultaneously improve people's ability to steal, to undermine, and to splinter. It resonates with me because like Shirky I work with students for whom the new modes are routine, and I don't yet see them pushing me, outdated, to the margins. In its optimism and communitarianism, not to mention its predicates, Shirky's conclusion sounds like a platform Tigger could heartily endorse.
In the end, I must make a plea for a both/and. New technologies make people neither more noble nor more depraved. It's equally true that, as Carr notes, terrorists use the Internet and that, as Shirky cites, eBay's tools allow strangers to trust each other sufficiently to transact sight unseen. For all the creativity and group genius to be found among hacker communities, it's just as easy to see sheep-like following: a recent study at the University at Buffalo found that young adults who watch lots of so-called reality TV carry the behavior of the show's characters into their "production" on social networking sites. According to one of the study's authors, "Promiscuous frienders may be reproducing the fame-seeking behavior that is modeled by reality TV characters." (http://www.buffalo.edu/news/9312) [For the full study, see Stefanone, Lackaff, and Rosen, "We're All Stars Now: Reality Television, Web 2.0, and Mediated Identities," Proceedings of ACM's Hypertext, Culture and Communication, June 2008 (forthcoming).]
Carrying on a rich tradition of argumentum ad antiquitatem (appeals to tradition), Carr is wrong to imply that because these technologies are new, they must be bad (and that previously prevalent behaviors, relationships, or arrangements were good simply because they were old). For his part, Shirky is generally more nuanced, acknowledging that all manner of changes -- "some good, some bad, most too complex to label" (14) -- are coming into play, affecting the people and institutions in which they are situated. More often than not, Shirky's narrative feels like an assertion that new forms of technologically-enabled social networks are here and that it's time to a) accept that fact, and b) start to understand some of those changes that are still "too complex to label." As an agenda, I find "we don't know yet" much more appealing than Carr's version of "our new digital destiny" (the book's original subtitle). I simply can't see evidence of a world in which the final promise of such exciting new technologies is for old people to await their end, left with only pre-digital memories to sustain them.
Clay Shirky, Here Comes Everybody: The Power of Organizing Without Organizations (New York: Penguin, 2008)
In many ways, Nick Carr and Clay Shirky are mirror images of each other. Carr attended and later worked at Harvard; Shirky graduated from Yale and teaches at NYU. Carr worked at Mercer Management Consulting, Shirky at a web startup. Both publish heavily visited blogs. Carr sits on the Encyclopedia Britannica editorial board; Shirky contributes to Wikipedia. Each published in "old media" earlier this year, their books appearing mere weeks apart. They address many of the same issues, but often draw different conclusions. In doing so, they situate themselves in a timeless dialogue about the nature and cost of technological progress.
Judging by the rapid sales of the book based on his "Last Lecture" at Carnegie Mellon, computer science professor and terminal cancer patient Randy Pausch has clearly struck a mass-market nerve. The book elaborates on the themes addressed in the lecture and in subsequent national television appearances, imparting life lessons from the perspective of a dying 47-year-old who will not watch his children mature, marry, or multiply. For our purposes, the key point of the book is Pausch's distinction between two kinds of people: Tiggers and Eeyores, based on the characters from the world of Winnie the Pooh.
Carr exhibits many traits of an Eeyore. After arguing that computing (via Google, Amazon web services, and other instances of "the World Wide Computer") has become a utility sharing many attributes with Edison's successful flavor of electricity, Carr shifts the book's focus. On page 110, he states that the consequences of grid/utility computing "are the subject of the rest of this book." After that point, the news is often interpreted as bleak. More on Carr's inner Eeyore in a moment.
Carr's treatment of the electricity metaphor is less than robust. "In contrast to the switch-over to electric utilities," he notes, "buyers don't face an all-or-nothing choice when it comes to computing."(117) Two immediate problems emerge. First of all, the invention of electrical distribution wasn't a switch-over: for most consumers, radio, television, and air conditioning were not "switchovers" from other tools but appeared sui generis, and the move from candles or oil lamps to light bulbs was more momentous than an economist's substitution. Secondly, people and enterprises often face real alternatives among utilities: ovens and clothes dryers and even air conditioners frequently run on gas, and furnaces run on oil or propane. Automobiles generate power off the grid; batteries store it.
The more important point here is that even though utility models allow capability to run through a pipe or wire, there remains considerable expertise in the construction of the appliances that run on the utility. But information, and information processing, differ substantially from electric current even though all three can run over networks; an information appliance may not compare neatly to a toaster. I think Carr is wrong, and focused on the technology rather than the information, when he asserts that "Business units and even individual employees will be able to control the processing of information directly, without the need for legions of technical specialists." (118) I suppose there is wiggle room, depending on how you define "legions," but the complexity of enterprise information -- its politics, accounting, and governance much more than its hardware du jour -- will not be eliminated any time soon.
Carr's overall point about information processing as a utility covers familiar ground, which is not to say he's off base: the scale of investment by major firms (from Amazon to Yahoo) in massive data centers is well worth contemplating and analyzing. The Big Switch he's talking about most passionately, however, is off the grid: regardless of the fate of corporate IT shops, utility computing is a Bad Thing for individuals. Consider:
-Privacy becomes obsolete:
"Soon, the World Wide Computer will know where we are and what we're doing at almost every instant of the day." (123)
-Inequality is amplified:
"[The Long Tail] is a vision of a world in which more and more of the wealth produced by markets is likely to be funneled to 'a small fraction' of particularly talented individuals." (147)
-Most people's jobs will lose meaning or even disappear:
"Computerization creates new work, but it's work that can be done by machines. People aren't necessary." (136)
-Great works of art will be marginalized:
"We may find that the culture of abundance being produced by the World Wide Computer is really just a culture of mediocrity - many miles wide but only a fraction of an inch deep." (157) and
"Two of the hopes most dear to the Internet optimists -- that the web will create a more bountiful culture and that it will promote greater harmony and understanding -- should be treated with skepticism. Cultural impoverishment and social fragmentation seem equally likely outcomes." (167)
-Evil will run rampant:
"There is reason to believe that our cybernetic meadow [itself the creation of "techno-utopians" like John Perry Barlow, who Carr implies are taken seriously] may be something less than a new Eden." (125) and
"The very qualities that make the World Wide Computer so useful to many -- its universality and its openness -- make it dangerous as well." (171)
-In the end, death is the last refuge for the inheritors of the Old Ways:
"The full power and consequence of a new technology are unleashed only when those who have grown up with it become adults and begin to push their outdated parents to the margins. As the older generations die, they take with them their knowledge of what was lost when the new technology arrived, and only the sense of what was gained remains." (233)
In relation to such a grim vision, it's not hard to position Shirky as a bit of a Tigger (something Carr does in his blog from time to time). Even his book's title -- Here Comes Everybody -- begs for an exclamation point. Inside, the stories cover much the same ground as Carr's:
-Amateurs can reach wide audiences and are eroding traditional business models, particularly for newspapers. (55 ff.) Shirky gives bloggers too much credit, however: for every story they uncover or refuse to let die, there are hundreds of traditional media postings that merely get linked or maybe piled onto in the blogosphere. Opinion, both informed and un-, is easy to find; news is a different story. Operating news bureaus is expensive, and writing hard or investigative news reliably and well difficult, so it's hard to imagine a world without professional reporters. That there will be fewer than there used to be, however, is not necessarily cause for alarm.
-Amateur publishing, formerly a contradiction in terms, is a function of the "scale-free" nature of the Internet: "the old habit of treating communications tools like the phone differently from broadcast tools like television no longer makes sense." (99) This in turn leads to the need for new filtering tools to allow people to cope with the glut of content. Shirky argues, not fully persuasively, that social filtering will address the need. For certain activities (he names hobbies), the crowd can definitely help. For others, the jury is still out. Holocaust deniers, Columbine re-enactors, and people ill at ease with modernity can find ample evidence (and audience) for their views regarding everything from the moon landing to climate change to black helicopters.
-These new communications tools make possible new sizes and types of social networks. These networks can organize and mobilize human knowledge to accomplish new things, both grand (Wikipedia) and small (organize a group dinner). Shirky's example of Voice of the Faithful (143-148), a Boston-based group of Catholic laypeople responding to the local diocese's treatment of pedophilic priests, is a strong point of the book. On the other hand, passionate hoards are sometimes just mobs -- it's difficult to see the output of sports talk radio and websites, to take one example, as Jeffersonian democracy incarnate.
-We are entering a phase in which the implications of modern technologies are playing out in deeper layers. On this, everyone here agrees: as Shirky states, "Communications tools don't get socially interesting until they get technologically boring." (105) There's an old saying that there's nothing so invisible as the familiar. Particularly for the generation currently about 30 and under (increasingly, a demographic independent of geography) cell phones, Facebook, Google, et al are as invisible as oxygen -- and typically as essential.
In contrast to Carr's conclusion which mourns (almost audibly) a lost golden era, Shirky's is upbeat: "Our social tools are improving our ability to share, cooperate, and act together." (304) This view could be construed as techno-utopianism, given that those same tools simultaneously improve people's ability to steal, to undermine, and to splinter. It resonates with me because like Shirky I work with students for whom the new modes are routine, and I don't yet see them pushing me, outdated, to the margins. In its optimism and communitarianism, not to mention its predicates, Shirky's conclusion sounds like a platform Tigger could heartily endorse.
In the end, I must make a plea for a both/and. New technologies make people neither more noble nor more depraved. It's equally true that, as Carr notes, terrorists use the Internet and that, as Shirky cites, eBay's tools allow strangers to trust each other sufficiently to transact sight unseen. For all the creativity and group genius to be found among hacker communities, it's just as easy to see sheep-like following: a recent study at the University at Buffalo found that young adults who watch lots of so-called reality TV carry the behavior of the show's characters into their "production" on social networking sites. According to one of the study's authors, "Promiscuous frienders may be reproducing the fame-seeking behavior that is modeled by reality TV characters." (http://www.buffalo.edu/news/9312) [For the full study, see Stefanone, Lackaff, and Rosen, "We're All Stars Now: Reality Television, Web 2.0, and Mediated Identities," Proceedings of ACM's Hypertext, Culture and Communication, June 2008 (forthcoming).]
Carrying on a rich tradition of argumentum ad antiquitatem (appeals to tradition), Carr is wrong to imply that because these technologies are new, they must be bad (and that previously prevalent behaviors, relationships, or arrangements were good simply because they were old). For his part, Shirky is generally more nuanced, acknowledging that all manner of changes -- "some good, some bad, most too complex to label" (14) -- are coming into play, affecting the people and institutions in which they are situated. More often than not, Shirky's narrative feels like an assertion that new forms of technologically-enabled social networks are here and that it's time to a) accept that fact, and b) start to understand some of those changes that are still "too complex to label." As an agenda, I find "we don't know yet" much more appealing than Carr's version of "our new digital destiny" (the book's original subtitle). I simply can't see evidence of a world in which the final promise of such exciting new technologies is for old people to await their end, left with only pre-digital memories to sustain them.
Wednesday, April 30, 2008
Early Indications April 2008: Oil, Bits, and Steel
It used to be an economic commonplace that value was added in increasing amounts the farther one moved from raw material extraction. Farms, fishing villages, and mines have often created less affluent locales and involve dangerous work, while factories paid higher wages. Bankers fared better still. In today's information economy, that hierarchy bears revisiting.
Those who invest in the rise or decline of an asset class are still rewarded best of all, as the recent hedge fund salary report in Institutional Investor's Alpha magazine reveals: five individual money managers each made more than $1 billion in 2007. But even though the U.S. pure manufacturing sector no longer stands astride the global economy as it did 50 to 100 years ago, information’s role in international trade remains hazy.
Prices for goods from extractive industries have been soaring: copper has quadrupled in five years, and nickel went up a factor of five in just over four years, before dropping in the middle of 2007. Wheat soared, then has fallen 40% in recent months. Oil is visibly surpassing all-time highs. How much these increases relate to speculation, and how much to underlying demand, is difficult to tease out. Changes in diet, for example, contribute heavily: as developing nations eat more meat, more grain is needed to feed the livestock that feeds the people. Tariffs and subsidies, administered locally, have an enormous effect, especially when considered cumulatively. Corn’s use in ethanol shapes land use decisions from coast to coast, and beyond. One effect of powerful networks is to amplify noise: local distortions (corruption, protectionism, and subsidies) ripple farther, faster today than they did 100 years ago.
Whatever the impact of culture, Malthusian population pressure, and trade barriers, when capital is global and government (and therefore regulation) is not, money managers enjoy extensive leeway. When food shortages spur riots in several countries, however, the role of hedge funds in high grain prices should come in for scrutiny. As is so often the case, information about stuff is more valuable than stuff, and information about money is, as Walter Wriston opined, more valuable than money.
Away from investing, knowledge-intensiveness can add value but be difficult to monetize. In part, manufacturing is a victim of its own success: goods can be produced so efficiently, at such high quality, that margins often shrink. A descendant of the personal computer that sold for $2000 in 1992 ($3073 in 2008 dollars) can now be purchased for roughly $500. The Eclipse very light jet airplane is selling for only $1.5 million, compared to $3 million for a more traditional (and only slightly bigger) Cessna Citation Mustang. Refrigerators and other major appliances have dropped in price by 20% or more in industrialized countries - with a potentially decisive impact on women's participation in the labor force as a side effect. The reach of such manufacturing pioneers as Deming, Dell, and Ohno (father of the Toyota factory system) is broad indeed. (See Cavalcanti and Tavares, "Assessing the 'Engines of Liberation': Home Appliances and Female Labor Force Participation," Review of Economics and Statistics 90 (2008): 81-88)
Some manufacturers address this dilemma by increasing the content of manufactured goods. Automobiles have become a classic example. While the 1976 Honda Accord that launched this successful franchise was 162 inches long, the 2008 model is nearly 3 feet (32 inches) longer. Significantly, the 1990 Accord came with a 125-horsepower engine and got 30 miles per gallon in highway driving with a manual transmission. 18 years later, an Accord weighs 500 pounds more, has 177 horsepower -- and gets 31 highway miles per gallon under a tougher measurement standard. Honda is not alone as other manufacturers have made similar moves: a 2008 Ford F-150 pickup weighs 700 pounds more than its 1991 forebear, while a BMW 3-series sedan has added 455 pounds in 20 years.
Given how manufacturing has evolved in the U.S., it is not surprising that the status of the US economy in the world has changed dramatically. According to the U.S. Census Bureau's Foreign Trade Statistics, the U.S. has trade deficits with 13 of its top 15 trading partners. Only the Netherlands at number 10 and Singapore at 15 buy more from us than we do from them. It's noteworthy that the United Kingdom, the manufacturing empire from which the U.S. took the mantle, now sells the U.S. about $6.5 billion more than it buys – but North Sea oil rather than textiles is now the mainstay. Counterintuitively, the U.S. also imports more automobiles and pharmaceuticals from the U.K. than it exports back.
Canada was the U.S.’s biggest trading partner until just last year, when China took that spot. A close look at the figures reveals that the U.S. imports both extractive products (pulp and paper, metals, and energy comprising the big three, worth well over $100 billion) and manufactured goods, primarily automotive and aerospace. In return, the biggest U.S. exports to Canada are food, car and truck-related goods, and energy. Evidence of an information economy is hard to discern in the U.S. government statistics: motion pictures, patent licenses, and investment banking services do not appear. Even something as IP-intensive as pharmaceuticals was only about 1% of U.S. exports to Canada, and smaller in dollar volume than “toys, games, and sporting goods.”
The numbers with China tell an entirely different story. While U.S./Canada trade figures are close to being in balance (a gap of $64 billion, or about 20% of imports), the Chinese buy very little from the U.S., especially if raw materials and foods (including $4 billion in soybeans) are removed. Highlights include about $6.5 billion in both semiconductors and civilian aircraft, but these are dwarfed by the imports, starting with over $50 billion in computers and related equipment and another $50+ billion in apparel and footwear. The list goes on from there.
What are we left with? First of all, it’s clear that the record-keeping lags reality. How, if at all, are such real services as Bloomberg or Thomsen subscriptions, legal advice, or investment banking factored into trade figures? Services are far more portable than traditional economics reckoned them to be in the days when haircuts were invoked as the archetype: when every U.S.-based accountancy and every major law firm has Chinese offices, their work may not be an export in a technical sense, but it should play some part in the trade picture. Once again, the statistics presume a manufacturing-based economy that no longer employs a majority of Americans.
Second, America’s “dependence on foreign oil” is more complicated than the phrase suggests. According to the U.S. Energy Information Administration, here are the top seven importers of U.S. crude oil for the month of February 2008:
Canada 71.5 million barrels
Saudi Arabia 47.2
Mexico 38.5
Venezuela 32.8
Nigeria 29.7
Iraq 22.6
Russia 13.1
Note that only two Persian Gulf states are included; numbers one and three are our NAFTA neighbors. For the trade imbalance even to be dented, each country in slots two through seven will have to change its consumption patterns, and most likely central government, quite radically from what they are today. It’s difficult to see any information-based goods making a dent in those imbalances, in those countries. In just one month, those seven countries sold the U.S. over $25 billion of oil (assuming $100/barrel): that annualizes to $300 billion a year, a tough number to scale no matter how many MRI machines, bags of genetically modified seed corn, corporate branding campaigns, or copies of Grand Theft Auto we could sell in any of these countries excepting Canada. Rather than an “information economy,” we may well be more accurately defined by transportation.
In sum, there seems to be a “hollowing out” of many Western economies: extraction, whether of corn, copper, or oil, sits on one side opposite information/services (both of which are hard to capture statistically) on the other as the main drivers; manufacturing -- with some notable exceptions such as medical imaging and devices, excavating equipment, and aircraft -- appears to play a smaller and smaller role in export numbers. The Detroit-based automotive sector has become largely domestic, with imports and import subsidiaries gaining ground every year.
The next U.S. president will have many hard problems to address, but this series of hidden transformations in trade, as yet underappreciated by both statistics and policy, will be lurking in many of them: health care, the Iraq war, energy strategy, immigration, monetary policy, and taxation merely begin a long list.
Those who invest in the rise or decline of an asset class are still rewarded best of all, as the recent hedge fund salary report in Institutional Investor's Alpha magazine reveals: five individual money managers each made more than $1 billion in 2007. But even though the U.S. pure manufacturing sector no longer stands astride the global economy as it did 50 to 100 years ago, information’s role in international trade remains hazy.
Prices for goods from extractive industries have been soaring: copper has quadrupled in five years, and nickel went up a factor of five in just over four years, before dropping in the middle of 2007. Wheat soared, then has fallen 40% in recent months. Oil is visibly surpassing all-time highs. How much these increases relate to speculation, and how much to underlying demand, is difficult to tease out. Changes in diet, for example, contribute heavily: as developing nations eat more meat, more grain is needed to feed the livestock that feeds the people. Tariffs and subsidies, administered locally, have an enormous effect, especially when considered cumulatively. Corn’s use in ethanol shapes land use decisions from coast to coast, and beyond. One effect of powerful networks is to amplify noise: local distortions (corruption, protectionism, and subsidies) ripple farther, faster today than they did 100 years ago.
Whatever the impact of culture, Malthusian population pressure, and trade barriers, when capital is global and government (and therefore regulation) is not, money managers enjoy extensive leeway. When food shortages spur riots in several countries, however, the role of hedge funds in high grain prices should come in for scrutiny. As is so often the case, information about stuff is more valuable than stuff, and information about money is, as Walter Wriston opined, more valuable than money.
Away from investing, knowledge-intensiveness can add value but be difficult to monetize. In part, manufacturing is a victim of its own success: goods can be produced so efficiently, at such high quality, that margins often shrink. A descendant of the personal computer that sold for $2000 in 1992 ($3073 in 2008 dollars) can now be purchased for roughly $500. The Eclipse very light jet airplane is selling for only $1.5 million, compared to $3 million for a more traditional (and only slightly bigger) Cessna Citation Mustang. Refrigerators and other major appliances have dropped in price by 20% or more in industrialized countries - with a potentially decisive impact on women's participation in the labor force as a side effect. The reach of such manufacturing pioneers as Deming, Dell, and Ohno (father of the Toyota factory system) is broad indeed. (See Cavalcanti and Tavares, "Assessing the 'Engines of Liberation': Home Appliances and Female Labor Force Participation," Review of Economics and Statistics 90 (2008): 81-88)
Some manufacturers address this dilemma by increasing the content of manufactured goods. Automobiles have become a classic example. While the 1976 Honda Accord that launched this successful franchise was 162 inches long, the 2008 model is nearly 3 feet (32 inches) longer. Significantly, the 1990 Accord came with a 125-horsepower engine and got 30 miles per gallon in highway driving with a manual transmission. 18 years later, an Accord weighs 500 pounds more, has 177 horsepower -- and gets 31 highway miles per gallon under a tougher measurement standard. Honda is not alone as other manufacturers have made similar moves: a 2008 Ford F-150 pickup weighs 700 pounds more than its 1991 forebear, while a BMW 3-series sedan has added 455 pounds in 20 years.
Given how manufacturing has evolved in the U.S., it is not surprising that the status of the US economy in the world has changed dramatically. According to the U.S. Census Bureau's Foreign Trade Statistics, the U.S. has trade deficits with 13 of its top 15 trading partners. Only the Netherlands at number 10 and Singapore at 15 buy more from us than we do from them. It's noteworthy that the United Kingdom, the manufacturing empire from which the U.S. took the mantle, now sells the U.S. about $6.5 billion more than it buys – but North Sea oil rather than textiles is now the mainstay. Counterintuitively, the U.S. also imports more automobiles and pharmaceuticals from the U.K. than it exports back.
Canada was the U.S.’s biggest trading partner until just last year, when China took that spot. A close look at the figures reveals that the U.S. imports both extractive products (pulp and paper, metals, and energy comprising the big three, worth well over $100 billion) and manufactured goods, primarily automotive and aerospace. In return, the biggest U.S. exports to Canada are food, car and truck-related goods, and energy. Evidence of an information economy is hard to discern in the U.S. government statistics: motion pictures, patent licenses, and investment banking services do not appear. Even something as IP-intensive as pharmaceuticals was only about 1% of U.S. exports to Canada, and smaller in dollar volume than “toys, games, and sporting goods.”
The numbers with China tell an entirely different story. While U.S./Canada trade figures are close to being in balance (a gap of $64 billion, or about 20% of imports), the Chinese buy very little from the U.S., especially if raw materials and foods (including $4 billion in soybeans) are removed. Highlights include about $6.5 billion in both semiconductors and civilian aircraft, but these are dwarfed by the imports, starting with over $50 billion in computers and related equipment and another $50+ billion in apparel and footwear. The list goes on from there.
What are we left with? First of all, it’s clear that the record-keeping lags reality. How, if at all, are such real services as Bloomberg or Thomsen subscriptions, legal advice, or investment banking factored into trade figures? Services are far more portable than traditional economics reckoned them to be in the days when haircuts were invoked as the archetype: when every U.S.-based accountancy and every major law firm has Chinese offices, their work may not be an export in a technical sense, but it should play some part in the trade picture. Once again, the statistics presume a manufacturing-based economy that no longer employs a majority of Americans.
Second, America’s “dependence on foreign oil” is more complicated than the phrase suggests. According to the U.S. Energy Information Administration, here are the top seven importers of U.S. crude oil for the month of February 2008:
Canada 71.5 million barrels
Saudi Arabia 47.2
Mexico 38.5
Venezuela 32.8
Nigeria 29.7
Iraq 22.6
Russia 13.1
Note that only two Persian Gulf states are included; numbers one and three are our NAFTA neighbors. For the trade imbalance even to be dented, each country in slots two through seven will have to change its consumption patterns, and most likely central government, quite radically from what they are today. It’s difficult to see any information-based goods making a dent in those imbalances, in those countries. In just one month, those seven countries sold the U.S. over $25 billion of oil (assuming $100/barrel): that annualizes to $300 billion a year, a tough number to scale no matter how many MRI machines, bags of genetically modified seed corn, corporate branding campaigns, or copies of Grand Theft Auto we could sell in any of these countries excepting Canada. Rather than an “information economy,” we may well be more accurately defined by transportation.
In sum, there seems to be a “hollowing out” of many Western economies: extraction, whether of corn, copper, or oil, sits on one side opposite information/services (both of which are hard to capture statistically) on the other as the main drivers; manufacturing -- with some notable exceptions such as medical imaging and devices, excavating equipment, and aircraft -- appears to play a smaller and smaller role in export numbers. The Detroit-based automotive sector has become largely domestic, with imports and import subsidiaries gaining ground every year.
The next U.S. president will have many hard problems to address, but this series of hidden transformations in trade, as yet underappreciated by both statistics and policy, will be lurking in many of them: health care, the Iraq war, energy strategy, immigration, monetary policy, and taxation merely begin a long list.
Saturday, March 29, 2008
Early Indications March 2008: Engines of Complexity
Any time a new technology is introduced, the market traditionally extends conventional modes of use and understanding from the new thing's nearest neighbor. In their initial instantiations, automobiles were horseless carriages, television was visual radio, and cellular phones were phones without a wall plug. It took time and creative genius, both individual and collective, to find these technologies' transformational power. Automobiles changed everything from courtship rituals to urban planning. Television news was transformed by such visionaries as Reuven Frank, while Ernie Kovacs, Sid Caesar, and their successors invented new forms of comedy and entertainment. In many parts of the world, mobile phones have evolved to the point where they are only marginally voice devices.
In the early years of enterprise computing, information technology accelerated known processes such as billing, statement generation, and basic accounting. Finding return on investment was fairly straightforward because the baseline time and/or cost metrics could be compared to the results of automation. Even without networking, advances in business practice complicated this relationship: as spreadsheets such as Lotus 1-2-3 transformed the trading of financial instruments, and e-mail made real-time global communications possible and cheap, computation no longer automated existing practice. Rather, it facilitated entirely new ones.
With the move from a processor-intensive computing architecture (for mainframes, minis, then PCs) to a network-centric model, these tendencies appear to have intensified: calculating ROI on networked services such as antivirus or e-mail, or on services-centric architectures in the SOA vein, is difficult if not impossible. The costs and benefits are highly distributed - and disputed, the speed of change can be rapid, and the baseline for cost savings is difficult to calculate for activities that have only loose or no precedents. The contested claims and experiences of business value can make deploying systems supporting such processes as analysis, collaboration, and visualization difficult, more for managerial than technical reasons.
From a management standpoint, the situation gets worse. With local applications running on desktops or servers, risk, cost, and other consequences can be reasonably well anticipated and controlled. In a network of networks, I can not only catch your cold when you sneeze, but also the cold of virtually anyone on the networked planet even when not even a sniffle is heard. With multiple dependencies, latency, and other facts of network computing life, monitoring service levels, tracing root causes, and validation become significant challenges. Being able to sign off on a process's robustness, auditability, replicability, accuracy, and level of protection becomes an act of faith.
One key factor is an essential network property, the so-called fat tail. Whereas many routine algorithms in business and industry assume Gaussian bell-curve distributions of probabilities, many network scenarios adhere to power law distributions in which notions of "normal" and median" lose all meaning.
-Chris Anderson's "long tail" has become a commonplace in Silicon Valley. Rather than living on large-selling hits, virtual retailers such as eBay, Amazon, and Netflix make money from onesies and twosies that their physical counterparts cannot afford to stock. In fact, Netflix would much rather you watched their one copy of a Hungarian banjo documentary than wait in line for one of their thousands of copies of Pirates of the Caribbean that they will have to dispose of in a few months' time.
-The predilection of networks toward winner-take-most outcomes inspired Anderson in the first place. It's no secret that a small number of sites collect the vast majority of Internet traffic. Rather than follow a 80/20 rule, power laws are more like 95/1: less than 1% of the site population accounts for 95% of traffic.
-The extreme scale of adverse events in networked scenarios is easily understood. While the absolute tallest and shortest human adults in any population may be a factor of 2 or 3 different, with both extremes falling symmetrically off a Gaussian median, networked phenomena such as money or traffic can be millions of times different, and there is not necessarily any central tendency. The dramatic exposure to adverse events such as Amaranth's or Long Term Capital Management's meltdowns, or a global liquidity crunch, would be impossible in a world in which banks were local, investment was primary (rather than derivative), and neither trade nor capital moved fluidly around the globe.
Given these dynamics, Stan Davis's notice of the shift from "crunching to connecting" can be expanded. It seems a short leap to postulate the following: whereas enterprise computing in its first two to three decades automated calculation and therefore increased efficiency, networked computing amplifies complexity, including noise. The consequences of this tendency are both positive and negative.
Downsides include increased difficulty to accommodate these environments to hierarchical forms of organization in that collaboration extends across "home" enterprises. Whose money is the vendor team spending? To whom are they proximally and ultimately accountable? E-mail was a classic example as it removed layers of bureaucratic organization and aligned with a tendency toward greater social informality. The cost of e-mail (in both anti-spam technology and people's time and attention) is vast, but no payback metric is forthcoming: "just do it" becomes the managerial justification.
"Securing the perimeter" of a networked organization (whether in the technological or organizational sense) becomes a contradiction in terms. This week's news about a sophisticated attack on Hannaford Brothers supermarkets raises the stakes considerably: rather than hack into repositories of credit card data, this distributed attack essentially compromised then transmitted payment information from point of sale systems on the fly. There are other complications, to be sure.
The upsides of exposure to increased complexity befit a global economy premised more on services than products. One benefit lies in increased access to search space: a given problem can be addressed by solutions garnered from a potentially vast pool of suggestions, local optima, or combinations of disparate elements. Time can be dramatically accelerated: numerous examples confirm the potential for what Alfred Chandler called "economies of speed" to be realized by networks of various kinds.
The importance of improvisation, about which we've written previously (summer 2007) grows in such dynamic environments in which resources are ample and diverse; curiously, improvisation in a strict sense works less well in scenarios characterized by extreme scarcity. This is not the place to explore how organizational hierarchies, which manage physical scarcity better than they do virtual surplus, may have to evolve amidst information and relationship abundance.
Thus it may be past time for new managerial metrics and practices within traditional enterprises. Hierarchical (bureaucratic) norms don't appear to do a very good job of governing a mindset and a body of technology that fit poorly into paper-based, slow-moving, and strictly delimited organizations. Complexity is painful when compared to order, but once attributes such as ambiguity, emergence, and adaptation enter the vocabulary, that same complexity can be viewed (and exploited) as a resource rather than only being "managed" as a constraint.
In the early years of enterprise computing, information technology accelerated known processes such as billing, statement generation, and basic accounting. Finding return on investment was fairly straightforward because the baseline time and/or cost metrics could be compared to the results of automation. Even without networking, advances in business practice complicated this relationship: as spreadsheets such as Lotus 1-2-3 transformed the trading of financial instruments, and e-mail made real-time global communications possible and cheap, computation no longer automated existing practice. Rather, it facilitated entirely new ones.
With the move from a processor-intensive computing architecture (for mainframes, minis, then PCs) to a network-centric model, these tendencies appear to have intensified: calculating ROI on networked services such as antivirus or e-mail, or on services-centric architectures in the SOA vein, is difficult if not impossible. The costs and benefits are highly distributed - and disputed, the speed of change can be rapid, and the baseline for cost savings is difficult to calculate for activities that have only loose or no precedents. The contested claims and experiences of business value can make deploying systems supporting such processes as analysis, collaboration, and visualization difficult, more for managerial than technical reasons.
From a management standpoint, the situation gets worse. With local applications running on desktops or servers, risk, cost, and other consequences can be reasonably well anticipated and controlled. In a network of networks, I can not only catch your cold when you sneeze, but also the cold of virtually anyone on the networked planet even when not even a sniffle is heard. With multiple dependencies, latency, and other facts of network computing life, monitoring service levels, tracing root causes, and validation become significant challenges. Being able to sign off on a process's robustness, auditability, replicability, accuracy, and level of protection becomes an act of faith.
One key factor is an essential network property, the so-called fat tail. Whereas many routine algorithms in business and industry assume Gaussian bell-curve distributions of probabilities, many network scenarios adhere to power law distributions in which notions of "normal" and median" lose all meaning.
-Chris Anderson's "long tail" has become a commonplace in Silicon Valley. Rather than living on large-selling hits, virtual retailers such as eBay, Amazon, and Netflix make money from onesies and twosies that their physical counterparts cannot afford to stock. In fact, Netflix would much rather you watched their one copy of a Hungarian banjo documentary than wait in line for one of their thousands of copies of Pirates of the Caribbean that they will have to dispose of in a few months' time.
-The predilection of networks toward winner-take-most outcomes inspired Anderson in the first place. It's no secret that a small number of sites collect the vast majority of Internet traffic. Rather than follow a 80/20 rule, power laws are more like 95/1: less than 1% of the site population accounts for 95% of traffic.
-The extreme scale of adverse events in networked scenarios is easily understood. While the absolute tallest and shortest human adults in any population may be a factor of 2 or 3 different, with both extremes falling symmetrically off a Gaussian median, networked phenomena such as money or traffic can be millions of times different, and there is not necessarily any central tendency. The dramatic exposure to adverse events such as Amaranth's or Long Term Capital Management's meltdowns, or a global liquidity crunch, would be impossible in a world in which banks were local, investment was primary (rather than derivative), and neither trade nor capital moved fluidly around the globe.
Given these dynamics, Stan Davis's notice of the shift from "crunching to connecting" can be expanded. It seems a short leap to postulate the following: whereas enterprise computing in its first two to three decades automated calculation and therefore increased efficiency, networked computing amplifies complexity, including noise. The consequences of this tendency are both positive and negative.
Downsides include increased difficulty to accommodate these environments to hierarchical forms of organization in that collaboration extends across "home" enterprises. Whose money is the vendor team spending? To whom are they proximally and ultimately accountable? E-mail was a classic example as it removed layers of bureaucratic organization and aligned with a tendency toward greater social informality. The cost of e-mail (in both anti-spam technology and people's time and attention) is vast, but no payback metric is forthcoming: "just do it" becomes the managerial justification.
"Securing the perimeter" of a networked organization (whether in the technological or organizational sense) becomes a contradiction in terms. This week's news about a sophisticated attack on Hannaford Brothers supermarkets raises the stakes considerably: rather than hack into repositories of credit card data, this distributed attack essentially compromised then transmitted payment information from point of sale systems on the fly. There are other complications, to be sure.
The upsides of exposure to increased complexity befit a global economy premised more on services than products. One benefit lies in increased access to search space: a given problem can be addressed by solutions garnered from a potentially vast pool of suggestions, local optima, or combinations of disparate elements. Time can be dramatically accelerated: numerous examples confirm the potential for what Alfred Chandler called "economies of speed" to be realized by networks of various kinds.
The importance of improvisation, about which we've written previously (summer 2007) grows in such dynamic environments in which resources are ample and diverse; curiously, improvisation in a strict sense works less well in scenarios characterized by extreme scarcity. This is not the place to explore how organizational hierarchies, which manage physical scarcity better than they do virtual surplus, may have to evolve amidst information and relationship abundance.
Thus it may be past time for new managerial metrics and practices within traditional enterprises. Hierarchical (bureaucratic) norms don't appear to do a very good job of governing a mindset and a body of technology that fit poorly into paper-based, slow-moving, and strictly delimited organizations. Complexity is painful when compared to order, but once attributes such as ambiguity, emergence, and adaptation enter the vocabulary, that same complexity can be viewed (and exploited) as a resource rather than only being "managed" as a constraint.
Wednesday, February 27, 2008
Early Indications February 2008: Bicycles
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Wednesday, January 16, 2008
Early Indications January 2008: Looking Ahead
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Wednesday, December 19, 2007
Early Indications December 2007: Prediction Scorecard
How did we do?
Last December I wrote that "we see a collision between systems based
on old and new models of regulation, remuneration, protection,
privacy, and so forth. At base, we are having to redefine some of the
core systems that make the world work: money, contracts, civil rights
and civic responsibilities, identity, possession, and others. This
year, I believe that several of these collisions will reach new
heights of unexpectedness, expense, and impact."
Prediction 1:
"This year, look for a still grander failure of data protection
[relative to the VA], either in one highly visible episode or a
cumulative increase."
Result: Hit
The British Ministry of Revenue and Customs loss of 25 million names
is truly spectacular: it's roughly half of England's population, and
sensitive information included naming 350 people in witness protection
programs. The costs and risks of providing new identities for those
affected could be extreme. The TJX breach, meanwhile, was initially
reported to have involved 46 million records but according to a recent
court filing could have exposed 94 million credit card-holders -
nobody can say for sure, but the affected banks and the retailer are
said to have settled. The amount of the settlement was undisclosed,
but the company, which books about $18 billion in annual revenue, set
aside over $100 million for litigation settlement.
Prediction 2
"YouTube and related content distribution mechanisms will push the
envelope too hard, with a high-profile episode of unauthorized copy
distribution prompting legislation, litigation, and potentially
business failure."
Result: Too early
Litigation, yes, courtesy of Viacom, business failure, no.
It's also worth watching a court case in the adult entertainment
industry, since that sector is often a forerunner of changes in the
wider business environment. According to the Los Angeles Times, on
December 10 "Vivid Entertainment Group filed [a] lawsuit in Los
Angeles federal court against PornoTube and its parent, Data
Conversions Inc., which does business in Charlotte, N.C., as AEBN
Inc." The YouTube-like web business is said to be posting copyrighted
material, costing one of Vivid's competitors 35% in revenues,
according to the article.
Prediction 3
"Some new activity - whether job referrals, recipe swapping,
rotisserie baseball, genealogy, Christian evangelism, or something
similarly below radar - will break through using a Google-like
monetization model and approach the growth rate we saw for video in
2006."
Result: Hit
Facebook was clearly the big story of 2007, but even as early as June,
it was reported that digg had passed Facebook in number of unique
visitors, having grown 1400% in one year. May 2007 data from Compete
show digg with 22.6 Million unique visitors, while Facebook had 20.2
Million. It's important to note, however, that people spend far more
time on Facebook. Fantasy [American] football has about 12 million
players, up 33% since 2005; overall, fantasy sports are a $2 billion
industry, or about 13 times Facebook's estimated 2007 revenues.
Prediction 4
"For all their amazing capabilities, communications and computing
systems still can't cheat physics. 2007 will see the so-called virtual
world continue to encounter the physical environment in important
ways. A few examples suggest the breadth of the issue:
*Data centers are beginning to scale up to the size of factories and
even foundries in their energy consumption."
Result: Hit
So-called "green" computing is indeed front-page news. Google's data
centers are setting the pace as 40-70 megawatt facilities are coming
on line. Large single points of failure in any system increase the
potential scope of damage if an outage were to occur.
Prediction 5
"A different facet of the energy and transportation systems relates to
automobiles. While Chevrolet just introduced a good-looking electric
car, the Volt, that anticipates developments in battery technology,
Tesla Motors will ship over 200 Roadsters at $100,000 apiece that
out-accelerate a Porsche 911 and achieve the equivalent of 135 miles
per gallon fuel efficiency. [The enthusiasm for ethanol will continue,
despite severe limitations.] How politics and markets react to rising
oil prices, from a systems-of-systems perspective, will determine
quite a bit about the shape of the next 10-20 years."
Result: On hold
Tesla found car-building more complicated than the founders thought,
and slipped its ship date again. The Volt is being touted as a signal
of rejuvenation at GM under Bob Lutz, while Honda announced a major
commitment to less expensive hybrid engine technology. Ethanol mania
seems to be subsiding slightly. A huge oil discovery off Brazil must
be countered by growing political instability in many oil-rich
regions, and high prices reflect a combination of that political risk
with booming demand in the developing world.
Prediction 6
"2006 did not see a major disruption to the world's transportation and
communication systems. Such good fortune cannot last indefinitely, yet
readiness for the unexpected remains lower than it could be."
Result: Glancing blow
Yahoo's merchant servers melted down on "Cyber-Monday," leaving many
of its 40,000 businesses searching for new commerce providers after
seven hours of outage and another five of slow performance. Air
travel is suffering both meltdowns both macro and micro (as at LAX in
August, when one bad network card shut down the airport and stranded
about 20,000 fliers, or when JetBlue infamously mismanaged weather
delays in February), but we saw nothing that qualified as a major
disruption.
Prediction 7
Paradoxically, even as people and devices grow more connected, with
access to more information, the need for intermediaries evolves rather
than disappear.
Result: Hit
Apple's iPhone was clearly one of the year's big stories, as were
YouTube, Facebook, Amazon (particularly its Kindle reader, but also
Mechanical Turk's role in the Steve Fossett search) and Google's
unrelenting command of search and advertising. All are
intermediaries, or filters. As Facebook discovered, matching
advertising to audiences in return for money is very appealing in its
revenue potential, but hard to do and easy to get wrong. Microsoft
just announced a major ad placement deal with Viacom. Along with its
Facebook investment, this puts Microsoft in excellent position to
learn at the front-ish edge of ad serving and measurement,
realistically behind Google and perhaps Yahoo. The biggest noise of
the year was made by the social networking model, which is such a
powerful filter we have yet to devise cogent models or names for what
might be possible: the filtering and sheer time-consumption of
MySpace, Flickr, LinkedIn, and the rest may finally have driven the
final nail into the 1990's mantra of disintermediation.
*****
Overall, it was a decent showing as no assertion fell wildly off the
mark, and another several areas appear to be unfolding in line with
the prediction, just not quite in this calendar year.
I hope every reader finds joy and peace in the holiday season, and
we'll start the new year off with an
Last December I wrote that "we see a collision between systems based
on old and new models of regulation, remuneration, protection,
privacy, and so forth. At base, we are having to redefine some of the
core systems that make the world work: money, contracts, civil rights
and civic responsibilities, identity, possession, and others. This
year, I believe that several of these collisions will reach new
heights of unexpectedness, expense, and impact."
Prediction 1:
"This year, look for a still grander failure of data protection
[relative to the VA], either in one highly visible episode or a
cumulative increase."
Result: Hit
The British Ministry of Revenue and Customs loss of 25 million names
is truly spectacular: it's roughly half of England's population, and
sensitive information included naming 350 people in witness protection
programs. The costs and risks of providing new identities for those
affected could be extreme. The TJX breach, meanwhile, was initially
reported to have involved 46 million records but according to a recent
court filing could have exposed 94 million credit card-holders -
nobody can say for sure, but the affected banks and the retailer are
said to have settled. The amount of the settlement was undisclosed,
but the company, which books about $18 billion in annual revenue, set
aside over $100 million for litigation settlement.
Prediction 2
"YouTube and related content distribution mechanisms will push the
envelope too hard, with a high-profile episode of unauthorized copy
distribution prompting legislation, litigation, and potentially
business failure."
Result: Too early
Litigation, yes, courtesy of Viacom, business failure, no.
It's also worth watching a court case in the adult entertainment
industry, since that sector is often a forerunner of changes in the
wider business environment. According to the Los Angeles Times, on
December 10 "Vivid Entertainment Group filed [a] lawsuit in Los
Angeles federal court against PornoTube and its parent, Data
Conversions Inc., which does business in Charlotte, N.C., as AEBN
Inc." The YouTube-like web business is said to be posting copyrighted
material, costing one of Vivid's competitors 35% in revenues,
according to the article.
Prediction 3
"Some new activity - whether job referrals, recipe swapping,
rotisserie baseball, genealogy, Christian evangelism, or something
similarly below radar - will break through using a Google-like
monetization model and approach the growth rate we saw for video in
2006."
Result: Hit
Facebook was clearly the big story of 2007, but even as early as June,
it was reported that digg had passed Facebook in number of unique
visitors, having grown 1400% in one year. May 2007 data from Compete
show digg with 22.6 Million unique visitors, while Facebook had 20.2
Million. It's important to note, however, that people spend far more
time on Facebook. Fantasy [American] football has about 12 million
players, up 33% since 2005; overall, fantasy sports are a $2 billion
industry, or about 13 times Facebook's estimated 2007 revenues.
Prediction 4
"For all their amazing capabilities, communications and computing
systems still can't cheat physics. 2007 will see the so-called virtual
world continue to encounter the physical environment in important
ways. A few examples suggest the breadth of the issue:
*Data centers are beginning to scale up to the size of factories and
even foundries in their energy consumption."
Result: Hit
So-called "green" computing is indeed front-page news. Google's data
centers are setting the pace as 40-70 megawatt facilities are coming
on line. Large single points of failure in any system increase the
potential scope of damage if an outage were to occur.
Prediction 5
"A different facet of the energy and transportation systems relates to
automobiles. While Chevrolet just introduced a good-looking electric
car, the Volt, that anticipates developments in battery technology,
Tesla Motors will ship over 200 Roadsters at $100,000 apiece that
out-accelerate a Porsche 911 and achieve the equivalent of 135 miles
per gallon fuel efficiency. [The enthusiasm for ethanol will continue,
despite severe limitations.] How politics and markets react to rising
oil prices, from a systems-of-systems perspective, will determine
quite a bit about the shape of the next 10-20 years."
Result: On hold
Tesla found car-building more complicated than the founders thought,
and slipped its ship date again. The Volt is being touted as a signal
of rejuvenation at GM under Bob Lutz, while Honda announced a major
commitment to less expensive hybrid engine technology. Ethanol mania
seems to be subsiding slightly. A huge oil discovery off Brazil must
be countered by growing political instability in many oil-rich
regions, and high prices reflect a combination of that political risk
with booming demand in the developing world.
Prediction 6
"2006 did not see a major disruption to the world's transportation and
communication systems. Such good fortune cannot last indefinitely, yet
readiness for the unexpected remains lower than it could be."
Result: Glancing blow
Yahoo's merchant servers melted down on "Cyber-Monday," leaving many
of its 40,000 businesses searching for new commerce providers after
seven hours of outage and another five of slow performance. Air
travel is suffering both meltdowns both macro and micro (as at LAX in
August, when one bad network card shut down the airport and stranded
about 20,000 fliers, or when JetBlue infamously mismanaged weather
delays in February), but we saw nothing that qualified as a major
disruption.
Prediction 7
Paradoxically, even as people and devices grow more connected, with
access to more information, the need for intermediaries evolves rather
than disappear.
Result: Hit
Apple's iPhone was clearly one of the year's big stories, as were
YouTube, Facebook, Amazon (particularly its Kindle reader, but also
Mechanical Turk's role in the Steve Fossett search) and Google's
unrelenting command of search and advertising. All are
intermediaries, or filters. As Facebook discovered, matching
advertising to audiences in return for money is very appealing in its
revenue potential, but hard to do and easy to get wrong. Microsoft
just announced a major ad placement deal with Viacom. Along with its
Facebook investment, this puts Microsoft in excellent position to
learn at the front-ish edge of ad serving and measurement,
realistically behind Google and perhaps Yahoo. The biggest noise of
the year was made by the social networking model, which is such a
powerful filter we have yet to devise cogent models or names for what
might be possible: the filtering and sheer time-consumption of
MySpace, Flickr, LinkedIn, and the rest may finally have driven the
final nail into the 1990's mantra of disintermediation.
*****
Overall, it was a decent showing as no assertion fell wildly off the
mark, and another several areas appear to be unfolding in line with
the prediction, just not quite in this calendar year.
I hope every reader finds joy and peace in the holiday season, and
we'll start the new year off with an
Monday, November 19, 2007
November 2007 Early Indications: 10 Predictions for the Next 10 Years
As promised last month, here are ten information-technology-related areas to watch over the next ten years. Rather than attempting to be systematic, this list will merely suggest topic areas and point to some relevant data points; otherwise, a ten-item list would soon get unwieldy. Key areas such as liquidity in financial markets, global immigration policies, warfare and diplomacy, and credibility of government, financial, and cultural institutions also merit close watching, of course, but will be outside our scope for the moment. (Note that this material is also available in a presentation.)
1) The New Physical Layer
Although everything from power grids to bridges and ports to railways is being built or rebuilt, our focus here is on computing and networking. In particular, power and bandwidth will be transformed in the next decade.
Taking power first, cloud computing vendors are waging an arms race as they build data centers to power a range of offerings loosely called "web services." Because of the intensity of their power consumption, these often appear near cheap hydroelectric power sources (which themselves may be affected by global climate changes). It's estimated, for example, that Google's data center, housed in two adjacent buildings in Oregon, contains 1.3 million computing cores on 9,000 racks per structure, and photographs of the cooling towers are staggering.
Something else is going on: Caterpillar reported that its Q2 07 revenues from sales of backup generators, such as those used in data centers, were up 41% at a time when overall U.S. construction equipment sales are slumping. The growth of "cloud computing" feels as though it's related to the trend toward virtualization, where resources can be located, physically and/or logically, away from their locus of deployment. At the end of the day, however, servers have to sit somewhere, and when they do, lots of heat follows.
At the same time, the need for portable power to support an increasingly mobile user base means that fuel cells, batteries, and associated technologies will also attract investment and talent. Solar power, meanwhile, is a complicated issue: there's clearly a lot of froth around silicon panel plays, which compete with the computing sector for resources, talent, and production capacity. How much solar helps address computing's need for portable power and how much it constrains it will be important to watch.
Bandwidth consumption is exploding as video expands farther and farther into a global customer and user population. In both wired and unwired domains, a lot is happening. On one side, perhaps even the term "wired" should be amended as optical connectivity proves its superiority; while glass can be fabricated into cables, maybe the word "wire" has become misleading. Delivered in the U.S. by Verizon and to a lesser extent AT&T, fiber is driving wider delivery of 20, 50, and potentially 100 MB/sec download speeds along with faster multiplayer gaming action and multiple high-definition television signals. Over the ether, WiMax's future got a bit less rosy recently as Sprint dissolved its partnership with Clearwire as the stumbling cellular carrier searches for a new CEO. Even so, whether it's that particular technology or potentially a cellular variant, mobile broadband will be a key area for the next decade.
2) Enmeshed
The Japanese have already named a relevant demographic better than Americans have: "oyayubizoku," clan of the thumb, is far more evocative than "digital natives." Whatever they're called, people under 30 around the world are redefining mobility: who is supposed to say (or otherwise convey) what message to whom, in what contexts, with what expectations in return is being defined in fascinating ways. I'm reminded of the need for a new greeting at the introduction of the telephone, as people of manners were not supposed to speak to someone unless they had been introduced. Many languages differentiate between telephonic greetings and spoken ones ("bonjour" vs. "allo" in French), but before "hello" was carried over, Alexander Graham Bell preferred "ahoy" as the English-language telephone greeting.
The distinction between telephones and PCs is getting fuzzier every year, as we have noted, and the iPhone presents a clear case in point: running a Unix variant, it can be spoken at, but performs best moving and manipulating images and data. Mobile phones, ultra-mobile PCs (UMPCs), gaming devices including Nokia's N-Gage, handheld PCs, televisions, and other devices (such as standalone GPS trackers) will continue to converge. Note that the success of this sector depends heavily on commercialization of the power alternatives listed above.
GPS phones are estimated to be a $30 billion segment next year. Some of the most promising applications involve the combination of mobility and convenience, location awareness, and social networking: as Google enters the phone market, expect to see some variation on the Dodgeball service it acquired in 2005. Being able to visualize a list of friends, in their current physical locations, in order to coordinate seems like a truly harmonic convergence of capabilities.
Television over mobile handsets is estimated to reach over 100 million users by 2009, and the number should soar further in conjunction with the 2010 World Cup. Expect to see spirited competition among content owners like News Corp, handset manufacturers, network equipment firms (including heavyweights Qualcomm, Nokia, and potentially Intel), and carriers such as Vodaphone and T-Mobile. Finally, given that [lots of] advertising is involved, expect something unexpected from Google. There's little question as to demand, particularly after seeing adoption in Japan and Korea, but allocating the money may prove to be difficult.
3) Healthy, Wealthy, and Wired
Entire books need to be written on various facets of information, technology, and health. A few bullets suggest the reach of potential issues:
-Electronic medical records have the potential to improve care, save money, and enhance the patient's experience with his or her health care system. EMRs also could help transform the economics of health insurance, lead to data breaches of untold pain and economic impact, and alter the role of physicians relative to insurers, employers, and patients. Automating the current, broken U.S. system (I can't speak for other countries), feels unappealing, which means that implementing EMRs implies deeper transformation, parallel to but much bigger than the changes brought about by corporate ERP implementations.
-Better information regarding public health statistics is essential, particularly given the experience with SARS and fears about future pandemics. But once again, social, cultural, economic, and legal questions emerge. Ranging from "who owns the data?" to "who defines how data is shared across jurisdictions?" to "who pays and who benefits?," these questions will test an already under-funded global public-health infrastructure. For an upbeat and visually riveting vital statistics story, see "No More Boring Data," a video of a lecture on global demographics.
-What does it mean to be human? Mechanical joints and prostheses are rapidly becoming more sophisticated and digitized. When does a disability become an unfair advantage? Oscar Pistorius is a South African sprinter whose 400 meter time is about a second slow of Olympic qualifying. He's also a double amputee whose carbon-fiber "legs" are challenging old ideas about fair competition. Or take Jesse Sullivan, a former lineman from Tennessee who lost both arms in an electrical accident. He has a nerve-controlled robotic arm connected to his chest. Told by his doctors not to baby the device, he returned one time carrying his hand, which he had detached while starting a lawn mower. Cochlear implants are already common solutions to hearing loss (Rush Limbaugh has one) and electrical implants also help patients with Parkinson's Disease, so it is a short hop to implanted chips that enhance brain function: when will 14-year-olds start getting "Harvard chips" to enhance test-taking, piano-playing, physical endurance, and other competitive traits that will help college admissions - and beyond?
-What will be the long-term effects of nearfield electromagnetic emissions, particularly after they have been focused through the ear directly into people’s brains? Cell phone antennas are a potential hazard, but so are earbuds and Bluetooth radios, and nobody knows yet what might or could happen across broad populations with widely varying spectrum allocations, cultural patterns, and governmental regulations.
4) Connection Machines
As more kinds of things get connected to information networks, the potential for unexpected consequences gets ever more interesting to contemplate. Just listing the number of classes of devices that can or will soon interoperate gives a sense of scale:
-telephones, the wireless variety of which can be understood as beacons, bar-code scanners, and network nodes - potentially in a mesh configuration
-computers
-thermostats
-motor- and other industrial controllers
-vehicles
-surveillance cameras (of which there are over 2,000 in Chicago alone)
-sensors, whether embedded in animals, affixed to pharmaceutical packaging, or attached to engine components to predict mechanical failure.
All told, there are dozens of billions of items that can connect and combine in new ways.
Look at robotics in the realm of warfare. Small portable robots, literal cousins of the Roomba vacuum cleaner, can investigate caves or tunnels, while the last two DARPA autonomous vehicle challenges (one across open terrain, the most recent at an abandoned Army base simulating urban conditions) have produced multiple successful entrants. Unmanned Aerial Vehicles are flown by crews remote from the battlespace. The pace of successful deployment will certainly continue, raising a wide variety of heretofore purely theoretical questions about the ethics and costs of combat.
Other machines are less visible. Amazon Mechanical Turk was recently used in the search for pilot Steve Fossett: aerial photographs were loaded into the system, which then systematically presented volunteers with images to scan visually for evidence of wreckage, a parachute, or other clues. Combined computing power with human pattern recognition will become more common in a wide variety of domains.
5) Virtual Fences
It's extremely difficult to delimit this space. Risk, trust, identity, and security are all intertwined, and each has implications for the others. Just this week New York Governor Eliot Spitzer backed off on a plan to issue illegal immigrants New York driver's licenses. This in turn means none of these people can fly on commercial flights unless they hold a passport. The 50 states, meanwhile, are in various degrees of agreement with a federal plan for regularizing driver's licenses to create a de facto national identity card. Both driver's licenses and passports, meanwhile, will get embedded RFID chips, which have been cracked already in a variety of trials. At base, the questions of "who are you," "can you prove it," and "who else knows your information" are all in play, all over the world.
Spam is more prevalent than ever, and creative code-writers are unleashing new technologies to build networks of dormant, compromised computers waiting future instructions. The so-called "Storm" worm is actually a worm, Trojan, and bot combined: it changes its payload every 30 minutes, effectively mutating far faster than antivirus software definitions can be written, much less applied. It operates on evolving IP addresses and in a peer-to-peer network configuration, so very few infected machines point to a central point of control (thought to be Russian). Between 1 and 50 million machines are believed to be at risk, but because there is no spike of malware traffic, as there was in the incredible spread of the Slammer worm (which spread to 75,000 machines in 10 minutes), Storm is nearly undetectable. Given the numbers of networked devices listed above, one must assume viruses will attack everything from powerplant controls to cellphone networks to several types of security systems.
The biggest data breach I'm aware of is the 47 million credit-card numbers lost by TJX (parent company to TJ Maxx, Marshalls, and HomeGoods) as a result of improperly configured in-store wireless networks. Last month, a group of banks alleged in a court filing that in fact 94 million records were lost. Currently liability rests with the banks and credit-card entities even though the merchant was responsible, so expect new legislation to reallocate the blame (and financial responsibility) when the next leak occurs.
6) Of Memory and Forgetting
As more of humanity's mental output is digitally recorded and preserved, we will see new kinds of challenges and opportunities related to the storage of said output. My colleague John Parkinson was fond of saying that "digits never die," and anyone who posted stupid newsgroup utterances 15 years ago or candid MySpace pictures seen by a potential employer will understand. Insofar as much of the "web 2.0" traffic is about "me" (and my opinions, and my friends, and my pictures, and my goings-on), it feels like there will be an emerging dialectic between asking for attention and asking for, if not privacy, at least some control over one's cumulative bitstreams.
Many questions relating to monetization of data are relevant here. Who owns my trail of digital breadcrumbs that everyone from Axciom and Amazon to Vodaphone and Yahoo is trying to use for commercial purposes? In healthcare, who holds, owns, and controls my lifelong record of prescriptions (filled and unfilled), medical test results, over-the-counter and supplement purchases (helpfully recorded by loyalty cards), public health data, and even caloric intake and, at the health club, expenditure?
Embedded metadata is another area to watch. Many digital cameras embed information into the image file relating to camera, shutter speed, lens, and time and date. If you look at the most recent versions, what the privacy types call PII (personally identifiable information) also shows up: latitude and longitude of the location, the photographer's name (handy for claiming artistic royalties), and other information that is not obvious when looking at the image. Various generations of Microsoft Word embedded sometimes embarrassing information relating to authorship, editorial changes, and the like: more than one consulting firm has been caught repurposing a proposal (or deliverable) when hidden layers of information told their tale.
As more bits are generated and stored in networked contexts, we will see a reinvention of the public record; just this week a D.C. circuit court judge ordered the White House to stop deleting e-mails, given that 5 million are alleged to be missing. At the level of less prominent individuals, we will see extremes from privacy fanatics that try to commit as little as possible to digital media, all the way to Microsoft researcher Gordon Bell, who is attempting to digitize his entire life, from birth certificate forward, the last few years in real time. (Here's a New Yorker story on Bell.) How the rest of us sort out the middle will be unpredictable.
7) The Human Peripheral
Traditionally, people connected to the computer through punch tapes or cards, keyboards, and screens. That list is getting longer, quickly.
-Haptics
It's been five years already since Cambridge and MIT researchers shook hands across the Atlantic. Haptic (3-D touch-based) interfaces are entering the mass market, most visibly via the Nintendo Wii, which is outselling conventional game consoles from Sony and Microsoft.
-Thought
The Audeo system processes human intentional thought and converts it to speech. That is, it acts on "I want to say 'hello'" rather than broadcasting one's daydreams.
-Electrodermal
Vyro has developed a Bluetooth device about the size of a gum eraser. It measures stress through sweat gland activity in the skin, so one application is a clever game in which two players race their cars on a Bluetooth phone, the winner being the one who's more relaxed.
-New screens
Organic Light Emitting Diode (OLED) technology is coming to market soon, in Sony televisions for instance. Compared to LCD, OLED is brighter, more power efficient, and thinner - but it reacts badly to water. E-ink and other flexible displays are making similar progress.
-Devices
While Microsoft's SPOT technology has not made much of an impact, datacasting is still viable. Ambient Devices make products that convey information at a glance. Those who have been to Boston know that the Prudential building's spire tells the weather: steady blue for clear, blinking red for rain. Ambient's Orb conveys weather, stock market performance, and other complex information by its color, and there's an energy monitor that tracks the price of electricity, weather forecast, and other information relevant to deciding whether or not to run the dryer or air conditioner.
8) Education
Officially, we now live in a services economy: at the global level, the switchover from agriculture happened only last year, which means that at scale, manufacturing was never earth's dominant economic activity. Education systems everywhere are struggling to adapt to digitization, to services, and to new demographic realities. In the U.S. for example, in 2050 there will be a huge blip of elderly women who are now just finishing childbearing. Who will support them, what will they do for both economic and other rewards, and how will they learn to do those things? In the developing world, projected demographic pyramids are even more striking as life expectancy changes dramatically in just a few decades.
How do schools prepare young people for jobs and organizational designs that have yet to be invented? To take two current examples, where did today's generation of sushi chefs and yoga teachers get their training? Where will robot mechanics, Internet addiction counselors, and Chinese lawyers get started? Getting computers (possibly through One Laptop Per Child or Project Inkwell) to the masses will start a process but by no means finish it.
As online course delivery ramps up, questions arise about architecture: what should a virtually-enabled classroom look like? Where should schools be built, particularly in developing environments? What should they look like? What is the role and function of a public library in a world in which the place of print is in major upheaval?
9) {Your Theme Here}
As blogging, social networking, and user-generated content proliferate, we're seeing one manifestation of a larger trend toward delegitimization of received cultural authority. Doctors are learning how to respond to patients with volumes of research, expert and folk opinion, and a desire to dictate rather receive treatment. Instead of trusting politicians, professional reviewers, or commercial spokespeople, many people across the world are putting trust in each other's opinions: Zagat is a great example of formal ratings systems being challenged by masses of uncredentialed, anonymous diners. Zagat also raises the issue of when crowds can be "wise," cannot possibly be "wise," or generally do not matter one way or the other.
Information markets hold great potential, but like real markets, suffer from bubbles, information asymmetry, and other externalities. Nevertheless, such exemplars as Hollywood Stock Exchange (now owned by financial information giant Cantor Fitzgerald), the Iowa Stock Market, and startups like Fluid Innovation are leading the way toward wider implementation. At the same time, we've seen markets process information for a long time: when the NBA addressed its betting referee, the situation highlighted the secrecy with which the league assigns refs to games. Referees are prohibited from telling anyone but immediate family about travel plans, because the Las Vegas point spread moves if the reffing crews are revealed ahead of game time. That point spread is a highly nuanced information artifact of a market compensating for new information.
So-called crowdsourcing will bear watching. Gracenote, the service that lists a CD's track names when you load them into iTunes, began with volunteer labor. What would happen with Wikipedia if Jimmy Wales followed Gracenote's history and monetized all of the volunteer labor? Another new business, Satisfaction applies crowdsourcing to customer service issues. As Google moves away from the idiot-proof search bar into applications, who delivers tech support? Two Google employees currently answer queries at Satisfaction, but it remains unclear who pays whom for what in various tiers of service, who's liable for the consequences of advice, and how might the system be gamed.
Clay Shirky has suggested that flame wars are essentially inevitable outcomes, rather than side effects, of social software. Many blogs have comments turned off because of abuse that imply takes too long to monitor and manage. Given that more people will be in contact with more people in new ways, how will new rules of behavior take shape? Will the lack of interpersonal civility (exemplified in the golden age of the ad hominem attack, offline and on-) evolve? If so, in which direction?
10) Silicon Emotion
People are interacting with other people with multiple layers of computing and communications in between. The nature of emotional expression is changing as a result.
-Dancing alone
What does it mean when tens of millions of music lovers listen in isolation, through headphones, rather than in rooms, or concert halls?
-Friend-nodes
Back when the average MySpace user had 347 "friends," what did that really mean? Might Facebook, which has suffered in the eyes of some users from its retreat from exclusivity, be surpassed by a Ning or other network with express provision of firewalls between sub-communities?
-Inhibition deficiency
In addition to flaming, people will say things electronically they would be much more
hesitant to articulate verbally. Watching teenagers IM each other fluently and unabashedly, then stand with each other awkwardly after school, is a fascinating exercise. In the Nordics, the second-most prevalent use of text messaging (after coordination), is "grooming" - flirting.
-Robot love
The Roomba has inspired tremendous affection in its brief lifetime. (See the fascinating paper by Ja-Young Sung, Lan Guo, Rebecca E. Grinter, and Henrik I. Christensen, all of Georgia Tech, entitled "'My Roomba is a Rambo': Intimate Home Appliances" for compelling evidence on this point.) Sony's Aibo dog and Honda's Asimo can trigger similarly rich emotional responses in some people. iRobot, the Roomba folks, recently introduced a beta version of ConnectR, a "virtual visiting robot" projected to sell for $499. According to the website,
"Combining the latest in Internet communications and robot technology, ConnectR lets you virtually visit with loved ones, relatives and pets anytime you wish – seeing, hearing and interacting with them in their home as if you were there in person."
I can't imagine that this kind of technology will do anything but surprise people with its unintended consequences.
***
One final word: ten years is probably too long a time horizon for some of these areas, but institutional change, in education for instance, is always the slow part that will balance out some of the blink-of-an-eye things we’re about to witness.
1) The New Physical Layer
Although everything from power grids to bridges and ports to railways is being built or rebuilt, our focus here is on computing and networking. In particular, power and bandwidth will be transformed in the next decade.
Taking power first, cloud computing vendors are waging an arms race as they build data centers to power a range of offerings loosely called "web services." Because of the intensity of their power consumption, these often appear near cheap hydroelectric power sources (which themselves may be affected by global climate changes). It's estimated, for example, that Google's data center, housed in two adjacent buildings in Oregon, contains 1.3 million computing cores on 9,000 racks per structure, and photographs of the cooling towers are staggering.
Something else is going on: Caterpillar reported that its Q2 07 revenues from sales of backup generators, such as those used in data centers, were up 41% at a time when overall U.S. construction equipment sales are slumping. The growth of "cloud computing" feels as though it's related to the trend toward virtualization, where resources can be located, physically and/or logically, away from their locus of deployment. At the end of the day, however, servers have to sit somewhere, and when they do, lots of heat follows.
At the same time, the need for portable power to support an increasingly mobile user base means that fuel cells, batteries, and associated technologies will also attract investment and talent. Solar power, meanwhile, is a complicated issue: there's clearly a lot of froth around silicon panel plays, which compete with the computing sector for resources, talent, and production capacity. How much solar helps address computing's need for portable power and how much it constrains it will be important to watch.
Bandwidth consumption is exploding as video expands farther and farther into a global customer and user population. In both wired and unwired domains, a lot is happening. On one side, perhaps even the term "wired" should be amended as optical connectivity proves its superiority; while glass can be fabricated into cables, maybe the word "wire" has become misleading. Delivered in the U.S. by Verizon and to a lesser extent AT&T, fiber is driving wider delivery of 20, 50, and potentially 100 MB/sec download speeds along with faster multiplayer gaming action and multiple high-definition television signals. Over the ether, WiMax's future got a bit less rosy recently as Sprint dissolved its partnership with Clearwire as the stumbling cellular carrier searches for a new CEO. Even so, whether it's that particular technology or potentially a cellular variant, mobile broadband will be a key area for the next decade.
2) Enmeshed
The Japanese have already named a relevant demographic better than Americans have: "oyayubizoku," clan of the thumb, is far more evocative than "digital natives." Whatever they're called, people under 30 around the world are redefining mobility: who is supposed to say (or otherwise convey) what message to whom, in what contexts, with what expectations in return is being defined in fascinating ways. I'm reminded of the need for a new greeting at the introduction of the telephone, as people of manners were not supposed to speak to someone unless they had been introduced. Many languages differentiate between telephonic greetings and spoken ones ("bonjour" vs. "allo" in French), but before "hello" was carried over, Alexander Graham Bell preferred "ahoy" as the English-language telephone greeting.
The distinction between telephones and PCs is getting fuzzier every year, as we have noted, and the iPhone presents a clear case in point: running a Unix variant, it can be spoken at, but performs best moving and manipulating images and data. Mobile phones, ultra-mobile PCs (UMPCs), gaming devices including Nokia's N-Gage, handheld PCs, televisions, and other devices (such as standalone GPS trackers) will continue to converge. Note that the success of this sector depends heavily on commercialization of the power alternatives listed above.
GPS phones are estimated to be a $30 billion segment next year. Some of the most promising applications involve the combination of mobility and convenience, location awareness, and social networking: as Google enters the phone market, expect to see some variation on the Dodgeball service it acquired in 2005. Being able to visualize a list of friends, in their current physical locations, in order to coordinate seems like a truly harmonic convergence of capabilities.
Television over mobile handsets is estimated to reach over 100 million users by 2009, and the number should soar further in conjunction with the 2010 World Cup. Expect to see spirited competition among content owners like News Corp, handset manufacturers, network equipment firms (including heavyweights Qualcomm, Nokia, and potentially Intel), and carriers such as Vodaphone and T-Mobile. Finally, given that [lots of] advertising is involved, expect something unexpected from Google. There's little question as to demand, particularly after seeing adoption in Japan and Korea, but allocating the money may prove to be difficult.
3) Healthy, Wealthy, and Wired
Entire books need to be written on various facets of information, technology, and health. A few bullets suggest the reach of potential issues:
-Electronic medical records have the potential to improve care, save money, and enhance the patient's experience with his or her health care system. EMRs also could help transform the economics of health insurance, lead to data breaches of untold pain and economic impact, and alter the role of physicians relative to insurers, employers, and patients. Automating the current, broken U.S. system (I can't speak for other countries), feels unappealing, which means that implementing EMRs implies deeper transformation, parallel to but much bigger than the changes brought about by corporate ERP implementations.
-Better information regarding public health statistics is essential, particularly given the experience with SARS and fears about future pandemics. But once again, social, cultural, economic, and legal questions emerge. Ranging from "who owns the data?" to "who defines how data is shared across jurisdictions?" to "who pays and who benefits?," these questions will test an already under-funded global public-health infrastructure. For an upbeat and visually riveting vital statistics story, see "No More Boring Data," a video of a lecture on global demographics.
-What does it mean to be human? Mechanical joints and prostheses are rapidly becoming more sophisticated and digitized. When does a disability become an unfair advantage? Oscar Pistorius is a South African sprinter whose 400 meter time is about a second slow of Olympic qualifying. He's also a double amputee whose carbon-fiber "legs" are challenging old ideas about fair competition. Or take Jesse Sullivan, a former lineman from Tennessee who lost both arms in an electrical accident. He has a nerve-controlled robotic arm connected to his chest. Told by his doctors not to baby the device, he returned one time carrying his hand, which he had detached while starting a lawn mower. Cochlear implants are already common solutions to hearing loss (Rush Limbaugh has one) and electrical implants also help patients with Parkinson's Disease, so it is a short hop to implanted chips that enhance brain function: when will 14-year-olds start getting "Harvard chips" to enhance test-taking, piano-playing, physical endurance, and other competitive traits that will help college admissions - and beyond?
-What will be the long-term effects of nearfield electromagnetic emissions, particularly after they have been focused through the ear directly into people’s brains? Cell phone antennas are a potential hazard, but so are earbuds and Bluetooth radios, and nobody knows yet what might or could happen across broad populations with widely varying spectrum allocations, cultural patterns, and governmental regulations.
4) Connection Machines
As more kinds of things get connected to information networks, the potential for unexpected consequences gets ever more interesting to contemplate. Just listing the number of classes of devices that can or will soon interoperate gives a sense of scale:
-telephones, the wireless variety of which can be understood as beacons, bar-code scanners, and network nodes - potentially in a mesh configuration
-computers
-thermostats
-motor- and other industrial controllers
-vehicles
-surveillance cameras (of which there are over 2,000 in Chicago alone)
-sensors, whether embedded in animals, affixed to pharmaceutical packaging, or attached to engine components to predict mechanical failure.
All told, there are dozens of billions of items that can connect and combine in new ways.
Look at robotics in the realm of warfare. Small portable robots, literal cousins of the Roomba vacuum cleaner, can investigate caves or tunnels, while the last two DARPA autonomous vehicle challenges (one across open terrain, the most recent at an abandoned Army base simulating urban conditions) have produced multiple successful entrants. Unmanned Aerial Vehicles are flown by crews remote from the battlespace. The pace of successful deployment will certainly continue, raising a wide variety of heretofore purely theoretical questions about the ethics and costs of combat.
Other machines are less visible. Amazon Mechanical Turk was recently used in the search for pilot Steve Fossett: aerial photographs were loaded into the system, which then systematically presented volunteers with images to scan visually for evidence of wreckage, a parachute, or other clues. Combined computing power with human pattern recognition will become more common in a wide variety of domains.
5) Virtual Fences
It's extremely difficult to delimit this space. Risk, trust, identity, and security are all intertwined, and each has implications for the others. Just this week New York Governor Eliot Spitzer backed off on a plan to issue illegal immigrants New York driver's licenses. This in turn means none of these people can fly on commercial flights unless they hold a passport. The 50 states, meanwhile, are in various degrees of agreement with a federal plan for regularizing driver's licenses to create a de facto national identity card. Both driver's licenses and passports, meanwhile, will get embedded RFID chips, which have been cracked already in a variety of trials. At base, the questions of "who are you," "can you prove it," and "who else knows your information" are all in play, all over the world.
Spam is more prevalent than ever, and creative code-writers are unleashing new technologies to build networks of dormant, compromised computers waiting future instructions. The so-called "Storm" worm is actually a worm, Trojan, and bot combined: it changes its payload every 30 minutes, effectively mutating far faster than antivirus software definitions can be written, much less applied. It operates on evolving IP addresses and in a peer-to-peer network configuration, so very few infected machines point to a central point of control (thought to be Russian). Between 1 and 50 million machines are believed to be at risk, but because there is no spike of malware traffic, as there was in the incredible spread of the Slammer worm (which spread to 75,000 machines in 10 minutes), Storm is nearly undetectable. Given the numbers of networked devices listed above, one must assume viruses will attack everything from powerplant controls to cellphone networks to several types of security systems.
The biggest data breach I'm aware of is the 47 million credit-card numbers lost by TJX (parent company to TJ Maxx, Marshalls, and HomeGoods) as a result of improperly configured in-store wireless networks. Last month, a group of banks alleged in a court filing that in fact 94 million records were lost. Currently liability rests with the banks and credit-card entities even though the merchant was responsible, so expect new legislation to reallocate the blame (and financial responsibility) when the next leak occurs.
6) Of Memory and Forgetting
As more of humanity's mental output is digitally recorded and preserved, we will see new kinds of challenges and opportunities related to the storage of said output. My colleague John Parkinson was fond of saying that "digits never die," and anyone who posted stupid newsgroup utterances 15 years ago or candid MySpace pictures seen by a potential employer will understand. Insofar as much of the "web 2.0" traffic is about "me" (and my opinions, and my friends, and my pictures, and my goings-on), it feels like there will be an emerging dialectic between asking for attention and asking for, if not privacy, at least some control over one's cumulative bitstreams.
Many questions relating to monetization of data are relevant here. Who owns my trail of digital breadcrumbs that everyone from Axciom and Amazon to Vodaphone and Yahoo is trying to use for commercial purposes? In healthcare, who holds, owns, and controls my lifelong record of prescriptions (filled and unfilled), medical test results, over-the-counter and supplement purchases (helpfully recorded by loyalty cards), public health data, and even caloric intake and, at the health club, expenditure?
Embedded metadata is another area to watch. Many digital cameras embed information into the image file relating to camera, shutter speed, lens, and time and date. If you look at the most recent versions, what the privacy types call PII (personally identifiable information) also shows up: latitude and longitude of the location, the photographer's name (handy for claiming artistic royalties), and other information that is not obvious when looking at the image. Various generations of Microsoft Word embedded sometimes embarrassing information relating to authorship, editorial changes, and the like: more than one consulting firm has been caught repurposing a proposal (or deliverable) when hidden layers of information told their tale.
As more bits are generated and stored in networked contexts, we will see a reinvention of the public record; just this week a D.C. circuit court judge ordered the White House to stop deleting e-mails, given that 5 million are alleged to be missing. At the level of less prominent individuals, we will see extremes from privacy fanatics that try to commit as little as possible to digital media, all the way to Microsoft researcher Gordon Bell, who is attempting to digitize his entire life, from birth certificate forward, the last few years in real time. (Here's a New Yorker story on Bell.) How the rest of us sort out the middle will be unpredictable.
7) The Human Peripheral
Traditionally, people connected to the computer through punch tapes or cards, keyboards, and screens. That list is getting longer, quickly.
-Haptics
It's been five years already since Cambridge and MIT researchers shook hands across the Atlantic. Haptic (3-D touch-based) interfaces are entering the mass market, most visibly via the Nintendo Wii, which is outselling conventional game consoles from Sony and Microsoft.
-Thought
The Audeo system processes human intentional thought and converts it to speech. That is, it acts on "I want to say 'hello'" rather than broadcasting one's daydreams.
-Electrodermal
Vyro has developed a Bluetooth device about the size of a gum eraser. It measures stress through sweat gland activity in the skin, so one application is a clever game in which two players race their cars on a Bluetooth phone, the winner being the one who's more relaxed.
-New screens
Organic Light Emitting Diode (OLED) technology is coming to market soon, in Sony televisions for instance. Compared to LCD, OLED is brighter, more power efficient, and thinner - but it reacts badly to water. E-ink and other flexible displays are making similar progress.
-Devices
While Microsoft's SPOT technology has not made much of an impact, datacasting is still viable. Ambient Devices make products that convey information at a glance. Those who have been to Boston know that the Prudential building's spire tells the weather: steady blue for clear, blinking red for rain. Ambient's Orb conveys weather, stock market performance, and other complex information by its color, and there's an energy monitor that tracks the price of electricity, weather forecast, and other information relevant to deciding whether or not to run the dryer or air conditioner.
8) Education
Officially, we now live in a services economy: at the global level, the switchover from agriculture happened only last year, which means that at scale, manufacturing was never earth's dominant economic activity. Education systems everywhere are struggling to adapt to digitization, to services, and to new demographic realities. In the U.S. for example, in 2050 there will be a huge blip of elderly women who are now just finishing childbearing. Who will support them, what will they do for both economic and other rewards, and how will they learn to do those things? In the developing world, projected demographic pyramids are even more striking as life expectancy changes dramatically in just a few decades.
How do schools prepare young people for jobs and organizational designs that have yet to be invented? To take two current examples, where did today's generation of sushi chefs and yoga teachers get their training? Where will robot mechanics, Internet addiction counselors, and Chinese lawyers get started? Getting computers (possibly through One Laptop Per Child or Project Inkwell) to the masses will start a process but by no means finish it.
As online course delivery ramps up, questions arise about architecture: what should a virtually-enabled classroom look like? Where should schools be built, particularly in developing environments? What should they look like? What is the role and function of a public library in a world in which the place of print is in major upheaval?
9) {Your Theme Here}
As blogging, social networking, and user-generated content proliferate, we're seeing one manifestation of a larger trend toward delegitimization of received cultural authority. Doctors are learning how to respond to patients with volumes of research, expert and folk opinion, and a desire to dictate rather receive treatment. Instead of trusting politicians, professional reviewers, or commercial spokespeople, many people across the world are putting trust in each other's opinions: Zagat is a great example of formal ratings systems being challenged by masses of uncredentialed, anonymous diners. Zagat also raises the issue of when crowds can be "wise," cannot possibly be "wise," or generally do not matter one way or the other.
Information markets hold great potential, but like real markets, suffer from bubbles, information asymmetry, and other externalities. Nevertheless, such exemplars as Hollywood Stock Exchange (now owned by financial information giant Cantor Fitzgerald), the Iowa Stock Market, and startups like Fluid Innovation are leading the way toward wider implementation. At the same time, we've seen markets process information for a long time: when the NBA addressed its betting referee, the situation highlighted the secrecy with which the league assigns refs to games. Referees are prohibited from telling anyone but immediate family about travel plans, because the Las Vegas point spread moves if the reffing crews are revealed ahead of game time. That point spread is a highly nuanced information artifact of a market compensating for new information.
So-called crowdsourcing will bear watching. Gracenote, the service that lists a CD's track names when you load them into iTunes, began with volunteer labor. What would happen with Wikipedia if Jimmy Wales followed Gracenote's history and monetized all of the volunteer labor? Another new business, Satisfaction applies crowdsourcing to customer service issues. As Google moves away from the idiot-proof search bar into applications, who delivers tech support? Two Google employees currently answer queries at Satisfaction, but it remains unclear who pays whom for what in various tiers of service, who's liable for the consequences of advice, and how might the system be gamed.
Clay Shirky has suggested that flame wars are essentially inevitable outcomes, rather than side effects, of social software. Many blogs have comments turned off because of abuse that imply takes too long to monitor and manage. Given that more people will be in contact with more people in new ways, how will new rules of behavior take shape? Will the lack of interpersonal civility (exemplified in the golden age of the ad hominem attack, offline and on-) evolve? If so, in which direction?
10) Silicon Emotion
People are interacting with other people with multiple layers of computing and communications in between. The nature of emotional expression is changing as a result.
-Dancing alone
What does it mean when tens of millions of music lovers listen in isolation, through headphones, rather than in rooms, or concert halls?
-Friend-nodes
Back when the average MySpace user had 347 "friends," what did that really mean? Might Facebook, which has suffered in the eyes of some users from its retreat from exclusivity, be surpassed by a Ning or other network with express provision of firewalls between sub-communities?
-Inhibition deficiency
In addition to flaming, people will say things electronically they would be much more
hesitant to articulate verbally. Watching teenagers IM each other fluently and unabashedly, then stand with each other awkwardly after school, is a fascinating exercise. In the Nordics, the second-most prevalent use of text messaging (after coordination), is "grooming" - flirting.
-Robot love
The Roomba has inspired tremendous affection in its brief lifetime. (See the fascinating paper by Ja-Young Sung, Lan Guo, Rebecca E. Grinter, and Henrik I. Christensen, all of Georgia Tech, entitled "'My Roomba is a Rambo': Intimate Home Appliances" for compelling evidence on this point.) Sony's Aibo dog and Honda's Asimo can trigger similarly rich emotional responses in some people. iRobot, the Roomba folks, recently introduced a beta version of ConnectR, a "virtual visiting robot" projected to sell for $499. According to the website,
"Combining the latest in Internet communications and robot technology, ConnectR lets you virtually visit with loved ones, relatives and pets anytime you wish – seeing, hearing and interacting with them in their home as if you were there in person."
I can't imagine that this kind of technology will do anything but surprise people with its unintended consequences.
***
One final word: ten years is probably too long a time horizon for some of these areas, but institutional change, in education for instance, is always the slow part that will balance out some of the blink-of-an-eye things we’re about to witness.
Wednesday, October 24, 2007
October 2007 Early Indications II: Ten big technology-related busts in the past ten years
Earlier this month we marked ten years of this newsletter's publication by noting ten developments that quickly permeated the market after being nonexistent or invisible in 1997. This time out, I'll list ten big failures that at one time or another looked like can't-miss propositions.
1) Online grocery
Grocery is a notoriously tough retail category, with thin margins, fickle and price-sensitive customers, and perishable inventory. At the same time, it's an enormous market -- absolutely everybody eats -- so in the late 1990s, the perceived invincibility of online grocery made for failure of dramatic proportions. Webvan combined aggressive expansion, a long leash from investors, and questionable management to create an $800 million sinkhole. The firm was operating in Chicago, Los Angeles and Orange County, Portland, San Diego, San Francisco, and Seattle at the time of its demise, and many customers were disappointed at the loss of a convenient, time-saving service, particularly after Webvan undid many of the successes of the HomeGrocer chain it acquired. The customer base remains tantalizing, particularly as commutes grow longer and free time shrinks, but the logistics of automating picking out a cart-load of groceries from among 200,000+ SKUs, some fresh, makes this a daunting entrepreneurial challenge.
2) AOL and Excite@Home
For a time, AOL ruled the world of dial-up Internet access. Its carpet-bombed floppy disks (later CDs) helped introduce millions of Americans to the Internet, or at least an isotope thereof. It combined access with content (in some measure, in the form of other people) to reach an astonishing price/earnings ratio of 700. But when broadband delivered by incumbent telcos and cable companies split AOL's access from its content, the supposed synergy broke down and the bubble burst.
Beginning slightly later than AOL, the Excite search engine (like Yahoo and Google, a Stanford creation) was bought by the @Home broadband startup in hopes of another content+pipes goldrush. The merger was a disaster: $7 billion of market capitalization vaporized. Cox, TCI/AT&T, Comcast and the other cable companies who owned physical plant and had operational responsibilities, were ill matched with the Silicon Valley engineering culture that emphasized features and glamour over reliability and customer service. That Kleiner Perkins owned stakes in both @Home and Excite compounded the enthusiasm for a rush to synergy, but the operational realities of rebuilding physical infrastructure, combined with the regulatory scrutiny drawn by @Home's proprietary relationships with one of several competing portals, meant that the cultural and leadership issues helped precipitate a train wreck of epic proportions in 2001.
(On AOL, see Kara Swisher, There Must Be a Pony in Here Somewhere (2004); on Excite/@Home, see Frank Rose, "The $7 Billion Delusion")
3) Iridium
Motorola was a major shareholder in and primary supplier to this satellite telephony venture. After its 1997 IPO, Iridium faced loan covenants that required it to sign up 213,000 customers soon after it began offering service in 1999. When only about 10% of that number materialized, Iridium filed for bankruptcy: $5 billion in assets was liquidated for $25 million, and only last month Motorola -- itself Iridium's largest creditor, to the tune of $2 billion -- appeared to have escaped further liability with a court ruling in New York. The service was never aimed at a mass market, with phones costing $3,000 and calls $7 per minute. Coverage was good in open oceans and deserts, but not in moving cars or cities -- and the handset, while technically sophisticated, was big, heavy, and sported an antenna "the size of a toothbrush," in the words of the Wall Street Journal. Satellites, meanwhile, have been similarly costly to rival radio providers XM and Sirius, which between them have accumulated historic losses of $8 billion and are now trying to merge.
4) Super Audio Compact Disc/DVD-Audio
Roughly 20 years after the launch of the compact disc audio format, which itself came about 35 years after the introduction of the LP record, the entertainment industry brought out competing high-resolution optical disc formats for audio. Sony and Philips introduced SACD in 2000, while the DVD Forum, led by Panasonic and Toshiba, brought out DVD-A at about the same time. Audio quality is much higher than CD from both formats, but market confusion has been a major limiting factor. Customers of a certain age who already had to buy music collections twice over were reluctant to commit to one of two competing formats, and while hybrid players now support multi-channel audio playback from either source, software is not widely available: artists and labels had to bet on one standard or the other, and the slow market penetration has resulted in relatively few, and expensive, titles being available. The format war coincided with the explosion of digital file sharing (hence strict and cumbersome copy protection schemes for both SACD and DVD-A), and customers have widely defected to portable, lower fidelity media such as MP3 files. The net result is that both high-resolution audio formats are essentially irrelevant, and the DVD standard itself is in the early stages of a similar format fight, with potentially similar results.
5) Quokka Sports
Rereading ten years of Early Indications and its predecessors, I was struck by how amazed I was by three or four software demos. One was Keyhole, the technology that became Google Earth after the company was acquired. Another was Quokka, which was devoted to delivering data-rich sports coverage over the web. From its origins in Australia, Quokka began with immersive feeds of long sailing races such as Sydney-Hobart: data relating to biometrics, meteorology, speed, absolute and relative position, and participant narratives made for engrossing viewing. Quokka bought the Internet rights to the Sydney Olympics in 2000 after moving to San Francisco, but the lack of a viable advertising model combined with common dot-com management failures to force a shutdown in April 2001.
Partnerships with NBC and Major League Baseball, along with further Olympic rights, cost money but failed to deliver returns. In retrospect, Quokka was probably better aligned with low-viewership sports like sailing and mountain-climbing that could find Webcast niches than with big-audience events with established television techniques and politics. Sports remains unevenly instrumented: NASCAR races are data-rich, but the single biggest predictor of a pass play's success on a football field -- how long the quarterback holds the ball -- is not recorded. Baseball, meanwhile, has generated hugely popular online fantasy leagues, with football following suit, in ad-supported models of which the Aussies could only dream.
6) OpenFund
If open-source works for software, why not try the model elsewhere? MetaMarkets, founded by two veterans from Barclays Global Investors, launched in August 1999 on the basis of full transparency as fund managers disclosed every trade, often with commentary. The fund started fast out of the gate: at year-end 1999, it was up 91% (by comparison, the NASDAQ was up nearly 50% in the same period). The fund fell 42% in 2000, and dropped another 26% between January and August 2001, when it shut down. In part, the fund was a victim of small scale: whereas most mutual funds need to run at least $100 million in assets for viability, OpenFund was at about $10 million when it was liquidated. Both management and critics compared OpenFund to a finance chatroom with real money: a Morningstar analyst noted after the fund's demise that "the entertainment, the gimmick, doesn't really have anything to do with investing." This sounds plausible: if my money is in free fall, I'm not sure chatting with the fund managers is going to help either my mood or the fund's performance.
7) General-purpose Speech Recognition
Ever since at least 1997, Bill Gates has been predicting that speech recognition will be an integral aspect of the PC experience. In his 5-to-10-year timeframe, it never happened, but not for lack of trying: Dragon Systems, headquartered in the U.S., was losing money selling speech recognition software before it was bought by Belgian competitor Lernout & Hauspie in the spring of 2000, just after L&H paid $1 billion for Dictaphone. The Dragon founders, however, had the misfortune of watching their company go into reorganization after accounting irregularities made the L&H stock worthless. Revelations of fictitious transactions in Korea and over-stated earnings elsewhere eventually sent the L&H founders as well as CEO Gaston Bastiaens (an industry veteran who helped launch the compact disc at Philips and later worked on the Apple Newton) into criminal proceedings that remain ongoing six years later: before Enron, Lernout & Hauspie was the archetype of corporate scandal. ScanSoft, which made optical character recognition products, bought the assets, but even now, neither Nuance (as ScanSoft renamed itself) nor Microsoft has made speech interfaces work for general-purpose computing. In vertical domains, however, speech interfaces -- particularly telephonic customer service and medical transcription -- are working well.
8) Digital Appliances
From high-profile efforts at Oracle (the NC) and Sun (JavaStation) to consumer efforts from the likes of Uniden, the late 1990s witnessed a variety of efforts to displace the personal computer with a network-intensive, easy-to-use, easy-to-manage device. The ideal of plugging a device into the Internet without need for hard-disk-resident applications or storage was motivated by a variety of factors, but ten years on, the vision has yet to catch on. For one thing, wireless devices allow much of the NC's functionality to be experienced on the go (cf. the Blackberry). Terminals and emulators never left the list of enterprise alternatives, as Citrix-based Windows systems illustrate: the PC remains a flexible platform that can be configured into diskless, mobile, or other alternatives. The relentless improvement in PC performance, particularly from 1990 until 2002 or so, made the PC's price-to-performance ratio continually appealing, until processing began to outstrip most of the application stack's needs. Finally, the lack of true broadband, until recently, made the devices slow in many environments.
9) Business-to-Business Exchanges
Talk about a shakeout: from 1520 exchanges in 2001, only about 10% were still active only two years later. VerticalNet, one of the first B2B exchanges, had 1700 employees and a $10 billion market capitalization at its peak; shortly afterward the CEO was faced with keeping 50 people on the payroll, using about $11 million that remained in the bank. Covisint, designed to make automobiles parts-buying more efficient, had a similar fate. That both survive today, albeit operating at minute fractions of their projected volumes, illustrates that while business-to-business commerce is huge, it is also difficult to reinvent.
Sellers stayed on the sideline as auction models presented the specter of purely price-based competition. Buyers, while wanting the price leverage, also realized that a) customer service and relationships matter and b) that bankrupt suppliers (as in the auto industry) are not in the buyers' long-term interest. Many exchange providers turned into merchants of purchasing efficiency inside the firewall, relying more on software and process expertise than on convening power. Running a market is also not necessarily attractive: as this newsletter noted in April 2000, in 1998 the New York Stock Exchange only made $101 million on 169 billion trades totaling $7.3 trillion.
10) Business Models Based on "Free"
At one time, at least two dozen Internet Service Providers offered free connections, usually over dialup. Free-PC was one of multiple attempts to get consumers to watch ads in return for hardware. Netscape famously gave away browsers to sell server software, a strategy that backfired for a number of reasons, one of which was Microsoft's anti-competitive behavior with Internet Explorer. Stocks in VA Linux, a company with real hardware sales but ample "free" hype, rose from $30 to $320 on December 9, 1999, the first day of trading, but later fell to 54 cents in July 2002.
More recently, eBay has encountered major difficulty making Skype pay off; Sunrocket and other VoIP providers are either shuttered or weathering tough times. There are also many businesses that have been collateral damage in free scenarios, some of them illegal or otherwise of dubious ethical standing. Music companies that have been slow to respond to file-sharing with appealing alternatives are the most visible of these. Even so, it has been repeatedly proven that you can in fact "compete with free" and in fact usually win.
1) Online grocery
Grocery is a notoriously tough retail category, with thin margins, fickle and price-sensitive customers, and perishable inventory. At the same time, it's an enormous market -- absolutely everybody eats -- so in the late 1990s, the perceived invincibility of online grocery made for failure of dramatic proportions. Webvan combined aggressive expansion, a long leash from investors, and questionable management to create an $800 million sinkhole. The firm was operating in Chicago, Los Angeles and Orange County, Portland, San Diego, San Francisco, and Seattle at the time of its demise, and many customers were disappointed at the loss of a convenient, time-saving service, particularly after Webvan undid many of the successes of the HomeGrocer chain it acquired. The customer base remains tantalizing, particularly as commutes grow longer and free time shrinks, but the logistics of automating picking out a cart-load of groceries from among 200,000+ SKUs, some fresh, makes this a daunting entrepreneurial challenge.
2) AOL and Excite@Home
For a time, AOL ruled the world of dial-up Internet access. Its carpet-bombed floppy disks (later CDs) helped introduce millions of Americans to the Internet, or at least an isotope thereof. It combined access with content (in some measure, in the form of other people) to reach an astonishing price/earnings ratio of 700. But when broadband delivered by incumbent telcos and cable companies split AOL's access from its content, the supposed synergy broke down and the bubble burst.
Beginning slightly later than AOL, the Excite search engine (like Yahoo and Google, a Stanford creation) was bought by the @Home broadband startup in hopes of another content+pipes goldrush. The merger was a disaster: $7 billion of market capitalization vaporized. Cox, TCI/AT&T, Comcast and the other cable companies who owned physical plant and had operational responsibilities, were ill matched with the Silicon Valley engineering culture that emphasized features and glamour over reliability and customer service. That Kleiner Perkins owned stakes in both @Home and Excite compounded the enthusiasm for a rush to synergy, but the operational realities of rebuilding physical infrastructure, combined with the regulatory scrutiny drawn by @Home's proprietary relationships with one of several competing portals, meant that the cultural and leadership issues helped precipitate a train wreck of epic proportions in 2001.
(On AOL, see Kara Swisher, There Must Be a Pony in Here Somewhere (2004); on Excite/@Home, see Frank Rose, "The $7 Billion Delusion")
3) Iridium
Motorola was a major shareholder in and primary supplier to this satellite telephony venture. After its 1997 IPO, Iridium faced loan covenants that required it to sign up 213,000 customers soon after it began offering service in 1999. When only about 10% of that number materialized, Iridium filed for bankruptcy: $5 billion in assets was liquidated for $25 million, and only last month Motorola -- itself Iridium's largest creditor, to the tune of $2 billion -- appeared to have escaped further liability with a court ruling in New York. The service was never aimed at a mass market, with phones costing $3,000 and calls $7 per minute. Coverage was good in open oceans and deserts, but not in moving cars or cities -- and the handset, while technically sophisticated, was big, heavy, and sported an antenna "the size of a toothbrush," in the words of the Wall Street Journal. Satellites, meanwhile, have been similarly costly to rival radio providers XM and Sirius, which between them have accumulated historic losses of $8 billion and are now trying to merge.
4) Super Audio Compact Disc/DVD-Audio
Roughly 20 years after the launch of the compact disc audio format, which itself came about 35 years after the introduction of the LP record, the entertainment industry brought out competing high-resolution optical disc formats for audio. Sony and Philips introduced SACD in 2000, while the DVD Forum, led by Panasonic and Toshiba, brought out DVD-A at about the same time. Audio quality is much higher than CD from both formats, but market confusion has been a major limiting factor. Customers of a certain age who already had to buy music collections twice over were reluctant to commit to one of two competing formats, and while hybrid players now support multi-channel audio playback from either source, software is not widely available: artists and labels had to bet on one standard or the other, and the slow market penetration has resulted in relatively few, and expensive, titles being available. The format war coincided with the explosion of digital file sharing (hence strict and cumbersome copy protection schemes for both SACD and DVD-A), and customers have widely defected to portable, lower fidelity media such as MP3 files. The net result is that both high-resolution audio formats are essentially irrelevant, and the DVD standard itself is in the early stages of a similar format fight, with potentially similar results.
5) Quokka Sports
Rereading ten years of Early Indications and its predecessors, I was struck by how amazed I was by three or four software demos. One was Keyhole, the technology that became Google Earth after the company was acquired. Another was Quokka, which was devoted to delivering data-rich sports coverage over the web. From its origins in Australia, Quokka began with immersive feeds of long sailing races such as Sydney-Hobart: data relating to biometrics, meteorology, speed, absolute and relative position, and participant narratives made for engrossing viewing. Quokka bought the Internet rights to the Sydney Olympics in 2000 after moving to San Francisco, but the lack of a viable advertising model combined with common dot-com management failures to force a shutdown in April 2001.
Partnerships with NBC and Major League Baseball, along with further Olympic rights, cost money but failed to deliver returns. In retrospect, Quokka was probably better aligned with low-viewership sports like sailing and mountain-climbing that could find Webcast niches than with big-audience events with established television techniques and politics. Sports remains unevenly instrumented: NASCAR races are data-rich, but the single biggest predictor of a pass play's success on a football field -- how long the quarterback holds the ball -- is not recorded. Baseball, meanwhile, has generated hugely popular online fantasy leagues, with football following suit, in ad-supported models of which the Aussies could only dream.
6) OpenFund
If open-source works for software, why not try the model elsewhere? MetaMarkets, founded by two veterans from Barclays Global Investors, launched in August 1999 on the basis of full transparency as fund managers disclosed every trade, often with commentary. The fund started fast out of the gate: at year-end 1999, it was up 91% (by comparison, the NASDAQ was up nearly 50% in the same period). The fund fell 42% in 2000, and dropped another 26% between January and August 2001, when it shut down. In part, the fund was a victim of small scale: whereas most mutual funds need to run at least $100 million in assets for viability, OpenFund was at about $10 million when it was liquidated. Both management and critics compared OpenFund to a finance chatroom with real money: a Morningstar analyst noted after the fund's demise that "the entertainment, the gimmick, doesn't really have anything to do with investing." This sounds plausible: if my money is in free fall, I'm not sure chatting with the fund managers is going to help either my mood or the fund's performance.
7) General-purpose Speech Recognition
Ever since at least 1997, Bill Gates has been predicting that speech recognition will be an integral aspect of the PC experience. In his 5-to-10-year timeframe, it never happened, but not for lack of trying: Dragon Systems, headquartered in the U.S., was losing money selling speech recognition software before it was bought by Belgian competitor Lernout & Hauspie in the spring of 2000, just after L&H paid $1 billion for Dictaphone. The Dragon founders, however, had the misfortune of watching their company go into reorganization after accounting irregularities made the L&H stock worthless. Revelations of fictitious transactions in Korea and over-stated earnings elsewhere eventually sent the L&H founders as well as CEO Gaston Bastiaens (an industry veteran who helped launch the compact disc at Philips and later worked on the Apple Newton) into criminal proceedings that remain ongoing six years later: before Enron, Lernout & Hauspie was the archetype of corporate scandal. ScanSoft, which made optical character recognition products, bought the assets, but even now, neither Nuance (as ScanSoft renamed itself) nor Microsoft has made speech interfaces work for general-purpose computing. In vertical domains, however, speech interfaces -- particularly telephonic customer service and medical transcription -- are working well.
8) Digital Appliances
From high-profile efforts at Oracle (the NC) and Sun (JavaStation) to consumer efforts from the likes of Uniden, the late 1990s witnessed a variety of efforts to displace the personal computer with a network-intensive, easy-to-use, easy-to-manage device. The ideal of plugging a device into the Internet without need for hard-disk-resident applications or storage was motivated by a variety of factors, but ten years on, the vision has yet to catch on. For one thing, wireless devices allow much of the NC's functionality to be experienced on the go (cf. the Blackberry). Terminals and emulators never left the list of enterprise alternatives, as Citrix-based Windows systems illustrate: the PC remains a flexible platform that can be configured into diskless, mobile, or other alternatives. The relentless improvement in PC performance, particularly from 1990 until 2002 or so, made the PC's price-to-performance ratio continually appealing, until processing began to outstrip most of the application stack's needs. Finally, the lack of true broadband, until recently, made the devices slow in many environments.
9) Business-to-Business Exchanges
Talk about a shakeout: from 1520 exchanges in 2001, only about 10% were still active only two years later. VerticalNet, one of the first B2B exchanges, had 1700 employees and a $10 billion market capitalization at its peak; shortly afterward the CEO was faced with keeping 50 people on the payroll, using about $11 million that remained in the bank. Covisint, designed to make automobiles parts-buying more efficient, had a similar fate. That both survive today, albeit operating at minute fractions of their projected volumes, illustrates that while business-to-business commerce is huge, it is also difficult to reinvent.
Sellers stayed on the sideline as auction models presented the specter of purely price-based competition. Buyers, while wanting the price leverage, also realized that a) customer service and relationships matter and b) that bankrupt suppliers (as in the auto industry) are not in the buyers' long-term interest. Many exchange providers turned into merchants of purchasing efficiency inside the firewall, relying more on software and process expertise than on convening power. Running a market is also not necessarily attractive: as this newsletter noted in April 2000, in 1998 the New York Stock Exchange only made $101 million on 169 billion trades totaling $7.3 trillion.
10) Business Models Based on "Free"
At one time, at least two dozen Internet Service Providers offered free connections, usually over dialup. Free-PC was one of multiple attempts to get consumers to watch ads in return for hardware. Netscape famously gave away browsers to sell server software, a strategy that backfired for a number of reasons, one of which was Microsoft's anti-competitive behavior with Internet Explorer. Stocks in VA Linux, a company with real hardware sales but ample "free" hype, rose from $30 to $320 on December 9, 1999, the first day of trading, but later fell to 54 cents in July 2002.
More recently, eBay has encountered major difficulty making Skype pay off; Sunrocket and other VoIP providers are either shuttered or weathering tough times. There are also many businesses that have been collateral damage in free scenarios, some of them illegal or otherwise of dubious ethical standing. Music companies that have been slow to respond to file-sharing with appealing alternatives are the most visible of these. Even so, it has been repeatedly proven that you can in fact "compete with free" and in fact usually win.
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