The Apple iPhone announcement has created an extraordinary degree of
market speculation and interest. Can Steve Jobs, who in many respects IS
Apple, duplicate the success of the iPod in a new but adjacent market?
In the end, no matter how many commentators expound at whatever length,
nobody really knows what will happen. Taking two extreme scenarios as
endpoints on a continuum of potential outcomes, here are some arguments
why things might unfold as they will.
If the iPhone fails to duplicate the success of the iPod, it will likely
be because:
-The price point is too high: $499 (which AT&T/Cingular is not allowed
to discount) yields an estimated 50% margin, according to iSupply, which
does market research. That profitability, however, could allow Apple to
cut the price after the early adopters pay a premium, and economies of
scale drop the cost of the inputs. Even so, knock-offs will enter the
market faster than they did after the iPod launch.
-The form factor proves cumbersome. Other tablet-like devices with rich
visual interfaces have failed to translate well as handsets put up to
the ear: the Blackberry is great from the thumbs' point of view but less
attractive to mouth and ears. Looking at global markets, many young SMS
users can text blindfolded but the iPhone's smooth screen doesn't allow
this kind of typing.
-The Swiss Army knife factor: all-in-one devices reduce footprint, but
few chefs rely on a red pocket knife to slice cheese, bone meat, or dice
carrots. And who's ever used the saw for anything? The point here is
that the iPhone's range of capabilities might make it marginally
acceptable for anything but less than appealing for specialized tasks
that a Blackberry, conventional handset, or iPod will perform better.
-Functionality is poor. If battery life, or overall durability, or voice
quality, or data security fall short, word of mouth can turn negative in
a hurry. Recall that some iPods had issues with screens that scratched
easily, Sony has had significant battery problems, and smartphones such
as the Sidekick fared poorly at voice transmission. Given the device's
complexity (involving accelerometers and proximity sensors) and
expansive screen real estate in a demanding context (purses and
pockets), keeping large numbers of iPhones in real-world service could
be challenging.
-Apple has to rely on partners. The retail channels for the iPod are
countless. iTunes runs on both Mac and PC operating systems. Most
significantly, the major music labels signed over access to most of
their catalog. This time around, Apple will rise or fall with AT&T
Wireless, which will have far more to do with the experience of iPhone
ownership than any iPod partner did. AT&T, Cingular, and BellSouth, at
the time of their merger earlier this year, employed over 300,000 people
among them. If the wireless business is only a fifth of that headcount,
that's still a 50,000+ person business with which Apple needs to
coordinate technology, customer service, marketing message, and
performance incentives.
-Apple is launching into a mature market with powerful incumbents, high
capital intensity, and well-defined roles. In contrast to the music
market in 2002, which was characterized by tumbling share prices at the
labels, distribution of the capital base (recording studios and pressing
plants) to millions of PC owners, and few mega-selling titles, the
wireless industry has consolidated to a small number of global network
operators, equipment manufacturers, and handset firms. The barrier to
entry remains high, and although Wimax could alter the landscape
eventually, the sort of bottom-up revolution represented by the original
Napster, or even Skype on the wireline side of telecom, is unlikely to
affect mobile providers. The scale of wireless is almost unfathomable:
Apple has sold about 100 million iPods in five years, which is a huge
number in the PC industry. In Q4 of 2006, Nokia all by itself sold 102
million handsets.
-The demographics fail to align: the people most comfortable with
constant connectivity and multifunction devices --15-to-30-year-olds --
may be the least able to afford the devices.
-Apple moves outside its comfort zone. Audio and video integration has
been a hallmark of the Mac environment since day zero, and music has
been part of that integration. The Newton failed for many reasons that
are still likely painful for Apple executives to recall, but the iPhone
runs similar risks as the company enters markets only marginally
connected from its original business. Consumer electronics in the early
part of this decade was ripe for innovation – it still boggles the
imagination that Sony missed the music-player market – but the complex
world of telecom and handset manufacturers is yet another significant
step away from PC pricing, ecosystems, customer expectations, product
lifecycles, externalities, supply chains, etc.
If the iPhone follows the iPod as a success, it will be because:
-Apple invents a new category of device, learning from previous
failures. In the music player case, Apple integrated a far superior
music management software application with the MP3 player, and
implemented copy protection to satisfy the labels that their 99-cent
songs would not be copied indefinitely. In the iPhone case, Apple took a
variety of lessons from Motorola's ROKR music player+phone, which has
had its iTunes license pulled. Rather than being a followup to the
groundbreaking RAZR, the ROKR is essentially the answer to a trivia
question. The iPhone is a bet of a different order entirely.
-The user interface transcends anything else in the category not with
bells-and-whistles complexity but intuitive simplicity. Compare the
owner's manual of even a mid-price mobile handset to the iPod to get a
feel for what the iPhone user experience should be. The human finger
replaces the stylus that doomed everything from Apple's Newton to Palm's
Pilot, the device is aware of itself in space (much like the
surprisingly successful Wii), and the display's colors and lighting are
rich and vivid.
-Apple has once again used superior industrial design, elevated to the
level of art, to create unsurpassed "cool" factor in a category. The
microscopic attention to coherence and detail in the iPod, from
marketing to packaging to peripherals to product endorsers, creates an
emotional appeal found in few electronic devices.
-As venture capitalist John Doerr recently noted, Apple has a vast army
of users trained to synch their device with a computer. It's an
installed base of user behavior that could give the iPhone a jump-start
in adoption.
-The iPhone captures momentum amidst industry disruption. As mobile
broadband emerges from competing standards and platforms, the iPhone
could dominate a multi-radio niche just at the moment that heterogeneous
coverage becomes a reality. Going abroad? Working in a Starbucks
hotspot? Surfing on a train in the northeast corridor? Experimenting
with Clearwire or Sprint Wimax? Having a unified device to maintain
connectivity across access technologies could become extremely valuable.
-The demographics align: the price points, through whatever mechanism,
drive adoption in both the niche knowledge-worker and
technology-as-jewelry segments along with 20-somethings who replaced
landline phones with mobiles and may augment PCs with a
tablet-phone-music player.
-The beautiful device is powered by a "killer application." In the case
of the iPod it was clearly iTunes (not necessarily the music store), and
with the iPhone, it could be visual voice mail, being able to browse and
manage voice messages from the screen rather than having to listen to
them serially.
-The iPhone, rather than being a phone, is treated by enterprise IT
shops as a Unix terminal, with the caliber of security that implies. For
remote or salesfloor (think of boutique menswear or automobile
dealerships) sales forces needing both a catalog and a conversation
piece, or executives carrying valuable information on hard drives, or
mobile professionals needing secure communications and storage in a
variety of contexts, the iPhone could turn out to be highly relevant.
Furthermore, given how many people are likely to want (crave) the
device, there will be at least a few IT organizations that delight their
business clients with these secure, robust, engaging remote connection
devices.
However the iPhone plays out, I can't remember a product launch that
generated so much attention. (Microsoft's Vista launch, by contrast, is
a distant cousin of the fever generated by Windows 95's entry into the
market.) Industry analysts, Mac fans, gadget fiends, and future-scanners
are all watching closely to see if we're present at the creation of a
new industry with new possibilities for communications and lifestyle, or
if the audacity of the claims can't match the complexity and rigors of
real-world supply chains, sales channels, and use scenarios. Apple is
sticking with the June launch date, so we won't have to wait long to
find out.
Monday, April 09, 2007
Thursday, March 01, 2007
Early Indications February 2007: The Evolving Enterprise Application
Until recently, enterprise software came in one of two basic shapes. If the firm built an application from scratch, the process was frequently long and expensive. Considerable effort was required for technologists to understand and translate business requirements into code. Once that code was tested and debugged, a particular application reflected the time and place of its creation. Accordingly, each stratum of the heterogeneous software environment often required maintenance from the very people who initially built it because it was often difficult to translate their knowledge of the application into documentation. Maintenance processes thus varied widely across the portfolio, contributing to complexity in the environment that exacted tolls in in time, money, and performance.
Buying an application from an outside vendor solved many of these problems. Microsoft, Oracle, and their kin had thousands of installed programs from which to learn, and used wide experience to build fixes and upgrades for the installed base. Even so, installing and maintaining enterprise packages such as SAP, Manugistics, or even Access could be expensive and difficult: different companies, functions, and, often, individual users require customization. Training remains a challenge even after web-based interfaces replaced many packages' idiosyncratic, proprietary screens and commands. Cost was also a concern as software license expenses are compounded by hardware upgrade requirements, consulting fees, and upgrades over the life of the application.
In both instances, scaling up could be difficult but scaling down -- after a change in corporate direction, spinoff, or shift in the company's market -- was often impossible: 500 software seats, with their attendant human and hardware infrastructure, didn't translate into 250 seats at anything like half the cost.
Six recent developments may portend some major shifts in the enterprise application market. All of them introduce the deep changes to prevailing funding, development, and support models that will be worth tracking.
*Software as a service, vertical flavor
On February 27, Salesforce.com announced a 25,000-seat deal with Merrill Lynch, whose financial advisors will use the tool to help manage clients' portfolios. Salesforce had already established a foothold at such sector accounts as Suntrust and Aon, but the Merrill Lynch deal is a clear breakthrough into the top tier of the industry, at scale.
*Software as a service, horizontal flavor
Google Apps Premier Edition launched February 22. Like Salesforce, Google rolled out blue-chip adopters: GE and Procter & Gamble, in addition to many universities and smaller businesses already enrolled. For $50 per user per year, enterprises get
-10GB of storage, about 100 times the typical corporate e-mail box
-99.9% uptime guarantee (which still translates to over 8 hours a year downtime)
-24x7 help desk support
-APIs for single sign-on, data migration, and other integration tasks
-Gmail for Blackberry
-Google docs and speadsheets, which allow for multiple employees working on the same document at the same time but which are not yet fully interoperable with Microsoft Office files
-Administrative access to ensure compliance with corporate policies (who sees which calendars, for example, or what attachments are and are not permitted)
*Corporate mashups
FedEx CIO Robert Carter recently told an audience at Wharton a little about a highly secretive pilot project the company is running. High-value packages, particularly biotech-related shipments such as bone marrow, are tagged with active radio sensors that transmit the parcel's location to the company over public wi-fi networks. FedEx also used the readily available Google Earth APIs rather than building or licensing GIS software, particularly for a pilot project. The resulting application aims to blend mapping data, video from the trucks, and package status (presumably including temperature, shock and motion records, and tampering indicators) to create a new generation of service to shippers with particularly sensitive items in transit.
-RSS inside the firewall
Serendipity Technologies, an Israeli startup I saw at the DEMO conference, encapsulates enterprise application data into RSS feeds. It's not hard to envision an end user with the WorkLight product assembling her own desktop: in-house data such as available-to-promise inventory, customer order history, and current pricing could join Mapquest, Weather Channel, Yahoo Finance, and newswire feeds to get a sales rep ready to do a day's calls. I've asked around informally, and something like 40% of many enterprise's application portfolios consists of reporting tools. Making the relevant feeds available as services for business users to assemble as needed would seem to be a way around the long-cycle, expensive, rigid development process for non-transactional applications.
-Appliances
Building on its integration of analytic functionality on a customized Intel-based device to create the "business intelligence accelerator," SAP will be launching an enterprise search appliance sometime this year. Other vendors have had similar success in bundling software onto special-purpose hardware to speed deployment, lower cost of ownership, and improve performance relative to a general-purpose platform. Familiar examples include antispam (Ironport), data warehousing (Teradata), and network security (Symantec).
-Show, don't tell
The requirements definition phase for an enterprise software project can be a long, frustrating exercise as businesspeople and technologists struggle to define what's possible, what's cost-effective, and what's necessary. There's been a long-running debate as to how well people in IT shops can learn the ins and outs of business process compared to how well users can learn to use yet-to-be-invented lightweight "development" tools (Excel macros are the standard existence case) to build the applications they need. Neither argument has prevailed.
I recently encountered a company that's straddling the line with a intuitively appealing tool that presents an alternative to translating interviews, focus groups, and other forms of task analysis into a text document often hundreds of pages long. By their very size and complexity, these documents themselves inject delays and ambiguity into the processes of both package deployment and custom development. Instead, teams at such companies as Wachovia, Agilent, and Dow Jones are using tools from a company called iRise to see realistic simulations (not prototypes) of the desired functionality, relationships, and usability. Both requirement definition and testing phases are said to be accelerated, developers can cut rework, and time to deployment has decreased in real-world projects.
What traits do these six software forms share? To some degree or another, all six items include an aggressive integration story. This posture is a refreshing change from previous generations of enterprise apps that were built for greenfield deployment yet purchased by established companies with already-complex environments. Whether it's Google's industry-standard APIs, SAP's Netweaver investment, Salesforce's Apex platform, or Serendipity's creative use of AJAX and RSS, there appears to be a general intent to plug things together rather than build siloed functionality (data warehousing appliances may be an exception, however).
In contrast to many traditional applications, software as a service, enterprise RSS feeds, and mashups should, in concept, scale both up and down. If a mashup takes a week or two to build, and then requirements change, is there even a need to call its retirement "sunsetting"? The notion of on-demand functionality has held appeal for several years for precisely this reason, and the combination of a "faucet" on usage, along with throw-away integration, should reduce impediments to change. To this end, one prominent CIO recently told me that services architectures won't save him any money, but not having them would definitely get expensive: in his view, paying the price, in the form of data discipline, to obtain flexibility was well worthwhile.
Finally, payback on initial investment should come quickly for these kinds of software, designed as they are for quick deployment and reasonably simple integration. Google Apps changes less than half of a typical e-mail host for far more functionality, for example. FedEx's Carter said that his mapping functionality would have been potentially too expensive to license, particularly for a speculative effort. This tightening of the connection between cost and value in turn should make the CIO's relations with business unit customers easier to justify. Being able to dial service levels, volumes, and functionality up or down has the potential to improve the chargeback process: instead of presenting business units with lump sums of fixed costs proportionately divided, the CIO can move in the direction of menu pricing for some portion of his or her cost base.
Changing the current model will not happen fast. The life span of application portfolios is frequently measured in decades. Existing cost structures cannot be exited overnight. Appliances introduce their own particular type of lock-in. Many CIOs and other administrators hesitate to move enterprise data off site to a Google or Salesforce. Customer service and support remain question marks, particularly for mashups, which may present users and help desks with unpredictable performance characteristics: is the problem on the desktop, with Comcast's network or the Starbucks wi-fi hotspot, or in some faraway server?
But for all of these impediments, the general direction of the industry is headed toward a blend of customization and standardization, on-site and off-site, lightweight and industrial-strength. The proof is easy to find: the same industry leaders who thrived under the old model are moving to embrace various forms of the new one, whether it's Intel teaming with SAP to build appliances, Dell supplying special-function servers to Ironport, Microsoft's Live suite of offerings, or IBM's support for software as a service. As work, organization, and markets change dramatically, it's fitting that the business toolkit do so as well.
Buying an application from an outside vendor solved many of these problems. Microsoft, Oracle, and their kin had thousands of installed programs from which to learn, and used wide experience to build fixes and upgrades for the installed base. Even so, installing and maintaining enterprise packages such as SAP, Manugistics, or even Access could be expensive and difficult: different companies, functions, and, often, individual users require customization. Training remains a challenge even after web-based interfaces replaced many packages' idiosyncratic, proprietary screens and commands. Cost was also a concern as software license expenses are compounded by hardware upgrade requirements, consulting fees, and upgrades over the life of the application.
In both instances, scaling up could be difficult but scaling down -- after a change in corporate direction, spinoff, or shift in the company's market -- was often impossible: 500 software seats, with their attendant human and hardware infrastructure, didn't translate into 250 seats at anything like half the cost.
Six recent developments may portend some major shifts in the enterprise application market. All of them introduce the deep changes to prevailing funding, development, and support models that will be worth tracking.
*Software as a service, vertical flavor
On February 27, Salesforce.com announced a 25,000-seat deal with Merrill Lynch, whose financial advisors will use the tool to help manage clients' portfolios. Salesforce had already established a foothold at such sector accounts as Suntrust and Aon, but the Merrill Lynch deal is a clear breakthrough into the top tier of the industry, at scale.
*Software as a service, horizontal flavor
Google Apps Premier Edition launched February 22. Like Salesforce, Google rolled out blue-chip adopters: GE and Procter & Gamble, in addition to many universities and smaller businesses already enrolled. For $50 per user per year, enterprises get
-10GB of storage, about 100 times the typical corporate e-mail box
-99.9% uptime guarantee (which still translates to over 8 hours a year downtime)
-24x7 help desk support
-APIs for single sign-on, data migration, and other integration tasks
-Gmail for Blackberry
-Google docs and speadsheets, which allow for multiple employees working on the same document at the same time but which are not yet fully interoperable with Microsoft Office files
-Administrative access to ensure compliance with corporate policies (who sees which calendars, for example, or what attachments are and are not permitted)
*Corporate mashups
FedEx CIO Robert Carter recently told an audience at Wharton a little about a highly secretive pilot project the company is running. High-value packages, particularly biotech-related shipments such as bone marrow, are tagged with active radio sensors that transmit the parcel's location to the company over public wi-fi networks. FedEx also used the readily available Google Earth APIs rather than building or licensing GIS software, particularly for a pilot project. The resulting application aims to blend mapping data, video from the trucks, and package status (presumably including temperature, shock and motion records, and tampering indicators) to create a new generation of service to shippers with particularly sensitive items in transit.
-RSS inside the firewall
Serendipity Technologies, an Israeli startup I saw at the DEMO conference, encapsulates enterprise application data into RSS feeds. It's not hard to envision an end user with the WorkLight product assembling her own desktop: in-house data such as available-to-promise inventory, customer order history, and current pricing could join Mapquest, Weather Channel, Yahoo Finance, and newswire feeds to get a sales rep ready to do a day's calls. I've asked around informally, and something like 40% of many enterprise's application portfolios consists of reporting tools. Making the relevant feeds available as services for business users to assemble as needed would seem to be a way around the long-cycle, expensive, rigid development process for non-transactional applications.
-Appliances
Building on its integration of analytic functionality on a customized Intel-based device to create the "business intelligence accelerator," SAP will be launching an enterprise search appliance sometime this year. Other vendors have had similar success in bundling software onto special-purpose hardware to speed deployment, lower cost of ownership, and improve performance relative to a general-purpose platform. Familiar examples include antispam (Ironport), data warehousing (Teradata), and network security (Symantec).
-Show, don't tell
The requirements definition phase for an enterprise software project can be a long, frustrating exercise as businesspeople and technologists struggle to define what's possible, what's cost-effective, and what's necessary. There's been a long-running debate as to how well people in IT shops can learn the ins and outs of business process compared to how well users can learn to use yet-to-be-invented lightweight "development" tools (Excel macros are the standard existence case) to build the applications they need. Neither argument has prevailed.
I recently encountered a company that's straddling the line with a intuitively appealing tool that presents an alternative to translating interviews, focus groups, and other forms of task analysis into a text document often hundreds of pages long. By their very size and complexity, these documents themselves inject delays and ambiguity into the processes of both package deployment and custom development. Instead, teams at such companies as Wachovia, Agilent, and Dow Jones are using tools from a company called iRise to see realistic simulations (not prototypes) of the desired functionality, relationships, and usability. Both requirement definition and testing phases are said to be accelerated, developers can cut rework, and time to deployment has decreased in real-world projects.
What traits do these six software forms share? To some degree or another, all six items include an aggressive integration story. This posture is a refreshing change from previous generations of enterprise apps that were built for greenfield deployment yet purchased by established companies with already-complex environments. Whether it's Google's industry-standard APIs, SAP's Netweaver investment, Salesforce's Apex platform, or Serendipity's creative use of AJAX and RSS, there appears to be a general intent to plug things together rather than build siloed functionality (data warehousing appliances may be an exception, however).
In contrast to many traditional applications, software as a service, enterprise RSS feeds, and mashups should, in concept, scale both up and down. If a mashup takes a week or two to build, and then requirements change, is there even a need to call its retirement "sunsetting"? The notion of on-demand functionality has held appeal for several years for precisely this reason, and the combination of a "faucet" on usage, along with throw-away integration, should reduce impediments to change. To this end, one prominent CIO recently told me that services architectures won't save him any money, but not having them would definitely get expensive: in his view, paying the price, in the form of data discipline, to obtain flexibility was well worthwhile.
Finally, payback on initial investment should come quickly for these kinds of software, designed as they are for quick deployment and reasonably simple integration. Google Apps changes less than half of a typical e-mail host for far more functionality, for example. FedEx's Carter said that his mapping functionality would have been potentially too expensive to license, particularly for a speculative effort. This tightening of the connection between cost and value in turn should make the CIO's relations with business unit customers easier to justify. Being able to dial service levels, volumes, and functionality up or down has the potential to improve the chargeback process: instead of presenting business units with lump sums of fixed costs proportionately divided, the CIO can move in the direction of menu pricing for some portion of his or her cost base.
Changing the current model will not happen fast. The life span of application portfolios is frequently measured in decades. Existing cost structures cannot be exited overnight. Appliances introduce their own particular type of lock-in. Many CIOs and other administrators hesitate to move enterprise data off site to a Google or Salesforce. Customer service and support remain question marks, particularly for mashups, which may present users and help desks with unpredictable performance characteristics: is the problem on the desktop, with Comcast's network or the Starbucks wi-fi hotspot, or in some faraway server?
But for all of these impediments, the general direction of the industry is headed toward a blend of customization and standardization, on-site and off-site, lightweight and industrial-strength. The proof is easy to find: the same industry leaders who thrived under the old model are moving to embrace various forms of the new one, whether it's Intel teaming with SAP to build appliances, Dell supplying special-function servers to Ironport, Microsoft's Live suite of offerings, or IBM's support for software as a service. As work, organization, and markets change dramatically, it's fitting that the business toolkit do so as well.
Thursday, January 18, 2007
Early Indications January 2007: A Different Kind of Prediction Letter
"No man is an island, entire of itself; every man is a piece of the continent, a part of the main."
Before we can talk about systems, we need to start smaller. A standalone technological artifact can be called a device, which is technically "a machine used to perform one or more relatively simple tasks." Electronic calculators and electric drills are common examples, illustrating that devices are generally more complex than simple tools, such as a hammer or pencil.
A set of devices sharing communications rules and facilities can combine into a platform, in which the devices gain in utility by being able to work together. A hard drive, display, processor, and peripherals like cameras and printers constitute the personal computer platform. Like a device, some platforms are used by individuals, but others (such as computer-controlled machine tools) constitute commercial infrastructure.
When platforms are connected by communications standards and technologies, they become systems. An airline network is a system in that runways, pilot training, technically precise language (as used in the cockpit and in communications with control towers), refuelling inventories, jetbridge heights, catering cart dimensions, and countless other aspects are coordinated in order that passengers can get where they want to go at minimal cost and a high degree of safety. Perhaps the most salient fact of systems is their complexity, which often scales nonlinearly with attributes such as size, population, and so forth.
Because systems are big, expensive, and complex, they must be governed in special ways. Private ownership of the railroads created a backlash that still curtails the power of airlines. The power that AT&T derived from owning the U.S. telephone system, literally down to the kitchen handset, eventually led to its being broken apart by regulators. Because systems often appear to be natural monopolies, they tend to be either government-owned or highly regulated. Even so, systems often provide economic opportunity on a very large scale: Motorola could not sell over 50 million Razr wireless handsets at a high premium without existing networks for the devices to connect to.
Systems typically support and depend on other systems. An airline relies on banks for working capital, on hotel chains for traveler (and crew) accommodations, and on government for certifications of various sorts. If the government doesn't provide a certificate of airworthiness for a new plane, no bank will lend the money and an outside insurer won't underwrite the liability. A personal computer without a telecommunications system and an electric power grid is essentially useless. At a deeper level, a keyboard without a language and syntax of expressions, both grammatical and mechanical, is quickly reduced in value. These dependencies among systems, and the resulting complexities, drive our 2007 predictions.
Recall that the invention of a gasoline-powered automobile took over a half-century to generate related systems of gas stations, factories and factory jobs, financing companies, limited-access highways, suburbs, enthusiast and consumer rating magazines, race tracks, drive-in restaurants and bank windows, safety regulators and regulations, environmental impacts, insurance companies, vacation destinations, and dozens of other artifacts that marked the United States of the 1950s and afterward. Not long ago one out of every seven U.S. jobs was connected to the automobile. Systems of systems - in this case, mechanical, financial, governmental, legal, and economic - take a long time to develop but, once running, exhibit "flywheel effects" in that they possess considerable momentum and continue to spin for a long time even after the source of driving energy is removed. Systems also resist change.
The so-called ICT (information and communications technologies) sector has long been powerful, but in the recent past it has begun exhibiting the characteriststics of a system of systems. A key development in this transition is the development of third-party funding, often through advertising. Just as television broadcasts are "free," so too are more and more technology benefits funded through online advertising revenue. The Internet of 1997 was a system, no doubt, a "network of networks," but we now have human, economic, technical, and political systems all riding on the same technology roadbed. Brides and grooms, job-hunters, election-seekers, terror networks, stock-market investors and manipulators, stamp collectors, wildlife biologists, role-players, and any other identifiable population now has a significant digitally connected component. In addition, so-called Web 2.0 business methods and models are using those human networks as economic engines.
This preamble brings us to the 2007 predictions. It's getting difficult to find economic actors that don't need to be actively involved in technologically-constituted systems. The Internet flourished without substantial government regulation until a large number of constituencies sought redress and/or protection, most in the past several years. Online gambling, voice over IP services, "net neutrality," alternative broadband providers, targeted advertising, sexual material, maliciously edited public profiles on Wikipedia and elsewhere, unauthorized use of copyrighted digital content - the list goes on and on, but in each instance 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. Some candidates follow:
-Last year an agency of the U.S. government lost 26 million names with personally identifiable information on a single laptop. Monetary losses from online fraud, extortion, and related exercises were not reported, but are estimated to range in the hundreds of millions of dollars worldwide. This year, look for a still grander failure of data protection, either in one highly visible episode or a cumulative increase.
-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.
-Some new activity - whether job referrals, recipe swapping, rotisserie baseball, geneology, 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.
-Around the time of Gerald Ford's administration, a bumper sticker was distributed as speed limits on federally funded highways were reduced to save on petroleum consumption: "55: It's not just a good idea, it's the law." Science nerds quickly came out with their version: "186,000 miles per second: It's not just a good idea, it's the law." 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.
*Intel continues to struggle with the heat output of microprocessors, apparently more than AMD does.
*The long-term effects of electromagnetic radiation (especially introduced to the brain through a hole in the protective skull) remain unknown.
*The digital bread crumbs left behind by automobiles, cell phones, PCs, credit cards, and identification technologies (toll passes, fingerprint readers, browser cookies) continue to accumulate on a massive scale. The potential for abuse grows apace.
-A different facet of the energy and transportations 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. Many thousands of similar electric cars could be deployed on the current power grid once Tesla and other firms approach mass-market pricing driven by economies of scale. In contrast, ethanol technology is energy-inefficient (but getting better), and there is no infrastructure in place to store or move ethanol at the required scale: because alcohol conducts electricity while gasoline is a dielectric, for example, fuel pumps need to be redesigned. More critically, alcohol at 85% concentration attacks the metals and gaskets used in current fuel pipelines and tankers. E85 also delivers inferior gas mileage compared to gasoline. In short, innovation -- at the device level -- to improve electric cars produces a much lighter load on the current supporting systems than would a mass adoption of ethanol. 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.
-After 9/11 and 7/7, Katrina and the other hurricanes of 2005, the Pacific tsunami, SARS, the 2003 power grid failure, and the Long Beach port strike, 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, especially after the many upheavals that followed the Y2K non-event. Some observers see video peer-to-peer networks, such as Joost from the founders of Skype, as potentially crippling the current Internet, for example. In the past month, try telling someone who had Norovirus that it's less severe than avian flu.
-Paradoxically, even as people and devices grow more connected, with access to more information, the need for intermediaries evolves rather than disappear. In the 1960s, most Americans could watch one of three network news shows and subscribe to one of two or possibly three daily newspapers. Retail selection was vast, compared to the 1930s or 40s, but still constrained to what merchandisers chose to present. Now, consumers can shop across vast inventories of food, fashion, entertainment, and other products (the so-called "long tail"), theoretically making each person his or her own merchandiser, video producer, or editor. Just as the late 1990s was the heyday of disintermediation predictions before brokerage firms, real estate agents, car dealers, and other middlemen responded, so now we will see how newspapers, magazines, book publishers, movie studios, universities, and other content businesses respond to the increase in direct access to many categories of content. The fact that the American Film Institute noted in its "2004 Moments of Significance" that "one of the best sources of news today is [Jon Stewart's] faux news show" would be inconceivable in the 1970s: Chevy Chase more authoritative than John Chancellor? Expect more, not fewer, of such puzzling inversions going forward.
In short, 2007 will continue the trend toward more complex types of change as information and communications technologies intertwine the world in more ways. When John Donne wrote the famous words in the headnote nearly 400 years ago, he anticipated a system of connection that remains incomprehensible in its scale, its impact, and its possibilities.
Before we can talk about systems, we need to start smaller. A standalone technological artifact can be called a device, which is technically "a machine used to perform one or more relatively simple tasks." Electronic calculators and electric drills are common examples, illustrating that devices are generally more complex than simple tools, such as a hammer or pencil.
A set of devices sharing communications rules and facilities can combine into a platform, in which the devices gain in utility by being able to work together. A hard drive, display, processor, and peripherals like cameras and printers constitute the personal computer platform. Like a device, some platforms are used by individuals, but others (such as computer-controlled machine tools) constitute commercial infrastructure.
When platforms are connected by communications standards and technologies, they become systems. An airline network is a system in that runways, pilot training, technically precise language (as used in the cockpit and in communications with control towers), refuelling inventories, jetbridge heights, catering cart dimensions, and countless other aspects are coordinated in order that passengers can get where they want to go at minimal cost and a high degree of safety. Perhaps the most salient fact of systems is their complexity, which often scales nonlinearly with attributes such as size, population, and so forth.
Because systems are big, expensive, and complex, they must be governed in special ways. Private ownership of the railroads created a backlash that still curtails the power of airlines. The power that AT&T derived from owning the U.S. telephone system, literally down to the kitchen handset, eventually led to its being broken apart by regulators. Because systems often appear to be natural monopolies, they tend to be either government-owned or highly regulated. Even so, systems often provide economic opportunity on a very large scale: Motorola could not sell over 50 million Razr wireless handsets at a high premium without existing networks for the devices to connect to.
Systems typically support and depend on other systems. An airline relies on banks for working capital, on hotel chains for traveler (and crew) accommodations, and on government for certifications of various sorts. If the government doesn't provide a certificate of airworthiness for a new plane, no bank will lend the money and an outside insurer won't underwrite the liability. A personal computer without a telecommunications system and an electric power grid is essentially useless. At a deeper level, a keyboard without a language and syntax of expressions, both grammatical and mechanical, is quickly reduced in value. These dependencies among systems, and the resulting complexities, drive our 2007 predictions.
Recall that the invention of a gasoline-powered automobile took over a half-century to generate related systems of gas stations, factories and factory jobs, financing companies, limited-access highways, suburbs, enthusiast and consumer rating magazines, race tracks, drive-in restaurants and bank windows, safety regulators and regulations, environmental impacts, insurance companies, vacation destinations, and dozens of other artifacts that marked the United States of the 1950s and afterward. Not long ago one out of every seven U.S. jobs was connected to the automobile. Systems of systems - in this case, mechanical, financial, governmental, legal, and economic - take a long time to develop but, once running, exhibit "flywheel effects" in that they possess considerable momentum and continue to spin for a long time even after the source of driving energy is removed. Systems also resist change.
The so-called ICT (information and communications technologies) sector has long been powerful, but in the recent past it has begun exhibiting the characteriststics of a system of systems. A key development in this transition is the development of third-party funding, often through advertising. Just as television broadcasts are "free," so too are more and more technology benefits funded through online advertising revenue. The Internet of 1997 was a system, no doubt, a "network of networks," but we now have human, economic, technical, and political systems all riding on the same technology roadbed. Brides and grooms, job-hunters, election-seekers, terror networks, stock-market investors and manipulators, stamp collectors, wildlife biologists, role-players, and any other identifiable population now has a significant digitally connected component. In addition, so-called Web 2.0 business methods and models are using those human networks as economic engines.
This preamble brings us to the 2007 predictions. It's getting difficult to find economic actors that don't need to be actively involved in technologically-constituted systems. The Internet flourished without substantial government regulation until a large number of constituencies sought redress and/or protection, most in the past several years. Online gambling, voice over IP services, "net neutrality," alternative broadband providers, targeted advertising, sexual material, maliciously edited public profiles on Wikipedia and elsewhere, unauthorized use of copyrighted digital content - the list goes on and on, but in each instance 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. Some candidates follow:
-Last year an agency of the U.S. government lost 26 million names with personally identifiable information on a single laptop. Monetary losses from online fraud, extortion, and related exercises were not reported, but are estimated to range in the hundreds of millions of dollars worldwide. This year, look for a still grander failure of data protection, either in one highly visible episode or a cumulative increase.
-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.
-Some new activity - whether job referrals, recipe swapping, rotisserie baseball, geneology, 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.
-Around the time of Gerald Ford's administration, a bumper sticker was distributed as speed limits on federally funded highways were reduced to save on petroleum consumption: "55: It's not just a good idea, it's the law." Science nerds quickly came out with their version: "186,000 miles per second: It's not just a good idea, it's the law." 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.
*Intel continues to struggle with the heat output of microprocessors, apparently more than AMD does.
*The long-term effects of electromagnetic radiation (especially introduced to the brain through a hole in the protective skull) remain unknown.
*The digital bread crumbs left behind by automobiles, cell phones, PCs, credit cards, and identification technologies (toll passes, fingerprint readers, browser cookies) continue to accumulate on a massive scale. The potential for abuse grows apace.
-A different facet of the energy and transportations 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. Many thousands of similar electric cars could be deployed on the current power grid once Tesla and other firms approach mass-market pricing driven by economies of scale. In contrast, ethanol technology is energy-inefficient (but getting better), and there is no infrastructure in place to store or move ethanol at the required scale: because alcohol conducts electricity while gasoline is a dielectric, for example, fuel pumps need to be redesigned. More critically, alcohol at 85% concentration attacks the metals and gaskets used in current fuel pipelines and tankers. E85 also delivers inferior gas mileage compared to gasoline. In short, innovation -- at the device level -- to improve electric cars produces a much lighter load on the current supporting systems than would a mass adoption of ethanol. 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.
-After 9/11 and 7/7, Katrina and the other hurricanes of 2005, the Pacific tsunami, SARS, the 2003 power grid failure, and the Long Beach port strike, 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, especially after the many upheavals that followed the Y2K non-event. Some observers see video peer-to-peer networks, such as Joost from the founders of Skype, as potentially crippling the current Internet, for example. In the past month, try telling someone who had Norovirus that it's less severe than avian flu.
-Paradoxically, even as people and devices grow more connected, with access to more information, the need for intermediaries evolves rather than disappear. In the 1960s, most Americans could watch one of three network news shows and subscribe to one of two or possibly three daily newspapers. Retail selection was vast, compared to the 1930s or 40s, but still constrained to what merchandisers chose to present. Now, consumers can shop across vast inventories of food, fashion, entertainment, and other products (the so-called "long tail"), theoretically making each person his or her own merchandiser, video producer, or editor. Just as the late 1990s was the heyday of disintermediation predictions before brokerage firms, real estate agents, car dealers, and other middlemen responded, so now we will see how newspapers, magazines, book publishers, movie studios, universities, and other content businesses respond to the increase in direct access to many categories of content. The fact that the American Film Institute noted in its "2004 Moments of Significance" that "one of the best sources of news today is [Jon Stewart's] faux news show" would be inconceivable in the 1970s: Chevy Chase more authoritative than John Chancellor? Expect more, not fewer, of such puzzling inversions going forward.
In short, 2007 will continue the trend toward more complex types of change as information and communications technologies intertwine the world in more ways. When John Donne wrote the famous words in the headnote nearly 400 years ago, he anticipated a system of connection that remains incomprehensible in its scale, its impact, and its possibilities.
Early Indications December 2006: How'd We Do?
[distributed 12/13/06]
In January of this year, we published eight predictions. At this
point, the score is six hits, an incomplete, and a slight miss.
Overall, it was a pretty good year for technology and innovation, with
a variety of new wireless technologies getting closer to market, a
breakout year for web video, and an ambitious set of web services from
Amazon (including everything
from artificial intelligence to warehouse shelf space).
On the mis-step front, the litany of privacy breaches became longer
and louder, with a stolen laptop costing the U.S. Veteran's
Administration a projected $160 million dollars had it not been found.
In the midst of absorbing losses in the hundreds of millions of
dollars because of defective batteries, Sony launched an expensive,
powerful gaming platform that it couldn't supply in holiday
quantities. The "netroot" bloggers made a lot of noise but in the end
did not get their U.S. Senate candidate elected.
1) The second half of the year will be stronger than the first half in
the PC sector
Score: Hit
Even though Microsoft's Vista operating system has yet to generate any
PC sales, because consumers can't yet buy it and enterprises will have
to certify their existing applications on the new platform, this
prediction did in fact come to pass: at HP, the Personal Systems
group saw revenues for the three months ending October 31 rise 13%
over the quarter ending July 31. At Dell, only preliminary numbers
for the quarter ending November 3 have been reported, so it's
difficult to say with certainty what's going on.
2) "Services" will become the corporate IT buzzword outside IT
Score: Hit
SAP recently announced that its core positioning will focus on what it
calls Enterprise SOA or ESA, with half of R&D spending committed to
creating up to 30,000 SOA-driven business processes. Accenture is
spending an announced$450 million on SOA, HP $500 million, and IBM a
total of $1 billion on SOA over the coming years. Oracle, BEA, Sun,
and most software vendors apart from Microsoft, which is not branding
services so aggressively, are joining the gold rush.
3)Google will launch a breakthrough business outside web advertising
Score: Hit
Counting only their distribution deal with BSkyB, the YouTube
acquisition, the launch of the core of an online office suite (Docs
and Spreadsheets), and the challenge to PayPal implied by Google
Checkout, it was a big year for Google. Going forward, the company is
joining Amazon, Yahoo, and other search firms in building enormous
data centers to support further expansion of so-called "cloud
computing." George Gilder's recent article on these data centers in
Wired, apart from its purple prose, is required reading, particularly
for its take on the electricity consumption issues:
http://www.wired.com/wired/archive/14.10/cloudware_pr.html
4) HDTV will have collateral effects
Score: Hit
According to market researchers DisplaySearch, HDTV displays broke
through and accounted for over half of the North America TV market in
2006. Price drops continue, even in the face of such strong demand,
in part because the big producers see additional production capacity
coming on line in the near future. Verizon's bet on fiber to the
home, meanwhile, may be concerning the cable TV operators, whose
industry lab was reported this summer to have questioned the wisdom of
long-term investment in a coaxial infrastructure with strict, and low,
limits on HD traffic.
5) The relentless reinvention of business markets by the Internet and
digitization will continue
Score: Hit
"Who might be next? Television is my best guess." With YouTube and
BitTorrent both getting content distribution deals from major players,
and with cellular continuing its push toward video, the motion picture
and other video incumbents are confronting a dramatically different
landscape. A big story here was ESPN pulling its cellular phone
service after only about six months.
6) The quiet march of robot progress will continue
Score: Incomplete
The march was so quiet I couldn't hear it. There was no high-profile
story on par with 2005's DARPA challenge, which will be re-run in 2007
in simulated urban traffic, rather than last year's open albeit
obstacle-strewn desert environment.
7) Sensors and other location-awareness technologies will make the
news for an unexpected consequence
Score: Miss
RFID in the supply chain is finally providing suppliers (as opposed to
retailers like
WalMart) with a compelling cost justification: promotion
effectiveness. Think about a consumer products manufacturer (a
fictional example would be a battery company before Halloween): if I
deploy an expensive, time-sensitive end cap or other display, I want
to know if a chain's thousands of stores are in fact displaying my
promotional material and inventory. If they aren't on the sales
floor, customers could be confronted with stockouts and/or I must take
returns of seasonally-specific merchandise, such as Halloween
packaging in November. Apart from that realization, the toll bridges,
automated thermostats, automobile black boxes, and their kin
apparently worked well enough not to draw notice. RFID-equipped
passports are concerning industry observers who see how easy it is to
read them from a distance, and a company that sells tags for human
implantation (with readers being given away to emergency departments)
is raising fears, but neither was a major story.
8) The developing world will once again make headlines for innovation
and not just cheaper
production costs
Score: Hit
A Nobel Prize for microfinancing in Bangladesh, Brazil's leadership in
ethanol, and Korea's
launching a mobile WiMax service years ahead of the U.S. or Europe all
seem to count here. It's noteworthy that two of these three examples
involve organizational rather than primarily industrial innovation.
Also in January, we discussed six macro trends, and several of them
certainly made an impact:
Climate change: Just this week, a preprint of an article in
Geophysical Research Letters suggested that the Arctic could be open
water by 2040, maybe sooner.
Avian flu: Nothing on the epidemic front so far
Unstable energy prices: Big news here, especially mid-summer
The end of the bi-polar world: Russia, Venezuela, the Middle East,
North Korea and Darfur certainly proved that regional instability can
reach far and wide.
Decreased faith in government and authority: The U.S. midterm
elections, a wide lack of confidence in the United Nations, and the
privatization of large-scale humanitarian efforts by everyone from the
Gates Foundation to Rick Warren suggest this trend is continuing.
Increased evidence of class conflict: "Conflict" may be the wrong
word, because there was less overt class-related rhetoric this year
than in Katrina or the Paris riots. But the word "separation" still
applies, with significant implications for the middle class in
industrialized nations: in 2005, the average CEO of a U.S. company
with more than $1 billion in revenues made 262 times what the average
worker was paid, the second-highest multiple on record. The average
income of the top 126 hedge fund managers this year, according to
Barrons, was $363 million, up 45% over the previous year. At Goldman
Sachs, meanwhile, the mean average compensation for all 26,000
employees, from administrative assistants to top management, is
$622,000 in 2006.
On that note, happy holidays. Watch for the 2007 predictions in January.
In January of this year, we published eight predictions. At this
point, the score is six hits, an incomplete, and a slight miss.
Overall, it was a pretty good year for technology and innovation, with
a variety of new wireless technologies getting closer to market, a
breakout year for web video, and an ambitious set of web services from
Amazon (including everything
from artificial intelligence to warehouse shelf space).
On the mis-step front, the litany of privacy breaches became longer
and louder, with a stolen laptop costing the U.S. Veteran's
Administration a projected $160 million dollars had it not been found.
In the midst of absorbing losses in the hundreds of millions of
dollars because of defective batteries, Sony launched an expensive,
powerful gaming platform that it couldn't supply in holiday
quantities. The "netroot" bloggers made a lot of noise but in the end
did not get their U.S. Senate candidate elected.
1) The second half of the year will be stronger than the first half in
the PC sector
Score: Hit
Even though Microsoft's Vista operating system has yet to generate any
PC sales, because consumers can't yet buy it and enterprises will have
to certify their existing applications on the new platform, this
prediction did in fact come to pass: at HP, the Personal Systems
group saw revenues for the three months ending October 31 rise 13%
over the quarter ending July 31. At Dell, only preliminary numbers
for the quarter ending November 3 have been reported, so it's
difficult to say with certainty what's going on.
2) "Services" will become the corporate IT buzzword outside IT
Score: Hit
SAP recently announced that its core positioning will focus on what it
calls Enterprise SOA or ESA, with half of R&D spending committed to
creating up to 30,000 SOA-driven business processes. Accenture is
spending an announced$450 million on SOA, HP $500 million, and IBM a
total of $1 billion on SOA over the coming years. Oracle, BEA, Sun,
and most software vendors apart from Microsoft, which is not branding
services so aggressively, are joining the gold rush.
3)Google will launch a breakthrough business outside web advertising
Score: Hit
Counting only their distribution deal with BSkyB, the YouTube
acquisition, the launch of the core of an online office suite (Docs
and Spreadsheets), and the challenge to PayPal implied by Google
Checkout, it was a big year for Google. Going forward, the company is
joining Amazon, Yahoo, and other search firms in building enormous
data centers to support further expansion of so-called "cloud
computing." George Gilder's recent article on these data centers in
Wired, apart from its purple prose, is required reading, particularly
for its take on the electricity consumption issues:
http://www.wired.com/wired/archive/14.10/cloudware_pr.html
4) HDTV will have collateral effects
Score: Hit
According to market researchers DisplaySearch, HDTV displays broke
through and accounted for over half of the North America TV market in
2006. Price drops continue, even in the face of such strong demand,
in part because the big producers see additional production capacity
coming on line in the near future. Verizon's bet on fiber to the
home, meanwhile, may be concerning the cable TV operators, whose
industry lab was reported this summer to have questioned the wisdom of
long-term investment in a coaxial infrastructure with strict, and low,
limits on HD traffic.
5) The relentless reinvention of business markets by the Internet and
digitization will continue
Score: Hit
"Who might be next? Television is my best guess." With YouTube and
BitTorrent both getting content distribution deals from major players,
and with cellular continuing its push toward video, the motion picture
and other video incumbents are confronting a dramatically different
landscape. A big story here was ESPN pulling its cellular phone
service after only about six months.
6) The quiet march of robot progress will continue
Score: Incomplete
The march was so quiet I couldn't hear it. There was no high-profile
story on par with 2005's DARPA challenge, which will be re-run in 2007
in simulated urban traffic, rather than last year's open albeit
obstacle-strewn desert environment.
7) Sensors and other location-awareness technologies will make the
news for an unexpected consequence
Score: Miss
RFID in the supply chain is finally providing suppliers (as opposed to
retailers like
WalMart) with a compelling cost justification: promotion
effectiveness. Think about a consumer products manufacturer (a
fictional example would be a battery company before Halloween): if I
deploy an expensive, time-sensitive end cap or other display, I want
to know if a chain's thousands of stores are in fact displaying my
promotional material and inventory. If they aren't on the sales
floor, customers could be confronted with stockouts and/or I must take
returns of seasonally-specific merchandise, such as Halloween
packaging in November. Apart from that realization, the toll bridges,
automated thermostats, automobile black boxes, and their kin
apparently worked well enough not to draw notice. RFID-equipped
passports are concerning industry observers who see how easy it is to
read them from a distance, and a company that sells tags for human
implantation (with readers being given away to emergency departments)
is raising fears, but neither was a major story.
8) The developing world will once again make headlines for innovation
and not just cheaper
production costs
Score: Hit
A Nobel Prize for microfinancing in Bangladesh, Brazil's leadership in
ethanol, and Korea's
launching a mobile WiMax service years ahead of the U.S. or Europe all
seem to count here. It's noteworthy that two of these three examples
involve organizational rather than primarily industrial innovation.
Also in January, we discussed six macro trends, and several of them
certainly made an impact:
Climate change: Just this week, a preprint of an article in
Geophysical Research Letters suggested that the Arctic could be open
water by 2040, maybe sooner.
Avian flu: Nothing on the epidemic front so far
Unstable energy prices: Big news here, especially mid-summer
The end of the bi-polar world: Russia, Venezuela, the Middle East,
North Korea and Darfur certainly proved that regional instability can
reach far and wide.
Decreased faith in government and authority: The U.S. midterm
elections, a wide lack of confidence in the United Nations, and the
privatization of large-scale humanitarian efforts by everyone from the
Gates Foundation to Rick Warren suggest this trend is continuing.
Increased evidence of class conflict: "Conflict" may be the wrong
word, because there was less overt class-related rhetoric this year
than in Katrina or the Paris riots. But the word "separation" still
applies, with significant implications for the middle class in
industrialized nations: in 2005, the average CEO of a U.S. company
with more than $1 billion in revenues made 262 times what the average
worker was paid, the second-highest multiple on record. The average
income of the top 126 hedge fund managers this year, according to
Barrons, was $363 million, up 45% over the previous year. At Goldman
Sachs, meanwhile, the mean average compensation for all 26,000
employees, from administrative assistants to top management, is
$622,000 in 2006.
On that note, happy holidays. Watch for the 2007 predictions in January.
Wednesday, November 22, 2006
November 2006 Early Indications: Devices We Love (and the people behind them)
Review Essay
Steven Levy, The Perfect Thing: How the iPod Shuffles Commerce, Culture, and Coolness (New York: Simon and Schuster, 2006)
Bill Moggridge, Designing Interactions (Cambridge: MIT Press, 2007)
Coincident with the iPod's fifth birthday, Newsweek technology reporter Steven Levy produced a book that helps situate the importance of the iPod on several landscapes. The book continues Levy's longstanding interest in Apple Computer and is enhanced by the author's relationship with Apple CEO Steve Jobs. At times a history but more often a love letter to the ultimate gadget, The Perfect Thing raises some useful questions about the defining personal artifact of the 21st century.
-How did it come to be?
Levy is at his best in reporting mode: interviews with principals, clear chronologies, and an eye for the telling detail make these chapters some of the book's strongest. He details the processes whereby a collection of vendors and subcontractors, under strict secrecy, converged in a notably seamless device. Within Apple, the passion for music among employees on the project infused the team with extra motivation: "the chance to make a product they would kill to have in their own pockets," in Levy's words. PortalPlayer, a startup also located in San Jose, solved many hardware issues, including power management of the miniature hard drive. For software, Apple enlisted Pixo, another Silicon Valley company that had to meet Jobs' exacting standards for usabiity, stability, and audio quality.
One hard-fought decision made by the interface team illustrates a deeper theme in both the iPod project and Levy's book. Jobs, long known for holding strong design ideas, finally approved the typeface used in Pixo's interface software. For those who think it looks somehow familiar, it is: the font is Chicago, which had been created by Susan Kare for the original Macintosh menus. As Levy points out, Jobs has now launched four technology revolutions: the Apple II, the Mac, the computer-animated feature film at Pixar, and the iPod. The last of these was far from preordained: the company Jobs inherited upon his return in 1997 lacked the focus, passion, and distinction of what he had left 12 years before. In many ways, the Mac and the iPod are tied by Jobs' characteristic combination of vision, unreasonable expectations, and skills in building and driving a team to bring true breakthrough products to market.
-Why can't anyone build a viable competitor?
Comparing the iPod to its competitors illustrates a great deal about the current computing and entertainment market. Recall first that upon Jobs' return to Apple, Michael Dell advised him publicly to "shut [the company] down and give the money back to the shareholders." Fast forward to January 13, 2006, at which time Apple's market capitalization exceeded that of Dell. While Dell and other tech vendors brought out iPod imitators, none has succeeded, and the odds for Microsoft's Zune do not look good based on historical precedent. Dell's DJ player illustrates the pattern: the DJ had longer lasting batteries, cost less, and used an industry-standard MP3 file format. But not only did the DJ fail to dent iPod sales, it was the rare Dell failure, shut down as it was in 2006. At launch, a Dell spokeswoman nicely summarized the gulf between Apple and its competitors: "Style is nice," she said, "but function and value are what ultimately matter to consumers." DJ sales proved otherwise: great design can make a product or even a market.
In addition to its design, the iPod also benefits from a tightly integrated platform of content licenses from record labels, an unusually clean software interface for both Apple and Microsoft operating systems, and a truly idiot-proof device that solves many of the usability issues that typically characterize computer peripherals. For all the elegance of Jonathan Ive's iPod case and the status markers of the white earbuds, the power of the iPod lies in how well everything works together. Finding content from a formidably large catalog of legal downloads is easy, and so are importing CDs, buying downloads, and playing music or spoken voice recordings.
Contrast the Zune, which uses a complicated point scheme for buying Microsoft-licensed music, to iTunes, which simply charges 99 cents per song. You need to buy Zune money in $5 increments for 400 points, then pay 79 points per song. Simple math indicates that you'll always end up with a small point balance, giving the user a choice between stranding money or adding more points. Not surprisingly, Microsoft's scheme has the effect of locking in a customer. Paradoxically, Apple's lock-in is ultimately stronger, which has prompted government efforts to open the platform, but infinitely more graceful and compelling.
-Why do people love the iPod so much?
In this aspect, Levy attempts both the personal essay style of an Andy Rooney or Nick Hornby and the cultural anthropologist mode. Neither really works. Beginning with the book's title (what does it mean to "shuffle commerce, culture, and coolness?") and continuing with its conceit of printing the books with the chapters in varying, shuffled, orders (which is why I can't cite page numbers), Levy is wrestling with concepts and vocabularies outside his comfort zone. The section on Identity, in particular, fails to connect Levy's personal experiences to some larger phenomenon.
That said, in reportage mode the book does decode some of the iPod's uniqueness and appeal. The particular whiteness of the original case, for example, comes from a "double-shot" polycarbonate: an opaque white layer underlies a transparent one, giving the device a feel that no Dell product has ever possessed. The iPod's heft is not an accident, and feels pleasing. Similarly, the lack of mechanical artifacts on the case - hinges, screws, or other fasteners - contributes to a runic quality: the device is at once signifier, totem, and tool. Finally, and Levy gives this topic less attention than he might, the iPod is highly personal on several levels. Not only is every device with more than ten audio files going to be unique, but the act of inserting earbuds and wearing the player on one's person introduces an intimacy not found in most electronic or mechanical devices.
For a better understanding of how people can and do relate to their digital technologies, the interviews collected in Designing Interactions were accessable, compelling, and difficult to put down: IDEO founder Bill Moggridge has produced, with considerable help, a 766-page beast of a book that is as addictive as popcorn. The people behind so many defining artifacts of our world - the Acela, the Sims, the Palm Pilot and Treo, Google, and of course the WIMP (windows, icons, mouse, pointer) interface - tell fascinating stories about the design process. A few representative insights should give some flavor for the richness of the book:
-Will Wright, on the origin of Sim City:
"When I was designing ['a stupid shoot-up'] game, part of it involved me creating this landscape that you would fly over and bomb. It was a landscape of islands with roads and factories and things, and I created an editor for doing that, where I could scroll around and put down roads and things. I found I was having more fun designing and building these islands than I was bombing them in the game, so I took that editor and kept working on it [by incorporating systems dynamics theories from MIT professor Jay Forrester]."
-Alan Kay, the father of the laptop concept, on the effect of Marshall McLuhan and Jerome Bruner:
"The computer is a medium! I had always thought of the computer as a tool, perhaps a vehicle - a much weaker conception. . . . Now, if we agree with the evidence that the human cognitive facilities are made up of a doing mentality, an image mentality, and a symbolic mentality, then any user interface that we construct should at least cater to the mechanisms that seem to be there."
-Google co-founder Sergey Brin on resisting the urge to universalive your own experience:
"We have always wondered about how many search results we should display. I have my default, I always show fifty search results, so I thought, 'Why would you want to have just ten?' It turned out in testing that people really wanted just ten. Sometimes your personal bias really colors your way of thinking. I don't know that we've fine-tuned it between nine, ten, or eleven, but once you're in that range, ten is a number that people deal with pretty well."
-Pixo founder Paul Mercer, on the puzzle of the iPod's lack of a credible challenger:
"The iPod is very simple-minded, in terms of at least what the device does. It's very smooth in what it does, but the screen is low-resolution, and it really doesn't do much other than let you navigate your music. That tells you two things. It tells you first that the simplification that went into the design was very well thought through, and second that the capability to build it is not commoditized."
Many industry pioneers tell stories (some with DVD videos) of the details behind landmark designs, providing a sense of just how hard it is to get things right. It was both great fun and dramatically illuminating to hear about some of the industry's defining moments:
-GRiD founder John Ellenby's "Gzunda" computer, a Xerox ALTO that "goes unda" the desk because it was too big to fit on top
-Mouse inventor Doug Engelbart's daring demo of an interactive graphical user interface in 1968
-Apple graphics genius Bill Atkinson's designing the pull-down menu bar for the Mac - overnight
-Pen computing veteran and sometime student of neuroscience Jeff Hawkins' surprise at people's rejection of Graffiti and adoption of the thumb-size QWERTY keyboard.
The icing on the cake, to mix food metaphors, is Moggridge's closing summation of the design process, which focuses heavily on people and thus on the prototyping process. This section alone will be worth the purchase price for practitioners in the field, informed as it is with decades of personal experience along with the collected insights of his peers.
In the end, the two books drive home the importance of personality in great design: the old stereotype about something looking like it was "designed by a committee" embeds much truth about the differences between great products (or services, or interactions) and the vast majority of experiences that lack the coherence, utility, and appeal of those few efforts that get it right. Whether it's Tom West's Eagle in Tracy Kidder's Soul of a New Machine, or Doug Englebart's mouse, or Mari Matsunaga's iMode medium, many great designs embody the personal capabilities of a designer or team to a greater degree than most people realize. Getting a glimpse behind the curtain in these two books was both enlightening and humbling: enlightening because of the sheer number of design decisions that can be involved, and humbling because of the degree of genius from which we as customers are privileged to benefit.
Steven Levy, The Perfect Thing: How the iPod Shuffles Commerce, Culture, and Coolness (New York: Simon and Schuster, 2006)
Bill Moggridge, Designing Interactions (Cambridge: MIT Press, 2007)
Coincident with the iPod's fifth birthday, Newsweek technology reporter Steven Levy produced a book that helps situate the importance of the iPod on several landscapes. The book continues Levy's longstanding interest in Apple Computer and is enhanced by the author's relationship with Apple CEO Steve Jobs. At times a history but more often a love letter to the ultimate gadget, The Perfect Thing raises some useful questions about the defining personal artifact of the 21st century.
-How did it come to be?
Levy is at his best in reporting mode: interviews with principals, clear chronologies, and an eye for the telling detail make these chapters some of the book's strongest. He details the processes whereby a collection of vendors and subcontractors, under strict secrecy, converged in a notably seamless device. Within Apple, the passion for music among employees on the project infused the team with extra motivation: "the chance to make a product they would kill to have in their own pockets," in Levy's words. PortalPlayer, a startup also located in San Jose, solved many hardware issues, including power management of the miniature hard drive. For software, Apple enlisted Pixo, another Silicon Valley company that had to meet Jobs' exacting standards for usabiity, stability, and audio quality.
One hard-fought decision made by the interface team illustrates a deeper theme in both the iPod project and Levy's book. Jobs, long known for holding strong design ideas, finally approved the typeface used in Pixo's interface software. For those who think it looks somehow familiar, it is: the font is Chicago, which had been created by Susan Kare for the original Macintosh menus. As Levy points out, Jobs has now launched four technology revolutions: the Apple II, the Mac, the computer-animated feature film at Pixar, and the iPod. The last of these was far from preordained: the company Jobs inherited upon his return in 1997 lacked the focus, passion, and distinction of what he had left 12 years before. In many ways, the Mac and the iPod are tied by Jobs' characteristic combination of vision, unreasonable expectations, and skills in building and driving a team to bring true breakthrough products to market.
-Why can't anyone build a viable competitor?
Comparing the iPod to its competitors illustrates a great deal about the current computing and entertainment market. Recall first that upon Jobs' return to Apple, Michael Dell advised him publicly to "shut [the company] down and give the money back to the shareholders." Fast forward to January 13, 2006, at which time Apple's market capitalization exceeded that of Dell. While Dell and other tech vendors brought out iPod imitators, none has succeeded, and the odds for Microsoft's Zune do not look good based on historical precedent. Dell's DJ player illustrates the pattern: the DJ had longer lasting batteries, cost less, and used an industry-standard MP3 file format. But not only did the DJ fail to dent iPod sales, it was the rare Dell failure, shut down as it was in 2006. At launch, a Dell spokeswoman nicely summarized the gulf between Apple and its competitors: "Style is nice," she said, "but function and value are what ultimately matter to consumers." DJ sales proved otherwise: great design can make a product or even a market.
In addition to its design, the iPod also benefits from a tightly integrated platform of content licenses from record labels, an unusually clean software interface for both Apple and Microsoft operating systems, and a truly idiot-proof device that solves many of the usability issues that typically characterize computer peripherals. For all the elegance of Jonathan Ive's iPod case and the status markers of the white earbuds, the power of the iPod lies in how well everything works together. Finding content from a formidably large catalog of legal downloads is easy, and so are importing CDs, buying downloads, and playing music or spoken voice recordings.
Contrast the Zune, which uses a complicated point scheme for buying Microsoft-licensed music, to iTunes, which simply charges 99 cents per song. You need to buy Zune money in $5 increments for 400 points, then pay 79 points per song. Simple math indicates that you'll always end up with a small point balance, giving the user a choice between stranding money or adding more points. Not surprisingly, Microsoft's scheme has the effect of locking in a customer. Paradoxically, Apple's lock-in is ultimately stronger, which has prompted government efforts to open the platform, but infinitely more graceful and compelling.
-Why do people love the iPod so much?
In this aspect, Levy attempts both the personal essay style of an Andy Rooney or Nick Hornby and the cultural anthropologist mode. Neither really works. Beginning with the book's title (what does it mean to "shuffle commerce, culture, and coolness?") and continuing with its conceit of printing the books with the chapters in varying, shuffled, orders (which is why I can't cite page numbers), Levy is wrestling with concepts and vocabularies outside his comfort zone. The section on Identity, in particular, fails to connect Levy's personal experiences to some larger phenomenon.
That said, in reportage mode the book does decode some of the iPod's uniqueness and appeal. The particular whiteness of the original case, for example, comes from a "double-shot" polycarbonate: an opaque white layer underlies a transparent one, giving the device a feel that no Dell product has ever possessed. The iPod's heft is not an accident, and feels pleasing. Similarly, the lack of mechanical artifacts on the case - hinges, screws, or other fasteners - contributes to a runic quality: the device is at once signifier, totem, and tool. Finally, and Levy gives this topic less attention than he might, the iPod is highly personal on several levels. Not only is every device with more than ten audio files going to be unique, but the act of inserting earbuds and wearing the player on one's person introduces an intimacy not found in most electronic or mechanical devices.
For a better understanding of how people can and do relate to their digital technologies, the interviews collected in Designing Interactions were accessable, compelling, and difficult to put down: IDEO founder Bill Moggridge has produced, with considerable help, a 766-page beast of a book that is as addictive as popcorn. The people behind so many defining artifacts of our world - the Acela, the Sims, the Palm Pilot and Treo, Google, and of course the WIMP (windows, icons, mouse, pointer) interface - tell fascinating stories about the design process. A few representative insights should give some flavor for the richness of the book:
-Will Wright, on the origin of Sim City:
"When I was designing ['a stupid shoot-up'] game, part of it involved me creating this landscape that you would fly over and bomb. It was a landscape of islands with roads and factories and things, and I created an editor for doing that, where I could scroll around and put down roads and things. I found I was having more fun designing and building these islands than I was bombing them in the game, so I took that editor and kept working on it [by incorporating systems dynamics theories from MIT professor Jay Forrester]."
-Alan Kay, the father of the laptop concept, on the effect of Marshall McLuhan and Jerome Bruner:
"The computer is a medium! I had always thought of the computer as a tool, perhaps a vehicle - a much weaker conception. . . . Now, if we agree with the evidence that the human cognitive facilities are made up of a doing mentality, an image mentality, and a symbolic mentality, then any user interface that we construct should at least cater to the mechanisms that seem to be there."
-Google co-founder Sergey Brin on resisting the urge to universalive your own experience:
"We have always wondered about how many search results we should display. I have my default, I always show fifty search results, so I thought, 'Why would you want to have just ten?' It turned out in testing that people really wanted just ten. Sometimes your personal bias really colors your way of thinking. I don't know that we've fine-tuned it between nine, ten, or eleven, but once you're in that range, ten is a number that people deal with pretty well."
-Pixo founder Paul Mercer, on the puzzle of the iPod's lack of a credible challenger:
"The iPod is very simple-minded, in terms of at least what the device does. It's very smooth in what it does, but the screen is low-resolution, and it really doesn't do much other than let you navigate your music. That tells you two things. It tells you first that the simplification that went into the design was very well thought through, and second that the capability to build it is not commoditized."
Many industry pioneers tell stories (some with DVD videos) of the details behind landmark designs, providing a sense of just how hard it is to get things right. It was both great fun and dramatically illuminating to hear about some of the industry's defining moments:
-GRiD founder John Ellenby's "Gzunda" computer, a Xerox ALTO that "goes unda" the desk because it was too big to fit on top
-Mouse inventor Doug Engelbart's daring demo of an interactive graphical user interface in 1968
-Apple graphics genius Bill Atkinson's designing the pull-down menu bar for the Mac - overnight
-Pen computing veteran and sometime student of neuroscience Jeff Hawkins' surprise at people's rejection of Graffiti and adoption of the thumb-size QWERTY keyboard.
The icing on the cake, to mix food metaphors, is Moggridge's closing summation of the design process, which focuses heavily on people and thus on the prototyping process. This section alone will be worth the purchase price for practitioners in the field, informed as it is with decades of personal experience along with the collected insights of his peers.
In the end, the two books drive home the importance of personality in great design: the old stereotype about something looking like it was "designed by a committee" embeds much truth about the differences between great products (or services, or interactions) and the vast majority of experiences that lack the coherence, utility, and appeal of those few efforts that get it right. Whether it's Tom West's Eagle in Tracy Kidder's Soul of a New Machine, or Doug Englebart's mouse, or Mari Matsunaga's iMode medium, many great designs embody the personal capabilities of a designer or team to a greater degree than most people realize. Getting a glimpse behind the curtain in these two books was both enlightening and humbling: enlightening because of the sheer number of design decisions that can be involved, and humbling because of the degree of genius from which we as customers are privileged to benefit.
Thursday, October 12, 2006
Early Indications October 2006: Who will build the “Internet of Things”?
(NB: As usual, the author holds no direct financial position in any of the companies mentioned.)
“The network is the computer”
Sun Microsystems, circa 1983
Ed Zander was already a seasoned tech executive when he arrived at Sun Microsystems in 1987. During his tenure of over 15 years there, Zander saw Sun enjoy great success in the Internet infrastructure boom, building in part on its semi-retired but still-prescient slogan. He also saw Sun struggle after 2000 as the company turned in a variety of directions, in part toward the market’s emerging need to manage systems of sensors, associated information, and identity. Servers had, however, become a commodity item, and Sun’s current position is substantially weaker than that of a decade ago.
Zander retired from Sun, then was hired as CEO at Motorola a short while later. The company he inherited was not noted as a tech powerhouse as of 2003. Decisions were heavily second-guessed, in part because the most recent in a line of leaders from the founding family was not delivering results. Moto had missed two big shifts, first by overestimating the desire for satellite telephony with its Iridium bet that lost $2 billion and is still the subject of a lawsuit by creditors that could cost the company an additional $1-4 billion. Second, Motorola underestimated the shift in mobile voice from analog to digital. Its StarTAC cell phone was a worldwide leader in the mid-1990s, but after that Motorola gave up handset market share to Nokia, LG, Samsung, and others. Many business units were fragmented and/or redundant, and speed suffered amidst indecision, bureaucracy, and the impact of major job cuts.
The turnaround has been sudden. Since January 5, 2004, when Zander came aboard, Motorola stock has risen from about $15 a share to a solid $25. The company’s instantly recognizable RAZR phone is hugely popular, with over 50 million units sold. The follow-up products have generally done well, and both market share and handset margins are rising by meaningful increments.
But this is more than a consumer device popularity story. Zander has streamlined decision-making, reoriented the hiring process to include an emphasis on interpersonal skills alongside technical ones, and crafted a very Sun-like overarching vision. Whether in the public safety, handset, telecom equipment, or enterprise business, everything is connected to what Motorola is calling “seamless mobility.” According to the 2005 annual report, “Seamless Mobility means people have easy, uninterrupted access to information, entertainment, communication, monitoring and control.” While key technologies -- such as sensors, metro-area and mesh wireless broadband, and voice and video over Internet Protocols -- are certainly maturing, one clue to the power of this vision lies in Zander’s putting people at the center of the Internet of Things.
The branding and expertise that come from leadership in handsets and set-top boxes no doubt fuel some of this positioning. Out of view of consumer markets, however, Motorola is creating a compelling portfolio of both wired and especially wireless broadband plays: it is the only vendor to be part of the two major WiMax trials in the U.S., which are Clearwire (Craig McCaw’s newest startup) and Sprint, which announced a $3 billion investment in the technology earlier this summer. Motorola also has significant market presence in wide-area wi-fi, various cellular standards, and wireline broadband to the home. In short, if there’s a broadband connection, whether in the air or over a wire, or connecting a person or a device, Motorola probably has a solution in the market.
The company augmented an already robust patent portfolio with the September acquisition of Symbol, which makes a variety of sensors, software, and network equipment for enterprise mobility of the stock-clerk and forklift variety. Symbol also will augment Motorola’s enterprise sales channel and expand its foothold in vertical industries including retail, travel, and transportation.
While there are good reasons to be bullish on a combo platter of sensors, consumer and government handsets, and broadband, risks are embedded in nearly all of the company’s major plays:
-Qualcomm owns a formidable portfolio of wireless patents and could build on its strength in cellular to attack other facets of mobile broadband.
-One company - Sprint - represented 12% of Motorola’s total market in 2005. Sprint has not executed the Nextel merger particularly effectively and is losing market share. The COO was asked to leave in August and the executive chairman announced his departure earlier this week.
-The WiMax “family” of technologies (fixed vs. mobile wireless broadband) is not yet a product suite, and 4G is not yet a standard. Intel’s place in the wireless ecosystem is not yet clear either.
-The investment made by Motorola’s large customers -- telephone carriers and cable companies -- in both wireless and wired broadband, particularly in laying fiber closer to the end customer, could be affected by technology change, regulation, or availability of capital.
-Supply-chain products like bar codes and RFID may remain niche offerings rather than as parts of a conceptually unified “Internet of Things.”
Getting Motorola, which had lost prestige and shed thousands of jobs, to accept risk-taking has been a core aspect of Zander’s mission. As a result of the company’s focus, patent holdings, and coherent product footprint and market positioning, it’s hard to see a head-on competitor. Cisco has more wireline clout and a bigger set-top box presence after acquiring Scientific Atlanta but no WiMax or cellular business, much less consumer design expertise of the sort embodied in the RAZR. Tag manufacturers including Texas Instruments, middleware companies such as BEA, or identity managers like Sun or maybe Microsoft may well play important roles as components in the cloud from sensors through computing to people, but it’s hard to see any of these companies taking a leadership position. Many, many piece-parts will be required for anything resembling the science fiction vision to come to fruition, but given that personal communications and computing platforms, a variety of broadband networks, and sensors in many shapes and sizes will be involved, in the near term Motorola appears to have rebounded and assumed a leadership position in a market it is helping to invent.
“The network is the computer”
Sun Microsystems, circa 1983
Ed Zander was already a seasoned tech executive when he arrived at Sun Microsystems in 1987. During his tenure of over 15 years there, Zander saw Sun enjoy great success in the Internet infrastructure boom, building in part on its semi-retired but still-prescient slogan. He also saw Sun struggle after 2000 as the company turned in a variety of directions, in part toward the market’s emerging need to manage systems of sensors, associated information, and identity. Servers had, however, become a commodity item, and Sun’s current position is substantially weaker than that of a decade ago.
Zander retired from Sun, then was hired as CEO at Motorola a short while later. The company he inherited was not noted as a tech powerhouse as of 2003. Decisions were heavily second-guessed, in part because the most recent in a line of leaders from the founding family was not delivering results. Moto had missed two big shifts, first by overestimating the desire for satellite telephony with its Iridium bet that lost $2 billion and is still the subject of a lawsuit by creditors that could cost the company an additional $1-4 billion. Second, Motorola underestimated the shift in mobile voice from analog to digital. Its StarTAC cell phone was a worldwide leader in the mid-1990s, but after that Motorola gave up handset market share to Nokia, LG, Samsung, and others. Many business units were fragmented and/or redundant, and speed suffered amidst indecision, bureaucracy, and the impact of major job cuts.
The turnaround has been sudden. Since January 5, 2004, when Zander came aboard, Motorola stock has risen from about $15 a share to a solid $25. The company’s instantly recognizable RAZR phone is hugely popular, with over 50 million units sold. The follow-up products have generally done well, and both market share and handset margins are rising by meaningful increments.
But this is more than a consumer device popularity story. Zander has streamlined decision-making, reoriented the hiring process to include an emphasis on interpersonal skills alongside technical ones, and crafted a very Sun-like overarching vision. Whether in the public safety, handset, telecom equipment, or enterprise business, everything is connected to what Motorola is calling “seamless mobility.” According to the 2005 annual report, “Seamless Mobility means people have easy, uninterrupted access to information, entertainment, communication, monitoring and control.” While key technologies -- such as sensors, metro-area and mesh wireless broadband, and voice and video over Internet Protocols -- are certainly maturing, one clue to the power of this vision lies in Zander’s putting people at the center of the Internet of Things.
The branding and expertise that come from leadership in handsets and set-top boxes no doubt fuel some of this positioning. Out of view of consumer markets, however, Motorola is creating a compelling portfolio of both wired and especially wireless broadband plays: it is the only vendor to be part of the two major WiMax trials in the U.S., which are Clearwire (Craig McCaw’s newest startup) and Sprint, which announced a $3 billion investment in the technology earlier this summer. Motorola also has significant market presence in wide-area wi-fi, various cellular standards, and wireline broadband to the home. In short, if there’s a broadband connection, whether in the air or over a wire, or connecting a person or a device, Motorola probably has a solution in the market.
The company augmented an already robust patent portfolio with the September acquisition of Symbol, which makes a variety of sensors, software, and network equipment for enterprise mobility of the stock-clerk and forklift variety. Symbol also will augment Motorola’s enterprise sales channel and expand its foothold in vertical industries including retail, travel, and transportation.
While there are good reasons to be bullish on a combo platter of sensors, consumer and government handsets, and broadband, risks are embedded in nearly all of the company’s major plays:
-Qualcomm owns a formidable portfolio of wireless patents and could build on its strength in cellular to attack other facets of mobile broadband.
-One company - Sprint - represented 12% of Motorola’s total market in 2005. Sprint has not executed the Nextel merger particularly effectively and is losing market share. The COO was asked to leave in August and the executive chairman announced his departure earlier this week.
-The WiMax “family” of technologies (fixed vs. mobile wireless broadband) is not yet a product suite, and 4G is not yet a standard. Intel’s place in the wireless ecosystem is not yet clear either.
-The investment made by Motorola’s large customers -- telephone carriers and cable companies -- in both wireless and wired broadband, particularly in laying fiber closer to the end customer, could be affected by technology change, regulation, or availability of capital.
-Supply-chain products like bar codes and RFID may remain niche offerings rather than as parts of a conceptually unified “Internet of Things.”
Getting Motorola, which had lost prestige and shed thousands of jobs, to accept risk-taking has been a core aspect of Zander’s mission. As a result of the company’s focus, patent holdings, and coherent product footprint and market positioning, it’s hard to see a head-on competitor. Cisco has more wireline clout and a bigger set-top box presence after acquiring Scientific Atlanta but no WiMax or cellular business, much less consumer design expertise of the sort embodied in the RAZR. Tag manufacturers including Texas Instruments, middleware companies such as BEA, or identity managers like Sun or maybe Microsoft may well play important roles as components in the cloud from sensors through computing to people, but it’s hard to see any of these companies taking a leadership position. Many, many piece-parts will be required for anything resembling the science fiction vision to come to fruition, but given that personal communications and computing platforms, a variety of broadband networks, and sensors in many shapes and sizes will be involved, in the near term Motorola appears to have rebounded and assumed a leadership position in a market it is helping to invent.
Wednesday, September 20, 2006
September 2006 Early Indications: Thinking about Transparency
Starting in the mid-1990s, a growing number of investors, academics,
and analysts have been calling for greater transparency in business
and government. Transparency was somehow different from
accountability and visibility, implying that various constituencies
could see the inner workings of an organization. The scandals at
Adelphia, Enron, Worldcom, and elsewhere intensified the clamor, which
found one prominent expression of its logic in Don Tapscott's book The
Naked Corporation.
Making achievements and shortcomings more visible, in timely fashion
sounds like an obviously Good Thing. But it's a long way from
conceptual aspiration to working out the many details of who should
and can see what, who should and can act on what, and when can which
people see what, all of which involves multiple layers of costs and
benefits. Instead of merely asking "is transparency desirable?" there
seems to be movement toward more sophisticated understandings of
transparency's many contexts.
1) Transparency costs money
As Sarbanes-Oxley has demonstrated, regulatory requirements impose
externalities (costs not accounted for by the market) and unexpected
consequences. Someone compared the burden of reporting, particularly
for small and medium enterprises, to spending $1000 on a safe to
protect $100 of jewelry; it also costs taxpayers money to enforce
regulations that may or may not be improving the efficiency of
markets. Establishing transparency thus becomes a question of how to
require useful information to be made available in accessible form
rather than merely increasing the amount of reporting in complex,
redundant, and often arcane processes: less truly can be more.
2) Transparency can impose competitive disadvantage
Some of the most revealing knowledge about a firm comes from what Stan
Davis once called "information exhaust." Business-to-business
exchanges, RFID-based tracking networks, credit card records, and the
like all can reveal fundamental knowledge about a supplier or
customer's economic situation. As Scott McNealy of Sun said of some
B2B exchange proposals back while he was still CEO, "We don't want
demand for our products to be known and understood. Why would you
outsource your purchasing department? Isn't your purchasing strategic?
People are going to find it is a really dumb idea to outsource to a
competitor so they can see your demand curve."
3) Transparency can be deliberate or inadvertent
Note that the transparency of demand curves as revealed in the course
of doing business is inadvertent: no investor safety or regulatory
assurance is gained or sought in such a situation. Yet by letting
patterns be discerned from large bodies of transactional data, a firm
puts itself at risk of unfair pricing, strategic shortages, and other
disruptions. (A classic example is large mutual funds, which hold
such substantial positions that they can signal buying or selling
intention to the wider market in their everyday movement of large
orders.) Help-wanted ads, real estate purchases, travel programs, and
other everyday interactions can tip off analysts or competitors as to
new initiatives, acquisitions and divestitures, and the like.
Accordingly, the use of third parties, shell corporations, and other
devices is common: executive search delivers obvious benefits as it
reduces transparency.
4) The world has grown less transparent in the past five years
As we observe the fifth anniversary of the September 11 terrorist
attacks, the transparency debate is being reframed. Much could be
gained by the sharing of avian flu preparedness plans, for example,
but I have seen little willingness to do so: because such plans are
near neighbors to disaster preparedness documents, it is often
irresponsible to circulate either type of document widely.
E-government is another area in transition: just as localities,
states, and many national agencies were rushing to make documents and
processes available on line, security considerations led to the
rethinking of such services as maps, agency directories, and the like.
Just the other day I was using Google Earth to view Pennsylvania GIS
data pertaining to a trout stream. At one point I zoomed too close or
otherwise triggered something, at which time a huge red "X" covered
the screen without further explanation - it truly felt as though the
system had discovered me as an intruder a la "Mission Impossible" even
though there are no obviously secure locations for miles from the
creek in question.
5) Transparency is part of risk: something to be managed
The overall scope of what has come to be called "enterprise risk
management" is truly staggering. At the same time that regulators
require both numbers and the processes for generating those numbers to
be certified, clever people must be scouring the business and its
interactions with the wider world to see where useful information is
being unwittingly compromised. It's an apparently trivial example,
but how many URLs have you seen which display the logo of the web
server vendor as a favicon, indicating that at least one default has
not been overridden during setup? (Here's a gallery of proper icons:
http://mppierce66.home.comcast.net/web/fi/)
Technology frequently both solves and creates problems in this domain.
Databases are an excellent example: sometimes it's the details that
are sensitive, while elsewhere the rollups need to be locked down.
Health care records containing identifiable patient data are supposed
to be safeguarded while aggregate statistics for public health and
similar purposes can be circulated. In the military supply chain,
meanwhile, low-level personnel or contractors can see line items in
order to load trucks or ships, but the aggregate list of what's going
on the ship, and its destination, are classified.
The latter example gets more complicated in a coalition scenario: for
a hypothetical exercise let's say the US Navy runs SAP as its
enterprise backbone while a partner navy from Canada or the U.K. runs
Oracle. At the same time that coalition partners manage classified
data vertically within their own force, they must also manage data
flows both horizontally across forces and then vertically, up and down
a different culture and organizational model. The elements of a
ship's inventory, for example, might consist of rollups that are
masked even within the ship: those same Xs over the first twelve
digits of your credit card number on a receipt have other uses. At
the same time, commanders at an appropriate level need to see
aggregate numbers derived from all participating forces, which means
that close agreement on translation of definitions, rank, and job
descriptions must precede any technical granting of access. As
difficult as it is from a technical perspective, getting SAP to
interoperate with Oracle in a truly mission-critical situation is
secondary to getting the relationships of the various parties
clarified, codified, and enforced outside of software.
This necessity in turn raises a related question. Even as web
services and XML rely on multi-party standards for information and
application sharing, 1:1 mapping still looks like it will be with us
for a long time. RFID provides another example: the current
specification for a multiparty Object Naming Service (ONS) will not be
sufficient to handle the sheer number of potential any-to-any data
relationships, so trading partners will need to conduct some degree of
A-to-B clarification. For cost, competitive, and complexity reasons,
supply chain players will not make their reader and status information
routinely or widely available. If a particular application at a
particular trading partner makes sense from two or more parties'
perspective, then systems will be connected to enable that. Once
again, enabling transparency becomes a matter of managing
externalities, unintentional risk exposure, costs, and benefits, and
negotiating these types of conditions is problematic for groups larger
than two or three parties.
While the future belongs to networks, the reality of transparency
highlights the importance of trust, which is far more easily
negotiated and enforced in two-way relationships than in n-way
situations. The mixed success of HIPAA, Sarbanes-Oxley, and other
efforts to legislate trustworthiness testifies to the inherent
difficulties in managing networks of interested parties, each of which
collects and moves information for its own reasons from the inside
out.
and analysts have been calling for greater transparency in business
and government. Transparency was somehow different from
accountability and visibility, implying that various constituencies
could see the inner workings of an organization. The scandals at
Adelphia, Enron, Worldcom, and elsewhere intensified the clamor, which
found one prominent expression of its logic in Don Tapscott's book The
Naked Corporation.
Making achievements and shortcomings more visible, in timely fashion
sounds like an obviously Good Thing. But it's a long way from
conceptual aspiration to working out the many details of who should
and can see what, who should and can act on what, and when can which
people see what, all of which involves multiple layers of costs and
benefits. Instead of merely asking "is transparency desirable?" there
seems to be movement toward more sophisticated understandings of
transparency's many contexts.
1) Transparency costs money
As Sarbanes-Oxley has demonstrated, regulatory requirements impose
externalities (costs not accounted for by the market) and unexpected
consequences. Someone compared the burden of reporting, particularly
for small and medium enterprises, to spending $1000 on a safe to
protect $100 of jewelry; it also costs taxpayers money to enforce
regulations that may or may not be improving the efficiency of
markets. Establishing transparency thus becomes a question of how to
require useful information to be made available in accessible form
rather than merely increasing the amount of reporting in complex,
redundant, and often arcane processes: less truly can be more.
2) Transparency can impose competitive disadvantage
Some of the most revealing knowledge about a firm comes from what Stan
Davis once called "information exhaust." Business-to-business
exchanges, RFID-based tracking networks, credit card records, and the
like all can reveal fundamental knowledge about a supplier or
customer's economic situation. As Scott McNealy of Sun said of some
B2B exchange proposals back while he was still CEO, "We don't want
demand for our products to be known and understood. Why would you
outsource your purchasing department? Isn't your purchasing strategic?
People are going to find it is a really dumb idea to outsource to a
competitor so they can see your demand curve."
3) Transparency can be deliberate or inadvertent
Note that the transparency of demand curves as revealed in the course
of doing business is inadvertent: no investor safety or regulatory
assurance is gained or sought in such a situation. Yet by letting
patterns be discerned from large bodies of transactional data, a firm
puts itself at risk of unfair pricing, strategic shortages, and other
disruptions. (A classic example is large mutual funds, which hold
such substantial positions that they can signal buying or selling
intention to the wider market in their everyday movement of large
orders.) Help-wanted ads, real estate purchases, travel programs, and
other everyday interactions can tip off analysts or competitors as to
new initiatives, acquisitions and divestitures, and the like.
Accordingly, the use of third parties, shell corporations, and other
devices is common: executive search delivers obvious benefits as it
reduces transparency.
4) The world has grown less transparent in the past five years
As we observe the fifth anniversary of the September 11 terrorist
attacks, the transparency debate is being reframed. Much could be
gained by the sharing of avian flu preparedness plans, for example,
but I have seen little willingness to do so: because such plans are
near neighbors to disaster preparedness documents, it is often
irresponsible to circulate either type of document widely.
E-government is another area in transition: just as localities,
states, and many national agencies were rushing to make documents and
processes available on line, security considerations led to the
rethinking of such services as maps, agency directories, and the like.
Just the other day I was using Google Earth to view Pennsylvania GIS
data pertaining to a trout stream. At one point I zoomed too close or
otherwise triggered something, at which time a huge red "X" covered
the screen without further explanation - it truly felt as though the
system had discovered me as an intruder a la "Mission Impossible" even
though there are no obviously secure locations for miles from the
creek in question.
5) Transparency is part of risk: something to be managed
The overall scope of what has come to be called "enterprise risk
management" is truly staggering. At the same time that regulators
require both numbers and the processes for generating those numbers to
be certified, clever people must be scouring the business and its
interactions with the wider world to see where useful information is
being unwittingly compromised. It's an apparently trivial example,
but how many URLs have you seen which display the logo of the web
server vendor as a favicon, indicating that at least one default has
not been overridden during setup? (Here's a gallery of proper icons:
http://mppierce66.home.comcast.net/web/fi/)
Technology frequently both solves and creates problems in this domain.
Databases are an excellent example: sometimes it's the details that
are sensitive, while elsewhere the rollups need to be locked down.
Health care records containing identifiable patient data are supposed
to be safeguarded while aggregate statistics for public health and
similar purposes can be circulated. In the military supply chain,
meanwhile, low-level personnel or contractors can see line items in
order to load trucks or ships, but the aggregate list of what's going
on the ship, and its destination, are classified.
The latter example gets more complicated in a coalition scenario: for
a hypothetical exercise let's say the US Navy runs SAP as its
enterprise backbone while a partner navy from Canada or the U.K. runs
Oracle. At the same time that coalition partners manage classified
data vertically within their own force, they must also manage data
flows both horizontally across forces and then vertically, up and down
a different culture and organizational model. The elements of a
ship's inventory, for example, might consist of rollups that are
masked even within the ship: those same Xs over the first twelve
digits of your credit card number on a receipt have other uses. At
the same time, commanders at an appropriate level need to see
aggregate numbers derived from all participating forces, which means
that close agreement on translation of definitions, rank, and job
descriptions must precede any technical granting of access. As
difficult as it is from a technical perspective, getting SAP to
interoperate with Oracle in a truly mission-critical situation is
secondary to getting the relationships of the various parties
clarified, codified, and enforced outside of software.
This necessity in turn raises a related question. Even as web
services and XML rely on multi-party standards for information and
application sharing, 1:1 mapping still looks like it will be with us
for a long time. RFID provides another example: the current
specification for a multiparty Object Naming Service (ONS) will not be
sufficient to handle the sheer number of potential any-to-any data
relationships, so trading partners will need to conduct some degree of
A-to-B clarification. For cost, competitive, and complexity reasons,
supply chain players will not make their reader and status information
routinely or widely available. If a particular application at a
particular trading partner makes sense from two or more parties'
perspective, then systems will be connected to enable that. Once
again, enabling transparency becomes a matter of managing
externalities, unintentional risk exposure, costs, and benefits, and
negotiating these types of conditions is problematic for groups larger
than two or three parties.
While the future belongs to networks, the reality of transparency
highlights the importance of trust, which is far more easily
negotiated and enforced in two-way relationships than in n-way
situations. The mixed success of HIPAA, Sarbanes-Oxley, and other
efforts to legislate trustworthiness testifies to the inherent
difficulties in managing networks of interested parties, each of which
collects and moves information for its own reasons from the inside
out.
Saturday, August 12, 2006
August 2006 Early Indications: Of Copiers, Counterfeiters, and Pirates
Enterprise computing is almost exactly 50 years old: the first purchase of a commercial Univac occurred in 1954. As the Economist pointed out recently, the personal computer is 25. This historical symmetry neatly sets the context for a problem that has been with us only a short time: software copying.
This is truly a problem without precedent. While the Xerox machine did not duplicate the printing (and particularly the binding) process, photocopying did have a major economic impact on at least two sub-sectors: textbook publishing and sheet music. Even so, these markets are small relative to software, music, movies, and proprietary research. Thus the business model changes, court cases, and other signs of market adaptation to photocopying do not compare to the issues we face today.
I could find surprisingly little literature on the historical arc of this issue. Nevertheless, given the prominence of Napster and its successors, Microsoft's interactions with the Chinese government and market, and the rise to economic power of the gaming sector, copying and its control have become central issues in a digital economy.
Duplicating a physical artifact means, at the least, having access to both raw materials and skills. Whether that's steel and metalworking, food and cooking, or wood and carpentry, the issue of copying has been nonexistent in some markets. Elsewhere, particularly branded consumer products such as watches and purses, copying -- as in imitation rather than replication -- can be a significant concern. Physicality also implies a moderate barrier to movement: successful counterfeiters still face the problem of getting merchandise to customers.
The Internet removes the barrier of getting raw materials because code is malleable, easily transported, and closer to idea than infrastructure. The skill involved in copying a file, whether of executable code or data, is miniscule in contrast to what was needed to create either the software artifact or a physical original. Unlike physical counterfeits, which typically lack material quality and/or craftsmanship compared to the original, or analog copies in which successive generations of cassette tapes, photocopies, or faxes rapidly degrade, digital copies are nearly perfect. Furthermore, the means of production (a PC) is inexpensive and ubiquitous, which makes tracing the origin of copies harder than locating activities with heavier infrastructure, such as radio broadcasts and LP record pressing. Finally, the digital distribution channel is not only faster than a physical counterpart, it is instantaneously global.
Owners of digital content have relied on three tactics to combat copying. First, there has been a series of attempts to make computer disks hard or impossible to copy, by hiding files, using proprietary formats (such as game cartridges), or doing something called nibbilizing that rearranged the bit sequence of a copy. (Similarly, Macrovision enforced copy protection in analog VHS recorders.) As software distribution goes increasingly online, such measures still have their place, but they have not slowed the spread of copying by a significant margin. An exception is the video DVD, which can be copied by nowledgeable users but not casual ones: proprietary protection of the digital bitstream in a DVD player or PC is enforced
in hardware.
Secondly, software publishers can make it hard or impossible to use a copy. Some companies required users to consult a paper manual ("what is the last word on page 67?") to generate crude authentication. One manual used symbols, and printed the manual in a color scheme that was impossible to photocopy. Still others relied on a hardware device called a dongle to activate a program in conjunction with the software and a generic PC (which quickly raised the problem of getting multiple dongles to interact gracefully on the same machine). More recently, a program can "phone home" via the Internet to see if software with a given serial number is in use on multiple machines. This approach can be made relatively robust for application software, and a variant called Fairplay prevents unauthorized copying of Apple's iTunes music files. Adobe is including auditing and monitoring of print materials in its LiveCycle Policy Server: if a user forwards an e-mail or file, or prints it, or otherwise interacts with it, the originator of the document can be informed. How this extensive reach will affect task design and business process remains to be determined.
Finally, software owners can lobby legislatures to change laws relating to copyright. The doctrine of fair use has been dramatically altered by both the duplication technologies of the past 100 years and the lobbying of content industries. There have been many unintended consequences: copying application software off a 5 ¼" floppy onto a USB stick would generally be illegal, but with rapidly outmoded storage technologies, what is the owner of the application to do if she owns a PC without the appropriate outmoded drive? At the enterprise and government level, archiving digital assets often turns into an exercise in curatorship of a technology museum: successive generations of outmoded hardware and software need to be maintained in the event that a given file or storage format needs to be read.
The whole question of software copying has many layers of complexity. The economics of digital goods means that the first copy is extremely expensive, representing as it does all the capital investment and years of r&d. Afterward, copies are effectively free to produce, which can lead to very high profit margins. The lack of effective channels for certain digital goods (single-song music downloads in the Napster era, for example) means that some markets might reject the arbitrary bundling or other pricing offered by copyright owners. After a copy is made, with whatever motivation, different parties might be financially liable for an individual's action, depending on how the law is written.
The content industry currently tends to reject copying as backup: if I buy an iTunes song (or 500 of them) and my host PC's hard drive dies, I'm generally out of luck even though all software was purchased and used under the terms of the license. Another example is DVDs: if I have two places of residence and want to watch a movie where I am, why must I buy a second copy of the same software rather than make a single copy for personal use? Once again, copyright law tends to prohibit any copying under blanket provisions Such a move blurs the distinction between copying and counterfeiting, which are overlapping but not identical concepts. As processor speeds, graphics capability, and bandwidth all improve, content owners have lobbied to engineer copy protection deeper into the computing platform.
This degree of restriction would be unprecedented. If I want to weld a Ferrari nose onto the front end of a dump truck, Ferrari (or Caterpillar) can't control what is done either with the purchased asset or, more important, an oxyacetylene torch. Governments have engineered protection into color copiers, for example, and it's hard to argue against some degree of action in the public interest to protect the integrity of the money supply. But being able to use small clips of published text in scholarly works, for example, is standard practice -- and essential to the expansion of knowledge in law or literary criticism. The parallel action of copying any portion of a movie for personal or scholarly use, however, might be illegal, depending on jurisdiction. Similarly the study of cryptography is highly regulated: scholars who decode copy protection algorithms run the risk of prosecution if they publish their findings.
Herein lies the conundrum. The digital asset copying problem is unprecedented, so new kinds and degrees of measures will be required. At the same time, the legitimacy of certain forms of copying -- for preservation, backup, or fair use -- means that broad prohibitions, enforced in a general-purpose computing platform, come at an extremely high price to the purchasers and users of software and other digital media. No single answer will apply in every market to every application, but there have been some noteworthy efforts:
-Use copying to build an installed base.
Software makers with sufficiently strong cash reserves and long planning horizons can consider letting copies go relatively unpunished to build up a user base. Once a large body of people is trained on the software and file extensions and other conventions are well established, there are high enough switching costs that there may be reason to buy later versions of the product, particularly if the registration process is tightened, the pricing is attractive, and/or competitors have been weakened.
-Use copying of entertainment to sell other entertainment.
The Grateful Dead's support of tape-swappers who were allowed to record concerts is a widely cited example. Other artists have used music downloads as an alternative path around the gatekeepers of radio playlists to build live audiences for concerts -- where the t-shirt concession is tightly protected against counterfeiters.
-Reconsider analog.
Several music labels, faced with plummeting CD sales, have turned to high-quality vinyl releases of both new and back catalog. Some high-end financial newsletters never left paper distribution. There are still many places where one can't conveniently read an electronic newspaper.
-Utilize advertising-supported distribution.
Archives are a perfect example: while a few newspapers have succeeded in charging subscriptions, most are failing to monetize their back issues with clumsy subscription or registration models which often don't support permanent linking from blogs or other sources of traffic. As paper newspapers continue to decline in circulation, the economic models of hybrid (digital + physical) production and distribution are ripe for reinvention. As a former big-city newspaper editor recently told me, this talk about the sky falling on newspaper ad revenues has happened before: in the late 1960s, political advertising moved overwhelmingly to television almost overnight, and the newspaper industry survived.
-Think of King Gillette and sell blades after giving away razors.
Giving away a multi-player game title free, or allowing users to copy it without restriction, provides software publishers with a powerful distribution channel (it used to be called "viral" back in the day). Recovering the cost can be more effectively achieved by making the proprietary on-line gaming environment a tightly controlled, for profit affair, with monthly or annual renewals: players will pay for access to other players, not for the plastic disc. Several online gaming environments (including Second Life) have spun off real economies based on cash flowing to merchants of virtual assets.
The list is not inclusive, but should suggest that there are enough viable responses to digital copying such that broad prohibition of all software copying will impose social costs that may outweigh proprietary benefits. It's important that there be open public debate to consider all of these potential costs, benefits, and risks of various courses of action. Copying and piracy, meanwhile, are not one and the same, but the rhetorical landscape tends to make this distinction harder and harder to draw. At the same time, true piracy -- illicit DVD pressing plants for example -- should be considered and addressed separately rather than being conceptually lumped in with the many gray areas of fair use.
This is truly a problem without precedent. While the Xerox machine did not duplicate the printing (and particularly the binding) process, photocopying did have a major economic impact on at least two sub-sectors: textbook publishing and sheet music. Even so, these markets are small relative to software, music, movies, and proprietary research. Thus the business model changes, court cases, and other signs of market adaptation to photocopying do not compare to the issues we face today.
I could find surprisingly little literature on the historical arc of this issue. Nevertheless, given the prominence of Napster and its successors, Microsoft's interactions with the Chinese government and market, and the rise to economic power of the gaming sector, copying and its control have become central issues in a digital economy.
Duplicating a physical artifact means, at the least, having access to both raw materials and skills. Whether that's steel and metalworking, food and cooking, or wood and carpentry, the issue of copying has been nonexistent in some markets. Elsewhere, particularly branded consumer products such as watches and purses, copying -- as in imitation rather than replication -- can be a significant concern. Physicality also implies a moderate barrier to movement: successful counterfeiters still face the problem of getting merchandise to customers.
The Internet removes the barrier of getting raw materials because code is malleable, easily transported, and closer to idea than infrastructure. The skill involved in copying a file, whether of executable code or data, is miniscule in contrast to what was needed to create either the software artifact or a physical original. Unlike physical counterfeits, which typically lack material quality and/or craftsmanship compared to the original, or analog copies in which successive generations of cassette tapes, photocopies, or faxes rapidly degrade, digital copies are nearly perfect. Furthermore, the means of production (a PC) is inexpensive and ubiquitous, which makes tracing the origin of copies harder than locating activities with heavier infrastructure, such as radio broadcasts and LP record pressing. Finally, the digital distribution channel is not only faster than a physical counterpart, it is instantaneously global.
Owners of digital content have relied on three tactics to combat copying. First, there has been a series of attempts to make computer disks hard or impossible to copy, by hiding files, using proprietary formats (such as game cartridges), or doing something called nibbilizing that rearranged the bit sequence of a copy. (Similarly, Macrovision enforced copy protection in analog VHS recorders.) As software distribution goes increasingly online, such measures still have their place, but they have not slowed the spread of copying by a significant margin. An exception is the video DVD, which can be copied by nowledgeable users but not casual ones: proprietary protection of the digital bitstream in a DVD player or PC is enforced
in hardware.
Secondly, software publishers can make it hard or impossible to use a copy. Some companies required users to consult a paper manual ("what is the last word on page 67?") to generate crude authentication. One manual used symbols, and printed the manual in a color scheme that was impossible to photocopy. Still others relied on a hardware device called a dongle to activate a program in conjunction with the software and a generic PC (which quickly raised the problem of getting multiple dongles to interact gracefully on the same machine). More recently, a program can "phone home" via the Internet to see if software with a given serial number is in use on multiple machines. This approach can be made relatively robust for application software, and a variant called Fairplay prevents unauthorized copying of Apple's iTunes music files. Adobe is including auditing and monitoring of print materials in its LiveCycle Policy Server: if a user forwards an e-mail or file, or prints it, or otherwise interacts with it, the originator of the document can be informed. How this extensive reach will affect task design and business process remains to be determined.
Finally, software owners can lobby legislatures to change laws relating to copyright. The doctrine of fair use has been dramatically altered by both the duplication technologies of the past 100 years and the lobbying of content industries. There have been many unintended consequences: copying application software off a 5 ¼" floppy onto a USB stick would generally be illegal, but with rapidly outmoded storage technologies, what is the owner of the application to do if she owns a PC without the appropriate outmoded drive? At the enterprise and government level, archiving digital assets often turns into an exercise in curatorship of a technology museum: successive generations of outmoded hardware and software need to be maintained in the event that a given file or storage format needs to be read.
The whole question of software copying has many layers of complexity. The economics of digital goods means that the first copy is extremely expensive, representing as it does all the capital investment and years of r&d. Afterward, copies are effectively free to produce, which can lead to very high profit margins. The lack of effective channels for certain digital goods (single-song music downloads in the Napster era, for example) means that some markets might reject the arbitrary bundling or other pricing offered by copyright owners. After a copy is made, with whatever motivation, different parties might be financially liable for an individual's action, depending on how the law is written.
The content industry currently tends to reject copying as backup: if I buy an iTunes song (or 500 of them) and my host PC's hard drive dies, I'm generally out of luck even though all software was purchased and used under the terms of the license. Another example is DVDs: if I have two places of residence and want to watch a movie where I am, why must I buy a second copy of the same software rather than make a single copy for personal use? Once again, copyright law tends to prohibit any copying under blanket provisions Such a move blurs the distinction between copying and counterfeiting, which are overlapping but not identical concepts. As processor speeds, graphics capability, and bandwidth all improve, content owners have lobbied to engineer copy protection deeper into the computing platform.
This degree of restriction would be unprecedented. If I want to weld a Ferrari nose onto the front end of a dump truck, Ferrari (or Caterpillar) can't control what is done either with the purchased asset or, more important, an oxyacetylene torch. Governments have engineered protection into color copiers, for example, and it's hard to argue against some degree of action in the public interest to protect the integrity of the money supply. But being able to use small clips of published text in scholarly works, for example, is standard practice -- and essential to the expansion of knowledge in law or literary criticism. The parallel action of copying any portion of a movie for personal or scholarly use, however, might be illegal, depending on jurisdiction. Similarly the study of cryptography is highly regulated: scholars who decode copy protection algorithms run the risk of prosecution if they publish their findings.
Herein lies the conundrum. The digital asset copying problem is unprecedented, so new kinds and degrees of measures will be required. At the same time, the legitimacy of certain forms of copying -- for preservation, backup, or fair use -- means that broad prohibitions, enforced in a general-purpose computing platform, come at an extremely high price to the purchasers and users of software and other digital media. No single answer will apply in every market to every application, but there have been some noteworthy efforts:
-Use copying to build an installed base.
Software makers with sufficiently strong cash reserves and long planning horizons can consider letting copies go relatively unpunished to build up a user base. Once a large body of people is trained on the software and file extensions and other conventions are well established, there are high enough switching costs that there may be reason to buy later versions of the product, particularly if the registration process is tightened, the pricing is attractive, and/or competitors have been weakened.
-Use copying of entertainment to sell other entertainment.
The Grateful Dead's support of tape-swappers who were allowed to record concerts is a widely cited example. Other artists have used music downloads as an alternative path around the gatekeepers of radio playlists to build live audiences for concerts -- where the t-shirt concession is tightly protected against counterfeiters.
-Reconsider analog.
Several music labels, faced with plummeting CD sales, have turned to high-quality vinyl releases of both new and back catalog. Some high-end financial newsletters never left paper distribution. There are still many places where one can't conveniently read an electronic newspaper.
-Utilize advertising-supported distribution.
Archives are a perfect example: while a few newspapers have succeeded in charging subscriptions, most are failing to monetize their back issues with clumsy subscription or registration models which often don't support permanent linking from blogs or other sources of traffic. As paper newspapers continue to decline in circulation, the economic models of hybrid (digital + physical) production and distribution are ripe for reinvention. As a former big-city newspaper editor recently told me, this talk about the sky falling on newspaper ad revenues has happened before: in the late 1960s, political advertising moved overwhelmingly to television almost overnight, and the newspaper industry survived.
-Think of King Gillette and sell blades after giving away razors.
Giving away a multi-player game title free, or allowing users to copy it without restriction, provides software publishers with a powerful distribution channel (it used to be called "viral" back in the day). Recovering the cost can be more effectively achieved by making the proprietary on-line gaming environment a tightly controlled, for profit affair, with monthly or annual renewals: players will pay for access to other players, not for the plastic disc. Several online gaming environments (including Second Life) have spun off real economies based on cash flowing to merchants of virtual assets.
The list is not inclusive, but should suggest that there are enough viable responses to digital copying such that broad prohibition of all software copying will impose social costs that may outweigh proprietary benefits. It's important that there be open public debate to consider all of these potential costs, benefits, and risks of various courses of action. Copying and piracy, meanwhile, are not one and the same, but the rhetorical landscape tends to make this distinction harder and harder to draw. At the same time, true piracy -- illicit DVD pressing plants for example -- should be considered and addressed separately rather than being conceptually lumped in with the many gray areas of fair use.
Friday, July 28, 2006
July 2006 Early Indications: Web Video Update
As we predicted in January, video over the Internet is making a major impact.
"The relentless reinvention of business markets by the Internet and digitization will continue. . . Who might be next? Television is my best guess, given the presence of Apple (iPod video purchases), Microsoft, Google, Yahoo, Cisco (with its newly-purchased set-top box business), and AOL/Time Warner along with the RBOCs: that's a lot of intellectual and financial capital being focused on a mature industry that is becoming more digital every day."
But who is the main player in this emerging category? None of the giants listed above, though all continue to be active. Surprisingly, a startup called YouTube continues to control the majority of web video market share. The company is doing so despite owning no production facilities, archives, or other "media assets." Instead, YouTube is supplied with content by individuals who submit video clips of themselves on skateboards or hanging around, or old TV clips, or any number of other materials. Some of the videos are illegal in certain jurisdictions, others problematic for a variety of reasons, primarily lack of copyright. One of many fascinating sidenotes to the site's growth is soldiers' use of YouTube as a mechanism to post graphic, unedited videostreams from Iraq, a practice the military is trying to curtail.
But the numbers are soaring. According to Nielsen/Netratings, YouTube's traffic quadrupled in five months. Page views have increased even faster, from 117 million a month in January to 724 million in June: more people are visiting, and those who visit stay longer.
The site's traffic got a huge boost - 75% - in a week. Why? Bill Simmons, a former comedy writer who has a column on ESPN's site, listed his "YouTube Hall of Fame" in mid-June. It featured great athletic plays, unintentional goofiness, on-air interview meltdowns, and emotional moments, particularly the end of the 2004 World Series when Simmons' beloved Boston Red Sox won the World Series. The net result is that a video website with only a small amount of licensed content is beating AOL, Google, and Yahoo, in part on the recommendation of an uncredentialed sportswriter who eschews locker rooms and press boxes posting on an incumbent sports network's website.
Several elements of the YouTube model merit attention. First, while short clips have long been a unit of video production, programming has always worked in 30-minute multiples. Now consumption can work in the same short bursts that characterize everything from news correspondent stand-ups to highlight reels to comedy sketches.
Second, although there's speculation over who will buy YouTube and how much it's worth, recent history would seem to suggest that buyers may inherit major liability. Recall that Napster was a parallel to YouTube, a site hosting unlicensed digital content. It was shut down by lawyers with copyright concerns, then KaZaa and other sites moved music and other software to a peer-to-peer architecture with no central storage facilities, only pointers to users willing to share content. These too have drawn legal attention: just this week KaZaa was ordered to pay $150 AU in damages to recording artists. The vast amount of copyrighted material being distributed by YouTube -- even though it both distributes legal video for NBC and others and has removed copyrighted materials at the rights holder's request -- makes litigation and/or criminal charges seemingly inevitable.
Whatever the shape of the emerging business model for this kind of material, I'd like to look at the question more broadly. How might the economics, viewing practices, and other elements of Internet video evolve?
1) Time Scales
Currently, there is a great deal of time shifting for television viewing, due mostly to the use of VCRs and then personal video recorders such as the TiVo. Rarely will these technologies allow a home viewer to collect an archive's worth of content, nor will the content be indexed and managed. NBC pulled down Saturday Night Live clips from YouTube, so there's currently no easy way to see favorite routines and musical performances from the show's 25+ years, although a select few are on DVD.
Assuming new and appropriately powerful search tools, Web video promises to bridge the gap between TiVo's allowing a viewer to watch a show a day or two after broadcast and the tiny percentage of broadcast material (excluding as it does local news, advertising, and other material never included on commercial DVDs) available on permanent media. The questions of who manages the archives, what conditions are attached to their use, and who pays whom for what are mostly open and promise to be controversial.
2) Business Models
Unlike cinema and music, television has operated on an advertising-supported model from the beginning. As software companies, music labels, and publishers work to adapt to online distribution, television rights holders may be in a prime position to capitalize on the new distribution channel. At the same time, seeing the Internet only as distribution and not as creation and collaboration will lead to major missteps, as the people who upload 65 million videos a day to YouTube alone would seem to prove. The migration from broadcast "push" to download "pull" also makes a major difference.
This blurring of production and consumption is new, and not yet fully formed. The notion of fair use, under U.S. copyright law, will be further reinterpreted by both lawyers and users: the rise of "remix culture" in digital media extends familiar artistic methods of reuse (Jasper Johns' "Flag" is a prime example) to music and video. Establishing principles and practices of ownership will continue to challenge societies and businesses across the globe. However these questions get resolved, web video will emerge under a different model from the so-called "audience commodity" that broadcasters used to sell to over-the-air advertisers.
3) Segmentation
Video serves many kinds of people in many different ways. A corporate training video is fundamentally different from sports replays; long-form mini-series can't be confused with weather reports. Spanish-language game shows vary fundamentally from their Japanese or American cousins. It will be fascinating to watch how cultural and time-zone barriers are affected by the Internet video channels. The World Cup head-butt (a huge YouTube download) is as close to a globally universal image sequence as we currently have.
At the same time, the microscopic scale of the audiences for political satire, or any one of thousands of rock bands, or self-produced documentaries extends the tendency of network television toward fragmentation. The move from three networks in the U.S. to hundreds of cable channels is potentially expanding by orders of magnitude, and "viewers" are no longer passive nor bound to broadcasters' schedules.
4) Tools
As video migrates both to big-screen HDTV sets and small-screen cameraphones, it's clear that one size will not fit all for either production or consumption. It's a parallel situation to blogging: citizen video from mobile phones can be immediate and dramatic (as after the London subway bombings last year), but just as an army of bloggers can't produce and manage a big-city newspaper, so too a dozen or even a hundred amateur videographers can't deliver the World Cup video feed. Lightweight, on-the-spot image capture will continue to emerge, and better tools are available to small-timers every day, but there will always be an audience for highly-paid stars shot in high resolution formats and edited by professionals.
All that said, it's worth noting as a data point that an HD video camera can be bought on Amazon for well under $2000, and an HD digital video editing environment (DV Rack with HDV upgrade) costs only $500 for software. With that kind of access, and with Moore's law making electronics (if not optics or petrochemically-intensive storage media) cheaper every year, the ingredients are in place for major upheaval. Predicting who will capitalize -- Sony, Samsung, Disney, News Corp, Fujitsu (which makes mass storage for this kind of thing), video search startups, Google -- is premature, but it's clear that incumbents and upstarts alike are moving fast. The market, however, is moving even faster.
Bill Simmons YouTube column: http://sports.espn.go.com/espn/page2/story?page=simmons/060626
Background on Simmons:
http://sportsillustrated.cnn.com/2006/writers/chris_ballard/03/22/qa.simmons/index.html
and
Bryan Curtis, ADRIFT ON THE SEA OF ESPN.COM, New York Times, June 4, 2006,
Nielsen/Netratings figures: http://www.nielsen-netratings.com/pr/pr_060721_2.pdf
YouTube potential litigation: http://www.linuxinsider.com/story/must-read/51832.html
Amazon DV video camera:
http://www.amazon.com/gp/product/B00028SR0A/ref=pd_cp_p_title/103-1555740-4483015?%5Fencoding=UTF8&v=glance&n=502394
"The relentless reinvention of business markets by the Internet and digitization will continue. . . Who might be next? Television is my best guess, given the presence of Apple (iPod video purchases), Microsoft, Google, Yahoo, Cisco (with its newly-purchased set-top box business), and AOL/Time Warner along with the RBOCs: that's a lot of intellectual and financial capital being focused on a mature industry that is becoming more digital every day."
But who is the main player in this emerging category? None of the giants listed above, though all continue to be active. Surprisingly, a startup called YouTube continues to control the majority of web video market share. The company is doing so despite owning no production facilities, archives, or other "media assets." Instead, YouTube is supplied with content by individuals who submit video clips of themselves on skateboards or hanging around, or old TV clips, or any number of other materials. Some of the videos are illegal in certain jurisdictions, others problematic for a variety of reasons, primarily lack of copyright. One of many fascinating sidenotes to the site's growth is soldiers' use of YouTube as a mechanism to post graphic, unedited videostreams from Iraq, a practice the military is trying to curtail.
But the numbers are soaring. According to Nielsen/Netratings, YouTube's traffic quadrupled in five months. Page views have increased even faster, from 117 million a month in January to 724 million in June: more people are visiting, and those who visit stay longer.
The site's traffic got a huge boost - 75% - in a week. Why? Bill Simmons, a former comedy writer who has a column on ESPN's site, listed his "YouTube Hall of Fame" in mid-June. It featured great athletic plays, unintentional goofiness, on-air interview meltdowns, and emotional moments, particularly the end of the 2004 World Series when Simmons' beloved Boston Red Sox won the World Series. The net result is that a video website with only a small amount of licensed content is beating AOL, Google, and Yahoo, in part on the recommendation of an uncredentialed sportswriter who eschews locker rooms and press boxes posting on an incumbent sports network's website.
Several elements of the YouTube model merit attention. First, while short clips have long been a unit of video production, programming has always worked in 30-minute multiples. Now consumption can work in the same short bursts that characterize everything from news correspondent stand-ups to highlight reels to comedy sketches.
Second, although there's speculation over who will buy YouTube and how much it's worth, recent history would seem to suggest that buyers may inherit major liability. Recall that Napster was a parallel to YouTube, a site hosting unlicensed digital content. It was shut down by lawyers with copyright concerns, then KaZaa and other sites moved music and other software to a peer-to-peer architecture with no central storage facilities, only pointers to users willing to share content. These too have drawn legal attention: just this week KaZaa was ordered to pay $150 AU in damages to recording artists. The vast amount of copyrighted material being distributed by YouTube -- even though it both distributes legal video for NBC and others and has removed copyrighted materials at the rights holder's request -- makes litigation and/or criminal charges seemingly inevitable.
Whatever the shape of the emerging business model for this kind of material, I'd like to look at the question more broadly. How might the economics, viewing practices, and other elements of Internet video evolve?
1) Time Scales
Currently, there is a great deal of time shifting for television viewing, due mostly to the use of VCRs and then personal video recorders such as the TiVo. Rarely will these technologies allow a home viewer to collect an archive's worth of content, nor will the content be indexed and managed. NBC pulled down Saturday Night Live clips from YouTube, so there's currently no easy way to see favorite routines and musical performances from the show's 25+ years, although a select few are on DVD.
Assuming new and appropriately powerful search tools, Web video promises to bridge the gap between TiVo's allowing a viewer to watch a show a day or two after broadcast and the tiny percentage of broadcast material (excluding as it does local news, advertising, and other material never included on commercial DVDs) available on permanent media. The questions of who manages the archives, what conditions are attached to their use, and who pays whom for what are mostly open and promise to be controversial.
2) Business Models
Unlike cinema and music, television has operated on an advertising-supported model from the beginning. As software companies, music labels, and publishers work to adapt to online distribution, television rights holders may be in a prime position to capitalize on the new distribution channel. At the same time, seeing the Internet only as distribution and not as creation and collaboration will lead to major missteps, as the people who upload 65 million videos a day to YouTube alone would seem to prove. The migration from broadcast "push" to download "pull" also makes a major difference.
This blurring of production and consumption is new, and not yet fully formed. The notion of fair use, under U.S. copyright law, will be further reinterpreted by both lawyers and users: the rise of "remix culture" in digital media extends familiar artistic methods of reuse (Jasper Johns' "Flag" is a prime example) to music and video. Establishing principles and practices of ownership will continue to challenge societies and businesses across the globe. However these questions get resolved, web video will emerge under a different model from the so-called "audience commodity" that broadcasters used to sell to over-the-air advertisers.
3) Segmentation
Video serves many kinds of people in many different ways. A corporate training video is fundamentally different from sports replays; long-form mini-series can't be confused with weather reports. Spanish-language game shows vary fundamentally from their Japanese or American cousins. It will be fascinating to watch how cultural and time-zone barriers are affected by the Internet video channels. The World Cup head-butt (a huge YouTube download) is as close to a globally universal image sequence as we currently have.
At the same time, the microscopic scale of the audiences for political satire, or any one of thousands of rock bands, or self-produced documentaries extends the tendency of network television toward fragmentation. The move from three networks in the U.S. to hundreds of cable channels is potentially expanding by orders of magnitude, and "viewers" are no longer passive nor bound to broadcasters' schedules.
4) Tools
As video migrates both to big-screen HDTV sets and small-screen cameraphones, it's clear that one size will not fit all for either production or consumption. It's a parallel situation to blogging: citizen video from mobile phones can be immediate and dramatic (as after the London subway bombings last year), but just as an army of bloggers can't produce and manage a big-city newspaper, so too a dozen or even a hundred amateur videographers can't deliver the World Cup video feed. Lightweight, on-the-spot image capture will continue to emerge, and better tools are available to small-timers every day, but there will always be an audience for highly-paid stars shot in high resolution formats and edited by professionals.
All that said, it's worth noting as a data point that an HD video camera can be bought on Amazon for well under $2000, and an HD digital video editing environment (DV Rack with HDV upgrade) costs only $500 for software. With that kind of access, and with Moore's law making electronics (if not optics or petrochemically-intensive storage media) cheaper every year, the ingredients are in place for major upheaval. Predicting who will capitalize -- Sony, Samsung, Disney, News Corp, Fujitsu (which makes mass storage for this kind of thing), video search startups, Google -- is premature, but it's clear that incumbents and upstarts alike are moving fast. The market, however, is moving even faster.
Bill Simmons YouTube column: http://sports.espn.go.com/espn/page2/story?page=simmons/060626
Background on Simmons:
http://sportsillustrated.cnn.com/2006/writers/chris_ballard/03/22/qa.simmons/index.html
and
Bryan Curtis, ADRIFT ON THE SEA OF ESPN.COM, New York Times, June 4, 2006,
Nielsen/Netratings figures: http://www.nielsen-netratings.com/pr/pr_060721_2.pdf
YouTube potential litigation: http://www.linuxinsider.com/story/must-read/51832.html
Amazon DV video camera:
http://www.amazon.com/gp/product/B00028SR0A/ref=pd_cp_p_title/103-1555740-4483015?%5Fencoding=UTF8&v=glance&n=502394
Thursday, June 29, 2006
June 2006 Early Indications: Inversions
1) "I'll be at 362-9296 for a while; then I'll be at 648-0024 for
about fifteen minutes; then I'll be at 752-0420; and then I'll be
home, at 621-4598."
-Dick Christie in Woody Allen's "Play It Again Sam"
In the early 1970s, Dick Christie's character portrayed a hard-
charging, super-connected deal-maker. Seeing the movie now,
hisconnection of location to telephone numbers feels quaint. Not so
long ago, you could tell, within a few blocks, where somebody was
based on their area code and three digits of the "exchange," or
central office. Now, with cellular number portability, voice over IP,
and mobile telephony more generally, a phone number has gone from
being an indication of location to an indication of identity as the number
follows the person.
2) Wal-Mart announced a new program late last year called "Remix," in
which one objective is to separate fast-moving inventory from slower
sellers in the supply chain. The long-term rollout won't be completed
until 2007, and involves other facets including store re-design. The
inversion plays out as follows: typical inventory organization is
performed on the basis of what something is, of what properties it
inherently possesses. The new model organizes inventory by how fast
people purchase it, which is a characteristic external to the item.
3) Mechanical diagnosis traditionally resided in the fingers, eyes,
ears, and brain of a mechanic or technician. Attempts to organize
craft knowledge, whether from detectives or repair personnel, into
knowledge bases have typically been disappointing. From small
beginnings in large turbines, automotive, and elsewhere, however,
there's a trend toward putting diagnosis into the machinery itself.
Military technologists, for example, have laid out a future-state
vision of "swaptronics," which would mean components could identify
themselves when the odds of failure exceed a given parameter. In an
increasing number of instances, including computer hardware, the locus
of diagnosis is in the midst of a migration from the external observer
to the device itself.
Taken together, these three transitions point to some emerging issues
of digital identity. Cell phone numbers, e-mail addresses, and
instant messaging names all follow the person, in contrast to landline
numbers, physical addresses, and database information. Changing how
who I am relates to where I am, and to the parties that know where I am -- in addition to being an extension of a landline phone, the cell phone is
also a beacon -- will in turn change notions of identity.
Wal-Mart's use of velocity as an organizing principle follows other
examples of "what it is" being subsumed by "what it does," based on
easily analyzed historic data: frequent flier and buyer databases are
other examples. In contrast, actuarial data is based less on behavior
(smoking being the major exception) and more on macro-level patterns:
ethnicity, parental cause of death. As risk factors are identified
and quantified, it would seem likely that insurers and other risk
markets will more frequently charge based on what their clients do.
In states that do not require motorcycle riders to wear helmets, for
example, the cost of increased numbers of injuries is borne broadly.
If the risk premium is calibrated to an individual's helmet decision,
by contrast, economic incentives may motivate safer behavior if the rider chooses not to pay the realistic cost of going helmetless.
The migration in the locus of diagnosis parallels a much larger
transition as data evolves from paper to bits. As information moves,
it allows different things to be done with it. Standardized ways of
naming things for example, begin to give life to the notion of
information as a utility. Maps are an excellent example. The mere
task of obtaining and storing paper maps for any given area formerly
required special facilities and expertise. Visiting the map room of a
great research library is a rare treat, but prohibitively costly at
scale. With maps being easily standardized and quantified through the
efforts of Navteq and other companies, anyone with a browser can see
down to the block or house level for many locations around the world.
The same technology taking diagnosis from the mechanic into the car is
moving navigation from maps to vehicles.
This build-up of shared resources in turn has implications for
identity. When information was scarce -- think of pre-Gutenberg for
example -- books and learning (the ability to use the books) conferred
great power. As recently as the mid-20th century, there were still
debates in England, the U.S., and possibly elsewhere over what body of
knowledge an educated man "obviously" would command. In just a few
decades women outnumbered men in American college enrollment, the
specialization and mass of scholarship exploded, and information
became not just plentiful but overly plentiful. Compared to those
Reformation-era monks, today's smart (learned?) person may have
internalized relatively little but have access to many pieces and
kinds of information: how much one knows and how much one can find or
manipulate are related but distinct questions.
These related questions of "who," "where," and "what is happening" are
being both asked and answered differently than they were only a few
years ago. Based on the uses of mobile broadband in places like
Korea, the answers in the U.S. ten years from now will be different
yet again. Many questions raised by this series of inversions are
related to education, but also concern data rights and
responsibilities.
U.S.-based collectors of personal information -- whether banks,
hospitals, governments, or communications companies -- currently can
and usually do treat information about a person as the institution's
property. AT&T recently changed its privacy policy to say that it can
track what a customer watches on its broadband and television
services, and use that information as it sees fit. Recall that there
was a leak of Robert Bork's video rentals to the press at the time of
his confirmation hearings, and subsequent legislation made such
disclosures illegal. Legislation is again lagging behavior, as the
often alarming disclosures of data privacy mistakes accumulate.
Before the laptop was located, the White House requested a
supplemental appropriation of $160 million to fund the Veterans
Administration's response to the theft of private data from a single
PC: that covers a year of free credit monitoring for 26.5 million
veterans. A call center set up in response to the error was costing
$200,000 a day to operate as of mid-June.
That single example points to a myriad of other privacy and security
questions that haven't been widely raised yet, given that such a crime
would have been impossible 20 years ago and extremely difficult even a
few years ago. Merely having to report such breaches has only
recently been required, and then only in certain states. At base, we are in
the midst of redefining such ancient notions as privacy, property
rights, and risk, all of which relate intimately to identity. For all
of the possibilities of the digital era -- getting lost less often,
fixing machines before they break, being reachable at any time -- the
nightmare scenarios also proliferate.
At the minimum, we need to develop more widely shared technical,
managerial, social, and legal languages for discussing some basic
questions:
-Where is the data collected and stored relative to the person or
thing to which it relates? How are disputes over accuracy identified
and resolved?
-What are the analytical possibilities of that data?
-How are the benefits of those analytics apportioned to the people
whose behavior might be under analysis, or otherwise have a claim to
ownership (however that term is defined) as well as to the parties
doing and/or purchasing the analysis?
-What are legitimate uses of personal data? How, if at all, is
consent granted for certain of these? What controls insure that
proper safeguards are in place and followed? What constitutes abuse
of personal data? What recourse exists for various affected parties?
Recent Congressional debates have brought some of these issues to the
forefront, but insofar as the intricate details of any proposed
legislation will have major implications, much remains to be seen as
to whether the U.S. has actually made headway on the problem. As hard
as that task will be, the global nature of data networks implies that
even broader questions of jurisdiction will also need to be addressed.
about fifteen minutes; then I'll be at 752-0420; and then I'll be
home, at 621-4598."
-Dick Christie in Woody Allen's "Play It Again Sam"
In the early 1970s, Dick Christie's character portrayed a hard-
charging, super-connected deal-maker. Seeing the movie now,
hisconnection of location to telephone numbers feels quaint. Not so
long ago, you could tell, within a few blocks, where somebody was
based on their area code and three digits of the "exchange," or
central office. Now, with cellular number portability, voice over IP,
and mobile telephony more generally, a phone number has gone from
being an indication of location to an indication of identity as the number
follows the person.
2) Wal-Mart announced a new program late last year called "Remix," in
which one objective is to separate fast-moving inventory from slower
sellers in the supply chain. The long-term rollout won't be completed
until 2007, and involves other facets including store re-design. The
inversion plays out as follows: typical inventory organization is
performed on the basis of what something is, of what properties it
inherently possesses. The new model organizes inventory by how fast
people purchase it, which is a characteristic external to the item.
3) Mechanical diagnosis traditionally resided in the fingers, eyes,
ears, and brain of a mechanic or technician. Attempts to organize
craft knowledge, whether from detectives or repair personnel, into
knowledge bases have typically been disappointing. From small
beginnings in large turbines, automotive, and elsewhere, however,
there's a trend toward putting diagnosis into the machinery itself.
Military technologists, for example, have laid out a future-state
vision of "swaptronics," which would mean components could identify
themselves when the odds of failure exceed a given parameter. In an
increasing number of instances, including computer hardware, the locus
of diagnosis is in the midst of a migration from the external observer
to the device itself.
Taken together, these three transitions point to some emerging issues
of digital identity. Cell phone numbers, e-mail addresses, and
instant messaging names all follow the person, in contrast to landline
numbers, physical addresses, and database information. Changing how
who I am relates to where I am, and to the parties that know where I am -- in addition to being an extension of a landline phone, the cell phone is
also a beacon -- will in turn change notions of identity.
Wal-Mart's use of velocity as an organizing principle follows other
examples of "what it is" being subsumed by "what it does," based on
easily analyzed historic data: frequent flier and buyer databases are
other examples. In contrast, actuarial data is based less on behavior
(smoking being the major exception) and more on macro-level patterns:
ethnicity, parental cause of death. As risk factors are identified
and quantified, it would seem likely that insurers and other risk
markets will more frequently charge based on what their clients do.
In states that do not require motorcycle riders to wear helmets, for
example, the cost of increased numbers of injuries is borne broadly.
If the risk premium is calibrated to an individual's helmet decision,
by contrast, economic incentives may motivate safer behavior if the rider chooses not to pay the realistic cost of going helmetless.
The migration in the locus of diagnosis parallels a much larger
transition as data evolves from paper to bits. As information moves,
it allows different things to be done with it. Standardized ways of
naming things for example, begin to give life to the notion of
information as a utility. Maps are an excellent example. The mere
task of obtaining and storing paper maps for any given area formerly
required special facilities and expertise. Visiting the map room of a
great research library is a rare treat, but prohibitively costly at
scale. With maps being easily standardized and quantified through the
efforts of Navteq and other companies, anyone with a browser can see
down to the block or house level for many locations around the world.
The same technology taking diagnosis from the mechanic into the car is
moving navigation from maps to vehicles.
This build-up of shared resources in turn has implications for
identity. When information was scarce -- think of pre-Gutenberg for
example -- books and learning (the ability to use the books) conferred
great power. As recently as the mid-20th century, there were still
debates in England, the U.S., and possibly elsewhere over what body of
knowledge an educated man "obviously" would command. In just a few
decades women outnumbered men in American college enrollment, the
specialization and mass of scholarship exploded, and information
became not just plentiful but overly plentiful. Compared to those
Reformation-era monks, today's smart (learned?) person may have
internalized relatively little but have access to many pieces and
kinds of information: how much one knows and how much one can find or
manipulate are related but distinct questions.
These related questions of "who," "where," and "what is happening" are
being both asked and answered differently than they were only a few
years ago. Based on the uses of mobile broadband in places like
Korea, the answers in the U.S. ten years from now will be different
yet again. Many questions raised by this series of inversions are
related to education, but also concern data rights and
responsibilities.
U.S.-based collectors of personal information -- whether banks,
hospitals, governments, or communications companies -- currently can
and usually do treat information about a person as the institution's
property. AT&T recently changed its privacy policy to say that it can
track what a customer watches on its broadband and television
services, and use that information as it sees fit. Recall that there
was a leak of Robert Bork's video rentals to the press at the time of
his confirmation hearings, and subsequent legislation made such
disclosures illegal. Legislation is again lagging behavior, as the
often alarming disclosures of data privacy mistakes accumulate.
Before the laptop was located, the White House requested a
supplemental appropriation of $160 million to fund the Veterans
Administration's response to the theft of private data from a single
PC: that covers a year of free credit monitoring for 26.5 million
veterans. A call center set up in response to the error was costing
$200,000 a day to operate as of mid-June.
That single example points to a myriad of other privacy and security
questions that haven't been widely raised yet, given that such a crime
would have been impossible 20 years ago and extremely difficult even a
few years ago. Merely having to report such breaches has only
recently been required, and then only in certain states. At base, we are in
the midst of redefining such ancient notions as privacy, property
rights, and risk, all of which relate intimately to identity. For all
of the possibilities of the digital era -- getting lost less often,
fixing machines before they break, being reachable at any time -- the
nightmare scenarios also proliferate.
At the minimum, we need to develop more widely shared technical,
managerial, social, and legal languages for discussing some basic
questions:
-Where is the data collected and stored relative to the person or
thing to which it relates? How are disputes over accuracy identified
and resolved?
-What are the analytical possibilities of that data?
-How are the benefits of those analytics apportioned to the people
whose behavior might be under analysis, or otherwise have a claim to
ownership (however that term is defined) as well as to the parties
doing and/or purchasing the analysis?
-What are legitimate uses of personal data? How, if at all, is
consent granted for certain of these? What controls insure that
proper safeguards are in place and followed? What constitutes abuse
of personal data? What recourse exists for various affected parties?
Recent Congressional debates have brought some of these issues to the
forefront, but insofar as the intricate details of any proposed
legislation will have major implications, much remains to be seen as
to whether the U.S. has actually made headway on the problem. As hard
as that task will be, the global nature of data networks implies that
even broader questions of jurisdiction will also need to be addressed.
Friday, May 26, 2006
May 2006 Early Indications: Of Spaces and Places
Hurricane season is starting on the east and south coasts of the U.S., with residents hoping for a respite from the extensive damage of recent years. On the other end of the country, California is prone to mudslides, brush and forest fires, and earthquakes. A vaguely defined "tornado alley" runs south from the Dakotas to Texas, and as far east as Indiana. Waterfront areas in New England flooded earlier this month, and Katrina damage in the Gulf coast region last year was only partially hurricane-related.
As the world and the North American economy become more virtual, businesses are encountering new layers of the paradox of place. An Internet connection can link two people by voice, text chat, or video almost anywhere in the developed world, with many developing nations catching up fast. As Alan Blinder points out in an important article in Foreign Affairs, many kinds of work can be done in the lowest-cost environment and rapidly moved to less expensive surroundings switching costs are dropping as work seeks out low cost workers and infrastructure. For product work, that migration implies moving factories. More recently, services from radiology to call centers to coding have begun to be outsourced and/or offshored. One shorthand prediction calls China the emerging factory to the world, with India its back office. But costs are only one aspect of the tension between place and space.
The paradox of place also shapes how companies support their presence in the etherworld. I spoke with two major companies in the past month that have located a desirable geography for backup operations centers -- away from tornadoes, hurricanes, earthquakes, and floods, and near skilled workforces -- in Minnesota. Omaha's favorable positioning relative to major telecom connections has helped fuel the growth of call centers near what used to be a railroad interconnection center; the fiber optic cables were often laid in railroad right-of-way, linking the 19th century to the 21st.
The dynamics of place affect many business choices. Locating a factory or distribution center near a prime customer, as Dell's suppliers have near Austin, tightens tolerances on deliveries and can support higher levels of customer service. Moving R&D operations near major university centers, as Novartis and other companies have around MIT and Harvard, can impose extremely high housing prices, and thus wage scales, onto employers. For employers outside those sectors that require such specialized (and localized) expertise, Massachusetts is undesirable as a new business destination, and high housing prices are noted as a major deterrent to job growth there.
Richard Florida's influential book The Rise of the Creative Class argued that rather than lobbying with tax breaks and other inducements for large Toyota or Mercedes factories, states and localities in search of jobs should instead seek to attract creative individuals. These people tend to migrate to places with good music and culture, good restaurants and diverse populations, and strong educational institutions. After arriving, they put their skills and networks together and make jobs for themselves and others. His examples -- San Francisco, Minneapolis, and Pittsburgh, among many others -- appear to support his thesis. But another characteristic joins these places: essential but non-creative people like plumbers, police officers, teachers, and support personnel get priced out of cities that Florida lists as exemplars.
The increase in commuting distance for the working people who make creative centers work is increasing. These jobs matter for quality of life. Places like Marin County and Greenwich, Connecticut are undeniably appealing in many ways. But what happens when auto repair shops and dry cleaners can't survive? Many skilled jobs can be performed remotely, to be sure, but how can affluent, attractive locales keep nurses, delivery truck drivers, and other people whose skills are in short supply right now? Societies at all stages of economic development are experiencing the effects of selective job mobility in the aftermath of the Internet and cellular telephony revolutions.
There's another recent phenomenon of skills and place: workers in skilled jobs (such as information technology) often are trained at academic centers far from an employer base. Kathy Brittain White served as CIO at Cardinal Health before founding Rural Sourcing, an American company that seeks to provide the cost savings of displacing work to a lower-cost, lower-wage environment. Her twist to the offshore model is locating programming and support centers in such places as Greenville, North Carolina - home to East Carolina University, which now enrolls over 20,000 students.
Rural Sourcing uses networks to take relative isolation and turn it into comparative advantage. In a parallel move, Google is opening major facilities in New York and Pittsburgh, the latter because of Carnegie Mellon's powerful computer science presence. In the 19th century, proximity to water power made New England mill towns economic engines for the shoe and textile industries that were centered there. Detroit built on access to freighter ports that delivered the bulk materials for the auto industry (and on the venture capital provided by timer barons enriched by the need for mass-produced wooded furniture and building supplies).
Today, universities are vying to attract knowledge-intensive industries, but what are the other sources of advantage for the next 25 years? If the air taxi model driving Eclipse Aviation and other companies takes hold, the need for an airport with commercial carriers may drop in priority for example. If home schooling continues its strong rise in popularity, more people might move to places without demonstrably good school systems. Telemedicine could reduce the urge to live near major medical centers. Many such wild cards remain to be played.
Far from the fields that White is cultivating, the place of cities remains contested and important. The Economist recently ran an obituary for Jane Jacobs, a powerful force in 20th century American urbanism. Jacobs lacked academic credentials but argued for the organic aspects of cities. She opposed zoning for example, reasoning that people should be able to live near their work. Her energy and ideas helped defeat some of the more sweeping "urban renewal" efforts of the 1950s and 60s as citizen movements began to oppose the bulldozing of neighborhoods that happened to lie in the path of expressways. Criticized for advocating gentrification, she herself was priced out of Greenwich Village in the 1990s and found Toronto more hospitable to her thinking (and financial means) than her adopted New York, which she tended to idealize. Jacobs' crusade served as a reminder that the cost of the suburban model can only partially be measured in fuel consumption or rising commute times.
Thomas Friedman famously asserted that "the world is flat": anyone anywhere can participate in the global economy via various connections. Florida replied last fall that rather than being flat, "the world is spiky" in that concentrations of talent and resources matter more than the ubiquitous access Friedman chronicles. Rather than forcing these two arguments into false opposition, it is useful to use the insights of both to examine how connection is changing work, culture, and economics.
Blinder article on offshoring (long version):
http://www.princeton.edu/blinder/papers/05offshoringWP.pdf
New York Times article on air taxis (1 March 2006):
http://www.nytimes.com/2006/03/01/business/01flight.html?ei=5088&en=8c4b5c2eb378642d&ex=1298869200&adxnnl=1&partner=rssnyt&emc=rss&adxnnlx=1148475788-8bOlM7Fw9IRoMu3c+oD95A
Florida response to Friedman:
http://www.creativeclass.org/acrobat/TheWorldIsSpiky.pdf
As the world and the North American economy become more virtual, businesses are encountering new layers of the paradox of place. An Internet connection can link two people by voice, text chat, or video almost anywhere in the developed world, with many developing nations catching up fast. As Alan Blinder points out in an important article in Foreign Affairs, many kinds of work can be done in the lowest-cost environment and rapidly moved to less expensive surroundings switching costs are dropping as work seeks out low cost workers and infrastructure. For product work, that migration implies moving factories. More recently, services from radiology to call centers to coding have begun to be outsourced and/or offshored. One shorthand prediction calls China the emerging factory to the world, with India its back office. But costs are only one aspect of the tension between place and space.
The paradox of place also shapes how companies support their presence in the etherworld. I spoke with two major companies in the past month that have located a desirable geography for backup operations centers -- away from tornadoes, hurricanes, earthquakes, and floods, and near skilled workforces -- in Minnesota. Omaha's favorable positioning relative to major telecom connections has helped fuel the growth of call centers near what used to be a railroad interconnection center; the fiber optic cables were often laid in railroad right-of-way, linking the 19th century to the 21st.
The dynamics of place affect many business choices. Locating a factory or distribution center near a prime customer, as Dell's suppliers have near Austin, tightens tolerances on deliveries and can support higher levels of customer service. Moving R&D operations near major university centers, as Novartis and other companies have around MIT and Harvard, can impose extremely high housing prices, and thus wage scales, onto employers. For employers outside those sectors that require such specialized (and localized) expertise, Massachusetts is undesirable as a new business destination, and high housing prices are noted as a major deterrent to job growth there.
Richard Florida's influential book The Rise of the Creative Class argued that rather than lobbying with tax breaks and other inducements for large Toyota or Mercedes factories, states and localities in search of jobs should instead seek to attract creative individuals. These people tend to migrate to places with good music and culture, good restaurants and diverse populations, and strong educational institutions. After arriving, they put their skills and networks together and make jobs for themselves and others. His examples -- San Francisco, Minneapolis, and Pittsburgh, among many others -- appear to support his thesis. But another characteristic joins these places: essential but non-creative people like plumbers, police officers, teachers, and support personnel get priced out of cities that Florida lists as exemplars.
The increase in commuting distance for the working people who make creative centers work is increasing. These jobs matter for quality of life. Places like Marin County and Greenwich, Connecticut are undeniably appealing in many ways. But what happens when auto repair shops and dry cleaners can't survive? Many skilled jobs can be performed remotely, to be sure, but how can affluent, attractive locales keep nurses, delivery truck drivers, and other people whose skills are in short supply right now? Societies at all stages of economic development are experiencing the effects of selective job mobility in the aftermath of the Internet and cellular telephony revolutions.
There's another recent phenomenon of skills and place: workers in skilled jobs (such as information technology) often are trained at academic centers far from an employer base. Kathy Brittain White served as CIO at Cardinal Health before founding Rural Sourcing, an American company that seeks to provide the cost savings of displacing work to a lower-cost, lower-wage environment. Her twist to the offshore model is locating programming and support centers in such places as Greenville, North Carolina - home to East Carolina University, which now enrolls over 20,000 students.
Rural Sourcing uses networks to take relative isolation and turn it into comparative advantage. In a parallel move, Google is opening major facilities in New York and Pittsburgh, the latter because of Carnegie Mellon's powerful computer science presence. In the 19th century, proximity to water power made New England mill towns economic engines for the shoe and textile industries that were centered there. Detroit built on access to freighter ports that delivered the bulk materials for the auto industry (and on the venture capital provided by timer barons enriched by the need for mass-produced wooded furniture and building supplies).
Today, universities are vying to attract knowledge-intensive industries, but what are the other sources of advantage for the next 25 years? If the air taxi model driving Eclipse Aviation and other companies takes hold, the need for an airport with commercial carriers may drop in priority for example. If home schooling continues its strong rise in popularity, more people might move to places without demonstrably good school systems. Telemedicine could reduce the urge to live near major medical centers. Many such wild cards remain to be played.
Far from the fields that White is cultivating, the place of cities remains contested and important. The Economist recently ran an obituary for Jane Jacobs, a powerful force in 20th century American urbanism. Jacobs lacked academic credentials but argued for the organic aspects of cities. She opposed zoning for example, reasoning that people should be able to live near their work. Her energy and ideas helped defeat some of the more sweeping "urban renewal" efforts of the 1950s and 60s as citizen movements began to oppose the bulldozing of neighborhoods that happened to lie in the path of expressways. Criticized for advocating gentrification, she herself was priced out of Greenwich Village in the 1990s and found Toronto more hospitable to her thinking (and financial means) than her adopted New York, which she tended to idealize. Jacobs' crusade served as a reminder that the cost of the suburban model can only partially be measured in fuel consumption or rising commute times.
Thomas Friedman famously asserted that "the world is flat": anyone anywhere can participate in the global economy via various connections. Florida replied last fall that rather than being flat, "the world is spiky" in that concentrations of talent and resources matter more than the ubiquitous access Friedman chronicles. Rather than forcing these two arguments into false opposition, it is useful to use the insights of both to examine how connection is changing work, culture, and economics.
Blinder article on offshoring (long version):
http://www.princeton.edu/blinder/papers/05offshoringWP.pdf
New York Times article on air taxis (1 March 2006):
http://www.nytimes.com/2006/03/01/business/01flight.html?ei=5088&en=8c4b5c2eb378642d&ex=1298869200&adxnnl=1&partner=rssnyt&emc=rss&adxnnlx=1148475788-8bOlM7Fw9IRoMu3c+oD95A
Florida response to Friedman:
http://www.creativeclass.org/acrobat/TheWorldIsSpiky.pdf
Subscribe to:
Posts (Atom)
Posts
