I've had some very thoughtful responses to the Macro Issues newsletter, and I'll bring those into an upcoming edition. Because January has already rolled around, however, it's time for some polishing of the crystal ball. I'll repeat the fact, true since the newsletter started in 1997, that I hold no direct financial positions in any of the companies mentioned.
1) The second half of the year will be stronger than the first half in the PC sector
Dell has been running uncharacteristically behind projections and targets, as has Intel. My guess (and it's nothing more than a guess) is that enterprise IT shops are holding off buying PCs until Microsoft ships Vista: why would you want to deploy thousands of boxes in February only to have to upgrade them less than a year later? Microsoft, meanwhile, is ramping up the machine for its most highly publicized and marketed product launch ever.
2) "Services" will become the corporate IT buzzword outside IT
Services-oriented architectures, or SOAs, have soared in recognition in the past 18 months, and vendors are responding: you can see the term on Oracle's and BEA's front web pages, and extensive marketing support is showing up at HP, IBM, and SAP. Two questions should be kept in mind: 1) As one senior architect at a Fortune 50 company told me, "If SOA is the answer, what was the question?" 2) I defy anyone who's touting SOA to name the architecture it's replacing.
3)Google will launch a breakthrough business outside web advertising
The stock price contains lots of speculation that the company will reinvent another market, and downward pressure on that price along with increasing competition will perhaps accelerate the entry into the data center, Internet telephony, network computer, or other adjoining space. To hedge my prediction, the breakthrough new application may still be in public beta as of December 31.
4) HDTV will have collateral effects
After at least two decades of being a commodity item eclipsed in allure and economic power by the PC, the television is returning to primacy as a driving economic force. (To be fair, HDTV is in some ways a hybrid of computing and video display if you consider how much processing power is required for smoothing algorithms, for example, or how important computer memory is for the base technology.) Cable TV coax, for example, can't support as many HD streams into a residence as fiber can. Demand for those streams will somehow benefit fiber-focused companies, like Verizon and SBC/AT&T. Similarly, demand for HD-caliber content will force the Blu-Ray and HD DVD camps to reconcile. Finally, demand for flat-panel HD displays is driving a rapid increase in price-performance relationships, favoring efficient companies like Samsung over rivals with less disciplined supply chains and slower new product development.
5) The relentless reinvention of business markets by the Internet and digitization will continue
Here's a top-of-mind list of businesses that have had their economics radically altered thus far:
-travel agents, hotels, and airlines
-record labels and music distribution
-newspapers
-computer programming
-dating and matchmaking
-telephony
-photography
-computer and network hardware
-video rentals
-advertising
-retail
-government services such as motor vehicle registration, unemployment compensation, or the mails
-electoral politics
-secondary markets like garage sales, auctions, antique dealers, classified ads, and flea markets
That's a lot of change in a decade.
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. Automobile manufacturers and dealerships, health care, and education are further down the list of potential breakthroughs.
6) The quiet march of robot progress will continue
iRobot now has two consumer offerings, a vacuum cleaner and floor-mopper, to go with their four publicly announced military and commercial products; the company sold almost $100 million worth of products last year. Stanford and Carnegie Mellon both enjoyed spectacular success at the 2005 DARPA Grand Challenge: a year after every vehicle in the field failed, some literally crashing and burning, five driverless entries completed a 132-mile off-road path. Countless industrial tasks are accomplished robotically with products from companies including ABB, Epson, Fanuc, and Panasonic. The fact that much of this innovation happens away from public relations firms and tradeshows like CES means that it's hard to get an intuitive feel for what's happening below the radar.
7) Sensors and other location-awareness technologies will make the news for an unexpected consequence
In 12 years, the EZ Pass electronic toll collection system expanded beyond New York, New Jersey, and Pennsylvania to reach from Maine to Virginia and as far west as Illinois. Such systems can facilitate other objectives as well as increasing traffic flow: variable road pricing (as is the case in London and elsewhere), crime-solving, and payment tokens. RFID tags are used by horse breeders (and have been for roughly the past 25 years), wildlife biologists, and supply chain managers. Cell phones can be both bar code readers (in Japan and probably elsewhere) as well as beacons. Sensor communications are becoming standardized, as with the ZigBee protocol for building automation and other tasks. The bottom line is that a system designed to do one thing will be manipulated to do something markedly different, and the side effect will be newsworthy.
Cell phone providers, for example, know how fast traffic is moving because of how fast their subscribers change cells. Will they sell that information to newsradio stations whose helicopters can only cover one road at a time? RFID tags in passports can be read from a far enough distance that the design criteria were recently changed by the US immigration authorities to include a metallic shield. If sensors are embedded in humans for authentication and payment, as has been suggested, will muggers kidnap people rather than demand their wallets? Who has the authority to download OBD II sensor data from automobiles, which can record how fast a vehicle was moving along with other parameters? Can such data be subpoenaed in civil litigation? If drivers don't want governments tracking their movement, it's often harder to pay tolls with coins than use transponders - and even then, the toll booths frequently record license plate numbers to catch evaders. What are the actual costs and benefits of anonymity versus facilitating tracking?
8) The developing world will once again make headlines for innovation and not just cheaper production costs
Brazil is leading the world in some facets of cloning and alternative energy development. China is developing a state-backed Linux distribution. Korea leads the world in broadband deployment. The Microsoft Developers Network has 6.5 million people in India, which is second only to the U.S. What has been called the BRICK cluster - Brazil, Russia, India, China, and Korea - is evolving extremely rapidly, although the political instability of Russia is impeding its progress as investors back away. Look for a major announcement from one of the four remaining countries, potentially in biotech, optics and displays, or networking.
Monday, January 23, 2006
Wednesday, January 11, 2006
January 2006 Early Indications I: A Macro View
Before we get into the business of predicting what might happen in
technology-related areas in 2006, I wanted to step back and note six
macro-level factors that, if they break in a certain way, will make
discussions about Google vs. Microsoft, cable vs. DSL, Intel vs. AMD,
or Blu-Ray vs. HD DVD utterly irrelevant. The other factor here is
timing: it's impossible to know when a hurricane, epidemic, or
political uprising might hit, so these kinds of long-wave changes
don't fit neatly into a chronological prediction. Nevertheless, all of
them have the potential to rearrange the landscape of hundreds of
millions of individuals.
Of the six macro trend areas, three are political, two are natural,
and one straddles the line between the two.
-Two natural areas of potential disruption-
1) Climate change
Regardless of one's interpretations of various claims as to causation
and severity, evidence for the _existence_ of what's called "global
warming" mounts yearly. Foreseeing the _consequences_ is another
matter. How much will coastlines be altered by rising water levels
caused by melting polar ice? What will be the political and economic
consequences of newly exposed mineral resources in the Arctic?
Normally peaceful nations, including Canada and Denmark, are
contesting several previously ice-bound islands and surrounding areas
that could include such attractive resources as diamonds and oil; the
former country recently staged military exercises in the region to
bolster its presence.
Much was learned in the twentieth century about the interconnectedness
of ecosystems, but the scale of those connections seems to be
increasing as knowledge expands. Researchers at the Woods Hole
Oceanographic Institute have hypothesized dramatic shifts in what they
call the Atlantic Conveyor: a loop that begins with warm water flowing
north along the eastern U.S. coastline, powered by equatorial warmth
and related energy. After warming the Canadian Maritimes, the water
flows toward Europe, then south toward the equator. During this
stage, the cold, fresher water falls because it's heavier, further
helping fuel currents.
Shifting the balance of fresh versus salt water at different places in
the loop generates climate change, which changes what foods will grow
where and how much heat is needed for the resident populations.
(Migration patterns of butterflies, for example, are being found to be
much more dynamic than previously thought as they discover newly
hospitable habitats.) In the extreme case, currents could actually
flip directions, as they have in the distant past. The climatic
consequences of the Gulf stream's moving only slightly, or cooling by
a few degrees -- as a result of melting ice caps -- involve not only
hotter summers or fewer hard frosts in the winter (and a probable rise
in mosquito-borne disease) but also, paradoxically, colder
temperatures in parts of North America and/or Europe. And nobody knows yet if there's a connection between global warming
and all those hurricanes.
2) Avian flu
Nature is at base a system of checks and balances: growth and decay,
life and death, order and disorder all exist in dynamic tension. As
some forms of disease like bacterial infection or smallpox come under
attack from improved hygiene, medications, or new social practices,
new ones emerge. (It was fascinating to hear President Bush
supporting Intelligent Design in the same week he authorized a
relatively aggressive government response to a disease that doesn't
exist yet but will if a virus mutates in a certain way.)
No current adults in leadership positions have ever seen a pandemic.
The last one was in 1918, and had the nasty trait of attacking people
with the strongest immune systems in what is called a cytokine storm:
People's faces turned purple and they coughed blood as their lungs
were destroyed in 24 to 36 hours. Having thousands or tens of
thousands of prime-of-life adults would have unforeseeable
psychological and economic effects this time around.
Here's a back-of-the-envelope estimate of how bad an H5N1 pandemic
could be, courtesy of public-health expert Dr. Larry Brilliant via the
Strategic News Service:
****
First, assume that over the three-year period that pandemics usually
run their course, one-third of humanity contracted the disease (about
the same proportion as the 1918 flu and the same order of magnitude as
other flu pandemics). Then, assume that the death rate from H5N1 drops
from the currently reported 50% human fatality rate (it is almost 100%
fatal in chickens) reported today.
Assume that as a result of both better surveillance (so that we find
more mild cases, reducing the denominator of the case fatality rate,
which is number of deaths divided by number of cases) and the virus
becoming less virulent over time - as do most viruses as they pass
through the human population - the case fatality rate drops by
nine-tenths. That would reduce the case fatality from H5N1 to 5%. Even
then, we face a disaster of unimaginable proportions: if 33% of the
6.5 billion people in the world get infected, and 5% of them die, we
are looking at over 100 million deaths from the disease.
******
The economic consequences would be a massive extrapolation from what
we saw with SARS, which caused 44 deaths in Canada but paralyzed the
economy: imagine the world's airlines being grounded, for example.
Slowdowns in just-in-time logistics will quickly shut down
manufacturing lines that lack inventory buffers. Public places like
office buildings, arenas, and train stations will empty out. People
are already hoarding vaccines, but even anti-viral hand wipes could
become coveted items. The picture gets worse from there, if (and it's
a huge if) H5N1 mutates to spread by human-to-human contact.
-One area of natural and political overlap-
3) Unstable energy prices
The reasons for oil's being dramatically more expensive are of course
many and varied; they're also sometimes secret. Even visible records
are suspect: Shell downgraded its published statement of proven oil
and gas reserves five times in a twelve-month period. The lack of
transparency into the operations of key producers (OPEC nations), key
decision-makers (Vice President Cheney), and major markets (China)
means that tracing cause to effect will be effectively impossible,
particularly when catastrophic events (earthquakes, tsunamis,
hurricanes) disrupt matters further.
The Iraq war is of course a major factor in this instability; so is
Israel's current political situation. China's surge in urbanization
and manufacturing capacity is spurring demand, while, in the near
term, supply is unlikely to grow from either new discoveries of
current fuels or commercialization of new fuels. One exception may be
biofuels: Brazil's calorie-rich sugar cane converts to ethanol costing
about a third of what American grain-based ethanol does. Biodiesel,
made from used fryer grease and similar byproducts, can also be made
from soybeans, another major crop in Brazil.
But the rise of alternative fuels will not reduce oil's primacy any
time soon, and the imbalance between growth in consumption, speed of
depletion, and available reserves looks like it will widen before it
can stabilize. Add a climate shift (what if London used as much
heating fuel per capita as Stockholm?), a political disruption in
supply or distribution (whether from terrorists, taxing authorities,
or regime change), or a natural disaster, and oil prices could shock
the global economy since virtually every product and service folds
energy into the final price.
-Three long-wave political shifts-
4) The end of the bi-polar world
From the 18th century through most of the twentieth, prosperous
nations organized competing networks of far-away, less developed
territories. France had possessions everywhere from Louisiana to
Algeria to Vietnam, England's empire truly spanned the globe, and more
recently the U.S. used economic, military, and cultural incentives to
maintain if not an empire at least a sphere of influence from Korea,
Japan, and Taiwan to Canada to NATO.
Now, World War II fades into the past and less frequently dominates
policy debates. Differentials in birth rates create population
imbalance between religions and regions. Communications
simultaneously reinforces local cultures and connects disparate
peoples into a global cultural fabric. For these and other reasons,
the model of the big countries shaping smaller and poorer countries'
destinies is falling from favor. Arms deals can be had from the U.S.,
France - and China, with the wild card of the former Soviet states
selling off armaments for hard currency, no questions asked.
Intellectual capital comes less exclusively from the
Harvard-Sorbonne-Oxbridge axis given that China, India, and the former
Soviet states are both home-growing and temporarily exporting hundreds
of thousands of motivated and talented students.
For many years, conventional wisdom held that the U.S.-USSR two-camp
world, albeit with fatefully high stakes for live conflict, kept
smaller "rogue" states in line. The two superpowers held many
interests in common, and countries like Libya and North Korea, as well
as non-state actors, were held in check. Now, what some call the
"unipolar" world, with the U.S. as the sole superpower, works
differently. Europe is attempting to organize itself as a
countervailing force via the EU, Japan is moving out of its post-WW II
stance, and the "nuclear club" includes many relatively minor
countries who now carry potentially big sticks. China, meanwhile, is
modernizing in its distinctively Chinese way, becoming the world's
factory, extending some freedoms while curtailing others, and
reinventing itself at an unprecedented scale as millions of people
relocate every year.
There's no consensus understanding of the current world. Tom
Barnett's "core and gap" view probably has few fans in Europe and
fewer in Riyadh. The Bush administration's stance of unipolarity,
which both permits and necessitates unilaterality, has been fought
both within American politics and in Europe, never mind in the eastern
hemisphere. The simultaneous attack on and retreat from modernity,
meanwhile, joins religious fundamentalists from many faiths in
focusing on common or similar enemies, even as they differ in their
chosen path forward. Indeed, the single most important geopolitical
result of the fall of the Berlin wall may be the resurgence in the
number and power of non-state actors (such as clerics, media
personalities from Berlusconi to Murdoch to Ailes, and
non-governmental organizations like the Gates Foundation and
Greenpeace). Whatever their power, however, none of the emerging
entities can either countervail U.S. dominance or hold a cadre of
nation-states in loose alignment. The result is the instability that
we see today and a war fought not against a geopolitical entity but a
mode of political conflict.
5) Decreased faith in government and authority
The lack of faith in political institutions extends far beyond a
simple dislike or disapproval of a given politician's performance.
Across the globe, politics as an exercise is being viewed with less
trust and confidence than at any time in recent memory. George Bush's
approval rating, ever since New Orleans, has been less than 50%, a
stunning reversal for the apparently decisive winner of the 2004
election who at the time claimed a mandate. Even the process by which
that election was conducted, relying as it did on electronic voting
machines that lacked audit trails and hard copy but featured visibly
insecure code, is now widely distrusted.
Italy's Silvio Berlusconi has used his media holdings and government
powers to reinforce his position (in part by clamping down on
publications that satirize and criticize his alleged law-breaking),
but even with a hand-tailored legal code, a facellift, and a hair
transplant, Berlusconi trails his opponent in the upcoming April election.
Germany's Angela Merkel was hardly swept into office on a wave of
confidence and good feeling. After confusing gross and net income
twice in a single debate and later allegedly plagiarizing a Ronald
Reagan speech, her party limped into a first-place finish in the
election for Chancellor. After two months, her party (the Christian
Democratic Union/Christian Social Union, at 35.2% of the vote) and its
strongest challenger (the Social Democrats, with 34.2%) agreed to a coalition government.
Even England's Tony Blair, seemingly invulnerable to Tory opposition,
lost his first House of Commons vote in November. Much like George
Bush in the U.S., Blair faces public disapproval but has no credible
political opponent to contend with. History's grade on his handling
of the Iraq war is still incomplete, to say the least, but right now
voters seem ambivalent: when asked when he should act on his promise
to voluntarily leave government in the next several years, only 25% of
respondents hoped he would change his mind and stay on past the next
General Election.
In all four of the above-mentioned countries, public dissatisfaction
derives in part from a lack of confidence as old slogans and solutions
fail to address current reality. Economic uncertainty builds as jobs
and wages are being reoriented away from high-paying, often
unionized, positions toward part-time or otherwise lower-paying work.
An increasing number of jobs (and types of jobs) are being moved to
lower-wage nations, whether Mexico, Poland, India, or China.
6) Increasing signs of class conflict
Under the Bush presidency, the gap between rich and poor has
dramatically widened. The notion of a broad-based middle class,
serving as a buffer between the extremes and as a target for the
striving poor, can no longer be assumed. Even mainstream economists
like Mark Zandi at Economy.com contend that the middle class is
splitting, unevenly, into those who are doing well and those who,
largely because of globalization, are struggling.
According to venture capitalist Stephen Rattner writing in Business
Week (8 August 2005),
"Every serious study shows that the U.S. income gap has become a
chasm. Over the past 30 years, the share of income going to the
highest-earning Americans has risen steadily to levels not seen since
shortly before the Great Depression.
JUST HOW DRAMATIC A SHIFT over the past three decades? Economists
Thomas Piketty and Emmanuel Saez calculated (using data from the
Internal Revenue Service, hardly a hotbed of partisanship) that the
share of income going to the top 1% of households nearly doubled, to
14.7% in 2002, up from a low of 7.7% in the early 1970s. By
comparison, the income share for the top 1% peaked at 19.6% in 1928
before beginning its long slide. What is particularly alarming is that
at every step up the ladder, the disparity has progressively widened.
Over the past 30 years, the share of income garnered by the top 10% of
Americans has grown by about a third; the share of the top 0.01% --
the 13,000 or so households with an average income of $10.8 million in
2002 -- has multiplied nearly four times."
Turning her focus away from the rich, Harvard Law School professor
Elizabeth Warren analyzes the rise in middle-class wages from a
different perspective: risk. Given that both spouses in a two-parent
family are often working full-time to meet recurring, fixed expenses
like day care, insurance premiums, mortgage, and taxes, (and not
discretionary items like food, travel, and clothing that can be
adjusted), there's no slack in the budget for time taken off to care
for sick kids or recuperating elders. Nor can the spouse working in
the home serve as a backup wage-earner in the case of layoff or
disability involving the main wage-earner. The notion of safety nets
has fallen from the center of public attention of late, but the fact
remains that there are complex moral, political, and economic
questions about caring for our fellow citizens that are not going
away.
The Katrina disaster linked several of these themes into a complex
tragedy. Decisions to evacuate and/or shut down oil wells and
pipelines were made in close conjunction with energy companies.
Racial tension has been a facet of New Orleans life for well over a
century as French treatment of blacks (and intermarriage) starkly
differed from Confederate and then Reconstruction attitudes and
policies. Class tension, meanwhile, followed the pattern of many
tourist-driven economies: to cite but one example, the status, and
stature, of the poorly-paid police department remains fragile even
now. When natural disaster hit and was compounded by the consequences
of bad human decisions made over decades, the decay of civil order was
frightening and remains poorly understood.
Nor is class redefinition and its resulting tensions solely a North
American issue. The riots in France last year sprang from complex
sources, but religious affiliation, economics, and government's mild
response to astounding unemployment figures were part of the mix.
Similar tensions are less volatile but equally present across Europe,
where immigration policies are being hotly debated and often
redrafted. The class component of much of the violence in the Arab
world is also impossible to ignore as differences in education, social
mobility, and personal prospects (as in arranged marriages, for
example) mix with religious intolerance across much of Africa and
through Asia.
If a rising tide was formerly said (reportedly by everyone from
Herbert Hoover to John F. Kennedy) to lift all boats, what happens
when there are areas of the bay where the less fortunate stay stuck in
the mud while they can see better-off brethren differentially profit
from war, globalization, oil shortages, and other burdens widely
shared? As we contemplate what 2006 will bring, seeing the magnitude
and complexity of these kinds of long-term developments that could
become either urgent or inexorable forces in our lives can be a
useful, if perhaps overly sobering, exercise.
For further information:
http://www.whoi.edu/oceanus/viewArticle.do?id=7115
http://companionship.typepad.com/critt/2006/01/brilliant_pande.html
http://www.bmonesbittburns.com/economics/reports/20050812/avian_flu.pdf
http://www.bmonesbittburns.com/economics/reports/20051011/dont_fear_fear.pdf
http://www.thomaspmbarnett.com/pnm/index.htm
http://www.businessweek.com/print/magazine/content/05_32/b3946130.htm?chan=gl
http://privatizationofrisk.ssrc.org/Warren/pf/
technology-related areas in 2006, I wanted to step back and note six
macro-level factors that, if they break in a certain way, will make
discussions about Google vs. Microsoft, cable vs. DSL, Intel vs. AMD,
or Blu-Ray vs. HD DVD utterly irrelevant. The other factor here is
timing: it's impossible to know when a hurricane, epidemic, or
political uprising might hit, so these kinds of long-wave changes
don't fit neatly into a chronological prediction. Nevertheless, all of
them have the potential to rearrange the landscape of hundreds of
millions of individuals.
Of the six macro trend areas, three are political, two are natural,
and one straddles the line between the two.
-Two natural areas of potential disruption-
1) Climate change
Regardless of one's interpretations of various claims as to causation
and severity, evidence for the _existence_ of what's called "global
warming" mounts yearly. Foreseeing the _consequences_ is another
matter. How much will coastlines be altered by rising water levels
caused by melting polar ice? What will be the political and economic
consequences of newly exposed mineral resources in the Arctic?
Normally peaceful nations, including Canada and Denmark, are
contesting several previously ice-bound islands and surrounding areas
that could include such attractive resources as diamonds and oil; the
former country recently staged military exercises in the region to
bolster its presence.
Much was learned in the twentieth century about the interconnectedness
of ecosystems, but the scale of those connections seems to be
increasing as knowledge expands. Researchers at the Woods Hole
Oceanographic Institute have hypothesized dramatic shifts in what they
call the Atlantic Conveyor: a loop that begins with warm water flowing
north along the eastern U.S. coastline, powered by equatorial warmth
and related energy. After warming the Canadian Maritimes, the water
flows toward Europe, then south toward the equator. During this
stage, the cold, fresher water falls because it's heavier, further
helping fuel currents.
Shifting the balance of fresh versus salt water at different places in
the loop generates climate change, which changes what foods will grow
where and how much heat is needed for the resident populations.
(Migration patterns of butterflies, for example, are being found to be
much more dynamic than previously thought as they discover newly
hospitable habitats.) In the extreme case, currents could actually
flip directions, as they have in the distant past. The climatic
consequences of the Gulf stream's moving only slightly, or cooling by
a few degrees -- as a result of melting ice caps -- involve not only
hotter summers or fewer hard frosts in the winter (and a probable rise
in mosquito-borne disease) but also, paradoxically, colder
temperatures in parts of North America and/or Europe. And nobody knows yet if there's a connection between global warming
and all those hurricanes.
2) Avian flu
Nature is at base a system of checks and balances: growth and decay,
life and death, order and disorder all exist in dynamic tension. As
some forms of disease like bacterial infection or smallpox come under
attack from improved hygiene, medications, or new social practices,
new ones emerge. (It was fascinating to hear President Bush
supporting Intelligent Design in the same week he authorized a
relatively aggressive government response to a disease that doesn't
exist yet but will if a virus mutates in a certain way.)
No current adults in leadership positions have ever seen a pandemic.
The last one was in 1918, and had the nasty trait of attacking people
with the strongest immune systems in what is called a cytokine storm:
People's faces turned purple and they coughed blood as their lungs
were destroyed in 24 to 36 hours. Having thousands or tens of
thousands of prime-of-life adults would have unforeseeable
psychological and economic effects this time around.
Here's a back-of-the-envelope estimate of how bad an H5N1 pandemic
could be, courtesy of public-health expert Dr. Larry Brilliant via the
Strategic News Service:
****
First, assume that over the three-year period that pandemics usually
run their course, one-third of humanity contracted the disease (about
the same proportion as the 1918 flu and the same order of magnitude as
other flu pandemics). Then, assume that the death rate from H5N1 drops
from the currently reported 50% human fatality rate (it is almost 100%
fatal in chickens) reported today.
Assume that as a result of both better surveillance (so that we find
more mild cases, reducing the denominator of the case fatality rate,
which is number of deaths divided by number of cases) and the virus
becoming less virulent over time - as do most viruses as they pass
through the human population - the case fatality rate drops by
nine-tenths. That would reduce the case fatality from H5N1 to 5%. Even
then, we face a disaster of unimaginable proportions: if 33% of the
6.5 billion people in the world get infected, and 5% of them die, we
are looking at over 100 million deaths from the disease.
******
The economic consequences would be a massive extrapolation from what
we saw with SARS, which caused 44 deaths in Canada but paralyzed the
economy: imagine the world's airlines being grounded, for example.
Slowdowns in just-in-time logistics will quickly shut down
manufacturing lines that lack inventory buffers. Public places like
office buildings, arenas, and train stations will empty out. People
are already hoarding vaccines, but even anti-viral hand wipes could
become coveted items. The picture gets worse from there, if (and it's
a huge if) H5N1 mutates to spread by human-to-human contact.
-One area of natural and political overlap-
3) Unstable energy prices
The reasons for oil's being dramatically more expensive are of course
many and varied; they're also sometimes secret. Even visible records
are suspect: Shell downgraded its published statement of proven oil
and gas reserves five times in a twelve-month period. The lack of
transparency into the operations of key producers (OPEC nations), key
decision-makers (Vice President Cheney), and major markets (China)
means that tracing cause to effect will be effectively impossible,
particularly when catastrophic events (earthquakes, tsunamis,
hurricanes) disrupt matters further.
The Iraq war is of course a major factor in this instability; so is
Israel's current political situation. China's surge in urbanization
and manufacturing capacity is spurring demand, while, in the near
term, supply is unlikely to grow from either new discoveries of
current fuels or commercialization of new fuels. One exception may be
biofuels: Brazil's calorie-rich sugar cane converts to ethanol costing
about a third of what American grain-based ethanol does. Biodiesel,
made from used fryer grease and similar byproducts, can also be made
from soybeans, another major crop in Brazil.
But the rise of alternative fuels will not reduce oil's primacy any
time soon, and the imbalance between growth in consumption, speed of
depletion, and available reserves looks like it will widen before it
can stabilize. Add a climate shift (what if London used as much
heating fuel per capita as Stockholm?), a political disruption in
supply or distribution (whether from terrorists, taxing authorities,
or regime change), or a natural disaster, and oil prices could shock
the global economy since virtually every product and service folds
energy into the final price.
-Three long-wave political shifts-
4) The end of the bi-polar world
From the 18th century through most of the twentieth, prosperous
nations organized competing networks of far-away, less developed
territories. France had possessions everywhere from Louisiana to
Algeria to Vietnam, England's empire truly spanned the globe, and more
recently the U.S. used economic, military, and cultural incentives to
maintain if not an empire at least a sphere of influence from Korea,
Japan, and Taiwan to Canada to NATO.
Now, World War II fades into the past and less frequently dominates
policy debates. Differentials in birth rates create population
imbalance between religions and regions. Communications
simultaneously reinforces local cultures and connects disparate
peoples into a global cultural fabric. For these and other reasons,
the model of the big countries shaping smaller and poorer countries'
destinies is falling from favor. Arms deals can be had from the U.S.,
France - and China, with the wild card of the former Soviet states
selling off armaments for hard currency, no questions asked.
Intellectual capital comes less exclusively from the
Harvard-Sorbonne-Oxbridge axis given that China, India, and the former
Soviet states are both home-growing and temporarily exporting hundreds
of thousands of motivated and talented students.
For many years, conventional wisdom held that the U.S.-USSR two-camp
world, albeit with fatefully high stakes for live conflict, kept
smaller "rogue" states in line. The two superpowers held many
interests in common, and countries like Libya and North Korea, as well
as non-state actors, were held in check. Now, what some call the
"unipolar" world, with the U.S. as the sole superpower, works
differently. Europe is attempting to organize itself as a
countervailing force via the EU, Japan is moving out of its post-WW II
stance, and the "nuclear club" includes many relatively minor
countries who now carry potentially big sticks. China, meanwhile, is
modernizing in its distinctively Chinese way, becoming the world's
factory, extending some freedoms while curtailing others, and
reinventing itself at an unprecedented scale as millions of people
relocate every year.
There's no consensus understanding of the current world. Tom
Barnett's "core and gap" view probably has few fans in Europe and
fewer in Riyadh. The Bush administration's stance of unipolarity,
which both permits and necessitates unilaterality, has been fought
both within American politics and in Europe, never mind in the eastern
hemisphere. The simultaneous attack on and retreat from modernity,
meanwhile, joins religious fundamentalists from many faiths in
focusing on common or similar enemies, even as they differ in their
chosen path forward. Indeed, the single most important geopolitical
result of the fall of the Berlin wall may be the resurgence in the
number and power of non-state actors (such as clerics, media
personalities from Berlusconi to Murdoch to Ailes, and
non-governmental organizations like the Gates Foundation and
Greenpeace). Whatever their power, however, none of the emerging
entities can either countervail U.S. dominance or hold a cadre of
nation-states in loose alignment. The result is the instability that
we see today and a war fought not against a geopolitical entity but a
mode of political conflict.
5) Decreased faith in government and authority
The lack of faith in political institutions extends far beyond a
simple dislike or disapproval of a given politician's performance.
Across the globe, politics as an exercise is being viewed with less
trust and confidence than at any time in recent memory. George Bush's
approval rating, ever since New Orleans, has been less than 50%, a
stunning reversal for the apparently decisive winner of the 2004
election who at the time claimed a mandate. Even the process by which
that election was conducted, relying as it did on electronic voting
machines that lacked audit trails and hard copy but featured visibly
insecure code, is now widely distrusted.
Italy's Silvio Berlusconi has used his media holdings and government
powers to reinforce his position (in part by clamping down on
publications that satirize and criticize his alleged law-breaking),
but even with a hand-tailored legal code, a facellift, and a hair
transplant, Berlusconi trails his opponent in the upcoming April election.
Germany's Angela Merkel was hardly swept into office on a wave of
confidence and good feeling. After confusing gross and net income
twice in a single debate and later allegedly plagiarizing a Ronald
Reagan speech, her party limped into a first-place finish in the
election for Chancellor. After two months, her party (the Christian
Democratic Union/Christian Social Union, at 35.2% of the vote) and its
strongest challenger (the Social Democrats, with 34.2%) agreed to a coalition government.
Even England's Tony Blair, seemingly invulnerable to Tory opposition,
lost his first House of Commons vote in November. Much like George
Bush in the U.S., Blair faces public disapproval but has no credible
political opponent to contend with. History's grade on his handling
of the Iraq war is still incomplete, to say the least, but right now
voters seem ambivalent: when asked when he should act on his promise
to voluntarily leave government in the next several years, only 25% of
respondents hoped he would change his mind and stay on past the next
General Election.
In all four of the above-mentioned countries, public dissatisfaction
derives in part from a lack of confidence as old slogans and solutions
fail to address current reality. Economic uncertainty builds as jobs
and wages are being reoriented away from high-paying, often
unionized, positions toward part-time or otherwise lower-paying work.
An increasing number of jobs (and types of jobs) are being moved to
lower-wage nations, whether Mexico, Poland, India, or China.
6) Increasing signs of class conflict
Under the Bush presidency, the gap between rich and poor has
dramatically widened. The notion of a broad-based middle class,
serving as a buffer between the extremes and as a target for the
striving poor, can no longer be assumed. Even mainstream economists
like Mark Zandi at Economy.com contend that the middle class is
splitting, unevenly, into those who are doing well and those who,
largely because of globalization, are struggling.
According to venture capitalist Stephen Rattner writing in Business
Week (8 August 2005),
"Every serious study shows that the U.S. income gap has become a
chasm. Over the past 30 years, the share of income going to the
highest-earning Americans has risen steadily to levels not seen since
shortly before the Great Depression.
JUST HOW DRAMATIC A SHIFT over the past three decades? Economists
Thomas Piketty and Emmanuel Saez calculated (using data from the
Internal Revenue Service, hardly a hotbed of partisanship) that the
share of income going to the top 1% of households nearly doubled, to
14.7% in 2002, up from a low of 7.7% in the early 1970s. By
comparison, the income share for the top 1% peaked at 19.6% in 1928
before beginning its long slide. What is particularly alarming is that
at every step up the ladder, the disparity has progressively widened.
Over the past 30 years, the share of income garnered by the top 10% of
Americans has grown by about a third; the share of the top 0.01% --
the 13,000 or so households with an average income of $10.8 million in
2002 -- has multiplied nearly four times."
Turning her focus away from the rich, Harvard Law School professor
Elizabeth Warren analyzes the rise in middle-class wages from a
different perspective: risk. Given that both spouses in a two-parent
family are often working full-time to meet recurring, fixed expenses
like day care, insurance premiums, mortgage, and taxes, (and not
discretionary items like food, travel, and clothing that can be
adjusted), there's no slack in the budget for time taken off to care
for sick kids or recuperating elders. Nor can the spouse working in
the home serve as a backup wage-earner in the case of layoff or
disability involving the main wage-earner. The notion of safety nets
has fallen from the center of public attention of late, but the fact
remains that there are complex moral, political, and economic
questions about caring for our fellow citizens that are not going
away.
The Katrina disaster linked several of these themes into a complex
tragedy. Decisions to evacuate and/or shut down oil wells and
pipelines were made in close conjunction with energy companies.
Racial tension has been a facet of New Orleans life for well over a
century as French treatment of blacks (and intermarriage) starkly
differed from Confederate and then Reconstruction attitudes and
policies. Class tension, meanwhile, followed the pattern of many
tourist-driven economies: to cite but one example, the status, and
stature, of the poorly-paid police department remains fragile even
now. When natural disaster hit and was compounded by the consequences
of bad human decisions made over decades, the decay of civil order was
frightening and remains poorly understood.
Nor is class redefinition and its resulting tensions solely a North
American issue. The riots in France last year sprang from complex
sources, but religious affiliation, economics, and government's mild
response to astounding unemployment figures were part of the mix.
Similar tensions are less volatile but equally present across Europe,
where immigration policies are being hotly debated and often
redrafted. The class component of much of the violence in the Arab
world is also impossible to ignore as differences in education, social
mobility, and personal prospects (as in arranged marriages, for
example) mix with religious intolerance across much of Africa and
through Asia.
If a rising tide was formerly said (reportedly by everyone from
Herbert Hoover to John F. Kennedy) to lift all boats, what happens
when there are areas of the bay where the less fortunate stay stuck in
the mud while they can see better-off brethren differentially profit
from war, globalization, oil shortages, and other burdens widely
shared? As we contemplate what 2006 will bring, seeing the magnitude
and complexity of these kinds of long-term developments that could
become either urgent or inexorable forces in our lives can be a
useful, if perhaps overly sobering, exercise.
For further information:
http://www.whoi.edu/oceanus/viewArticle.do?id=7115
http://companionship.typepad.com/critt/2006/01/brilliant_pande.html
http://www.bmonesbittburns.com/economics/reports/20050812/avian_flu.pdf
http://www.bmonesbittburns.com/economics/reports/20051011/dont_fear_fear.pdf
http://www.thomaspmbarnett.com/pnm/index.htm
http://www.businessweek.com/print/magazine/content/05_32/b3946130.htm?chan=gl
http://privatizationofrisk.ssrc.org/Warren/pf/
Tuesday, January 03, 2006
December 2005 Early Indications: 2005 Predictions Revisited
(distributed 12/19/05)
A year ago this week I tried to highlight some areas of instability,
opportunity, and uncertainty that might be resolved in calendar 2005.
Reviewing this list, it’s striking how little some things change (the
DVD standards battle) and how much other industries (search in
particular) simply exploded.
I won’t march through the entire list but will instead highlight a few
entries with comments after a double asterisk.
A is for Apple, which has to address some big questions. Having
reinvented the mass-storage market by equipping the iPod with a great
interface and compelling legal content, the leadership must anticipate
the eventual margin erosion in the hand-held segment and decide how long
to ride the premium-price position in computational jewelry (i.e., what
used to be called PCs).
**Steve Jobs had a great ’05 by any measure, cannibalizing his own
markets with new, far superior products (the Nano) and getting new
services (video) into the market before most analysts predicted. Even
the one misstep, the iTunes cell phone, will be tied more to Motorola
than to Apple. Regarding the prediction, it may be that Apple doesn’t
need to worry about the desktop or laptop markets.
B is for business intelligence, the fancy name for data warehousing. For
information to enhance business outcomes, it has to fit more closely
into real processes. The MBA analyzing data cubes has far less leverage
than the people at the point of customer activity making better
decisions in the moment. That objective means that data analysis tools
will have to become more industry- and process-specific rather than
generic, and they can no longer be so detached from operational systems.
**Looking back, B should have been for blogging, which evolved faster
and delivered more mainstream impact than Cognos/SAS/Hyperion et al did.
D is for distributed development. The issue isn't really India per se,
because there will be new low-cost environments for certain kinds of
work as India develops inflation, a middle class, and/or heightened
political tensions with Pakistan. Managing distributed development is a
more general issue than merely signing up resources in India or Spain or
Estonia, and the tools for doing so are still generally immature.
**The other story here was weather: tsunamis, hurricanes, earthquakes,
and blizzards reinforced again how hard it is to manage infrastructure
and business processes on a global scale.
E is for energy, which remains a constraint for everything from
mobility, in the form of battery life, to data centers, in the form of
heat. Intel recently had to switch over to dual-core processors to
maintain its stream of new microprocessor introductions because of heat,
and the marketing strategy for Centrino (slower clock speed, better
battery life) doesn't immediately translate into a parallel pitch for
desktop and server chips that will no longer be positioned solely on speed.
**The other energy factor that came into play this year was of course
price volatility: running a cooler data center can repay in serious
dollars not spent on utility bills.
F is for fiber optics, which remain a wild card in the the quest for
widespread residential broadband access. Relatively speaking, Verizon is
taking an aggressive position with fiber to the premise (rather than the
node) in the Keller, Texas trial. Longer term, both capital and
regulatory uncertainty loom. Meanwhile, wireless broadband deploys far
faster and at lower cost, and it's completely possible that anyone who
spends billions of dollars digging up yards in 2005 could be aced out by
a wireless carrier within five years.
**Verizon and SBC/ATT continue to be caught in the regulatory conundrum
of being neither conventional voice services nor cable operators as they
try to enter the broadband sweepstakes. At the same time, one of the
potentially huge stories of the year, if proved true, is the rumor that
Google is preparing to deploy thousands of data centers (connected to
fiber they have quietly been buying) to deliver applications over the
network with low latency.
(http://www.pbs.org/cringely/pulpit/pulpit20051117.html)
J is for jail. Sarbanes-Oxley section 409 is still being interpreted,
but some provisions for timely disclosure took effect in August. The
legislation uses the terms "real time" and "urgent" for these
disclosures, which will add to the CIO's already substantial compliance
burden - and provide tough penalties for failure. "Real time" for some
purposes is four days, but retrieving a given e-mail or category of
instant messages, for example, within that time is impossible for most
organizations.
**Possibly in the manner of Y2K, this fear may have been overstated.
K is for killer application, or more properly the lack thereof. Intel
has suffered as both consumers and business users find it difficult to
justify new hardware purchases for such predominant tasks as e-mail, web
browsing, and spreadsheets. On mobile platforms, meanwhile, cultural
differences drive divergent adoption patterns of everything from mobile
messaging to cameraphones to geolocation. Personal digital media
management, in the form of iPods and TiVos, has sold well, but not all
that well. In a global market, it's worth reflecting on total TiVo
sales: 4.6 million for 2003, and probably less than 10 million total
worldwide as of mid-2004.
**Much to the concern of many in the PC and related industries, this
prediction came true, to the point where Dell had troubling results
despite having some of the best managerial execution in the world.
M is for management software. Given that headcount remains a large and,
thanks to health care costs, growing component of IT budgets, and given
that the complexity of the IT shop is still growing despite efforts to
rein it in, better tools for running the IT business are essential. Some
are in early deployment. Consider that front office, back office, sales
force, shopfloor, and field service all have been automated, but the IT
organization typically runs on spreadsheets rather than audit-able,
robust enterprise systems.
**Unfortunately, it’s hard to sense how this is playing: Mercury
Interactive, a leading company in IT governance software, is battling
against being delisted from the NASDAQ after its CEO, CFO, and general
counsel resigned amidst an investigation into financial criminality.
R is for RFID. Retailers already have the business case and many of the
business practices in place to exploit the consumer-products and
pharmaceutical tags; what will change dramatically are the behaviors and
expectations in such places as hospitals, unionized warehouses, and
courts. What are the rules for using tags (or automobile "black boxes")
as evidence? What are the privacy rights of an employee suspected of
theft or even of slacking? How will the black market adapt to the
presence of tagged Oxycontin in both legitimate and shadow supply chains?
**While the big questions are no closer to articulation, much less
resolution, the operational results appear to confirm the assertion that
retailers, if not manufacturers, can benefit: a study done out of the
University of Arkansas compared stores with RFID systems to stores
without them and found that the former had 16% fewer out-of-stock
events. Generally speaking, the industry average for stockouts is 8%, so
a 16% reduction takes the number down into the high 6s. Dollar savings
were not projected. (http://www.rfidjournal.com/article/articleview/1927)
(The other big R in 2005 was robotics, as four teams succeeded in
mastering DARPA's Grand Challenge a year after the whole field failed in
both mundane and spectular fashion.)
S is for search. Google's ambition and capability are both formidable:
their agreement with leading university libraries to digitize some of
their holdings parallels a less-visible effort at the Internet Archive
and will be a landmark in information access. Yahoo, Amazon, and
Microsoft, meanwhile, are devoting major investment and brainpower to
various categories of search challenges. Given the magnitude of
information volumes both at rest and in motion, traditional methods for
storing, finding, and manipulating data will have to be reinvented - and
more layers (in the form of geospatial, audio, and other aspects) are
still in the queue.
**The arms race in search is astonishing, as are stock valuations. The
big players are hiring talent across the world, and dispersing to do so:
Google is opening a lab in Pittsburgh to get access to more Carnegie
Mellon folks, while both Yahoo and Google are launching initiatives in
New York. Microsoft, meanwhile, finds itself in an uncharacteristically
defensive posture and has handed much of the responsibility for a
reinvention to an outsider, Ray Ozzie from Groove, who came on board
with the acquisition of the company he founded after leaving Lotus.
W is for Windows, still the world's most profitable software franchise.
Security remains a major question mark, as does the issue of platform
extension: how can Microsoft most successfully maintain look, feel, and
branding across PCs, cell phones, game consoles, TV set-top boxes, MP3
players, handhelds, and home entertainment centers? Where does extension
inhibit rather than enhance entry into new markets?
**Microsoft has confronted the security and reliability challenges
head-on as it prepares for Longhorn, now named Vista, to launch in late
’06. How well it has done so will shape the company’s future prospects.
Z is for zero latency, otherwise known as real time enterprise. Driven
by compliance requirements, customer requirements, and competitors,
often from unfamiliar sectors, businesses often confront "impossible"
performance requirements that can't be met simply by tweaking existing
processes and procedures. As with so many other technologies, the really
tough part of real time is behavioral and cultural rather than engineering.
**While IBM maintained its “On Demand” branding, the industry excitement
for real time as a performance ideal feels like it’s waning. Despite
what is or isn’t being said or written, however, the demands -- on
people, on management technique, on systems -- will continue to mount as
margins for error decrease.
A year ago this week I tried to highlight some areas of instability,
opportunity, and uncertainty that might be resolved in calendar 2005.
Reviewing this list, it’s striking how little some things change (the
DVD standards battle) and how much other industries (search in
particular) simply exploded.
I won’t march through the entire list but will instead highlight a few
entries with comments after a double asterisk.
A is for Apple, which has to address some big questions. Having
reinvented the mass-storage market by equipping the iPod with a great
interface and compelling legal content, the leadership must anticipate
the eventual margin erosion in the hand-held segment and decide how long
to ride the premium-price position in computational jewelry (i.e., what
used to be called PCs).
**Steve Jobs had a great ’05 by any measure, cannibalizing his own
markets with new, far superior products (the Nano) and getting new
services (video) into the market before most analysts predicted. Even
the one misstep, the iTunes cell phone, will be tied more to Motorola
than to Apple. Regarding the prediction, it may be that Apple doesn’t
need to worry about the desktop or laptop markets.
B is for business intelligence, the fancy name for data warehousing. For
information to enhance business outcomes, it has to fit more closely
into real processes. The MBA analyzing data cubes has far less leverage
than the people at the point of customer activity making better
decisions in the moment. That objective means that data analysis tools
will have to become more industry- and process-specific rather than
generic, and they can no longer be so detached from operational systems.
**Looking back, B should have been for blogging, which evolved faster
and delivered more mainstream impact than Cognos/SAS/Hyperion et al did.
D is for distributed development. The issue isn't really India per se,
because there will be new low-cost environments for certain kinds of
work as India develops inflation, a middle class, and/or heightened
political tensions with Pakistan. Managing distributed development is a
more general issue than merely signing up resources in India or Spain or
Estonia, and the tools for doing so are still generally immature.
**The other story here was weather: tsunamis, hurricanes, earthquakes,
and blizzards reinforced again how hard it is to manage infrastructure
and business processes on a global scale.
E is for energy, which remains a constraint for everything from
mobility, in the form of battery life, to data centers, in the form of
heat. Intel recently had to switch over to dual-core processors to
maintain its stream of new microprocessor introductions because of heat,
and the marketing strategy for Centrino (slower clock speed, better
battery life) doesn't immediately translate into a parallel pitch for
desktop and server chips that will no longer be positioned solely on speed.
**The other energy factor that came into play this year was of course
price volatility: running a cooler data center can repay in serious
dollars not spent on utility bills.
F is for fiber optics, which remain a wild card in the the quest for
widespread residential broadband access. Relatively speaking, Verizon is
taking an aggressive position with fiber to the premise (rather than the
node) in the Keller, Texas trial. Longer term, both capital and
regulatory uncertainty loom. Meanwhile, wireless broadband deploys far
faster and at lower cost, and it's completely possible that anyone who
spends billions of dollars digging up yards in 2005 could be aced out by
a wireless carrier within five years.
**Verizon and SBC/ATT continue to be caught in the regulatory conundrum
of being neither conventional voice services nor cable operators as they
try to enter the broadband sweepstakes. At the same time, one of the
potentially huge stories of the year, if proved true, is the rumor that
Google is preparing to deploy thousands of data centers (connected to
fiber they have quietly been buying) to deliver applications over the
network with low latency.
(http://www.pbs.org/cringely/pulpit/pulpit20051117.html)
J is for jail. Sarbanes-Oxley section 409 is still being interpreted,
but some provisions for timely disclosure took effect in August. The
legislation uses the terms "real time" and "urgent" for these
disclosures, which will add to the CIO's already substantial compliance
burden - and provide tough penalties for failure. "Real time" for some
purposes is four days, but retrieving a given e-mail or category of
instant messages, for example, within that time is impossible for most
organizations.
**Possibly in the manner of Y2K, this fear may have been overstated.
K is for killer application, or more properly the lack thereof. Intel
has suffered as both consumers and business users find it difficult to
justify new hardware purchases for such predominant tasks as e-mail, web
browsing, and spreadsheets. On mobile platforms, meanwhile, cultural
differences drive divergent adoption patterns of everything from mobile
messaging to cameraphones to geolocation. Personal digital media
management, in the form of iPods and TiVos, has sold well, but not all
that well. In a global market, it's worth reflecting on total TiVo
sales: 4.6 million for 2003, and probably less than 10 million total
worldwide as of mid-2004.
**Much to the concern of many in the PC and related industries, this
prediction came true, to the point where Dell had troubling results
despite having some of the best managerial execution in the world.
M is for management software. Given that headcount remains a large and,
thanks to health care costs, growing component of IT budgets, and given
that the complexity of the IT shop is still growing despite efforts to
rein it in, better tools for running the IT business are essential. Some
are in early deployment. Consider that front office, back office, sales
force, shopfloor, and field service all have been automated, but the IT
organization typically runs on spreadsheets rather than audit-able,
robust enterprise systems.
**Unfortunately, it’s hard to sense how this is playing: Mercury
Interactive, a leading company in IT governance software, is battling
against being delisted from the NASDAQ after its CEO, CFO, and general
counsel resigned amidst an investigation into financial criminality.
R is for RFID. Retailers already have the business case and many of the
business practices in place to exploit the consumer-products and
pharmaceutical tags; what will change dramatically are the behaviors and
expectations in such places as hospitals, unionized warehouses, and
courts. What are the rules for using tags (or automobile "black boxes")
as evidence? What are the privacy rights of an employee suspected of
theft or even of slacking? How will the black market adapt to the
presence of tagged Oxycontin in both legitimate and shadow supply chains?
**While the big questions are no closer to articulation, much less
resolution, the operational results appear to confirm the assertion that
retailers, if not manufacturers, can benefit: a study done out of the
University of Arkansas compared stores with RFID systems to stores
without them and found that the former had 16% fewer out-of-stock
events. Generally speaking, the industry average for stockouts is 8%, so
a 16% reduction takes the number down into the high 6s. Dollar savings
were not projected. (http://www.rfidjournal.com/article/articleview/1927)
(The other big R in 2005 was robotics, as four teams succeeded in
mastering DARPA's Grand Challenge a year after the whole field failed in
both mundane and spectular fashion.)
S is for search. Google's ambition and capability are both formidable:
their agreement with leading university libraries to digitize some of
their holdings parallels a less-visible effort at the Internet Archive
and will be a landmark in information access. Yahoo, Amazon, and
Microsoft, meanwhile, are devoting major investment and brainpower to
various categories of search challenges. Given the magnitude of
information volumes both at rest and in motion, traditional methods for
storing, finding, and manipulating data will have to be reinvented - and
more layers (in the form of geospatial, audio, and other aspects) are
still in the queue.
**The arms race in search is astonishing, as are stock valuations. The
big players are hiring talent across the world, and dispersing to do so:
Google is opening a lab in Pittsburgh to get access to more Carnegie
Mellon folks, while both Yahoo and Google are launching initiatives in
New York. Microsoft, meanwhile, finds itself in an uncharacteristically
defensive posture and has handed much of the responsibility for a
reinvention to an outsider, Ray Ozzie from Groove, who came on board
with the acquisition of the company he founded after leaving Lotus.
W is for Windows, still the world's most profitable software franchise.
Security remains a major question mark, as does the issue of platform
extension: how can Microsoft most successfully maintain look, feel, and
branding across PCs, cell phones, game consoles, TV set-top boxes, MP3
players, handhelds, and home entertainment centers? Where does extension
inhibit rather than enhance entry into new markets?
**Microsoft has confronted the security and reliability challenges
head-on as it prepares for Longhorn, now named Vista, to launch in late
’06. How well it has done so will shape the company’s future prospects.
Z is for zero latency, otherwise known as real time enterprise. Driven
by compliance requirements, customer requirements, and competitors,
often from unfamiliar sectors, businesses often confront "impossible"
performance requirements that can't be met simply by tweaking existing
processes and procedures. As with so many other technologies, the really
tough part of real time is behavioral and cultural rather than engineering.
**While IBM maintained its “On Demand” branding, the industry excitement
for real time as a performance ideal feels like it’s waning. Despite
what is or isn’t being said or written, however, the demands -- on
people, on management technique, on systems -- will continue to mount as
margins for error decrease.
November 2005 Early Indications II: The Disintermediation That Wasn't
(distributed 11/30)
It's hard to believe that it's almost 2006, and that it's been over a
decade since the notion of Internet disintermediation first received
widespread attention in Bill Gates' book, The Road Ahead. If you look
at travel agents who collected a lot of money for printing airline
tickets, the prophecy has come true.
Residential real estate was another field predicted to be toast. John
Baen and Randall S. Guttery predicted in 1997 that jobs would be lost to
automation, commissions would drop, and more sellers could sell
direct. The logic of the argument is strong, even in hindsight, but it
doesn't hold up. Instead of being pushed aside by the Internet, real
estate agents, individually and in powerful trade associations, have
been aggressive in their adoption of emerging technologies. Rather than
being disintermediated, the National Association of Realtors has become
the subject of Federal Trade Commission and Department of Justice
inquiries into price maintenance: U.S. house sellers generally pay a 6%
commission, while in the U.K., the figure is only 2%.
What happened that the prediction could be so far off?
The picture is not unambiguously successful. Real estate agents in the
U.S. enjoyed a year of extremely high market activity in 2004, but
average commission income went down, in part because average selling
prices were accompanied by a drop in the average commission to 5.1%, and
in part because the barrier to entry for the field is low enough that
lots of new aspiring agents got their licenses. Still, this largely
means that the field is a victim of its own success.
1) Real estate is a relationship business
Whether he or she is hunting for scarce properties in a hot market or
scarce buyers in a cool one, good real estate agents embed themselves in
deep social networks. The trust required for a buyer to make what is
typically the biggest purchase of his life does not translate to a
browser-based form. As recent house sellers, we found our buyer through
a real estate agent who had been working with him as a buyer's broker
for nearly a year. Could a website, however thorough, have broken that
trust if we had tried to sell the property ourselves?
2) Houses aren't plane tickets
To the extent that house purchases are deeply personal and given that
every buyer is different, the matching of buyer to property requires
both architectural and psychological understanding, patience, and some
luck. Real estate agents spend a lot of time behind the scenes learning
the market, tracking trends, and generally becoming informed as to what
combinations of features will match up best with a given buyer.
3) Control over information confers power
A real estate transaction involves multiple layers of information:
comparable sales, future uses for nearby vacant land, whether the
neighborhood kids are nice and the schools good, what kind of builder
put up the structure, etc. Little of this exists in standardized
databases, and it's both hard and expensive to generate in a channel
outside traditional real estate firms. Where data does exist in
structured form, access both to add and to view important kinds of
information is tightly controlled.
4) Organization is power
The National Association of Realtors is large, well-funded, and
effective in influencing legislation. Many attempts to create
alternative business models, involving less than full service but more
than For Sale By Owner behavior, have been literally or effectively
outlawed in certain states. No comparable organization exists for
travel agents, for example.
5) Real estate has embraced emerging technologies
I can recall seeing the iPix 3-D photographic demo at a trade show in
the late 1990s; now flythroughs, often sophisticated, are a staple of
real estate websites. In last Monday's Boston Globe (November 28), a
local agent discussed how a new tool integrates access to listings,
personal contact management, and other tools in a PDA. Some brokers
have taken to using blogs as another tool to build relationships, confer
authority, and generally keep their names in play. Even so, the most
powerful tool for most agents remains the mobile phone, a device and set
of capabilities that the Web has a hard time replacing.
6) Home-buying is a complex transaction
As my Penn State colleague Steve Sawyer and his co-authors have found,
it's naive to speak of disintermediation, singular, in the process of
purchasing a house or condominium. The Web has clearly changed the
process, but there are too many moving parts in the transaction for it
to be conducted completely on line. Some business-to-business aspects
are moving toward standards like XML to smooth workflows between, say,
mortgage lenders and title insurers, but conceiving of the process as
analogous to even car-buying ignores the coordination and other roles
played by a trusted party in a complicated, emotional, and large
purchase. As Sawyer et al state,
"The analytic simplicity of categorizing complex transactions as either
intermediated or not belies the web of connections and actions that make
selling and buying real estate a multi-state and multi-step process."
It's good counsel to observe as we analyze other predictions in the future.
References
John Baen and Randall Guttery, "The Coming Downsizing of Real Estate,"
Journal of Real Estate Portfolio Management 3 (1)
Kimberly Blanton, "Realtors get their hands on technology," Boston
Globe, November 28, 2005
Waleed Muhanna, The impact of e-commerce on the real estate industry:
Baen and Guttery revisted," Journal of Real Estate Portfolio Management
8 (2)
Steve Sawyer, Rolf Wigand, and Kevin Crowston, "Redefining Access: Uses
and Roles of Information and Communication Technology in the U.S.
Residential Real Estate Industry from 1995-2005" Journal of Information
Technology (20) 4
It's hard to believe that it's almost 2006, and that it's been over a
decade since the notion of Internet disintermediation first received
widespread attention in Bill Gates' book, The Road Ahead. If you look
at travel agents who collected a lot of money for printing airline
tickets, the prophecy has come true.
Residential real estate was another field predicted to be toast. John
Baen and Randall S. Guttery predicted in 1997 that jobs would be lost to
automation, commissions would drop, and more sellers could sell
direct. The logic of the argument is strong, even in hindsight, but it
doesn't hold up. Instead of being pushed aside by the Internet, real
estate agents, individually and in powerful trade associations, have
been aggressive in their adoption of emerging technologies. Rather than
being disintermediated, the National Association of Realtors has become
the subject of Federal Trade Commission and Department of Justice
inquiries into price maintenance: U.S. house sellers generally pay a 6%
commission, while in the U.K., the figure is only 2%.
What happened that the prediction could be so far off?
The picture is not unambiguously successful. Real estate agents in the
U.S. enjoyed a year of extremely high market activity in 2004, but
average commission income went down, in part because average selling
prices were accompanied by a drop in the average commission to 5.1%, and
in part because the barrier to entry for the field is low enough that
lots of new aspiring agents got their licenses. Still, this largely
means that the field is a victim of its own success.
1) Real estate is a relationship business
Whether he or she is hunting for scarce properties in a hot market or
scarce buyers in a cool one, good real estate agents embed themselves in
deep social networks. The trust required for a buyer to make what is
typically the biggest purchase of his life does not translate to a
browser-based form. As recent house sellers, we found our buyer through
a real estate agent who had been working with him as a buyer's broker
for nearly a year. Could a website, however thorough, have broken that
trust if we had tried to sell the property ourselves?
2) Houses aren't plane tickets
To the extent that house purchases are deeply personal and given that
every buyer is different, the matching of buyer to property requires
both architectural and psychological understanding, patience, and some
luck. Real estate agents spend a lot of time behind the scenes learning
the market, tracking trends, and generally becoming informed as to what
combinations of features will match up best with a given buyer.
3) Control over information confers power
A real estate transaction involves multiple layers of information:
comparable sales, future uses for nearby vacant land, whether the
neighborhood kids are nice and the schools good, what kind of builder
put up the structure, etc. Little of this exists in standardized
databases, and it's both hard and expensive to generate in a channel
outside traditional real estate firms. Where data does exist in
structured form, access both to add and to view important kinds of
information is tightly controlled.
4) Organization is power
The National Association of Realtors is large, well-funded, and
effective in influencing legislation. Many attempts to create
alternative business models, involving less than full service but more
than For Sale By Owner behavior, have been literally or effectively
outlawed in certain states. No comparable organization exists for
travel agents, for example.
5) Real estate has embraced emerging technologies
I can recall seeing the iPix 3-D photographic demo at a trade show in
the late 1990s; now flythroughs, often sophisticated, are a staple of
real estate websites. In last Monday's Boston Globe (November 28), a
local agent discussed how a new tool integrates access to listings,
personal contact management, and other tools in a PDA. Some brokers
have taken to using blogs as another tool to build relationships, confer
authority, and generally keep their names in play. Even so, the most
powerful tool for most agents remains the mobile phone, a device and set
of capabilities that the Web has a hard time replacing.
6) Home-buying is a complex transaction
As my Penn State colleague Steve Sawyer and his co-authors have found,
it's naive to speak of disintermediation, singular, in the process of
purchasing a house or condominium. The Web has clearly changed the
process, but there are too many moving parts in the transaction for it
to be conducted completely on line. Some business-to-business aspects
are moving toward standards like XML to smooth workflows between, say,
mortgage lenders and title insurers, but conceiving of the process as
analogous to even car-buying ignores the coordination and other roles
played by a trusted party in a complicated, emotional, and large
purchase. As Sawyer et al state,
"The analytic simplicity of categorizing complex transactions as either
intermediated or not belies the web of connections and actions that make
selling and buying real estate a multi-state and multi-step process."
It's good counsel to observe as we analyze other predictions in the future.
References
John Baen and Randall Guttery, "The Coming Downsizing of Real Estate,"
Journal of Real Estate Portfolio Management 3 (1)
Kimberly Blanton, "Realtors get their hands on technology," Boston
Globe, November 28, 2005
Waleed Muhanna, The impact of e-commerce on the real estate industry:
Baen and Guttery revisted," Journal of Real Estate Portfolio Management
8 (2)
Steve Sawyer, Rolf Wigand, and Kevin Crowston, "Redefining Access: Uses
and Roles of Information and Communication Technology in the U.S.
Residential Real Estate Industry from 1995-2005" Journal of Information
Technology (20) 4
Monday, November 21, 2005
November 2005 Early Indications I: The word salad relating to "services"
Early Indications is published twice monthly by the eBusiness Research Center at Penn State University. The author holds no direct financial stake in any of the companies mentioned.
If one ventures into the enterprise software world, the sheer volume of verbiage devoted to variations on the words "service" and "services" is bewildering, especially because a server, which confusingly can be either hardware or software, is unrelated to services. Web services are related to but not synonymous with service oriented architectures (SOAs), some of which can be implemented using an enterprise services bus (ESB). Public examples of SOA-like behavior can be found in the much-better named category called mashups, examples of which can be found below.
At the macroeconomic level, meanwhile, the services sector (which is really several sectors, as UCLA's Uday Karmarkar has noted) is crowding out products companies as the dominant force in gross domestic product. In the middle between code and Alan Greenspan, marketers worry about satisfaction ratings for customer service (including self-service) in the transaction process, while aftermarket repair and maintenance is yet another kind of service. Finally, there are transactions in which activities are performed in conjunction with a product purchase: software implementation is one such service.
According to the Oxford English Dictionary, "service" has at least five different meanings that could apply to the current confusion:
-the action or process of performing duties for
-an act of assistance
-the process of attending to a customer in a shop
-a system supplying a public need such as transport, or utilities such as electricity and water
-a periodic routine inspection and maintenance of a vehicle or other machine
(The root word, servus, means "slave.")
IBM has launched a research initiative into what is now being called Services Science, Management, and Engineering (SSME). According to the initiative's website, "A service is a provider/client interaction that creates and captures value." Elsewhere, an IBM Software page answers the question "What is an SOA?" this way:
"SOA is the blueprint for IT infrastructure of the future. SOA extends the Web services value proposition by providing guidance on how enterprise IT infrastructure should be architected using services."
But it's clear that the software folks do not intend that such architectures should use "provider/client interactions that create and capture value." Given this wide semantic variation, it will not come as a surprise that measuring services is problematic. At the economic level, what is the productivity of a teacher or programmer? The input-output metric used for mechanical efficiency breaks down, but no model readily presents itself as an alternative. There is substantial promise in the area of supply chain research however, insofar as networks of people in various roles perform tasks to accomplish a process. At a sufficient level of abstraction, treating some kinds of medical patients, building software, and delivering fresh strawberries do share metrics, constructs, and success factors.
Measurement of services is important for many areas, particularly where money is concerned. Thus a network provider might have a service level agreement (SLA) with a customer, that throughput will never fall below a given threshold and downtime is expected to be 30 minutes a month, never falling between 8 am and 6 pm, etc. Confusingly, because a services-oriented architecture runs across a network or set of networks, it requires a service level agreement from the provider of the network. The "S" is SOA has nothing to do with the one in SLA.
One further thought. Does customer satisfaction measure what was delivered by the provider, or what was experienced by the customer? For this discussion, "service" can be understood as retail or hospitality, professional services like law or consulting, and possibly more. Major corporate effort is expended in the area of increasing customer satisfaction, usually in operational improvements. It may not be the best place to apply effort, however. If satisfaction is understood as the congruence between expectation and experience, some of that spending on operations could be redirected into negotiation, getting customers to reset expectations rather than trying to meet unrealistic ones.
A cab ride is a service. Going from midtown Manhattan to LaGuardia at 1 pm on a weekday can take 25-45 minutes, while doing so at 5:15 is a very different proposition. Weather makes matters worse. If, however, a driver takes an hour in the middle of a sunny day because of inexperience or other driver-related factors, the rider is right to be irritated. The point here is that much effort is expended in trying to define service levels for a wide range of contingencies. Alternatively, it may make more sense to educate customers into the factors, both in and out of the provider's control, that influence service performance.
The broader issue of confusion over service, service levels, and service economics will get worse before things improve. That the language is insufficient probably relates to the relative newness of the swings from products to services, and from applications that run on processors to services that run over networks. I can only hope that just as "horseless carriage," a lame extension of a soon-to-be outdated name, gave rise to a rich vocabulary of automobile language, so too can we get more words like "mashup" and fewer bureaucratic three-letter acronyms that usually define reality neither vividly nor accurately.
Mashup examples:
http://www.mashmap.com/
http://www.internetbargaincenter.com/
If one ventures into the enterprise software world, the sheer volume of verbiage devoted to variations on the words "service" and "services" is bewildering, especially because a server, which confusingly can be either hardware or software, is unrelated to services. Web services are related to but not synonymous with service oriented architectures (SOAs), some of which can be implemented using an enterprise services bus (ESB). Public examples of SOA-like behavior can be found in the much-better named category called mashups, examples of which can be found below.
At the macroeconomic level, meanwhile, the services sector (which is really several sectors, as UCLA's Uday Karmarkar has noted) is crowding out products companies as the dominant force in gross domestic product. In the middle between code and Alan Greenspan, marketers worry about satisfaction ratings for customer service (including self-service) in the transaction process, while aftermarket repair and maintenance is yet another kind of service. Finally, there are transactions in which activities are performed in conjunction with a product purchase: software implementation is one such service.
According to the Oxford English Dictionary, "service" has at least five different meanings that could apply to the current confusion:
-the action or process of performing duties for
-an act of assistance
-the process of attending to a customer in a shop
-a system supplying a public need such as transport, or utilities such as electricity and water
-a periodic routine inspection and maintenance of a vehicle or other machine
(The root word, servus, means "slave.")
IBM has launched a research initiative into what is now being called Services Science, Management, and Engineering (SSME). According to the initiative's website, "A service is a provider/client interaction that creates and captures value." Elsewhere, an IBM Software page answers the question "What is an SOA?" this way:
"SOA is the blueprint for IT infrastructure of the future. SOA extends the Web services value proposition by providing guidance on how enterprise IT infrastructure should be architected using services."
But it's clear that the software folks do not intend that such architectures should use "provider/client interactions that create and capture value." Given this wide semantic variation, it will not come as a surprise that measuring services is problematic. At the economic level, what is the productivity of a teacher or programmer? The input-output metric used for mechanical efficiency breaks down, but no model readily presents itself as an alternative. There is substantial promise in the area of supply chain research however, insofar as networks of people in various roles perform tasks to accomplish a process. At a sufficient level of abstraction, treating some kinds of medical patients, building software, and delivering fresh strawberries do share metrics, constructs, and success factors.
Measurement of services is important for many areas, particularly where money is concerned. Thus a network provider might have a service level agreement (SLA) with a customer, that throughput will never fall below a given threshold and downtime is expected to be 30 minutes a month, never falling between 8 am and 6 pm, etc. Confusingly, because a services-oriented architecture runs across a network or set of networks, it requires a service level agreement from the provider of the network. The "S" is SOA has nothing to do with the one in SLA.
One further thought. Does customer satisfaction measure what was delivered by the provider, or what was experienced by the customer? For this discussion, "service" can be understood as retail or hospitality, professional services like law or consulting, and possibly more. Major corporate effort is expended in the area of increasing customer satisfaction, usually in operational improvements. It may not be the best place to apply effort, however. If satisfaction is understood as the congruence between expectation and experience, some of that spending on operations could be redirected into negotiation, getting customers to reset expectations rather than trying to meet unrealistic ones.
A cab ride is a service. Going from midtown Manhattan to LaGuardia at 1 pm on a weekday can take 25-45 minutes, while doing so at 5:15 is a very different proposition. Weather makes matters worse. If, however, a driver takes an hour in the middle of a sunny day because of inexperience or other driver-related factors, the rider is right to be irritated. The point here is that much effort is expended in trying to define service levels for a wide range of contingencies. Alternatively, it may make more sense to educate customers into the factors, both in and out of the provider's control, that influence service performance.
The broader issue of confusion over service, service levels, and service economics will get worse before things improve. That the language is insufficient probably relates to the relative newness of the swings from products to services, and from applications that run on processors to services that run over networks. I can only hope that just as "horseless carriage," a lame extension of a soon-to-be outdated name, gave rise to a rich vocabulary of automobile language, so too can we get more words like "mashup" and fewer bureaucratic three-letter acronyms that usually define reality neither vividly nor accurately.
Mashup examples:
http://www.mashmap.com/
http://www.internetbargaincenter.com/
October 2005 Early Indications newsletter I: New technologies mean new business choices
Early Indications is published twice monthly by the eBusiness Research
Center at Penn State University. The author holds no direct financial
stake in any of the companies mentioned.
"In the Web 1.0 era, when a company raised $10 million, they spent $2
million on servers from Sun, another $2 million on software from BEA,
another $2 million on Oracle software, and then they'd have only $4
million left to actually build the thing."
-David Hornik, venture capitalist at August Capital, speaking
at the Web 2.0 meeting, quoted in the Boston Globe, October 10
"Here's what we're going to do. We're going to go out, and we're
either going to buy Oracle financials or SAP. That's a $5 million
plus or minus purchase. Plus consulting [fees]. . . . I said, 'Look -
I have been through so many general ledger conversions in my life . .
. I'm not going through another conversion [off of Great Plains] when
we get to be a $100 million company.'"
- Jim Barksdale, speaking in 1997 of his early days at Netscape,
in Michael Cusumano and David Yoffie, Competing on Internet Time
As Jared Diamond posited in his Seminal Guns, Germs, and Steel,
there's often a tight connection between resources and destiny. Less
important than the quantity of a resource, however, is its fit with
human or market need. Much like the Maginot line, corporate barriers
to entry (assemblages of resources) can turn out to be competitive
liabilities as speed, focus, and agility frequently trump mass. Right
now Ford and GM are jettisoning as much excess baggage as possible,
for example, perhaps noting that neither Honda nor Toyota run car
rental companies, own satellite factories, or build military armored
vehicles. By contrast, Netscape built infrastructure in anticipation
of rapid growth, correctly as it turned out.
Businesses can be built of many resources: material, human, financial.
More recently, economists including Paul Romer have contended that
innovativeness itself is a resource: the world might run out of oil,
in this line of argument, but it can't run out of creative people
motivated to solve energy problems. There's also the matter of
intangible assets like patent portfolios, branding, and capabilities
in employee selection and training. The factors of production have
expanded beyond the original land, labor, and capital.
Technology is of course a core business resource. In the developer
and IT management communities, the acronyms are running particularly
hot and heavy right now. Between AJAX (1), LAMP(2), two flavors of
OSS, RSS, and CSS, people who write code have a wide range of
lightweight, network-centric tools at their disposal. Many of these
standards are supported by free and/or open-source software, and many
expand the repertoire of the web browser to behave more like a thin
client of a "real" computer. (For examples, see Google Maps or Gmail,
Web Boggle (http://weboggle.shackworks.com/4x4/), backpackit.com,
Microsoft Outlook web access, Flickr, or even enterprise-grade
applications like NetSuite.)
(1) Asynchronous Javascript and XML
(2) Linux, Apache, MySQL, Perl/Python/PHP
These new kinds of software tools and materials are in the process of
changing not only the technology world, but the business and social
environment. Think about the history of building: when structural
steel and fast elevators became available, Louis Sullivan and his
successors built buildings that would have been inconceivable only
years earlier. What would major modern cities look and feel like if
buildings were only 10 to 15 stories tall? When powerful air
conditioning became sufficiently cheap and reliable, the American
South and Southwest underwent a development boom that persists to the
current time. Resources shape destiny, again and again.
The relationship between the nature of technology and business
potentialities reminded me of my colleague Dave Robertson's very pithy
explanation of the delicate business of getting information technology
and business decisions to reinforce each other. I'm paraphrasing:
"Let's compare a business to a vehicle. You could choose to be a dump
truck, or a hybrid, or a sports car. None of these are inherently
better than the others until we know whether the context is family
driving with $4 gas, or building highways, or racing. Once a business
decides what kind of business it needs to become, a gravel hauler or a
dragster, you look under the hood: IT is the vehicle's engine. A
cogenerating electric motor probably won't power the dump truck, while
dropping a Hemi into a hybrid would just be wrong. Each engine is
right for a certain kind of vehicle, but again, it all depends on
context."
Dave, who's a professor at IMD, goes on to say that this metaphor
provides a way into his research, soon to be published, into the
intricate but essential matter of getting business architectures and
technology architectures to reinforce each other. (His co-authors are
Jeanne Ross and Peter Weill of MIT's Center for Information Systems
Research.) If a retailer is positioned to deliver high-quality men's
wear at a premium price, for example, late shipments, sloppy customer
records, and slow network connections will undermine that strategy.
On the other hand,
plenty of successful service businesses, including banks and
universities, still run green-screen mainframe or minicomputer
applications, complete with batch processing and poor access to
analytical data streams.
Both business architectures and technology architectures are creations
of the organizations they inhabit: formal methodologies and
prescriptions, while they have a place, will not in and of themselves
build either a sturdy chassis or an engine that will fit both that
chassis and its real-world requirements. It's one thing to decree
data quality standards and quite another to understand how and where
conflicting or erroneous entries are introduced. If a business
intends to expand internationally, is it hiring employees who are
multilingual and can operate across cultures? Are computer systems
ready for multiple currencies, multiples time zones, and multiple
process maps? Similarly, it's one thing to say "our customer always
comes first" and something quite different to give employees the
training, managerial cover, and career incentive to act on the
rhetoric.
By noting the wider acceptance of Linux, Python, or
software-as-service applications, do I suggest that every IT shop
throw out its Rational methodologies, Microsoft developer suite, or
Oracle databases? By no means. Being aware of available resources
informs choices, including the decision to stand pat. A building
architect needs to be informed of the state of available materials so
he or she can choose to incorporate glass-and-steel curtain walls (as
at the United Nations building), curvilinear reinforced concrete (the
Guggenheim), or self-weathering Cor-Ten steel (the Chicago Civic
Center). But just as not every building is a landmark, most
technology environments will not rival WalMart's or Google's. Even
so, good IT architecture is no less important, whether the
environment's job is to run unobtrusively but reliably, or whether IT
_is_ the business, as at Amazon or Morgan Stanley.
Who's responsible for constraining and enabling the architects'
technology choices, of being the client as it were? In a recent
article in Harvard Business Review, longtime IT authorities Richard
Nolan and Warren McFarlan contend that IT governance begins with the
board. Following that logic, it's both appropriate and necessary that
business and technology executives learn what extreme programming
looks and feels like, or where PHP can work better than Java, or what
Linux actually costs and delivers relative to proprietary Microsoft and Unix.
Just as hybrids aren't inherently better than diesels and dump trucks
aren't superior to Priuses, so too for information technology: it's
not a matter of choosing the "best" technology, but the one that fits
(and perhaps reshapes) its context. In the quest for better, and
better-fitting, business and technology architectures, a working
knowledge of the rapidly evolving set of alternatives is too valuable
to be left to technologists alone.
Center at Penn State University. The author holds no direct financial
stake in any of the companies mentioned.
"In the Web 1.0 era, when a company raised $10 million, they spent $2
million on servers from Sun, another $2 million on software from BEA,
another $2 million on Oracle software, and then they'd have only $4
million left to actually build the thing."
-David Hornik, venture capitalist at August Capital, speaking
at the Web 2.0 meeting, quoted in the Boston Globe, October 10
"Here's what we're going to do. We're going to go out, and we're
either going to buy Oracle financials or SAP. That's a $5 million
plus or minus purchase. Plus consulting [fees]. . . . I said, 'Look -
I have been through so many general ledger conversions in my life . .
. I'm not going through another conversion [off of Great Plains] when
we get to be a $100 million company.'"
- Jim Barksdale, speaking in 1997 of his early days at Netscape,
in Michael Cusumano and David Yoffie, Competing on Internet Time
As Jared Diamond posited in his Seminal Guns, Germs, and Steel,
there's often a tight connection between resources and destiny. Less
important than the quantity of a resource, however, is its fit with
human or market need. Much like the Maginot line, corporate barriers
to entry (assemblages of resources) can turn out to be competitive
liabilities as speed, focus, and agility frequently trump mass. Right
now Ford and GM are jettisoning as much excess baggage as possible,
for example, perhaps noting that neither Honda nor Toyota run car
rental companies, own satellite factories, or build military armored
vehicles. By contrast, Netscape built infrastructure in anticipation
of rapid growth, correctly as it turned out.
Businesses can be built of many resources: material, human, financial.
More recently, economists including Paul Romer have contended that
innovativeness itself is a resource: the world might run out of oil,
in this line of argument, but it can't run out of creative people
motivated to solve energy problems. There's also the matter of
intangible assets like patent portfolios, branding, and capabilities
in employee selection and training. The factors of production have
expanded beyond the original land, labor, and capital.
Technology is of course a core business resource. In the developer
and IT management communities, the acronyms are running particularly
hot and heavy right now. Between AJAX (1), LAMP(2), two flavors of
OSS, RSS, and CSS, people who write code have a wide range of
lightweight, network-centric tools at their disposal. Many of these
standards are supported by free and/or open-source software, and many
expand the repertoire of the web browser to behave more like a thin
client of a "real" computer. (For examples, see Google Maps or Gmail,
Web Boggle (http://weboggle.shackworks.com/4x4/), backpackit.com,
Microsoft Outlook web access, Flickr, or even enterprise-grade
applications like NetSuite.)
(1) Asynchronous Javascript and XML
(2) Linux, Apache, MySQL, Perl/Python/PHP
These new kinds of software tools and materials are in the process of
changing not only the technology world, but the business and social
environment. Think about the history of building: when structural
steel and fast elevators became available, Louis Sullivan and his
successors built buildings that would have been inconceivable only
years earlier. What would major modern cities look and feel like if
buildings were only 10 to 15 stories tall? When powerful air
conditioning became sufficiently cheap and reliable, the American
South and Southwest underwent a development boom that persists to the
current time. Resources shape destiny, again and again.
The relationship between the nature of technology and business
potentialities reminded me of my colleague Dave Robertson's very pithy
explanation of the delicate business of getting information technology
and business decisions to reinforce each other. I'm paraphrasing:
"Let's compare a business to a vehicle. You could choose to be a dump
truck, or a hybrid, or a sports car. None of these are inherently
better than the others until we know whether the context is family
driving with $4 gas, or building highways, or racing. Once a business
decides what kind of business it needs to become, a gravel hauler or a
dragster, you look under the hood: IT is the vehicle's engine. A
cogenerating electric motor probably won't power the dump truck, while
dropping a Hemi into a hybrid would just be wrong. Each engine is
right for a certain kind of vehicle, but again, it all depends on
context."
Dave, who's a professor at IMD, goes on to say that this metaphor
provides a way into his research, soon to be published, into the
intricate but essential matter of getting business architectures and
technology architectures to reinforce each other. (His co-authors are
Jeanne Ross and Peter Weill of MIT's Center for Information Systems
Research.) If a retailer is positioned to deliver high-quality men's
wear at a premium price, for example, late shipments, sloppy customer
records, and slow network connections will undermine that strategy.
On the other hand,
plenty of successful service businesses, including banks and
universities, still run green-screen mainframe or minicomputer
applications, complete with batch processing and poor access to
analytical data streams.
Both business architectures and technology architectures are creations
of the organizations they inhabit: formal methodologies and
prescriptions, while they have a place, will not in and of themselves
build either a sturdy chassis or an engine that will fit both that
chassis and its real-world requirements. It's one thing to decree
data quality standards and quite another to understand how and where
conflicting or erroneous entries are introduced. If a business
intends to expand internationally, is it hiring employees who are
multilingual and can operate across cultures? Are computer systems
ready for multiple currencies, multiples time zones, and multiple
process maps? Similarly, it's one thing to say "our customer always
comes first" and something quite different to give employees the
training, managerial cover, and career incentive to act on the
rhetoric.
By noting the wider acceptance of Linux, Python, or
software-as-service applications, do I suggest that every IT shop
throw out its Rational methodologies, Microsoft developer suite, or
Oracle databases? By no means. Being aware of available resources
informs choices, including the decision to stand pat. A building
architect needs to be informed of the state of available materials so
he or she can choose to incorporate glass-and-steel curtain walls (as
at the United Nations building), curvilinear reinforced concrete (the
Guggenheim), or self-weathering Cor-Ten steel (the Chicago Civic
Center). But just as not every building is a landmark, most
technology environments will not rival WalMart's or Google's. Even
so, good IT architecture is no less important, whether the
environment's job is to run unobtrusively but reliably, or whether IT
_is_ the business, as at Amazon or Morgan Stanley.
Who's responsible for constraining and enabling the architects'
technology choices, of being the client as it were? In a recent
article in Harvard Business Review, longtime IT authorities Richard
Nolan and Warren McFarlan contend that IT governance begins with the
board. Following that logic, it's both appropriate and necessary that
business and technology executives learn what extreme programming
looks and feels like, or where PHP can work better than Java, or what
Linux actually costs and delivers relative to proprietary Microsoft and Unix.
Just as hybrids aren't inherently better than diesels and dump trucks
aren't superior to Priuses, so too for information technology: it's
not a matter of choosing the "best" technology, but the one that fits
(and perhaps reshapes) its context. In the quest for better, and
better-fitting, business and technology architectures, a working
knowledge of the rapidly evolving set of alternatives is too valuable
to be left to technologists alone.
Tuesday, September 27, 2005
September 2005 Early Indications II: Vendor Tectonics
The following headlines were selected from the News.com website on Monday September 26:
-Cingular to launch music download service in 2006
-Verizon switches on TV service
-Intel launches WiMax trials in Asia
-T-Mobile to invest in 3G in U.S.
-Google confirms it's testing wireless service
-Verizon Wireless teams with notebook makers
Couple these tidbits with eBay's purchase of Skype, Sony's massive layoffs and attempted reorganization, and Apple's continuing dominance of the handheld entertainment market, and a raft of questions emerges.
1) Will any company be able to duplicate Microsoft's powerful position in desktop computing as new platforms emerge?
2) Which current industry leaders will be acquirers and which will be acquired in the coming wave of consolidation?
3) What will be the new leverage points that allow hardware, software, or connection vendors to develop tighter customer relationships and presumably higher profitability?
4) What external forces will help shape this contest?
The list of headlines is at once tantalizing and frustrating: familiar vendors are assuming slippery identities. Cingular is a wireless carrier, but now it sells Motorola phones with Apple iTunes software. Will its music service be a competitor or complement to Apple's? Verizon used to be a phone company, then it became a phone plus half of a mobile phone company, and now it's delivering television. But wait: Google is streaming UPN video and Yahoo is delivering both network shows and original video news reports from ex-CNN reporter Kevin Sites.
On the hardware side, meanwhile, Intel used to live in the computing market, but the company remains determined to make an impact in the Lucent-Ericsson neighborhood as well. Verizon is trying to increase adoption of its wide-area wireless midband service by signing deals with hardware manufacturers. Finally, China's emergence as a hardware factory will have major repercussions.
Let's look at the various players in this new "digital home" environment grouped into three buckets: decliners, question marks, and ascenders.
Decliners:
Despite my respect for Howard Stringer, Sony looks to be in a bad way. The Playstation franchise could remain a bright spot, but the company's high prices and slow time to market may be endemic to the culture and thus not fixable, particularly by an outsider. Sony-Ericsson has not shaken up the mobile handset market and the company's proprietary standards (for memory, among other things) swim against the prevailing tide of open standards.
Slow-moving telecoms, as The Economist suggests, will be undone by VoIP. Surprisingly, the magazine's second most vulnerable company, in its heavy reliance on voice revenues, was Vodaphone; other nominees include British Telecom, SBC, and Telecom Italia.
Other decliners, such as AT&T and IBM's PC unit, have already been sold. In the future, players like Paul Allen's Charter Communications, Ericsson, Time Warner, Philips' consumer electronics business, and others could be similarly vulnerable to takeover.
Question marks:
Motorola seems to have been defibrillated by new CEO Ed Zander. The Razr phone has become a must-have, and the Rokr i-Pod phone will bear watching. In the carrier market, Moto's Canopy system is much farther along than Intel's WiMax. Whether the company can compete within a footprint that remains broad (even after the semiconductor unit was spun out) is the big question: can the same company profitably sell home networking, military radios, carrier gear, and smart phones?
Microsoft certainly counts as front-page news these days, with lead stories in both the Wall Street Journal and Business Week. The culture is clearly in transition as Vista has required new ways of writing code and the executive turnover continues to mount. Microsoft also has prime real estate in the current platform, and substantial cash with which to buy a competitor as instant access to new markets. The centrism of the PC to the firm's worldview may be a limiting factor, given how quickly Google has innovated and how prominently smartphones figure in the global market.
Apple has soared on the success of the iPod's excellent combination of hardware, software, and content. But what happens to the computer piece of the franchise? And can the successor to the iPod do the same thing for video? Getting permissions will be harder (and indeed some music rightsholders may successfully renegotiate rates), the network connections will need to be faster, and video viewing -- unlike music listening -- is not a background activity. Getting the interface to be as intuitive and smooth may also be harder.
Nokia has ridden a roller coaster over the past few years as its various phones have touched or failed to touch the nerve of a fashion-conscious public. Revenues have been declining while profit has been highly variable. The company's future depends in large measure on carriers over which it has
limited control, and on usage habits which are similarly fickle. Finally, content providers like Yahoo, Disney, and News Corp may have a large say in the company's fate as phones become TV substitutes.
Aggressive telecom and cable providers have connections to the home or customer that are fast and getting faster. They also have limited control over programming costs, and face competition both from each other (Comcast offers voice even as Verizon offers TV) and from satellite. The list of broadband pioneers also includes Orange, Korea's KT, and Yahoo BB in Japan. Balancing the value brought by a fast connection with content-driven revenues will remain the challenge for these companies.
Ascenders:
Google is clearly frightening the industry. The firm's deep pockets, inventiveness, and sheer technical prowess mean that new product and service announcements can come from any sector of the technology map. (Speaking of talent, Vint Cerf, Rob Pike, Adam Bosworth, and more than 100 former Microsoft developers all work there.) The company has a strong and growing presence on the PC desktop, unsurpassed Linux experience and expertise, deep knowledge of mapping and image searches, testbeds in wireless and cell phone markets, and the attention of smart people all over the world who want to work there. Google could expand its voice chat into full-fledged voice over IP (and become a phone company), or sell a super-cheap network-centric PC running a non-Microsoft OS, or make any of a dozen other bold plays that would truly disrupt existing industries.
Like Google, Yahoo has lots of cash and has been hiring superstar talent. It has more media savvy and focus among its leadership team, and may well morph into more of a Viacom/News Corp competitor than a technology company. As navigating the home page makes clear, however, managing the extreme breadth of services (from driving directions to dating, finance to fantasy football to photos) might become unwieldy.
Samsung is on a roll. The company now has the most powerful Asian brand in the world, surpassing Sony this year, according to Interbrand. The company's displays, memory, and cell phones all hold leadership positions in their markets, and the patent portfolio is strong. Unlike Microsoft or Nokia, Samsung is probably equally comfortable in a wired or unwired universe. Also unlike most American companies, Samsung is well positioned for growth in the developing world including India and China given its geographic presence and price points.
After completely reinventing the economics of the PC industry, Dell has begun moving into adjoining markets: its flat-panel TV prices undercut most name brands by hundreds of dollars, for example. Its MP3 players will never challenge the iPod for design quality, but like the Axim handhelds they continue to improve while maintaining a low price point. To a certain extent Dell stands to gain as a result of Microsoft's heavy marketing in support of Vista next year, but the company is now sufficiently diversified, both product-wise and geographically, that its fates are no longer tied to Microsoft's.
Who's missing:
It's hard to know where to put the companies that will make the digital home possible. EMS providers like Jabil Circuit, logistics companies like Fedex, and component manufacturers including Intel and Synaptics (which makes scroll wheels) all could profit regardless of which of the branded companies win in the consumer market. Infrastructure and business services providers including Cisco, IBM, HP, Oracle, and SAP could similarly benefit, depending on their presence in a given vertical.
Finally, retailers including Best Buy, Wal-Mart, and Dixons stand to benefit if they can master the merchandising and logistics required by rapidly changing, complex bundles of products and services: it will no longer suffice merely to move boxes. The retailers' challenge will soon include such elements as liability for recycling toxic waste like that found in PCs and cell phones, reverse logistics for returns, and serving as a systems integrator for connected systems that to date require considerable expertise to install and manage.
Wild cards:
Government regulation will play an important role is sorting out winners from losers. Rules for broadband competition, copyright duration and extent, and protection of national "champions" (such as telecoms like Telstra or France Telecom with government ownership interest) only begin the list of extra-market forces.
Finally, and most crucially, revenue models are in the midst of a dramatic reinvention. In telecom alone, Skype threatens minute- and distance-based pricing with obsolescence, competing broadband technologies break any natural monopoly that might have existed, and new forms of seemingly peripheral content like games and ringtones play a disproportionate role in determining profitability. Elsewhere, expensive investments in global news organizations (think of CNN) or movie studios (think Viacom) could become boat anchors as their relevance declines in the face of bottom-up alternatives like news blogs or digital moviemaking and distribution.
The ultimate signal of the market's volatility is the reluctance of both consumers and manufacturers to commit to new standards: high-definition audio, high-capacity DVD, and high-bandwidth wireless are only three examples of multi-billion dollar hesitation and disagreement. Until obsolescence is no longer at the top of buyers' concerns, demand will remain inhibited. Paradoxicallly, the current state of messy competitiveness could be Microsoft's legacy: in the absence of a dominant vendor as all the players seek to prevent a leader from emerging, customers lack assurance of interoperability and backwards compatibility, and remain -- intelligently -- tentative.
-Cingular to launch music download service in 2006
-Verizon switches on TV service
-Intel launches WiMax trials in Asia
-T-Mobile to invest in 3G in U.S.
-Google confirms it's testing wireless service
-Verizon Wireless teams with notebook makers
Couple these tidbits with eBay's purchase of Skype, Sony's massive layoffs and attempted reorganization, and Apple's continuing dominance of the handheld entertainment market, and a raft of questions emerges.
1) Will any company be able to duplicate Microsoft's powerful position in desktop computing as new platforms emerge?
2) Which current industry leaders will be acquirers and which will be acquired in the coming wave of consolidation?
3) What will be the new leverage points that allow hardware, software, or connection vendors to develop tighter customer relationships and presumably higher profitability?
4) What external forces will help shape this contest?
The list of headlines is at once tantalizing and frustrating: familiar vendors are assuming slippery identities. Cingular is a wireless carrier, but now it sells Motorola phones with Apple iTunes software. Will its music service be a competitor or complement to Apple's? Verizon used to be a phone company, then it became a phone plus half of a mobile phone company, and now it's delivering television. But wait: Google is streaming UPN video and Yahoo is delivering both network shows and original video news reports from ex-CNN reporter Kevin Sites.
On the hardware side, meanwhile, Intel used to live in the computing market, but the company remains determined to make an impact in the Lucent-Ericsson neighborhood as well. Verizon is trying to increase adoption of its wide-area wireless midband service by signing deals with hardware manufacturers. Finally, China's emergence as a hardware factory will have major repercussions.
Let's look at the various players in this new "digital home" environment grouped into three buckets: decliners, question marks, and ascenders.
Decliners:
Despite my respect for Howard Stringer, Sony looks to be in a bad way. The Playstation franchise could remain a bright spot, but the company's high prices and slow time to market may be endemic to the culture and thus not fixable, particularly by an outsider. Sony-Ericsson has not shaken up the mobile handset market and the company's proprietary standards (for memory, among other things) swim against the prevailing tide of open standards.
Slow-moving telecoms, as The Economist suggests, will be undone by VoIP. Surprisingly, the magazine's second most vulnerable company, in its heavy reliance on voice revenues, was Vodaphone; other nominees include British Telecom, SBC, and Telecom Italia.
Other decliners, such as AT&T and IBM's PC unit, have already been sold. In the future, players like Paul Allen's Charter Communications, Ericsson, Time Warner, Philips' consumer electronics business, and others could be similarly vulnerable to takeover.
Question marks:
Motorola seems to have been defibrillated by new CEO Ed Zander. The Razr phone has become a must-have, and the Rokr i-Pod phone will bear watching. In the carrier market, Moto's Canopy system is much farther along than Intel's WiMax. Whether the company can compete within a footprint that remains broad (even after the semiconductor unit was spun out) is the big question: can the same company profitably sell home networking, military radios, carrier gear, and smart phones?
Microsoft certainly counts as front-page news these days, with lead stories in both the Wall Street Journal and Business Week. The culture is clearly in transition as Vista has required new ways of writing code and the executive turnover continues to mount. Microsoft also has prime real estate in the current platform, and substantial cash with which to buy a competitor as instant access to new markets. The centrism of the PC to the firm's worldview may be a limiting factor, given how quickly Google has innovated and how prominently smartphones figure in the global market.
Apple has soared on the success of the iPod's excellent combination of hardware, software, and content. But what happens to the computer piece of the franchise? And can the successor to the iPod do the same thing for video? Getting permissions will be harder (and indeed some music rightsholders may successfully renegotiate rates), the network connections will need to be faster, and video viewing -- unlike music listening -- is not a background activity. Getting the interface to be as intuitive and smooth may also be harder.
Nokia has ridden a roller coaster over the past few years as its various phones have touched or failed to touch the nerve of a fashion-conscious public. Revenues have been declining while profit has been highly variable. The company's future depends in large measure on carriers over which it has
limited control, and on usage habits which are similarly fickle. Finally, content providers like Yahoo, Disney, and News Corp may have a large say in the company's fate as phones become TV substitutes.
Aggressive telecom and cable providers have connections to the home or customer that are fast and getting faster. They also have limited control over programming costs, and face competition both from each other (Comcast offers voice even as Verizon offers TV) and from satellite. The list of broadband pioneers also includes Orange, Korea's KT, and Yahoo BB in Japan. Balancing the value brought by a fast connection with content-driven revenues will remain the challenge for these companies.
Ascenders:
Google is clearly frightening the industry. The firm's deep pockets, inventiveness, and sheer technical prowess mean that new product and service announcements can come from any sector of the technology map. (Speaking of talent, Vint Cerf, Rob Pike, Adam Bosworth, and more than 100 former Microsoft developers all work there.) The company has a strong and growing presence on the PC desktop, unsurpassed Linux experience and expertise, deep knowledge of mapping and image searches, testbeds in wireless and cell phone markets, and the attention of smart people all over the world who want to work there. Google could expand its voice chat into full-fledged voice over IP (and become a phone company), or sell a super-cheap network-centric PC running a non-Microsoft OS, or make any of a dozen other bold plays that would truly disrupt existing industries.
Like Google, Yahoo has lots of cash and has been hiring superstar talent. It has more media savvy and focus among its leadership team, and may well morph into more of a Viacom/News Corp competitor than a technology company. As navigating the home page makes clear, however, managing the extreme breadth of services (from driving directions to dating, finance to fantasy football to photos) might become unwieldy.
Samsung is on a roll. The company now has the most powerful Asian brand in the world, surpassing Sony this year, according to Interbrand. The company's displays, memory, and cell phones all hold leadership positions in their markets, and the patent portfolio is strong. Unlike Microsoft or Nokia, Samsung is probably equally comfortable in a wired or unwired universe. Also unlike most American companies, Samsung is well positioned for growth in the developing world including India and China given its geographic presence and price points.
After completely reinventing the economics of the PC industry, Dell has begun moving into adjoining markets: its flat-panel TV prices undercut most name brands by hundreds of dollars, for example. Its MP3 players will never challenge the iPod for design quality, but like the Axim handhelds they continue to improve while maintaining a low price point. To a certain extent Dell stands to gain as a result of Microsoft's heavy marketing in support of Vista next year, but the company is now sufficiently diversified, both product-wise and geographically, that its fates are no longer tied to Microsoft's.
Who's missing:
It's hard to know where to put the companies that will make the digital home possible. EMS providers like Jabil Circuit, logistics companies like Fedex, and component manufacturers including Intel and Synaptics (which makes scroll wheels) all could profit regardless of which of the branded companies win in the consumer market. Infrastructure and business services providers including Cisco, IBM, HP, Oracle, and SAP could similarly benefit, depending on their presence in a given vertical.
Finally, retailers including Best Buy, Wal-Mart, and Dixons stand to benefit if they can master the merchandising and logistics required by rapidly changing, complex bundles of products and services: it will no longer suffice merely to move boxes. The retailers' challenge will soon include such elements as liability for recycling toxic waste like that found in PCs and cell phones, reverse logistics for returns, and serving as a systems integrator for connected systems that to date require considerable expertise to install and manage.
Wild cards:
Government regulation will play an important role is sorting out winners from losers. Rules for broadband competition, copyright duration and extent, and protection of national "champions" (such as telecoms like Telstra or France Telecom with government ownership interest) only begin the list of extra-market forces.
Finally, and most crucially, revenue models are in the midst of a dramatic reinvention. In telecom alone, Skype threatens minute- and distance-based pricing with obsolescence, competing broadband technologies break any natural monopoly that might have existed, and new forms of seemingly peripheral content like games and ringtones play a disproportionate role in determining profitability. Elsewhere, expensive investments in global news organizations (think of CNN) or movie studios (think Viacom) could become boat anchors as their relevance declines in the face of bottom-up alternatives like news blogs or digital moviemaking and distribution.
The ultimate signal of the market's volatility is the reluctance of both consumers and manufacturers to commit to new standards: high-definition audio, high-capacity DVD, and high-bandwidth wireless are only three examples of multi-billion dollar hesitation and disagreement. Until obsolescence is no longer at the top of buyers' concerns, demand will remain inhibited. Paradoxicallly, the current state of messy competitiveness could be Microsoft's legacy: in the absence of a dominant vendor as all the players seek to prevent a leader from emerging, customers lack assurance of interoperability and backwards compatibility, and remain -- intelligently -- tentative.
Friday, September 09, 2005
September 2005 Early Indications I: Open Source Beyond Software
In the September 5 issue of the New Yorker, Malcolm Gladwell explores the efforts by Mattson, a food R&D firm, to design a new cookie. The problem had tight constraints on such factors as fat, shelf stability, and calories, and three different teams competed with alternative proposals. One was a classic top-down, managed group led by a Mattson EVP. Another team was comprised of two strong hands-on associates. Finally, a so-called dream team was drawn from across the industry: Mars, Kraft, Keebler, Nestle, and Kellogg's were represented, among others. You'll have to read the article to find out who wins, but the project raises several important issues.
Mattson's head man, Steve Gundrum, works in Silicon Valley and carefully tracks the tech industry. For the bakeoff, he wanted to test his hypothesis that software engineering can provide lessons to other industries. The two-man team of peers was based on Kent Beck's notion of extreme programming, or XP, in which programmers attack projects in small increments with pairs of programmers taking turns at the keyboard. The dream team was an attempt to use the open-source model to generate great ideas based on the wealth of expertise represented by the participants.
As Gladwell points out, re-designing Unix is a fundamentally different exercise compared to inventing a tasty, nutritious treat: fixing ("many eyes make bugs shallow") is not imagining. The fifteen expert bakers all held strong opinions about their own contributions and couldn't unite behind a consensus idea, but the project manager was told to let the group find its own "natural rhythm" and so let the chaos play out. In the end the team's friction prevented its potential expertise from being plumbed; in contrast, one Mattson person was able to draw on previous experiences, including an insight that topical (surface-applied rather than baked-in) seasoning makes tortilla chips more compelling, and devise a marginally more popular entry. Gladwell argues that if the dream team had been smaller it would have functioned better, but that speculation evades the question of whether Linux was the right model in the first place.
Many other unanswered questions arise. Open source has many parallels to classic scientific research: open publication, peer review, and incremental progress. In both cases the primary incentives relate to reputation rather than commerce. Because the two communities and code bases share many similarities, it may follow that applying open source techniques to biology will amplify traditional pathways to progress. But biology can be methodically incremental in ways that new product design cannot.
Even in software, it's hard to point to examples in which an open-source community model generated something new and ready for a broad user base; Linux, Apache, MySQL, and the scripting languages (Python et al) cannot remotely be called mass-market software. Linux is also built for use: I'll update a storage-attachment routine because I have to do that task in my job. Compare the cookie bakers, who were designing for a market. Without the commercial distributions like Red Hat and SuSE, Linux would have very few user interface refinements, include much different documentation, and lack things like liability protection and warrantees that a market demands.
A new generation of for-profit companies is attempting to use open-source methods to build applications rather than infrastructure. So far it's too soon to tell whether SugarCRM can dent SAP, Siebel, or Salesforce, or whether Mitch Kapor's Open Source Applications Foundation can bring Chandler up to the level of Kapor's last Personal Information Manager, Lotus Agenda. Even though the teams can once again follow established patterns of an existing package, it still remains to be seen how well the open source model applies to more "productized" offerings. There's also money to be made in the integration of free and/or open source software with both commercial software and in-house applications, and VCs are backing several startups in this sector.
The question of money points to a connected nuance: open source relies on more than attracting mobs of people to attack a problem. The cookie dream team, for example, didn't share a goal or a reward mechanism. Through a variety of means, by contrast, the Linux community knows who's contributed what. Just because open source is not for profit, some observers fall into the altruism trap. Experience suggests there is a third way here: in no way can the model be described as a charity, which means that managing in or near an open source environment raises unique challenges.*
A major and often overlooked cornerstone of the open source model is transparency: beta code is released early and often precisely because it will be imperfect. The wide variety of public responses to the Hurricane Katrina disaster illustrates how these habits are becoming ingrained: many people have offered to help individual families or groups by opening their home or trying to direct financial assistance. Not only are FEMA and the Red Cross incapable of organizing relief in this way, but also the implications of such widespread personalized benevolence take us into new political, ethical, and even public-safety territory. Such an impulse challenges the traditional Jewish notion, which has many echoes in policy and practice, that both the donor and recipient of charity should be anonymous.
By one participant's own admission, the open source cookie model couldn't beat existing offerings from Pepperidge Farm. Metamarket's Open Fund mutual fund transparently published its holdings in real time and relied on a similar dream team of business and technology gurus, but shut down after 24 months of operation in August 2001. For all of open source's impact, which is difficult to overstate in its home terrain, we may have to wait some time until we see new drugs, fashions, or buildings built on parallel communities.
Perhaps the most potent discovery of the open source model's power occurred when people weren't expressly looking for it. In Howard Dean's 2003-4 campaign, word of mouth led to unprecedented numbers of small donations. The campaign's workings were visible to the community in ways most political organizations are not. Semi-tangible reward and recognition systems sprang up to motivate more and more volunteers to contribute energy, ideas, and time. The fact that the grass-roots movement in some ways overwhelmed the formal infrastructure was both a blessing and a curse to the campaign, which in fairness cannot be faulted for not being able to find a fulcrum for the unanticipated groundswell. (To be clear, Dean and his handlers can and should be faulted for plenty of other things.)
The overarching lesson, whether from code, campaigns, or cookies, is clear: new communications tools are facilitating new kinds of political, social, and economic interactions, the implications of which we're only beginning to comprehend.
_____
*This analysis from an economics paper on a non-software topic seems to fit perfectly: "We suggest that . . . the individual motivations supporting community governance are not captured by either the conventional self-interested preferences of 'Homo economicus' or by unconditional altruism towards one’s fellow community members"
Samuel Bowles and Herbert Gintis, "Social Capital and Community" Santa Fe Institute working paper 01-01-003
Mattson's head man, Steve Gundrum, works in Silicon Valley and carefully tracks the tech industry. For the bakeoff, he wanted to test his hypothesis that software engineering can provide lessons to other industries. The two-man team of peers was based on Kent Beck's notion of extreme programming, or XP, in which programmers attack projects in small increments with pairs of programmers taking turns at the keyboard. The dream team was an attempt to use the open-source model to generate great ideas based on the wealth of expertise represented by the participants.
As Gladwell points out, re-designing Unix is a fundamentally different exercise compared to inventing a tasty, nutritious treat: fixing ("many eyes make bugs shallow") is not imagining. The fifteen expert bakers all held strong opinions about their own contributions and couldn't unite behind a consensus idea, but the project manager was told to let the group find its own "natural rhythm" and so let the chaos play out. In the end the team's friction prevented its potential expertise from being plumbed; in contrast, one Mattson person was able to draw on previous experiences, including an insight that topical (surface-applied rather than baked-in) seasoning makes tortilla chips more compelling, and devise a marginally more popular entry. Gladwell argues that if the dream team had been smaller it would have functioned better, but that speculation evades the question of whether Linux was the right model in the first place.
Many other unanswered questions arise. Open source has many parallels to classic scientific research: open publication, peer review, and incremental progress. In both cases the primary incentives relate to reputation rather than commerce. Because the two communities and code bases share many similarities, it may follow that applying open source techniques to biology will amplify traditional pathways to progress. But biology can be methodically incremental in ways that new product design cannot.
Even in software, it's hard to point to examples in which an open-source community model generated something new and ready for a broad user base; Linux, Apache, MySQL, and the scripting languages (Python et al) cannot remotely be called mass-market software. Linux is also built for use: I'll update a storage-attachment routine because I have to do that task in my job. Compare the cookie bakers, who were designing for a market. Without the commercial distributions like Red Hat and SuSE, Linux would have very few user interface refinements, include much different documentation, and lack things like liability protection and warrantees that a market demands.
A new generation of for-profit companies is attempting to use open-source methods to build applications rather than infrastructure. So far it's too soon to tell whether SugarCRM can dent SAP, Siebel, or Salesforce, or whether Mitch Kapor's Open Source Applications Foundation can bring Chandler up to the level of Kapor's last Personal Information Manager, Lotus Agenda. Even though the teams can once again follow established patterns of an existing package, it still remains to be seen how well the open source model applies to more "productized" offerings. There's also money to be made in the integration of free and/or open source software with both commercial software and in-house applications, and VCs are backing several startups in this sector.
The question of money points to a connected nuance: open source relies on more than attracting mobs of people to attack a problem. The cookie dream team, for example, didn't share a goal or a reward mechanism. Through a variety of means, by contrast, the Linux community knows who's contributed what. Just because open source is not for profit, some observers fall into the altruism trap. Experience suggests there is a third way here: in no way can the model be described as a charity, which means that managing in or near an open source environment raises unique challenges.*
A major and often overlooked cornerstone of the open source model is transparency: beta code is released early and often precisely because it will be imperfect. The wide variety of public responses to the Hurricane Katrina disaster illustrates how these habits are becoming ingrained: many people have offered to help individual families or groups by opening their home or trying to direct financial assistance. Not only are FEMA and the Red Cross incapable of organizing relief in this way, but also the implications of such widespread personalized benevolence take us into new political, ethical, and even public-safety territory. Such an impulse challenges the traditional Jewish notion, which has many echoes in policy and practice, that both the donor and recipient of charity should be anonymous.
By one participant's own admission, the open source cookie model couldn't beat existing offerings from Pepperidge Farm. Metamarket's Open Fund mutual fund transparently published its holdings in real time and relied on a similar dream team of business and technology gurus, but shut down after 24 months of operation in August 2001. For all of open source's impact, which is difficult to overstate in its home terrain, we may have to wait some time until we see new drugs, fashions, or buildings built on parallel communities.
Perhaps the most potent discovery of the open source model's power occurred when people weren't expressly looking for it. In Howard Dean's 2003-4 campaign, word of mouth led to unprecedented numbers of small donations. The campaign's workings were visible to the community in ways most political organizations are not. Semi-tangible reward and recognition systems sprang up to motivate more and more volunteers to contribute energy, ideas, and time. The fact that the grass-roots movement in some ways overwhelmed the formal infrastructure was both a blessing and a curse to the campaign, which in fairness cannot be faulted for not being able to find a fulcrum for the unanticipated groundswell. (To be clear, Dean and his handlers can and should be faulted for plenty of other things.)
The overarching lesson, whether from code, campaigns, or cookies, is clear: new communications tools are facilitating new kinds of political, social, and economic interactions, the implications of which we're only beginning to comprehend.
_____
*This analysis from an economics paper on a non-software topic seems to fit perfectly: "We suggest that . . . the individual motivations supporting community governance are not captured by either the conventional self-interested preferences of 'Homo economicus' or by unconditional altruism towards one’s fellow community members"
Samuel Bowles and Herbert Gintis, "Social Capital and Community" Santa Fe Institute working paper 01-01-003
Wednesday, August 10, 2005
August 2005 Early Indications I: Remembering Windows 95
It's a slow time in the technology industry. Breakthrough innovations
are few and far between: the iPod is almost four years old, and it's
hard to point to anything very interesting since then. Because
revenue growth has slowed, mergers and acquisitions have become the
main order of business at such companies as Oracle and, for a time,
HP. Venture capital is increasingly migrating to biotech, physical
security, and other sectors only tangentially related to computing.
The industry could use an injection of energy, activity, and not least
important, revenue.
Given this state of things, everyone is watching Microsoft, which is
preparing to launch a new operating system next year. Last month
merely changing the name from code (Longhorn) to product (Vista)
devoured a lot of attention, and more recently a stripped-down version
of the product shipped to beta testers. The product has been a long
time in coming, and the scope has been managed downward in several
respects. Nevertheless, both Microsoft and the industry more
generally see Vista as a potential jump-start very much in the same
category as Windows 95 ten years ago. Because Vista represents the
first opportunity in over ten years to begin with a "clean sheet of
paper," unlike Windows 3.1, 98, ME, and 2000/XP, Bill Gates has
repeatedly linked the two products in public.
Before looking at whether that association is warranted, it's worth
remembering just what Windows 95 brought to market. In 1994, loading
a browser onto Windows could be complicated by the operating system's
lack of Internet Protocol support. DOS prompts were very much a
day-to-day reality. File names were limited to eight letters, and
CD-ROM support was spotty. E-mail was used only by fringe populations
rather than being nearly universal. Adding hardware was more
difficult than it needed to be, multitasking was nearly impossible for
both processing and user interface reasons, and multimedia computing
was, again, the province of only a small subset of users.
Windows 95 changed all of that. Even before Gates' famous "Pearl
Harbor" speech helped turn Microsoft into an Internet-aware company,
Windows 95 made Internet connection, through both browser and e-mail,
a mass phenomenon. Multimedia, too, became an everyday event with
better hardware support (including CD-ROM drivers). Overall
usability, despite the initial confusion at using a "Start" button to
shut down a machine, was enhanced by deeper camouflaging of the
command-line layer, longer file names, and plug-and-play peripheral
support. Finally, the operating system kept pace with Intel's chip
performance and supported more realistic instances of multitasking.
The public responded. In the quarters immediately following the
launch, retail sales of Windows 95 software soared, augmenting a
strong increase in OEM sales of pre-loaded operating systems.
Responding positively to improved networking support and promises of
enhanced manageability, corporate IT organizations spent at record
levels: Microsoft's operating systems revenues jumped from $1.5
billion in fiscal 1994 to $4.1 billion only two years later.
What might we deduce about the prospects for Vista based on the
Windows 95 experience? First, it's hard to see a parallel burst of
initial interest, with or without a Rolling Stones commercial.
According to Microsoft, the benefits of Vista fall under five general
headings:
-Reliability
-Security
-Deployment (for organizations managing large rollouts)
-Performance (including better power management and faster boot up)
-Management of distributed users' machines
These categories of improvements are clearly aimed at corporate buyers
more than individuals. Most of the things a consumer-grade user will
see - including better desktop graphics, and RSS support within
Internet Explorer - already come standard in Mac OS X. Backward
compatibility will be substantial, to the point that many Vista
improvements (including the IE browser) will be available as retrofits
to Windows XP. These upgrades will also slow Vista adoption.
Here's another way of thinking about the comparison. In 1995,
Microsoft turned the telephone network into an extension of the
computer, or vice versa: between them AOL and Windows 95 made the
Internet a household utility. In 2006, no parallel leap into an
adjoining domain - think of home entertainment, specifically the
television - will be supported. Bill Gates longstanding prediction
about widespread adoption of a voice and speech interface to the PC
will be addressed with Vista support, but even given a powerful
standard processor configuration at its disposal, Vista still won't
make masses of people retire their keyboards.
In short, Windows Vista looks like a solid product for corporate
purchasers, but the lack of "gee-whiz" and "I've always wanted to be
able to do that" desirability will prevent end-user excitement from
reappearing the way it did ten years ago. An industry in search of
the next big thing will probably have to keep looking.
are few and far between: the iPod is almost four years old, and it's
hard to point to anything very interesting since then. Because
revenue growth has slowed, mergers and acquisitions have become the
main order of business at such companies as Oracle and, for a time,
HP. Venture capital is increasingly migrating to biotech, physical
security, and other sectors only tangentially related to computing.
The industry could use an injection of energy, activity, and not least
important, revenue.
Given this state of things, everyone is watching Microsoft, which is
preparing to launch a new operating system next year. Last month
merely changing the name from code (Longhorn) to product (Vista)
devoured a lot of attention, and more recently a stripped-down version
of the product shipped to beta testers. The product has been a long
time in coming, and the scope has been managed downward in several
respects. Nevertheless, both Microsoft and the industry more
generally see Vista as a potential jump-start very much in the same
category as Windows 95 ten years ago. Because Vista represents the
first opportunity in over ten years to begin with a "clean sheet of
paper," unlike Windows 3.1, 98, ME, and 2000/XP, Bill Gates has
repeatedly linked the two products in public.
Before looking at whether that association is warranted, it's worth
remembering just what Windows 95 brought to market. In 1994, loading
a browser onto Windows could be complicated by the operating system's
lack of Internet Protocol support. DOS prompts were very much a
day-to-day reality. File names were limited to eight letters, and
CD-ROM support was spotty. E-mail was used only by fringe populations
rather than being nearly universal. Adding hardware was more
difficult than it needed to be, multitasking was nearly impossible for
both processing and user interface reasons, and multimedia computing
was, again, the province of only a small subset of users.
Windows 95 changed all of that. Even before Gates' famous "Pearl
Harbor" speech helped turn Microsoft into an Internet-aware company,
Windows 95 made Internet connection, through both browser and e-mail,
a mass phenomenon. Multimedia, too, became an everyday event with
better hardware support (including CD-ROM drivers). Overall
usability, despite the initial confusion at using a "Start" button to
shut down a machine, was enhanced by deeper camouflaging of the
command-line layer, longer file names, and plug-and-play peripheral
support. Finally, the operating system kept pace with Intel's chip
performance and supported more realistic instances of multitasking.
The public responded. In the quarters immediately following the
launch, retail sales of Windows 95 software soared, augmenting a
strong increase in OEM sales of pre-loaded operating systems.
Responding positively to improved networking support and promises of
enhanced manageability, corporate IT organizations spent at record
levels: Microsoft's operating systems revenues jumped from $1.5
billion in fiscal 1994 to $4.1 billion only two years later.
What might we deduce about the prospects for Vista based on the
Windows 95 experience? First, it's hard to see a parallel burst of
initial interest, with or without a Rolling Stones commercial.
According to Microsoft, the benefits of Vista fall under five general
headings:
-Reliability
-Security
-Deployment (for organizations managing large rollouts)
-Performance (including better power management and faster boot up)
-Management of distributed users' machines
These categories of improvements are clearly aimed at corporate buyers
more than individuals. Most of the things a consumer-grade user will
see - including better desktop graphics, and RSS support within
Internet Explorer - already come standard in Mac OS X. Backward
compatibility will be substantial, to the point that many Vista
improvements (including the IE browser) will be available as retrofits
to Windows XP. These upgrades will also slow Vista adoption.
Here's another way of thinking about the comparison. In 1995,
Microsoft turned the telephone network into an extension of the
computer, or vice versa: between them AOL and Windows 95 made the
Internet a household utility. In 2006, no parallel leap into an
adjoining domain - think of home entertainment, specifically the
television - will be supported. Bill Gates longstanding prediction
about widespread adoption of a voice and speech interface to the PC
will be addressed with Vista support, but even given a powerful
standard processor configuration at its disposal, Vista still won't
make masses of people retire their keyboards.
In short, Windows Vista looks like a solid product for corporate
purchasers, but the lack of "gee-whiz" and "I've always wanted to be
able to do that" desirability will prevent end-user excitement from
reappearing the way it did ten years ago. An industry in search of
the next big thing will probably have to keep looking.
Monday, August 01, 2005
July 2005 Early Indications II: Virtual Trust
[Business notice: I have officially formed a company, Still River Research, to deliver consulting and analysis services. The website (www.stillriverresearch.com) is now out of beta after generous suggestions from several newsletter readers. I am now booking projects for the fall; please notify me if I can be of service.]
Security stories currently dominate much of the news. Between London, the Patriot Act, data thefts and losses, and renewed efforts to mandate identity cards for immigrants, it's difficult to help but feel that the world is a scary, dangerous place. My focus here, however, is on a near neighbor to security: trust, and how it can be both reinforced and undermined in new ways via digital networks.
It doesn't take long to see how various online efforts attempt to prove their trustworthiness:
-eBay relies on collated word of mouth to label bad apples and reassure good citizens. The company's institutionalized reputational currency ("view my 100% positive feedback!") is not patentable yet constitutes an enormous barrier to competitive entry.
-Some social network and dating sites use acquaintances as proxies: "you don't know me, but you know Mike, and Mike knows me, so I'm probably OK." As the Spokes and Friendsters of the world have discovered, trying to scale friend-of-a-friend trust is neither obvious nor cheap. When was the last time you used one of these services and could honestly say it was overwhelmingly positive?
-Other dating sites rely on the objective authority of social science. At eHarmony, potential daters are greeted by "relationship expert Dr. Neil Clark Warren" who has built a "detailed questionnaire measures the intricate facets of a person, including the 29 dimensions that are most important in relationship success." Not only that, an American Psychological Association conference included a paper that suggests that eHarmony marriages are happier than marriages built on other matchmaking techniques.
-Some entities have had a difficult time recreating the trust they built offline in new media. According to Lawrence Baxter, chief e-commerce officer at Wachovia quoted in the July 21 Boston Globe, the bank can no longer use e-mail to communicate with customers because phishing attacks so skillfully recreated the look and feel of official correspondence that customers routinely delete real messages. Cost structures used in the online bank's business case, meanwhile, almost certainly are rendered obsolete by the need to revert to physical mail.
-Amidst all of the 10-year celebrations of e-commerce sites (eBay, Amazon, CNet), some longtime readers may recall our discussion of Encyclopedia Britannica, which was nearly wiped off the map after over 225 years of operation. The company still exists, still publishes multi-volume hard-copy products, and recently announced it had re-formed and upgraded its panel of experts. That body, once home primarily to white males, now includes four Nobel laureates, two Pulitzer Prize winners, and a much more representative cultural makeup. Significantly, the last meeting of the board was ten years ago.
Several conclusions emerge:
1) Trust pays: eHarmony says they get 10,000-15,000 new members a day, each of whom has spent between $50 and $250.
2) Trust is expensive to build. As I searched for a new cell phone, Staples referred me to an outside vendor, but the vendor's site retains a Staples logo at the top, with the reminder that Staples will stand behind any transactions. The vendor's own site, with no such guarantee, sells the exact same service plan and phone for $50 less. Given the failure rate and overall dissatisfaction with U.S. wireless carriers, that $50 insurance looks very appealing.
3) There's a fallacy that identification can routinize trust: TSA screenings assume that someone with a driver's license that matches her face won't try to do anything bad to the aircraft. Conversely, someone who doesn't provide ID is kept off the plane: former Sun Microsystems employee John Gilmore is in federal court challenging the unwritten and/or secret law (nobody has yet produced it) that states that an "internal passport," as he calls it, is a condition for public transportation. (Here's the Gilmore site.)
4) The Britannica case, in its contrast with Wikipedia, highlights a particular dynamic on the Net, that of open vs. closed credibility, or trust if you will. Much as "many eyes make bugs shallow," as Eric Raymond argued in The Cathedral and the Bazaar in reference to open-source software, Wikipedia establishes trust in the volume of researcher-reader-editors who will spot and fix errors. Unlike the Staples model, money is less effective than reputational currency - the same stock of "funds" that makes eBay work.
Britannica, on the other hand, seeks the credibility of the few: the Encyclopedia's editor stated that "At a time when vast quantities of questionable information are available on the Internet and elsewhere, rigorous and reliable reference works are more important than ever." They are, but Britannica has a lot to answer for: the BBC reported that a 12-year old boy in London found five errors in two entries. Add to the errors the cost to fix paper editions, and the lag between error detection and correction - how many readers will propagate errors in the interval?
5) In the physical world, institutions can convey cues that reassure patrons of their solidity and presumably good intentions: marble pillars on a bank, brightly lit colorful plastic in a strip mall, even flight attendants' and pilots' uniforms. Online, Wells Fargo, Target, or Delta can't convey the same kind of authority in pixels, so the task becomes twofold: connecting to the existing credibility through branding, and capturing various kinds of word of mouth.
In the coming months, several trust stories will bear watching:
-Pharmaceutical companies, particularly in the COX-2 (Vioxx) neighborhood, have suffered major reputational damage, much of it related to online behavior, and the legal proceedings will be only one element of a fight to regain public trust.
-The 2008 presidential race will begin heating up, particularly the early-stage fundraising. Watch for the lessons various candidates learned from the Howard Dean experience.
-After the "golden age" of the CEO as hero, the past few years have reversed the public reception of business leaders. Huge severance packages following poor shareholder results, lawsuits, criminal guilty verdicts, and general tarnish on the aura make for a tough time to be a leader. Will Mark Hurd fare better at HP than did Carly Fiorina? Can Ford and GM rise to the challenge of viability and profitability? Will Boeing build a lead on Airbus? In each case, much will hinge on how much trust the leader can generate in his or her own company, the market, and the financial community. So far, by the way, it appears that Hurd understands the power of e-mail better than Harry Stonecipher at Boeing, who apparently let it become his undoing.
Security stories currently dominate much of the news. Between London, the Patriot Act, data thefts and losses, and renewed efforts to mandate identity cards for immigrants, it's difficult to help but feel that the world is a scary, dangerous place. My focus here, however, is on a near neighbor to security: trust, and how it can be both reinforced and undermined in new ways via digital networks.
It doesn't take long to see how various online efforts attempt to prove their trustworthiness:
-eBay relies on collated word of mouth to label bad apples and reassure good citizens. The company's institutionalized reputational currency ("view my 100% positive feedback!") is not patentable yet constitutes an enormous barrier to competitive entry.
-Some social network and dating sites use acquaintances as proxies: "you don't know me, but you know Mike, and Mike knows me, so I'm probably OK." As the Spokes and Friendsters of the world have discovered, trying to scale friend-of-a-friend trust is neither obvious nor cheap. When was the last time you used one of these services and could honestly say it was overwhelmingly positive?
-Other dating sites rely on the objective authority of social science. At eHarmony, potential daters are greeted by "relationship expert Dr. Neil Clark Warren" who has built a "detailed questionnaire measures the intricate facets of a person, including the 29 dimensions that are most important in relationship success." Not only that, an American Psychological Association conference included a paper that suggests that eHarmony marriages are happier than marriages built on other matchmaking techniques.
-Some entities have had a difficult time recreating the trust they built offline in new media. According to Lawrence Baxter, chief e-commerce officer at Wachovia quoted in the July 21 Boston Globe, the bank can no longer use e-mail to communicate with customers because phishing attacks so skillfully recreated the look and feel of official correspondence that customers routinely delete real messages. Cost structures used in the online bank's business case, meanwhile, almost certainly are rendered obsolete by the need to revert to physical mail.
-Amidst all of the 10-year celebrations of e-commerce sites (eBay, Amazon, CNet), some longtime readers may recall our discussion of Encyclopedia Britannica, which was nearly wiped off the map after over 225 years of operation. The company still exists, still publishes multi-volume hard-copy products, and recently announced it had re-formed and upgraded its panel of experts. That body, once home primarily to white males, now includes four Nobel laureates, two Pulitzer Prize winners, and a much more representative cultural makeup. Significantly, the last meeting of the board was ten years ago.
Several conclusions emerge:
1) Trust pays: eHarmony says they get 10,000-15,000 new members a day, each of whom has spent between $50 and $250.
2) Trust is expensive to build. As I searched for a new cell phone, Staples referred me to an outside vendor, but the vendor's site retains a Staples logo at the top, with the reminder that Staples will stand behind any transactions. The vendor's own site, with no such guarantee, sells the exact same service plan and phone for $50 less. Given the failure rate and overall dissatisfaction with U.S. wireless carriers, that $50 insurance looks very appealing.
3) There's a fallacy that identification can routinize trust: TSA screenings assume that someone with a driver's license that matches her face won't try to do anything bad to the aircraft. Conversely, someone who doesn't provide ID is kept off the plane: former Sun Microsystems employee John Gilmore is in federal court challenging the unwritten and/or secret law (nobody has yet produced it) that states that an "internal passport," as he calls it, is a condition for public transportation. (Here's the Gilmore site.)
4) The Britannica case, in its contrast with Wikipedia, highlights a particular dynamic on the Net, that of open vs. closed credibility, or trust if you will. Much as "many eyes make bugs shallow," as Eric Raymond argued in The Cathedral and the Bazaar in reference to open-source software, Wikipedia establishes trust in the volume of researcher-reader-editors who will spot and fix errors. Unlike the Staples model, money is less effective than reputational currency - the same stock of "funds" that makes eBay work.
Britannica, on the other hand, seeks the credibility of the few: the Encyclopedia's editor stated that "At a time when vast quantities of questionable information are available on the Internet and elsewhere, rigorous and reliable reference works are more important than ever." They are, but Britannica has a lot to answer for: the BBC reported that a 12-year old boy in London found five errors in two entries. Add to the errors the cost to fix paper editions, and the lag between error detection and correction - how many readers will propagate errors in the interval?
5) In the physical world, institutions can convey cues that reassure patrons of their solidity and presumably good intentions: marble pillars on a bank, brightly lit colorful plastic in a strip mall, even flight attendants' and pilots' uniforms. Online, Wells Fargo, Target, or Delta can't convey the same kind of authority in pixels, so the task becomes twofold: connecting to the existing credibility through branding, and capturing various kinds of word of mouth.
In the coming months, several trust stories will bear watching:
-Pharmaceutical companies, particularly in the COX-2 (Vioxx) neighborhood, have suffered major reputational damage, much of it related to online behavior, and the legal proceedings will be only one element of a fight to regain public trust.
-The 2008 presidential race will begin heating up, particularly the early-stage fundraising. Watch for the lessons various candidates learned from the Howard Dean experience.
-After the "golden age" of the CEO as hero, the past few years have reversed the public reception of business leaders. Huge severance packages following poor shareholder results, lawsuits, criminal guilty verdicts, and general tarnish on the aura make for a tough time to be a leader. Will Mark Hurd fare better at HP than did Carly Fiorina? Can Ford and GM rise to the challenge of viability and profitability? Will Boeing build a lead on Airbus? In each case, much will hinge on how much trust the leader can generate in his or her own company, the market, and the financial community. So far, by the way, it appears that Hurd understands the power of e-mail better than Harry Stonecipher at Boeing, who apparently let it become his undoing.
Friday, July 22, 2005
Signals and Noise on Broadband
(distributed July 11)
Patterns are emerging from some seemingly unrelated recent developments:
Item: After the mass transit bombings in London, what used to be called "man on the street" perspectives provided some of the most vivid news sources. The BBC has long solicited cameraphone images and personal accounts, and this week's events proved the value of this approach as one element in comprehensive newsgathering.
Item: Wasting no time integrating the Keyhole technology, Google launched a free beta of Google Earth, an even more addictive variation on the satellite imagery embedded in Google Maps. In the Wall Street Journal, Walt Mossberg questioned the utility but not the fun and wonderment fueled by the technology. For example, Google Siteseeing, a weblog unaffiliated with the company, gathers readers' harvests of interesting (for whatever reason) images from the air: shadows of airplanes about to land, smoke plumes, college campuses with giant initials on nearby hillsides, Bill Gates' house. The site has proved so popular it's had to rehost onto commercial-grade infrastructure. (For lots more on this theme, see the coverage of O'Reilly's Where 2.0 conference: http://www.oreillynet.com/where2005/.)
Item: Earlier this month, a carrier in a major European nation announced 3G cellular service over which it will broadcast 42 channels of television to mobile devices. People would be accustomed to this kind of activity in South Korea, but in France? France Telecom is involved along with Orange, giving rise to speculation that national policymakers have decided to emphasize broadband as an economic growth engine.
Item: Apple's new OS, nicknamed Tiger, includes an RSS feedreader within the Safari browser. It wasn't that long ago that people who wanted aggregated feeds needed to install and understand scripting languages. Bloglines changed that, but Tiger appears to be the cleanest implementation to date: I've heard of people upgrading only for this one feature.
Item: After MTV's North American feed of the Live 8 performances was interrupted by ads - midsong - music fans were delighted to see AOL open up a nearly complete video archive of six venues' performances. Apple's Quicktime format is supported, but not Firefox; in Internet Explorer, the viewer is treated to annoying Microsoft ads.
Conclusion 1: Diversity is good. Even without worries of terrorist attacks, viruses, and tightly coupled grids that may or may not have adequate bulkheads to prevent cascading failure (as in the US-Canada power failure of two years ago), convenience and basic prudence suggest that heterogeneous communications channels make a lot of sense. Anyone who switches to sole reliance on voice over IP, the cable company, cellular, instant messaging, or anything else risks total lights-out, as London residents discovered this week. (According to the Wall Street Journal, officials decided against shutting down the cellular networks; the lack of service was apparently caused by heavy traffic.) The success of AOL undoubtedly spurred MTV's decision to re-broadcast Live 8 without interruption.
Conclusion 2: Innovation is happening from both top down (as in Google Labs) and bottom up. Historically the Web has made it easy to find big news sources, but with RSS, it's similarly simple to find small ones. I'm finding it educational to watch media outlets attempt to include and/or co-opt blogs: the Wall Street Journal regularly includes Glenn (Instapundit) Reynolds in the print paper, while publications all over the map are including various blog voices. It's unclear as to what editorial oversight news-organ bloggers enjoy, how they're paid, and what precedence the "day job" medium has with regard to liability, scoops, retractions, and the like. There's still much to be sorted out here.
Conclusion 3: Broadband makes things happen. Whether it's telemedicine, gaming, or secure transmission of private data, its low broadband penetration means that untapped opportunities abound in the United States. As of March the OECD rated the U.S. 17th out of 30 nations in terms of broadband service cost, but this is deceiving as the U.S. ranks only 6th in average broadband speed: Japan's standard service is merely 12 times as fast (26 MB/sec to 2, with a theoretical limit of 51; fiber to the home is expanding rapidly and delivers 100 MB/sec). In short, U.S. customers pay a lot for service that's only charitably defined as mid-band.
The implications can be found in multiple domains. For example, the recent data thefts are increasingly being reported not from hackers but from boxes of backup tapes falling off the back of trucks. It's an open question whether an employee or customer would rather have her sensitive information carried on MCI fiber or a Fedex van.
Remote work is an even more pressing example: between 1970 and 2002, vehicle miles traveled in U.S. urban areas has tripled. Road mileage has in no way kept pace, and the next thirty years will be worse for congestion: few states can afford to maintain the roads and bridges they already have, much less build more. Broadband promises to help create alternative ways of organizing resources, with Jet Blue's virtual call center (consisting of work-at-home customer service reps) serving as one real-life progenitor.
Other promising signs keep cropping up: on the connection front, services like Sprint's EVDO and Verizon's FiOS support reasonably symmetric speeds up and down in part because the business case for customer uploading (digital photos and the like) is getting harder to ignore. Furthermore, increasingly multi-modal communications media like the Weather Channel on cell phones and Google's purchase of Dodgeball support heterogeneous redundancy. Finally, at the FCC and elsewhere people who can make a difference seem to be raising communication policy to a slightly higher level of import.
One great thing about the current cornucopia of technologies is that some can be deployed very rapidly, to the point where Japan, for example, was able to leapfrog much of the world in a matter of a few years. Who will be the next Korea, the next Japan, the next Sweden? It's no exaggeration to say that the whole world is indeed watching - and, increasingly, contributing to content creation and distribution.
Patterns are emerging from some seemingly unrelated recent developments:
Item: After the mass transit bombings in London, what used to be called "man on the street" perspectives provided some of the most vivid news sources. The BBC has long solicited cameraphone images and personal accounts, and this week's events proved the value of this approach as one element in comprehensive newsgathering.
Item: Wasting no time integrating the Keyhole technology, Google launched a free beta of Google Earth, an even more addictive variation on the satellite imagery embedded in Google Maps. In the Wall Street Journal, Walt Mossberg questioned the utility but not the fun and wonderment fueled by the technology. For example, Google Siteseeing, a weblog unaffiliated with the company, gathers readers' harvests of interesting (for whatever reason) images from the air: shadows of airplanes about to land, smoke plumes, college campuses with giant initials on nearby hillsides, Bill Gates' house. The site has proved so popular it's had to rehost onto commercial-grade infrastructure. (For lots more on this theme, see the coverage of O'Reilly's Where 2.0 conference: http://www.oreillynet.com/where2005/.)
Item: Earlier this month, a carrier in a major European nation announced 3G cellular service over which it will broadcast 42 channels of television to mobile devices. People would be accustomed to this kind of activity in South Korea, but in France? France Telecom is involved along with Orange, giving rise to speculation that national policymakers have decided to emphasize broadband as an economic growth engine.
Item: Apple's new OS, nicknamed Tiger, includes an RSS feedreader within the Safari browser. It wasn't that long ago that people who wanted aggregated feeds needed to install and understand scripting languages. Bloglines changed that, but Tiger appears to be the cleanest implementation to date: I've heard of people upgrading only for this one feature.
Item: After MTV's North American feed of the Live 8 performances was interrupted by ads - midsong - music fans were delighted to see AOL open up a nearly complete video archive of six venues' performances. Apple's Quicktime format is supported, but not Firefox; in Internet Explorer, the viewer is treated to annoying Microsoft ads.
Conclusion 1: Diversity is good. Even without worries of terrorist attacks, viruses, and tightly coupled grids that may or may not have adequate bulkheads to prevent cascading failure (as in the US-Canada power failure of two years ago), convenience and basic prudence suggest that heterogeneous communications channels make a lot of sense. Anyone who switches to sole reliance on voice over IP, the cable company, cellular, instant messaging, or anything else risks total lights-out, as London residents discovered this week. (According to the Wall Street Journal, officials decided against shutting down the cellular networks; the lack of service was apparently caused by heavy traffic.) The success of AOL undoubtedly spurred MTV's decision to re-broadcast Live 8 without interruption.
Conclusion 2: Innovation is happening from both top down (as in Google Labs) and bottom up. Historically the Web has made it easy to find big news sources, but with RSS, it's similarly simple to find small ones. I'm finding it educational to watch media outlets attempt to include and/or co-opt blogs: the Wall Street Journal regularly includes Glenn (Instapundit) Reynolds in the print paper, while publications all over the map are including various blog voices. It's unclear as to what editorial oversight news-organ bloggers enjoy, how they're paid, and what precedence the "day job" medium has with regard to liability, scoops, retractions, and the like. There's still much to be sorted out here.
Conclusion 3: Broadband makes things happen. Whether it's telemedicine, gaming, or secure transmission of private data, its low broadband penetration means that untapped opportunities abound in the United States. As of March the OECD rated the U.S. 17th out of 30 nations in terms of broadband service cost, but this is deceiving as the U.S. ranks only 6th in average broadband speed: Japan's standard service is merely 12 times as fast (26 MB/sec to 2, with a theoretical limit of 51; fiber to the home is expanding rapidly and delivers 100 MB/sec). In short, U.S. customers pay a lot for service that's only charitably defined as mid-band.
The implications can be found in multiple domains. For example, the recent data thefts are increasingly being reported not from hackers but from boxes of backup tapes falling off the back of trucks. It's an open question whether an employee or customer would rather have her sensitive information carried on MCI fiber or a Fedex van.
Remote work is an even more pressing example: between 1970 and 2002, vehicle miles traveled in U.S. urban areas has tripled. Road mileage has in no way kept pace, and the next thirty years will be worse for congestion: few states can afford to maintain the roads and bridges they already have, much less build more. Broadband promises to help create alternative ways of organizing resources, with Jet Blue's virtual call center (consisting of work-at-home customer service reps) serving as one real-life progenitor.
Other promising signs keep cropping up: on the connection front, services like Sprint's EVDO and Verizon's FiOS support reasonably symmetric speeds up and down in part because the business case for customer uploading (digital photos and the like) is getting harder to ignore. Furthermore, increasingly multi-modal communications media like the Weather Channel on cell phones and Google's purchase of Dodgeball support heterogeneous redundancy. Finally, at the FCC and elsewhere people who can make a difference seem to be raising communication policy to a slightly higher level of import.
One great thing about the current cornucopia of technologies is that some can be deployed very rapidly, to the point where Japan, for example, was able to leapfrog much of the world in a matter of a few years. Who will be the next Korea, the next Japan, the next Sweden? It's no exaggeration to say that the whole world is indeed watching - and, increasingly, contributing to content creation and distribution.
Friday, June 17, 2005
June Early Indications: Can IT Fix Health Care?
"The solution seems obvious: to get all the information about patients out of paper files and into electronic databases that -- and this is the crucial point -- can connect to one another so that any doctor can access all the information that he needs to help any given patient at any time in any place. In other words, the solution is not merely to use computers, but to link the systems of doctors, hospitals, laboratories, pharmacies and insurers, thus making them, in the jargon, 'interoperable'."
-"Special report: IT in the health-care industry," The Economist, April 30, 2005, p. 65
There's no question that North American medicine is approaching a crisis. According to the Washington Post, 45 million Americans carry no health insurance. Between 44,000 and 98,000 people are estimated to die every year from preventable medical errors such as drug interactions; the fact that the statistics are so vague testifies to the problem. The U.S. leads the world in health care spending per capita by a large margin ($4500 vs. $2500 for the runners-up: Germany, Luxembourg, and Switzerland), but the life expectancy ranks 27th, near that of Cuba, which is reported to spend about 1/25th as much per capita. Information technology has made industries such as package delivery, retail, and mutual funds more efficient: can health care benefit from similar gains?
The farther one looks into this issue, the more tangled the questions get. Let me assert at the outset that I believe electronic medical records are a good idea. But for reasons outlined below, IT by itself falls far short of meeting the challenge of rethinking health and health care. Any industry with the emotional freight, economic impact, and cultural significance of medicine can't be analyzed closely in a few paragraphs, but perhaps these ideas might begin discussion in other venues.
1) Definitions
What does the health care system purport to deliver? If longevity is the answer, clearly much less money could be spent to bring U.S. life expectancy closer to Australia, where people live an average of three years longer. But health means more than years: the phrase "quality of life" hints at the notion that we seek something non-quantifiable from doctors, therapists, nutritionists, and others. At a macro level, no one can assess how well a health care system works because the metrics lack explanatory power: we know, roughly, how much money goes in to a hospital, HMO, or even economic sector, but we don't know much about the outputs.
For example, should health care make us even "better than well"? As the bioethicist Carl Elliott compellingly argues in his book of that name, a substantial part of our investment in medicine, nutrition, and surgery is enhancement beyond what's naturally possible. Erectile dysfunction pills, steroids, implants, and blood doping are no longer the province of celebrities and world-class athletes. Not only can we not define health on its lower baseline, it's getting more and more difficult to know where it stops on the top bound as well.
Finally, Americans at large don't seem to view death as natural, even though it's one of the very few things that happens to absolutely everyone. Within many outposts of the health care system, death is regarded as a failure of technology, to the point where central lines, respirators, and other interventions are applied to people who are naturally coming to the end of life. This approach of course incurs astronomical costs, but it is a predictable outcome of a heavily technology-driven approach to care.
2) Health care as car repair for people?
Speaking in gross generalizations, U.S. hospitals are not run to deliver health; they're better described as sickness-remediation facilities. The ambiguous position of women who deliver babies demonstrates the primary orientation. Many of the institutional interventions and signals (calling the woman a "patient," for example) are shared with the sickness-remediation side of the house even though birth is not morbid under most circumstances. Some hospitals are turning this contradiction into a marketing opportunity: plushly appointed "birthing centers" have the stated aim of making the new mom a satisfied customer. "I had such a good experience having Max and Ashley at XYZ Medical Center," the intended logic goes, "that I want them taking care of Dad's heart problems."
Understanding health care as sickness-remediation has several corollaries. Doctors are deeply protective of their hard-won cultural authority, which they guard with language, apparel, and other mechanisms, but the parallels between a hospital and a car-repair garage run deep. After Descartes split the mind from the body, medicine followed the ontology of science to divide fields of inquiry -- and presumably repair -- into discrete units.
At teaching hospitals especially, patients frequently report feeling less like a person and more like a sum of sub-systems. Rashes are for dermatology, heart blockages set off a tug-of-war between surgeons and cardiologists, joint pain is orthopedics or maybe endocrinology. Root-cause analysis frequently falls to secondary priority as the patient is reduced to his or her compartmentalized complaints and metrics. Pain is no service's specialty but many patients' primary concern. Systems integration between the sub-specialties often falls to floor nurses and the patient's advocate if he or she can find one. The situation might be different if one is fortunate enough to have access to a hospitalist: a new specialty that addresses the state of being hospitalized, which the numbers show to be more deadly than car crashes. (To restate: something on the order of 100,000 people die in the U.S. every year from preventable medical accidents.)
The division of the patient into sub-systems that map to professional fields has many consequences. Attention focuses on the disease state, rather than the path that led to that juncture: preventive care lags far behind crisis management in glamour, funding, and attention. Diabetes provides a current example. Drug companies have focused large sums of money on insulin therapies, a treatment program that can change millions of peoples' lives. But when public-health authorities try to warn against obesity as a preventive attack on diabetes, soft-drink and other lobbies immediately spring into action.
Finally, western medicine's claim to be evidence-based contradicts the lack of definitive evidence for ultimate consequences. The practice of performing autopsies in cases of death where the cause is unclear has dropped steadily and steeply, to the point where doctors and families typically do not know what killed a sizable population of patients. A study at the University of Michigan estimated that almost 50% of hospital patients died of a condition for which they were not receiving treatment. It's potentially the same situation as storeowner John Wanamaker bemoaning that half of his advertising budget was being wasted, but not knowing which half.
3) Following the money
Health care costs money, involves scarcities and surplus, and employs millions of people. As such, it constitutes a market - but one that fails to run under conventional market mechanisms. (For example, excess inventory, in the form of unbooked surgical times, let's say, is neither auctioned to the highest bidder nor put on sale to clear the market.) The parties that pay are rarely the parties whose health is being treated; the parties that deliver care lack detailed cost data and therefore price services only in the loosest sense; and the alignment of patient preference with greater good through the lens of for-profit insurers has many repercussions.
Consider a few market-driven sub-optimizations:
-Chief executives at HMOs are rewarded for cost-cutting, which often translates to cuts in hospital reimbursement. Hospitals, meanwhile, are frequently not-for-profit institutions, many of which have been forced to closed their doors in the past decade.
-Arrangements to pay for certain kinds of care for the uninsured introduce further costs, and further kinds of costs, into an already complex set of financial flows.
-As Richard Titmuss showed over 30 years ago in The Gift Relationship, markets don't make sense for certain kinds of social goods. In his study, paying for blood donation lowered the amount and quality of blood available for transfusion; more recently, similar paradoxes and ethical issues have arisen regarding tissue and organ donation.
-Insurers prefer to pay for tangible rather than intangible services. Hospitals respond by building labs and imaging centers as opposed to mental health facilities, where services like psychiatric nursing are rarely covered.
-Once they build labs, hospitals want them utilized, so there's further pressure (in addition to litigation-induced defensiveness) for technological evidence-gathering rather than time-consuming medical art such as history-taking and palpation, for which doctors are not reimbursed.
-As a result, conditions with clear diagnoses (like fractures) are treated more favorably in economic terms, and therefore in interventional terms, than conditions such as allergies or neck pain that lack "hard" diagnostics. Once again, the vast number of people with mental health issues are grossly underserved.
-Medical schools can no longer afford for their professors to do unreimbursable things like teach or serve on national standards bodies. The doctors need to bring in grant money to fund research and insurance money for their clinical time. Teaching can be highly uneconomical for all concerned. One reason for a shortage of nurses, meanwhile, is a shortage of nursing professors.
4) Where can IT help?
Information technology has made significant improvements possible in business settings with well-defined, repeatable processes like originating a loan or filling an order. Medicine involves some processes that fit this description, but it also involves a lot of impossible-to-predict scheduling, healing as art rather than science, and institutionalized barriers to communication.
IT is currently used in four broad medical areas: billing and finance, supply chain and logistics, imaging and instrumentation, and patient care. Patient registration is an obvious example of the first; lines and foodservice the second; MRIs, blood tests, and bedside monitoring the third; and physician order entry, patient care notes, and prescription writing the fourth. Each type of automation introduces changes in work habits, incentives, and costs to various parties in the equation.
Information regarding health and information regarding money often follow parallel paths: if I get stitched up after falling on my chin, the insurance company is billed for an emergency department visit and a suture kit at the same time that the hospital logs my visit -- and hopefully flags any known antibiotic allergies. Meanwhile the interests and incentives are frequently anything but parallel: I might want a plastic surgeon to suture my face; the insurer prefers a physician's assistant. From the patient's perspective, having systems that more seamlessly interoperate with the HMO may not be positive if that results in fewer choices or a perceived reduction in the quality of care. On the provider side, the hospital and the plastic surgeon will send separate bills, each hoping for payment but neither coordinating with the other. Bills frequently appear in a matter of days, with the issuer hoping to get paid first, before the patient realizes any potential errors in calculating co-pay or deductible. The amount of time and money spent on administering the current dysfunctional multi-payer system is impossible to conceive.
Privacy issues are non-trivial. Given that large-scale breaches of personal information are almost daily news, what assurance will patients have that a complex medical system will do a better job shielding privacy than Citigroup or LexisNexis? With genomic predictors of health -- and potential cost for insurance coverage -- around the corner, how will patients' and insurers' claims on that information be reconciled?
A number of services currently let individuals combine personal control and portability of their records. It's easy to see how such an approach may not scale: something as trivial as password-resets in corporate computing environments already involves sizeable costs -- now think about managing the sum of past and present patients and employees as a user base with access to the most sensitive information imaginable. With portable devices proliferating, potential paths of entry multiply both the security perimeter and the cost of securing it: think of teenage hackers trying to find their way to Paris Hilton's medical record rather than her Sidekick.
Hospitals already tend to treat privacy as an inconvenience -- witness the universal use of the ridiculous johnnies, which do more to demean the patient than to improve quality of care. The medical record doesn't even belong to the person whose condition it documents. American data privacy standards, even after HIPAA, lag behind those in the European Union. From such a primitive baseline, getting to a new state of shared accountability, access, and privacy will take far more diplomacy than systems development.
Spending on diagnostic technology currently outpaces patient care IT. Hospitals routinely advertise less confining MRI machines, digital mammography, and 3D echocardiography; it's less easy to impress constituencies with effective metadata for patient care notes, for example. (Some computerized record systems merely capture images of handwritten notes with only minimal indexing.) After these usually expensive machines produce their intended results, the process by which diagnosticians and ultimately caregivers use those results is often haphazard: many tests are never consulted, or compared to previous results -- particularly if they were generated somewhere else. NIH doesn't just stand for National Institutes of Health; Not Invented Here is also alive and well in hospitals.
Back in the early days of reengineering, when technology and process change were envisioned as a potent one-two punch in the gut of inefficiency, the phrase "don't pave the cowpaths" was frequently used as shorthand. Given that medicine can only be routinized to a certain degree, and given that many structural elements contribute to the current state of affairs, it's useful to recall the old mantra. Without new ways of organizing the vastness of a longitudinal medical record, for example, physicians could easily find themselves buried in a haystack of records, searching for a needle without a magnet. Merely automating a bad process rarely solves any problems, and usually creates big new ones.
Change comes slowly to medicine, and the application of technology depends, here as always, on the incentives for different parties to adopt new ways of doing things. Computerized approaches to caregiving include expert knowledge bases, automated lockouts much like those in commercial aviation, and medical simulators for training students and experienced practitioners alike. Each of these has proven benefits, but only limited deployment. Further benefits could come from well care and preventive medicine, but these areas have proven less amenable to the current style of IT intensification. Until the reform efforts such as Leapfrog can address the culture, process, and incentive issues in patient care, the increase in clinical IT investment will do little to drive breakthrough change in the length and quality of Americans' lives.
-"Special report: IT in the health-care industry," The Economist, April 30, 2005, p. 65
There's no question that North American medicine is approaching a crisis. According to the Washington Post, 45 million Americans carry no health insurance. Between 44,000 and 98,000 people are estimated to die every year from preventable medical errors such as drug interactions; the fact that the statistics are so vague testifies to the problem. The U.S. leads the world in health care spending per capita by a large margin ($4500 vs. $2500 for the runners-up: Germany, Luxembourg, and Switzerland), but the life expectancy ranks 27th, near that of Cuba, which is reported to spend about 1/25th as much per capita. Information technology has made industries such as package delivery, retail, and mutual funds more efficient: can health care benefit from similar gains?
The farther one looks into this issue, the more tangled the questions get. Let me assert at the outset that I believe electronic medical records are a good idea. But for reasons outlined below, IT by itself falls far short of meeting the challenge of rethinking health and health care. Any industry with the emotional freight, economic impact, and cultural significance of medicine can't be analyzed closely in a few paragraphs, but perhaps these ideas might begin discussion in other venues.
1) Definitions
What does the health care system purport to deliver? If longevity is the answer, clearly much less money could be spent to bring U.S. life expectancy closer to Australia, where people live an average of three years longer. But health means more than years: the phrase "quality of life" hints at the notion that we seek something non-quantifiable from doctors, therapists, nutritionists, and others. At a macro level, no one can assess how well a health care system works because the metrics lack explanatory power: we know, roughly, how much money goes in to a hospital, HMO, or even economic sector, but we don't know much about the outputs.
For example, should health care make us even "better than well"? As the bioethicist Carl Elliott compellingly argues in his book of that name, a substantial part of our investment in medicine, nutrition, and surgery is enhancement beyond what's naturally possible. Erectile dysfunction pills, steroids, implants, and blood doping are no longer the province of celebrities and world-class athletes. Not only can we not define health on its lower baseline, it's getting more and more difficult to know where it stops on the top bound as well.
Finally, Americans at large don't seem to view death as natural, even though it's one of the very few things that happens to absolutely everyone. Within many outposts of the health care system, death is regarded as a failure of technology, to the point where central lines, respirators, and other interventions are applied to people who are naturally coming to the end of life. This approach of course incurs astronomical costs, but it is a predictable outcome of a heavily technology-driven approach to care.
2) Health care as car repair for people?
Speaking in gross generalizations, U.S. hospitals are not run to deliver health; they're better described as sickness-remediation facilities. The ambiguous position of women who deliver babies demonstrates the primary orientation. Many of the institutional interventions and signals (calling the woman a "patient," for example) are shared with the sickness-remediation side of the house even though birth is not morbid under most circumstances. Some hospitals are turning this contradiction into a marketing opportunity: plushly appointed "birthing centers" have the stated aim of making the new mom a satisfied customer. "I had such a good experience having Max and Ashley at XYZ Medical Center," the intended logic goes, "that I want them taking care of Dad's heart problems."
Understanding health care as sickness-remediation has several corollaries. Doctors are deeply protective of their hard-won cultural authority, which they guard with language, apparel, and other mechanisms, but the parallels between a hospital and a car-repair garage run deep. After Descartes split the mind from the body, medicine followed the ontology of science to divide fields of inquiry -- and presumably repair -- into discrete units.
At teaching hospitals especially, patients frequently report feeling less like a person and more like a sum of sub-systems. Rashes are for dermatology, heart blockages set off a tug-of-war between surgeons and cardiologists, joint pain is orthopedics or maybe endocrinology. Root-cause analysis frequently falls to secondary priority as the patient is reduced to his or her compartmentalized complaints and metrics. Pain is no service's specialty but many patients' primary concern. Systems integration between the sub-specialties often falls to floor nurses and the patient's advocate if he or she can find one. The situation might be different if one is fortunate enough to have access to a hospitalist: a new specialty that addresses the state of being hospitalized, which the numbers show to be more deadly than car crashes. (To restate: something on the order of 100,000 people die in the U.S. every year from preventable medical accidents.)
The division of the patient into sub-systems that map to professional fields has many consequences. Attention focuses on the disease state, rather than the path that led to that juncture: preventive care lags far behind crisis management in glamour, funding, and attention. Diabetes provides a current example. Drug companies have focused large sums of money on insulin therapies, a treatment program that can change millions of peoples' lives. But when public-health authorities try to warn against obesity as a preventive attack on diabetes, soft-drink and other lobbies immediately spring into action.
Finally, western medicine's claim to be evidence-based contradicts the lack of definitive evidence for ultimate consequences. The practice of performing autopsies in cases of death where the cause is unclear has dropped steadily and steeply, to the point where doctors and families typically do not know what killed a sizable population of patients. A study at the University of Michigan estimated that almost 50% of hospital patients died of a condition for which they were not receiving treatment. It's potentially the same situation as storeowner John Wanamaker bemoaning that half of his advertising budget was being wasted, but not knowing which half.
3) Following the money
Health care costs money, involves scarcities and surplus, and employs millions of people. As such, it constitutes a market - but one that fails to run under conventional market mechanisms. (For example, excess inventory, in the form of unbooked surgical times, let's say, is neither auctioned to the highest bidder nor put on sale to clear the market.) The parties that pay are rarely the parties whose health is being treated; the parties that deliver care lack detailed cost data and therefore price services only in the loosest sense; and the alignment of patient preference with greater good through the lens of for-profit insurers has many repercussions.
Consider a few market-driven sub-optimizations:
-Chief executives at HMOs are rewarded for cost-cutting, which often translates to cuts in hospital reimbursement. Hospitals, meanwhile, are frequently not-for-profit institutions, many of which have been forced to closed their doors in the past decade.
-Arrangements to pay for certain kinds of care for the uninsured introduce further costs, and further kinds of costs, into an already complex set of financial flows.
-As Richard Titmuss showed over 30 years ago in The Gift Relationship, markets don't make sense for certain kinds of social goods. In his study, paying for blood donation lowered the amount and quality of blood available for transfusion; more recently, similar paradoxes and ethical issues have arisen regarding tissue and organ donation.
-Insurers prefer to pay for tangible rather than intangible services. Hospitals respond by building labs and imaging centers as opposed to mental health facilities, where services like psychiatric nursing are rarely covered.
-Once they build labs, hospitals want them utilized, so there's further pressure (in addition to litigation-induced defensiveness) for technological evidence-gathering rather than time-consuming medical art such as history-taking and palpation, for which doctors are not reimbursed.
-As a result, conditions with clear diagnoses (like fractures) are treated more favorably in economic terms, and therefore in interventional terms, than conditions such as allergies or neck pain that lack "hard" diagnostics. Once again, the vast number of people with mental health issues are grossly underserved.
-Medical schools can no longer afford for their professors to do unreimbursable things like teach or serve on national standards bodies. The doctors need to bring in grant money to fund research and insurance money for their clinical time. Teaching can be highly uneconomical for all concerned. One reason for a shortage of nurses, meanwhile, is a shortage of nursing professors.
4) Where can IT help?
Information technology has made significant improvements possible in business settings with well-defined, repeatable processes like originating a loan or filling an order. Medicine involves some processes that fit this description, but it also involves a lot of impossible-to-predict scheduling, healing as art rather than science, and institutionalized barriers to communication.
IT is currently used in four broad medical areas: billing and finance, supply chain and logistics, imaging and instrumentation, and patient care. Patient registration is an obvious example of the first; lines and foodservice the second; MRIs, blood tests, and bedside monitoring the third; and physician order entry, patient care notes, and prescription writing the fourth. Each type of automation introduces changes in work habits, incentives, and costs to various parties in the equation.
Information regarding health and information regarding money often follow parallel paths: if I get stitched up after falling on my chin, the insurance company is billed for an emergency department visit and a suture kit at the same time that the hospital logs my visit -- and hopefully flags any known antibiotic allergies. Meanwhile the interests and incentives are frequently anything but parallel: I might want a plastic surgeon to suture my face; the insurer prefers a physician's assistant. From the patient's perspective, having systems that more seamlessly interoperate with the HMO may not be positive if that results in fewer choices or a perceived reduction in the quality of care. On the provider side, the hospital and the plastic surgeon will send separate bills, each hoping for payment but neither coordinating with the other. Bills frequently appear in a matter of days, with the issuer hoping to get paid first, before the patient realizes any potential errors in calculating co-pay or deductible. The amount of time and money spent on administering the current dysfunctional multi-payer system is impossible to conceive.
Privacy issues are non-trivial. Given that large-scale breaches of personal information are almost daily news, what assurance will patients have that a complex medical system will do a better job shielding privacy than Citigroup or LexisNexis? With genomic predictors of health -- and potential cost for insurance coverage -- around the corner, how will patients' and insurers' claims on that information be reconciled?
A number of services currently let individuals combine personal control and portability of their records. It's easy to see how such an approach may not scale: something as trivial as password-resets in corporate computing environments already involves sizeable costs -- now think about managing the sum of past and present patients and employees as a user base with access to the most sensitive information imaginable. With portable devices proliferating, potential paths of entry multiply both the security perimeter and the cost of securing it: think of teenage hackers trying to find their way to Paris Hilton's medical record rather than her Sidekick.
Hospitals already tend to treat privacy as an inconvenience -- witness the universal use of the ridiculous johnnies, which do more to demean the patient than to improve quality of care. The medical record doesn't even belong to the person whose condition it documents. American data privacy standards, even after HIPAA, lag behind those in the European Union. From such a primitive baseline, getting to a new state of shared accountability, access, and privacy will take far more diplomacy than systems development.
Spending on diagnostic technology currently outpaces patient care IT. Hospitals routinely advertise less confining MRI machines, digital mammography, and 3D echocardiography; it's less easy to impress constituencies with effective metadata for patient care notes, for example. (Some computerized record systems merely capture images of handwritten notes with only minimal indexing.) After these usually expensive machines produce their intended results, the process by which diagnosticians and ultimately caregivers use those results is often haphazard: many tests are never consulted, or compared to previous results -- particularly if they were generated somewhere else. NIH doesn't just stand for National Institutes of Health; Not Invented Here is also alive and well in hospitals.
Back in the early days of reengineering, when technology and process change were envisioned as a potent one-two punch in the gut of inefficiency, the phrase "don't pave the cowpaths" was frequently used as shorthand. Given that medicine can only be routinized to a certain degree, and given that many structural elements contribute to the current state of affairs, it's useful to recall the old mantra. Without new ways of organizing the vastness of a longitudinal medical record, for example, physicians could easily find themselves buried in a haystack of records, searching for a needle without a magnet. Merely automating a bad process rarely solves any problems, and usually creates big new ones.
Change comes slowly to medicine, and the application of technology depends, here as always, on the incentives for different parties to adopt new ways of doing things. Computerized approaches to caregiving include expert knowledge bases, automated lockouts much like those in commercial aviation, and medical simulators for training students and experienced practitioners alike. Each of these has proven benefits, but only limited deployment. Further benefits could come from well care and preventive medicine, but these areas have proven less amenable to the current style of IT intensification. Until the reform efforts such as Leapfrog can address the culture, process, and incentive issues in patient care, the increase in clinical IT investment will do little to drive breakthrough change in the length and quality of Americans' lives.
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