It's commonplace to refer to our situation as a digital economy, an information age, or a post-industrial society. Because we have almost exactly 50 years of experience with commercial computers (GE purchased the first commercial Univac system for its Louisville appliance plant in 1954), it's worth trying to analyze how the U.S. has changed in that time. Isolating how information technology has shaped the economy and society turns out to be much less direct than looking for the impact of, say, the automobile.
To begin with, the nation has steadily produced more and more economic value. In 1900, U.S. GDP per capita, in current dollars, was $268. By 1950, that figure had multiplied seven times to about $2000. Between 1950 and 2000, the multiple was eighteen. To put that per capita figure in perspective, real GDP rose from $294 billion to $9817 billion: a 33-fold increase. (That ratio of 18 to 33 suggests that total population nearly doubled, which it did, from 151 million to 281 million. I don't know how much the apparently sudden growth could be methodological, but I was quite surprised to see a counter on the Census site indicating that the U.S. is just about to cross the 300 million mark. It probably has, depending on how illegal aliens are counted.)
The role of agriculture has changed in surprising ways. The number of farms in the U.S. in 1950 was almost the same as in 1900, a little over five and a half million after having peaked in the mid-1930s. By 2000, the number of farms had dropped to 2.2 million, but the average size, possibly reflecting the rise of organic farms, was actually dropping from its high in 1994. The amount of total acreage in farms reached its peak in 1953: for all the talk of urbanization in the late 19th century, it turns out that in 1950 the U.S. was still robustly rural, in land use terms anyway.
The surprising amount of farm acreage belied a strong population shift, however. In 1900, 41 percent of the U.S. workforce was employed in agriculture. The number fell to 16 percent in 1945, and in 2000 less than 2 percent did so, most part-time. Agriculture was less than 1 percent of GDP by that time, a ninth of what it had been in 1945.
Where did people go when they left the farms, which were mostly located in the Midwest? South and west, of course: the 13 states that constitute the Census Bureau's West region (every state west of Texas) combined to grow from 13 percent of U.S. population in 1950 to 22.5 percent fifty years later. I was surprised that the South only increased from 31 to 36 percent. Before talking about macroeconomic effects of computing, one has to appreciate the impact of air conditioning on where people live: such fast-growing states as Virginia, Georgia, Texas, and Arizona can be uncomfortable and unhealthy without climate control. Air conditioning in turn raises the importance of electric power, which was still a novelty in the rural South in 1950.
Along with internal migration, the second half of the twentieth century was marked by broad social change: political and economic involvement by women moved broader, in terms of numbers, and deeper, in terms of impact. Women doubled their participation in the workforce, from 30 to 60 per cent, and now often, but not routinely, hold seats as CEOs, senators, Supreme Court justices, and astronauts. Women also constitute well over half of the college population only a generation after having gained admittance to the leading private universities. The U.S. is also a much older nation than in 1950. Life expectancy at birth has risen from 68 to 77. Both of these trends relate closely to changes in medical technology and, for women, birth control. It will require further study to determine how much the increase in life expectancy relates to computing: trends in immunization, smoking, nutrition, and cardiac interventions are, I suspect, far more important.
In demographic terms, the automobile stands out among technologies with major impact. The pervasiveness of its influence tracks closely with the invention and habitation of the suburb - a term that did not exist at the time of the 1900 census. But from 1910 until 1950, when the percentage of population in suburbs more than tripled, to 23 percent of the population, the rise of the automobile literally reshaped the landscape. In the fifty years that constitute our focus here, the percentage of population in suburbs more than doubled: fully half the U.S. population now lives in suburbs, a striking testimony to the geographic transition caused by the automobile.
Shifting from residence to occupation, manufacturing surged at agriculture's expense as the air conditioning- and automobile-related figures would suggest. But while manufacturing employment peaked in 1979 at over 19 million jobs, it had been declining since 1953 as a percentage of total employment: the drop, from one job in three to one in ten, constitutes another defining characteristic of the past half-century.
The picture of how and why this shift occurred is complex, politically loaded, and still poorly understood, but one salient factor ties agriculture and manufacturing: massive productivity growth. Just as less than one percent of the workforce can go a long way toward feeding the U.S. population while exporting over $50 billion worth of food a year, so too has manufacturing been able to produce more and more with fewer inputs of labor. The role of computerization in productivity growth has yet to be fully analyzed, but it clearly contributes.
Given that the 1950 to 2000 half-century marked precipitous loss of employment, as a percentage of the workforce, in both agricultural and manufacturing arenas, we know that services have become the dominant economic sector. According to the CIA's World Factbook, "industry" constitutes 21% of the U.S. economy, while services add up to 78 percent. How could this sector grow so big so fast, and what are some of the implications?
For all the rhetoric about "becoming a nation of burger-flippers," government has become a much bigger economic entity that gets bundled into services: prison guards, for example, constitute one of the fastest-growing occupational categories. As of 2002, there were more government employees -- about 19 million at all levels, not counting military personnel -- than in any other standard industry group. Health care was second, and retail was third.
All three of these industries, writ large, have failed to harvest the productivity increases that manufacturing or, say, financial services have. How much and how well these three industries adopt information technology will go a long way toward dictating the fate of the tech sector. A further difficulty in assessing IT's impact comes in the measurement of services productivity: x units of input create y units of manufactured (or harvested) output, but if the input is time spent working, measuring the output of a teacher, software engineer, or bank teller is much less straightforward.
Because they frequently don't store or travel well, services are harder to export than manufactures or food. Once again using NAICS definitions from 2002, of the top five service categories by revenues, retail and health care are highly localized, finance and insurance face cross-border regulatory issues, and information and professional/scientific/technical services, while valuable and often portable, face price-based competition from off shore. If trends in offshoring are any indication, it may be easier for the U.S. to import services (such as remote radiographic analysis, call centers, and computer programming) than it is to export such activities as investment banking, neurosurgery, or engineering education.
The uncomfortable juxtaposition of globalization and locality is not a new phenomenon -- just look at England in the twilight of empire. If people only earn money from local sources but spend it on goods and, increasingly, services from "away," eventually money needs to come back into the locality: just as a multi-crop family farm is no longer a viable option, neither is a self-sustaining local economy. Somehow, money needs to come in as well as leave, and the current trade imbalance and federal debt levels both ratchet up that imperative.
Every new technology has at least three uses. You can use it to:
-do things you've been doing, but faster and easier (in shorthand, this is automation)
-make things to do things (capitalization)
-do new things that were previously impossible (innovation).
In looking over the government's service categories, it's hard to see the capitalization and innovation. Let me be clear: the automation effects are often substantial, and there are elements of technology-driven innovation in service industries. A word processor not only automates a typewriter but allows new freedom to revise and to reuse. Google more than automates a reference library. In terms of capitalization, eBay allows anyone to become a retailer with just a PC for infrastructure.
But the main service innovations appear to be in recreational and peripheral (no pun intended) activities rather than at the heart of the economy. Cellular telephony is a large industry, but a) it's cannibalizing an existing sector and b) it's no automobile in its impact. Digital gaming is an innovation, but hardly a core activity, and it has yet to disrupt adjacent industries like movies or education. The automation effects of ERP replacing a general ledger or CAD replacing drafting tables are significant, without a doubt, but business computing innovates far less often and powerfully in services. As a macroeconomic replacement for manufacturing, the information sector falls short - today.
Like many others, I persist in believing that the transformative power of computing lies ahead of us. Whether it's in genome-aware therapeutics, or rich media self-publishing, or low-cost avionics that make small jets feasible as air taxis, the majority of digital innovations that will remake the economy are as yet uncommercialized. And compared to such landmarks as the invention of the steam engine or the factory system, the fifty years of computing represents enormous change in short time. The daunting fact is that the change to come looms even bigger.
In the interim, the demands of a digital economy contribute to complex and difficult demographic issues: skill- and education-based bifurcation, along with a changing racial composition. While I need to research the matter further, my hunch is that factory work paid better than farm work and was widely accessible at the low end. People could leave farms, enter manufacturing with no or few skills and little education, and stay afloat. A further correlate here is decentralization: factory work collects resources in one place, while services industries (and powerful communications networks) disperse them. What are the consequences of the south and west's growth without a heavy reliance on industrial centers like Milwaukee, Pittsburgh, or Detroit?
Prior to and during World War II, the internal migration of black Americans from the rural south to the industrial midwest led to such varied changes as a rebirth of popular music, a power base for the Democratic party, and the rise of a black middle class. Only one or two cultural hops separate Henry Ford from Diana Ross, Lyndon Johnson, and the Cosby Show. Look a little closer and you see the Rolling Stones, Magic Johnson's NBA, and Oprah Winfrey, who was born in Mississippi but made her name in Chicago.
Now the opposite dynamic is at work as manufacturing automation and globalization release workers to take jobs in lower-paying categories such as hospital food service or big-box retail; in raw numbers, the biggest job-creators of the past few years have been Home Depot and Lowe's, and of course Wal-Mart's net role in employment is being hotly disputed. Retail and other services often teach their workers how to use automated systems but rarely prepare them to enter a better-paying sector. How the shift to services interrelates with America's racial picture, including of course the emerging Hispanic majority, will be critically important to track.
As the CIA's World Factbook puts the issue,
"The onrush of technology largely explains the gradual development of a 'two-tier labor market' in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households."
The consequences of such a bifurcated populace touch sociology, politics, economics, and even ethics, so I won't even attempt a summary comment. Perhaps this trend is the result of moving farther and farther from a subsistence economy. One of the things we'll be tracking as this research progresses is the changing composition of the economy away from food, clothing, and shelter to transportation, entertainment, and other luxuries. The interplay of rapid population growth, rapid increase in the amount of liveable and available real estate, wider education, suburbanization, and the shift to a services economy all contribute to making the task of assessing information's role highly problematic.
But that won't stop us from trying.
Sources:
Unless otherwise noted, all figures come from the U.S. Census Bureau.
CIA World Factbook
(http://www.cia.gov/cia/publications/factbook/geos/us.html)
Carolyn Dimitri, Anne Effland, and Neilson Conklin, "The 20th Century Transformation of U.S. Agriculture and Farm Policy," USDA Economic Research Service Electronic Information Bulletin 3, June 2005.
Frank Hobbs and Nicole Stoops, "Demographic Trends in the 20th Century," U.S. Census Bureau, 2002.
Louis D. Johnston and Samuel H. Williamson, "The Annual Real and Nominal GDP for the United States, 1790-Present." Economic History Services, October 2005 (http://www.eh.net/hmit/gdp)
Thursday, March 30, 2006
Tuesday, February 28, 2006
February 2006 Early Indications II: Demo trip report
Earlier this month I spent several days at the 16th annual Demo conference, where 68 emerging companies and technologies launched and/or presented. Both bloggers and mass media outlets have fuller coverage (see below), but I wanted to point to a few important companies and play out some of their implications. If you want to see a company's pitch for yourself, Demo has videos of all the participants.
1) Distributed infrastructure
One of the trends that's having a significant impact on the global economy is decentralization. Apart from a relatively few activities - mining, manufacturing, and medicine - many aspects of productive infrastructure can migrate to one's laptop or thereabouts: newspaper printing presses, recording studios and CD-pressing factories, video production suites, travel agency ticket printers, call centers (as with Jet Blue), banks, phone companies, and photo labs are just a few examples. In about 10 years, each of these very expensive ventures has been replicated and in some cases undermined by a digital equivalent. Demo had a few more companies in this vein:
*Blurb allows customers to design books with photos and (unlike Ofoto and iPhoto) words. The custom-printed volumes are reasonably priced and handsome to look at. The company is finding a large market in the charity cookbook industry, 400,000 titles of which appeared in 2004; some Junior League "Taste of" cookbooks sell 25,000 copies, which would dent a best-seller list.
*The big media draw of the conference was Moobella, a make-to-order ice cream factory the size of a large soft-drink vending machine. In 4 minutes a customized cup of ice cream appears, and by all accounts tastes great. It's not clear how the economics will work (vs. a vendor cart for example), but the team solved some tough technology problems and prompted a lot of thought.
*iGuitar is a nice-looking electric guitar that's a USB peripheral. It obviates the need for lots of midi and outboard gear on the guitar-to-computer front, but also feeds a whole orchestra of synthesized music, to the extent that guitar-only pros are scoring TV shows formerly serviced by keyboard players.
*Locamoda connects cell phones, IVR systems, the Web, and physical storefronts in a powerful way. One application is in real estate: you're walking down the street and see a condo listed at an agency. You can interact with the 42-inch plasma screen via your cell ("press 9 to see an exterior shot"), send yourself a hyperlink, or leave voicemail for the real estate agent. The other play for this company is social computing - in space. Imagine going to a bar and texting a message to a physical screen where everyone can see the message. thetruth.com, the antismoking outfit, is testing these at skatebard (pun intended) parks to capture "wifiti."
*EQO (say "echo") connects mobile phones to Skype through a very clean interface. The economic implications of this kind of service are staggering if you're a voice-centric international carrier: VoIP is a big enough issue when the user is chained to a PC or home network, but turning the connectivity loose affects still more incumbents.
2) Search
As others have noted, living in a networked world where information is shared via standardized technologies changes how we find information. There's definitely a whiff of "me-too" in the industry right now: every startup dreams of a Googlesque IPO as their exit strategy. (Check out this videoconferencing company's homepage if you doubt my read on the zeitgeist.) At the same time, the presence of search as a pillar of both Microsoft and Apple operating systems, as a key to both on- and off-line shopping, and as a first-impulse information gathering strategy means that there is ample room for innovation, the human capital arms race in the search industry notwithstanding.
*Krugle is a search engine for code - it preserves sourcecode formatting rather than text strings. It also keeps tags of a whole session that you can keep as a trail of breadcrumbs to forward or post. Reuse has been a cherished ideal of software engineers for decades, but this approach makes reuse far more practical than any formal tool I've seen.
*Kosmix was co-founded by Anand Rajaraman and Venky Harinarayan, who came from Amazon after founding Junglee, which we wrote about in 1998. They're building vertical search in consumer areas (starting in health, travel, and politics). It looks like a company that will do well - their target markets are already generating deals.
*Transparensee does structured search: the demo was of real estate databases. Instead of having to requery after retrieving a set of findings, you use slider bars to re-weight categories to refine or expand results. If you want a $300,000 4-BR house in zip code X, let's imagine nothing comes up. The tool allows you to increase the price, decrease the BR count, or expand zip codes. The smooth interface and intuitive refining of the search were pretty appealing.
*Nexidia is building video search (which addresses a screaming-hot market: 20 billion streams were delivered in 2005, and 2006 looks to quadruple that, at least). The company uses phonetic indexing, which runs at 60x real time, and phonetic querying, so it's somewhat language-independent. The speed and accuracy of the search results got very high marks.
*Yet another collaborative filter for music comes from garageband.com, which focuses on "if you like this, try that" for independent bands and genres; it also pushes new music to your playlist as the user community discovers new favorites. Garageband also provides hosting and generally does a wider job of supporting the indie ecosystem than merely generating playlists. (Music Genone Project (pandora.com) is better and farther along on the recommendation front; musicplasma is quicker and dirtier but lighter weight).
*Riya is a pretty hot company, apparently, and focuses on image searching - very successfully, to the point where it can do facial recognition with scary-accurate results (it convinced me I want no photos of my kids on line, names or no names). It also matches text that's captured in a photograph, even sideways in the background, like on a book spine.
3) Data
Finding ways to manage, secure, and exploit information overload at both the individual and corporate levels is generating some useful technologies. Questions like "who owns the data," "how do I know this information is correct, up-to-date, and/or calculated appropriately," and "compared to what" are getting considerable attention.
*Cnetchannel.com uses C|Net's huge database of technology attributes to do smart up-sell positioning on web pages. The demo showed a laptop on a catalog webpage with upsells of a) memory that wouldn't fit, b) a wireless card for a machine with built-in 802.11, and c) maybe a bluetooth mouse for a PC without that capability (I forget exactly). The "after" matched the peripherals and accessories much more closely and, the company would assert, profitably for the merchant. The company also wants to use the underlying matching and control capabilities (there's a control console for MBA types to use) in other domains.
*Zimini is an attempt to be a next-generation couponing engine, but it's not quite clear how coupon-users will respond to yet another helpful online service asking them to "tell us a little bit about yourself" to drive the customization.
*Kaboodle is a "collaborative shopping" service, where you dump items you find into sharable pages; it's also a handy way to organize web shopping where you're comparing price/features across sites or pages. It's easier to like than to describe.
*Panoratio began as a project within Siemens to manage and move enormous data stores from the sensors at power plants. They have what are called PDIs: Portable Data Images, which are compressed but readily navigable. It isn't highly graphical (it still looks a lot like Excel) but the navigation is still better than what you get from your everyday spreadsheet.
*Bones in Motion collects GPS and time information to create online exercise diaries, which can also be published as blogs. It correlates effort across cities (Denver's altitude vs. Charleston's humidity) so users can compare training programs and share training courses: I could run or cycle for X effort in multiple cities using shared and equalized routes. It's a great example of capturing information as byproduct and organizing it. Look for it on Sprint mobile.
*Vivid Sky's story begins with a UPS-grade ruggedized handheld that you rent at the baseball stadium. From it you can watch video highlights throughout the game, order concessions, participate in online contests and surveys, order tickets, and check statistics, scores, etc. Pilots will be deployed this summer, and word is there will be football action later this year.
*Several companies played the tagging angle, in which users or communities contribute metadata to organize some body of content (Flickr is a great example). Tagworld is a bit like MySpace, but there's a marketplace piece as well. The demonstrator said it was trivial for a 14-year-old to buy things online, some from other members' classifieds, but that begs the question of what a 14-year-old is doing with a credit card online in the first place. Draper Fisher Jurvetson just funded these guys.
*Sproutit uses tags in an email-based tool for small teams of about 10 people. The objective is to make individuals less critical for customer interaction: if I as a co-worker know your context for a given interaction, I can cover for you when you're out of the office. In a similar vein, eeminder gives mobile workers very low-latency access to corporate data.
It's fitting for conference producer, and host, Chris Shipley to have the last word. In her opening remarks she made two salient points about this year's crop of demonstrators. First, the differentiation between enterprise and personal technology gets fuzzier every year. Second, the industry desperately needs to address the complexity issues that prevent more people from using more products and services. As she said in her keynote,
"Who needs more buttons and features and options – on just about any product? Can you seriously say that you've used all the capabilities of any of the software or devices that you already own? Do you really want more?
"Unless, as an industry, we commit ourselves to a better user experience, clearer choices, and greater value, I am afraid that a many people may just sit out the market. Needing no more new features, being unable to sift through any more search results, being overwhelmed by options, these individuals are going to stop, or at least slow down, the acquisition of new technology."
Food for thought, even tastier than the ice cream.
Other coverage:
Information Week
PC Magazine
CNN
1) Distributed infrastructure
One of the trends that's having a significant impact on the global economy is decentralization. Apart from a relatively few activities - mining, manufacturing, and medicine - many aspects of productive infrastructure can migrate to one's laptop or thereabouts: newspaper printing presses, recording studios and CD-pressing factories, video production suites, travel agency ticket printers, call centers (as with Jet Blue), banks, phone companies, and photo labs are just a few examples. In about 10 years, each of these very expensive ventures has been replicated and in some cases undermined by a digital equivalent. Demo had a few more companies in this vein:
*Blurb allows customers to design books with photos and (unlike Ofoto and iPhoto) words. The custom-printed volumes are reasonably priced and handsome to look at. The company is finding a large market in the charity cookbook industry, 400,000 titles of which appeared in 2004; some Junior League "Taste of" cookbooks sell 25,000 copies, which would dent a best-seller list.
*The big media draw of the conference was Moobella, a make-to-order ice cream factory the size of a large soft-drink vending machine. In 4 minutes a customized cup of ice cream appears, and by all accounts tastes great. It's not clear how the economics will work (vs. a vendor cart for example), but the team solved some tough technology problems and prompted a lot of thought.
*iGuitar is a nice-looking electric guitar that's a USB peripheral. It obviates the need for lots of midi and outboard gear on the guitar-to-computer front, but also feeds a whole orchestra of synthesized music, to the extent that guitar-only pros are scoring TV shows formerly serviced by keyboard players.
*Locamoda connects cell phones, IVR systems, the Web, and physical storefronts in a powerful way. One application is in real estate: you're walking down the street and see a condo listed at an agency. You can interact with the 42-inch plasma screen via your cell ("press 9 to see an exterior shot"), send yourself a hyperlink, or leave voicemail for the real estate agent. The other play for this company is social computing - in space. Imagine going to a bar and texting a message to a physical screen where everyone can see the message. thetruth.com, the antismoking outfit, is testing these at skatebard (pun intended) parks to capture "wifiti."
*EQO (say "echo") connects mobile phones to Skype through a very clean interface. The economic implications of this kind of service are staggering if you're a voice-centric international carrier: VoIP is a big enough issue when the user is chained to a PC or home network, but turning the connectivity loose affects still more incumbents.
2) Search
As others have noted, living in a networked world where information is shared via standardized technologies changes how we find information. There's definitely a whiff of "me-too" in the industry right now: every startup dreams of a Googlesque IPO as their exit strategy. (Check out this videoconferencing company's homepage if you doubt my read on the zeitgeist.) At the same time, the presence of search as a pillar of both Microsoft and Apple operating systems, as a key to both on- and off-line shopping, and as a first-impulse information gathering strategy means that there is ample room for innovation, the human capital arms race in the search industry notwithstanding.
*Krugle is a search engine for code - it preserves sourcecode formatting rather than text strings. It also keeps tags of a whole session that you can keep as a trail of breadcrumbs to forward or post. Reuse has been a cherished ideal of software engineers for decades, but this approach makes reuse far more practical than any formal tool I've seen.
*Kosmix was co-founded by Anand Rajaraman and Venky Harinarayan, who came from Amazon after founding Junglee, which we wrote about in 1998. They're building vertical search in consumer areas (starting in health, travel, and politics). It looks like a company that will do well - their target markets are already generating deals.
*Transparensee does structured search: the demo was of real estate databases. Instead of having to requery after retrieving a set of findings, you use slider bars to re-weight categories to refine or expand results. If you want a $300,000 4-BR house in zip code X, let's imagine nothing comes up. The tool allows you to increase the price, decrease the BR count, or expand zip codes. The smooth interface and intuitive refining of the search were pretty appealing.
*Nexidia is building video search (which addresses a screaming-hot market: 20 billion streams were delivered in 2005, and 2006 looks to quadruple that, at least). The company uses phonetic indexing, which runs at 60x real time, and phonetic querying, so it's somewhat language-independent. The speed and accuracy of the search results got very high marks.
*Yet another collaborative filter for music comes from garageband.com, which focuses on "if you like this, try that" for independent bands and genres; it also pushes new music to your playlist as the user community discovers new favorites. Garageband also provides hosting and generally does a wider job of supporting the indie ecosystem than merely generating playlists. (Music Genone Project (pandora.com) is better and farther along on the recommendation front; musicplasma is quicker and dirtier but lighter weight).
*Riya is a pretty hot company, apparently, and focuses on image searching - very successfully, to the point where it can do facial recognition with scary-accurate results (it convinced me I want no photos of my kids on line, names or no names). It also matches text that's captured in a photograph, even sideways in the background, like on a book spine.
3) Data
Finding ways to manage, secure, and exploit information overload at both the individual and corporate levels is generating some useful technologies. Questions like "who owns the data," "how do I know this information is correct, up-to-date, and/or calculated appropriately," and "compared to what" are getting considerable attention.
*Cnetchannel.com uses C|Net's huge database of technology attributes to do smart up-sell positioning on web pages. The demo showed a laptop on a catalog webpage with upsells of a) memory that wouldn't fit, b) a wireless card for a machine with built-in 802.11, and c) maybe a bluetooth mouse for a PC without that capability (I forget exactly). The "after" matched the peripherals and accessories much more closely and, the company would assert, profitably for the merchant. The company also wants to use the underlying matching and control capabilities (there's a control console for MBA types to use) in other domains.
*Zimini is an attempt to be a next-generation couponing engine, but it's not quite clear how coupon-users will respond to yet another helpful online service asking them to "tell us a little bit about yourself" to drive the customization.
*Kaboodle is a "collaborative shopping" service, where you dump items you find into sharable pages; it's also a handy way to organize web shopping where you're comparing price/features across sites or pages. It's easier to like than to describe.
*Panoratio began as a project within Siemens to manage and move enormous data stores from the sensors at power plants. They have what are called PDIs: Portable Data Images, which are compressed but readily navigable. It isn't highly graphical (it still looks a lot like Excel) but the navigation is still better than what you get from your everyday spreadsheet.
*Bones in Motion collects GPS and time information to create online exercise diaries, which can also be published as blogs. It correlates effort across cities (Denver's altitude vs. Charleston's humidity) so users can compare training programs and share training courses: I could run or cycle for X effort in multiple cities using shared and equalized routes. It's a great example of capturing information as byproduct and organizing it. Look for it on Sprint mobile.
*Vivid Sky's story begins with a UPS-grade ruggedized handheld that you rent at the baseball stadium. From it you can watch video highlights throughout the game, order concessions, participate in online contests and surveys, order tickets, and check statistics, scores, etc. Pilots will be deployed this summer, and word is there will be football action later this year.
*Several companies played the tagging angle, in which users or communities contribute metadata to organize some body of content (Flickr is a great example). Tagworld is a bit like MySpace, but there's a marketplace piece as well. The demonstrator said it was trivial for a 14-year-old to buy things online, some from other members' classifieds, but that begs the question of what a 14-year-old is doing with a credit card online in the first place. Draper Fisher Jurvetson just funded these guys.
*Sproutit uses tags in an email-based tool for small teams of about 10 people. The objective is to make individuals less critical for customer interaction: if I as a co-worker know your context for a given interaction, I can cover for you when you're out of the office. In a similar vein, eeminder gives mobile workers very low-latency access to corporate data.
It's fitting for conference producer, and host, Chris Shipley to have the last word. In her opening remarks she made two salient points about this year's crop of demonstrators. First, the differentiation between enterprise and personal technology gets fuzzier every year. Second, the industry desperately needs to address the complexity issues that prevent more people from using more products and services. As she said in her keynote,
"Who needs more buttons and features and options – on just about any product? Can you seriously say that you've used all the capabilities of any of the software or devices that you already own? Do you really want more?
"Unless, as an industry, we commit ourselves to a better user experience, clearer choices, and greater value, I am afraid that a many people may just sit out the market. Needing no more new features, being unable to sift through any more search results, being overwhelmed by options, these individuals are going to stop, or at least slow down, the acquisition of new technology."
Food for thought, even tastier than the ice cream.
Other coverage:
Information Week
PC Magazine
CNN
Tuesday, February 21, 2006
February 2006 Early Indications I: The Price of Attention
Four data points from the past several weeks:
- Bucking the trend against investor wariness in the tech sector, Vonage filed for an IPO of $250 million. The SEC documentation shows that the company's acquisition costs are running roughly $214 per customer (up from $137 in 2004) even as average monthly revenue has dropped from $31 to $26.63. The churn rate has also increased from 1.7% in Q1 05 to 2.26% in Q3 05. Analysts are concerned that the service will struggle once big cable operators begin to compete seriously in consumer VoIP: the $250 million, minus commissions and fees, will barely cover one year of loss-making. The company has lost over $310 million, net, since its inception, about $190 million of that in the first three quarters of 2005.
- Satellite radio has evolved into a two-horse race between XM and Sirius, which as a company is younger but boasts stronger on-air talent (Howard Stern) and management (in the person of Viacom veteran Mel Karmazin). Both companies reported losses last week: Sirius pegged subscriber acquisition costs at $113 per subscriber for the fourth quarter and $139 for the year. XM had earlier reported an $89 cost per new customer, and a board member had quit, citing concerns over marketing and programming expenditures. According to a letter quoted on Bloomberg, Pierce Roberts said that "Given current course and speed there is, in my view, a significant chance of a crisis on the horizon." XM stock has fallen by roughly 40% since October.
- A new Gallup poll tracks blog-reading as it relates to other Internet activities, and the pollster's conclusion is that despite a continuing increase in the number of weblogs being produced, readership stayed flat in 2005 after a quick run-up to 20% readership in 1994 (9% of those surveyed read "frequently", 11% "occasionally"). By contrast, results of the same survey assert that 72% of Web users check news and weather on a regular basis, 52% shop, 40% pay bills, and 28% play games. The 9% of heavy users closely tracks the Pew Internet and American Life figure of 7% who reported reading a blog "yesterday" in September 2005.
What conclusions might we draw from the behavior underlying these findings and results? First, it's hard to imagine AT&T or NBC in their early development calculating customer acquisition costs. XM and Sirius are caught in between the expensive realities of a network build-out much like the aforementioned companies' and the standards-based Internet that lets voice, video, or other information services ride effectively free on existing infrastructure. The satellite broadcasters have to simultaneously conduct a 20th century battle on the capital investment and engineering front and a 21st-century conflict as they fight for attention with Net-based media.
Second, novelty will always draw a splinter population; the challenge, to use Geoffrey Moore's time-worn (but time-proven) phrase, is to "cross the chasm" between early adopters and the meaty part of a bell curve distribution. Nobody has figured out how to measure podcasts, for example, but one could easily hypothesize that the growth in blog-reading that didn't appear in poll data was siphoned off by the newest new thing.
Third, we tend to frame competitive landscapes in terms of obvious comparisons. XM and Sirius are outspending each other trying to win what they construe as a winner-take-all game, but several equity analysts have wondered whether podcasting is the real disrupter in the radio market. If that turns out to be the case, the hundreds of millions of dollars spent launching satellites and subsidizing receivers will have been undermined by an existing base of music players fed by cheap microphones and Internet connections.
Fourth, it's not clear that anyone understands how new media track between the big broadcast model (an oligopoly of well-capitalized networks that control infrastructure and talent) and the "audience of one" or narrow-cast model. Millions of people apparently want to watch American Idol or listen to Howard Stern, but a) they may not want to do it on the broadcaster's schedule or b) they may be doing so in a multi-networked mode: watching, chatting on line, and talking on a voice connection. There are signs that such crowd favorites as Seinfeld and more recently "24" are inspiring more communal, interactive modes of viewership that nobody knows how to measure or explain. In such a world it's easy to see the appeal of a Google or Yahoo ad model in contrast to Nielsen ratings, which feel inadequate to the task of measuring time-sliced viewing habits.
Finally and most important, supply and demand are at work. If something is available in glut, its price will drop relative to something scarce. With effectively unlimited information choices but only 24 hours in a day, people have control of the scarcity, which appears to be attention. Vonage is not only contending with Skype or Comcast; its success will measure, to a degree, how willing people are to spend money on talking as opposed to communicating by e-mail, playing basketball, or going out to dinner. To illustrate attention as scarcity, consider that at the same time that blog-reading stayed flat and podcasting exploded, instant messaging declined in popularity, to the extent that Gallup data are accurate.
While it's possible to buy more cars than one can drive, or more clothes than a person will ever wear, it's impossible to do more things than there is time do do them in. One of the key differences between a good and a service is that services are perishable. Lots of attention has been focused on this issue from the supply side: hotels and lawyers worry constantly about utilization, because every unbillable hour or empty room implies lost revenue that can never be recouped.
Perhaps it makes sense to look more carefully at the dynamics of consumption in a services economy: what are the constraints to information services, in particular, that the 24-hour day imposes? As highly as I may value mudbaths or psychotherapy, or podcasts or phone calls, there's a finite quantity that I can consume. What are the dynamics of partial attention? How can both providers and consumers of information services establish value and price parameters given bits' abundance? How will multitasking be measured? The answers, however far off they may be, will affect everything from network engineering to application design to the valuation of any attention-dependent company.
- Bucking the trend against investor wariness in the tech sector, Vonage filed for an IPO of $250 million. The SEC documentation shows that the company's acquisition costs are running roughly $214 per customer (up from $137 in 2004) even as average monthly revenue has dropped from $31 to $26.63. The churn rate has also increased from 1.7% in Q1 05 to 2.26% in Q3 05. Analysts are concerned that the service will struggle once big cable operators begin to compete seriously in consumer VoIP: the $250 million, minus commissions and fees, will barely cover one year of loss-making. The company has lost over $310 million, net, since its inception, about $190 million of that in the first three quarters of 2005.
- Satellite radio has evolved into a two-horse race between XM and Sirius, which as a company is younger but boasts stronger on-air talent (Howard Stern) and management (in the person of Viacom veteran Mel Karmazin). Both companies reported losses last week: Sirius pegged subscriber acquisition costs at $113 per subscriber for the fourth quarter and $139 for the year. XM had earlier reported an $89 cost per new customer, and a board member had quit, citing concerns over marketing and programming expenditures. According to a letter quoted on Bloomberg, Pierce Roberts said that "Given current course and speed there is, in my view, a significant chance of a crisis on the horizon." XM stock has fallen by roughly 40% since October.
- A new Gallup poll tracks blog-reading as it relates to other Internet activities, and the pollster's conclusion is that despite a continuing increase in the number of weblogs being produced, readership stayed flat in 2005 after a quick run-up to 20% readership in 1994 (9% of those surveyed read "frequently", 11% "occasionally"). By contrast, results of the same survey assert that 72% of Web users check news and weather on a regular basis, 52% shop, 40% pay bills, and 28% play games. The 9% of heavy users closely tracks the Pew Internet and American Life figure of 7% who reported reading a blog "yesterday" in September 2005.
What conclusions might we draw from the behavior underlying these findings and results? First, it's hard to imagine AT&T or NBC in their early development calculating customer acquisition costs. XM and Sirius are caught in between the expensive realities of a network build-out much like the aforementioned companies' and the standards-based Internet that lets voice, video, or other information services ride effectively free on existing infrastructure. The satellite broadcasters have to simultaneously conduct a 20th century battle on the capital investment and engineering front and a 21st-century conflict as they fight for attention with Net-based media.
Second, novelty will always draw a splinter population; the challenge, to use Geoffrey Moore's time-worn (but time-proven) phrase, is to "cross the chasm" between early adopters and the meaty part of a bell curve distribution. Nobody has figured out how to measure podcasts, for example, but one could easily hypothesize that the growth in blog-reading that didn't appear in poll data was siphoned off by the newest new thing.
Third, we tend to frame competitive landscapes in terms of obvious comparisons. XM and Sirius are outspending each other trying to win what they construe as a winner-take-all game, but several equity analysts have wondered whether podcasting is the real disrupter in the radio market. If that turns out to be the case, the hundreds of millions of dollars spent launching satellites and subsidizing receivers will have been undermined by an existing base of music players fed by cheap microphones and Internet connections.
Fourth, it's not clear that anyone understands how new media track between the big broadcast model (an oligopoly of well-capitalized networks that control infrastructure and talent) and the "audience of one" or narrow-cast model. Millions of people apparently want to watch American Idol or listen to Howard Stern, but a) they may not want to do it on the broadcaster's schedule or b) they may be doing so in a multi-networked mode: watching, chatting on line, and talking on a voice connection. There are signs that such crowd favorites as Seinfeld and more recently "24" are inspiring more communal, interactive modes of viewership that nobody knows how to measure or explain. In such a world it's easy to see the appeal of a Google or Yahoo ad model in contrast to Nielsen ratings, which feel inadequate to the task of measuring time-sliced viewing habits.
Finally and most important, supply and demand are at work. If something is available in glut, its price will drop relative to something scarce. With effectively unlimited information choices but only 24 hours in a day, people have control of the scarcity, which appears to be attention. Vonage is not only contending with Skype or Comcast; its success will measure, to a degree, how willing people are to spend money on talking as opposed to communicating by e-mail, playing basketball, or going out to dinner. To illustrate attention as scarcity, consider that at the same time that blog-reading stayed flat and podcasting exploded, instant messaging declined in popularity, to the extent that Gallup data are accurate.
While it's possible to buy more cars than one can drive, or more clothes than a person will ever wear, it's impossible to do more things than there is time do do them in. One of the key differences between a good and a service is that services are perishable. Lots of attention has been focused on this issue from the supply side: hotels and lawyers worry constantly about utilization, because every unbillable hour or empty room implies lost revenue that can never be recouped.
Perhaps it makes sense to look more carefully at the dynamics of consumption in a services economy: what are the constraints to information services, in particular, that the 24-hour day imposes? As highly as I may value mudbaths or psychotherapy, or podcasts or phone calls, there's a finite quantity that I can consume. What are the dynamics of partial attention? How can both providers and consumers of information services establish value and price parameters given bits' abundance? How will multitasking be measured? The answers, however far off they may be, will affect everything from network engineering to application design to the valuation of any attention-dependent company.
Monday, January 23, 2006
January 2006 Early Indications II: Eight Predictions
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.
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.
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.
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