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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 news radio 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.

--Dr. John Jordan
Founder, Still River Research and executive director of the eBusiness Research Center at Penn State University

Posted by John Jordan at 07:45 AM | TrackBack

January 2006: 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. Losing 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 Steven 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/

--Dr. John Jordan
Founder, Still River Research and executive director of the eBusiness Research Center at Penn State University

Posted by John Jordan at 05:48 PM | TrackBack

2005 Predictions Revisited

A year ago 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 in italics.

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.

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 email 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 tasks such as email, 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. (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.

--Dr. John Jordan
Founder, Still River Research and executive director of the eBusiness Research Center at Penn State University

Posted by John Jordan at 04:16 PM | TrackBack

The Disintermediation That Wasn't

It's hard to believe 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 the November 28 Boston Globe, 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 online. 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

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

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

--Dr. John Jordan
Founder, Still River Research and executive director of the eBusiness Research Center at Penn State University

Early Indications has been published by John Jordan twice monthly since 1997, focusing on the broader implications of emerging technologies. It is distributed free of charge by the eBusiness Research Center at Penn State University. Back issues are available online at earlyindications.blogspot.com. Quotation is permitted with full attribution. The author holds no direct financial stake in any of the companies mentioned. Comments and questions, which will not be included in future letters without express permission, should be directed tojmj13@psu.edu; to subscribe simply send a request to hmw2@psu.edu.

Posted by John Jordan at 04:09 PM | TrackBack

A Blog of Her Own

The rise of blogs authored by women, covering women’s issues and presenting a female perspective on events confirms that the Internet gives women a voice. We are beyond the era when email was the killer application and women praised the Internet for helping them save time and stay in touch with family. The blogosphere equips women with the tools to generate intense debate and increase awareness—among both male and female readers/writers—about unresolved issues women face daily (e.g., inequality, work-life balance, parenthood, etc.).

According to the blogosphere statistics from comScore, women blogs garner 8 percent of the standalone blogs' traffic. While this may sound like a small sliver of the pie, it is worth noticing that women’s issues emerge as their own category in a highly fragmented public space next to:

politics/news (43 percent)
technology (15 percent)
media (8 percent)
personal (6 percent)
business (3 percent)

In fact, the actual percentage of blogs written by women is even higher as there are many women writers and commentators in gender-neutral categories such as politics and healthcare.

Is the number of women publishing blogs enough to push for change at a large scale? Unfortunately, not yet. Although blogging gives women the opportunity to amplify their voice, top blogs authored by men still surpass those authored by women. A quick glance at Technorati’s top 100 blogs shows that only 18 percent have women writers--nine percent are written by women and another nine percent are written by a group of authors including women. The top women bloggers discuss a variety of topics besides women’s issues; such as technology, politics, design and personal stories.

The absence of women authorship in the blogosphere is similar to trends we see in the traditional news media:

• Although women have been the majority of college journalism majors since 1977 (Association for Education in Journalism and Mass Communication), they only account for one-third of journalists in the U.S. (Poynter Institute’s American Journalists Survey, 2003).

• Similarly, 38 percent of newsroom supervisors at U.S. newspapers are women (American Society of Newspaper Editors, 2005). The incidence is even lower in U.S. TV stations, where 21% of news directors are women (Radio-Television News Directors Association, 2005).

• Women correspondents reported only one-quarter of network TV news stories for the past four years (Center for Media and Public Affairs, 2005).

• Byline authorship is also heavily skewed towards men. Columbia Journalism Review (July-August 2005) reports that in an analysis of 11 of the nation’s top intellectual and political magazines published between October 2003 and May 2005, male-to-female byline ratios ranged from 13-1 at the National Review to 7-1 at Harper’s and The Weekly Standard to 2-1 at the Columbia Journalism Review.

While there seems to be a gender imbalance in (US) news rooms, women have a relatively stronger presence in lines of work that shape public policies. Indeed, women make up seven in 10 paid employees in non-profits (Hodgkinson & Weitzman, 2000) and they hold about one-third of policy making staff positions (Saidel, 2004)--according to a study of top-ranking gubernatorial appointees and staff advisors with policy-influencing responsibility in governors' offices.

Why not expand the reach of this intellectual power to wider audiences who may be tapping at their keyboards to connect with like-minded people and to gather information on issues of interest? Citizen journalism has the potential to significantly increase women’s presence in the public eye. While striving to get on the traditional media’s agenda and gain increasing editorial power over news content, women can sidestep biased institutions, set their own agenda in the blogosphere and reach thousands of people through their own writing. The emergence of women’s blogs as a category indicates that social change can brew in the blogosphere.

Posted by Idil Cakim at 12:51 PM | TrackBack

How can we escape the word salad around "services"?

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" in 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/

--Dr. John Jordan
Founder, Still River Research and executive director of the eBusiness Research Center at Penn State University

Posted by John Jordan at 01:17 PM | TrackBack

Early Indications: Resources and Destiny

"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.
For example, Ford and GM are jettisoning as much excess baggage as possible--
perhaps noting that neither Honda nor Toyota run car
rental companies, own satellite factories, or build military armored
vehicles. By contrast, Netscape built 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 Asynchronous Javascript and XML (AJAX), Linux, Apache, MySQL, Perl/Python/PHP (LAMP), 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, backpackit.com,
Microsoft Outlook web access, Flickr, or even enterprise-grade
applications like NetSuite.)

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
present. 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 Wal-Mart’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.

--Dr. John Jordan
Founder, Still River Research and executive director of the eBusiness Research Center at Penn State University

Posted by John Jordan at 06:00 PM | TrackBack

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 required 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 iPod 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 Newscorp 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/Newscorp 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.

--Dr. John Jordan
Founder, Still River Research

Posted by John Jordan at 10:54 AM | TrackBack

New Zealand Diary: The Future Is for the Young Entrepreneur

Twenty-two hours after leaving my driveway, I landed in Spring.

New Zealand, in late September – and perhaps anytime -- is a beautiful country, but especially beautiful in the “Garden City,” Christchurch where I am attending and speaking at Electronics South Connectivity 05.

The conference is a showcase of electronics and software companies that call Canterbury home. A quick walk through the exhibition area reveals a tremendous degree of engineering talent, if not also entrepreneurial prowess. I visited with a number of companies that have developed world-class applications – but they are hard pressed to explain them.

A case in point: Visual Footprints. The company had developed intelligent video surveillance system that combines sensor technology to detect security events with license plate detection. Designed to detect and prevent “drive offs” at the gasoline pumps, the software most certainly has applications in traffic management, homeland security, border control, among others. The market for this application ranges far from the shores of New Zealand, and with luck the engineers who have developed this technology will get the good help they need to find these opportunities.

This engineering, rather than entrepreneuring, mentality isn’t unique to New Zealand by any measure, but it creates a particularly difficult situation in a country where startup technology ventures have little choice but to address global markets.

The good news seems to be that both private and public initiatives are in place and most surely will pay off in the long run.

One such initiative is “Bright Sparks,” a program that teaches school children best practices in engineering and entrepreneurship. Bright Sparks celebrated their annual awards on Friday, September 30, with a showcase of some phenomenal young talent.

Among these was an energetic and intelligent young woman, Allison Blanchard, who had invented an interactive learning toy to encourage hand-eye coordination in developmentally disabled children. The project brief, Allison told me, was to create a developmental toy, and it was she who determined, after initial market research, that the unaddressed market was physically disadvantaged children. The 16-year old visited a local hospital to observe her target market. She developed and tested prototypes with a young boy with Cerebral Palsy. This direct customer interaction drove changes to both the physical design and the feedback functions in the electronics.

The result is an elegant toy that most certainly has commercial implications.

When I asked Allison whether she intended to market the product, she smiled and shrugged. This was a school project, she said. She really loves accounting and hopes to pursue that career. Let’s hope that at the very least, she applies her bookkeeping skills to an early stage venture; she’s as sophisticated a market-driven project developer as I’ve seen in some people twice her age.

Posted by Chris Shipley at 06:47 PM | Comments (0) | TrackBack

Katrina/Rita Mobile Phone Project

As Huricane Katrina made tens of thousands homeless, I had the opportunity to receive first-hand reports from Pam Peterson, a social worker and long-time friend who had gone to Houston to support the evacuees there.

Very quickly, she recognized that among the biggest challenge at the Astrodome and surrounding shelters was being able to communicate quickly and effectively with various support networks and evacuees. Out of this challenge the Katrina (and now Rita) Mobile Phone Project was born.

In the last three weeks, many in the Guidewire Group and DEMO communities have come to the support of this project and today, the first shipment of phones is on its way to Houston, to be delivered to Care for Elders/Sheltering Arms and program director Jan Edwards.

Nearly a month after the first hurricane hit the Gulf Coast, the elderly and disabled remain the most at risk, separated from families and struggling to find adequate care and accommodation. Care for Elders continues to work with these special victims of the storms in the weeks and months ahead.

So how will the phones be used? As Jan Edwards told me:

Now, we are challenged to provide service for those elders who remain in temporary shelter or permanent housing, scattered throughout the county. We plan to do case management on site for them in a variety of settings, but we will have, I believe, similar needs for communication among the workers and volunteers, and to connect to community services and other informational resources. As generous as this donation is, it may be that we can provide them directly to the seniors for their own ongoing use. They have been placed in different housing situations in a strange city and have many unmet needs to deal with in the long term, as well as safety concerns. There are situations and needs that are emerging as I type this and try to answer my phone, for which I am sure the donated phones will make helping possible.

While several individuals have come forward to help in this project, one company has demonstrated outstanding generosity and compassion: AIRMEDIA. AIRMEDIA launched its application development and deployment platform for mobile entertainment at DEMOfall last week, and had acquired cases of mobile phones to demonstrate its technology to market influencers. Then, CEO and founder Don Harris decided that the phones would be put to better use in Houston, with the victims and volunteers of Huricane Katrina.

I'm tremendously grateful to Don and AIRMEDIA for this donation.

You can still contribute to the project in one of two ways:

1. You can donate a mobile phone(s), with or without pre-paid service. We are collecting phones at the Guidewire Group office and plan to send a second shipment late next week.

2. You can donate money to purchase phones and/or pre-paid service plans. Checks can be made to "Big Bark Publishing," noting "Katrina Phone Project" in the memo field. Donations can be sent to the Guidewire Group office.

The address at Guidewire Group is:

Chris Shipley
Katrina Phone Project
Guidewire Group LLC
600 Townsend Street, Suite 120e
San Francisco, CA 94103

Posted by Chris Shipley at 02:35 PM | Comments (0) | TrackBack

Early Indications I: Open Source Beyond Software

In the September 5 issue of The New Yorker, Malcolm Gladwell explores the efforts by Mattson, a food R&D firm, to design a new cookie. The problem had tight constraints on such factors as fat, shelf stability, and calories. Three different teams competed with alternative proposals. One was a classic top-down, managed group led by a Mattson EVP. Another team was comprised of two strong hands-on associates. Finally, a so-called dream team was drawn from across the industry: Mars, Kraft, Keebler, Nestle, and Kellogg's were represented, among others. You'll have to read the article to find out who wins, but the project raises several important issues.

Mattson's head man, Steve Gundrum, works in Silicon Valley and carefully tracks the tech industry. For the bakeoff, he wanted to test his hypothesis that software engineering can provide lessons to other industries. The two-man team of peers was based on Kent Beck's notion of extreme programming, or XP, in which programmers attack projects in small increments with pairs of programmers taking turns at the keyboard. The dream team was an attempt to use the open-source model to generate great ideas based on the wealth of expertise represented by the participants.

As Gladwell points out, re-designing Unix is a fundamentally different exercise from inventing a tasty, nutritious treat: fixing ("many eyes make bugs shallow") is not imagining. The fifteen expert bakers all held strong opinions about their own contributions and couldn't unite behind a consensus idea, but the project manager was told to let the group find its own "natural rhythm" and so let the chaos play out. In the end the team's friction prevented its potential expertise from being plumbed; in contrast, one Mattson person was able to draw on previous experiences, including an insight that topical (surface-applied rather than baked-in) seasoning makes tortilla chips more compelling, and devise a marginally more popular entry. Gladwell argues that if the dream team had been smaller it would have functioned better, but that speculation evades the question of whether Linux was the right model in the first place.

Many other unanswered questions arise. Open source has many parallels to classic scientific research: open publication, peer review, and incremental progress. In both cases the primary incentives relate to reputation rather than commerce. Because the two communities and code bases share many similarities, it may follow that applying open source techniques to biology will amplify traditional pathways to progress. But biology can be methodically incremental in ways that new product design cannot.

Even in software, it's hard to point to examples in which an open-source community model generated something new and ready for a broad user base; Linux, Apache, MySQL, and the scripting languages (Python et al) cannot remotely be called mass-market software. Linux is also built for use: I'll update a storage-attachment routine because I have to do that task in my job. Compare the cookie bakers, who were designing for a market. Without the commercial distributions like Red Hat and SuSE, Linux would have very few user interface refinements, include much different documentation, and lack things like liability protection and warrantees that a market demands.

A new generation of for-profit companies is attempting to use open-source methods to build applications rather than infrastructure. So far it's too soon to tell whether SugarCRM can dent SAP, Siebel, or Salesforce, or whether Mitch Kapor's Open Source Applications Foundation can bring Chandler up to the level of Kapor's last Personal Information Manager, Lotus Agenda. Even though the teams can once again follow established patterns of an existing package, it still remains to be seen how well the open source model applies to more "productized" offerings. There's also money to be made in the integration of free and/or open source software with both commercial software and in-house applications, and VCs are backing several startups in this sector.

The question of money points to a connected nuance: open source relies on more than attracting mobs of people to attack a problem. The cookie dream team, for example, didn't share a goal or a reward mechanism. Through a variety of means, by contrast, the Linux community knows who's contributed what. Just because open source is not for profit, some observers fall into the altruism trap. Experience suggests there is a third way here: in no way can the model be described as a charity, which means that managing in or near an open source environment raises unique challenges.*

A major and often overlooked cornerstone of the open source model is transparency: beta code is released early and often precisely because it will be imperfect. The wide variety of public responses to the Hurricane Katrina disaster illustrates how these habits are becoming ingrained: many people have offered to help individual families or groups by opening their home or trying to direct financial assistance. Not only are FEMA and the Red Cross incapable of organizing relief in this way, but also the implications of such widespread personalized benevolence take us into new political, ethical, and even public-safety territory. Such an impulse challenges the traditional Jewish notion, which has many echoes in policy and practice, that both the donor and recipient of charity should be anonymous.

By one participant's own admission, the open source cookie model couldn't beat existing offerings from Pepperidge Farm. Metamarket's Open Fund mutual fund transparently published its holdings in real time and relied on a similar dream team of business and technology gurus, but shut down after 24 months of operation in August 2001. For all of open source's impact, which is difficult to overstate in its home terrain, we may have to wait some time until we see new drugs, fashions, or buildings built on parallel communities.

Perhaps the most potent discovery of the open source model's power occurred when people weren't expressly looking for it. In Howard Dean's 2003-4 campaign, word of mouth led to unprecedented numbers of small donations. The campaign's workings were visible to the community in ways most political organizations are not. Semi-tangible reward and recognition systems sprang up to motivate more and more volunteers to contribute energy, ideas, and time. The fact that the grass-roots movement in some ways overwhelmed the formal infrastructure was both a blessing and a curse to the campaign, which in fairness cannot be faulted for not being able to find a fulcrum for the unanticipated groundswell. (To be clear, Dean and his handlers can and should be faulted for plenty of other things.)

The overarching lesson, whether from code, campaigns, or cookies, is clear: new communications tools are facilitating new kinds of political, social, and economic interactions, the implications of which we're only beginning to comprehend.
_____
*This analysis from an economics paper on a non-software topic seems to fit perfectly: "We suggest that . . . the individual motivations supporting community governance are not captured by either the conventional self-interested preferences of 'Homo economicus' or by unconditional altruism towards one's fellow community members"

Samuel Bowles and Herbert Gintis, "Social Capital and Community Governance," Santa Fe Institute working paper 01-01-003

--Dr. John Jordan
Founder, Still River Research

Posted by John Jordan at 04:47 PM | TrackBack

The Week in Tech - 08/22/05

--Starting your week off with some politics: the Bush administration is objecting to the creation of a .xxx domain, saying it would create a virtual red-light district. Am I missing something here? Wouldn't that be a good thing? Would you rather have an adult bookstore next door to your home or 30 miles away in a designated area?

--Following on the recent story that blogs are not as prevalent as we think, RSS has even smaller numbers. A new Nielsen study finds that only 11% of blog readers use RSS and 66% of them don't even know what it is. Are you an RSS user? If not, why? Is this technology integral to the growth of the blogosphere?

--Have you heard of BugMeNot? It's a site that creates bogus log-ins for all those pesky registrations that so many media outlets require these days. Problem is, most of those sites are now wise to it and make a practice of disabling the log-ins on a daily basis. So BugMeNot is organizing a protest of sorts. It's called International Database Poisoning Day and the plan is to inundate media with fake registrations. Think it will work? Which side of the fence are you on - are registrations evil or necessary?

Posted by Carla Thompson at 08:21 AM | TrackBack

What's a Blog Really Worth?

It’s been a good long while since I posted (breaking all the rules I set for my clients), but in the last three months things have changed. Instead of my PR clients wanting to talk about writing blogs, now everyone wants to talk about monitoring and searching blogs. This tectonic plate shift seems to have occurred some time in late May or early June. That’s got to be a good thing – it seems like the entire blogosphere wants corporations to LISTEN to them, and now corporations are trying to figure out how to do just that.

The thing is, if a company wants to penetrate a market or build relationships in the blogosphere the single most important thing is listening. But how? While all of the blog search companies are now fast at work creating tools that do spiffy charts and graphs, (as ever, the wonderful engineers at the blog search companies are doing what engineers do – thinking about numbers, algorithms, ways to automatically generate data) my clients want qualitative analysis. What are the verbatim quotes? What do they mean in a larger sense? What are the big themes? What should we do with this data? No matter what anyone says, semantic analysis and sentiment analysis are a long way away from being truly accurate or truly useful.

For now, manual labor is the only way to REALLY understand what’s being said. We just had five interns spend about eight business days (yes, that’s 40 total business days) doing a blogosphere search and analysis on behalf of a consumer products client. But the results we got were dramatically different than what’s available via any of the blog search technology companies now. On the other hand, search technologies are evolving weekly. Mary Hodder did the best overview of what’s possible that I’ve seen. I expect a lot of change here in the next three months – a little less manual labor is always good!

When I’m not having conversations about blog monitoring, I’m having conversations about RSS. We have a long way to go before RSS penetration delivers on the promises that RSS technology makes, as this recent Nielsen study of blog readers makes clear. Where we are with RSS today reminds me of where we were with the Web in 1995 – I remember a national network news crew that came out to interview Sun executives about “the Internet.” Someone mentioned that Bank of America had a URL on a billboard on Highway 101 in Silicon Valley. This was such a major development that the news crew (who flew out from New York) asked us where the billboard was so they could shoot it. So if RSS is now where the Web was in 1995, there’s no way we can accurately or completely predict how RSS will change business, change media, change communication, and indeed change our day-to-day lives. All we know is that it will. That’s going to be even more interesting to watch!

--Lisa Poulson
Managing Director, Technology Practice
Burson-Marsteller San Francisco

Posted by Lisa Poulson at 08:15 AM | TrackBack

The Week in Tech - 08/15/05

--Google's boycott of CNET was the reigning topic last week and still seems to have life left in it. It raises all sorts of interesting questions about corporate PR; as a former PR person myself, I'm astonished at how badly Google has handled the situation. Where do you fall in this? With Google or CNET? Or somewhere in between?

--Great article from Inc. on the future of advertising. We can all agree that traditional methods and outlets are disappearing quickly for advertisers; the question is where they should go next. How personalized do we want ads to become? Do consumers have any say in the matter?

--I couldn't decide where to focus for this last item so I'll just settle for the theme of "Numbers!" Yahoo and Google are arguing about the size of their indices, an ultra-comprehensive study looks at the growth and dynamics of the blogosphere and how to use it toward political ends, and Feedster announces its Feedster 500 list, ranking the top 500 blogs with the most inbound links. Where will all these numbers lead us? Anywhere useful? Or is this medium too new to quantify?

Posted by Carla Thompson at 07:19 AM | TrackBack

Remembering Windows 95

It's a slow time in the technology industry. Breakthrough innovations are few and far between: the iPod is almost four years old, and it's hard to point to anything very interesting since then. Because revenue growth has slowed, mergers and acquisitions have become the main order of business at such companies as Oracle and, for a time, HP. Venture capital is increasingly migrating to biotech, physical security, and other sectors only tangentially related to computing. The industry could use an injection of energy, activity, and not least important, revenue.

Given this state of things, everyone is watching Microsoft, which is preparing to launch a new operating system next year. Last month, merely changing the name from code (Longhorn) to product (Vista) devoured a lot of attention, and more recently a stripped-down version of the product shipped to beta testers. The product has been a long time in coming, and the scope has been managed downward in several respects. Nevertheless, both Microsoft and the industry more generally see Vista as a potential jump-start very much in the same category as Windows 95 ten years ago. Because Vista represents the first opportunity in over ten years to begin with a "clean sheet of paper," unlike Windows 3.1, 98, ME, and 2000/XP, Bill Gates has repeatedly linked the two products in public.

Before looking at whether that association is warranted, it's worth remembering just what Windows 95 brought to market. In 1994, loading a browser onto Windows could be complicated by the operating system's lack of Internet Protocol support. DOS prompts were very much a day-to-day reality. File names were limited to eight letters, and CD-ROM support was spotty. E-mail was used only by fringe populations rather than being nearly universal. Adding hardware was more difficult than it needed to be, multitasking was nearly impossible for both processing and user interface reasons, and multimedia computing was, again, the province of only a small subset of users.

Windows 95 changed all of that. Even before Gates' famous "Pearl Harbor" speech helped turn Microsoft into an Internet-aware company, Windows 95 made Internet connection, through both browser and e-mail, a mass phenomenon. Multimedia, too, became an everyday event with better hardware support (including CD-ROM drivers). Overall usability, despite the initial confusion at using a "Start" button to shut down a machine, was enhanced by deeper camouflaging of the command-line layer, longer file names, and plug-and-play peripheral support. Finally, the operating system kept pace with Intel's chip performance and supported more realistic instances of multitasking.

The public responded. In the quarters immediately following the launch, retail sales of Windows 95 software soared, augmenting a strong increase in OEM sales of pre-loaded operating systems. Responding positively to improved networking support and promises of enhanced manageability, corporate IT organizations spent at record levels: Microsoft's operating systems revenues jumped from $1.5 billion in fiscal 1994 to $4.1 billion only two years later.

What might we deduce about the prospects for Vista based on the Windows 95 experience? First, it's hard to see a parallel burst of initial interest, with or without a Rolling Stones commercial. According to Microsoft, the benefits of Vista fall under five general headings:

-Reliability
-Security
-Deployment (for organizations managing large rollouts)
-Performance (including better power management and faster boot up)
-Management

These categories of improvements are clearly aimed at corporate buyers rather than individuals. Most of the things a consumer-grade user will see - including better desktop graphics, and RSS support within Internet Explorer - already come standard in Mac OS X. Backward compatibility will be substantial, to the point that many Vista improvements (including the IE browser) will be available as retrofits to Windows XP. These upgrades will also slow Vista adoption.

Here's another way of thinking about the comparison. In 1995, Microsof