I, Cringely . The Pulpit | PBS
I, Cringely is the blog of Robert X. Cringely. Copyright 2006 PBS Online.
Inflection Point
Futurists, especially those who claim to have a methodology beyond psychic prediction, tend to rely primarily on Moore's Law for figuring out what technology will be like 5, 10, or 20 years from now. But Moore's Law, which predicts that computing power will drop in cost by 50 percent every 18 months, isn't some absolute speed limit and some measures of technical achievement are actually moving faster than Moore's Law predicts. It's not that they violate the law (if it even IS a law) but that they take advantage of loopholes like the one where Moore's Law can sometimes be applied TO ITSELF, leading to even faster change. That's what's about to happen to television and why your new digital television probably won't matter much as a technical standard after 2015.
In order to understand this better let's first look at the broadband Internet market. I'm an American employed as a cranky technologist by an American television network, so this is pretty U.S.-centric, but there are lessons here for many countries.
Ten years ago, the United States had the fastest and cheapest residential Internet service in the world. Today U.S. residential Internet service, especially broadband, is among the slowest and most expensive. Fortunately, this is likely to change as U.S. broadband Internet services become decidedly more competitive, both in terms of cost and available bandwidth. Unfortunately, U.S. broadband adoption rates are slowing at a rate that suggests ultimate market penetration under 90 percent.
Japan went from being among the most expensive countries for residential Internet bandwidth a decade ago to absolutely the cheapest today. While some of this change can be attributed to technology improvements, most of the change can be attributed to competition, specifically the entry of Softbank BB into the Japanese broadband market. Softbank BB entered the Japanese market early this decade with loss-leader pricing that forced all the incumbent broadband suppliers to respond in kind, leading to a dramatic expansion of the Japanese broadband market where today residential 100-megabit-per-second service costs less than $20 per month.
This Japanese model does not apply well to the U.S., where there is no broadband provider willing to take the bet-the-farm approach of Softbank BB. The U.S. market also has no true national broadband ISPs that operate on a scale comparable to those in Japan. And the topology of the U.S. Internet is such that the high-bandwidth technologies applied in Japan would not work as well here simply because of a larger rural customer base.
Korea, as it is often wont to do, followed Japan in terms of bandwidth pricing. More importantly the government of Korea made it a national priority to build out the residential Internet infrastructure at government expense. This was, ironically, in part inspired by the U.S. National Information Infrastructure plan, which was intended to accomplish the same end but failed miserably. Though they took full advantage of $150 billion in tax credits, the U.S. telcos simply did not build the network they had agreed to build, yet their model inspired more successful efforts in Korea, Singapore and other Asian markets.
Of the 30+ nations that can be judged to have residential Internet service superior to the U.S., in case after case that superiority can be attributed to government funding of infrastructure, to largely urban (short-distance) topologies, or to aggressive competition.
In the United States, unlike most of the rest of the world, broadband Internet service has been dominated by cable television companies offering cable modem service on their hybrid fiber-coax systems, with telco xDSL service a less popular broadband alternative until very recently. Cable Internet service was originally coordinated on a national basis through Excite@Home, but with the failure and liquidation of that company in 2001 most cable systems were left to fend for themselves as ISPs, with varying levels of success. Since few cable TV systems have competition and regulation has tended to concentrate on television -- not data -- service, changes in price and available bandwidth have been generally dictated by whatever competitive broadband offering came from the local telephone company.
It is important to realize that bandwidth has not been lacking for U.S. cable ISPs, which typically devote to Internet service the bandwidth of one analog channel (usually Channel 80) on their systems. By adding a second data channel or (more often) segmenting their network into subnets, cable ISPs have plenty of aggregate bandwidth at their disposal but have simply not been challenged to provide it given that competitive telco products have been, until recently, limited to 1.5-megabit-per-second downloads.
Technology improvements and business model changes among broadband ISPs appear to be finally leading to significant changes in the U.S. residential broadband market. Technology is always advancing, of course, and the technologies coming into play are DOCSIS 3.0 on the cable Internet side and various forms of Fiber to the Home and Fiber to the Curb among the telcos. The business model changes involve so-called "triple play" services where ISPs hope to make money from providing not just Internet service, but also telephone and television. The cable TV companies want to steal from the telcos basic phone service while the telcos want to steal television service from the cable companies. Since either possibility requires advanced data services and more bandwidth, users benefit.
DOCSIS 3.0 services will begin appearing shortly, offering up to 150 megabits per second, though it is doubtful that many cable ISPs will jump straight to that level given the emerging xDSL telco limitation of 24-26 megabits per second.
The telcos, notably AT&T and Verizon, are aggressively building out their fiber plants. Verizon is taking fiber directly into the home, but AT&T is taking its fiber only as far as the curb . This ostensibly limits AT&T to xDSL speed limits, though the company can use channel bonding (more than one pair of copper wires per service) to increase speeds if forced to do so by competition. Verizon is rolling out residential fiber service from 30-50 megabits per second but its equipment can jump to 100 megabits per second if needed without requiring another truck roll.
An important secondary motivation for this fiber rollout is that telcos are not required to share such facilities with competitors as they have been required to share copper infrastructure under the Telecommunications Act of 1996. So while there may be competition in the neighborhood from cable modems, once the fiber is in and the copper is out the telcos need never again fear competition from Competitive Local Exchange Carriers (CLECs).
Over time there will be other types of broadband ISPs that may provide competition and thereby spur service improvements. One possibility is WiMax, but WiMax is NOT a service that can compete for true high-bandwidth (above 10 megabit-per-second) service on an economical basis. The same applies for so-called 3G and emerging 4G wireless data services from cellular phone companies, which are also limited in total aggregate bandwidth.
While the number of U.S. residential broadband users is continuing to increase, the rate of that increase is slowing according to several surveys by the Pew Internet & American Life Project. Extrapolating these numbers suggests that ultimate broadband penetration will be comparable to cable TV, or around 85 percent. This slowing of growth may be inspiration for the growing telco vs. cable battle over triple play digital services, with the idea that some telephone users (where market penetration is already 97+ percent) will be induced to buy broadband service to lower their telephone costs.
There is a base cost of around $20 per month for providing broadband Internet service irrespective of the allocated bandwidth based on published cost assumptions of international ISPs. This $20 is essentially the ISP overhead and is unlikely to decrease significantly no matter how inexpensive bandwidth, itself, becomes. So while there has been some moderation in broadband subscription rates in recent years, it has been minimal, with ISPs generally using introductory specials, rather than permanently lower rates, to attract customers. Broadband customer churn is minimal, probably due to local monopolies and not wanting to give up ISP-branded e-mail addresses, so there is not significant price pressure. Rather, there is pressure to provide greater bandwidth at the same price. Nearly any U.S. residential pricing model, then, will have a base subscription cost of around $30-40 per month but with the ISP allocating increasing amounts of bandwidth for that unchanging payment. In this instance the ISP is generally hoping to make much of its profit on value-added services like Voice-over-IP phone service or movie downloads. After staying for years at an average 1.5-megabit-per-second download speeds, broadband ISPs are moving to an average of 6 megabits per second in 2007-2008, 24 megabits per second in 2010-2012, and 100 megabits per second in 2014-2016.
Okay, so that's the bandwidth picture, but what will we do with it? Here's where Moore's Law reenters the picture. As processors get more and more powerful they will migrate into many consumer electronic devices, especially televisions. It's not that televisions will become computers but that televisions will become more and more computerized. This leads to a very interesting effect. As we've seen above, Internet bandwidth growth is already defying Moore's Law, growing at 100 percent per year with roughly flat prices. Add to this increased processing power in televisions and we'll get decreasing bandwidth requirements as televisions will be able to run more powerful codecs. Where many PCs today can't do real-time 1080p video decoding in software, simply throwing in another generation or two of Moore's Law will eliminate that problem completely.
So bandwidth will get cheaper and cheaper while our entertainment devices will be doing more and more with available bandwidth. Add to this the slow evolution of video standards and we'll have cheap bandwidth and even cheaper processing power colliding with the wall that is the 1080p HDTV standard, leading to ultra-low per-stream costs for entertainment providers.
To explain this another way, traditionally industry would react to such cheap bandwidth by jumping us all to 2K or 4K displays or maybe 3D, and that might well happen eventually. But until then we've decided as a technical culture that 1080p -- so-called Full HD -- is as good as it gets. Jumping beyond 1080p will require years of haggling and during that time 1080p will become cheaper and cheaper and cheaper to do, leading to that inflection point alluded to in this week's column headline.
Around 2015 is the time when the cost of sending a separate 1080p video signal to every Internet-connected viewer -- or POTENTIAL VIEWER -- will be the same as using a broadcast model and sending that signal through the air. After 2015 there will be no scaling limits, no processing limits, no decoding limits. And since individual video streams mean individual commercials with a requisite CPM (cost per thousand) bump of up to 10X, commercial television as we know it will die, replaced by consumers choosing from a menu or recommendation engine what they want to see when they want to see it.
Just follow the money.
Commercial stations will repurpose their bandwidth for alternate wireless services, eventually shutting down their digital transmitters completely. And PBS, which can't create a marketplace all by itself, will follow.
I'm not saying here that you shouldn't buy that new DTV, because it will fit into most any emerging system. But I am telling you that the era of the television programmer, where some guy at the network or down at your local station thinks he knows in what order and on what days the audience really wants to watch TV, well that era will be gone forever, seven years from today.
Jul 18 2008
Acting Squirrelly
I have this theory about the behavior of squirrels and how they are like certain large software companies, especially SAP, the giant Enterprise Resource Management vendor headquartered in Germany. But obviously the most interesting part is the squirrels, so let's start there.
You are driving down a street in your car and up ahead there is a squirrel at the side of the road eating a nut. You aren't on an intercept course, there is no way you are going to hit that squirrel. So what does the squirrel do? At the very last possible moment, rather than watching you drive by, THE SQUIRREL DARTS STRAIGHT FOR YOUR CAR, passing inches in front of or behind the front tires.
Why does he do that?
Obviously I'm a guy with too much time on my hands because I've given this quite a bit of thought.
From a purely metabolic perspective, whatever its motivation the physical advantage clearly lies with the squirrel. Sure, my car is bigger and faster, but the squirrel is smaller and quicker, with a heart that beats up to 700 times per minute. To the squirrel I seem to be driving by in slow motion, and whether he goes in front of the tires or behind or in front of one and behind another is strictly a matter of style: once the squirrel has my vector, Victor, he's in command.
But judging by the number of squirrels squished on the road, there must be some risk to this game, so why does he do it?
The answer has nothing to do with cars because squirrel psychology predates both cars and men. For the squirrel, in fact, there may be no difference between my car and an ice age saber-toothed tiger.
The squirrel doesn't trust me. Sure, it looks like I'm not even chasing him, but he's a tasty squirrel and I'm a saber-toothed tiger. By waiting until the last possible moment then running TOWARD me, the squirrel is rushing the net, moving the confrontation effectively forward in time in such a way that the squirrel is pushing his tactical advantage.
As a predator, I'm simply not supposed to expect this squirrel to be running toward me, rather than away. He's using the element of surprise to confuse me. And it works, because I've never hit a squirrel with my car.
SAP and companies like it do something similar by making powerful software that is quite deliberately difficult to use. They could make it easier. Heck, the capability to make it easier is shipped right with the software, though never pointed out to the customer. I used to think this was a matter of geek machismo, where higher value was placed on processes that were more difficult to command simply because it could be used to maintain for the techies an upper hand against management. But now I think it's much simpler than that and SAP just wants its software to be more difficult to use because that maximizes revenue. It is more nuts for the squirrel.
If you aren't familiar, Enterprise Resource Management is the process of tracking everything that flows through a business, including money, materials, people, and of course time. Building an ERP system is a HUGE and expensive undertaking. Companies think they need ERP systems when they decide it is time to kick-start their business. Perhaps a competitor is underpricing them, or is more profitable. Perhaps they are losing market share and customers. The real heart of the problem is the executives don't have a full understanding of what is happening in their business, so they can't make informed decisions to improve that business.
Sometimes ERP systems come about as a response to inadequate IT, but more often it is just a very expensive alternative to walking around and talking to employees. Putting in an ERP system isn't going to improve the business by itself: you still have to figure out what the data means and make decisions.
Implementing a big ERP system -- any ERP system -- is expensive. The problem is there is not enough return on investment from the ERP system itself to justify the cost. You need more. The real savings must come from improving your firm's business processes. So a huge business redesign project is often coupled with many ERP projects.
This is not just a matter of buying an SAP license and getting data flowing from one end of the company to the other. Somebody has to make some sense of the data. And that sensibility can come only through an understanding of context -- how the data relates to the real functions of the business. Which is a long way of saying that every SAP customer probably needs a different view of the available data to be in the best possible position for acting on that data. Unlike standardized financial statements, the most powerful ERP screens and reports will vary dramatically from company to company, so the ability to customize SAP is vital to obtaining the maximum possible benefit from the software.
That's why there are so many SAP consultants. And that's why SAP, itself, makes 40 percent of its revenue from providing consulting services -- revenue that would be significantly less if the software was easier to customize and easier to use.
If SAP software was easier to customize and use, SAP the company might get a few more customers but would have significantly less revenue. Or that's the fear.
There is a product called GuiXT that is an interface builder shipped for free with every copy of SAP R/3. Pronounced "gooey-x-t," this client-server application sits on top of R/3 and can be used with almost no programming to customize and integrate R/3 screens as well as add certain overlay functions that aren't readily available in R/3, itself. The point with GuiXT is to not mess with the underlying R/3 code, which means an SAP installation can be less customized on the back end, installed cheaper, and be up and running quicker.
So when you, as an SAP customer, call up your SAP consultant to ask for customization, that consultant will often show you the next day a GuiXT implementation that does exactly what you asked for but is presented as a mock-up. Once you've signed-off on the look and feel then the SAP consultants can dig into R/3 itself and spend a few weeks implementing what you asked for. OR they could simply run the GuiXT app that took them an hour to build.
Are you starting to see the picture?
GuiXT comes from a Foster City, CA company called Synactive. The base version of the product is shipped for free inside R/3 because, of course, it is so useful for showing the potential of R/3 customization. Ironically, GuiXT IS R/3 customization, and can be used overnight to make functional changes that previously required weeks or months.
Synactive is in business to make money, so of course there are additional modules you can license directly if you want to go beyond just switching screens around, like their Input Assistant, View, and Designer modules. You can even use GuiXT to see what's happening in your business in real time over your mobile phone.
GuiXT customers, which include lots of big companies like Shell Oil, Tyson Foods, and Nike, LOVE the product. They love it.
The squirrel dives for your front tires because by ice age rules that's the thing to do, though at an obvious cost today in squished squirrels. Similarly, SAP deliberately hides the power of GuiXT thinking it could hurt consulting revenue when, in fact, it could INCREASE sales revenue by broadening the market and making R/3 less scary for companies to install and run.
Both the squirrel and SAP do what they do because it appears to work, though a safer and easier course was there all along.
Jul 11 2008
Independence Day
My young and lovely wife, showing what might be overoptimism or maybe artful timing given the economy but more likely just general disappointment with me, has decided to embark on a career in real estate sales. She has taken classes and passed tests, joined one of the very best local firms, and hurled herself into the business of selling historic Charleston homes while they still have some value and the termites haven't finished their work. And along the way, while mastering the Multiple Listing Service, she learned an important fact that was news to us both: people no longer find houses for sale by looking in the local newspaper. They use the Internet, instead.
The irony here is that -- at least in these parts -- the local paper seems chock-full of real estate ads. But according to her teachers down at the MLS university, those listings are simply vestigial, like little toes we all have but probably don't need for balance or, indeed, for anything at all. Real estate brokers put ads in local newspapers because their customers expect them to do so, not because they actually help sell houses.
I'm sure there are exceptions to this rule, but if 80 percent of all houses for sale in the U.S. are eventually sold NOT because of any newspaper listing, tradition or professional pride aside, at some point we can expect real estate newspaper advertising to eventually disappear. Chock up more bad karma for the newspaper industry, where this fact has to have been long known, and which is apparently in even worse trouble than we thought.
But this column isn't about the newspaper industry or even about the real estate industry. It is about the lack of friction in our commercial lives brought about by the Internet and an emerging thought in my mind that maybe it is time we as a people took action to change some things.
Let me explain.
It's not that newspaper ads work so poorly for selling real estate, it's that Internet advertising works so well. You can put more words on a web ad than you could ever put in the newspaper for the same money. You can put more and bigger pictures, virtual tours, Google maps. You can put Zillow virtual appraisals and links to lenders, home inspectors, and the local Chamber of Commerce. Internet house listings can be searched in a zillion ways that newspaper listings cannot. In the time it takes to find a house -- any house, maybe even the wrong house -- in the newspaper and then go see it, well in that amount of time using the Internet you can find the house, order an inspection, get a loan, and make an offer on the darned thing. It's like crossing house-hunting with air hockey.
But is it all good?
Don't tell George W. Bush, but we are in a recession, which is making me look more critically at the Internet as a marketplace. There's a lot of good about the Internet market, of course. Auction sites like eBay help us get rid of our junk and then help us replace it with new junk. The web has made comparison-shopping for houses and cars and disposable diapers almost a contact sport. And we're sure as heck better equipped than we were before to claim all that money that's been waiting for us with some bank manager in Nigeria.
Just as an aside, I know a guy from Japan who actually went to Nigeria once to pick up some of that unclaimed money. It didn't exist and he felt lucky to get home at all.
The theme of disintermediation -- of eliminating middlemen -- has been a driving force in the Internet for as long as commerce has been allowed on the web. But what happens when the middleman you just eliminated had as one of his or her jobs the task of keeping us from being ripped off?
Tasks that are harder to accomplish are also less likely to be foolishly accomplished, which is why so few of us make trips to Nigeria.
That's not the way we are supposed to view things, of course. Ideally the Internet as a research tool is supposed to give us all the information we need in order to resist any allure the Internet has as a tool of fraud or misadventure. But this attitude ignores many of the fundamental forces at work in most sales situations where the simple fact is that we want to buy, the seller wants to sell, and so any countervailing forces are purely voluntary, which is to say often nonexistent.
Take our current national economic mess, the so-called sub-prime mortgage crisis. I like to think that I'm not a subprime kind of guy, but pretending to work as I do (my kids think I TYPE for a living) the world may not always see me the way I would like to be seen. So last year, in what we didn't know were the waning and idyllic pre-subprime days, I tried to get a new mortgage. Of course I used the Internet to get the loan because, as we all know, when banks compete I win. And within a few days, without having to actually meet with or even speak to another human, I found myself offered a $336,000 mortgage.
It was SO easy. Fill out a few online forms, make some choices, and there I was, about to close that loan. But then I did an odd thing. I carefully read the papers I was about to sign (I'm one of THOSE people). And in that residential loan application, right on line something or other, was a number that didn't make any sense to me at all. It was labeled "total household income" and was almost twice the pitiful amount I actually earn.
From where did that number come? It certainly never came from me. Since my signature would be at the bottom of this application I wanted to make sure everything was correct, so I called the mortgage broker. For the first time we spoke. She was a very nice lady, too, and explained that number was the variable required for all the ratios to be correct so I could qualify for the loan.
"But it isn't true," I said.
"Do you want the loan or not?" she asked.
Not.
I wasn't so principled as cowardly, but maybe that doesn't matter: I did what I knew was the right thing for me, which was to walk away from the loan. But evidently a lot of other people took the other course and today are having trouble paying for their houses, which is a big part of the reason why we are in this current economic mess.
This little drama of mine explains the credit crunch better than Federal Reserve chairman Ben Bernanke ever would. Securitization of mortgages works just fine unless the mortgages are based on lies. Lenders turned a blind eye to bad loans and bad loan candidates because another company assumed the risk by bundling these loans and reselling them on a global market.
What has caused the credit problems to extend beyond subprime borrowers to just about everyone is the simple fact that lenders can't act so sloppily now, but having turned that blind eye for so many years they have no idea who is telling the truth anymore. So they don't trust anyone.
And that brings me back to transparency and disintermediation and why the heck the Internet, which was very involved in enabling a lot of this bad behavior, didn't do even the smallest thing to help save us from ourselves?
I suppose it was because there is no money in virtue, no easily measurable value in NOT having those banks compete so I could win only to eventually lose.
Do these loan referral outfits like LendingTree and LowerMyBills and the many, many others EVER say, "Wait a minute, pardner, there's no way you can qualify for any loan, much less that no-doc super-jumbo you have your eye on?"
No.
In their defense, these companies are never actually faced with that question, which is ultimately asked not of them but of their customers, the lenders, and we know how much self-restraint those people have: almost none.
Here's why I bring this up. It is clear to me that government (ANY government, not just the U.S. federal government) and Wall Street have no idea whatsoever how to handle the current crisis. They are just trying to look busy while protecting their own interests and allowing those affected to muddle our way through this mess to some kind of solution. It's not that they don't want to be helpful (if the cost of being helpful is low enough) but that they simply don't know HOW to be helpful. They can't be educated and they can't be changed. Certainly they wouldn't consider any course that would curtail government authority or commercial opportunity.
So I figure we're on our own. And if we are really, truly on our own, we shouldn't pretend that we're not, that some agency that doesn't know its IP address from a hole in the ground will take care of us and make this all better. If we're on our own we should solve our own problems using the tools at our disposal. Which brings me back to the Internet, where it ought to be possible for a change to use all that transparency and economic friction reduction to actually do something FOR us, rather than something TO us.
So where is the next wave of financial start-ups that view ME, not Citibank, as the customer?
Another favorite word from the 1990s was "disruptive." Your start-up needed a disruptive technology or a disruptive business model -- anything to throw the market on its ear and allow your start-up to accumulate market share before the incumbents figured out how to compete. But nearly all such disruption, at least the disruption that survived the Internet meltdown of 2001 and therefore was based on real -- rather than voodoo - economics, was on the sell side. It was companies finding new ways to take our money.
There are few really disruptive technologies or business models on the buy side, but one that stands out is Craigslist, which is close to unique in its efficacy, impact, and the fear it has put into an entire industry (newspapers, bringing us full-circle, see?).
I'm not asking for a revolution, just 2-3 more Craigslist-type successes that actually put consumers first and don't just say they do while selling our identities out the back door to some marketing mafiosi.
Where the Super Bowl-advertising dot-coms of the 1990s didn't know and didn't care where their profits were coming from, the dot-coms of today are obsessed with profitability and the easiest way to make a profit is from saps like me. I'd like that to change, please.
But not all news in this area is bad. Sometimes unscrupulous behavior gets what it deserves. In Australia, for example, eBay just tried to make PayPal not just its preferred payment system for auctions, but the ONLY payment system eBay Australia would accept. That's seeing eBay customers not as customers but as sheep to be sheared. Fortunately the results of this bullying were disastrous for eBay Australia, which is swooning as customers bail for other auction sites that are less greedy or maybe just see themselves as less powerful. It's a powerful lesson for eBay that may cost them Australia and hopefully will teach them a lesson about REAL customer service.
It's a sign of the times, or maybe I just hope it will become one.
We're mad as Hell and we aren't going to take this anymore!
Jul 04 2008
Go Home, Bill
This is the last week of full-time work at Microsoft for Bill Gates and given that I have written more than 40 columns about Microsoft over the years, it wouldn't make much sense for me to ignore this event. Yet that is almost what I did, which I believe is telling. It frankly didn't matter much to me that Bill was retiring. But then I figured longtime readers would expect a comment and perhaps there is some underlying theme here that IS worth 1,500 words. So rather than a fond or relieved farewell to BillG, I'd like to use this occasion to ask some deeper questions: "How relevant is Microsoft today?" and "Does the departure of Bill Gates really matter?"
A few months ago producers from The Money Programme on BBC-2 called me to arrange an interview for the TWO ENTIRE SHOWS they were preparing on Bill's retirement from Microsoft. No comparable calls came from the U.S. networks, which didn't surprise me because: 1) they wouldn't think so far in advance, and; 2) one executive's retirement -- even Bill Gates -- simply isn't worth that level of coverage. This is one area on which I am sure Bill and I agree, since he, too, is bemused by the hoopla.
But since the BBC called so long ago I've had plenty of time to think about the significance of this day, both to us and to them. I finally figured The Money Programme was interested because of vestigial class consciousness in British culture, and especially in British broadcasting. Bill Gates is viewed as a kind of industrial maharajah in some quarters, more so the further you get from the USA. In those parts people still think he makes a difference to Microsoft's success or failure. Clearly I disagree.
If we were to place the importance of Bill Gates in the history of both Microsoft and the personal computer industry he'd be up there with most anyone. I'm not here to claim that Bill's contributions weren't significant, because they were. At half a dozen points during the history of Microsoft Bill pushed or pulled in such a way to change the course of his company and the industry as a whole, there is no doubt of that. The question is whether he REMAINS as important, which he clearly doesn't or they wouldn't let him leave. If it would help Microsoft they'd prop up Bill like the body of Lenin in Red Square to motivate the troops and intimidate the competition. And he'd let them do that, too.
Bill had to go. I cover the reasons for this in some detail below, but like any executive position in a U.S. public company, he could remain only as long as his value was perceived as higher than the liabilities he presented.
One way of looking at this is that Bill is no longer needed by Microsoft. Raising kids you do your best to instill in them certain values that will continue to serve them well when you are gone. From that perspective, the time is probably long past when Bill could really force change on Microsoft. This is proved, I think, by the debacle of Windows Vista, which came in years late and WAY over budget, still not working very well and missing most of the ambitious features that were originally promised. Vista happened on Bill's watch with lots of folks like me pointing and criticizing for years before the OS finally shipped. If Bill had been able to do something about Vista, he would have. Nobody -- NOBODY -- likes shipping bad products. The simple fact is that there was little to nothing Bill or any one person at Microsoft could do to save Vista. Bill helped create the environment that inevitably led to Vista, but having done that he was unable to change that environment enough to avoid shipping a bad product.
Jim Allchin took the fall for Vista, but its poor performance was the result of the actions of many Microsoft executives over many years.
The last two executive actions on the part of Bill Gates that had singular effects on the future of Microsoft were: 1) his 1995 Think Week that resulted in Microsoft shifting course to flow with the "Internet Tidal Wave," ultimately destroying Netscape, and; 2) his 1988 decision to back Jeff Raikes' proposal to bundle most of Microsoft's productivity applications into what they called Microsoft Office, which effectively destroyed all Microsoft's competitors for shrink-wrapped applications. The first action was that of a strong chief executive operating at the very top of his game while the second was that of a major shareholder who was willing to accept lower earnings in the short term for the long-term success of his investment.
These were radical and dynamic positions to take that resulted in creating thousands of millionaires in the greatest peacetime transfer of wealth since OPEC. But they were also 13 and 20 years ago, respectively. If Gates took another Think Week and determined Microsoft's future lay in baked goods or virtualization, could he turn the entire company toward one or both of those product directions today? I don't think so.
No one person can control Microsoft today, which has been obvious to Gates for at least eight years, since that's how long ago he put Steve Ballmer in the CEO job. For at least eight years, then, these guys have known that their jobs are not so much to steer the Microsoft ship as to try and keep it from drifting onto the rocks. That's the way it is with huge and successful companies. At best you can trim the sails, because to come about (to significantly shift direction) is just too dangerous for the money machine.
This is not to say that Microsoft isn't still ambitious, but its ambitions are bounded by the company's own success. Starting any business that is perceived as having less than $1 billion in sales ought to make no sense at all for Microsoft unless NOT starting such a business might lead to the company's failure. That's certainly the case with MSN, for example, which is too small for Microsoft to bother with yet too important for Microsoft NOT to bother with. The only logical move for Microsoft, then, was to make the MSN business big enough to matter and the only way they could see to do that was by acquiring Yahoo, which explains this year's failed acquisition. Microsoft's failure to buy Yahoo doesn't change this scenario, either, so look for Microsoft to do something -- anything -- to grow that business, because they can't strategically afford to do the logical thing, which is to kill it.
To survive in the long term the way that General Electric has survived, Microsoft will have to keep reinventing itself, which necessarily requires a change of leadership and yet another reason for Gates to go. It's also a reason for Ballmer to go, by the way, and those who think he'll stay another 8-10 years are simply wrong. There hasn't yet emerged at Microsoft (or anywhere else) the right leader to take Microsoft to its next destination. Maybe they'll find that new leader in time, maybe not. In the meantime they'll try to stay in the top 1-2 positions in every market segment, but none are big enough (or dominant enough in terms of market share) to replace the mature businesses Microsoft has today. This is not good.
I see years of further financial success for Microsoft and ultimately some significant growth in the stock as Wall Street forgets Gates and forgives Ballmer and returns Redmond closer to its historic price-to-earnings ratios. In the long run (five years or more) the future of Microsoft is cloudy and troubled. But Wall Street doesn't care about five years from now. And for the next half decade Microsoft will be nothing but a huge money machine.
So the ultimate reason for Gates' retirement is to allow Microsoft shares to rise so he'll once more be the world's richest man and can devote even more money to improving the world through the Bill & Melinda Gates Foundation.
Gates and Microsoft -- and especially Microsoft shares -- have been suffering for a decade from a number of leadership transgressions that helped make Microsoft the huge company it is today but did so while breaking rules, breaking competitors, and ultimately breaking the law. What's sad is that it didn't have to happen this way. The question I would ask Bill Gates on his way out the door for the final time is: "If you had played fair and not abused your monopoly power would Microsoft be significantly smaller or less successful than it is today?"
I think the answer is "no," that Microsoft's bullying didn't really gain the company much in the long run and certainly hurt Gates' wealth, which is a number that has been very important to him over the years.
Gates might argue that he didn't feel he could take a chance on playing fair, which is a position you'd expect from someone who knows the value of luck in these things. I just think it is sad that Microsoft, having created a huge and very efficient system for recruiting the best and the brightest workers, never allowed those people a chance to really show what they were capable of.
So have a happy retirement, Bill. I hope you save the world and win that Nobel Peace Prize. And while you're at it, please throw a little money into SIDS research, eh?
Jun 27 2008
What a Difference a Day Makes
There is a scene at the end of the movie Back to the Future in which Doc Emmett Brown returns from the far future in his time-traveling DeLorean to get Marty McFly. Before going forward in time to save Marty's family, Doc Brown stuffs with apple cores and diet soda the Mr. Fusion machine now powering his DeLorean. It's a step up from the stolen plutonium or captured lightning required earlier in the film to produce the 1.21 gigawatts of power needed for time travel. Yet as we in 2008 look at $130-per-barrel oil, there are those who argue that our energy independence can be found, just like Doc Brown's, in trash. What if they are correct?
A couple weeks ago I wrote a column about SwiftFuel, a non-petroleum gasoline substitute made from biomass and proposed as an alternative to aviation gasoline. Every column generates mail not just from skeptics, but also from enthusiasts and true believers. Among this latter group is the father-son team of Eric and Andrew Day from western Massachusetts pushing their particular version of trash-to-power, which they call the Day Cycle, after themselves. I think their ideas have merit and ought to, at the very least, provoke a lot of good thinking from this audience.
But before we get to the Day Cycle, let's consider the role in our culture of what I'm choosing to call "miracle cures." Based on the medical analogy of wonder drugs that cure easily what was previously incurable, I think this concept can be applied broadly to most areas of scientific inquiry. A miracle cure comes along, appears generally to do what is claimed -- problem solved, right?
Not usually.
It's rare that any bad news is simple and without nuance. Longtime readers will recall that I've been working for six years now trying to end Sudden Infant Death Syndrome (SIDS), which claimed our son Chase back in 2002. People contact me all the time with reports of a "cure" for SIDS, but I know that SIDS isn't just one condition but several lumped together under the name "SIDS." I believe most alternative energy technologies ought to be approached similarly. The Day Cycle, while having some merit, won't put Saudi Arabia out of the oil business or even put the United States directly into a state of energy self-sufficiency. The Day Cycle is just one part of a comprehensive rework of the ways we make and use energy that can have the eventual effect of making us in large part energy self-sufficient. It's just one piece of a very big puzzle.
The challenge of the Day Cycle is profound: to solve at once the problems of how to power our society and what to do with all of our garbage, all without making the world worse for the effort, which is to say without increasing the problems of greenhouse gas emissions and global warming.
I don't want to have a global warming debate here. For the purposes of the Day Cycle, it simply doesn't matter. If what the Days propose will get rid of our garbage, create usable fuel and power, and, by the way, doesn't cause any net increase of greenhouse gas emissions, that's good, right? Even those who don't believe in global warming (and I hear from them all) probably aren't specifically IN FAVOR of greenhouse gas emissions -- gas for the sake of gas. They just don't believe in global warming. That argument is not what we are about here.
What we ARE about here are the 251 million tons of municipal waste that we as Americans created in 2005, according to the Environmental Protection Agency, and the 5.1 billion barrels of oil we imported that same year, according to the Department of Energy.
Until the late 1960s most American cities burned their trash, which was highly efficient at reducing the trash volume by more than 90 percent, yielding ash that was relatively small and easy to dispose of under the prevalent rules of that time. Then came the Clean Air Act, which made burning asbestos and DDT and PCBs and various heavy metals a no-no, so we started burying our trash in landfills, which requires a lot more effort and a lot more land -- so much land that many large cities are running out of places to stash their trash. Recycling helps reduce the volume of trash, but it requires labor, costs more than it earns, and most of the stuff that could be recycled is missed. We need something better than burying our trash in landfills.
As an aside, many products that were designed in the 1960s for easy incineration are designed today for easier digestion in landfills. Disposable diapers are a good example of such a product.
Eric and Andrew Day propose going back to burning our trash, but instead of using open-air incinerators or even high-temperature Basic Oxygen furnaces, they like the idea of burning our crap in electric plasma furnaces at temperatures in excess of 15,000 degrees Celsius. Take everything that would have gone to the landfill, add to it, if you like, everything that would have been recycled, and even leave in the really bad stuff like medical waste, toxic waste, heavy metals, and radioactive waste. Grind it all up into little chunks, some of which could be in a chemical or water slurry, and pump it into the plasma furnace.
Plasma furnaces have been around for decades and are already used for disposing of medical waste in Japan. Most such furnaces are fairly small, though the Days have found one manufacturer that can make a plasma furnace capable of burning 100 tons of trash per day.
The plasma furnace, operating in a closed loop, generates a form of synthetic gas that can be burned as a fuel as well as a glasslike inert material that can be used as aggregate in concrete. That's what happens when you run your Pampers and plutonium and anthrax and last Sunday's chicken dinner through a 30,000-degree Fahrenheit flame that breaks everything down to single atoms. The manufacturer of the plasma furnace (it's in this week's links) says the syngas can be burned to generate more power than the furnace uses, making it self-sufficient. The Days go much further in their claims, but then they want to make the BIG BUCKS. They say the furnace can be optimized to produce hydrogen and carbon monoxide.
Dividing 251 million tons of municipal trash by 365 days by 100 tons per furnace says we'll need 7,000 such furnaces to burn all of America's trash. That doesn't really sound like a lot of furnaces to me, when you consider that's about how many landfills we have today and about how many municipal trash incinerators we used to have. Moving to this method of waste disposal and energy generation is a no-brainer... if it works.
There's that big "if" -- if it works. I fear the plasma furnaces will get clogged, but if they don't then the result is pretty darned amazing. Here is what the Days propose to do with that plasma furnace and the chemical plant they'll build around it. The purpose of the system is to simultaneously produce hydrogen, electricity, oxygen, biofuels/biomass, syngas, and other useful products from waste.
Now, with one of the heroic oversimplifications I am known for, I'll explain that the rest of the Day Cycle involves injecting steam into the syngas to create even more hydrogen along with lots of carbon dioxide. The carbon dioxide can be used to grow algae, yielding both biomass and oxygen in copious amounts. The final outputs of the plant are whatever can be made from the algae (biodiesel, ethanol, or -- what the heck -- SwiftFuel). All heat is recycled, no carbon dioxide is released (that's the theory) and all that gets pumped out of the plant is some excess electricity (not sure how much of that), hydrogen, all those algae products, and of course oxygen.
Their claimed net production from each ton of municipal solid waste:
112 pounds of hydrogen
55 gallons of biodiesel
a little electricity
926 pounds of oxygen
The potential impact of all these products is significant, though not in themselves enough to eliminate the need for energy imports. I have real doubts about hydrogen-powered transportation and tend to believe that the best use for that hydrogen is simply for generating electricity at the sewage treatment plant which is, by the very nature of sewage, close to the population, and can be pumped into the electricity grid.
Multiply all these numbers by 251 million tons of solid waste and convert them, where possible, into equivalent barrels of oil and it comes down to about 2.6 billion barrels per year if all waste treatment facilities were so converted. That's half of our current oil import volume -- enough to substantially destabilize the international oil market if that's the goal.
Will this work? I don't know. But making energy from what we'd normally just transport and bury makes sense to me.
Jun 20 2008
