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FEATURED TOPICDigital Transition -The term "Digital Transition" describes the process all organizations must go through in the 21st Century, as they leverage new technologies that provide new options for Applications, Equipment, Processes, and Networks that make them more effective. In contrast, the term "Municipal Wireless" is limiting. It puts the network technology ahead of the application and process changes that drive the business case. ORIENTATION |
« January 2008 | Weblog | March 2008 » February 2008 ArchiveOwn, Rent, Rent-to-Own - New OpportunitiesThe "own vs. rent" debate has a long history in computing and telecommunications. In the early days of computing (1960s and 1970s), most small and medium businesses could not afford a mainframe or minicomputer, and opted instead to purchase computing power and enterprise applications through time-share services. This model allowed smaller firms with limited resources to instead take advantage of these capabilities as services. As computing costs fell dramatically and personal computers became available, a new model emerged that allowed much smaller firms to own and operate their computing environment, and the time-share model of computing is now largely a thing of the past. A similar trajectory played out in enterprise telephony, with the centralized hosted Centrex model being supplanted in the 1980s by PBX. Today, with capital expenditures replacing subscription fees, the IP PBX offers greater control, faster delivery of new features, cost savings and richer feature sets. In the context of municipal and industrial wireless networks, there are two primary technological choices: the organization can build, own and operate its own wireless network, typically utilizing unlicensed wireless frequencies at 2.4 GHz and/or 5 GHz or it can rent connectivity for its mobile workers and applications from a cellular carrier for a monthly fee. As performance and feature-richness of "owned" broadband wireless technologies increases, and cost and complexity come down, the case for ownership versus rental becomes stronger and stronger, just as it did with telephony and computing. Build Versus Buy: Why Municipal and Industrial Here's a great analysis of a new opportunity: owning the tool you need to get your job done. We don't often see such dramatic changes in the way we do business. We tend to go along with small incremental changes from year to year, and so it has been when it comes to telecommunications. This field has always involved billions in capital expense so naturally we have always bought services from a large telecom company. But now, there is new technology out there that challenges the base assumption that telecom is so expensive that you have to buy it from a very large company that has the resources to invest in the infrastructure and tools needed to provide connectivity. That's no longer so. As the saying goes, its only once in a blue moon that an opportunity like this comes along, and Tropos founder Narasimha Chari - that's "Chari" for short - lays out the business rationale for ownership clearly and concisely in this well-written OpEd. I worked with Chari in 2005 when I had a consulting engagement with Tropos - as one of the pioneers, he's been hip deep in this industry and he knows what he's talking about. I'd print this article up and keep it in your resource binder. It's that good! Posted on February 26, 2008 at 10:09 AM | Comments (0) Infrastructure, Again ... let's start spelling it with a small "i" - iNFRASTRUCTURENearly seven months after a highway bridge collapsed in Minneapolis, a federal commission put a jaw-dropping price tag on starting to attend to America's crumbling foundations: $225 billion a year for the next 50 years just to maintain and upgrade surface transportation. That report, like the bridge collapse, should have sparked a serious policy debate everywhere people rely on bridges, roads and transit systems - which is everywhere. It hasn't, and that makes taking on this critical work of national repair even tougher. Of the presidential candidates, Hillary Rodham Clinton and Barack Obama have plans for repairing the nation's crumbling infrastructure - but no persuasive explanation for how they would pay for it. Mr. Obama would use money saved from ending the Iraq war; Mrs. Clinton would apply savings from more efficient government. Before Another Bridge Falls - New York Times Infrastructure, infrastructure, infrastructure ... generations ago, the word "infrastructure" represented making real progress into the future. Candidates embraced the issue as a positive to help them get elected. Now they run away from it - it's like a houseguest that won't leave - it seems as if they find it irritating, in a word. "Why won't the issue just go away?" they seem to say. By now we should all realize that no amount of ignoring this problem will make it go away. Ignoring infrastructure just makes the situation worse. Whenever a problem appears insurmountable, I believe it's wise to go back and reconsider the underlying assumptions that make it so. Some infrastructure problems won't go away, but other aspects can be reconsidered, such as the need to build more and more roads. Why not move ideas instead of people? Why not address the peak periods and live within our current infrastructure boundaries? We will still need to maintain, but we may be able to avoid upgrading and building ever bigger infrastructures if we focus instead on developing broadband infrastructure and changing the way we manage the flow of people and ideas. The federal panel called for paying for a large part of the bill with an increase in the federal gas tax of 25 cents to 40 cents over five years. So far no candidate has had the courage to suggest that. The next president will have to show a lot more leadership if there is any hope of reversing the damage from decades of underfunding and inattention. Washington invests less than $90 billion a year on surface transportation. That means states and cities have to pick up more of the burden, and more expensive projects go unfunded. Ensuring safe and dependable roads, bridges and transportation systems, as well as water systems, sewage treatment plants, dams and even schools also requires long-term planning. Unfortunately most politicians prefer quick fixes. Representative Earl Blumenauer, Democrat of Oregon, has been pushing for a real national infrastructure plan, and he has a good hook. He reminds anyone who will listen that President Thomas Jefferson's administration wrote America's first national development plan - calling for building roads and canals - in 1808. In 1908, President Theodore Roosevelt charted a second plan, which foresaw the need to invest in electrical generation. Another hundred years later, the country is overdue for a new plan, one fitted for the times. In addition to repairing roads and power grids, it will have to encourage the development of alternative energy and find ways to secure critical sites against potential acts of terrorism. As this discussion gets underway, I urge you to encourage your local, state, and federal government representatives to look long and hard at new ways of doing things, including making investments in broadband infrastructure and finding ways to work with private sector players who would also invest in broadband infrastructure. Posted on February 26, 2008 at 08:40 AM | Comments (0) Cities (at least for now) You're On Your Own
Tonight, Clinton and Obama will debate in Ohio, with one week to go before the March 4 primaries. Will they talk about urban policy? Will they talk about the role cities have to play in making broadband widely available? I wouldn't hold your breath. This NY Times editorial from last week underscores the challenge we face in the US - cities are the most common experience we have of living our daily lives, but they can't do it all. Mayors and city councils truly are on the front lines of policy that impacts most citizens, but their cities need help from state and federal governments, just like ground troops need air support. Continue to neglect infrastructure, and face the prospect of more Katrina-like disasters where large numbers of people live or more collapsed bridges that carry thousands of commuters, as happened last summer in Minneapolis. ... Keep encouraging fossil-fueled transportation, and cities will choke on gridlock, and so will businesses and jobs. It's not like there is no leadership on these issues, it's just not coming from Washington or the presidential candidates. In fact, they might take note with some concern that the national leader on handgun control and a range of other urban issues - from environment to public health - is Mayor Michael Bloomberg of New York, who has presidential aspirations of his own. Of course, that is just one city, and it does not change the sad truth that states and cities have been forced to assume more fiscal obligations from Washington while getting fewer of their citizens' tax dollars. There can be no substitute for national leadership. The president must provide it, and Americans deserve to know how the candidates would step up to the challenge. Posted on February 26, 2008 at 08:32 AM | Comments (0) On Structural Change, Part 5I've been busy making money, so haven't been able to post in a while. I thought I'd jump back in with another installment of the white paper On Structural Change. We're talking in this series of posts about dramatic change in the underlying structures that drive our economy and society - and to be sure, the discussion will tie in to Metropolitan Broadband. Start at Part 1 if you haven't read these yet - they're short and not too painful. Part 1 - Structural Change Argument Moving on then, the impact of structural change can be seen in more detail when we focus on the technology drivers that are a primary source of this change. We'll discuss technology drivers like standardization, open source, and mobility after the jump.
In the beginning, scientists tell us that early humans separated themselves from the rest of the animals through their use of technology, starting with sharpened stones they used as primitive axes, moving on to arrowheads and spearheads. Since that simple beginning, technology has steadily driven human progress as man employed more and more tools to make life easier/better. In that sense, technology has always been with us, characterized by the invention and use of tools to accomplish tasks better than before. But such progress hasn't always been pretty (see World War I, here , here and here), nor kind to workers, for that matter. Perhaps the most trumpeted example of cultural resistance to change can be seen with the Luddites in the 19th Century, who rejected new loom technology and actually broke apart the looms that threatened their livelihoods. Guess how well that tactic worked for them in the end ... Technology, Culture, and Change have always had an uneasy relationship, as each new generation has looked at new technology developments, sometimes with unease, but more often with excitement and anticipation. New technology carries the mantle of progress, whether we agree or not. So when technology took off like a rocket starting about 100 years ago, as science and engineering hit their strides and inventions related to electricity and telecommunications came of age, society hit the fast lane, so to speak. With first atomic energy, then electronics, we even added a new descriptor, now referring to "high" technology when there was an electronic component involved. And increasingly, there was something to do with electronics in nearly every technology advance. Hi Fi was part of High Tech too. But even as we entered this era of digital technologies with the advent of the integrated circuit in the 1960s, analog technologies managed to maintain a strong hold on our lives - as we observed above, the cultural transition to adopt technologies proved slower than the technological change that drove society's progress. We've moved ever more rapidly through stages as silicon chips became more and more powerful, cheap, and available. Chips are now everywhere, they're in everything, and with familiarity has come complacency - we hardly realize that they're there, but they are. Everything has become digitized, it seems. But though we have accepted chips into our lives and the changes have been evolutionary on the surface, the combined impact of digitization is revolutionary over the longer term. Our automobiles, for instance, now seamlessly merge mechanical and electronic technologies - to name but one formerly human function now guided by chips, computers take over for the driver when the brakes engage in an emergency. Like our cars, all of our old analog devices have come to incorporate one digital component or another to make them more capable and/or more efficient - but at all costs, technology is used to make products more appealing in a highly competitive marketplace. We now call these digitized devices "smart." As children born into this digitized environment grew up, they came to accept technology as a natural way of life. As digital natives, younger folk accept and incorporate technologies into their lives in ways that most of us older digital immigrants are incapable of doing (incapable of doing, that is, without great, conscious effort). And as the digital has become ever more commonplace, we face a double-edged sword: on the negative side, the pace of change now seems to quicken with each new year. On the positive side, however, providing a little balance, our experience lets us learn better ways of doing things - two current technology trends, somewhat interrelated, demonstrate this learning effect: Industry Standardization and Open Source. Industry Standardization. In the old way of doing things, it was a common rule of business for companies to keep their advantages close to their vest, seeking to advance a market lead over their competitors through such approaches. So naturally Steve Jobs, founder of both Apple, Inc. (formerly Apple Computer) and later, Pixar Animation Studios, chose to integrate his software and hardware innovations into a complete user experience with the revolutionary Macintosh - released in January 1984, the "Mac" was the first commercially successful PC to feature a mouse and a graphical user interface (GUI) rather than a command line interface. But while he had great success with the Mac and paved the way for the PC Era, one suspects that Jobs could have done much more had he only embraced the power of standards. His success with the Mac ultimately paled in comparison with the success of the IBM PC clone or IBM PC Compatible computer, which by virtue of being based on standards enjoyed the benefits of market economics, where industry standard design and common Microsoft operating system software provided high quality and low costs. Thus standardization allowed prices to drop steadily and the majority of the market went to the less elegant but much cheaper PC, relegating the Mac to a small but devoted set of enthusiasts. But even still, industry standardization is not for everyone. Clearly, it's still not for Apple, which is riding high again by repeating the non-standard route it used with the Macintosh a few decades later with the iPod and iPhone. By building exclusivity into product design and business process, the non-standard approach creates a boundary between the company and the outside world, which advocates say allows the proprietor to retain control over quality issues, making the non-standard approach superior (not to mention, keeping prices higher for longer for the successful company that enjoys a market lead and strong positioning). Despite the continuing attachment to a non-standard approach by companies like Apple, the virtues of industry standardization have become much better understood since the roaring success of first the PC, and now, IEEE 802.11, better known as Wi Fi, offers yet another example of the power of standardization. Perhaps the best example to contrast open and closed approaches to software development is to look at Microsoft, which keeps its source code close to its vest and enjoys a dominant position in the market. But there's a price to pay for such dominance: as products increase in complexity, product releases have taken longer and longer and bug eradication has become more and more thorny. In contrast, many point to Linux , the poster child for Open Source software development, and aver that Microsoft cannot match the benefits of having a far larger group of code developers work out bugs more quickly and completely. The success of Linux has spawned advocates of Open approaches in a number of areas, even to the point where we speak of "open" in other contexts, as with Open Source ecology and the Open content movement. What each of these uses of the "open" concept have in common is putting the stress on the benefits of decentralization, a key component of this white paper. As with standardization, skepticism to open approaches remains, though they're here to stay as challengers to the more dominant closed models. Networks. Telecom networks have come full circle. They used to be much less complex, requiring human operators in the middle to make connections between callers. Then, telecom networks helped to drive the computing industry by creating a market for ever more powerful "switching" devices, large computers that is, which took the place of human operators to connect callers to their parties. Expertise and innovation became a source of pride for telephone companies - indeed, Bell Labs was second to none in its heyday. No wonder telecom companies still believe strongly in their "smart" network approach. But along came the Internet, putting the intelligence out in the hands of the users on the edge with the Internet Protocol Suite, using TCP/IP. The wonder of the Internet was that a simple shared packet coding practice operated with a high degree of reliability. A dumb network, contrary to what one might think, actually proved more adept at getting a message through. David Isenberg, a former Bell Labs engineer, published a seminal paper in 1997 that best captures this distinction between smart and "stupid" networks - see The Rise of the Stupid Network. The World Wide Web built on this non-conventional viewpoint with the Hypertext Transfer Protocol (HTTP) and the Uniform Resource Locater (URL), and the rest is, as they say, history. We're all now quite familiar with these three-letter acronyms, or TLAs. As the network transitions from a "smart" network controlled by a powerful network operator to a "stupid" network that acts as a tool to shuttle data packets around, the power shifts away from the network operator to the application provider and users out on the edge. But the owners of the networks, as we shall see in this paper, do not give up their control, rather, they hold on tight. Such resistance to change is the source of a growing conflict between telecom-centric "smart" network adherents and Internet-centric "stupid" network believers. Spectrum. Moving from wired to wireless, we encounter an aging regulatory methodology developed by the government to foster adoption of analog wireless technologies back in the early part of the 20th Century. The Federal Communication Commission (FCC) was created in part to manage the commercial use of the electromagnetic spectrum, more specifically, those wavelength bunches used by analog radio and television broadcasters and two-way radio users. Analog wavelength management is much less precise than its digital cousin, which made spectrum a precious commodity and required a cumbersome government agency to ensure that operators could use wireless technologies without stepping on each other's toes and ruining it all for everyone. But with new technology, some believe that such governmental management has lost its relevance, has become outdated and does more harm than good, even arguing that the FCC now acts more as a government revenue producer than market enabler, as it auctions off wireless spectrum rights for ever greater amounts. For a deeper treatment on the changing face of spectrum management, I recommend this white paper from 2003, as well as this classic by former FCC staffer Kevin Wehrbach, Radio Revolution. (Both of these links will require you to register - just takes a moment!) The gist of these arguments is that technology has advanced to such a state that the devices on the ends of the network have become smart and can handle the management of spectrum usage to avoid interference far more elegantly than government regulators can. And these were arguments advanced 4-5 years ago. As this trend progresses, we see yet another technology-driven structural change underway. Mobility. The final technology driver that is helping to accomplish structural change is the growing momentum of mobility. The case for mobility is well-developed in another white paper I wrote nearly four years ago, March to Mobility, available for download (again, you'll need to register). As high technology grows ever smaller and more powerful and batteries get better and better, hi tech becomes portable. First, we saw desktops go mobile with lap tops and PDAs. And we see a similar progression among our mobile communication devices: we've gone from car phones to analog mobile phones to digital cell phones, and on to camera phones and now, smart phones. This past year, we saw the introduction of new dual-use smart phones that can operate on both cellular networks and Wi Fi networks, bringing more intelligence and potential to bear on the mobility question. These trends in computing and telecommunications that show more and more mobility fit under the neat label of Technology Convergence. And the ultra-mobile PC market may well bring in further change from the computing side. A great example of such convergence from the computing side is the EEE ultra-mobile by Asus, which I detailed in a January post titled New Year Brings Renewed Emphasis on Mobility. This device has the potential to be disruptive because it leverages cheap or free options: Wi Fi for access, Skype for VOIP telephony, flash memory in lieu of a hard drive and Linux for an operating system. - net / net, a device like this packs a wallop for a low price because technology has progressed so far and provided so many new options - in short, Structural Change. Next up, we'll look at the Consumer Impacts. Posted on February 25, 2008 at 03:33 PM | Comments (0) Peak Demand Response and InfrastructureBack in September last year, I started a conversation that has gone in interesting directions. At the Broadband Properties conference in Dallas, I attended a utility seminar where panelists talked about broadband and electric utilities, a pet cause of mine. (See Utility Forum Shows Multiple Broadband Approaches.) Among the many good panels that day was a group of three city representatives from Gainesville, Florida, home of the powerhouse University of Florida Gators. In many ways, Gainesville strikes me as similar to my hometown of Austin, host city to the University of Texas Longhorns, in as much as it's a university town where a major state school resides. But it's perhaps more similar to San Marcos, the mid-sized city that sits just south of Austin and is host to Texas State University, a very large state university and flagship of the Texas State University system. In fact, San Marcos is a closer match to Gainesville, given the relative sizes of the three cities (Austin 700K, Gainesville 110K, and San Marcos 50K). I've spent the past 18 months or so doing a deep-dive metropolitan broadband consulting project for the City of San Marcos, which I've discussed several times on this site (just use this site's search tool with "San Marcos" to learn more.) The discussion last September in Dallas involved the experience that Gainesville Regional Utilities, the city-owned electric utility, had in gradually extending a fiber optic network based on opportunities and demands from apartment owners and other interested stakeholders. Unexpectedly, my initial conversation with City Commissioner Ed Braddy that day has spawned an ongoing telephone conversation on the potential of metropolitan broadband, especially in mid-sized university towns like Gainesville and San Marcos. So I was pleased to see Ed author an intriguing Op Ed this past week - see Don't fight it, telecommute!. Ed comes at this topic from an interesting direction - traffic congestion is a big issue in any number of towns and cities, and it's an issue that is not going away. The challenge of physical transportation in any area is complex on several fronts. First, the infrastructure (i.e., roads and bridges) needed to accommodate growth are very expensive and require extensive advance planning and funding. Second, roads and bridges take a long time to build. Third, the traffic they bring with them is a major contributor to carbon-based air quality degradation, now coming under the broader heading of Climate Change. In a sense, we're all up against an infrastructure challenge where our old solutions don't work as well as they used to. We know we can't keep building roads until every city looks like Los Angeles, but we're not sure what our alternatives are. All the solutions that look at supply, in fact, tend to be very expensive. And as Ed makes his point, solutions that demand too much in the way of consumer behavior changes ultimately fail. But Ed makes an intriguing connection in this article, suggesting that his city give a second look to telecommuting as an alternative to relieve the burden on the city's streets and roads. Intriguing because Ed ties the potential of a broadband infrastructure to the problems associated with a transportation infrastructure. With a more holistic perspective, these two infrastructures can complement each other. Extensive and affordable broadband makes telecommuting a viable alternative with minimal changes to, even improvements on, the status quo of commuting to work five days a week. In a broader sense, by focusing on relieving peak demand (traffic congestion), instead of increasing supply (roads and highways), Ed is in good company. In fact, this approach is a growing trend when it comes to another kind of infrastructure: electric utilities are giving serious consideration to demand response solutions as a way to manage congestion in their electricity generation, transmission and distribution systems. Rather than continue with the old way of managing increased demand - increasing supply to meet that demand by adding power plants and expanding the electric grid - utilities are implementing solutions that enable them to work more closely with their ratepayers. By better managing not just how much electricity ratepayers consume (i.e., energy conservation) and where the power comes from (i.e., renewable energy), but also when the power is consumed, utilities can optimize their systems. By shifting electricity consumption away from the congested peak times that burden infrastructure to less busy times (i.e., peak shifting), managers are making more efficient use of a very expensive infrastructure. When you think about it, this approach is not unlike the innovations that Southwest Airlines brought to the airline industry either, when they adopted business practices that concentrated on filling every plane through variable pricing. Here is the network truism: Optimization in a network business involves full utilization of the network capacity, so attacking the peaks by shifting utilization and smoothing out the demand curve makes good business sense. In the electric world, utility managers are starting to catch on that demand response is a credible alternative to massive spending on large capital projects to build more power plants or transmission lines. It's an idea whose time has come. And why not? We need to look at old problems in new ways if we are to find a way around the complex problems that bedevil our modern society. By suggesting that his city be open to consider broadband as a complementary infrastructure to roads, Ed may have hit on an idea that provides a cost justification for municipal networks that dwarfs what we have been discussing so far. This is the essence of the Intelligent Community approach, which is the focus of a whole other article. Posted on February 15, 2008 at 10:23 AM | Comments (0) On Structural Change, Part 4In previous postings (here, here, and here), we tracked the development and evolution of distribution companies, which provided the valuable service of putting producers and consumers in touch with each other, not to mention putting all of us out in society together with the rest of us. We've never stopped talking and sharing, we just can't get enough of modern telecommunications. Then came the Internet and the World Wide Web, and the rules began to change. Now, communication of both voice and data could proceed around the edge, rather than going through the middle (and through the gatekeepers at the middle). But we're still at the very beginnings of these changes. Now this analysis turns to the broader scope of the economy, the world of business, and society at large and the argument is that recent changes have not just been on the surface, but have been more fundamental - structures have changed. That was Then, This is Now As these distribution networks evolved and developed, what was happening in the broader world of business and society? The discussion and charts below compare and contrast the worlds of the 20th and 21st Centuries in an attempt to demonstrate the realignment that has occurred in the structures and concepts that underpin the daily activities of our economy and culture. It's important to note at the outset of this analysis that we rely heavily on generalizations and observations of trends to make our observations. While we make the argument here that we crossed a bright line when we turned the corner into the new century, of course, adaptive changes in culture and society are gradual and the old continues to co-exist with the new in many cases. The Paradigm Shift: Looking at the old familiar through a new lens First, we've seen a significant change in the organizational paradigm that defines our lives - in the early 20th Century world of relatively static hierarchies, we could reliably predict that five years from now, much would be the same in our fairly structured and controlled lives. Any changes that did occur would be evolutionary. Not anymore. Today we face a world where dynamic networks hold sway, where life has become more and more unstructured and unpredictable. Change has become emergent, we don’t know where the next change is coming from, but we know it's coming. We’ve become more reactive to what we see happening around us, placing a premium on observation, analysis, and information processing and organization. As for our economy, in the first half of the 20th Century, we counted on a large industrial base to provide the engine for economic growth. Smokestack industries made heavy equipment and headlines. With the advent of the transistor and the integrated circuit in the 1960s and 70s, however, the Information Age was begun and the transition was underway to an economy more characterized by IBM and Microsoft than US Steel and Ford. But now we've moved even beyond those times, shifting from that older Information Age to the new Network Age, where companies like Google and Apple drive the discussion of how the Internet and mobile access with devices like the iPhone will change our lives in the coming years. How has this transition affected power and control? While it still holds true that core players act as insiders to attempt to set an agenda and drive mass consumption, we see more and more power shifting to the players out at the edge, where networked consumers increasingly determine exactly what they want and when they want it. While "hits" and "blockbusters" are still much in the news, they hold less sway; we now have more independent markets. Where we once had a nation that watched the same TV shows and listened to the same Top 40 songs, now we have niche markets of YouTube viewers and iTunes users, who load their iPods with exactly what they want and consume it on their own schedules. While we may still hear discussion of American Idol, "What's on your iPod?" is more likely to be heard than "What did you think of Sienfeld last night?" We have incredible freedom of choice, from customized Firefox browsers to TiVo watch lists, to NetFlix downloads. How is the world of business to react to such consumer liberation? Well, starting with strategy, one way to look at things is to contrast two popular games of strategy. The analogy has shifted. In the 20th Century, strategists could be compared to medieval kings, lining up their troops along a battlefront, as in the Western game of Chess, where a variety of moves and countermoves of pieces on squares played to a defined finish, Checkmate or Stalemate. A better analogy for strategy today is the Eastern game of Go, where players compete to cover a map of lines by placing beads on the intersections of those lines, but in this case, the map constantly shifts as alliances and territories transition - the game goes on without end, with the winners fading in and out. The premium in society and business may always have been on innovation, coming up with new ways of doing things, but where before it took years or even decades for dramatic change to occur, now that cycle has shorted to months and years. The impact of such churning cannot be underestimated. Where once we stood on terra firma, we now stand on a shifting deck underfoot; we all need to find our sea legs. The world of production has changed dramatically as well. Where high production costs in the 20th Century once led producers to invest heavily in planning, centralized production facilities, and complex distribution strategies, now, digital products enjoy next to zero cost of reproduction and distribution - the tables are turned. Consequently, one new strategy is to rapidly gain market share by introducing products in the beta stage of development, followed by further changes and price drops along the way. Another is to start out offering a service for free and then move the other way, charging a nominal monthly fee after the customer has grown accustomed to the service (i.e., the freemium model as practiced by Web 2.0 companies). Producers now must stress flexibility and local customization in order to compete for customer attention in crowded marketplaces. And what about financing? In the old days, even into the 1970s and 80s, large companies relied on bank loans, small companies on SBA loans, and credit was tight. Lenders could loan money on prudent risks and count on stable markets with long depreciation and product life cycles. But as the supply of money increased, lenders became more competitive and aggressive, and there was a shift to venture capital - in the old days of first the Information Age Boom and then the Dot Com Boom, the VCs took risks and many enjoyed big hits. But following the Dot Bust, investors became more conservative and company founders faced a drought of financing alternatives. They learned the virtues of self-reliance, eschewing financing that diluted ownership in the hopes of a big exit, whether buy out or IPO. They turned their focus to new 21st Century Internet models, which saw them keeping their costs radically low, maintaining ownership and control, and working first on gaining a loyal following and revenue based on such new concepts and tools as the Long Tail and social networks like MySpace and FaceBook. Instead of getting millions from a few investors, start-up entrepreneurs could get a few dollars from millions of consumers, while retaining ownership and control of their businesses. Finally, back then, both risks and risk management were different. Businesses tended to rely on expert opinions and long-term plans, and while taking big risks, they did so under what they perceived were much more controlled conditions. They took calculated risks and could afford to wait for their payoffs. Now, cycles are shorter, conditions are less predictable, and the nature of risk has transformed. The perceived risk in the heady days of the Dot Boom was missing the boat, so fools rushed in. But hindsight indeed proved to be 20/20, and the real risk turned out to be investing real dollars in business plans based on false premises. As fundamental assumptions proved wrong, billions in investments were lost. Once bitten, twice shy, investors first withdrew, then learned to look closer at concepts like the Wisdom of Crowds and portfolio management. We understand better the benefit of feedback loops that enable smaller, more incremental risks to test the market and provide more information, which in turn lowers risk and enables further investment. Risk will always be present, but alternatives for risk management have become more sophisticated, given our lessons learned and the potent new tools that risk managers have at their disposal.
Posted on February 14, 2008 at 10:07 AM | Comments (0) The Joke's on You and MeI actually made this one up! "What do a sagging fern
and a sad Senator from Nevada
have in common? THEY'RE BOTH LIMP REEDS!!!! Dan Froomkin at the Washington Post provides a good overview of the whole sordid tale of sellout and betrayal in this article, Fear Rules the Day. Reid (whose procedural calls as Senate leader made the passage of the bill nearly inevitable) responded with the following statement: "Today, President Bush continues his bullying. . . . "Due to months of White House foot-dragging, the relevant House committees have only just gotten important documents related to whether the Bush Administration followed the law and the Constitution. They need some time to review and analyze them. We must not let this critical issue be resolved by White House bullying. I'm crying in my beer tonight, not laughing, folks. My weak attempt at humor above is nothing when compared to Senate Majority Leader Harry Reid's weak attempt at leadership over this whole FISA and Telecom Immunity mess, to say nothing about our current presidential administration. How, how did we go so wrong as a country??? Back in sixth grade, I remember being terrorized by a bully, for what must have been a week or so, and 40 years later, I still remember the frustration and impotence I felt. But I'm an adult now, and I know how to react to bullies. Generally, they're weak and pathetic individuals who continue bullying when others give in, but who back down when challenged by strength. Bullies are into external power plays to make up for their own lack of internal strength. It's a behavior born of weakness and pathology. As a parent, I believe that this description of bullies and how to deal with them is more or less well understood now. It's something we all deal with at one point or another in our kids' lives. So why don't our elected representatives know how to treat those bullies George Bush and Dick Cheney and all their minions in the Senate? I intend no disrespect here for the office of the President or Vice President, certainly, but I do intend a full measure of disrespect for the two individuals whose small, fear-filled minds have dragged our country down so far. But kicking George Bush and Dick Cheney is pointless, they'll be gone in less than a year! (besides, go ahead and Google "worst president ever" and see for yourself - what could I possibly add here to the 500,000 or so search results?) No, I'm here tonight to kick Harry Reid, who should have done a much better job at managing this lame power grab supported by the same old tired game of fear-mongering we've grown so used to over the past seven years. What on earth are those guys afraid of??? How does this still work for Bush??? Froomkin continues ... "Congress is prepared to extend current law - the Protect America Act - by any length in order for Congress to complete the in-depth analysis and negotiations necessary for a long-term law broadly supported by the American people. If the President chooses to veto a short-term extension - as he said he would this morning - the responsibility for any ensuing intelligence collection gap lies on his shoulders and his alone." Weak, Weak, Weak ...Harry, Harry, Harry ... Scott Horton blogs for Harpers: "If things proceed on the course now set by the Bush Administration and its brainless collaborators, and the national surveillance state is achieved in short order, then future generations looking back and tracing the destruction of the grand design of our Constitution may settle on yesterday, February 12, 2008, as the date of the decisive breach. . . . "On the key vote, the Republicans in the Senate continued to function in lock-step, as they have on almost all significant issues for the last seven years, while the Democrats fragmented. Their vote summed up everything that's wrong with Washington politics today. Fear and hard campaign cash rule the roost, and the Constitution is regarded as a meaningless scrap of parchment, indeed, a nuisance. . . . "The Constitution was defeated yesterday, and it was defeated by a fateful coalition between brain-numbing fear tactics and money and the resources that money buys." On that last point, I concur that we lost a significant battle, but disagree that the war is lost, not yet - it's not too late for the House of Representatives to weigh in and stop this fool's rush to give away our civil liberties. Please check out this good article as well and then let your Representative know how you feel, if you support the Rule of Law and the Constitution, like I do. I hate writing about this stuff, but it's important... Posted on February 13, 2008 at 07:21 PM | Comments (0) Full Future for Fiber - from FlatironsThis acc. to GigaOm, a website I don't read nearly enough. Said Jim Crowe, CEO of Level 3 Communications, the Internet carrier's carrier, at the recent Silicon Flatirons telecom conference, re long-term trends in communications: * Internet video use is here to stay, and will only increase going forward The GigaOm article continued: According to Crowe, between 60 and 70 percent of the IP backbone provider's traffic is currently video, a trend that he thinks will only increase, perhaps even substantially should applications like Cisco's Telepresence take off. "It's kind of a full employment act" for backbone providers, he joked. This would have been a good conference to attend, I think. This summary below echoes the analysis I began last week in my white paper On Structural Change. From the Silicon Flatirons website: The Digital Broadband Migration: Information Policy for the Next Administration The transformation of telecommunications from an analog, narrowband network optimized for voice to a digital, broadband network optimized for data traffic has created a myriad of challenges for businesses, policymakers, and academics alike. Consider that, in 2000, when then-FCC Commissioner Michael Powell coined the term "the digital broadband migration," the iPod had yet to be rolled out to consumers and Google was not yet a verb. Seven years later, the iPod has revolutionized the music industry, the iPhone is sending shock waves through the wireless world, and the Apple TV may similarly bring dramatic changes to video programming markets. In 2009, the next President will take office with an array of information policy questions demanding attention. This conference aims to underscore the challenging policy issues that will be high on any new administration's agenda. In particular, we will evaluate questions related to changing broadband and wireless markets; challenges related to protecting privacy and security; and the optimal direction for intellectual property reform. With a thoughtful array of leaders from academic, industry, and governmental circles, we believe that this conference will continue the Silicon Flatirons' tradition of encouraging "bolder thinking" in Boulder. Like its predecessors, the proceedings from this conference will be published in the next volume of the Journal on Telecommunications and High Technology Law. So, that from the academics at Univ. of Colorado at Boulder. And check this out over at Harvard Law School, where there is an actual course on all this stuff - here's the syllabus, in fact: The Web Difference - Syllabus (ever evolving). David Weinberger is the collaborator and co-teacher of the course. Of course, David is the Internet luminary - coauthor of the Cluetrain Manifesto - whose popular blog is Joho the Blog, yet another great website I don't read nearly enough of. I should go back and review that Manifesto, first published nearly nine years ago (April 1999), as no doubt it informed my thoughts On Structural Change. For that matter, I urge you to check it out at their website, here. It's hard to believe the Internet has come so far, so fast. Posted on February 13, 2008 at 06:55 PM | Comments (0) Can't we all just .... relax?I don't know about you all, but primary politics are exhausting me...now we have the Potomac Primaries....sheesh. Having written a pretty serious post this afternoon - on Retroactive Immunity here - I guess I feel a need to goof off a little and relax. Politics may be wacky, but let's face it, political humor is an age-old American tradition. So, here you go, some 21st Century Political Humor....these political satire videos are guaranteed to offend everyone .... let's hope! Enjoy these while you check out the real returns from the primaries this evening... Here's a classic video covering our current President's speaking style... This one is called "Obama and Your Mama" - making fun of mothers! Wheeee! And then there's "Obama on the Run" Mike Huckabee is "Taking the High Road' with some pretty low suggestions re his opponents Don Rumsfeld showing off his talents - ah, I remember those days ... those press conferences ... George Bush on "those Global Warmings that are happening" The Hillary Show (w/Howard Dean and special guest John Kerry) Attack on McCain And the last word on politics and government goes to the Masters of Satire, Monty Python Posted on February 12, 2008 at 06:51 PM | Comments (0) PrescienceOpening scene from Brazil, 1985 The populace of Oceania, belonging to three classes - Inner Party members, Outer Party members and members of a lower-class proletariat ("the Proles") - is subordinate to ruthless government control. This is accomplished and regulated by a "Ministry of Truth" in which the protagonist, Winston Smith, works as an Outer Party member. Smith spends his days constantly rewriting and altering history to satisfy the government (which includes destroying all evidence of history not conducive to the government's agenda) - amending newspaper articles of the past so as to remove all reference to predictions that did not come true, and individuals whom the state has identified as "unpersons" (people who the state declares as having never existed). Nineteen Eighty-Four by George Orwell Written in 1948 and published in 1949, 59 years ago, Nineteen Eighty-Four is a great example of prescience. Orwell really hit the nail on the head, he just was a little off on the date. How did he know? And what about Terry Gilliam, the mind behind the brilliant 1985 film Brazil, whose original working title was "1984 1/2" ... just a keen observer with a great sense of humor, or another example of prescience? He loosely based his film on Orwell's opus, but drew heavily from his own experience with mind-numbing bureaucracy. The pursuit of terrorists by the Information Retrieval Department in the film make this film very relevant for what we see in today's fear-oriented American society, I'm afraid to say (pun intended). I rented the DVD and watched it again last weekend...didn't realize we'd be looking at a dystopia like Gilliam envisioned, here today in 2008, 23 years later, yet here we are, looking today at a Senate that has dropped the ball when it comes to lawmaking and lawbreaking, privacy, the Fourth Amendment to the Constitution, etc. Retroactive Immunity got a boost today as a new form of lawmaking, where lawmakers don't legislate with the future in mind (that's so Yesterday), but rather they go back to change laws that have already been broken, in order to protect the law-breakers, under the guise of keeping us all safe from terrorists - that's the new way of Presto, our government and those who cooperated with it may have broken the law, see, but that's only if you think of the law in old-fashioned terms, as in rules written by our legislature, passed and signed by presidents, conforming to and upholding the U.S. Constitution, and which apply to all citizens of the United States, regardless of rank or privilege. No, with the new way of thinking, it's all better. In this case, they only had to do a little clean up work in order to get the law to conform with their actions, see, because they needed to do what needed to be done to keep the people safe, see, whether or not it was against the law, and besides they never would be at this point discussing retroactive immunity if it hadn't been for that pesky New York Times which dragged this issue out into the public eye (see Bush Lets U.S. Spy on Callers Without Courts)..don't you know, they were doing just fine operating in secret, keeping us all safe...the Constitution? That's no longer relevant, because we're at war.......what's important is that we be forever vigilant against threats to our society and way of life. Out the window go those old concepts of truth, justice, laws, due process, etc. So 20th Century, dude. Much cleaner to let the President and his guys keep us safe. I believe that spying on Americans without a warrant as required by the Foreign Intelligence Surveillance Act (FISA) is illegal, whether you call it "operating outside the law" or "breaking the law." When I break a law, it's certainly called "breaking the law," and I face serious consequences, like getting arrested and being thrown in jail..But now it seems we have a society divided into two parts...those, like you and me, who must follow the law or face serious consequences, and those like AT&T, Verizon, and Pres. Bush, and VP Cheney, the CIA, the Department of Justice (don't forget Scooter LIbbey either!), etc. who are free to operate outside the law, for whom the laws will be changed if needed, ex post facto, by a compliant law-making body, aka the Senate. The ministries' names are an example of doublethink - "The Ministry of Peace concerns itself with war, the Ministry of Truth with lies, the Ministry of Love with torture and the Ministry of Plenty with starvation." (Part II, Chapter IX - Chapter I of Goldstein's book)Nineteen Eighty-Four by George Orwell Thankfully though, as bleak as it seems this afternoon, the jury, so to speak, is still out on this dark chapter in our history....please check out this website, read about today's FISA votes in the Senate, and encourage the members of the House of Representatives - who represent you and me in this democratic republic - to draw a line in the sand and stop this extra-Constitutional behavior in its tracks. We can look forward to this ... or, we can choose to be safe and still enjoy the civil liberties bequeathed to us by our forefathers. We don't have to trade one for the other. It's a false choice. We can have both safety AND liberty. Dare I say it, "Yes, We Can." Posted on February 12, 2008 at 12:55 PM | Comments (0) NPR on FCC, With a Focus on Kevin MartinI listened to this news article on NPR this afternoon regarding FCC Chairman Kevin Martin's Contentious Turn at Helm of FCC. For the casual observer, I recommend checking out this link and listening to the article - this is the first in a series of articles on the FCC. If the rest are as good as this one, it should be a good series. Posted on February 05, 2008 at 08:17 PM | Comments (0) On Structural Change, Part 3In this series, we're reviewing the way we communicate and how private companies have both changed the communication landscape and made quite a good living by putting us all in touch, with each other and with the information and services we seek. It's a worthy endeavor to look at changes in this area ...when you consider all that we spend on telecom services and entertainment, to mention just the two most obvious ways that we use communication services, you realize that it's not only that these companies are significant players in our national economy, but also that the money we spend with them also constitutes a good portion of our household budgets and the services they provide comprise a key part of what we would call our quality of life. But communication in the Internet era has become more than services we buy from large companies... this network has grown to affect every aspect of a far ranging set of services and functions. Broadband has become vital infrastructure, like electricity. Given that new role as vital infrastructure, we must then see changes in this area as what we must call "structural" - they shake the foundation on which our modern society depends. In Part One, we set up the premise that the Internet and digital technology changes have changed the basis on which our economy and society operate. We used two poignant examples of how powerful the forces of change are - the rapid near-destruction of Encyclopedia Britannica and AT&T long distance - in their market niches, these were two venerable bedrocks of our economy and society for decades (AT&T) and centuries (EB), yet dramatic changes in structure led to their rapid demise. In Part Two, we began to look at all the analog services that rose up to connect people, starting with print services and moving on to telephony, cable TV, and cellular phones. In Part Three, after the jump, we continue to review the role of interaction between the core and the periphery, but we see that things begin to pick up when we transition from analog to digital tools and processes. The key aspect of this shift is the maturing Internet, the widespread penetration of cellular phones, and the march of every more powerful computers and storage. At the end of Part Two, we concluded: And one more thing to note at this point: remember the graphic above where the print-centric viewpoint of "subscribers" and "non-subscribers" was described? That becomes the perspective of the distributor: the world is divided into subscribers and non, and the rationale to generate revenue is to convert non-subscribers to subscribers...but from the perspective of all of us out on the edge, we are going about our lives and communicating away, much of the time around the edge in "word-of-mouth" activities. We only feel like subscribers when we have to pay bills or deal with the companies that give us these services. Otherwise, we're just humans living our lives. This is a key distinction that we'll bring up later in the analysis. Empowerment at the Edge In the early days of being on-line, back in the 1980s, the Internet was hardly the powerhouse that it is today. Simple community bulletin board systems (BBS) allowed communities to communicate using PCs hooked up to telephone modems - in essence, taking "word of mouth" on-line in the days before the Internet was officially in existence. This was generally manifested in a local community effort, because long distance telephone service was considered expensive. Soon, early Dial Up Internet access services offered by companies like CompuServe and America On Line (AOL) , also requiring a telephone modem and a phone line, gave wider access to something new called the World Wide Web - the "www" in all those website URLs.
We know now that one significant aspect of the new Internet and World Wide Web was that it was very democratic - anyone with a connected PC and an Internet access account from an Internet Service Provider (ISP) could bypass the traditional distribution services to gather information and communicate on-line. They could go around the edge instead of through the middle, although there wasn't nearly so much out there on-line as there is today. The next iterations of the evolving circle graphic thus show rings being added to the outer edge, in contrast to the ever increasing spokes of proprietary network service providers in the days of analog services. Simple websites, now derisively referred to as brochureware, were the norm in what was more of a fringe culture at first. In the early days of the Internet, most companies offered printed information with some graphics on relatively static websites. With limited use of graphics, and certainly no moving video to speak of, the speeds needed to make the Web work were not nearly as great as today. 28KBs dial up speeds (and ultimately, 56KBs), for instance, were seen as sufficient, although the Web did gain the nickname of "World Wide Wait" at the time, so things were admittedly slower than consumers would have liked. But users were still free to surf and experiment. Many feel the explosion of creativity that drove development of the Internet owes a good part of its success to the fact that while tools and a modicum of structure were provided, precious few rules told people how they could use this new medium, so they experimented and played around with it. Given it's "toy" status at first, the Internet failed to gain the attention of the large cable and telecom companies - sure, telephone companies valued Internet service, but they saw it as a source of enhancing revenue from their traditional core service, telephone lines, or POTS - plain old telephone service, because gaining access required a second phone line (or long bouts of busy signals on the primary line). Phone companies saw an opportunity for additional revenue by selling more than one phone line per household. They didn't gather the greater significance that the Internet would have (or if they did, they didn't act on it) - besides a few visionaries out there, none of us really understood the transformation that was underway, at first. That epiphany would occur later, as we painfully processed the Boom and Bust cycle at the end of the century and the beginning of the new century, only after broadband had firmly taken hold. So as dial up recruited early users and Internet culture began to form around the new technology, the next wave of technological advance to follow was to improve on the transmission of data, specifically to improve on the speed and convenience of the new Internet. The two early movers in this area were the cable TV companies and the telephone companies, who applied their respective business models and subscriber services to this new "telecommunications" service dubbed "broadband" Internet access. Cable television companies got an early head start as the first to realize that they could use their existing coaxial cable networks to offer an improved, faster, always-on broadband access service. Thus with the advent of cable broadband, the Internet gradually caught the market's imagination and began its rapid growth, even touching off the Internet Boom of the late twentieth century, aka the Dot-Com Bubble.
Telephone companies, late to the broadband game, made up for lost time in the early 2000s by offering service roughly comparable to cable broadband over their copper telephone wires, using a technology called Asynchronous Digital Subscriber Line or DSL. They were able to convert their own dial-up customers, gain customers away from cable companies, and win customers altogether new to broadband by offering dramatically lower prices, bringing a form of competition to the emerging broadband marketplace.
And so with most broadband Internet service provided by either cable or telecom companies, a new way to communicate from person to person came about. Internet users figured out how to make use of the Internet in new ways in order to communicate with each other: through what came to be known as "peer-to-peer" services - P2P - files and messages zipped around the edge, as users took advantage of the ability to work with each other, away from involvement of content distribution companies. But it was no picnic, as incumbent service providers fought back. The digital rights management issue (DRM) was born after an upstart company called Napster gained great notoriety by giving users a program that enabled them to trade music files. By sharing their music, music companies claimed, the users were "stealing" music from the rightful owners and violating copyright laws. While recording companies won some court battles and defeated Napster in Round One of what appears to be a heavyweight title fight, P2P was here to stay. And so P2P progressed as new "edge" behavior even as Internet service access was still required by the old distribution companies. The steady growth of broadband market penetration and the growing number of services and variety of content available over the Internet continually raised the value proposition for this new medium, even as it challenged existing business models. Not to be left out, cellular telephone services saturated their markets for voice communication, and began to offer their own cellular broadband data services, including Internet communication, but also text messaging, ring tones, and other walled garden services. Touting a third generation of wireless technology (3G), cellular companies have aggressively promoted their services to access the Internet, but consumer adoption rates remain lower than anticipated. In part, that's due to service speeds that remain relatively low and slow deployment of the new 3G network gear - even if one can afford it, it's still not widely available except in major markets.
That said, cellular handheld equipment has grown more and more sophisticated and capable, with the new devices becoming known as "smart" phones. But as stated earlier, low bandwidth and relatively high costs have kept the subscriber rates for mobile Internet data delivered over cellular networks relatively low, with business customers being the principal users, although 2008 is anticipated to be the year of greater consumer adoption of smart phones, following the popular release of the iPhone in 2007 and subsequent releases by other manufacturers. Moving into the present, a few communities began experimenting with a new form of broadband access over wireless networks, Wireless Mesh and WiMAX services, collectively referred to as Wireless Broadband. Operating at speeds comparable to cable and DSL broadband, but having the mobility aspects of cellular data services, the new technology held promise but was not widely embraced by the dominant market players in data distribution (Cellular and Wired Telecommunications & Cable companies). While Wireless Mesh has seen its greatest adoption among a handful of pioneer public sector projects, covering parts of cities, or in smaller cities, the entire city, WiMAX has been deployed to date primarily by one company, Clearwire, whose founder is the telecom legend Craig McCaw. Clearwire has raised substantial capital, but as yet has limited deployment to date, primarily in Tier 2 and 3 cities like Waco, Texas.
As is readily apparent in the diagram above, in little more than 10 years, a variety of services based on Internet access came on the scene, and broadband experienced unprecedented adoption rates. And with the Internet, the connected consumer could do ever more, from accessing the world's information, to keeping track of current events, to making phone calls using the new Voice over IP (VOIP) technology, even to watching the ever more popular video-streaming short videos and downloading video DVDs from companies such as NetFlix. But yet more change was in store for the distribution companies that had grown large and powerful by providing a service that was unique and vital, and often offered with little competition. Fiber optics held great promise for nearly infinite bandwidth, denoted in the diagram below with the olive shading. While speeds had climbed into the 1.5 to 3.0 MBs among US broadband offerings (and much higher in advanced countries overseas), fiber offered connection speeds ranging from 100 MBs to 1 GBs ... a dramatic leap in productivity. But the cost to extend the fiber networks to the "Last Mile" (alternately called "fiber to the home" - "FTTH" or "fiber to the premises" - "FTTP") inhibited existing network owners - they needed to make a business case to shareholders on the relative merits of building a new fiber network for billions of dollars vs. leveraging the an existing and much depreciated asset - copper (DSL) or coaxial (Cable) networks - for far greater short-term profits and far less immediate capital expenditures.
Alone among the large telecom companies, Verizon began a large scale effort to string fiber line to its customers in a number of major markets, a multi-billion dollar gamble to provide new, cutting edge services. With the extension of fiber to every premises, many feel that the full potential of the Internet will be within reach. The dramatic increases in speed over cable and DSL broadband make fiber highly attractive, but the high costs and multiple coverage areas spell a long-term transition to the new technology. One last technology is worth noting in this short history. Cellular companies have been hard at work to develop a new generation of wireless technology, which they call fourth generation, or 4G. Expected in the latter half of this decade, perhaps in the 2010 time frame, 4G promises high data rates and mobility from existing cellular carriers. But the speeds and carrying capacity will not approach that of fiber. 4G is noted in the diagram below with a broader blue ring - an update to 3G from the earlier diagram.
Next up, Part Four, where we track coming disruptions to private distribution businesses and a potential future for the Internet and the various services we use to communicate and access content. Posted on February 04, 2008 at 05:06 PM | Comments (0) On Structural Change, Part 2In yesterday's post, we launched this series on the Structural Changes brought about by the maturing Internet and other advances in digital technology. Like the proverbial frog in the slowly heating pot of water, who fails to jump out until it's too late (that's an urban myth, by the way), as a society we fail to recognize the changes we are undergoing because they're both incremental and complex, and those who benefit from the status quo understandably resist change and work to maintain their hegemony. The human brain is still wired for evolutionary change, because dramatic changes always took a few generations to proliferate, giving us all time to get used to new ideas and new ways of doing things. Rapid, more revolutionary change then is quite simply disruptive, both to our ways of doing business and to our psyches. It gets irritating to learn a new way of doing things every few years, to replace equipment we just bought with new gear, to unlearn old ways and learn new ones. But, so it goes, because this is the world we live in today. Rapid changes in technology put pressure on businesses and societies to deal with new circumstances. After the jump, we move on to Part 2 of this analysis. At the end of Part One, we asked: How does the Internet achieve such a dominant influence in order to manhandle such business giants? And which industry or company is next on the hit list? Life at the Core and Life Out on the Edge Who's to tell, but we can make a fair wager that the next victims of structural change will come from the list of companies that make a living by distributing digital information, from radio stations to newspaper operations, from music companies to the movie business, from TV to telephones. The list goes on and on, as described in the next section. The nature of structural change driven by the Internet is to realign the rules of production and distribution. The changing rules demonstrate what we might call Technological Darwinism - the survival of the fittest in a rapidly changing economy. Pick any industry that relies on information production and distribution over private networks and you have an industry that is ripe for disruption, transformation or even elimination, all because of innovation and technological change brought on by the Internet. Because at the root of this structural change is the way we communicate with each other in our modern society, and increasingly we use digital tools and networks to communicate, because they make things easier and cheaper, a potent combination. And let's not forget that more often than not, digital is more fun and sexy! Smart marketers like Apple understand this and usher in consumer change by making products so attractive as to be irresistible (see iPod and iTunes). The communication we employ may be straightforward and direct, as with telephone calls or emails, or may involve the transfer of information through websites. It may involve commercial transactions as in marketplace activities like advertising, buying and selling, or it may involve distributing recorded data as entertainment (music and video). Or it may involve using the Internet to manage activities in the field or to monitor remote infrastructure. What all these activities have in common is that they're fundamental to the human experience of life on this planet. We communicate because we live complex lives in a society and we do things together. As we walk through this analysis, an important concept to note is that of core and periphery. We use the circle as a graphic illustrator of this concept. Individuals and groups out in society are seen as being located on the periphery, the outer edge of the circle in these graphics. Those in the middle are active in the distribution process, at the core. As distributors, they occupy a vital space when they facilitate communication between those out on the periphery through the distribution services they offer. The first networks in society were human-based, where information passed from lips to ears, what came to be known as "word of mouth." Think of the days of the Town Crier, back before a printing press gave power to the written word, and most were illiterate, at any rate. From this point forward, analog communication advances improved on word-of-mouth.
It wasn't long after the type was set and printing presses got inked up that distribution networks sprang up to communicate information over newsletters, broadsheets, pamphlets, newspapers, and books. The first information distribution networks in the modern sense, then, gained great power by providing something everyone wanted but few could deliver: vital information printed on paper, providing a quantum leap in utility over the old oral tradition. To reach the many people out there on the edge with the printed word, one needed to go through the core company that had the capacity to print and distribute printed materials. Or, one needed to work with a mail service. Either way, one had to go through the middle to get to the edge.
Of course, from the distributors' perspective, the world was now divided between those who paid for the distribution service - subscribers, as it were - and those who did not.
And that's about as far as technology took us for quite a long time, until great leaps in innovation began to roll out in the early 20th Century, starting with the invention of the telephone and the company that developed to commercialize the technology, AT&T, aka "Ma Bell." With the advent of the telephone, two-way oral telecommunication was born - that's where we get the name - the "tele" stem means "distance." In a sense, people could communicate much as they did by "word of mouth," but over long-distances, assisted by technology. It's an understatement to say that this leap was a big hit - it was in fact transformative, as it changed the way that society functioned. AT&T was destined to grow into a corporate giant based on its near monopoly in telecommunications, which became such a vital service that in time Congress would pass a law to promote Universal Service, collecting a special fee from every phone user to subsidize service to hard-to-reach areas and populations. It had become unimaginable in modern society not to have this distribution service to go from one edge to the other, and people paid dearly for it, especially when the communication was over a long-distance or from country-to-country.
Broadcast media of commercial radio and television, subsidized by commercial advertising, ultimately led to the next significant fee-based distribution network in this analysis, the rise of Cable TV starting in the middle of the 20th Century. Originally designed for areas where broadcast signal strength was weak, cable television companies became strong distributors of entertainment content and the number of TV channels exploded from the small handful that had been available over the airwaves. Cable TV became a mammoth new industry, growing to rival telecommunications in size and revenue. In the sense that the communication ran in one direction out to the consumer, cable TV was more like the printed word, and less like telephone.
And so it went into the 20th Century. With the advent of analog pagers and cellular telephones, people could take messaging and their conversations with them as they went about their daily lives, first in their cars and then as equipment improved, as they walked from place to place. Into the 1980s and 1990s, cellular phones grew more and more popular. But as with the other distribution services above, the subscriber had to sign a contract for services and go through the powerful distribution companies. Relying on licensed radio spectrum, the cellular companies required massive capitalization, so only a few were available to offer services, but more competition was apparent in this market from the start than among the wired telephone and cable TV companies, which tended to enjoy more exclusive positioning in less competitive regional markets.
By now, one can see a pattern emerging. Large, well-capitalized distribution companies arise to provide distribution services that are highly valued by customers who cannot otherwise connect with each other or with the information they seek. In most cases, these companies managed to avoid significant competition in one or both of two ways. First, government-sponsored monopolies and permitting requirements raised the complexity of this business as well as the costs to compete. Second, market dynamics accomplished the same limiting function, raising various barriers to entry, such as the costs to dig and lay cable, the very high costs of gaining spectrum rights through FCC auctions, and the costs of supporting large bases of subscribers, from billing to customer service. About this point in the analysis, the conversion from analog to digital technologies began to offer cost advantages to the distribution companies, but the conversion was a double-edged sword. Even as digital efficiencies enabled cost reductions that made their businesses more profitable (e.g., fiber optic backbones reduced the cost of long-distance dramatically), the same digital efficiencies lowered the barriers to competition that had protected their markets. Advances in digital technology brought about the structural changes that we describe in this analysis, and the effects of such changes continue to unfold. And one more thing to note at this point: remember the graphic above where the print-centric viewpoint of "subscribers" and "non-subscribers" was described? That becomes the perspective of the distributor: the world is divided into subscribers and non, and the rationale to generate revenue is to convert non-subscribers to subscribers...but from the perspective of all of us out on the edge, we are going about our lives and communicating away, much of the time around the edge in "word-of-mouth" activities. We only feel like subscribers when we have to pay bills or deal with the companies that give us these services. Otherwise, we're just humans living our lives. This is a key distinction that we'll bring up later in the analysis. More next in Part 3, where we start to look at the impacts of the Internet and other digital advances... Posted on February 04, 2008 at 09:11 AM | Comments (0) Super(b)!
WOW! Superb effort for both teams in this year's Super Bowl. I'm sorry they both couldn't win. That was AWESOME! For once, the Super Bowl lives up to its name! Posted on February 03, 2008 at 09:35 PM | Comments (0) On Structural Change, Part 1Three years ago (March 2005), just months before I launched UnwireMyCity.com, the antecedent to this website, I gathered my thoughts together on the changes that I was observing in technology and society, all driven by the maturation of broadband. I made a chart on Structural Change first, just to gather together all the changes (see it here in one of my first posts on May 19, 2005 - Planning Resources). I put some text around that as one of my first UnwireMyCity whitepapers, On Structural Change, available via this posting a week later on May 25, 2005 Affordable Wireless Disrupts Markets. I find it fascinating to read another link from that post on May 25, what turned out to be prescient thinking in an article I quoted three years ago, from a website appropriately titled Oligopoly Watch (recommended). Now there's a new threat. Broadband wireless allows companies that do not have a grid of cable or telephone lines serving each address to offer first Internet hookups and eventually other services including video and phone. This phenomenon is about to break into the mainstream, according to a Wall Street Journal article ("Internet and Phone Companies Plot Wireless Broadband Push", 1/20/05). Te improvement of Wi-FI and the next generation WiMAX technology is making it less and less expensive to set up these services, both in urban and rural locations. In fact, the city of Philadelphia and a number of others are rolling out low-cost municipal services, frustrated at the expense and slowness of the cable and phone companies to offer Internet services to any but affluent neighborhoods. The big phone and cable companies (Verizon, Comcast, SBC, and others) are anxious, because this move opens up even further their industries to outsiders. As fewer and fewer companies own the land lines, the business was starting to settling into a competition between two local monopolies, a cable company and a local phone company. In my own case, for example, I can choose between high-speed links between Verizon and Comcast. They are in competition, but it is a relatively contained competition. The pull of the status quo on society, the practical difficulties of launching new approaches to wireless broadband, and the power of large incumbent telecom and cable companies to resist such new approaches has combined to mitigate the optimism expressed in press clips from three years ago. But the fundamentals remain, even if the experiments have been less productive than originally expected. So, I've gone back to the white paper I wrote in the spring of 2005 to update it, given all that I've learned in the ensuing three years. Not surprisingly, there's much more to tell, more details and more nuances. But the gist remains the same. We are undergoing fundamental changes in our communications technology that will have far-reaching consequences. We still see Structural Change underway. After the jump, I offer the first part of a multi-part update to the 2005 white paper. On Structural Change and the Broadband Economy Close to a full decade into the new millennium, it's become more and more apparent that things will never be the same as they used to be. Change is on everyone's lips these days, especially among our presidential candidates in early 2008. Ever since the early days of the Internet nearly 15 years ago, the pace of technology change has crept up until it seems a non-stop constant now. Broadband internet drives much of that change: with its nearly infinite capacity of information and its near zero cost of distribution, broadband grinds away at the old way of doing things. And mobile broadband enables services heretofore impossible to offer. As the "First Mile" gets extended to more and more premises, the sinking costs of access and burgeoning capacity and utility of broadband guarantee continued rapid change, even promising a world where change is the new norm. And as the "March to Mobility" progresses, we become less satisfied with being tied to a wired connection, so expect the differences between "fixed" and "mobile" broadband to gradually diminish, as mobile catches up to fixed. But also expect new differences to appear, as fiber becomes the new norm of broadband, with the potential for Gigabit speeds that dwarf the Megabit speed limits of wireless. But cultural change acts as a drag on technological change, like a parachute dragged in the water behind a sail boat, known as a sea anchor to nautical types. As humans we struggle to accept the inevitable nature of change and grasp at how to deal with in manageable bits. Even as we do, we also cling to the hope that while change may be inevitable, it need not be so disruptive. We grow to miss the old ways of doing things, even as we become excited as old problems give way to new ones. The more things change, we begin to become more discriminating, even challenging whether change is in fact what we want. As our society grapples with the increasing pace of change and tries to make sense of it for our communal and individual lives, the very nature of change is morphing. The structures and underpinnings of our economic lives are shifting. This white paper explores the structural changes caused by the Internet and suggests that a paradigm shift is underway - a change in how we look at things provides leaders with a new way to cope with change and help move those they lead on to more effective adaptation. New ways of using technology can positively impact all of our lives and communities. And as the world evolves, the measure of humans and communities will become how well we adapt to change as much as what changes we choose to make. "Structural" Change What do we mean here by "structural change?" When the rules for doing business change, the structures that have supported the economy come under challenge and innovators begin to compete in different ways. The nature of competition changes and slowly (or in some cases, suddenly) those who do not or cannot adapt become less competitive and their influence wanes. We see long-established companies that we once considered the bedrocks of our economic system stumble as they try to adapt to the changes brought on by the ever-expanding and robust Internet. And we see some icons fall out of view altogether, with more to come. Consider just these two examples - Encyclopedia Britannica and AT&T - venerable companies with remarkably different outcomes in the past few years: one all but vanished and one that underwent dramatic reinvention and resurgence, both in the space of but a few years. * Reference Information: Encyclopedia Britannica was one of the first to go, as the Internet with its fluid information management capabilities made irrelevant this century's old information publication. Microsoft, the giant killer, put the printed word onto proprietary CDs and software when it launched Encarta nearly 10 years ago. In the late 1990s, Microsoft bought Collier's Encyclopedia and New Merit Scholar's Encyclopedia from Macmillan and incorporated them into Encarta. Thus the current Microsoft Encarta can be considered the successor of the Funk and Wagnalls, Collier, and New Merit Scholar encyclopedias. None of these formerly successful encyclopedias are still in print, being unable to adapt to the new market dynamics of electronic encyclopedias.Wikipedia on Encarta But even that move by Microsoft was rather quickly supplanted in the early years of the new century by the open-source, web-based emergent phenomenon, www.Wikipedia.com. Neither hard copy references (annual updates, anyone?) or software releases have been able to compete with Wiki-based software and open-source content contribution that puts the world’s information at your fingertips, updated in real time (68K+ entries on Encarta, 2.2M+ on Wikipedia). Visit any library and notice the banks of computers that have replaced the old card catalogues. Score one for the Internet, which has made traditional competition in reference information irrelevant. * Long-Distance Telecommunications: Long-Distance is nothing like it was a generation ago, when it was a high-priced service - it barely exists today. Score one for fiber optics whose nearly infinite capacity of bandwidth drove long-distance prices to the floor, to the advance of cellular phones, whose mobility has become a requirement for modern communication, spurred on by the national calling plans that remove distance from the pricing equation, and to Voice over IP (VOIP), which incorporates long-distance as part of voice telephone service. The giant telecom monopoly AT&T enjoyed near exclusivity in the lucrative long-distance business, but then underwent a break up ordered by Judge Green in 1984, a monopoly in need of reform. So far was the fall that a couple of decades later, SBC, one of the most healthy of the post break-up "Baby Bells," leveraged technology and its own business savvy to swallow not only its old parent AT&T, renaming itself after the acquisition was completed, but also several of the other Baby Bells. Having put much of the old company back together again, but as a largely deregulated telecommunications powerhouse this time, AT&T now relies more on Internet service revenues than long-distance service revenues. How does the Internet achieve such a dominant influence in order to manhandle such business giants? And which industry or company is next on the hit list? Part 2, coming up ... Posted on February 03, 2008 at 01:04 PM | Comments (0) Saturday Night at the Movies | ||||
