ECW11
Office Futures
ECW11
Issue 11, April 5, 2000
+++ Cost & value in the New Economy
+++ Train crossing ahead
+++ And Roger adds...
+++ Update on corporate bullies
+++ Catch me if you can
+++ About eComWatch
+++ Cost & value in the New Economy
Roger is taking a little break this week (not that that stopped him popping into the ish, as you will see below), concentrating on the magnum opus that, his publisher reminds him, is both overdue and eagerly anticipated.
My day job at Wireless Island (http://www.wirelessisland.net) has been keeping me busy too. On Friday, Canada's Finance Minister popped in for tea. Paul Martin is something of a paragon as far as finance ministers go. He has balanced Canada's books (five years ago one of the most prodigious customers for red ink in the OECD) and delivered a surplus, which has been used to reduce taxes and increase programme expenditure. He is also a successful businessman in his own right and proved he had a sure populist touch by refusing two bank mega-mergers.
We let "our kids", of whom we are immensely proud, present the technology to the Minister. They range in age from 18 to 21, with one old codger of 38.
Our work is on wireless broadband networking, designed to produce low-cost integrated internet/telephone systems for the Third World and remote or rural areas. The Minister was politely interested in the caching servers and remote access concentrators but the two things that really focused his attention were Internet telephony (VOIP -- voice over IP) and the Linux workstation chugging away in a corner.
The VOIP that we have been playing with is the phenomenal HearMe, which can produce remarkable voice quality over connections as slow as 26.4 kbps. The impressive feature for users is that it runs off a Web page after downloading a small ActiveX control. We have been experimenting with it in beta tests of a 'next generation' call centre. We have also been working out how to develop a queuing system and, maybe, a more active point-to-point capability.
What intrigued the Finance Minister was the cost. He kept returning to the apparent paradox of being able to offer at no charge something that telcos charge big money for.
Linux posed him the same conundrum. Windows costs a couple of hundred dollars. Linux is superior in some, probably many, ways (all ways, Linux-heads would argue). Linux is free. What is going on?
Later that evening, he told a crowd of business people that he had thought he understood the New Economy until he talked to the young people at Wireless Island. What he was really saying was probably that he didn't get the decoupling of cost and value apparently inherent in so much of the Internet economy.
That statement rather presupposes that a close relationship between cost and value was a cornerstone of the industrial and post-industrial economies of the nineteenth and twentieth century. Anyone who has ever paid a lawyer's bill will immediately realize that cost and value have never been immutably linked (or even remotely, sometimes - Roger). However, the linkage that was almost universal in the "old" economy was that between the thing purchased and the thing bought. You paid ten quid and you bought a CD. I buy it - you sell it.
That paradigm has actually been shifting for a while. Television or radio (in the pre-cable/satellite days) was pretty much free at point of use. An advertiser paid for the programming. You supplied the eyeballs, which the advertiser was really renting from the media owner, who attracted your eyeballs by providing the programme.
Controlled-circulation publishing extended the model. At its best, you might receive free a publication you would otherwise have been prepared to fork out good money for, in exchange for being subjected to the advertising. There is even a quality control mechanism built in - if you discover a publication is no good you junk it and, if enough readers do, advertisers stop advertising.
Much of the Internet operates on an extended advertising model. Occasionally, there are hidden implications, as users of CuteFTP and other shareware products have found out. Unannounced, the set-up routine also installs a small server that pumps out information about your habits. You are unknowingly dependent on the integrity of someone who would install such a thing that it isn't busy sending Bill the contents of your Program Files directory and Gordon Brown a list of your purchases. It's sort of an active cookie with a vengeance.
The Finance Minister's difficulty with Linux - and, by extension, the whole Open Source movement - is understandable. Originally, Linux was technically forbidding, but the latest distributions, complete with graphical interfaces, are far more accessible, if still a tad quirky, for someone whose career began with Windows 95 or a Mac. And it is still free.
At first blush it seems odd that big buck IPOs could be achieved by companies distributing a free operating system but, again, the 'real' economy has analogues. The so-called free cell phone, where you pay higher charges for the air time is perhaps an awkward example, but there are many cases where the underlying product is 'free', but charges attach to usage - whether directly (like cell phones) or indirectly (as with the free holiday where you commit to being pitched a time-share home).
Of course, Linux and programs to run on it can be genuinely free if you want. You don't have to buy the packaging, the CDs or the manual but, from anecdotal and observational evidence, it seems most people do. That probably costs you about a third of what you'd pay to Bill, but the Linux distributors don't have Bill's overhead. They just count on the hope that the Linux developer community is the first perpetual motion machine - and one that gets its input energy free.
Naturally, a lot of the energy behind Linux is from folks who have more than a passing interest in breaking Microsoft's stranglehold on the desktop. That little group includes folk like Novell and IBM, neither of whom is a stranger to the idea of caning the consumer. As Linux is the best bet in a long time to make a serious dent in Microsoft's market position, a lot of odd passengers are on the Open Source bandwagon.
An extension of this is the idea of giving it away now to build up market share tomorrow. Some practitioners, such as Amazon, probably do have a clear idea of what to do with the market share once they have it. But Mr Micawber is alive and well out there too - hoping that something will turn up. In the meantime, canny entrepreneurs such as Steve Case of AOL are using their highly valued paper to buy hard assets out of the old economy.
Slate (http://www.slate.com) wrote very intelligently last week about the implications of Cisco overtaking Microsoft in the Largest Market Cap stakes (prior to the trashing Microsoft shares took on news of the judge's decision in the monopoly abuse case). Traditionally, headline writers looked to turnover as the measure of corporate muscle. In today's crazy markets, where a company can be worth half a billion dollars before it has made a penny in revenue, market capitalization is the new headline number. And perhaps that is the biggest measure of the dislocation between cost and value that the Internet economy has caused over the past five years.
When everyone knows that the economy - in the sense of how things are bought and sold - is changing radically, but no one can forecast the outcome, the big bucks are put on the agents of change themselves. What the markets forget, perhaps, is one of the clearest lessons of history: Revolutions consume their own children.
A sidebar on this (and sneaky lead in to the next story) is that when the revolutionaries are carted off in the tumbrels or out to the Gulag, it is the eternal bureaucrats who serve any master who carefully document their transportation. So, it is with profound pessimism about any real realignment of the relationship between cost and value that we queue to join the Cluetrain.
-oOo-
+++ Train crossing ahead
Moving right along from the relationship between cost and value, let's look at the cost and value of relationships as we board the Cluetrain.
Bob Dylan wrote "It takes a lot to laugh, It takes a train to cry" as a sort of barrelhouse blues, and somehow the song always comes to mind when I think of the Cluetrain - something I have done more and more often as it has picked up speed.
If you haven't seen the Cluetrain Web site (http://www.cluetrain.com), or read the book off-site, and can't wait for the movie of the book, the Cluetrain is a Lutheresque ninety-five articles nailed to the door of the Internet (and their site isn't even a portal). If the idiom of a train and Martin Luther seem an odd juxtaposition, it is not a conceit of your present humble scribe but that of the conductors, engineers and Pullman attendants of the Cluetrain. We are not aware if the Cluetrain has a brakeman (let alone any wheeltappers or shunters -- Roger).
The Cluetrain Manifesto is produced by a team, of whom Doc Searls (http://www.searls.com) and David Weinberger (http://www.hyperorg.com) are probably the best known. The signatories of the Manifesto read like a who's who of the godfathers of the Internet and also, almost perversely, of businesses that would like to make lots and lots of money from the Internet.
As befits Doc Searls' status as an Old Hacker's Old Hacker, the Manifesto deals with the desiderata of commercial behaviour on the Web. As befits David Weinberger's status as a marketer and keynote speaker extraordinaire, it is written almost entirely in marketing speak - perhaps in an effort to prove that the reverse of the proposition "The Devil can quote scripture" is also true.
The Manifesto is a cri du coeur:
a.. Don't use the technology to try to dumb us down
b.. Don't patronize us
c.. Forget hype and try dialogue
d.. Talk with us not at us
e.. The Internet restores the balance between consumer and corporation
f.. We can and will destroy you and your crass corporate greed if you get this wrong.
The underlying proposition is that the Internet is a huge, empowered, intercommunicating, community-oriented super user-group, capable of looking the Fortune 500 in the eye and saying "Clean up your act, or else".
A few years ago, it looked like it might actually happen that way - and quickly. Remember when Intel, in their arrogance, decided they could ride out the little matter that their Pentium chip might occasionally decide to rewrite the normal rules of mathematics? They finally backed down in the face of a tidal wave of criticism, abuse and hugely amusing taglines.
And then there was Bill Gates' famous "Pearl Harbour" speech, when he realigned his monolithic Microsoft empire in acknowledgement of the perceived power of the Internet. (Fancy launching a 'catch-up' strategy on the anniversary of America's most famous instance of unpreparedness and ignoring of warning signals! -- Roger).
Also, as we have remarked upon before, lacklustre bricks-and-mortar retailers were able to give their share price a huge jolt just by announcing an intention to begin considering the possibility of a possible venture into e-commerce, sometime real soon now (RSN).
Lots of neat ideas became current and illuminated many a keynote speech:
a. The Internet would be the ultimate arbitrage machine, leading us towards the Utopia of perfect knowledge leading to perfect pricing in perfect markets. Just right for the online Candide, in fact
b. The process of disintermediation would cut out the fat profits of middlemen who add cost without adding value
c. The Internet would create a level playing field between big and little, rich and poor and developed and underdeveloped
d. The Internet would lead to a new Jeffersonian democracy, where citizens would meet in electronic town halls to confound the professional politicians
e. Powerful tools of encryption and instant communications would beat back the overweening power of the state.
As I write, my bank is trying to figure out how to charge me more to save them money by banking online. Half the ads on television are for online stockbrokers trying to convince me to get rich by becoming a day trader. The Internet's big players want to own the pipes, control the standards and make the development of a Web site a multimillion dollar undertaking. And Jack Straw wants to be able to read my mail. (Hi Jack; I saw Roger park on a double yellow line yesterday.)
Ho hum -- another rant. So what? After all, there is a direct line linking printing, literacy and participatory democracy, but it took over four centuries to get from Gutenberg to universal suffrage. That line may link printing and the breaking of the power of organized religion to burn people who happened to disagree, but the key initial printed products were Bibles, hagiographies and religious tracts.
The real point is that just six years into the graphical Internet, with most of us still on slow modem connections and 80% of the world's population a million miles away from surfing into The Cluetrain, we haven't the foggiest idea what the Internet will look like in five years' time, let alone fifty or five hundred years. Much less do we have the foggiest what collateral impact it will have.
It is perfectly possible to extrapolate today's Internet to a medium owned by 'infotainment' conglomerates like the proposed merger between Canada's telephone giant BCE and leading independent TV network CTV. Computer technology can be used just as easily to dumb down as to empower: just look at what the big IT consultancies have done to the workforce over the past couple of decades.
The dream of an intelligent, impassioned, engaged usership could also prove illusive. The great British public has a choice of The Times, Daily Telegraph, Grauniad, Independent or FT. Overwhelmingly they have chosen the Sun and the Daily Mirror. And, to borrow Roger's curmudgeonly mantle for a moment, the Times and the Torygraph have both crashed downmarket in pursuit of a wider readership. (Don't forget the Daily Mail -- written by the heartless, believed by the gormless and feared by the gutless - Roger)
Can, therefore, an educated, computerate, articulate elite guide and shape the future of the Internet, incidentally converting millions of AOL newbies from GRQ MLM [Get Rich Quick, Multi-Level Marketers - a note for the acronym challenge] spammers into responsible Netizens?
Well, historically, yup, that's exactly what elites do. And in this particular case, the elite still pretty much controls what happens with the plumbing of the Internet. So far, they have resisted the idea that it would be pretty neat to have Novell and the telcos control the Web's directory structure. They have kept the flame of open standards burning pretty bright. And they have promulgated a range of utilities and programs to annoy the rich, powerful and complacent: from the ability to apply electronic graffiti to the breaking of DVD security.
What the elite doesn't control is the pipes. In the old days, data was described by the telcos as a scum of data floating on a sea of voice. (I used to like listening to Flotsam and Jetsam - Roger.) Last year, data traffic overtook voice in the US. Also, Cisco now has the world's largest market capitalization, because Internet infrastructure will account for trillions of dollars of expenditure over the next decade.
It's a far cry from a handful of BBS [Bulletin Board Service] graduates pumping out data over 2400, 9600 or (breathless pause) 14.4k baud modems in the heady months after the introduction of the Mosaic browser.
Perhaps the headiest claim made for the Internet was "Vendors propose - users dispose". In effect, The Cluetrain puts that proposition into a marketing context.
Sadly, the overwhelming majority of the companies now throwing millions of dollars at their individual e-commerce projects are not only profoundly hostile to the Cluetrain proposition, they are betting a considerable chunk of their future market value on their judgement. This makes reading the list of Manifesto signatories an interesting exercise.
Mind you, just as good people can have bad dogs, it is entirely possible for greedy and/or stupid companies to have good people working in them. After all, both the Church and the governments of the Ancien Régime spent a lot of money on printing - and were early printers' biggest customers. The patronage of the Web by big business and government is not necessarily evidence things will go their way in the long term. But Cluetrain-style user-control of e-commerce and taming of big business may take longer than most of us really want to wait.
By the way, Dylan's song ends:
"Well I wanna be your lover, baby,
I don't wanna be your boss
Don't say I never warned you
When your train gets lost."
Choo, choo.
-oOo-
+++ And Roger adds...
Part of the Cluetrain marketing proposition is one-to-one marketing, and I can't resist lifting this from Roger's forthcoming book:
---snip---
One does not need the World Wide Web to offer bespoke or customized goods and services -- almost every small trader does this anyway -- but it would be a waste of the Web's capabilities not to use it this way. There is, of course, a jargon term for doing so: 'one-to-one' marketing. The main apostles for this are Don Peppers and Martha Rogers, whose book, Enterprise One to One: Tools for Competing in the Interactive Age [1], sets out an agenda for the transformation of the marketing function."
The gist of their argument is that the modern marketer has three IT-based resources available to him that render mass marketing unnecessary or, at least, less necessary:
- databases, to help retain information about the customer
- the Internet, to permit two-way communication with the customer, and
- adaptive manufacturing methods, to make what the customer asks for.
Peppers and Rogers point out that these three elements must be closely integrated in order to gain the benefit from them. They also make clear that traditional marketing techniques still have their place. As a preliminary, for instance, customer databases should be analysed in order to separate the profitable and differentiable sheep from the less-profitable and homogeneous goats. The former should be the recipients of the best '1-to-1-ing'; the latter can be serviced through traditional means.
This message has been enthusiastically received, although imperfectly implemented in many cases. The problem with it lies in determining who or what should be doing the communicating with this individualized customer. One group, including Peppers and Rogers, feel it acceptable that machines communicate with human beings. This is what happens in mass marketing, after all.
There is a kind of counter-revolution under way (no pun intended) that says that this leads to inauthentic communication. Not only is this detectable by the customer, it is resented by him to the extent that he will take his business elsewhere. That place, so the thinking goes, is one where he can deal not only with real people but also with people behaving in a human way. A call centre may be based on human resources, for instance, but the people working in it are seldom allowed to depart from the script scrolling up the computer screen in front of them. They might as well be machines.
In the vanguard of this campaign for real marketing are four dissident American computer and marketing men: Christopher Locke, 'Doc' Searls, Rick Levine and David Weinberger. [Roger's description of The Cluetrain Manifesto that follows duplicates what we wrote earlier, and is omitted.]
While there is truth in much of what these four people say, and rage against, it is not yet certain that their theses will have as profound an effect as Luther's original, even within the limited bounds of online marketing. The heart says it will but the head reserves judgement.
The hopeful will point to the rise of commentary software, such as 3rd Voice , the various denial of service attacks in early 2000 and the demise of Pointcast, the pioneer of machine-based information targeting. The doubtful will point to the increasing popularity of call-centres among employers, and the relatively small volume of Web commerce compared with traditional commerce.
There is also the sense of déjà vu that comes with such millennial predictions. As Tom Standage makes clear in The Victorian Internet (see the list of suggested reading, ECW7), such democratic expectations were prevalent even then, but came to naught. More recently, the spread of the personal computer was expected to have a similar effect, as was the introduction of groupware. Again, nothing much changed. Technology seldom displaces organizational or market power, and is instead often appropriated by it.
The antithesis of the Cluetrain approach is set out in an article in Booz-Allen's online magazine, Journal of Strategy and Business. Entitled, with no apparent sense of irony, 'Creating Customer Value through Industrialized Intimacy' [2], it sets out a series of principles for embodying 'customization, personalization and empathy' within customer service. The advice the authors give includes promoting 'value-enhancing self-servicing' and 'engineer[ing] competency into service delivery'. The latter requires, apparently, that one build 'competency into the delivery systems and . . . rely less on the competency of front-line personnel'.
This is not 1-to-1 marketing but 0-to-1 marketing. Moreover, as one can see, these half-dead ideas are being expressed in completely dead language, precisely the kind of thing the Cluetrain proponents are critical of. If a shopkeeper started telling you that he was trying to 'engineer competency into service delivery', you would conclude he had either been going to night school or had ambitions to become a British government minister. In the corporate world, though, such constipated modes of speech are unexceptional. In a linguistic equivalent to Gresham's Law[3], degraded and impersonal speech displaces the authentic and personal.
[1] See Reading List. Peppers and Rogers have written other books on the subject of one-to-one marketing and run a Web site (see http://www.1to1.com) and free newsletter devoted to it.
[2] See http://www.strategy-business.com/strategy/98304/index.html.
[3] A term of 19th century origin, based upon the observation by the Elizabethan merchant and financier, Sir Thomas Gresham, that 'bad money drives out good'. Gresham was a financial agent of Queen Elizabeth I and used the phrase in a letter to her about the debasement of the currency by her father, Henry VIII. At the time, coins of full weight and fineness were being exported, with the result that Henry's inferior money was becoming the only circulating medium in Britain.
-oOo-
+++ Update on corporate bullies
"About this domain I would wander."
So says the philosopher in George Borrow's Lavengro. Not if your domain has the letters "e t o y" in it, said eToys, an American online toy store. In September 1999, the retailer sued for trademark infringement the owners of the domain name, etoy.com. This is an artists' collective, based in Geneva, known for its pranks and for parodies of corporate Web sites and advertisements (see http://www.etoy.com). eToys gained a temporary injunction against the artists, in an American court.
The toyshop had been alerted to the existence of the Swiss site by complaints from a customer who went to the art site by mistake and said he was shocked by the profane language he encountered. [I looked hard but couldn't find any - Roger.] eToys also alleged that etoy was engaged in securities fraud, since the collective offered 'shares' (in fact, four-foot-square pieces of original art). The injunction covered the sale of these, too.
It seemed not to weigh with the judge in Los Angeles that etoys.com (the toyshop) did not register its domain name until November 1997, nearly two years later than etoy.com (the artists). Neither did the fact that, as it says, "The laws of the Kingdom of Tonga will apply to all matters relating to the etoy Web site". (Readers of a certain age will cherish the memory of Queen Salote of those isles.) The satirical nature of the Swiss site clearly failed to find the juridical funny bone.
News of the action and the verdict were widely interpreted as corporate bullying and labelled 'reverse domain name blackmail'. There then arose a campaign of online vilification, the opening of mirror sites, calls for a boycott of eToys and a 'denial of service' attack. Cheeringly for etoy's supporters, this all coincided with a fall in the company's share price.
In January 2000, eToys dropped its lawsuit, although denying any link between the campaign and its financial problems. In fact, its Web site says nothing at all about the case. By contrast, and as you would expect, etoy's site is full of the details, months later.
There is no need to ask who's the winner in this affair. eToys has lost money, business and face. etoy has had its profile raised in the USA and is being paid up to $40,000 in reimbursement of its legal fees. As one of its spokesmen said, "It was a pleasure to do business with eToys."
We said, in the piece on corporate bullying on the net in ECW4 (October 1999), that "One would think that, having seen what happened with McDonald's, other large organizations would take great care not to follow its lead." Obviously, Toby Lenk -- President, Chief Executive Officer, and "Uncle of the Board" (we don't know what that means, either) -- didn't think that sort of care was necessary. Perhaps his experience in the Disney organization had left him with an impaired ability to sort reality from parody.
The eToys Web site boasts of Lenk's scholastic background, at Bowdoin College, in Maine. Some of the hopes that the college expresses for its pupils are that "their mental powers may be cultivated and improved for the benefit of society" and that they lose themselves "in generous enthusiasms" and "cooperate with others for common ends". Perhaps the college should consider suing Lenk for trading as a successful former pupil, since these lessons appear not to have sunk in. It would be no more far-fetched than his suit against etoy.
-oOo-
+++Catch me if you can
Another item from ECW is being updated by events. Chris's piece, "Music industry napping" (also ECW4), discussed that sector's vulnerability to Web technologies.
One of the programs he talked about was Napster: "MP3 distribution on steroids". In an entertaining irony, this is now being attacked by more than the music industry. One irritant for it is a student at Stanford University, David Weekly, who published a hack of Napster ("Hapster"? "Nackster"?) on his Web site - see http://david.weekly.org. [Note: We are trouble getting a connection to this site. If you do, try the Google cache of it, at http://www.google.com/search?q=cache:david.weekly.org/code/ .]
The people at Napster are clearly upset that anyone should make such obviously illegal and unfair use of their intellectual property and are generally behaving like a septuagenarian 'Disgruntled of Tunbridge Wells', to the amusement of many. They are even less happy about OpenNap, an 'open source' Napster server -- see http://opennap.sourceforge.net. Such a shame.
Another thorn in their flesh is Wrapster (see http://notoctavian.tripod.com/). This lives up to its name, 'wrapping' any kind of computer file so that it looks like an MP3 file. This then becomes able to be distributed by Napster and searchable on the Napster network. Again, the Napster folk are unamused.
There is competition, too. Scour (see http://sx.scour.net) does what Napster does but also allows users to search the machines of all the users running the program. At the moment, Napster lets users search only a specific number of servers.
What the Recording Industry Association of America (RIAA) will make of all this hardly bears thinking about. Veins are standing out on foreheads everywhere, I shouldn't wonder. Some will be bursting at news of programs like FreeNet and Gnutella (see http://freenet.sourceforge.net/, http://gnutella.nerdherd.net5). At the moment, the RIIA and similar organizations can track down (no pun intended) servers handling unlicensed music because Napster and its clones and add-ons still need a central directory.
These new systems don't. They allow information to be distributed across several servers, making it next to impossible to find the server a file is supplied from. Future efforts to close down sites that offend against laws or conventions will resemble trying to catch quicksilver in bare hands. As soon as one closes, others will open up. The creation of mirror sites will be the work of seconds.
All this has implications with respect to other forms of information. One can imagine pornographers or racist groups, for instance, reading the FreeNet and Gnutella specifications with interest.
There is no simple answer to this; attempts at suppressing the means for distributing proscribed information go back to Gutenberg's day. So far, for good or ill, there has always been someone who finds a way to get around such obstacles, whether technical or legal. Even trying to close an entire country's borders to unwanted material, such as by China and Singapore, will ultimately fail.
The other subtext of these developments is that the Web is still, despite its fast-advancing dominance by big companies, a place where the awkward, the mischievous and the clever can make a mark. That arch-smotherer of innovation, Microsoft, was just too big to ignore, but it has never been alone. There is an innate impulse in most organizations to try to slow down developments that threaten their profit stream. In our view, the existence of the kind of techno party-poopers mentioned above is a healthy sign.
Postscript
Another of the ironies in this whole intellectual property muddle is the cries of outrage from rap 'artistes' at being ripped off by MP3 'pirates'. The RIAA's Web site, http://www.riaa.com, carries several examples, one being from that outstanding spokesmen for law and order, Sean Combs (aka 'Puff Daddy'). He calls what Napster does "abuse". Just think of it as distributed sampling, Sean, and pass along that brownie.
-oOo-
About eComWatch
eComWatch is edited and published by Roger Whitehead and Christopher Ogg. Copyright Roger Whitehead and Christopher Ogg, 2002. eComWatch may be circulated freely in its original format with copyright notice intact. For permission to reproduce any article,