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Posted Thursday, August 29, 2002 Hardware Pricing Vs. Software Pricing Eric Hellweg of CNNMoney argues that Microsoft cannot sustain its pricing model because hardware prices are falling.
I think that what we are seeing is coincidence, not causality. When I bought my laptop, it came with Corel's office software--and I didn't even know that! All I cared about was a wireless Internet connection. Any old word processor or spreadsheet would do the trick, so I did not even ask what came with the computer. If no office suite at all had been loaded, I would have been only slightly inconvenienced. I do most of my composing for Web, in notepad. Ten years ago, your whole decision to buy a PC was based on which desktop applications you wanted--with word processing and spreadsheets the primary drivers in the business world. Now, the decision can be based on other factors. That, not the falling price of hardware, is what might cause some erosion in the Evil Empire's monopoly in the office suite market. . . . . . .
Should Libertarians Prefer Democrats?In my opinion, David Brin is one of the most outstanding and important thinkers of our time. I recently visited his site and found this transcript of a speech he gave to the Libertarian Party. Brin makes an interesting point about whether Libertarians should prefer Republicans or Democrats.
He is arguing that Democrats are pragmatic, so that libertarians are able to win them over on some issues. Implicitly, he is saying that libertarians will have a harder time trying to win over Republicans on social issues. Where I live, in Montgomery County Maryland, the Democrats have been entrenched longer than Castro. I cannot think of anything that they have done that shows pragamatism or openness to libertarian ideas. Even the Democratic-leaning Washington Post today editorializes against the inflexibility on the issue of school choice.
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Posted Wednesday, August 28, 2002 Corporate Reform IndicatorIn the wake of the scandals of the past year, is corporate America truly going to reform, or will there just be some cosmetic changes and a return to the status quo? An indicator that I recommend watching is the proportion of female executives and board members. The extreme arrogance, or "self-regarding attribution bias" that is an element in executive corruption, is largely a male trait. Corporations that are serious about innoculating themselves against scandals will put more women into high positions. The latest data apparently show little change in the proportion of women in top positions at major communications companies.
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Posted Monday, August 26, 2002 SummerspeakMany of my usual sources seem to be on vacation, but Zimran Ahmed of Winterspeak has some things to say about spectrum allocation.
I hope that the Internet Hippie fringe reads his arguments, so that they take them into account. . . . . . .
Can Greenspan Steer?In my latest column, I suggest otherwise.
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Posted Thursday, August 22, 2002 The Silver Bullet to Kill SpamIn an earlier essay, I speculated that
It turns out that a Lisp Hacker has implemented this.
If you're not familiar with statistical methods, the article gives more of an explanation. Once somebody implements this as an add-on to email programs, I think we will have solved the spam problem. Thanks to Instapundit for pointing me to the page.
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Posted Tuesday, August 20, 2002 Geeks, Government, and the MarketWe know that Lawrence Lessig thinks that engineers need to fight political battles in Washington. A counter-argument comes from Declan McCullagh, who says that engineers are better off staying out of the political muck.
I also find myself less than thrilled by the prospect of engineers using the political process. My concern is that we will see more efforts like this one: proposed legislation to require Open Source software. Fortunately, one of OSS's partisans, Tim O'Reilly, sees the flaws in this idea.
My opinion is that technology and the market are forces for progress. Politics usually works in the direction of attempting to over-ride those forces. If the technologists gain political power, they will try to defeat market forces with laws, which is as counterproductive as trying to defeat technology with laws. Another concern I have is that engineers seem to completely ignore adoption costs and switching costs. I mean, you can blame the FCC all you want for the fact that landline and cell phones are based on an obsolete paradigm, but the fact is that if the FCC revised their regulations tomorrow, we would still wake up to a world with hundreds of millions of people dependent on those legacy phone systems. By the way, I believe that the same holds true in music. It is not the recording industry's political efforts that are so effective--it is the fact that alternative payment and distribution schemes are costly to develop and adopt. The market, not DMCA, is what is prolonging the life of the CD-centric model. In both of these cases, I believe that the long run favors new technology, and so I think that the prognosis for industry incumbents is grim. But I want to see the market process play out, and I tend to agree with McCullagh that the best contribution that engineers can make is to work on the technology, to help reduce the costs of adoption. . . . . . .
Posted Monday, August 19, 2002 Stagnant DesktopOne of my favorite bloggers, Zimran Ahmed (winterspeak), has a recent post that is as insightful as it is eclectic. One of its many interesting points is
This seems to me to be an important point that has gotten little notice in the computer press. Pundits still talk about the battle over the desktop operating system, when in fact the reason that the battle is over is that people no longer care very much. I cannot think of anything that an operating system vendor could do that would make it worthwhile for me to switch from Microsoft Windows. And my guess is that there is nothing that the Evil Empire can do to convert Mac users or Linux users. I think of the PC operating system as primarily a portal to the Internet, along with the ability to run some legacy programs like a spreadsheet and a word processor. What about other devices that connect to the Internet? Will they run Windows or Linux? I see no reason for them to run either. If I were in that business, I would think like the Palm folks and design a new OS from scratch. . . . . . .
Posted Sunday, August 18, 2002 Economists on CopyrightIf the entertainment industry is looking for expert economists to testify on behalf of extending the term of copyright protection, they can forget about everyone on this list:
The consensus of the economics profession is against extending the term of copyright protection. Unfortunately, this brings to mind what Alan Blinder calls "Murphy's Law of Economic Policy," which is that when economists are most in agreement and most confident of their views, they are least likely to be listened to by politicians.
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Posted Friday, August 9, 2002 Vacation Until August 18No posting while I'm at the beach. Feel free to check out my work-in-progress HTML economics text. Feedback appreciated. . . . . . .
Instapundit is RightIn response to my "Janis Ian is Wrong" post, Glenn Harlan Reynolds makes a couple of points. First,
If you have to erase old songs to make room for new ones, that is an issue. But it will not be a concern for too much longer. The capacity of hard disks keeps doubling every year. At some point (five years from now? ten years?), you will be able to buy a hard disk that holds everything that was ever recorded. On the other hand, CD's may have a role to play in car stereos. Hard disks would not fare well with the bumpy rides and temperature variation of automobiles. Second,
Absolutely. People are richer, and online distribution costs are cheaper. That is why I think that newspapers are going to be nonprofit operations in twenty years. See also Dan Kohn on the future of "micropatronage."
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Posted Thursday, August 8, 2002 Rational ExuberanceThink of economic growth as a weighted average of old-fashioned growth (1or 2 percent per year) and Moore's Law growth (30 to 80 percent per year). As the sector that grows at Moore's Law rates gets bigger, amazing things start to happen to overall economic growth. That's what my latest essay discusses. . . . . . .
Posted Wednesday, August 7, 2002 The Point of the Copyright BattlesGlenn Harlan Reynolds writes about the legislative push for "copyright protection,"
The Luddites tried to take a hammer to cost-saving innovation. The music industry is using the law as its hammer. Ultimately, the industry will go the way of the Luddites. . . . . . .
Anti-trust Alert IIBob Frankston has a new essay that elaborates his views on the telecommunications industry. His best line is
His point is that telephone companies have over-invested in spectrum licenses and in custom services, rather than in pure connectivity. However, the most important policy argument is this one:
I suggest a similar argument below, but I want to work out an example and make sure that it is correct and that there are plausible cost structures and demand elasticities that make it important. Thanks to Lawrence Lee for the pointer. . . . . . .
Posted Tuesday, August 6, 2002 Anti-trust AlertAccording to this article, Verizon is planning to offer a bundled package of telecom services.
In a competitive market, this would be fine. However, given Verizon's monopoly on POTS and DSL, they can use bundling to drive competitors in cellular and long-distance out of business, even if those competitors are more efficient than Verizon. I don't think that Verizon can argue synergy here. The only overlap is in billing, and as Doug Rushkoff or I can testify, there is no synergy in Verizon's billing apparatus. . . . . . .
Palms Against the WallA year-and-a-half ago, I wrote,
Sure enough, the makers of Palm-thingies are hurting.
If the PDA were the "old way" of keeping calendars and address books, and someone came along and invented pen and paper, people would be marveling at the new writing technology. Imagine, never having to worry about losing all your critical data to battery failure! . . . . . .
Posted Monday, August 5, 2002 The Last Mile will be WirelessVerizon is testing a wireless approach to the last mile.
I believe that when everything shakes out, the Internet will have a fiber skeleton and a wireless skin. My guess is that this solution to the last mile problem will be very cost-effective, which will prove very beneficial to the economics of communications. . . . . . .
Janis Ian is WrongJanis Ian got a lot of publicity for an article that pointed out that most artists do not benefit from the current structure of the recording industry. Now, she has written a follow-up piece in which she writes,
Also, she proposes,
I think that her solutions will not work, because the problem with the music industry is much deeper. I think that the problem is that CD's are obsolete, and the music industry is trying to use the legal system to crush more efficient means for storing and distributing music. I believe that you cannot use a web site as a loss-leader for CD's, because CD's are an expensive storage medium compared to hard disks. You cannot charge 25 cents per download, because that would add up to overly expensive charges to the people who download most frequently. I think that the solution will involve distributing massive quantities of music on hard disks, and allowing unlimited downloads for annual subscription fees. But this would radically change the role of the music industry, which it is not willing to accept. John Gilmore's saying that "The Internet sees censorship as damage and routes around it" will be applicable here. It is pointless to try to appeal to the music industry or politicians to change. Instead, we can route around them by patronizing alternative models. My guess is that some time in the next 5-10 years we will have bypassed the music industry entirely. . . . . . .
Posted Sunday, August 4, 2002 Clueless and Dangerous on Open Source Software
The issue of Open Source Software (OSS) is very important. It is part of the broader economic paradox that information wants to be free but people need to get paid. The quote above is from an interesting recent back-and-forth between Steven den Beste (skeptic) and Eric Raymond (evangelist) on the topic. To obtain the context, I urge you to read their essays before you continue here. I have been in the skeptic's camp. Many of den Beste's points echo my view that OSS is The User Disenfranchisement Movement. Nonetheless, I find the patronage model intriguing. As Raymond says,
For example, when I was with Freddie Mac, we wanted to develop a system for automated approval of home mortgage loans. We could have open-sourced the difficult part (the communication interface with lenders, credit bureaus, and so on) and still kept proprietary the actual business rules that we used for approving loans. Of course, if Freddie Mac were the sole patron of the loan approval system, that would make OSS pointless. If we're paying for it, we might as well keep it to ourselves. However, it would have been reasonable--and not unprecedented--to co-operate with other mortgage market businesses in the development of an industry utility. For this purpose, I can imagine that OSS would be preferable to standard development, for a variety of reasons.
It might make sense for industry-wide vertical applications to be developed under patronage funding according to the OSS model. My guess is that this cuts against the grain of the egos of most CIOs, few of whom have internalized Bill Joy's aphorism that "Most of the smartest people work for somebody else." But I am backing away a bit from my skeptical position.
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Posted Saturday, August 3, 2002 Doc Searls, Left and RightThis Doc Searls post speaks to many issues that resonate with me. Let me break down my response to several parts. The People Vs. the PowerfulFirst, he talks about the attempts by legacy media companies (most notably the music industry) to suppress technology to further their own ends. He points to the assault on Internet radio as exhibit A, and throws down this challenge:
First of all, Doc, some of us have spoken out. For example, here is what Zimran Ahmed wrote:
I think that the attitude of those of us on the right can be summarized by filling in the blank to the following sentence:
Liberals fill in the blank with something like "fights" or "protects against." Righties fill in the blank with "creates" or "facilitates." So, when it comes to fighting Big Business, liberals think that government is a solution, and they wonder why conservatives won't use it. We come across to lefties as being indifferent to business abuses. In fact, the reason we do not want to appeal to government is that we think that government will facilitate exactly the type of abuses that populists want to stop. Righties believe that bringing government into the picture tends to strengthen the incumbent industry, not weaken it. We believe that if you ask government to step in, you'll get CARP. George LakoffDoc sites George Lakoff's Moral Politics, which I agree is an important book, and I wrote an Amazon review that I stick by. Where Lakoff fails, in my view, is in distinguishing symbols from reality. He has it absolutely correct that conservatives speak the language of the "strict father" and liberals speak the language of the "nurturant parent." But language is what politicians use to manipulate us. Lakoff takes the language at face value, and says that our choice is between government as a nurturant parent and government as a strict father. I see that is a false choice. Government is not a parent at all. It is a complex system, designed by and for flawed human beings. It is our great fortune in the United States to have a Constitution that was designed with the assumption that politicians are imperfect, so the utmost importance was placed on checking their power. Just as the Internet was designed under the assumption that computers can fail, the system of checks and balances was designed to be robust in a world of human fallibility. Identity services and infrastructureDoc says.
Compare this to what I wrote three years ago, in a piece that Rageboy reprinted on the now-defunct personalization.com:
Doc insists that the identity infrastructure has to be peer-to-peer. I am more agnostic on that. I trust my mutual fund company, Vanguard, with my savings, and I also would trust them with storing my personal data on my behalf. I worry that insisting on peer-to-peer architecture imposes a requirement that could complicate and unnecessarily delay the development of infrastructure that is long overdue. In spite of that quibble, I see myself in violent agreement with Doc on the need for identity services that empower individuals, not advertisers. . . . . . .
Posted Friday, August 2, 2002 Warren Buffett is Buying...Qwest???I can't say that I'm surprised that Warren Buffett likes this market. He's never been one to follow the Dumb Mobs. But this story says he's buying securities from Telecom companies.
This story has the odor of a "plant" by an institution that has some Qwest bonds they're trying to dump. Anyway, I personally don't care what Warren Buffett is buying, because I do not try to bet on any individual stocks. I only buy index funds. That's what William Sharpe says to do, and that's good enough for me. He won the Nobel Prize for his work in portfolio theory. I have a lot of respect for Warren Buffett, by I have even more for William Sharpe. . . . . . .
A Pre-Mortem for the Department of Homeland SecurityOne difference between The Homeland Security Department and the AOL-TimeWarner merger is that today we have weblogs that allow skeptics to raise our voices. In a recent post on what used to be known as the AOL-TimeWarner behemoth, Doug Rushkoff snarked,
Which is pretty much what Rushkoff would have written as a pre-mortem at the time of the merger, when the New York Times refused to print his column. They had solicited Rushkoff to write an op-ed, but it turned out that what they wanted was only oxymoronic conventional wisdom. If there had been weblogs at the time of the merger, Rushkoff and others who did not think that AOL and Bugs Bunny represented much of a threat could have gotten a word in edgewise. Which brings us to the Department of Homeland Security. Rand Simberg, in an article on Emergent Stupidity, formulated what I think ought to be called Simberg's Law.
Anyone who has ever worked in a large organization has to confront the issue that the organization as a whole seems dumber than its individual members. That is why so many of us are trying to use the Internet as our vessel to immigrate to Free Agent Nation. So now we have an organization that can protect us from terrorism by engaging in massive exercises in team-building, obtaining buy-in, diagramming its processes, and so forth. We're going to fight Al Qaeda with Dilbert. My guess is that somewhere, in some random agency far removed from the Department of Homeland Security, there is a skunkworks of fewer than 300 people that is going to defeat violent Islamic extremists operating in the United States. If not, then we are in big trouble. Because the biggest public-sector merger in history is going to mean for public safety what AOL and TimeWarner means for media conglomeration. If you surf web logs, you will find similar pre-mortems for the Department of Homeland Security. Who knows? Maybe this time around the story might break into a newspaper or two. (For an even earlier pre-mortem, see Homeland Defense and the Tooth Fairy.) . . . . . .
Grounds for PessimismAs a columnist, Paul Krugman is known more for partisan innuendo than for economic analysis. However, today he strays into traditional macroeconomics.
This warning seems valid to me, particularly if we walk through the spending side of the economy sector by sector. Consumers? Likely to be a drag on the economy, because of paper wealth losses. Business investment? Likely to be a drag on the economy, because low stock prices reduce the incentive to create or expand businesses. State and local governments? Likely to be a drag on the economy, as they tighten their belts to maintain balanced budgets in the face of declining tax collections, particularly for capital gains. Housing? Probably neutral. In the near term, we will get some stimulus from inventory investment, just because firms cannot continue to keep cutting back forever. However, the inventory cycle is unlikely to be strong or long-lasting. Eventually, we will get some stimulus from the foreign trade sector, because the dollar has fallen a bit. But any significant pickup would depend on a surge in foreign economic activity, which is something we can hope for but not count on. Finally, we have Federal government purchases, which indeed will be increasing, but by a trivial fraction of GDP. Long term, we have an outlook for economic growth and productivity that could hardly be better. Computers keep improving, wireless technology and other communications innovations are moving ahead, and the biotechnology revolution is just starting to build traction. But the saltwater economist in me says that we need lower interest rates and some emergency revenue sharing to shore up state and local governments to make sure that we do not have a double-dip recession. . . . . . .
Posted Thursday, August 1, 2002 Big Government + Big Business = ?Thanks to Hylton for the pointer to the article by Ruy Teixeira on how he thinks that the Democratic Party should play the corporate scandals.
When I think of big business and big government working together, I think of steel tariffs. I think of ethanol subsidies. I think of the Hollings bill. I think of what they did to Internet radio, as Doc relates. I think that the Democrats need a better strategist than Ruy Teixeira. . . . . . .
Mindles Dreck on Stock OptionsAndrew Hofer makes the case that expensing stock options is no panacea. Indeed, he discusses new problems that it could create.
Despite this and other arguments from the esteemed Mindles Dreck, I think that expensing stock options will lead to greater clarity of accounting statements. That is because I believe that if stock options are counted as an expense, executives will choose other forms of compensation. I would hope that more compensation would take the form of contingent pay that is based on performance. Accounting for contingent compensation also is a challenge, but I think that the whole point of stock options is to hide compensation, and that is not the way to go. . . . . . .
Bad News DemographicsNewspaper veterans hate it when you discuss facts like these.
The newspaper vets like to retort that newspapers are profitable, while web sites are not. But that is beside the point. If your profits come from the over-50 demographic, and the younger generation is not habituating itself to your product, long term you are in trouble. Thanks to Joho for the pointer. . . . . . .
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