Among the great business innovations of the Internet era are Kickstarter and the many similar crowdfunding sites like IndieGoGo. You know how these work: someone wants to introduce a new gizmo or make a film but can only do so if you and I pay in advance with our only rewards being a possible discount on the gizmo or DVD. Oh, and a t-shirt. Never before was there a way to get people -- sometimes thousands of people -- to pay for stuff not only before it was built but often before the inventors even knew how to build it. From the Pebble smart watch to Veronica Mars, crowdfunding success stories are legion and crowdfunding failures quickly forgotten. I’ve been thinking a lot about crowdfunding because my boys are talking about doing a campaign this summer and I have even considered doing one myself. But it’s hardly a no-brainer, because a failed campaign can ruin your day and damage your career.
From the outside looking-in a typical Kickstarter or IndieGoGo campaign is based on the creator (in this case someone like me, not God) having a good idea but no money. If the campaign is successful this creator not only gets money to do his or her project, they get validation that there’s actually a market -- that it’s a business worth doing. About 80 percent of crowdfunding campaigns come about this way.
This past week a very large corporation on the east coast was hacked in what seems to naive old me to be a new way -- through its corporate phone system. Then one night during the same week I got a call from my bank saying my account had been compromised and to press #4 to talk to its security department. My account was fine: it was a telephone-based phishing expedition. Our phone network has been compromised, folks, and nobody with a phone is safe.
Edward Snowden was right we’re not secure, though this time I don’t think the National Security Agency is involved.
Last week Amazon.com was the first of the large cloud service companies other than Rackspace to finally break out revenue and expenses for its cloud operation. The market was cheered by news that Amazon Web Services (AWS) last quarter made an operating profit of $265 million with an operating profit margin of 19.6 percent. AWS, which many thought was running at break-even or possibly at a loss, turns out to be for Amazon a $5 billion business generating a third of the company’s total profits. That’s good, right? Not if it establishes a benchmark for typical-to-good cloud service provider performance. In fact it suggests that some companies -- IBM especially -- are going to have a very difficult time finding success in the cloud.
First let’s look at the Amazon numbers and define a couple terms. The company announced total AWS sales, operating profit, and operating profit margins for the last four quarters. Sales are, well, sales, while operating profit is supposed to be sales minus all expenses except interest and taxes (called EBIT -- Earnings Before Interest and Taxes). Amazon does pay interest on debt, though it pays very little in taxes. Since tax rates, especially, vary a lot from country to country, EBIT is used to help normalize operating results for comparing one multinational business with another.
Yesterday was Tax Day in the United States, when we file our federal income tax returns. This has been an odd tax season in America for reasons that aren’t at all clear, but I am developing a theory that cybersecurity failures may shortly bring certain aspects of the U.S. economy to its knees.
I have been writing about data security and hacking and malware and identity theft since the late 1990s. It is a raft of problems that taken together amount to tens of billions of dollars each year in lost funds, defensive IT spending, and law enforcement expenditures. Now with a 2014 U.S. Gross Domestic Product of $17.42 trillion, a few tens of billions are an annoyance at most. Say the total hit is $50 billion per year, well that’s just under three tenths of one percent. If the hit is $100 billion that’s still under one percent. These kinds of numbers are why we tolerate such crimes.
My friend Andy Regitsky, whom I have known for more than 30 years, follows the FCC, blogs about them, and teaches courses on -- among other things -- how to read and understand their confusing orders. Andy knows more about the FCC than most of the people who work there and Andy says the new Net Neutrality order will probably not stand. I wonder if it was even meant to?
You can read Andy’s post here. He doesn’t specifically disagree with my analysis from a few days ago, but goes further to show some very specific legal and procedural problems with the order that could lead to it being killed in court or made moot by new legislation. It’s compelling: Andy is probably right.
The Indiana Legislature is in the news for passing a state law considered by many to be anti-gay. It reminded me of the famous Pi Bill -- Bill #246 of the 1897 Indiana General Assembly. There’s a good account of the bill on Wikipedia, but the short story is a doctor and amateur mathematician wanted the state to codify his particular method of squaring the circle, a side effect of which would be officially declaring the value of π to be 3.2.
The bill was written by Representative Taylor I. Record, sent to the Education Committee where it passed, went back to the Indiana House of Representatives where it again passed, unopposed. Then the bill went to the Indiana Senate where Professor C.A. Waldo of the Indiana Academy of Science (now Purdue University) happened to be visiting that day to do a little lobbying for his school. Professor Waldo explained to the Senators the legislative dilemma they faced.
I’ve been hesitant to comment on the FCC’s proposed Net Neutrality rules until I could read them. You’ll recall the actual rules weren’t released at the time of the vote a couple weeks ago, just characterized this way and that for the press pending the eventual release of the actual order. Well it finally published the rules last week and I’ve since made my way through all 400+ pages (no executive summary commenting for me). And while there are no big surprises -- much less smoking guns -- in the FCC report, I think that taken along with this week’s Wall Street Journal story about an Apple over-the-top (OTT) video service the trend is clear that the days of traditional cable TV are numbered.
What booms through the FCC document is how much it’s written in response to the Commission’s loss last year in Verizon Communications Inc. v. FCC. Most of the more than 1,000 footnotes in the order refer to the legal defeat and place the FCC’s current position in that legal context. FCC lawyers have this time really done their homework, suggesting that it will be difficult for cable interests to win like they did last year.
If you have an entrepreneurial bent it’s hard not to see an opportunity to start the next big cloud storage company in last week’s Nearline Storage announcement by Google. I saw it immediately. So did Google make a big pricing mistake? Probably not.
Nearline storage usually means files stored on tapes in automated libraries. You ask for the file and a robot arm loads the tape giving you access to your data in a couple minutes. Google’s version of nearline storage is way faster, promising file access in three seconds or less. It doesn't say how it works but it makes sense to imagine the data is stored on disks that are powered-down to save energy. When you ask for the file they spin-up the disk and give it to you.
According to a new report by the US Government Accountability Office (GAO), the US airspace system is incredibly vulnerable to hacking and a state-sponsored hacking effort could paralyze air traffic over North America. Very scary stuff. And as a licensed pilot for 45 years, I can tell you that it’s both true and not true, that the system is horribly hackable but that very vulnerability might be what we need to stimulate real airspace innovation.
Ask any American pilot how they feel about the US Federal Aviation Administration (FAA) and you’ll get variations on the same negative theme. It’s not that pilots love-hate the FAA: there’s no love about it. Pilots tend to hate-ignore the FAA, which is generally viewed as a vindictive regulatory agency caught-up in internal politics and bullshit (that’s a technical term for bureaucratic lethargy). Nobody loves the FAA.
I’m an older guy with younger kids so to some extent I live vicariously through my friends, many of whom have children who are now entering the work force and some of those children can’t find jobs. We’re not in a recession, the economy is expanding, new positions are supposedly being added every day, but the sons and daughters of my friends aren’t generally getting those jobs so they are staying in school or going back to school, joining the Peace Corps., whatever. Everyone is rattled by this. Kids don’t want to move home and parents don’t want to have them move home. Student debt continues to increase. Everyone wants to get on with the lives they thought they were promised -- the lives they’d signed up for and earned.
I haven’t been writing as much lately. This has been for several reasons, some of which may surprise you. It’s true I’ve had to spend a lot of time fending-off attacks from IBM corporate (more on that below) but I’ve mainly been at work on two secret projects. One is a new documentary series for PBS and the other a new technology startup I’m doing with a partner. The PBS series will be announced when PBS decides to announce it but most of the shooting is already done. The startup has taken the traditional VC route and looks, surprisingly, like it will actually be funded. Evidently if your idea is wild enough and your partner is smart enough it’s still possible for an idiot (that would be me) to make it in Silicon Valley. This project, too, will be announced when the money is dry, hopefully in a week or two.
In the meantime I’ve been working on several columns. One of these, about Yahoo, has been especially frustrating. There was a time when companies actually wanted reporters to write about them, but I guess those days are past. I e-mailed Yahoo corporate communications (twice) and have yet to hear back from email@example.com. I called (again twice) the number they give on Yahoo press releases, leaving messages both times but have yet to get a call back from 408-349-4040. For awhile the Yahoo press site was completely down.
With Radio Shack having declared Chapter 11 bankruptcy, with hundreds of stores closing and others possibly becoming Sprint locations, let’s take a moment to look back at the important contributions the company made in the early days of personal computing.
Charles Tandy started the Tandy Leather Company which opened hundreds of little shops in the 1950s selling kits for consumers to make their own tooled leather belts, for example. I made one in 1959, burning my name into the belt with a soldering iron. As leather craft faded as a hobby and electronics boomed many of those Tandy Leather stores became Radio Shacks (but not all -- a few leather stores survive even today). Radio Shack stores always had the advantage of proximity balanced by higher prices. If you needed a part or two you drove down to Radio Shack but if you had a bunch of electronic parts to buy there was generally some cheaper store across town.
gad·fly (ˈɡadˌflī/) noun. 1. a fly that bites livestock, especially a horsefly, warble fly, or botfly. 2. an annoying person, especially one who provokes others into action by criticism.
Sometimes being a gadfly is exactly what’s required. That’s certainly the case with IBM and has been for the almost eight years I’ve been following this depressing story. Gadflies came up because IBM finally reacted today to my last column predicting a massive force reduction this week. They denied it, of course -- not the workforce reduction but its size, saying there won’t be even close to 110,000 workers laid off -- and they called me a gadfly, which was apparently intended as criticism, but I’m rather proud of it.
IBM’s big layoff-cum-reorganization called Project Chrome kicks-off next week when 26 percent of IBM employees will get calls from their managers followed by thick envelopes on their doorsteps. By the end of February all 26 percent will be gone. I’m told this has been in the planning for months and I first heard about it back in November. This biggest reorganization in IBM history is going to be a nightmare for everyone and at first I expected it to be a failure for IBM management, too. But then I thought further and I think I’ve figured it out…
I don’t think IBM management actually cares. More on this later.
It’s time, finally, for my long-delayed 2015 predictions. Things just kept changing so fast I had to keep re-writing, but have finally stopped. 2015 will definitely be the Year of Monetization, by which I mean it’s the year when the bottom line and showing profits will become a key motivator in almost every market. And while profit -- like beer -- is generally good, it isn’t always good for everyone.
So here are my 10 predictions in no particular order.