This is the second of three columns relating to the recent story of Disney replacing 250 IT workers with foreign workers holding H-1B visas. Over the years I have written many columns about outsourcing (here) and the H-1B visa program in particular (here). Not wanting to just cover again that old material, this column looks at an important misconception that underlies the whole H-1B problem, then gives the unique view of a longtime reader of this column who has H-1B program experience.
First the misconception as laid out in a blog post shared with me by a reader. This blogger maintains that we wouldn’t be so bound to H-1Bs if we had better technical training programs in our schools. This is a popular theme with every recent Presidential administration and, while not explicitly incorrect, it isn’t implicitly correct, either. Schools can always be better but better schools aren’t necessarily limiting U.S. technical employment.
Disney has been in the news recently for firing its Orlando-based IT staff, replacing them with H-1B workers primarily from India, and making severance payments to those displaced workers dependent on the outgoing workers training their foreign replacements. I regret not jumping on this story earlier because I heard about it back in March, but an IT friend in Orlando (not from Disney) said it was old news so I didn’t follow-up. Well now I am following with what will eventually be three columns not just about this particular event but what it says about the US computer industry, which is not good.
First we need some context for this Disney event -- context that has not been provided in any of the accounts I have read so far. What we’re observing is a multi-step process.
One reader of this column in particular has been urging me to abandon for a moment my obsession with IBM and look, instead, at his employer -- Hewlett Packard. HP, he tells me, suffers from all the same problems as IBM while lacking IBM’s depth and resources. And he’s correct: HP is a shadow of its former self and probably doomed if it continues to follow its current course. I’ve explained some of this before in an earlier column, and another, and another you might want to re-read. More of HP’s problems are covered in a very fine presentation you can read here. Were I to follow a familiar path at this point I’d be laying out a long list of HP mistakes. And while I may well do exactly that later in the week, right here and now I am inspired to do what they call in the movies "cutting to the chase", which in this case means pushing through bad tactics to find a good strategy. I want to lay out in a structural sense what’s really happening at both HP and IBM (and at a lot of other companies, too) so we can understand how to fix them, if indeed they can be fixed at all.
So I’ll turn to the works of Autodesk founder John Walker, specifically his Final Days of Autodesk memo, also called Information Letter 14, written in 1991. You can find this 30-page memo and a whole lot more at Walker’s web site. He has for most of this century lived in Switzerland where the server resides in a fortress today. We may even hear from Walker, himself, if word gets back that I’ve too brazenly stolen his ideas. Having never met the man, I’d like that.
On June 8th at the Apple World Wide Developer Conference (WWDC), CEO Tim Cook will reportedly introduce a new and improved Apple TV. For those who live under rocks this doesn’t mean a television made by Apple but rather a new version of the Apple TV set top box that 25 million people have bought to download and stream video from the Internet. But this new Apple TV -- the first Apple TV hardware update in three years -- will not, we’re told, support 3840-by-2160 UHD (popularly called 4K) video and will be limited to plain old 1920-by-1080 HD. Can this be true? Well, yes and no. The new Apple TV will be 4K capable, but not 4K enabled. This distinction is critical to understanding what’s really happening with Apple and television.
First we need to understand Apple’s big number problem. This is a problem faced by many segment-leading companies as they become enormous and rich. The bigger these companies get the harder it is to find new business categories worth entering. Most companies, as they enter new market segments with new products, hope those products come to represent at least five percent of their company’s gross revenue over time. The iPhone, for example, now drives more than 60 percent of Apple’s revenue. Well the Apple TV has been around now for a decade and has yet to approach that five percent threshold, which is why they’ve referred to the Apple TV since its beginning as a hobby.
This is Sadie the Dog wearing her new Apple Watch. The watch actually belongs to my young and lovely wife, Mary Alyce, but she was unwilling to be photographed this morning while Sadie will pose anytime, anywhere. This is the Sport model of the Apple Watch in space gray with a black band. What makes this picture interesting is the watch was delivered last Friday two weeks early.
I ordered the watch on the first day Apple was taking orders but didn’t do so in the middle of the night so I missed the first batch of watches that were delivered in April. It was promised for delivery June first. Since then there have been stories about faulty sensors and other suggestions that watch deliveries might be later than expected -- stories that I’d say are belied by this early delivery.
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.