Picking the Winners

I am not smart enough to pick the big winners in advance.  So I don't play the stock market, and at CSG we sell shovels to the gold miners instead of prospecting for gold ourselves.  Sure striking it rich would be a thrill, but the world is littered with hundreds or even thousands of would be Googles.  I was going to say would be Twitters, but they have not made any money yet!

This strategy has provided us with a very interesting vantage point from which to watch the show.  And it is quite a show these days.  I sure am glad I am not a telecom equipment vendor or a distributor -- it is easy to see what is going to happen to them.  It is much easier to pick the descending parts of our industry than the ascending.  Who in tech is going to do well?  

There has been so much talk about services over the past ten years that we have both lost interest, and lost track of the definition of services.  There are hosting services, IT services, software as a services, software + services -- and each time the word services means a different thing.  IBM, Dell, HP, Microsoft, and Oracle all have significant services organizations.  IBM generates more revenues from services than all of Microsoft's revenue.  What is IBM doing when they deliver services to their clients?

Business pay IBM 50 billion dollars a year for services.  And everyone in tech wants to get into services.  I propose that we could learn a bunch about the future winners by digging into the question -- what are people paying IBM 50 billion dollars a year for?

Stay tuned, in tomorrow's post I will dig through IBM's annual reports.

100 Blog Posts

When I decided to become a blogger this year I had only a general idea of why I was doing it, a hope that what I had to say would be interesting to others, and no idea at all on how it would impact me.

Last week I made my 100th post so this a good time to take a look back and consider the impact.

A few weeks in I concluded that if I was going to do this I should post something every day.  I have gravitated towards this discipline, and it does not seem like a chore.  I like to write and trying not to spend too much time is a much larger focus for me than trying to get motivated to write.

Along the way I did my best to articulate why I write and posted it on the About Me page.  Those reasons are still valid, but I find I write mostly for myself with the hope that others will find my thoughts interesting.  I do not think I am very interesting when I try to write for the audience.

As you can see in the chart, my readership is growing and it looks like I will have somewhere over 600 unique visitors in April.  I did not have any specific expectations on traffic, so I really don't know if these are good numbers or not.  Only a handful of people have posted comments on the site, which is certainly below what I expected.  The chart does not show subscribers, but I am now up to 10 people that subscribe to the RSS feed -- this number also strikes me as low.

After reviewing my work I have to say that there are only a couple of items that really push forward interesting ideas.  

Do We Want China to Fail?  I think we are locked in a very interesting battle with China and I have written often about how we need to remember that China is a competitor that we need to be worried about.  Even so, I do think we will be worse off if China fails in its effort to raise the living standards of its enormous population.  So we need to watch out for ourselves lest China eat our lunch, but at the same time we should not wish for China to fail.

Sales vs. Engineering:  In this post I take a look at a few companies and try to evaluate their thinking between the relative value of R&D spending and Sales and Marketing spending.  If you could hire one more person, would it be an engineer or a salesperson?

How Much to Pay the Guy Driving:  This turns out to be one of my favorite posts because it takes an idea I have been thinking about for a long time and puts it into a context that is relevant in today's debate.  I try to tell myself every day that "there must be a better way" and searching for those improvements is the best part of my job.  

 The Timid Need Not Apply:  I probably had more fun writing this post than any other.  We were getting our minds prepped for a family trip to New York City and watched Man on Wire, the documentary about Philippe Petit's amazing high wire performance between the twin towers in 1974.  The confluence of daring, creativity, and passion seemed so relevant to our business.

I hope my next 100 posts will be more like these few nuggets.  

My Current Thinking About Wall Street

After thinking and reading about this issue for some months now I have settled on the following set of conclusions:

•  The stakes are very high so we can expect the financial sector to continue to attract the smartest, most self assured, and most self centered people.
• Knowing that the participants are motivated almost entirely by personal gain, it is probably not fair to call them corrupt -- until they take positions in government.  Yesterday's action by the SEC vs Goldman Sachs puts an interesting twist on this one.
• The relative size of the finance and insurance industries to the rest of our economy is an important macro measure of economic health.  Finance and insurance certainly must be in the single digits, and 5% would be a good goal.

 Other Reading

Krugman in March 2009

NY Times this week about potential reforms

NY Times today about SEC vs Goldman Sachs

Book Review: The Quants by Scott Patterson

This post really does not qualify as a book review.  My desire to know more about Wall Street is fading and while this is a very good book with both interesting personalities and good historical context - it is covering the same story. 

The whole thing boils down to this quote in the last chapter where Patterson makes an observation about the math geniuses at a fund raiser to benefit the teaching of math:

The quants in attendance somehow didn't think it ironic that their own profession amounted to a massive brain drain of mathematically gifted people who could otherwise find careers in developing more efficient cars, faster computers or better mousetraps, rather than devising clever methods to make money for the already rich.

Here are some other reviews

New York Times

Business Week

Here is an Article in The Wall Street Journal by Scott Patterson with a video interview where he says:

Really the genie is out of the bottle.  You are not going to be able to stop these guys.  I don't care what the Obama administration tries to do, they can crack down on the banks, but they [the quants] will just go outside of the banks.

One concept that Patterson captures often in the book is the pursuit of the "Truth" (caps are his) by the Quants.  Clearly some of them thought they actually had come to know the Truth.  Their rebound after the crash is only going to perpetuate their feelings of omnipotence.  Our bailing them out surely didn't help.

Death by Home Video

The iPad has been praised for its handling of video including comparisons of the iPad screen at arms length to a giant TV across the room.  I agree Netflix does look great and you can watch YouTube and TV on the iPad.  

However, like everyone else with an iPad, I had created use cases in my mind prior to purchase that were just fantasies.  The one I was really hoping for was the ability to watch home videos easily.  I am not sure why I was thinking this because the rockiest parts of my relationship with Apple have been over video.  I have never really understood Quicktime, and the codecs are a mystery to me.  In fact, after a full switch over to Apple at home a few years ago, it was video that sent me back to the Windows platform.  The final straw was the leap to iMovie 08 from iMovie 6 where Apple just said -- we are starting over and so are you.  I said forget it.

Do I have a synapse missing that makes it impossible for me to decipher home video in the land of Steve?  Does everyone else do this easily and I just don't get it?  

If I am not alone  -- then home video could be the thing that breaks down a wall of Steve's garden.  It does seem like video is getting bigger and soon may be too big for Apple to force into their little box.

Social Media: a How or a What?

Yesterday I referenced Ric Merrifield's new book Re-Think where he helps companies see the difference between how things are done and what is being done.  Here is one of his early blog posts that will give you an idea for the concept.

Ric uses an example of someone sending a fax.  "What are you doing?" ... "Sending a Fax." (almost sounds like the "Making Copies" SNL bit.  He goes on to explain that people have a natural tendency to think that sending a fax (the how) is the actual value adding work -- when in fact it is just how the work is being done.

The fax is clearly old school now and that makes it a perfect illustration.  In fact, the fax is often used as an example of the value of the network effect -- the first owner of a fax machine could legitimately ask "Now what does this thing do?".

Social media is clearly a network, and it is clearly used for creating, organizing and tracking relationships and communicating broadly or directly with the people in those relationships.  Do these activities qualify as what we are trying to accomplish, or just how we are accomplishing something else?

Separating the How from the What

I heard Ric Merrifield speak today as he is promoting his new book:  Re-Think.  There is no question he is doing relevant work and I have already ordered a copy of the book.

I am most interested in the way he articulates the importance of separating the How from the What.  I see this problem often with clients that get caught up in doing the same old stuff bigger, faster, or cheaper -- all without asking "What are we doing?".

It is an easy trap to fall into and we all have to get better at raising the red flag when we see it happening. 

I am also interested in the heat maps -- more on that later (after I read the book).

Lessons from IBM

I pointed out the other day that IBM's stock outperformed Google's over the past 4 year period.  There are many things we can learn from the granddaddy of all technology companies.  In its 130 year history, IBM has had more "eras" than most tech companies have had years.  In fact, IBM tangled with the Justice Department before Bill Gates was even born.

The one thing that has always impressed me about IBM is how they seem to be playing on an entirely different level than anyone else.  Real companies count on IBM to give them real solutions to real business problems.  Every time I find myself in a conversation with a senior exec at IBM I am reminded that they have managed to continue to operate at this level regardless of the headlines of the day.  

Somehow I just don't see IBM burning R and D budget on a Twitter clone.

Curiously, IBM also does a great job with its ads.  They come up with fun and memorable ways to make the point that they are serious about business.  Here is my favorite one: which is probably 10 years old now but it still resonates.

Moore's Law Gets A Bonus Game

I am not sure how many extra games Moore's law has already used up, but if the latest press release by HP is to be believed - the law that explains the endless growth in the technology industry just hit double bonus and the end is once again beyond our perception.

The funny thing is that if you search for nano technology and chips the results are all HP -- announcing every year or two that the whole world is going to change from their inventions.  I suppose it is possible that these predictions have all come true and the PR machine at HP has just not capitalized on the follow up press.  The alternate truth may be that HP announces all kinds of cool science -- that just cannot find its way into real applications.

This time it is "memristors" and a published article in the journal Nature which outlines the latest advancement by HP scientists.  It is a good thing too because a consensus was building that the we had extracted just about all of the miniaturization and optimization that we could.  Memristors however look to be at least a 10X improvement -- so if this comes to be things will be faster, smaller, lower power, and even cheaper.  

Way to go HP.

The Story of Angelo

Last night we went to a great Italian restaurant on our last night in New York City.  Angelo was our waiter and he did a great job.  We got to talking with him and found that he is a first generation immigrant, working while going to community college.  His dream is to work at the United Nations as a translator.  Because of our conversation, I now know that you must have mastered five languages in order to apply.  Angelo already has four, so just one to go.  A full third of our immigrants are Hispanic and despite the fact that I believe we are as open minded about race as any nation – I suspect that anti Hispanic sentiment is a significant barrier to our opening up immigration.  The twist to this story – Angelo is from Ecuador.  

Robert Rubin is No Boyscout

Former treasury secretary Robert Rubin had to pick between admitting incompetence or confessing to corruption this week and instead he declared that knowing Citi Group was out on a dangerous ledge was not his job. Since he was paid 100 million dollars to advise Citi on something, and since he was at one time the CEO of Goldman Sachs (who invented the complex instruments that caused the crash), what was his job? 

The only explanation is that Citi was buying inside access to Washington from Rubin - not his wall street expertise.  So this week Robert Rubin was telling the world that his job was to ensure that Citi was not regulated.  So I believe him when he says it was not his job to know what was on the balance sheet -- it was his job to make sure no one in the government knew either.

Here is a piece from November 2007 with some of the details about the things Rubin was not watching.

Here is a piece from October 2008 where the NY Times looks into the work Rubin did with Alan Greenspan to discredit Brooksley Born, who at the time was running the Commodity Futures Trading Commission, and who was advocating greater regulation of derivatives.

We ended up giving Citigroup 45 billion dollars -- so Rubin earned his pay.  He got each citizen of our country to give Citigroup $150 in bail out money.  His next trick?  Maybe his job now is to figure out how not to pay it back!  

Australia's Numbers

Along with all of the coverage of the great recession we have also seen a good deal of coverage of the countries that have escaped relatively unscathed.  The one that keeps catching my eye is Australia.  The 22 million people in Australia have been faring pretty well through these difficult years.  Phil Dobbie has a good piece on Bnet about it.  He cites China as a reason, along with Australian banker sanity.  One other key number is immigration.  Australia is attracting alot of immigration -- 1.3% immigration in the year ending march 2009.  I wrote a post about our immigration numbers the other day -- we currently allow .37% immigration.  Australia's current level of immigration is about the same as we had during our peak immigration year in 1907.  Ever since then we have thought the American experience a little too good to share with very many others.

Australia had enough immigration that their GDP per capita fell slighly during the recession.  So is a country, and by extension its people, better off if it achieves overall growth but at the sacrifice of GDP per capita?  I suspect not if it is sustained trend, but for a few years it probably works.  Here are some other interesting numbers from the CIA Factbook.

Australia GDP per Capita: $38,500 (23rd) -- the US: $46,400 (11th)

Australia Income Distribution:  Rank 110 out of 134 or 23rd best score -- the US: 43 out of 134 or 91st place.

It is not clear to me how to convert the income distribution numbers into a meaningful real world number, but considering how close together the GDP per capita numbers are and how far apart the income distribution numbers are, I would guess there is a pretty good chance that if you take out our hedge fund managers, and put military spending back to a rational level, the average person in Australia is probably better off than the average person in the US. 

One of these days I will have to go and check that place out.

Couldn't Resist

Well I held out for four days, but yesterday the hype won out and I got my iPad.  Maybe it was the combination of being in New York, and going past the amazing 5th Avenue store, or the endless articles and coverage.  That store is open 24 hours a day and is swarming with knowledgeable and efficient staff -- I was in and out in 10 minutes despite the fact that the store was packed.

Daniel Lyons summed it up well in his piece in Newsweek:  "Buy into the World According to Steve, and you're making a Faustian bargain -- you sacrifice freedom for the sake of a lovely device that (mostly) works just the way it's supposed to, eliminating the headaches and confusion that most tech products bring with them."  He goes on to list all of the things the iPad will not do (like flash).

Steve Jobs has done it again and he should get most of the credit -- but the conditions that serve as the backdrop for his success were not created by Steve, but by the rest of the industry.

An American Story

Ira Glass did it again, as he has so many times, and created a must listen program about what ails the US auto makers -- particularly GM.  Anyone interested in how labor and management can conspire to create spectacular failure should invest the hour and listen.

The thing that struck me was how the union created an environment that their members did not like and that was clearly not good for the company -- all because they had the power to do so.  

A striking contrast can be found from 80 years ago during the construction of the Empire State Building.  Over 3,400 people built the iconic structure in just 410 days in a heroic but unfortunately futile race against the clock as the country spiraled into what would become the depression.  Anyone with Netflix can rent this amazing story in the PBS series on New York.  DVD number five contains the story of the Empire State Building.

I found myself standing on the top of this most famous of our American buildings this week and even though it was a weekday it was packed full of people who were willing to pay a fair amount to do the same.  It made me proud to be an American and it reassured me that the American dream is alive and well here in New York.  This city at the center of our universe was true to its heritage as the most incredible melting pot on the observation deck deck that day as the English speakers were in a distinct minority.

Unprecedented

Literally without precedent.  The financial models that brought down our economy (and still could) were incapable of managing events that were without precedent.  The quants call these black swans because mathematically the conditions that created them were impossible to model despite the fact that they do exist.  And we can all see them.  Time and again we allow these super smart people to convince each other that black swans cannot exist.  After convincing each other they eventually convince everyone else and presto the bubble is born.  

There is at least one unprecedented financial event every ten years and more non financial ones.  The discovery of the new world, the invention of the telephone, penicillin, the airplane, and the computer - all unprecedented. The collapse of the ruble, the dot com bust, the mortgage bubble - all unprecedented.

The next one will be unprecedented too and those guys will look at us again and say who could have predicted this?

What if we could convince these big brains to focus on solving real problems instead of finding new ways to game the financial system for personal gain? 

Step one?  Stop giving them our money to invest. 

Step two? Don't bail them out.

We fly because the airlines don't profit from our death (and the FAA helps a little).  We should not put our money into the hands of people that make even more money when they crash the market.

If we all start buying t bills we could take our debt back from the Chinese and put the wall street parasites out of business.

We can't do that you say.  We will lose too much money.  T bills pay less than 1 point and historically the market returns 15.  Well, try this portfolio allocation:  one quarter in each treasuries, residential real estate (your home - maybe even without a mortgage), foreign stocks, and start ups.  You can do all of this without the aid of anyone on wall street.  If enough of us do it those Wall Street guys would really start looking for an answer to their credibility problem. 

If we don't do it, then we deserve to get wiped out during the next unprecedented event - which even I know will happen before 2020.

The Microsoft Brand Promise

I found myself in a conversation the other day about the Microsoft Brand and was stunned to realize that I could not articulate Microsoft's Brand Promise. Understanding that a brand promise is different than a tag line, I still thought I should be able to articulate it. FedEx's tag line might say: Absolutely positively overnight. But their brand promise is really: "you can trust us with your package". Volvo's tag line might be "There is more to life than a Volvo." but the brand promise is: "you and your family will be safe." I don't know what Apple's tag line is but I think their brand promise is "we know cool better than anyone (including you)".  See my post the other day on the Apple brand promise.

Microsoft used to say "A PC on every desk and in every home" but that was more fortune telling than either a tag line or a brand promise. Here is an article from 2002 where Mich Mathews the Corporate VP of Marketing explains the campaign that intended to "help people realize their potential".  The new Microsoft ads say "Windows 7 was my idea" but I have a hard time getting any promise out of that.  Here is a recent article from the Seattle Times  where David Webster, Chief Strategy Officer in the Microsoft Central Marketing group, explains the campaign but not a brand promise.

So what is the Microsoft brand promise?

On Speaking: Pay or Get Paid at Conferences

"I would never wanna belong to any club that would have someone like me for a member."

-Woody Allen who attributed it to both Groucho Marx and Freud

Have you ever met someone who said: "I only go to conferences if they pay me to speak."  It is undoubtedly not as common as getting to speak for free, and there are many conferences that charge the speakers for access to the audience.  Simply, if you draw enough people, you can get paid to speak at a conference. 

There is another similar thing going on at conferences placing people along a continuum between efficiently seeing people you already know and meeting new people.  If you need to get caught up with a number of people in an industry, doing so at an event can save you a great deal of time. If it is an important part of your job to interact with partners or suppliers -- it can be a good idea to batch up those activities at an event.

I submit that unless you make a living on the speaking circuit (promoting your book for example) it would be best to attend events where you meet new people and properly targetted it just might make sense to pay for the privilege.

4 Years, 4 Stocks, 1 Surprise

Take a look at this chart showing percentage increase in stock price over the last four years for Microsoft, Apple, Google, and IBM.  These are the top four companies in terms of market cap in the technology sector.  Apple is blowing it out -- which is no surprise -- at 275% over four years.  Microsoft is in the back of the bus -- also no surprise.  Google and IBM are in the middle and IBM has performed better that Google over the past 4 years -- that was a surprise to me.

So the question is:  Which stock would you buy right now?

A League All His Own

The iPad mania is accelerating to a level that will make the Hollywood PR industry envious.  Steve Jobs has left the rest of the tech industry in the dust and is playing on a stage others don't even know how to get to.  Show biz was at this game 100 years before the PC was created so tech has got some catching up to do.

I have already said I am waiting until later to get the iPad.  My definition of later is getting modified every day.  This Elements ap is not only enough to get me to eat my words, but now I want to go back and take 9th grade chemistry again!

 Any remaining space in the hype-o-sphere that could have been left for the rest of the industry was mopped up by Jobs with his masterful Apple vs Google fight.  

I suppose the rest of us should just take the month off.

Do Something You Love

The family and I went to the John Mayer concert in Seattle last night and it was a very good show.  A great reminder that we should all do something we love to do.  The band took a break, he did not.  The music was awesome and he thanked us for being there.  I had a great experience and recommend it to anyone who finds themselves in a town where he is playing.