JimPinto.com - Connections for Growth & Success™
No. 119 : 13 May 2003


Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.

Contents:
  • The music & DVD copyright wars
  • The big, cheap revolution
  • Invensys close to Baan sale
  • Iraqi war outcome
  • eFeedback:
    • Recognition that the "well curve" is everywhere
    • Globalism comparisons with the Depression era
    • More ideas about spam elimination

The music and DVD copyright wars

Copyright law, originally written to protect books and maps, has been constantly revised and stretched. Today there is no standard way to ensure that the owner gets paid when their work is bought, or used.

The original definition of a "copy" meant a tangible object, like a book, which was not easy to copy. Audio and VCR tapes are easier to duplicate, but the copies degrade with each successive copy. But now, digital objects like e-books, MP3 music and digital movies (DVD) copies can be duplicated quickly and easily, and each copy is as good as the original. So, how does one protect the copyright?

The ability to digitize and transfer intellectual property from one PC to another is a serious problem that has authors, musicians, artists, photographers, software programmers and publishers at odds with each other and their customers. There is not even agreement regarding how many times the buyer should pay: once per use, per person, per household, or for every single device in a household.

Copying an audio recording is one thing. But copying an entire movie, which may have taken millions of dollars to produce, is a scary proposition for the film producers. Recordable DVD drives are on the market, and new blue-laser discs are each able to hold an entire high-definition feature film. The DVD content-scramble system called CSS was broken by DeCSS, the software utility created by a 16-year-old Norwegian. While legal moves are afoot to make DeCSS illegal, underground use continues. And meanwhile, broadband connections to download this type of content are getting faster, and the numbers of users are increasing fast. It's a serious problem!

Napster, the first significant file-swapping service, was forced by the courts to start charging, and has failed as a business. The Napster replacements, true peer-to-peer (P2P) networks like Kaaza and Morpheus, have solidified their positions, with music downloads far exceeding Napster at its peak.

As it became clear that P2P networks were not disappearing despite court rulings, legislators are being lobbied by the Hollywood big-guns to put in far-reaching new laws. This includes proposals that would require all computers or digital devices to have built-in copy-protection technology. Some are even suggesting that copyright owners could legally use hacking techniques to attack file-swapping networks. But national security and economic issues distract Congress, and the copyright measures are making little progress.

Two new things have emerged to break the impasse. The copyright owners have now gone on the offensive. They have started to swamp the P2P networks with "spoofs" - bogus or faulty copies. A song is available under its usual name, but when it is played, it bursts into noise halfway through. This is just a nuisance - persistent pirates will continue to download till they get good copies.

But now, there's a legal option that nearly everybody likes. Apple is providing what may prove to be the most promising alternative to pirated music - clean downloads at 99c. each, with virtually no restrictions on how and where the songs can be played,

Over 18 months, Steve Jobs and his team negotiated deals with Universal, Warner, BMG, EMI and Sony, plus a bunch of major artists. The early signs are very positive - Apple's iTunes Music Store sold more than one million songs during its first week. Over half of the songs were purchased as albums and over half of the 200,000 songs offered were purchased at least once. More than one million copies of iTunes-4 have been downloaded, and Apple has received orders for more than 110,000 new third-generation iPods in just a week. Steve Jobs has proved his leadership again!

Apple may have pointed the way to solve the pirated music problem. But will this stop DVD copies too?

Click IEEE Spectrum (May 2003): The copyright wars

Click Copyright battle: Is an e-book a book?

Click iTunes Music Store Sells Over One Million Songs in First Week

The BIG cheap revolution

Disk drives now are amazingly cheap. At the local computer store, you can buy a 120-gigabyte hard disk drive for about $1 per gigabyte.

In the late 1990s, when INTEL-based servers dropped below $1 per MIP (millions of instructions per second), there was a paradigm shift - within a couple of years big, expensive servers were replaced by cheapie PCs. Then came Linux servers that replaced Unix servers costing hundreds of thousands of dollars apiece.

George Gilder calls this the Cheap Revolution, where the sum is greater than its parts. Will the technology leaders be able to survive this? Will IBM, EMC and CISCO be disappearing like Wang and DEC? Today they are walking the tightrope between yesterday's cash cows and tomorrow's uncertainties. And a lot of automation companies are poised on that same delicate ledge.

At the 3rd annual Gilder/Forbes Storewidth Conference, Clayton Christensen from Harvard Business School outlined 3 ways to escape the Cheap Revolution's unrelenting margin pressure:

  • Improve your product offerings faster than anybody else. This tactic works for market leaders with a good brand name, a strong distribution channel and financial clout. It works as long as the market wants the added functionality and is willing to pay for it.
  • Sell fast custom solutions that answer customer's needs. Despite its size, IBM has done this by going modular and bringing along a horde of third-party solutions providers, enabling it to move quickly.
  • For smaller companies - find an un-served market and grab market share by selling cheap. The product or service must be so cheap that industry leaders think there's no money in it and walk away. A good example is how Sony served teenagers with transistor radios in the '50s. The leaders (RCA, Philco) were selling pricey tabletop vacuum-tube radios, figuring that tinny-sounding transistors would never be competitive. By serving the un-served, Sony got a toehold in consumer electronics, and never looked back.
In a tough, seemingly declining market, how can YOU make the Cheap Revolution work for YOUR Company?

Click The Big Cheap Chance, by Forbes publisher Rich Karlgaard

Invensys close to selling Baan

There has been some discussion on the JimPinto.com weblog regarding whether or not Invensys could sell Baan for a reasonable price, or whether it would have to be "given away".

Well, on Sunday 11 May 2003, The UK Sunday Times reported that Invensys is close selling Baan for 68m. Yurko bought Baan 3 years ago for 470m, and Invensys has lost money with it ever since.

Final negotiations are reported to be under way with two potential buyers - Texas Pacific (private-equity) and another unnamed buyer.

Invensys says it is "delighted with the interest in Baan", insisting that Baan's 6,000 customers make it attractive. But, critics of Invensys' management say that the likely price shows the weakness in the planned disposals program. Invensys must sell NOW; they cannot hang on till Baan is worth more.

A crucial test for Rick Haythornthwaite will come at the end of May, when the full-year results for the year ending March 2003 will be published.

Click Invensys weblog - track the news & insert your own comments

Click Visit the Invensys website

Iraq war outcome

In eNews 8 April 2003, I mentioned the 6 tests that Tom Friedman (NY Times columnist) had listed to see whether the US was winning the Iraqi war. I modified No. 3 a bit, and added No. 4.

Now, more than a month later, many people have suggested that we should review the list and comment on results. So, here they are. Hey, please don't complain - these are my own, sincere opinions.

1. Have we occupied Baghdad - without leveling the whole city? Yes.
2. Have we killed, captured or expelled Saddam? Not killed or captured - but certainly removed from power.
3. Have we explained why we haven't been greeted with garlands? Some people still think that the occupying forces were welcomed. But clearly most Iraqis still consider this to be an alien invasion. Happily, free speech has returned; but sadly, previously exiled clerical leaders are exercising their right to inflame the masses.
4. Have we found any weapons of mass destruction? Teams of UN inspectors had been digging for months without finding anything. Now, the world is now waiting to see what weapons of mass destruction will be found by the occupying forces. Indeed, one even hopes that something credible will be discovered - some chemical or biological weapons which will vindicate Colin Powell's UN presentation; some links to Al Quaeda to prove to the world that Saddam Hussein was indeed harboring terrorism. In the weeks after the conflict has ended, thousands are searching diligently without uncovering any "smoking gun". In the meantime, we are told that perhaps nothing will be found "for a long time" and "it doesn't really matter because Saddam was clearly evil anyway".
5. Have we preserved the territorial integrity of Iraq? Yes.
6. Has an authentic Iraqi liberal nationalist emerged to lead Iraq? Not yet.
7. Is the Iraqi state that emerges from this war accepted as legitimate by Iraq's Arab and Muslim neighbors? Remains to be seen.

Now that Iraq has been occupied and Saddam Hussein is gone, what next? The US and the UK have been officially declared as "occupying forces" and the estimate is that they will remain for a year or two. One is reminded that FDR was asked in 1943 how long US forces would remain in Germany after the war; he replied, "One year, maybe two".

Clearly the US must take the responsibility to rebuild Iraq into a progressive, democratic model that works. The occupation could last years, cost many billions of dollars and involve tens of thousands of occupying troops. Bungled UN diplomacy means that the America will bear most of the financial burden. But, with its current economic woes, it probably does not have the stomach, or the stamina, for taking on the responsibility of rebuilding another country of 26 million people, half a world away. And this even before the Afghanistan involvement is finished.

After previously snubbing the UN, this week the US offered the Security Council a resolution calling for the elimination of more international sanctions on Iraq and granting the US broad control over the country's oil industry and revenue until a permanent, representative Iraqi government is in place. Now, what will the extremists make of that move? And what happens if the UN refuses?

Beyond Iraq, the US is now left relatively alone to deal with North Korea's rush to build nuclear bombs, Iran's move to nuclear status, and now accusations that Syria is also harboring terrorists. To many this looks like the roots of a vastly expanded conflagration.

While George W. Bush still appears to be riding a wave of popularity, Tony Blair was just voted the "most unpopular person in Britain". At the same time, a right-wing Norwegian politician has nominated Bush and Blair for the Nobel Peace Prize - "for fighting terrorism and promoting world peace."

So, dressed in a top-gun outfit, the victorious Commander-in-Chief made a spectacular landing on an aircraft carrier to speak to the troops, with a banner behind him proclaiming "Mission Accomplished". Apparently, this was Dick Cheney's "brilliant" PR idea, which many protested as a blatant photo-op backdrop for the coming presidential campaign.

Stay tuned as history unfolds....

Click U.S. Proposes Broader Control Of Iraqi Oil, Funds

Click Blair tops Britain's most unpopular list

Click BBC - Nobel nomination for Bush and Blair

eFeedback

Thomas D. Althouse [talthouse@afgd.ca] from Canada recognized that the "well curve" was indeed happening everywhere:
    "Thanks for pointing out the "Well curve" ideas. I have felt for several years in Canada that the middle class is under attack. Everywhere we turn, everyone appears to blindly buy into the idea that cheaper is better, with mid-level values being abandoned.

    "There are hundreds of examples all round us: the mad rush to privatization to save cost; manufacturing transferred to other countries to save cost - sacrificing local (middle-class) jobs; 99c. hamburgers with imported beef; cheap rayon and polyester clothes. Everywhere, things get cheaper, while the middle-class suffers."

    "And at the other end you get the management, the ones with the big salaries, multi-million dollar bonuses, million dollar pension packages. There appears to me to be certain arrogance about many of these so-called "leaders". The way these people present themselves is as if they have a solution that no one else can come up with.

    "The bell curve implied that the majority, the middle segment, is somewhat satisfied. But now, the "well curve" means that this is inverted completely for the majority. And this brings social unrest, and a lot of dissatisfaction from the "middle class".

    "If all this sounds too far-fetched, just think about it for a couple of weeks and see if it passes the acid test by applying it to the daily news. The "well-curve" starts to make sense."

Bill MacIntosh [Beemac@bigfoot.com] wrote about globalism comparisons with the Depression era:
    "I'd like to point out that global trade peaked around 10% of world GDP just before WW I and didn't return to that level until the late 1990's. So globalism wasn't really "born" in the pre-depression era, it was contracting. The contraction accelerated due to various protection laws passed in the US (Smoot-Hawley) and retaliation by other countries.

    "Fortunately, the BIG difference this time around is the Federal Reserve has NOT contracted the money supply. Another difference is more jobs in services and less in manufacturing and agriculture. No "Okie" migrations this time around."

Dan Daugherty [DD@onr.com] expressed more frustration over spam:
    "Until recently, I really didn't have much of a problem with spam. I had set up some clever client-side filters that nuked about 99% of it (and still do). While spam emails were under 10 per day, it was really not much of an annoyance. Either something is afoot, or someone who dislikes me has entered my name to all the spam lists, because now I am getting an absurd 100 or more spam emails per day! With a cable modem, it's still not going to be a huge annoyance. But, I can imagine being out of town for a week and wondering if, in the 700 spam emails already nuked, there might be one or two non-spam mails from a long lost friend; or worse, from someone trying to send me some real business! That's when it hit me that it's really an issue of scale. What if I were receiving 1000 spam emails per day? Who is to say it might not come to that?

    "I love solving problems, so I am sure I could come up with a lot of clever ideas for zapping the spam problem, but it occurs to me that the email system, as it stands, is fatally flawed. If enough mail bombers and spammers simply had a malicious streak, we would soon be at their mercy. What this means is that the "free" Internet needs to be reworked. If my ISP could charge money to whomever wanted to send mail to its server, then that would eventually result in a whole set of charges finally falling to the sender's ISP. That would invoke an economic cost and it would ensure traceability. Those two basic elements are missing in the present system. If we had them, it would give us the means to severely throttle spam email.

    "The downside of that is that it becomes more difficult to send anonymous email. However, I think even that could be solved, with a model similar to the pay telephone: you pay cash to make a call that can be traced to that phone but not to you personally.

    "There are a few models that actually work these days. Yahoo Groups requires senders to register on their service. Then they can verify the sender has an email address to reply to before they will allow a message to be transmitted. I suppose I could set up a web site with a similar mechanism and force senders to verify they had a return address before I would allow them to send me a message. I suppose once I had their address in my permission list, they could send me a message anytime, or until I revoked their permission. I'd also need all this to occur at the webserver or mail-server level so I don't have to wonder if my huge deleted items file contains something important.

    "Another model is the one used by Switchboard, where I allow people to look me up but they can't get my email address until they "knock" first, and I personally decide whether or not to give it out to them.

    "What surprises me is that the US Post Office did not lead the way with email. It seems like such a natural extension of regular mail. Wouldn't it have made sense to be able to send an email, get a postmark, get return receipts if you pay, and so on? If mail had evolved that way, it surely would have been regulated and traceable. In fact, this idea may still work. A lot of people might prefer to have a US Post office email address that they know will cost others some money to send email to them. I already pay $5 per month for my email address. I'd be just as happy to pay that to the post office if it would mean not being harassed with 100 or more spam emails per day."

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