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Relaunching the AT&T Brand

Remember the Paul Newman movie Cool Hand Luke where Paul the warden says “what we have here is a failure to communicate” just before Luke is shot to death by sheriff’s deputies the man with no eyes?  Remember the old saw about rearranging the deck chairs on the Titanic? Spending a billion dollars or so to relaunch the AT&T brand as at&t (read about it in the WSJ here) is right up there on the misdiagnosis and futility index.

This WAS once a mighty brand.  It may even be that this brand is one of the most valuable assets SBC acquired by buying the old AT&T.  When we launched AT&T WorldNet Service under the umbrella of this powerful brand, we had more subscribers within a week than our arch-rival MCI had gained in the year when they had a service and we didn’t.  But we also offered something MCI didn’t – a $19.95 flat monthly rate.

But here’s the importance of brand: we didn’t invent flat rate pricing.  PSI and a few other smaller players already offered it.  We used the power of our brand to get both attention and credibility for an offer which appealed to our customers.  Brand alone wouldn’t have created our initial success.  Flat rate pricing alone didn’t do it for brand-unknown competitors. Brand AND an attractive offer are a dynamite combination.

It wasn’t long before then weaker brands like AOL and MSN had to offer flat rate pricing as well.  Brand literally let us redefine the rules of that marketplace to our advantage as a late entrant – and to our customers’ advantage.  Moreover, AT&T WorldNet Service paid the brand bank back.  There were more press stories (the vast majority of them very favorable or favorable) about WorldNet in 1996 than about all other AT&T services and announcements COMBINED.

AT&T also offered several branded content services.  The internal wisdom was that these would create “fatter, stickier” minutes than WorldNet which was “just” an access service.  Didn’t happen despite the AT&T brand.  Why?  Because a brand only works when it is credible for what’s being offered.  In the old phone world, AT&T provided “access” and users provided content: they talked to each other.  AT&T had credibility as a phone access provider which carried over to Internet access; the phone service almost always worked.  It had no credibility as a content provider so the brand didn’t help move into that space on the Internet.  An AT&T-branded candy bar wouldn’t have sold well either.

This once-great brand isn’t going to be resurrected by advertising the brand itself which is, according to the WSJ story, exactly what the campaign is planning to do.  Brad Feld posted that he can think of “about one billion better uses for the money.” Here’s one idea:

There is a chance the brand COULD be resurrected if it were associated with new services which are both credible to the brand and of real value to customers.  For example, AT&T CallVantage Service – VoIP – has a good reputation among those who’ve tried it.  I haven’t but see Andy Abramson here and BusinessWeek here. As far as I know, they have the best E911 solution among VoIP providers.

Suppose the new at&t put a billion dollars into a real product rollout for this under-exposed service.  Unfortunately, one immediate result would be a LOSS of revenue from existing customers since CallVantage displaces both the over-priced long distance sold by the old AT&T AND the over-priced local access lines sold by the old SBC.  Probably that’s why this won’t happen.  But suppose they did…

And suppose the new at&t also promoted its broadband service by promising not only quality, not only neutrality as far as what other services are offered over those access pipes, but also the best possible access to most content and services whether they come from at&t or not. 

at&t has the ability to deliver these services.  The at&t brand is still credible for promoting these services.  Delivering these services will resurrect the brand in a way that no amount of brand-promotion hype will.

I posted more about WorldNet Service and its flat rate pricing here. And here, my biased view on why WorldNet didn’t go on to conquer the world.

SBC… I mean at&t… CEO Ed Whitacre currently has a negative brand value. He didn’t make friends by threatening to charge his customers extra for using “my pipes” to access Google and other popular services (my rant here).

Of course, the real decline of the AT&T brand started with the emasculation of Golden Boy.

Foodstuff Benefits

Imagine if food were a standard corporate benefit like health care.  After all it is a necessity; how can any responsible employer fail to provide it?

Of course each company won’t be able to offer its own foodstuff benefit so, instead, there will be major third-party payers in the system.  When you go to the grocery store, instead of taking out your Visa or American Express, you’ll whip out your United Foodstuff card instead.  Then there will be a long pause, consultation with the manager, and a few phone calls to determine what sort of copay you are required to make on the various items in your shopping basket.  You’ll end up having to put the Twinkies back because they are excluded from your foodstuff plan.

Some food stores are off-limits to you because they do not accept your foodstuff provider.  Others require that you pay in full and then request reimbursement from the provider.  There is a lower copay for some generic store brands than for name brands like Coke and Pepsi.

Shopping on vacation is a real problem since United Foodstuff doesn’t have agreements with any grocery chains south of the Mason-Dixon Line.  Out of the country, fuhgetaboutit.

Months after each shopping trip you are still receiving bills for the unreimbursed portion of the expense of the nutrition consultant who vetted your shopping list after the fact to assure that you haven’t bought ingredients either singly or in combination that you might later sue either the grocery store or your employer over.  You also receive a letter urgently requiring that you prove that you have not claimed reimbursement for food used to make any meals covered by your children’s school lunch program or Meals on Wheels.

When your employer decides to switch foodstuff carriers, you have to change your shopping habits both to be in-network for the new carrier and to minimize your copay since the rules have changed.  However, if you live in Vermont, you can count on the fact that the State requires coverage for both tofu and maple syrup in all policies and, in New Jersey, cannoli never require a copay.

You must be very careful not to have a gap in foodstuff coverage between employers; individual foodstuff policies are very expensive – some say prohibitively so. And most food stores are very reluctant to deal with people with no coverage at all. Prices are 50% higher for food not bought under a foodstuff plan.  Even when you get a new policy from a new employer, pre-existing cravings are not covered.

The value of the foodstuff coverage you will be given is an important part of the total compensation you receive from an employer.  When weighing job offers, you may want to use a consultant to figure out the relative value of the foodstuff portions of these offers.  But, unless you are protected by a union or an Enron-type executive contract, your employer is free to change the foodstuff plan at will after you are hired.

“OK,” you say. “Enough.  This is plainly absurd”

So is employer-funded healthcare, even though it does have an insurance as well as a bill-paying component.

Third party payers add enormous cost and complexity to the health care system.  Health care choices are distorted by labyrinthine plans which often seem to be designed NOT to pay benefits.  The health care delivery system is largely incapable of charging for care EXCEPT through these plans.  When individuals pay directly, even at the point of care, they are charged more even though the cost of collecting from them is much less.

Employers are motivated to cut the cost of the benefit.  Third-party payers are motivated to pay out in benefits as small a portion of the premiums they receive as possible.  Participants (us and the health care providers) are motivated to game what we perceive as an unfair system.

Employers are only in the healthcare benefit business because, during World War II wage and price controls, these benefits were a legal alternative to raises (see this post on unintended consequences) and because there is currently a tax benefit to having employers rather than employees pay for healthcare.

It is now past time for two major changes:

Employers should pay people salaries with which people buy whatever food, toys, and health care they want (noted that it is debatable whether people should be allowed to go without coverage but this isn’t an employer issue).

Paying for routine healthcare like checkups, immunizations, drugs at reasonable costs and reasonable quantities, belly-aches, cuts and bruises, etc. etc. should be just like any other predictable expense such as food or transportation (noted that it is debatable – at least as long as there is government backup to health care – whether people should be allowed to go without checkups and immunizations). Absolutely no reason for a third party to be involved and all the reasons in the world for them not to be.  Insurance for major unpredictable expenses is entirely different and is a legitimate insurance function which must be separated from paying routine bills and from paychecks.

As you can probably guess, more posts on this to come.

Unfunded Public Liabilities – The Problem

The cost of already-promised public sector retiree health care benefits is going to become visible in 2006.  This isn’t a prediction; it’s a fact.  The Government Accounting Standards Board (GASP, of course) is set to require governments to reveal the current cost of future benefit promises in the same way that corporations have had to do since 1994.  The result is liable to be years of labor turmoil.

Here’s the problem: many if not most government units around the country have promised their workers lifetime healthcare coverage.  However, almost none of them have put aside any money to pay for the cost of this benefit.  According to a NY Times story today, which is the source for many of the facts in this post, only 38% of companies with over 200 employees offer any sort of retiree benefits and only 9% pay any of the cost of purchasing Medicare supplements.  New York City and New York State, by contrast, both have promised to pay the full cost of Medicare supplements for their retirees.  Where the money is going to come from is TBD.

It’s easy to see how we got into this mess: a dollar in extra salary is very visible.  It either has to be paid for by increased taxes or it adds to a government deficit (except when there are surpluses).  A dollar PROMISED to buy a future benefit – up until 2006 – has been invisible.  So when negotiations get tough, it is easier for politicians or beleaguered school boards to promise two dollars in future benefits than pay an extra dollar in current salary.  Union negotiators know the value of these future benefits to their members; they accept the tradeoff.

As an example, the New York Transit Authority is spending an estimated $165 million annually to provide current health care benefits for retired workers.  This is the number that gets reported and gets subtracted from Transit Authority revenue each year in calculating the bottom line.  The true current cost of health care benefits promised for the future may be as high as $1.6 billion each year.  A scary thing is that no one is even sure what this number is since accounting for it is not required.  Whatever this number is, however, the Transit Authority will have to report it by the end of 2006.

Corporations used to make unaccounted-for promises like this, too.  Corporate chieftains at airlines and car makers were no less short-term in their thinking than politicians.  Why hurt reported earnings on your watch if you can defer the pain until your successor’s successor is in the corner office?    After the change in accounting rules, the temptation was reduced but the piper still had to be paid.  Airlines went bankrupt and shifted some of their pension liabilities to the Pension Benefit Guarantee Corporation. GM and Ford may still collapse under the weight of their retiree health care costs.

Now cities, towns, states, school districts and public colleges will all have to report the current cost of future benefits – not only for new promises made but for all the promises made in the past.  They will even have to account for the cost of catching up on past promises which haven’t been funded.  Ouch.  In some cases, it will become clear that there is no way that taxes or fees can be raised high enough to cover past profligacy.

Some say: “Don’t worry; this is just an accounting change.  It doesn’t affect current cash flow.”  That’s like saying that finding out that you’re going to run over a cliff in the next five minutes doesn’t matter because you’re not falling yet. 

The first practical effect will be higher interest rates for those with the worst problems.  Interest rates DO affect cash flow.  Business may decide not to locate in places where taxes clearly have to be raised a lot; home buyers will start to prefer jurisdictions which have been fiscally responsible.  That means that revenues will be impacted in the areas that need the revenues most to meet their future obligations.

Once we get through the pain, this will turn out to be a healthy accounting change (this is a prediction but you won’t know whether I was right or wrong for years to come).  With phony accounting, administrators who hid future costs looked like they were doing a better job than those who were prudent.  The incentives were backwards.  Corporations have been improved by the accounting change of a decade ago.  Government will be improved by this change, too.

But here’s some of the pain we’ll feel in the meantime:

  1. some municipal bankruptcies;
  2. some sort of national bailout;
  3. increased threats of public sector strikes since politicians lose the ability to hide unfunded promises AND have to find savings to pay for the old promises;
  4. increased pressure on heath care delivery since Medicare relies on the fact that its low reimbursements are subsidized by those who pay higher rates which some will no longer be able to do;
  5. tension between taxpayers (programmers and auto workers, for example) whose salaries are restrained by global competition and the government workers they pay whose jobs cannot so readily be outsourced.

Just to show how far we have to go before government bodies deal with reality, retiree health care costs were hardly mentioned during the NYC transit negotiations.

I promise to post some suggested solutions before the New Year and not end the year on this depressing note.

The End of the NYC Transit Strike

Just as I was writing on how to end the NYC Transit Strike, online news popped up that it is ending.  I hope it is true that the Transit Authority did not negotiate during the strike or make concessions in order to get this illegal action ended.  Such negotiations amount to making concessions in return for ending an illegal action.  This is not acceptable and leads to more illegal actions.

The penalties against the striking workers should be enforced and the fines levied on them should be collected.  Union leaders should still be prosecuted.

I’m not saying all this because I’m a grinch.  If New York and the Transit Authority don’t uphold the law against strikes by public workers, the City will face many more such actions.  It’s significant that, although the Transit Workers Union’s own parent union did not support the strike, the New York City teachers union did.  The City has tough negotiations ahead with teachers, fireman, police and other unionized city workers.  They all have a right to negotiate.  There is a mediation and arbitration procedure for impasse.  But members of all of these groups knew that they waived their right to strike when they took the jobs they did.

Reports that the Transit Authority backed down on most of its pension-related demands are troubling.  The next generation is going to have a huge struggle to make good on the pensions – public and private – which have already been promised. Private companies now have to disclose these liabilities – really loans from the future. The law is changing so that government will also have to make full disclosure of how mortgaged we are.  Politicians and public boards (and private companies) must stop making new unfunded promises so that the old ones can be kept.

Prior to the air traffic controllers strike, the federal government had routinely caved in to illegal strikes and threats of strikes by not only air traffic controllers but also postal workers, customs inspectors, and other unionized federal groups. 

Jailing union leaders doesn’t work.  It just makes them into martyrs.  Not a good plan even if satisfying and just.  Fining striking workers and their unions doesn’t work because amnesty always seems to be a part of the final settlement.

President Reagan gave the controllers a few days to return to work and fired those that didn’t.  These threats have stopped.  BTW, federal workers ARE well compensated nevertheless.

I don’t know the applicable New York labor law (or much other law, for that matter).  It may well be that a court decision would have been necessary to establish that workers who violate a condition of work which they have agreed to – no strikes – can be summarily fired.  In the extreme, it may have been that the City Council and/or the New York Legislature would have had to act.  If laws have to be changed for the next strike, they should be.

I don’t think many striking transit workers would have stayed away if a deadline had been set.  That means that not many would have been fired which is a good thing both for them and for us.  If I’m wrong, New York would have suffered through an extended retraining period in order to replace fired workers.  However, the nation got through a period of training new controllers and, with all due respect, it’s got to be easier to train transit workers.

Despite this rant, I hope you and everyone else has a very happy holiday.

Evolution’s Not Religion and Vice Versa

You can’t disprove Intelligent Design.  Don’t feel bad about that; no one else can either.  That’s why the “Theory of Intelligent Design” is not science.  Doesn’t mean it’s not “true”, just means it isn’t science.  You also can’t prove that the whole universe wasn’t created the minute you started to read this sentence completely populated with your memories and evidence of a much longer history.

Darwin’s Theory of Evolution, on the other hand, can be disproved.  That’s because it IS a scientific theory.  All we need is evidence of a complex species arising spontaneously or even from significantly different antecedents and our current version of the theory is history.  Such evidence hasn’t shown up so the theory, in broad terms, still stands.  Doesn’t mean it’s true, just means it is a scientific theory and that it has yet to be disproved.

The problem with the current debate is that Intelligent Design advocates claim that Intelligent Design is science AND that scientists and others are acting as if Darwin’s Theory of Evolution is a religion. The latter is as much a mistake and as much a hindrance to good education as the former.

Science teaching in most American primary and secondary schools is already pretty terrible. To generalize grossly, most high schools science consists of a few facts, some half-baked environmental theories, and as little math and logic as possible.  The consequence are possibly tragic since the young citizens who aren’t being educated in the scientific method or logical thinking are going to be required to make democratic decisions on things like nuclear power, cloning, and genetic engineering.

Larding the science curriculum with non-scientific explanations won’t help.  On the other hand, teaching young people that any theory is beyond questioning is at least as harmful. It’s the way of most theories to eventually be replaced by something more comprehensive.  Good quote from wikipedia:

Thus, Aristotelian mechanics explained observations of objects in everyday situations, but was falsified by Galileo’s experiments, and was itself replaced by Newtonian mechanics which accounted for the phenomena noted by Galileo (and others). Newtonian mechanics' reach included the observed motion of the planets and the mechanics of gases. Or at least most of them; the size of the precession of the orbit of Mercury wasn't predicted by Newtonian mechanics, but was by Einstein's general relativity.”

The Theory of Evolution has itself evolved since Darwin’s original great insights.  He thought that species evolved at a constant rate.  The relative absence of transitional species in the fossil record and other observations make Stephen Jay Gould’s theory of punctuated equilibrium seem a better explanation. We now theorize that mitochondria and other organelles evolved separately from the cells which host them.  We know what Darwin didn’t: mitochondria are inherited only from our mothers.

Progress towards better understanding of evolution is inhibited it if we attack everyone who questions the current version of the theory or pretend that a theory is a fact.  Children don’t learn to think better by being exposed to ad hominem attacks on those who question the current orthodoxy.

It IS legitimate to question the probability of life arising spontaneously; the math’s not intuitive as Chris Anderson mentions in a post on hard-to-swallow numbers here.  It IS legitimate to question anything presented in science; that’s an important lesson.  And it’s legitimate to object to adding unfalsifiable  beliefs – including the versions of Intelligent Design I’ve seen – to a science curriculum.  It’s not legitimate and it’s not helpful to claim that a theory is a fact in order to protect it from politically incorrect attacks.

The great lesson of science is that ideas have to stand and fall on their own – theories evolve as surely as species do.

A Service That Needs to Exist

There are lots of fun and even useful new services springing up as part of Web 2.0.  But every time someone points me to one, I have to go through all of the rigmarole of signing up, feeling nervous that I didn’t read the EULA (End User License Agreement) thoroughly, typing in hard-to-read phrases to prove I’m a human and not a bot, and responding to a registration email.  Michael Parekh blogged an hilarious account of this annoying process here and points out that the annoyance factor  is a detriment to the growth of Web 2.0 services.

Some services don’t require signup, of course.  Many services allow you to read content freely and anonymously but require registration in order to create content of any kind.  For example, you can look at del.icio.us tags or digg ratings without an account but you can’t tag or digg anything unless you register. 

If services like these eliminate the registration requirement, they face the very real danger that they will be overwhelmed by bots designed to tag or digg whatever web page the bot’s master wants to promote or defame.  There really is a reason for making us prove we’re not bots when we sign up.  Similarly, the requirement that we provide a valid email address and authenticate it by responding to email is necessary to prevent promoters of this or that from creating hundreds of accounts from which to influence ratings.

So far wikipedia and wiktionary have been the exceptions among web services and have allowed unrestricted posting and editing of posts without registration.  These services have little to fear from bots since so far bots aren’t interested in writing articles but the wikis do have a problem with vandalism.  Wikipedia recently had a spate of bad publicity from a defamatory article posted as a “joke” and has introduced but not yet used the concept of a “semi-protected” page which can only be modified by those who have registered – and not even the most recent registrants.

The need for registration is unlikely to go away.  But why is it necessary to register separately for every service we use?  I think there’s an opportunity for some entrepreneur to create a one-registration-for-many-services business.  If this doesn’t happen, most services will have to be gobbled up sooner rather than later by companies like Yahoo on which hordes of people already have accounts.  When Yahoo bought photo service Flickr, it allowed those with Yahoo accounts to use Flickr without creating new accounts.  Presumably the same thing will happen with newly acquired del.icio.us which will then grow even faster than it was before.

We have been trying to create a game for readers of hackoff.com using Flickr and del.icio.us but are stymied that the subset of hackoff.com readers who are also registered to use both del.icio.us and Flickr is probably so small that almost none of our readers would be able to play. But, if everyone who has a Yahoo registration can use both of these services without further hassle, then we’ll be able to build our game.

The point is that are a huge number of new applications (both permanent and transient) which could be built from all the pieces and services available on the web but the need to sign up for each service separately stymies that.  A service that we register with once, convince that we are humans, and which then credentials us for many other interesting services would be a huge benefit. Assuming it was well run and reliable, I think that new services might come to rely on it as the PayPal for registration and not each build their own annoying process.

If I were still starting companies (I’m not) then I’d be interested in this opportunity. Might try to start with a standard EULA and getting new services to agree to adopt this. The advantage of a standard EULA is you really might read it once and then know that every service which subscribed to it wasn’t asking any more of you then you already agreed to. Services that feel they need a non-standard EULA would have to justify why they are asking for something different than what most other services need.

Anyway, I’m giving this idea away for the holidays. Really, my motives are not quite pure:  I’m sick of signing up for each service separately and really would like to be able to build interesting combinations of services without asking people to register separately for each component service.

Google Tale

Chris Anderson, editor of Wired Magazine, and discoverer of the Long Tail effect, posted on what he calls a “loophole” in the Google model which, in effect allows him or others to run free ads on Google.  I agree with Chris that this is a loophole but think that it benefits rather than hurts Google; the “victims” include sites, like Fractals of Change, which sell advertising space to Google.

Chris was doing an experiment and ran an ad designed NOT to get any clicks.  Google’s charges to advertisers are based on the number of times an ad is clicked, NOT the number of times it is seen. If your ad gets seen but not clicked, you don’t pay Google anything. 

But there may be value to you in getting your ad seen even if it is not clicked; it may promote your brand; it may get across a point of view.  When Pepsi runs an ad during the Super Bowl, they don’t think you’re going to leave the game and go out and buy a case of soda.  They just hope you’ll be more likely to buy Pepsi next time.

Often Google AdWords ads appear in the right sidebar of this blog for organizations like www.impeachw.com or www.downwithpinkos.com (fictional examples).  These ads are unlikely to get clicked on. But they use real estate on my blog to get their message out.  Because they don’t get clicked on, they don’t have to pay Google.  Much more important, Google doesn’t have to pay me.

OK.  In that example, Google doesn’t get any advantage from this loophole.  But, in the much more usual case, Google and its advertisers benefit and the blog owner loses.  There are lots of movies and books that end up in Google AdWords ads on my blog (remember, a Google bot picks the ads that display here or, in a new program, the advertiser chooses to run here).  These ads don’t get many clicks.  But they get lots of exposures.

The advertisers benefit by repeat display of the name of their products.  Google benefits because it does gets paid for the occasional click.  The cost is my inventory of space, not Google’s.  So every click is gravy to Google and every exposure is value to the advertiser.  In effect, Google is GIVING AWAY exposures on my blog so that they can sell a few clicks which they will dutifully pay me for.

I don’t run ads or blog for the pitiful revenue I get from it – good thing – but running the ads lets me learn stuff like this.  If you want to earn income blogging or from a website, my experience is that you don’t do well with Google ads.  I think the loophole Chris discovered has a lot to do with why.

By contrast, my ads for books on Amazon do much better even though Amazon pays not on clicks but only on actual purchase.  I pick which books to recommend to my readers.  I’m adding value by doing this.  No one gets to float a book title on my blog just for exposure.

On my site and many others, there’s a good click rate on WordOfBlog ads.  These are used primarily but not exclusively for charity.  There’s no commercial model for them yet. But the ad is picked by the site that runs it, not the other way around.  Fred Wilson calls this sell-side advertising.

FeedBurner Ad Network pays and charges per impression like traditional advertising.  This is for ads which appear in increasingly popular RSS feeds.  For reasons I won’t go into here, FeedBurner can give reasonable assurance to advertisers that the exposures they pay for are the exposures they get.  From a publisher’s point of view, this is a good model.  I don’t care whether people click on the ads that run with the feed of my blog or not.  If the advertiser just wants brand exposure, fine.  If the advertiser wants clicks, then she has to design a good ad to get them.  I get to veto ad campaigns which I think would be irrelevant or offensive to my readers.

John Battelle’s Federated Media Publishing has yet another model which I haven’t experimented with yet but which promises to be more responsive to the needs of publishers including the need to NOT deliver irrelevant messages to your readers on your blog site.

Bottom line:  Chris DID expose a loophole.  In the short term, the loophole actually benefits Google.  In the longer term, the loophole means that there is plenty of room for Google rivals – big or small – who can serve publishers and their readers better.

9/11 Endnotes

9/11/2001 wasn’t the end of Bubble 1.0 even though it seems that way in hindsight.  By the time the hijacked planes were flown into the Twin Towers the NASDAQ had fallen from a high of over five thousand to less than two thousand.  Bubble stocks which had traded over a $100 were struggling to stay over $1.00.  Many of the high-flying companies were simply gone.

Pointed evidence that the boom in air travel had already ended was that the four widebody jets used as weapons only had a total of 265 people on board including crew.  Two years earlier in the midst of the boom they would have been nearly full.

But 9/11 does mark the end of an era.  Certainly no one who was close to the atrocity and its aftermath is the same.  Many of the rest of us were changed as well.  Our world is different, less exuberant, even grim.  The attack on the USS Cole in 2000 was a warning but not until 9/11 did we understand how religious extremism and implacable hatred could be combined with meticulous planning and oil money to create horror and the seemingly ineradicable threat of more horror.  The choice of targets – the Twin Towers and the Pentagon, the massive monuments to American hegemony and the boom that America led – was stunning in its symbolism.  The bodies falling from the burning buildings were a gut blow of all too comprehensible human dimensions.

In at least the short term 9/11 bought out the best in many people.  George Bush’s short speech in which he said there was no distinction between terrorists “and those who harbor them” was the best of his presidency.  He was a much better President in the aftermath of the attack than he had been before and would be later.  The heroism of the “tower runners”, the police and firemen who run into and not away from burning buildings, won’t be forgotten soon.  There were many ordinary heroes and some villains in the smoky stairways of the stricken buildings.  I still choke up when I think about the mighty armada of doctors and nurses who massed immediately on the Jersey shore waiting to treat survivors who never came.

Because 9/11 was the pivot point of an era, was the official end, at least for a while, of irrational exuberance, the chapter on 9/11 is also the pivot point of my book hackoff.com: an historic murder mystery set in the Internet bubble and rubble.  Serialization of that chapter starts today at www.hackoff.com and I think it may stand on its own as a short story although I didn’t write it that way. I’m blogging about it both because it was such a hard chapter to write and because I want to explain what is fiction and what I think is fact.

The protagonists who readers are already familiar with – CEO Larry Lazard, CFO Donna Langhorne, and CTO Dom Montain as well as the bankers and competitor they meet with in the South Tower on 9/11 to discuss a merger are all fictional as are the Larry and Dom’s experience in the stairwell.  Not autobiographical either; as I posted earlier, I was in Boston meeting with a much more worthy competitor in a preliminary discussion of  a merger and had been in the air and seen the Twin Towers that beautiful Fall morning but was nowhere near the actual events.

The hijackers are all too real. I couldn’t have and wouldn’t have invented them. Almost everything I’ve written about them comes from the report of the 9/11 Commission (available here and well worth reading) although I got my first outline of the events, very much in agreement with the Commission report and well-organized, from wikipedia.  I did invent the last discussion between Ziad Jarrah and his fellow hijackers just before heroic passengers fought their way into the cockpit and brought the plane down in Pennsylvania short of still-undefended targets in Washington, DC.

I also invented the last few minutes of passenger Daniel Lewin and his attempt to foil the hijacking of the plane he was on.  It seemed consistent with his service in the Israeli army and what I knew about him (I knew him slightly).  I’m not the only one making up stories about Lewin.  I was horrified to find this morning that the third entry in Google under his name is:

Zionist Commando Daniel Lewin Orchestrated The 9-11 Terrorist Attacks

Zionist Commando Daniel Lewin Orchestrated The 9-11 Terrorist Attacks. His Troops Stole Arab Identites While Mossad Agents In Hollywood,”

The communications of the brave flight attendants and passengers with the ground, the conversations from the cockpit, dialog of air traffic controllers and the military, the discussion between the Vice President and the Secretary of Defense in which it is clear that no one knew whether the pilots of American fighters had actually been given orders to shoot down planes being used as weapons, all of these are straight from the Commission Report.

Banker George Harcourt from Princeton is fictional.  The cars that gathered dust in the Princeton Junction station when their owners didn’t return are all too real.  Sister Fran and the good-hearted staff at Stuart Country Day are, fortunately, real.

The chapter is called The Half Life of Surprise.  Within the space of an hour, information flowed through an informal network of cell and seatback phones on the first three hijacked planes and was relayed through news channels and then to the phones of the passengers on the fourth plane.  These passengers knew in time to act that the rules had changed, that submitting to hijackers was no longer an option. “Let’s roll,” said Todd Beamer of Cranbury, NJ on board United 93.  Good thing because formal military and FAA communication, actually performing pretty well in the fog of war, had sent the fighters that could have defended the capitol out to sea.

Yahoo.licio.us

The blogosphere is abuzz with the story of Yahoo purchasing del.icio.us.  Everyone knows who Yahoo is.  For those who don’t know del.icio.us, it’s the category leader in tagging (sometimes called bookmarking).  Many more people use del.icio.us to tag web pages than any of its competitors.  It’s been just eight month since founder Joshua Shachter left his day job at a brokerage firm and received first round venture funding.  Del.icio.us is free to use and doesn’t carry advertising so, to date, the company doesn’t have visible revenues.

So does this mean Bubble 2.0 is truly upon us?  Hard to say without knowing the price, of course, but I think not.  The deal makes a lot of sense without bubble psychology.

“But,” critics say, “without revenues let alone a path to profitability, this is not a real company. It was built to flip.” Or: “This is a feature, not a company.”

Even if true, so what?  Building value for resale rather than current income is good business.  Consider real estate.  Somebody buys property; gets a lot of permits; arranges for subdivision; maybe build roads and a little infrastructure; and sells the lots to builders.  Not a penny of current revenue during the process; just a gain at the end. Builders buy the lots; they build spec houses; they don’t get any income until they eventually sell the houses to some one else.

Even if Joshua and company built del.icio.us only for resale, they created real value in aggregating users and creating a folksonomy – a user defined categorization and ranking of web content.  They did a brilliant job of solving the dilemma of all network-value businesses – how do you get to critical mass when there is NO network value for the first users? 

Remember Metcalfe’s Law that the value of a network scales with the square of the number of users.  This implies that big networks have huge value but also that small networks have almost no value at all,  Makes it hard to get started.

Del.icio.us had value for user #1 even if it wasn’t “network” value.  Tagging is a good way to remember all the web pages you may want to find again.  That use doesn’t depend on any one else doing any tagging.  So more and more people used del.icio.us to bookmark web pages for later retrieval.

Since the tags are public, anyone can use everyone else’s tags as a way to find information.  So, as soon as enough people tagged for their own selfish purpose, their tags became useful to other people looking for web content.  Moreover, there is information in how many people tagged a particular web site or blog.  Popularity means something although it’s not always clear what.  Soon del.icio.us had real network value and was off to the races.

Del.icio.us got to a critical mass of users before its competitors.  That’s crucial to a network business because this lead kicks off a virtuous circle. The network service with the most users has the most value to each new user.  Other things being anywhere near equal, the larger network therefore gets more than its share of new users and grows faster than its would-be competitors.  Aggregating users faster than anyone else is why Skype succeeded and it’s why del.icio.us succeeded as well.

Yahoo understands the value of tagging.  Its taggable photo service Flickr, also an acquisition, is a runaway category leader.  Yahoo probably could have acquired tagging technology somewhere else.  If they’d bought a smaller competitor of del.icio.us, they presumably would have paid less.

Yahoo already has so many users – probably including a large number of del.icio.us users – that I doubt whether Yahoo acquired del.icio.us just to get what is, from their lofty point of view, a few more users.  My guess is that Yahoo wants to start as the category leader in tagging and never look back and that the number of active taggers and tag users aggregated by del.icio.us – estimated at around 300,000 and growing rapidly - is what made them a valuable acquisition.

Anyway congratulations are due Joshua and friends Fred Wilson and Brad Burnham at Union Square Ventures on creating value for web users and of finding a good path for the del.icio.us folksonomy.  It’s delicious to see del.icio.us as the most used tag on the web the last few days.

Daddy, What’s a Channel?

FCC Chairman Kevin Martin has “suggested” that cable companies allow us consumers to buy channels ala carte and not require us to buy bundles consisting mainly of unwanted channels in order to get the few channels we do want.  Choice is good and I’d like to have this option.

Of course, if the FCC would stop protecting the last mile cableco-telco duopoly, then we wouldn’t need commissioners to suggest alternatives that would spring like froth from the waves in the chaos of a competitive access market.  But I’ll leave that quibble for another day.  One could also be cynical and suggest that the Chairman’s “suggestion” is more helpful to the telcos trying to become cablecos than vice versa and that there seems to be a trend here; but let’s not go there either.

Choice IS good but why stop at the channel level?  Channels are a relic of over the air broadcasting.  They’re an archaic mechanism for keeping different data streams apart, very wasteful of bandwidth.  Channels are only emulated on digital cable and satellite because channels are what we consumers are used to and because the network business model is built around channels.  Channels don’t exist at all on the Internet except when emulated in some client software like that from Real Networks.

Why shouldn’t we just have a choice of all the programs we might want ala carte?  Why have to buy by the channel?  I watch BBC News despite its bias; you couldn’t pay me to watch the inane comedies that surround it on the BBC.

At the expensive end of the entertainment market, we can buy individual wrestling matches, recently-released movies, and chunks of pornography broadcasting.  I can buy Knicks games only by buying the whole NBA (but not whole channels); same for the New York Jets.  (You might not want to read anything by a blogger who buys season-tickets so he can watch his teams lose).

At the newest end of the market, individual videos are being made available for download to iPods.  There’s no longer a need to buy a whole CD just to get a tune that you like.

Speaking of CDs, I have a friend who was buying some and took his son along with him to the local Tower Records.  “Daddy, said the very young man, what’s a record?”  I doubt whether our grandchildren will think of a channel as anything other than the deep water you try to keep your sailboat in.  Broadcast channels are obsolete.

But, even though PayPal could facilitate it, I don’t think we’ll pay for video one show at a time.  People really like the simplicity of subscription pricing (see this post).  We don’t want to pay for our Internet access by the minute or, even worse, by the kilobit of traffic.  We don’t like to pay for our phone calls by the minute.  NetFlix has made a successful business of subscription pricing for content and that’s a model of what I think we’ll see for almost all content (note: we DON’T need ONE model for everything).

We do subscribe to cable today.  My prediction is that we will subscribe to access of all kinds independent of the content that comes over it – just as we do with Internet access today.  For most of us there will be just one access method per residence – one last mile connection to the Internet that we use for both user-generated content –email, voice calls, photo-sharing – and access to entertainment..  We will pay a fixed monthly fee for this depending only on how fat a pipe we want – not on how much we use the pipe or what we use it for.

Much content including entertainment will be “free” because it will be ad-supported or sales-supported in some way.  Not much new in that.  There will be increased “amateur” content of all kinds – not just blogs. 

Other content will be by subscription but the subscriptions won’t be to bundles of channels or even individual channels and, in general, we won’t buy the subscriptions from our access providers.  There won’t be any channels.  We will either buy direct bundles of content from content providers themselves – Pixar Studios, our favorite groups, our favorite authors – or we will buy “unlimited free downloads” which will really mean that we can download up to x songs or books or movies a month for y dollars.

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hackoff.com: An historic murder mystery set in the Internet bubble and rubble

CEO Tom Evslin's insider account of the Internet bubble and its aftermath. "This novel is a surveillance video of the seeds of the current economic collapse."

The Interpreter's Tale

Hacker Dom Montain is in Barcelona in Evslin's Kindle-edition long short story. Why? and why are the pickpockets stealing mobile phones?

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