Fractals of Change

Author’s Nightmare

 

12,000 pounds of books; six tons; eight pallets with three layers each containing 14 boxes; each box weighs 37 pounds and has 14 books in it. If you're doing the math you know that one pallet wasn't full.

Bad enough that the hardcover edition of hackoff.com: an historic murder mystery set in the Internet bubble and rubble isn't selling enough to justify keeping inventory at the printer/distributor. When the truck delivered them to our rented storage shed it couldn't back up to the door (you can't see the other row of sheds just off camera to the left). It had a manual trolley for rolling pallets off the elevator gate of the truck but the trolley couldn't roll through the snow even with the driver and me pushing it. So the pallets ended up where you see them just outside the shed.

It took Mary and me a couple of hours to carry all the books in and restack them. Mary chided me for being so wordy but kindly didn't mention my real sin of printing so many copies without any real marketing plan for selling them all.

The lesson is NOT don't self-publish. Readership on the web (free) – although hard to determine precisely – was apparently in the tens of thousands. The Kindle edition now outsells the hard cover edition and someday we'll figure out how to promote a Kindle title.

The real lessons are:

• Books, like anything else, have to be marketed.
• If you're self-publishing and you're not famous, use a print on demand publisher and don't get stuck with inventory.

We are giving free copies to libraries and are glad for other suggestions on how to move the inventory out of the shed. Ways to give away some copies to promote possible sales of others would be good if you have any ideas.

Owning Servers is Passé

Cloud computing isn't just for little guys anymore. Both local hosting businesses and MIS-managed computer centers are likely to disappear into the clouds in the next couple of years. Small is NOT beautiful in host computers anymore. Amazon (for example) CAN do it better and cheaper than you.

For years many of us have been hosting our applications with local hosting companies. Sometimes this has meant buying a computer and having it in a cage at the hosting service; sometimes this means renting real or virtual computers from the hosting service. Usually it is necessary to buy as many computers or commit to as much capacity as may be needed to service your worst (or best!) case peak. If you own the computers, you have to replace them when they become functionally obsolete.

Cloud computing as the term is used in this post means running your applications and/or hosting your data in the huge clouds managed by Amazon, Google, Microsoft and others (I've only used Amazon so my examples come from there). When you use the resources of a cloud computing provider, you don't think in terms of specific computers but rather in terms of data storage capacity and virtual servers. Amazon (again, I don't know as much about the others) only charges for what you actually use in terms of storage and Internet access. If you have a peak, you pay for the peak; but you don't have to maintain any idle capacity to allow for peaks. The capacity is just there when you need it. If you have actual applications running at Amazon rather than just data stored there, you do pay per hour for each "instance" of the application including its virtual server which is running but they can be started and stopped dynamically depending on actual load. Small instances cost $.10/hour to run.

Instances consist of any one of a number of different Linux or UNIX flavors or Windows Server 2003 plus the applications you've chosen to use with it. If your applications already run in one of these environments, chances are that you get them running on Amazon EC2 relatively easily. Familiar software like SQL, mySQL, Oracle etc. is already available there in the clouds.

Customer-facing servers are especially good candidates to go into the clouds. Amazon isn't perfect but you're probably doing fine if you have no more outages than they do. Your data is safely removed from your premises and replicated. Your servers keep running even if power is lost locally. You can opt to appear in North American, European, and/or Asian clouds so you can be "near" your users in an Internet sense without having to position servers around the world or paying a content delivery network like Akamai to cache your data near your users. Amazon is connected directly to Internet backbones so data gets in and out more quickly than it's likely to do from your premises or even from most local hosting organizations.

If your organization is spending hard-to-get capital dollars buying servers, that decision needs to be revisited pronto. If you're looking for a place to cut costs, look at the cost of care and feeding for your own servers. How much time are technical experts spending making sure that your servers are running correctly or that strange things haven't happened to the connection between your server and the Internet? How much do you spend on updating the servers? How much extra capacity do you have to buy to allow for peaks in demand? How much extra Internet bandwidth are you paying for because there might be a spike in customer queries? Most of these costs can be avoided with cloud computing.

Business winners and losers: local hosting services that survive will segue into local experts skilled at getting their customers running well in the clouds. You still need the right application for your business; you still need well-designed web pages; if you're not a technical business, you don't want to be creating virtual instances of servers (even though this is easier than managing real servers). In fact, the local experts will have less of a conflict of interest when they're not promoting services which require you to buy more capacity from them.

Dell, Sun, and other manufacturers of server hardware lose. There won't be as many small servers sold. The big guys who big servers have enormous bargaining leverage.

CTOs who give up the glass rooms and move their organizations into the cloud may lose capital budget but they'll gain kudos.

I think content delivery services like Akamai lose because data replication comes bundled with cloud hosting. That's certainly what Amazon's CloudFront is all about.

The cloud providers win. They shares their economies of scale and gain further economies of scale. They get a small piece of a huge volume of computing, storage, and data access. They get to sell auxiliary services like billing your customers for use of your hosted resources. Disclosure: I own a small amount of Amazon stock purely because I believe they are leading the way in cloud hosting (and I like Kindle), but not because of their core book selling business.

See also:

Amazon S3 – Very Cheap Storage in the Sky

Airlines Encourage Cloud Computing

Smart Grants for Smart Metering

$4.5 billion is the number currently in the House version of the stimulus bill for a 50% match to money spent on smart grid projects. As important as the money are the terms:

"The Secretary shall require as a condition of receiving funding under this subsection that demonstration projects utilize open Internet-based protocols and standards if available."

And

"The Secretary shall establish and maintain a smart grid information clearinghouse in a timely manner which will make data from smart grid demonstration projects and other sources available to the public. As a condition of receiving financial assistance under this subsection, a utility or other participant in a smart grid demonstration project shall provide such information as the Secretary may require to become available through the smart grid information clearinghouse in the form and within the timeframes as directed by the Secretary."

The smart grid puts photons of information in charge of electrons of energy. The result should be better use of existing sources of electrical energy and more effective use of new sources, even if those new sources are relatively small and geographically diverse. Utilities win by smoothing expensive peaks; consumers win both by receiving lower bills and having the opportunity to displace fossil fuels with cheap offpeak electricity for home heating and transportation. Energy independence is advanced by the displacement of imported oil for heating and transportation; CO2 emissions are reduced because peak power is disproportionately generated from fossil fuel. What's not to like?

But most of the makers of the equipment for smart metering are still in a walled garden mindset. They would like their meters to become home control centers and all communication between the meters and the utilities to be via proprietary protocols and private networks. Utilities tend to be leery of the public Internet as well. These grant conditions could provide a powerful incentive to open the smart grid to the kind of innovation that the Internet encourages so well.

Consumers will need a web application both to see their current and past usage and to determine when is a good time to do the wash, run the dryer, or charge up the plugin hybrid electric vehicle. Of course they will also want an option to be informed of especially high or low spot rates by email or text messages. Home control applications will need APIs to access that same data in order to automate the use of electric space and water heating and air conditioners. It's conceivable that your car could disgorge stored energy to the grid when the price is right or that your backup generator could turn on when prices are really high to prevent your buying very expensive electricity and unburden the grid.

All of that good stuff will happen sooner rather than later if "open Internet-based protocols" are used. Hopefully the language stays in the bill and the DOE will not allow the "if available" escape hatch in granting grant applications. I hereby volunteer to find open Internet-based protocols on an as-needed basis.

Also see: The Smart Grid Should Be Stupid.

Pew Poll Shows Americans Cooling on Global Warming

A new poll from the Pew Research Center has global warming ranked dead last among twenty alternatives presented for ranking as top priorities. People were asked to assign a priority to each of the twenty alternatives but could, if they wanted to, assign top priority to all of them. This year 30% of respondents made global warming a top issue; last year it was 35% and two years ago (first year it was on the list) 38%.

"Protecting the environment" also slipped significantly. Last year 56% rated it a top priority; this year only 41% did.

Not surprisingly, jobs and the economy topped the list: 85% (up from 75% last year) gave the economy a top priority rating and 82% (up from 61%) did so for jobs. Nothing in the methodology forced people to downgrade one category in order to upgrade another. Obviously, though, people are focused on immediate threats.

But notice that 60% of pollees rate "Dealing with US energy problems" as a top priority (59% last year) and 76% give a top rating to "Defending the US from terrorism" (up from 74%). It's not surprising that Obama mentioned self-sufficiency before global warming as a reason for his energy policy in his inaugural. The poll was taken, however, in the week before the swearing-in.

As blogged previously, environmentalists (which includes me) would do well to make sure that environmentalism is NOT used as an excuse for either NIMBY or anti-growth policies. People worried about their jobs will not take kindly to whatever prevents them from going back to work. This is a time for environmentalists (including me) to find ways to get projects done quickly rather than slowing them down. This is a time when redoing our cumbersome permitting processes and endless opportunities for destructive appeals is essential.

The environmental upside can be huge. If we can really rebuild our electrical grid and make it smart in the next two years, if we can build nuclear power plants during the next five, if we can build a significant number of new windmills and solar arrays, then we will reduce our use of fossil fuels – especially the imported kind. There is no question that the planning and construction of these projects could be done in these timeframes if we were determined to move straight ahead. However, under current law we will not turn over a single shovel full of dirt during the next two years on projects which aren't already years into the planning process. We can only do a patch work of needed but insignificant repair and reconstruction projects that were already in the pipeline.

If we don't make real changes to the processes which chain us, we'll disappoint both the job-seekers and the environmentalists.

Also see:

Removing Obstacles to Obama's Job Growth Plan

Cape Cod'll Tell Which way the Wind is Blowing

It's Time To Go Nuclear

New York in Winter

There was a patchwork of empty seats all over Madison Square Garden for the Friday night Knicks game; I'd had no trouble getting four good tickets online a few days earlier; used to be you had to go to a scalper for any Knicks tickets if you weren't a season ticket holder. Tickets have been easier to get ever since the Knicks stopped winning, but I could almost see the bankers and their clients who used to be in all those empty seats. The Club Restaurant in the Garden had the same great buffet and service; but half the tables were empty. The Knicks did beat the Memphis Grizzlies, however, in the too-quiet arena.

Mary used Priceline to get a reservation at the Times Square Hilton (four star) for $125; another sign of the times? From our 31^st floor window we couldn't see a single building crane. There were some major renovation projects still going on and a new office tower in the process of interior completion at 42d and 8^th; but daughter Kelly, whom we were visiting, says many projects have run out of funds and are stopped in the middle.

We had the wonderful Bronx Zoo almost all to ourselves; that had to be the bitter weather. Most of the few other visitors who gaped at the Siberian tigers with us were foreign tourists who probably couldn't wait for a warmer day. The tigers, just feet away when they chose to be on the other side of the glass, yawned at us and showed their teeth. The gorillas moved to their warm indoor quarters and perched just above the window out of sight except for swinging vines and falling hay. Small homo sapiens climbed close to the glass and squeezed their cheeks to it; "I see the monkeys," they squealed.

The Hudson is almost as ice-covered this winter as it was in my long-ago youth. The ice begins just north of the George Washington Bridge even though the water is still salty there from the tides. It stretches across the broad bay at Tappan Zee with only a few gaps.

Although I know the Arctic breakout over the Northeast didn't originate on Wall Street and it's much, much colder home in Vermont, New York seems groggy, dazed, and wounded – perhaps even more than after 9/11 when it was defiant and had stories of heroism rather than venality to tell.

But…

When we checked into the hotel, the girl behind the desk with an Eastern European accent told us that she had just moved to New York from Poland. "It's a wonderful time to be here," she said. "I mean if you have no family and no kids and you're young." Maybe it's always great to be young and obviously she had a job. Maybe winter is only in the eye of the beholder.

Fiat Deal Values Chrysler at Less Than Zero

Fiat won't accept a 35% stake in Chrysler unless the US adds another $3 billion to the $4 billion we've already "lent" to the "US" automaker, according to a story in the Wall Street Journal. Fiat isn't going to put any money of its own in, of course; no one in their right mind would. Cerberus Capital Management, currently owner of 80.1% of Chrysler isn't putting money in; Daimler, owns the rest but values it at zero.

So, without our putting additional money in, the owners can't even give away shares in the company; that means its current value must be somewhere south of zero. Since that's the case, please remind me why we're planning to put more money in?

We are in the process of treating Chrysler Financial, also owned by Cerberus, like a bank so we can shovel money in there so that people can buy Chryslers. If there were no Chrysler, we wouldn't have to worry about Chrysler Financial. We've also bailed out GM. We have a better hope of getting a return on that investment if Chrysler isn't taking sales from them. And we've bailed out GMAC "to help GM". We've even added money to the GM bailout so it can put more into GMAC. GMAC's majority owner is Cerberus – must be a coincidence.

Ford has so far avoided bailouts. They won't be able to do that forever if we keep bailing out their competitors.

The New York Times says the Fiat deal (they didn't report that it's contingent on more bailout money) "will bring Chrysler what it needs to be a viable player in the evolving United States market, with its fuel-efficient engine technology and the engineering that goes into its small cars." The deal allows Chrysler to make Fiat models in its US plants. The Times goes on to say "The Fiat brand suffered from a reputation for poor quality among American consumers. Fiat models still score below average in J. D. Power customer-satisfaction surveys in some European markets."

The real value of the Fiat deal is that it gives us a way to see what Chrysler is worth today AFTER we have already put $4 billion in: less than nothing. The best result of this announcement is if we act on the valuation, swallow our losses, move on, and let Chrysler fade away.

The World is Overbanked

We have too many financial institutions and too many people working in the financial trades. "Saving" banks is an even worse idea than saving car manufacturers. "Dusting ourselves off" means taking our losses and moving on; even the losses we incurred in the most recent round of bank bailouts. Sure, we need credit and capital; we just don't need so many people and institutions slicing, dicing, securitizing and providing it.

The goals of bank bailouts have become surrealistic. Check the logic this paragraph from a New York Times story about the UK's plan for an expanded bank bailout:

"Speaking at the prime minister's 10 Downing Street residence in London, Mr. Brown placed the blame for the financial crisis on 'irresponsible lending' by the banks and said institutions that took advantage of the new measures would have to sign a legally binding agreement with the government to provide more credit to consumers and businesses."

In the same sentence the British Prime Minister accuses banks of making too many loans and promises to force them to make more. And he used to Finance Minister.

A few days earlier both Citigroup and Bank of America got more TARP funds. Citigroup got the money so it could sell off its brokerage operation; Bank of America got the money to help it survive its deal to buy brokerage firm Merrill Lynch. Huh?

When we were being sold the enormous bill of goods called TARP, we were told that bank lending would collapse without it and that all business would grind to a halt. Turns out bank lending collapsed even with TARP and the economy staggered but didn't fall. Now the proposed solution is more bailout for those same banks who both lent too much and are lending too little.

In fact the USA economy is massively deleveraging itself. This is a good thing; it's facing reality; it's dealing with the consequences of past over indulgence. It's doing us all the things President Obama told us (correctly) we are going to have to do. But, since we are deleveraging, we don't need as much credit as we had before. We are making bigger down payments on cheaper houses; the price of filling oil storage tanks and the credit needed to finance that has plummeted; our lower credit card balances soak up less credit while our higher savings rate makes more money available. New economy companies like Google run on cash balances, not on credit.

The fact that we are saving more – helped certainly by Federal Deposit Insurance – supplies fuel to banks to make loans. But Federal Deposit Insurance makes us oblivious to whether we put our money into good or bad banks. We shouldn't repeal Federal Deposit Insurance since it may well have saved us from a far worse crisis. We should end all other subsidies to banks. The ones that are too big to fail turned out to be too big to save – it's time to dismantle them responsibly with managed bankruptcy and a quick sale of the their assets.

When the badly run banks are gone, the survivors will be much stronger. They'll get all of our deposits. They'll need to put this money to work. They'll be able to pick among worthy credits (if the government isn't doing all lending) and take a prudent amount of risk.

Further bank bailouts will simply damage the creditworthiness of the whole country. The pound plunged against the dollar and the euro when the latest round of British bailouts was announced. Interest on US Treasury bonds and notes rose from very low levels with the approval of the second round of TARP funds here. Ironically, higher treasury yields compete with bank interest rates and make it harder for banks to gather deposits and investments.

The sooner the financial sector right-sizes, the better. Because we are all now investors in AIG and the zombie banks, we are all going to have to take losses in the downsizing. The alternative is throwing good money after bad AND making it harder for well run banks to succeed and to resume offering credit to well run businesses.

Cape Cod’ll Tell which Way the Wind Is Blowing

Within thirty days we'll have a good indication of how serious the Obama administration is about freeing us from dependence of foreign fossil fuels; that's when the developers of the Cape Wind project could first get a federal lease for the offshore turbines which they estimate will provide three-quarters of the electricity used by Cape Cod, Nantucket, and Martha's Vineyard. The Minerals Management Service, the lead federal agency in reviewing the project, has just released a favorable "final Environmental Impact Statement" (EIS); they have a mandatory thirty day wait before issuing a lease.

Developers say the project could be built in two years (and the next two years will be good ones to build in). They planned this long before the prospect of bailout funds although who knows who will apply for what now.

This isn't a partisan issue. Senator Ted Kennedy (D), from whose family compound the windmills will be visible, is opposed – for the record, he says the view is not the reason for his opposition. Massachusetts Governor Deval Patrick (D) is in favor of the project as part of an effort to ramp up his state's wind use. Both Patrick and Kennedy were Obama supporters.

Studies have been going on for seven years. Opponents have alleged all the usual environmental hazards plus fears that the four hundred foot (to the tip of the blade) towers would interfere with aviation and marine radar. Kennedy isn't about to give in easily. He is quoted in The Wall Street Journal as threatening "By taking this action, the Interior Department has virtually assured years of continued public conflict and contentious litigation."

If we're going to quickly reduce our use of foreign oil, if we're going to generate electricity with less CO₂ output, if we're going to put people to work on important infrastructure projects, then we must, must, must find a way to review quickly and decisively AND FINALLY; we must not allow opponents to add infinite delay and cost to every project. We can't let NIMBY be policy.

A quick favorable action following the favorable EIS would be concrete change we can believe in and part of a great start for the Obama administration.

Inaugural Thoughts

Apparently because I'm the only Vermonter known to have voted for John McCain, local station Fox 44 came by my house to do an interview asking what concerns I have about President-elect Obama. You can see a small part of it here and see what I look like while blogging if you've ever been curious.

First and most important point is that I want Obama to succeed. The country needs good leadership. His eloquence and apparent thoughtfulness are reasons for hope. He ran a great campaign; he inspired people; he (we) broke the race barrier. He demonstrated an understanding of the use of modern technology (important at least to us nerds).

Second it's no longer time to be debating whom should have been elected. The election's over; it was thankfully decisive. The issues going forward are important ones of what our government should do and not do in the midst of foreign and domestic crises and in the context of debate over climate change and its causes and possible remediations.

My concerns now are still the concerns I had before the election. Other than an international upbringing (which does count for something), there's nothing in Obama's background which prepares him for the real and scary world that we live in with our friends and enemies. His campaign talk about engaging the murderous mullahs of Iran in discussion was, at best naïve. There's a danger that he'll be tested by those who doubt his resolve and that those tests themselves will be a danger even if his resolve holds up. It's likely that both Hamas and the Israelis were influenced by the timing of the coming transition. However, the election is over. Obama's been wise to stick to one President at a time during the seemingly endless transition. He should be allowed both latitude and leadership as he starts out. Historically underestimating American resolve is more dangerous to those who make the mistake than to anyone else.

Domestically I'm concerned by the debt that Obama owes to unions – especially the teachers' union which is an obstacle to the better educational system we need to have. Allowing forced union representation without a secret ballot is a bad idea that is likely to get through this Congress and be signed by the new President.

Republicans have certainly acted as if they had a huge debt to bankers. In my view that's been a mistake and every bit as harmful if not more than a tilt towards unions. During the campaign I gave Obama a zero on economics – but McCain earned a minus twenty. I would have at least as much economic policy trepidation if it were McCain being inaugurated Tuesday. So far Democrats have also been acting as if they have a debt to bankers, who did, after all, shift their contributions towards Democrats as it became apparent who was going to win the election. Would be nice if someone would take a stand against serial bailouts.

Tuesday will be a momentous day. Here's hoping that it's the start of a very successful presidency.

Beware the Coyote Syndrome

Wylie Coyote sometimes runs over the lip of a cliff but doesn't start to fall until he looks down and sees that there's nothing but air under his feet. Same thing happens with companies and industries: if they're big enough, they keep on going even long after they're really dead.

Talked to someone today who'd googled me first (wouldn't you do that with a stranger?) and found a Red Herring interview in which I'd predicted Nortel's bankruptcy:

"Tom Evslin… compares the recent changes in the telecom landscape to the shift from mainframe computers to PCs. In that transition, dollars came out of IBM's pockets and into the coffers of Microsoft and Intel. Mr. Evslin predicts a similar redistribution of wealth in the telecom industry. Dollars that once went to Lucent Technologies and Nortel Networks will find their way to companies that make soft switches, voice-over-IP equipment, and replacements for expensive hardwire switches that route phone calls…"

Trouble with this prediction is that it was made in 2002. The rest of the     quote: "It will be a painful transition. Even the most optimistic don't expect things to settle down before 2004. For many companies, that will be too late." It wasn't until the next bubble burst that Nortel went chapter 11.

You can be right about trends and get the timing very wrong. Nortel WAS already toast back in 2002 but they (and their customers and their stockholders and their bankers) didn't know that so they kept going on sheer momentum. Maybe they could have used that momentum to scramble back on the cliff as the coyote's trying to do in the picture but they didn't and companies usually don't.

So what companies and industries today are really walking dead? It's a very important question because we live in a time of bailouts when zombies are kept walking with public money and may be crowding out the startups that should take their place.

Old style investment banks have already declared themselves dead and turned into regulated banks in order to get handouts. But do we really need financial supermarkets which are "too big to fail"? I don't think so. Do we need as much credit as we've been using? No. Do we need all the exotic credit instruments? No. Do we need all the people who sell all the credit we don't need and construct the exotic credit instruments? We don't need them to do that. Perhaps we need a retraining program.

Manufacturers of cars powered by internal combustion engines, particularly manufacturers with huge unfunded liabilities for past promises and huge debts, are certainly already over the cliff. Interesting article the other day – I can't remember where – about how many less parts there are in an electric or even a plug in hybrid electric where the gas engine only drives a generator than there are in a traditional gas powered car. Point is that it's much easier for an upstart to get started up building the electrics than it would have been to compete with those who are really good at building gas engines. Now where's that cliff?

Readers say I'm way too early in targeting the extinction of copper-based voice service by the end of Obama's first term. Maybe; there is the coyote syndrome to think about. But it's also possible that the coyote (or the coyote's customers or the coyote's bankers or the coyote's stockholders) happen to look down.