Podcast: Play in new window | Download

Something has been bothering me lately and it is our assumption that China is the world’s next superpower and that we’d darned well better get used to it. Hogwash. We’re into the Chinese decade, not the Chinese Century.

The century belongs to India.

Last century was all-American. We came into the 20th century a huge but unsophisticated nation. Our industrial might made us a factor in World War I. Our cultural ingenuity caught the world’s fancy in the 1920s and — 90 years later — still hasn’t let go. As a result this will not be the Bollywood Century. The Great Depression secured our place at the table by showing we could take much of the world down with us. World War II saw us save that world, grabbing half a century of global dominance in the process (thanks Dad). But now we’re screwing it up a bit out of inertia and greed and ignorance of the very world we created. We did it to ourselves by thinking that nothing could really hurt us. But in the end that wasn’t true any more than the idea that Harry Houdini’s stomach could take any punch.

So we’re giving it up to the Indians. not to the Chinese. China has the population, the will, the educational system, the foreign currency reserves — everything to make it the next global superpower except two things: 1) an emerging middle class generation comparable to our Baby Boomers, and; 2) a functional diaspora (look it up, I’ll wait).

In contrast to China, India has only those two things: 1) a real Baby Boomer class, and; 2) a functional diaspora (did you look it up?). Nothing else about India works at all — nothing. India is corrupt and divided. While India has a commercial tradition it isn’t an especially functional one. Fractionalism and factionalism, whether economic, social, or religious, will keep India from ever truly pulling together. But that doesn’t matter because my two original points are enough.

What I find interesting is that most people just take it as bible truth that China will be the next superpower because it is so number-oriented (huge infrastructure dollars, huge manufacturing dollars, higher per capital wealth than India, bigger middle class, etc…). Plus it is easier to see China becoming dominant because we prefer, I think, to be economically conquered by people very different from ourselves. And China just seems more different than India.

China has all those factories and all that money (our money — isn’t that the way we tend to see it?). China also cheated itself out of a generation through overzealous population control, which might be good for the globe but is bad for hegemony. But the biggest reason why India will win and China will lose is the Chinese stay to themselves too much. They don’t assimilate.

Look at the world’s multinational companies. Compare their executives of Indian and Chinese nationality or descent. Indian executives are everywhere. Chinese executives are nowhere.

Now remember what western corporate law teaches us — that managers control companies, not their shareholders. China isn’t just the 1.5 billion Chinese, but Chinese inside China plus their diaspora worldwide. Same for India. The big point is not very politically correct but it is nevertheless true — there is a massive disparity in Indian vs Chinese executive representation in the top 500 multinational corporations.

You can rattle off the number of Indian CEOs, COOs, CTOs, CIOs, and CFOs then find another legion operating just below the CXX level. My guess is that their comfort with western culture, their English language skills, and — perhaps most importantly — their institutional training by the Brits enable them to be the best bureaucrats and political operators who — even though they may not add a single dollar of value — use those skills to survive in droves and make it to the top. In contrast, you see hardly any high-level Chinese executives in multinational corporations that aren’t Chinese multinationals.

Juxtapose this with domestic Indian conglomerates that have managed 10 percent year-over-year growth despite the absurd inefficiencies of the domestic Indian market and you get a phenomenal triangulation move that will leave China in the dust in the next 10-20 years.

Then remember that the Indian workforce will still be young and growing in 10 years versus a rapidly aging Chinese population and the fact that India has not only already won in services and pharma, but is proving itself smarter and more innovative in industrial manufacturing, too.

China is not a particularly good bet after about 2020, though the Chinese domestic economy will grow like gangbusters for the next few years — hence they win the decade, though not the century.

History has shown, too, that India and China don’t play well Both are outrageously arrogant and selfish, China is too top-down and India is too driven by short-term political issues. Chinese companies hate dealing with Indians.

Here’s what all this means for the future. It’s very good for the English language, for one thing. That may not seem like much, but it is, at least for those of us who are native English speakers. It’s not that English is so great, you see, but that it is not Mandarin. The Indians will ensure Mandarin does not become the dominant language. And if they can do it they’ll also make sure the RMB doesn’t replace the dollar as it is not in their interests from either a national or a multinational corporation management perspective, either.

I suspect the multinational corporations effectively controlled by the indian diaspora won’t even need excuses to work more with India instead of China as China becomes more and more of an ass-pain for the world.  Since the Indians control the multinational corporations, they have a vested interest in the U.S. and Europe not completely collapsing.

Lucky us.

While there’s not much optimism floating atop this idea that Indian managers will allow us to survive as viable economies mainly to keep the Chinese at bay, remember that survival is an absolute prerequisite for resurgence.

If we have a hope of making the 22nd century again ours (and I think it can be done) we have to start somewhere.

Podcast: Play in new window | Download

Photovoltaic solar cells have been part of renewable energy planning for as long as such planning has existed, with most of those solar cells made from crystalline silicon with energy conversion efficiencies above 20 percent. But crystalline cells are expensive and take a lot of energy to create, reducing their net energy contribution. Fortunately there are other types of solar cells including thin film, amorphous, plastic, and others. All of these are cheaper than crystalline cells though they also tend to have shorter working lives and lower efficiencies. We care about them, though, because organic plastic solar cells in particular offer the prospect of producing the cheapest electric power of all. That is if one of our Startup Tour companies — Solarmer Energy Inc. — meets its design goals. I think they will.

Solarmer is effectively a Chinese company operating in America. Located in Baldwin Park, CA, Solarmer’s management is entirely from Taiwan, though many U. S. nationals are employed at the company. Solarmer is well funded, has been operating for several years now, and is moving relentlessly toward the goal of creating very large plastic solar cells that are 10 percent efficient, have a 10-year service life, and can be manufactured for $0.50 per watt or less.

Crystalline solar cells last for 25 years or more, but plastic or polymer solar cells have traditionally operated for only 2-3 years. Through the use of special UV-resistant coatings, Solarmer is attacking this longevity issue, though since the cost of plastic cells is so much less than silicon, 10 years is good enough.

Solarmer is steadily pushing cell efficiency, too, with their current world record in excess of eight percent efficient. Their goal is 10 percent and I believe they will make it.

Solarmer’s target of $0.50 per watt is based on low material cost and especially on low cost of production. The capital cost for producing Solarmer plastic cells is almost nothing as you’ll read below.

Plastic solar cells are made with a roll-to-roll printing process that starts with a clear plastic substrate on which multiple photo-sensitive semiconducting layers are printed, followed by a clear coat. Solarmer has a pilot printing plant operating in a clean room at its facility, though the world record cells have to this point been mainly built by hand.

Solarmer didn’t invent plastic solar cells, nor are they the only manufacturer. Another company — Konarka Technologies Inc. — is already producing such cells that can be found in many products. Both companies make flexible plastic solar cells, but there is a significant difference in their manufacturing strategies that made one company more interesting to me than the other (both were nominated for the Startup Tour).

Konarka builds its plastic solar cells in a 250,000 square foot former Polaroid photographic film plant in New Bedford, MA. With total control of its own production Konarka is already selling product where Solarmer is not. Unlike Konarka’s Big Factory strategy, Solarmer says it intends to license its technology to commercial printers. The difference between printing Parade magazine for your Sunday paper or printing hundreds of thousands of plastic solar cells per day is the addition of an extra drying stage at the output end of the web printer.

That’s why Solarmer quietly works-away, relentlessly pushing its technology to produce a little more power for a lot less cost. Once the specs are where the company wants them to be, their process will be released to a magazine publishing industry that has been slowly dying, killed by a combination of economic recession and Internet publishing. Hundreds of web printers originally costing tens of millions each will be repurposed for inexpensive energy production at that target $0.50 per watt — not just grid-parity but a quarter the cost of power from coal.

Flexible plastic solar cells will go everywhere the sun shines, produced in long rolls, covering roofs and even windows (the cells can be made transparent). Efficiencies are lower, sure, but so will be the cost. Any structure can produce at least some of its own energy. And though the plastic cells will have only a 10-year life, that’s longer than a paint job lasts in Charleston.

It’s a strategy of ubiquitous good-enough solar power that I find very compelling as part of our energy future.

Podcast: Play in new window | Download

Historic Price of Oil in 2008 Dollars

I used to write about the oil business. It was a diversion from high tech I took for a couple years in the early 1980s. I worked in Saudi Arabia, attended OPEC meetings in Geneva and Vienna, and hung with a variety of characters from the era of what we called the energy crisis. This column is not about that crisis per se, but rather about how that crisis and our current energy situation are so different and yet so alike. Very interesting things are happening in the energy market — things that have taken 30+ years to come about. The future of energy isn’t what most people — even heads of state — think it is.

It’s better.

First understand that the original energy crisis of the 1970s was a sham — a political hiccup turned to advantage by a greedy oil industry. I have written about this before, but here again is the damning evidence courtesy of one of my oldest friends:

“During the summer of 1973 I worked on a tow boat on the Mississippi River. Every 10 to 14 days, we’d load our barges on the Gulf Coast and deliver petroleum products to some place in the Midwest. That was the summer of the big gasoline shortages. As we would travel up and down the Mississippi, we’d pass an Exxon tow. It would have eight barges (a double unit) fully loaded, or about 10 million gallons of gasoline. The tow wouldn’t be moving, it would be tied up in a quiet spot on the river. Each trip we find more tows tied up. Shell, Texaco, Exxon, Amoco were all doing it. One day they announced in the news how much gasoline would be used in the USA in a single day. I made some quick calculations and realized we had passed a month’s supply on our last trip.”

In 1973 U. S. oil prices, thanks to price fixing by the Texas Railroad Commission, were already the highest in the world at $5.50 per barrel for West Texas Intermediate — the global standard. World oil prices were around $2 per barrel and going down. Until the OPEC embargo, that is, when, with the assistance of the big oil companies as described above, an oil crisis was created from nothing. World prices went from $2 to a peak of $43, sending every drilling rig in the world back to work and over time doubling U. S. oil production to almost 11 million barrels per day until demand crashed and the price of oil dropped back to a low of $8. That was still higher than $5.50, but recovery to an inflation-adjusted version of that peak $43 price took 25 years.

That’s the way it is with supply and demand when demand is relatively inflexible and new supplies are slow to come on-line. But inevitably they do come online, sending prices crashing back until new supplies are finally depleted and the cycle starts all over again, which is what we are seeing now.

Only all of this has to do strictly with oil and gas, not renewable energy sources, because those are even slower to come online. Most of the current crop of renewable energy sources, for example, were well known in the 1970s, too. Back then they were just inconsequential because their contribution was so small.

That was then, this is now. My work on this past summer’s Startup Tour introduced me to a number of energy startups with technologies that will actually make a difference in this age-old pattern of supply and demand. Because for the first time the supplies that are being created are renewable — they generally won’t be depleted. There is no new well involved to come online then peak and then die. There is just slow and steady energy production growth for 25 years or so from the same facility to which is added over time another and another and another machine.

We have one solar startup that is moving slowly and inexorably toward a target of making electricity from sunlight for $0.50 per watt. They are about three years from reaching their goal, at which point they will bring online a manufacturing capacity greater than the world has ever seen — all without spending a cent to develop that capacity (cue spooky music).

Electricity from coal usually costs $2.00 per watt to produce, so $0.50 per watt is amazing. What if this is hype and they are off by a factor of 10? Electricity at $5.00 per watt is still competitive with everything except coal and hydro. It’s still amazing.

Now imagine a smart electric grid that works differently than the one Al Gore talks about. Gore’s grid is smart, too, but this one is smart and superconducting. The power lines have virtually no electrical resistance, meaning the average transmission line loss of 35 percent drops to maybe five percent, making U. S. energy production effectively 30 percent greater without building any new power plants. Not only that: a superconducting grid can carry lots more power, making it every more possible to trade power between regions, working around regions of local control and high supply prices (remember Enron?), thanks to another of our startup companies that I’ll be covering in text and video in the next few weeks.

This is something like Moore’s Law hits the oil patch. Or maybe it should be called Ford’s Law, because this is really an effect of mass production against an effectively undepletable supply of raw materials.

Any argument about Peak Oil should include a discussion of Peak Demand, because that’s where we were two years ago. Energy demand in the U. S. is going down, not up, and all these renewable sources are coming into volume use against that falling demand. That would usually mean these new sources would give way to King Coal as they did in the 1970s, except for that $0.50 (or $5.00) per watt.

That low price per watt scares the crap out of BP and will change the geopolitical balance in the world within a decade, making the Middle East maybe a little less important.

Podcast: Play in new window | Download

If you think AOL actually intends to buy Yahoo, you are wrong. That story hit the press this week but it’s a ruse to motivate Google exactly as I explained a few days ago. AOL has neither the money nor the motivation to buy Yahoo, which is analogous to a bus company buying a poorly-managed airline.  AOL just wants to make Google jealous.

Here’s what I think happened. This is pure speculation on my part, of course, but I know most of the players and am even correct from time to time. I think one or more private equity firms brought the deal to AOL: they’ll put up the capital if AOL’s Tim Armstrong will manage the combined company, putting Carol Bartz out of her misery at Yahoo. This is not a bad idea, per se, except it conflicts with AOL’s current strategy in that Google could probably get government approval to buy AOL because their businesses are so different, but that difference largely goes away if AOL buys search-heavy Yahoo.

If AOL abandons its Google-centric strategy (selling itself to Google), then buying Yahoo is fine. But they can’t have it both ways.

Why, then, is AOL apparently considering a play for Yahoo? I’m not sure they are, but if the talk continues my guess is it is to force Google’s hand.

This sort of thing happens all the time. Here’s an example of what I mean. A privately held U. S. company is in talks to be acquired, wants to be acquired, but the negotiation is taking too long or the numbers aren’t high enough. What’s to be done? They can give-in and accept the lower offer. They can walk away from the deal hoping the acquirer will come back with a higher offer to get talks going again. Or they can take what’s behind Door Number Three, which is registering for an IPO on the Hong Kong Stock Exchange.

Door Number Three is the smart move because, if successfully completed, that IPO will instantly double the eventual cost of acquiring that company at a later date. Acquirers that might have waited or deliberately slowed negotiations suddenly have to decide what the company is really worth to them and pay it, quickly.

I think that’s what’s happening here with AOL and Yahoo. There are some synergies, sure, but the potential deal has some real complications, too. Google doesn’t want Yahoo. Google might want AOL. AOL is certainly a lot cheaper for Google than buying Yahoo on almost any measure. So AOL is rushing the net, hoping to force the play on Google.

It should be interesting.

Podcast: Play in new window | Download

I want to make a small point here about this week’s Windows Phone 7 launch from Microsoft. Now you can take this with a grain of salt given that I was an iPhone user until I switched this summer to Blackberry for my Startup Tour. So I am not exactly unbiased. But is it just me or are you, too, having a hard time seeing the $400 million that Microsoft claims to be spending on this product launch?

Redmond spent $100 million launching Windows 95, a number that set something of a record for its time and stood for long as the standard amount to spend if big companies were trying to make a point based mainly on the depth of their pockets. For Windows 7 (not Windows 7 Phone) I recall Microsoft set a new record, blowing-through $200 million. So when I read that they’d be spending $400 million on Windows Phone 7 — now this was something I had to see. I expected to find a Microsoft billboard on my garage door.

Not yet.

Given inflation (remember that?) $400 million doesn’t buy what it used to, but I still expected Windows Phone 7 to be as omnipresent as Windows 95 or Windows 7. And it’s out there, but the effort simply doesn’t feel like $400 million worth of marketing oomph.

But maybe this just isn’t the kind of oomph we’re used to, I thought. Maybe Microsoft is putting half or more of the money into subsidizing the handsets. If that were the case, though, wouldn’t the new Windows Phone 7 phones be cheaper than they are?

From what I have read these new phones are all around $200, which is the going rate for high-end smart phones these days on two-year contracts. So they are being subsidized, certainly by the carriers and perhaps by Microsoft, but the companies are just matching the competition: they aren’t trying to buy market share with lower prices.

I think that’s a mistake. I think lower handset prices right now are exactly what Windows Phone 7 needs to have a chance of building market share. Maybe that’s what Microsoft intended but the carriers are keeping the prices up by taking the Microsoft subsidies for themselves.  If that’s so then the carriers are betting on Windows Phone 7′s eventual failure.

Maybe Microsoft had to give the carriers those subsidies in order to get enthusiastic adoption of yet another smart phone platform. This could all be more or less out of Microsoft’s control, much like getting Matt Lauer to correctly pronounce Steve Ballmer’s name on the TODAY Show.

How can you mispronounce a name like “Ballmer?” Lauer can, but I can’t even phonetically replicate his effort here, it was so strange (and he did it twice).

Microsoft is in trouble right out of the gate because the rule of thumb is you need two or more clearly superior points of differentiation in order to gain share from an underdog position in a technology market. I don’t think Microsoft has two.

Microsoft is counting on the innate newness of Windows Phone 7, on its clever streamlined interface, on what Redmond believes — really believes (I know these guys and they love their product) — to be superior performance. That’s plenty of points of differentiation only some of them aren’t real.

Microsoft isn’t Apple. Even Microsoft knows that. So the value of “new” isn’t very much in this case. It didn’t work for the Kin, did it? It didn’t work for Bob, either. New never works if it doesn’t also mean “better,” and this doesn’t — at least not yet.

While Windows Phone 7 may or may not be technically superior, it isn’t so much superior that I can make a judgement that will stick. These phones aren’t out yet, nobody has really used them, and they haven’t been proven on a network (remember Antennagate at Apple?). So Windows Phone 7 may be dramatically superior but who would know? Is the sizzle alone enough to keep us from buying or renewing an iPhone or Android phone while waiting for the Windows Phone 7 handsets to ship? I doubt it.

Then there’s the App Store, or sparseness of it. iPhone and Android have between them about 250,000 more native applications available than does Windows Phone 7. Ironically Microsoft is the underdog here, fighting uphill againsst its own favorite strategy of market dominance. I don’t doubt their heart or determination to do so, but this is new territory for Redmond and I’m not sure they can make it.

So if I was Microsoft and had $400 million marketing dollars to throw at this new platform, I’d make every phone cost $99 or less. I’d bull my way into the market through sheer financial muscle, sending signals all the way down to my Mom in Arkansas that there’s a new sheriff in town.

Only Microsoft didn’t do that.

Maybe they couldn’t force such pricing on the carriers. More likely they are holding price cuts in reserve to be used only if needed — if the market doesn’t otherwise respond to what Microsoft sees as its clear advantages.

I can tell you right now that’s a mistake. If the goal is to get consumers to wait before buying a phone there will have to be some economic component of that motivation in the form of dramatically lower prices.

Having not started with lower prices from the very first minute, Microsoft may well have already lost the battle, no matter how good the phones actually are.

Podcast: Play in new window | Download

Last week the Obama Administration announced that it would be shortly submitting legislation intended to force providers of all kinds of digital communication services (mail, voice, chat, Twitter, etc.) to install back doors in their services to allow government monitoring of all encrypted digital communication.  No explicit details were given of how this is going to work, nor has the actual legislation yet been introduced.  Hopefully it never will, because it simply won’t work.

It’s not that such technical back doors can’t be written (they can), nor is it even so onerous to force communication providers to change all their software since these services are rewritten often anyway.  The problem is that such back doors will simply force terrorists and privacy freaks to roll their own encryption products often using technology that is already in the public domain and readily available.

All Osama has to do is encrypt his messages with a product like Pretty Good Privacy (PGP) before sending them.  With tens of thousands of suspicious techies already using PGP and similar products, real terrorist communications will get lost in the flux.

For those who are unlikely to show such technical initiative, the feds may force Verizon, Google, and even Skype, to install back doors, but they can’t do so as effectively to two-guys-in-a-garage web encryption services that appear and disappear overnight and are given away for free.

Only the dumb crooks will be caught and at a terrible cost to the rest of us.

I have been covering this story since the Reagan Administration and in that time law enforcement has consistently worried about a growing technology gap that would keep it from intercepting criminal communications. A variety of standards have been proposed over the past 30 years with the general goal being to monitor virtually all communication in real time, something the National Security Agency is rumored to be capable of doing right now.

While this may seem very reasonable in a post-9/11 world, it isn’t.  First there is the proposed scale of these activities, which is massive.  As far back as the first Bush and early Clinton Administrations law enforcement agencies pushed for the capability to intercept up to 10 million simultaneous communication sessions.  Yet according to a Congressional report issued annually on federal wiretaps, fewer than 2,000 legal taps have been ordered in any year.

Such an expansion of federal wiretap authorizations was ludicrous then, when there wasn’t the law enforcement manpower to implement it.  And today when automation can probably replace manpower, making 10 million simultaneous wiretaps maybe a breeze to do, there are even more reasons to decry it as an invasion of privacy and even a possible violation of the Constitution.

When encryption is made illegal (that’s where this trend threatens to go) its presence creates a situation where we are guilty until proven innocent.  That’s when encryption may well give way to obfuscation — hiding secret communications in plain sight in a process known as steganography — with the next terrorist plan easily hidden in the background noise on a Miley Cyrus music video.

Even if there were actually a backdoor for Internet communication services, it would eventually be used and abused by both the government and hackers. That would make government communications equally insecure — a huge threat to national security.

This is simply not a tool we need.

Podcast: Play in new window | Download

TechCrunch, a company made up of tech blogs somewhat like this one as well as classified advertising and some events, announced its sale last week to the new-old AOL for a price widely, broadly, and deeply rumored to be $30 million. Nobody will officially confirm this price but I have no reason to believe $30 million is wrong. It is way too high, but it probably isn’t wrong. The better question is why would AOL pay TechCrunch four times what it is actually worth?

I think I know why.

Since I am not known as an equity analyst, you might wonder what makes me believe that TechCrunch is worth only a quarter of the rumored sale price? Well last year, in a moment of personal financial angst, I nearly sold a minority interest in this rag to Mark Cuban. And part of that experience involved valuing my product, which if you squint hard looks kind of like a little TechCrunch. That company was one of my comps. And based on the price Cuban was willing to pay and the relative traffic stats of our two enterprises, I’d say TechCrunch in the current market is worth about $7.5 million.

Getting the other obvious question out of the way: Cuban let the four (4!) contracts we’d negotiated with his legal team sit on his desk unread for two months until I finally walked away in disgust. The guy was trying to buy the Chicago Cubs then, which I understand was a complex (and ultimately unfruitful) venture, but it left me with nothing but a $15,000 legal bill. My only joy in this is, I suppose, that one of the contracts said I couldn’t blog about Cuban and I’m glad not to be bound by that.

Back to TechCrunch, AOL paid so much because they had to. TechCrunch is cool and AOL is not. AOL wanted to be cool so they had to pay more for the honor. And thinking of it that way a convergence number of $30 million actually feels about right.

That explains why TechCrunch would require at least $30 million from AOL, but doesn’t come close to answering the question of why AOL would need $30 million worth of TechCrunch? What is driving this economically-unsound acquisition?

Simple: AOL is making itself into the very media machine it expects Google will eventually want to buy and that media machine would have to include a lot more authoritative technology coverage than AOL currently provides.

Keep this idea in mind. Every move AOL makes from here on is done solely with Google in mind.

AOL CEO Tim Armstrong came from Google and knows that company as well as anyone. I am told he is convinced that Google will eventually have to give up its idea of not paying for content and will buy a big journalistic organization with some of the $30 billion in Google cash that’s lying around Mountain View.

In Armstrong’s view Google could buy Time-Warner, repeating the whole AOL Time-Warner debacle; it could buy Yahoo; or it could buy AOL. No other content providers are big enough to satisfy Google’s expected hunger. I’m told that Armstrong quite rightly sees a stigma on Time-Warner, that Yahoo isn’t a pure enough play and risks anti-trust problems in the search space, while AOL is just right.

All of this is hearsay of course, but it makes sense to me. And if it is true we should then expect AOL to go on a crazy acquisition spree making sub-$100 million buys of online firms in the tech and financial markets that command high ad rates.

I happen to believe that Armstrong is right about Google’s eventual intentions, even if Google doesn’t yet know it themselves. But that belief combined with the fact that I have pretty good idea what I, Cringely is worth in the current market does not mean any transactions are looming here.

We are no longer seeking investors, thanks.