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The Mel Brooks movie, then Broadway musical, then a movie of a Broadway musical The Producers are the only such dramatic works I know of that were based primarily on a business model.  The plot is a simple scam in three acts: 1) most Broadway musicals fail; 2) greedy investors in Broadway shows want a lot of equity for a little money, and; 3) since the show is likely to fail anyway, why not produce a deliberate turkey but make money (strictly for the producers) by selling 500 percent of the stock?  Nobody will know they’ve been scammed because a deliberate failure will never pay any royalties.  Except, of course, Springtime for Hitler was an unlikely smash hit. Well similar events take place in technology startups every day, though usually without the smash hit.

I believe there is a lot of fraud in high tech startups, 95 percent of which fail.  With only a five percent chance of surviving, startups face a gauntlet of risks as described in this quote from uber-VC John Doerr in my show Nerds 2.01: A Brief History of the Internet:

“There are four categories of risk to look for in every project:

1) “People risk: How the team will work together.  Because inevitably one of the founders does not work out and drops out.”

2) “Market risk: This is an incredibly expensive risk to remove.  It is about whether the dogs will eat the dog food.  Is there a market for this product? You do not want to be wrong about market risk.”

3) “Technical risk: This risk we are quite willing to take on.  Whether or not we can make a pen computer that works, be the first to commercialize a web browser, or split the atom if you will.  That technical risk is one we are comfortable trying to eliminate or take on.”

4) “Financial risk: If you have all of the preceding three risks right (people, market, and technical), can you then get the capital that you need to grow the business? Typically you can. There is plenty of capital to finance rapidly growing new technologies that are addressing large markets.”

Of course Doerr completely forgot to include fraud risk — that investors would simply have their money stolen.

You see sometimes the founder’s a schmuck.

Tech fraud happens all the time and those who are fooled include the most sophisticated investors (big shot VCs are not at all immune).  Last year alone there were a pair of fraudulent startups uncovered that cost their investors more than $50 million each.  Just think of the many frauds that aren’t caught or that are hidden in the books of VC firms, forced to merge into healthier portfolio companies to obscure the shame.  Where’s the fiduciary responsibility in that?

Large or small, fraudulent startups all follow The Producers model — they count on the greed of their investors.  Often there is a premise that makes no technical sense but sure sounds good.  Take a flying car, for example: one of those has been raising money from private investors for almost 30 years with no return in sight.  Why do people continue to invest?  It just sounds so cool.

Rule #1: If it requires exceeding the speed of light for any reason, the business is probably a scam.

Investors in startups are supposed to be “qualified,” which under the Securities Exchange Act of 1934 means they are sophisticated investors with substantial assets — so many assets, in fact, that there is no need for society to protect them from fraud.  That hardly describes Aunt Susie after she cashes-in her 401K to invest in your perpetual motion company, does it?  Yet Susie gladly signed her stock purchase agreement which said she was prepared to lose it all.  And she did.

Rule #2: Only invest in startups money you can truly afford to lose, because you probably will.

Due diligence is the process of an investor checking-out a possible investment. Is it really a good deal?  Is the price right? Where does the opportunity sit on John Doerr’s risk list?  Few individual investors, however, actually perform due diligence.  They invest based on gut feelings and by reading documents sometimes created out of thin air by company founders.

Several years ago I lost what was for me a substantial amount of money investing in a financial patent startup.  It looked great on paper, the only problem being that the paper was forged, simply made up.  Nothing was as it seemed.  The company’s books literally didn’t exist. So I sued, spending a lot more money, only to have the founders declare bankruptcy and walk away.

Rule #3: Don’t invest in something you don’t fully understand.

Giving engineers the benefit of the doubt I’d guess that 10-15 percent of startups are fraudulent to some degree.  Some are outright scams while others are more misadventure — idiots playing with other people’s money.

If this is the case, then it surprises me that there aren’t many (any?) third-party companies that assess risk for private investors.  A friend of mine once almost bought a web company that was a market leader with ever-increasing traffic, it seemed, no matter what the economy.  Then it turned out those great numbers were guaranteed by a “black box” generating spoof hits as-needed.  Advertisers were paying for those phantom clicks, and getting nothing for their money.  Who uncovers activity like this?

I’m thinking maybe I will.

I’ve been thinking lately of offering an advisory service for potential investors in privately-held technology companies, analyzing in each case the five — yes FIVE — kinds of risk to see if that good deal really is good.  It’s not that I am so smart but that I have very smart friends whom I can bring-in to do the real work.

Now what to call this new business?  Maybe Chance-in-Hell.com, as in “Does this investment have a chance in Hell of succeeding?”

Or maybe Springtime for Cringely?

I like it.

What name would you choose?  And what stories do you have of fraud at technology startups?

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Last week Google made a preemptive strike against Microsoft, revealing details of its Chrome OS months before that product reaches its near-infinite beta release.  The idea is simple: who needs a big OS if you are doing everything in a browser?  It’s a huge threat to Microsoft and Apple.  But then it struck me I’ve heard this all before, so I went back and found this video clip from my show Triumph of the Nerds, circa 1996, where Larry Ellison predicts the future, not knowing he was actually describing 2010.

The biggest news was simply that Google was finally taking Microsoft head-on. The rest of the news, at least to me, was that Microsoft should be worried, very worried.

While we’re talking about operating systems here, Google’s real target is Microsoft Office.  Redmond makes money from Windows but makes a lot more money from Office, its productivity app monopoly.  Google already has its Google Apps pitted against Office, but Brin and Page know they won’t crack Office’s hold on corporate America without addressing the Windows flaws that effectively underlie both Office and Google Apps in their current incarnations.  That’s where the Chrome OS comes in.

The Chrome OS strategy comes down to services, servers, security, and an iTunes-like app store (this latter part having been missed by nearly all the pundits).

An operating system with a user interface done through a browser is a completely practical idea and a vastly superior way to code User Interfaces than the Windows API.  It wasn’t always so, but now we have Java and Java extensions in the browser, so the UI capabilities are much better.

Remember Google makes its money differently than Microsoft, taking a few pennies here and there.  It is doubtful that either the Chrome browser or Chrome OS will ever cost users anything, but Google will make plenty from providing services and servers that run using these interfaces, with the real gold mine being that app store.

Under the Chrome OS, security is drum-tight so users can’t install unapproved software that might break the OS.  The client is small, light, secure, and easy to support. The back end can be in Google’s cloud or in one of those Google shipping container data centers dropped into the parking lot at a Fortune 500 company.  Either way Google makes money at the expense of Microsoft/IBM/Sun/Oracle.  Larry sure didn’t anticipate that part.

Google will make tons of money from its app store.  Remember that unapproved applications won’t be able to run on the Chrome OS and the best (maybe only) way to find approved apps will be through a Google store as pioneered by Apple with iTunes.  This wasn’t lost on Eric Schmidt during his days on the Apple board.  Through such an app store, Google will get a percentage of all third-party software sales — something Microsoft has never been able to do with third-party Windows apps.  The potential revenue from the app store alone is billions per year.

We know that under the Chrome OS Google Apps will be very secure.  Any tampering will trigger the download of a new and pure OS image.  But will the Chrome OS have enough performance to compete with Microsoft Office?  I think it eventually will, based, for example, on extensions like Google’s recently announced O3D API, which will allow Google Apps and approved third-party apps to grab spare GPU cycles to improve performance.

What’s left to be seen here is whether these improvements will be enough to beat Office or if Google will have to make a standalone (local PC-based) version of these apps.  Only time will tell.

The most interesting part for me will be Microsoft’s response.  This strikes at the very heart of Redmond’s business success and Microsoft will not take it lying down.  Expect thermonuclear warfare.

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We’re in the middle of a huge platform shift in computing and most of us don’t even know it.  The transition is from desktop to mobile and is as real as earlier transitions from mainframes to minicomputers to personal computers to networked computers with graphical interfaces.  And like those previous transitions, this one doesn’t mean the old platforms are going away, just being diminished somewhat in significance.  All of those previous platforms still exists.  And desktops, too, will remain in some form when the mobile conversion is complete, though we are probably no more than five years from seeing the peak global population of desktop computers.  We’d be there right now if we’d just figured out the I/O problem of how to stash a big display in a tiny device.  But we’re almost there.  That’s what this column is largely about.

I’ve been thinking about this topic ever since I wrote a column on an iPhone.  It wasn’t easy to do, but I researched and wrote the column, loaded it to WordPress and added graphics, all by jabbing fingers at that tiny screen.  It was for me an important test of what was possible and confirmed to me what I’d been guessing — that the iPhone is the first real device for the new mobile platform.  Not a great device, but as Adam Osborne used to preach, it is an adequate device, and in the early days adequate is quite enough.

This seminal role for the iPhone is mainly by chance, I think.  Its success is deserved no more than it is undeserved.  The role could have fallen to Android or WebOS if they had been earlier or even to Windows Mobile if it had been a bit better.  Steve Jobs proved his luck again by dragging his feet just long enough to fall into the sweet spot for a whole new industry.  That’s not to say he can’t still blow it, but he has the advantage for now.

It’s important to understand just how quickly things are changing.  Part of this comes down to the hardware replacement cycle for these devices.  A PC generation is traditionally 18 months long and most of us are unwilling to be more than two generations behind, so we get a new desktop or notebook every 36 months.  Mobile devices don’t last that long, nor are they expected to.  The replacement cycle is 18 months, reinforced by customer contract terms that give us a new device every couple of years in return for staying a loyal customer.  Mobile hardware generations last nine months, and 18 tends to be the maximum time any of us use a single device.

Think about it.  This means that mobile devices are evolving twice as fast as desktops ever did.  This just about equals the rate at which wireless network bandwidth is declining in price and matches, too, the faster-than-Moore’s Law growth of back-end services.  Think about those first iPhones compared to the ones shipping today.  In less than two years the network has increased in speed by an easy 2X and the iPhone processor speed has doubled, leading to a device that is at least four times more powerful than it was originally.  It’s a much more capable device than it was, yet the price has only gone down and down.

This is not a celebration of the iPhone: the same performance effects apply equally to all mobile platforms.

Now just imagine what it says for the smart phones to come.  In another two years they’ll be eight times as powerful as they are today, making them the functional equivalents of today’s desktops and notebooks.  If only we could do something about those tiny screens and keyboards.

The keyboard is a tough one.  In one sense it isn’t hard to imagine it being handled through voice input.  That’s how they did it on Star Trek, right?  But there was a problem with Star Trek computing: the interface is what I think of as interrogational.  Kirk or Scotty asked the ship’s computer (a mainframe, obviously) a question that always had an answer that could be relayed in a handful of words.  The answer was “yes,” “no,” “Romulan Bird of Prey,” or “kiss your ass goodbye, Sulu.” There’s never any nuance with an interrogational interface and not much of a range of outputs.  It’s okay for running a starship or a nuclear power plant, but by being only able to speak it is limited to what words alone can do.

I attribute this, by the way, to Gene Roddenberry’s work as a writer.  I doubt that he saw word output as a limitation, since his product was, after all, words.  TV is radio with pictures, and the words really count a lot.  But try to use them to simulate a nuclear meltdown with any degree of precision or prediction and they’ll fail you.

Our future mobile devices will use words for input, sure, but words alone won’t be enough.  Still, between voice recognition, virtual keyboards, and cutting and pasting on those little screens, there’s a lot that can be done.  It’s the output that worries me more.

I first wrote about this a decade ago when I heard about how Sony was supporting research at the University of Washington on retinal scan displays — work that eventually resolved into products from a Washington State company called Microvision.  They’ll shine a laser into your eye today, painting a fabulous scene on the back of your eyeball in what appears to be perfect safety, but I have a hard time imagining the broad acceptance of such displays by billions (yes, BILLIONS) of users any more than I expect that Bluetooth earphones will survive a decade from now.  Too clunky.

I think we’re headed in another direction and that direction is — as always — an outgrowth of Moore’s Law.  Processors get smaller every year and as they get smaller they need less energy to run.  Modern processors are also adapting more asynchronous logic — another topic I started writing about 10 years ago that offers dramatic energy savings.

We’re at the point right now where primitive single-pixel displays can be built into contact lenses.  They act as user interfaces for experimental devices like automatic insulin pumps.  This already exists.  A patch of carbon nanotubes on your arm continuously monitor blood glucose levels, driving a pump that keeps your insulin supply right where it should be.  Any problem with the pump or the levels is shown by a red dot that appears in your field of view courtesy of that contact lens.  The data connection between pump and eyeball is wireless. The power to run that display is wireless too, since the contact lens display scavenges RF energy out of the air to run, courtesy of that mobile phone on your belt and that WiFi access point on the ceiling.

As long as we’re personally connected to the network we’ll have enough power to run such displays.  No more airplane mode.

And while that display is a single pixel today, we can pretty easily predict at what point it could be the equivalent of HDTV.  Except I don’t expect we’ll ever get there.  That’s because, thanks to Ray Kurzweil’s singularity — that point at which everyday machines have more computing cycles than I do — we’ll soon have so much excess processing power that mere physical interfaces will be boring and not necessary.

Here’s my problem with the singularity: I don’t want to work for my computer, much less for my microwave oven, both of which are supposed to be way smarter than me by 2029, according to Ray.  My way around this problem, in the Capt. Kirk tradition, is to find difficult jobs for all that computing power to keep it from interfering with my lifestyle.

So there’s a platform transition happening. We’re in the middle of it.  The new platform is a mobile interface to a cloud network.  And the way we’ll shortly communicate with our devices, I predict, will be through our thoughts.  By 2029 (and probably a lot sooner) we’ll think our input and see pictures in our heads.

Think it can’t happen?  Twenty years ago was Windows 3.0 and Mac OS 6. Twenty years from now computing won’t even be a device, just a service.

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Just in case you are an astronaut and need something to worry about, according to NASA there are 18,000 pieces of space junk the size of a basketball or larger right now orbiting the earth. That’s 18,000 chances to slam into the International Space Station (ISS), bump into a U.S. Space Shuttle, or plow into any of a number of satellites in low Earth orbit. Twice the ISS has had to be moved to avoid potential collisions and one other time when it couldn’t be moved the crew huddled in their Soyuz taxicab for danger to pass, with one such near-miss taking place just last week, which is what inspired this column.

I say it is time to clean up all that junk.

Space junk means everything from rocket upper stages weighing several tons down to the odd wrench lost in space by space-walking astro- or cosmonauts.  This stuff that got to space more or less by accident is now torquing above the ionosphere at around 17,000 miles-per-hour, which would be worse if nearly all the junk wasn’t going in the the same direction.  Friction and gravity will eventually bring all the space junk back to earth, but that could take centuries.  So I say simply to avoid any more space junk stories in USA Today, we ought to find a way to get rid of the stuff.

It won’t be easy.  We can’t shoot it down, because even if we are accurate enough to hit the junk all we are likely to accomplish is blasting it into lots more smaller pieces that will need tracking.  We could shoot it with high-powered lasers, but unless we were able to vaporize the debris completely, all we’d be doing is boring very nice holes in it.

Nope, we have to gather the stuff and bring it back to Earth.  But how?

I propose a space garbage scow.

My garbage scow would use a very fine net to capture the debris and hold it.  The net could be built from kevlar, but this week I’m making everything from carbon nanotubes, thanks, so that’s what we’ll use.  Nanotubes have the highest strength-to-weight ratio of any material and would allow us to make a very large, very light weight net.  Our point here is to make the net light rather than strong, since our capture speeds will be low and the lack of gravity ought to make it easy to keep the junk tethered together.  The point of making it strong, then, is so it can be light enough to be big enough to maybe gather all the junk — all 18,000 pieces — into a single scow.

I imagine a seine purse-style net, if you know your commercial fishing.  Launch the net into an inclined polar orbit generally higher than the space junk to be harvested.  The polar orbit will ensure that eventually the scow will go over every spot on the Earth as the planet rotates below, but it also means the scow will eventually cross the path of every piece of space junk.

Here’s where we need an algorithm and a honking big computer, because this is a 3-D geometry problem with more than 18,000 variables.  Our algorithm determines the most efficient path to use for gathering all 18,000 pieces of space junk.

I haven’t yet derived this algorithm, but I have some idea what it would look like.  We’d start in a high orbit, above the space junk, because we could trade that altitude for speed as needed, simply by flying lower, trading potential energy for kinetic.

Dragging the net behind a little unmanned spacecraft my idea would be to go past each piece of junk in such a way that it not only lodges permanently in the net, but that doing so adds kinetic energy (hitting at shallow angles to essentially tack like a sailboat off the debris).  But wait, there’s more!  You not only have to try to get energy from each encounter, it helps if — like in a game of billiards or pool — each encounter results in an effective ricochet sending the net in the proper trajectory for its next encounter.  Rinse and repeat 18,000 times.

It won’t always be possible, of course, to gain energy from each encounter, but that’s why we start in a higher orbit, so as energy is inevitably lost it can be replenished by moving to a lower orbit.

By the same token I think we would logically start with smaller bits of space junk so the net would gain mass steadily over time, then do the same again at each lower altitude.  Eventually the net would have corralled hundreds of tons of debris, carrying it down into the atmosphere where atmospheric friction would eventually burn it all up in a spectacular visual display that would create a thin ring of fire all around the Earth.

It’s a crazy idea, sure, but it could work.  For all the worrying we do about space junk hitting astronauts or rockets as they launch, we could pretty easily get rid of it all.  Small to big, high to low, all it would take is time.  How much time?  If the scow orbits every 90 minutes and it takes an average of a dozen orbits to set up the capture of each piece of space junk, that’s 18,000 * 90 * 12  = 19.4 million minutes or 36.9 years to get it all.

Funny, that’s about how long it took to put all that crap up there in the first place.

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Rupert Murdoch said recently that he’s planning to stop Google News from indexing his publications including the Times of London and the Wall Street Journal. Murdoch’s idea is that Google News and the like make it too easy for Internet users to sample news for free rather than paying for it as God and Rupert intended. Mark Cuban, who is very clever but with whom I rarely agree, thinks this is smart on Murdoch’s part, because Twitter is changing the way people find news, effectively disintermediating Google, but not the News Corp. publications, themselves.

It’s funny how Murdoch’s statement made Cuban think of Twitter while it made me think immediately of the A&P.

The Great Atlantic and Pacific Tea Company, or A&P, was America’s first national chain of food markets. Hell, it was America’s first self-serve market, first to have store brands, first to advertise nationally, first to have a customer loyalty program (in 1912!), first to publish its own magazine (Womens’ Day, which is still around, though no longer owned by the A&P), and for most of my childhood back in Ohio A&P was the big Kahuna of grocery chains. With $5.4 billion in sales in the mid-1960s, A&P was at least 20 percent bigger than any of its competitors.

But after 105 years of setting the pace for the grocery industry, A&P peaked in the mid-1960s and went into a decline that lasted for at least 15 years and, it can be argued, continues even to this day. A&P, which has had German owners (the Tengelman Group) since the 1970s, is more of a super-regional chain today and doesn’t particularly vie for industry leadership on any measure. What happened in the mid-1960s to hurt A&P was it opted out of being indexed by Google News.

Well not literally, but close enough. A&P management, which back in the mid-60′s was still chosen from the founding Hartford family, decided at that time to abandon shopping centers — retail aggregators as Google is a news aggregator. They reasoned that in most shopping centers the anchor store was an A&P. In their view their supermarket was the main draw for a shopping center and didn’t need any of those other shops or stores to provide traffic. The rest of the shopping center was seen by A&P management as being purely parasitic. The company could get cheaper real estate down the road with a standalone store, which is why today most A&Ps aren’t in shopping centers. It’s also why A&P is a shadow of its former self.

You see the Hartford family (and Rupert Murdoch) were wrong. The flawed assumption at A&P was that shopping centers would somehow do without an anchor supermarket, which they didn’t. By withdrawing from the common location A&P was not only walking away from significant customer traffic, it was in each case simply handing that traffic to a Safeway or a Kroger store. It was a supremely stupid move.

Which brings us back to Rupert Murdoch, who is brilliant in his own right but in this case can’t find his own URL with both hands.  If Murdoch abandons Google News, then those hundreds of millions of reader referrals per day will simply go to other publications or maybe even to guys like me.  It’s not like Google can’t fill the space.

Murdoch wants readers to pay for news. I’d like folks to be paying for my words, too. But pulling out of Google News isn’t the way for either of us to accomplish that. And Twitter isn’t a factor with enough of the audience (yet? ever?) to make a difference.

Giving Murdoch the benefit of the doubt, then, I’m guessing he simply doesn’t mean what he said.  Perhaps he just wanted to sow a little confusion, get some publicity and maybe a concession or two from Google.

It won’t work.

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Brett Glass (on the left) runs Lariat, a small wired and wireless Internet Service Provider (ISP) on the prairie in Laramie, Wyoming.  Bob Frankston (right) programmed VisiCalc, the first personal computer spreadsheet and for several years worked on home networking issues for Microsoft, somehow without having to move from his beloved Newton, Massachusetts.  Two nerds, a decade apart in age yet both vastly experienced, they have completely different views on Net Neutrality. Bob loves it. Brett hates it. Yet coming to understand each man’s position helps us better understand the whole Net Neutrality issue and what really matters.

Net Neutrality discussions usually come down to pitting home users against Comcast, Verizon, or AT&T.  The ISP is presented as a bogeyman and a multi-billion-dollar bogeyman at that.  It’s easy to oppose big, rich companies that maybe aren’t as attentive to customer service as they ought to be. But what if the ISP is Lariat and the customer service comes straight from the owner? That’s when things start to get interesting.

Brett is trying to get the most bang for his Internet backbone buck, so things like traffic shaping, web proxying, and restricting certain protocols like BitTorrent appeal to Brett because without those policies he’d have higher costs and lousier service for most users.  So would Comcast and Verizon, by the way.  ISPs large and small generally want to limit their users to certain bandwidth and download caps and don’t like enabling software and media piracy.

Bob Frankston, as an outspoken proponent of Net Neutrality, is really more about outright defeating the telephone and cable companies.  He wants to put them out of business.  Or, more properly, he wants to put them out of their present business. Bob thinks ISPs should simply be schleppers of bits, not paying the slightest attention to ports, protocols, or applications.  In Bob’s ideal world we as individuals would control the copper wires and glass fibers that connect us to the Internet, with the ISP simply standing-by at the utility pole or neighborhood gateway to give or take bits that we’ll transmit at a rate of 100 million per second.

Bob’s concept of the Internet is actually fairly common in the darnedest places, like much of Eastern Europe.  In Moscow, readers tell me, there are neighborhoods where you can get a coax connection to the net running at a blazing 100 megabits-per-second.  But at the same time the meter is running and you may be paying individually for every one of those hundred million bits.

And this is where the two concepts — Brett’s and Bob’s – differ enough to matter.  By calling for the very broadest definition of Net Neutrality it seems to Brett that Bob is trying to put him out of business.  Brett identifies with his VoIP telco role.  But what Bob proposes would force a change of business model on Brett and all the other ISPs right up to Comcast and Verizon: no more e-mail, McAffee, Net Nanny stuff — just the bits, please.  Bob wants to take away everything that Brett sees as making his service charming.

The truth lies somewhere in-between.  Business models ARE changing and they always have, though not quickly, in the telecommunications space.  Back in 1983 when it divested its locl operating companies, AT&T (a different AT&T, remember, not the current company by that name) was choosing to deliberately abandon local phone service because long-distance made nearly all the profit.  So AT&T became a long-distance telephone company, squandered lots of money on cable TV and cellphones, then saw itself implode when long distance became a commodity that’s effectively free for most customers.  The AT&T business model changed (from full-service to strictly long-distance) then changed again (from long-distance to bankruptcy).

ISPs big and small are fighting to retain their present business models, which they view as essential to their survival and see threatened by Net Neutrality.  They are making good money with the current model and so are loathe to change it.  That’s it: they are resisting change, seeing it as bad. Until you get down to the level of Brett Glass trying to make some customer’s VoIP phone work well over a wireless link it’s fear of change that we’re seeing and not much else.  Yet change is inevitable as markets grow and mature.

Brett may not be able to survive as a pure schlepper of bits.  He sees his added value as bringing connectivity to places where it didn’t exist before.  Bob respects that but concentrates on a bigger picture where the virtualization of networks is carried all the way to our property lines.

In the long run Bob Frankston is more correct, though in his zeal he seems to need the current class of big ISPs to die and be replaced.  I’m not sure that is really needed, though it might be nice since that would at least end their reactionary lobbying.

Twenty years ago this month the Berlin Wall fell, changing European and Western culture as a result.  Within the next 20 years we’ll see a similar revolution in digital networks as distinctions between wired and wireless, Internet and television, voice and data blur to insignificance.  I just hope there’s still a role in there for Brett Glass, out on the prairie.  I strongly suspect there will be.

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Bill Joy used to say, “not all smart people work at Sun” (he was right). Max Levchin is making a killing in Web 2.0 by resuscitating Web 1.0 projects that were too ambitious for 1999 but — thanks primarily to Moore’s Law — are just right for 2009.  Sometimes all it takes is a change of scene or season for something that was a failure the last time to be a big success today. And that’s why I’m predicting the eventual return of Teledesic or something just like it — some new form of Internet in the sky.

This is the first of probably three columns about what will be in coming months the huge story of how the Obama Administration reinvents the Internet.  They are obliged by law to do so and are required, in fact, to submit a grand plan to Congress by February 16, 2010. This National Broadband Plan is intended to accomplish the very same goals as the Clinton-era National Information Infrastructure (remember Al Gore’s “information superhighway?”) only this time it might actually succeed, again thanks mainly to Moore’s Law.

I’ve written before about the last time we went through an exercise like this.  It wasn’t pretty, with the big telephone companies essentially stealing $200+ billion in tax credits in exchange for, well, nothing.  That’s why U.S. broadband, which used to be the best and cheapest in the world is only middle-of-the-pack today.  The National Broadband Plan is supposed to fix that, though at a cost some are predicting (hoping?) will be more than $100 billion.  This time the cable TV companies will be joining the telcos at that trough.

In the broadest of terms what the Obama Administration wants to do is to bring 100 megabit-per-second Internet service to every home and business in America.  They will task ISPs to provide such a service in exchange for being allowed to continue operating as ISPs.  In places where such services can be easily provided at reasonable cost with an acceptable level of profit, which is to say in urban and higher-density suburban areas, this will be no problem.  Ramp-up fiber-to-the-home, fiber-to-the-curb, and DOCSIS 3.0 cable modem services and we’re there.  The simple business expedient of putting local TV stations out of business and grabbing their advertising income will, alone, more than pay for the upgrade costs.

Where there’s a problem is providing this same level of Internet service (100 mbps) in all the more sparsely-populated parts of America.  It is from those areas the telcos and cable companies will come, hat in hand, to ask the government to cover the difference between what they can charge and what it actually costs to provide the service.

Serving these non-urban areas is what I see driving a return to satellite projects like the ill-fated Teledesic.

For those who don’t remember it or have forgotten, Teledesic was one of a number of 1990s plans to use low-earth orbiting satellites to provide wireless Internet service almost everywhere on Earth.  By being closer to the ground than geosynchronous communication satellites, the Teledesic network could support many more low-power users (analogous to having more cell towers) and support low-latency services like Voice over IP (VoIP) which won’t work on a geosynchronous satellite link. The original Teledesic plan called for 840 satellites, later reduced to 288 satellites that would be flying in somewhat higher orbits.  Craig McCaw, Paul Allen, and Bill Gates were all involved in the project, which eventually died when the Internet bubble popped and it couldn’t be financed.

I know I am putting this all too simply, smartypants, but for the purposes of this column that is enough detail.

Teledesic died because it was too ambitious, too costly, and the people behind it made some fundamental mistakes, some involving rockets and the true cost of sending stuff into space, which I know something about.  Remember my Moon shot?  Well it is continuing and I’ve learned quite a bit about space economics along the way.

For Teledesic one key requirement was getting 840 or 288 satellites into orbit for a good price.  Toward that end they standardized on a satellite design that could be launched by any space-faring nation which was supposed to put all those nations in competition, fighting for Teledesic’s business. To set an aggressive baseline price, Bill Gates personally flew to Russia to cut Teledesic’s launch deal himself.

The Russians saw Bill coming.

Gates was negotiating for use of former Soviet SS-18 intercontinental ballistic missiles to launch scads of Teledesic satellites at a time.  Bill’s negotiating position was a tough one (or so he thought) paying no more than $7 million per launch.

Let’s pause for a moment to understand something about those SS-18 missiles.  These were (and still are) the biggest ICBMs around, each capable of lofting 10 independently targetable H-bombs over the pole at the U.S..  SS-18s were launched from underground silos that were designed with a different philosophy than U.S. Minuteman silos: SS-18 silos are hardened to survive a U.S. nuclear attack and then make a second strike.  This second strike capability made the SS-18s the scariest mothers around.  Forget about mutually assured destruction (MAD), the SS-18s made possible mutually assured RE-destruction, killing any survivors of the first wave.  In the eyes of U.S. generals and diplomats, those SS-18s simply had to go.

And they did go, or were at least intended to, as a major condition in the Strategic Arms Reduction Talks (START and START-2).  In exchange for certain favors including chopping the wings off American B-52 bombers, the Russians agreed to destroy 100 SS-18s, taking 1000 warheads out of the game.  There were a number of ways to accomplish this, but the cheapest by far was to launch the SS-18s into space.  It’s easily verifiable, almost impossible to spoof, and might even accomplish some good, like providing the world with 100 mbps Internet service.

Back to that $7 million launch price negotiated by Bill Gates. For the Russians, launching SS-18s came with a negative price, since each launch eliminated the need to disassemble, destroy, and verify the destruction of a missile, the total cost of which could easily reach $1 million.  So launching satellites, while it incurred certain costs for modifying the missiles to replace H-bombs as cargo, began with a price of negative $1 million. The cost of the missile, itself, was zero.  And Bill Gates‘ $7 million would have been nearly all profit for the Russians.

The Russians could have launched the entire Teledesic network for free and still come out financially ahead.

Had Teledesic been able to cut the right deal with the Russians, their satellite constellations would have been launched almost for nothing and we might have satellite Internet service today.

Speaking of today, a decade later, technical and political realities have changed.  Where Teledesic was a $9 billion gamble that didn’t pay off, there is right now $7.2 billion sitting in the FCC’s Universal Service Fund — money the telcos and cable companies are going to try to claim to provide National Broadband service to indian reservations and logging camps.  To serve all of America’s 110 million housing units will cost a lot more than $7.2 billion, which is where those numbers approaching $100 billion came from.  There’s going to be a financial food fight at the FCC to pay for rural broadband service.

But not if a Teledesic-like satellite system were revived.  What would have cost $9 billion in 1996 would cost less today because digital technology always gets cheaper.  Where the 1996 money was coming mainly from private capital markets, $7.2 billion could come from the FCC this afternoon.  By embracing a bold satellite initiative using low-orbiting satellites with low latency the Obama Administration could sidestep dozens of local and regional boondoggles saving tens of billions, providing a solid service that would not only reach every remote part of the U.S., but the rest of the world, too.

Imagine the international political power that would come with having such a global network.  Friendly nations could get cheap Internet, unfriendly nations would find it difficult to keep their citizens off the net.  It could be a bully pulpit in space.

And I know a thing or two about pulpits.

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I’ve had a couple days now with Windows 7 and it is certainly an improvement over both Vista and XP, requiring slightly less resources than either (significantly less than Vista), booting faster, and offering superior usability.  Yeah, but why does it cost so much?  I know why.

For a stark contrast, compare Windows 7 with OS X 10.6 Snow Leopard, its would-be competitor.  I won’t get into the argument over which OS sees the other as competition, maybe they both do. In the marketplace, however, the upgrade version of Snow Leopard costs $49.95 $29.95 ($99.95 $49.95 for a five-machine family pack) while there are twenty different versions of Windows 7 to choose from with the most popular (Windows 7 Home Premium) priced at $119.95.

Is Windows 7 really worth $70 $90 more than Snow Leopard?

(Obvious pricing brain fart above — Bob)

The better question to ask is why Microsoft decided to set the price point where they did? And the answer to that one is quite simple: Microsoft doesn’t actually want you to upgrade to Windows 7 at all.

Microsoft wants you to buy a new Windows 7 PC instead.

Setting the price at $119.95 is a brilliant move on Microsoft’s part.  The company doesn’t want users to upgrade so by setting the price high Microsoft is essentially imposing a Windows 7 upgrade tax on users.  Buy a new Windows 7 PC from Staples and the software price drops to $49.95, the same as Snow Leopard.

Microsoft likes to make money, hence the Windows 7 tax, but their main reason for setting the price so high is to get us all to buy new computers.  That brings Microsoft less  revenue per unit but more revenue overall as businesses, for example, decide to upgrade a whole office with new PC’s rather than pay $119.95 per desk just for new software. New PCs come with dramatically lower support costs for Microsoft than do retail upgrades. The pricing ploy makes Microsoft very popular, too with its Original Equipment Manufacturers (OEMs) like HP, Dell, and hundreds of others.

Here’s another piece of evidence aiming in the same direction: have you actually done a Windows 7 upgrade?  Mine took seven hours!  It shouldn’t have to take that long unless part of the goal was simply to discourage upgrading.  Snow Leopard took me 20 minutes to upgrade, but then Apple has no OEMs to please (this is key) and makes lots of money on upgrades even at $49.95.

When Windows 95 was introduced (I was there, shooting Triumph of the Nerds), part of the Bill Gates and Jay Leno performance that day was upgrading a 486/66 machine from Windows 3.1 to Win95.  It took about half an hour.  With more modern processors, memory, disk drives, and a new OS touted as being lean and mean, why should Windows 7 take significantly longer than that to upgrade?

It shouldn’t, unless speed-of-upgrading wasn’t on the feature list to begin with.

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It’s not that hard to predict what will happen in the future (I will die; Fifi, my son Fallon’s stuffed orca, will eventually need restuffing, etc.) but it is very hard to predict with any accuracy when things will happen. For technologies, I tend to see events happening long before they actually do, which makes me something of a prophet, though a pretty useless one.  This may be proved yet again in the coming months as Apple and other companies attempt to take most of the paper out of publishing, something I thought we were about to do 15 years ago, but didn’t.

Back in 1994, I proposed to my employer at the time that we start a strictly online publication to cover just Microsoft. We called the proposed e-magazine MicroSquish and took it so far as to make a pilot issue and do some very interesting market research. The World Wide Web was only a couple years old at the time, and I was unconvinced that it presented a suitable delivery platform in an era of dial-up Compuserve accounts and 2400 bps modems. So MicroSquish was conceived as a downloadable publication to be distributed by e-mail in the new PDF format then called Acrobat. It looked just like a print magazine, right down to the 75 percent ad-edit ratio. And just to be cool, we built into the technology the ability to report back data from readers. We could not only track who read each issue, but how many times it was read and which stories or ads. We figured this data of who read what and in what order would be very useful to advertisers and ad agencies. But we were wrong.

Ad agencies 15 years ago didn’t want to know whether or not their ads had actually been read, they told us. This was simply because if an advertiser discovered that few, if any, people were actually reading their ad on page 113, the company might just pull that ad and save their money, taking revenue away from the ad agency in the process. The entire ability to sell an ad-edit ratio of 75 percent (which was needed to qualify for printed distribution by second class mail – yet another buggy whip in a digital era) was based on this deliberate ignorance. Ad agencies and publications alike knew that many — even most — advertising dollars were simply wasted, but it wasn’t in their interest to admit that, so they didn’t.

Contrast this to pay-per-click, which is brutally honest, where every successful ad has efficacy and advertisers have a pretty darned good idea what they are getting for their money. This reality is precisely why ad-supported magazines, newspapers, and television are losing revenue. It is a trend that is likely to continue, and can only result in a degradation of production standards on the print side to match the reduced revenue potential of the online business, where BS gives way to measurable, though impoverished, results.

It is not a pretty picture. More pay-per-click means more online content but ultimately less money for producing that content. Print publications fade from sight or continue primarily as art forms, rather than businesses. None of this is intentional. This isn’t Google or Apple or any other company setting-out to destroy an industry. It is simple Darwinian evolution that will ultimately make many print publications as obsolete as I already am.

Back in 1994 I proposed to set an example with Microsquish but it never saw the electrons of publication.  Computer professionals who were already spending eight hours per day in front computer screens told us in focus groups that they didn’t see themselves reading a publication on those screens. Think about that statement for a moment and you’ll realize how crazy it was. But my bosses were, I think, relieved to hear it, because they weren’t ready to give up print distribution. Then there was the little problem of distributing up to 200,000 one-megabyte files per week, which looked like it might take more than a week back then simply to do. You can’t publish a weekly magazine that takes eight days to deliver.

Well what goes around comes around I guess because the rumor this week is that Apple’s long awaited tablet computer is some form of electronic reader and that Apple intends to get into the distribution of content for this new platform, just as it earlier did for the music, TV and movie businesses with the iPod and iTunes.

I have no inside knowledge about Apple’s plans, but as one of the guys who came up with the whole electronic publication idea, I think I’m in a position to put it in perspective.

Technology is the least of this.  Yes, we need an electronic medium that is price-competitive with what it replaces, but it doesn’t take an Apple per se to do that. The much harder parts are the business model and the mojo.

Mojo?

Mojo!

Let’s assume that Apple or some Apple competitor announces a really good electronic reader, which means one that costs little, is super-easy to use, stores a lot, and has very low power consumption.  That’s just the beginning.  To go with that reader they’ll need sources of content and a way to make money from the new content business.  Just making the reader isn’t enough: if you build it they won’t come. But in order to get the content you have to be able to convince content owners to share and that requires mojo – the perception on the part of the content owners that this thing is going to be a success whether or not they participate.

An important thing to remember here is how Apple evangelized the Macintosh 25+ years ago. For the Lisa, which predated the Mac, Apple didn’t bother to lure developers: Apple just wrote itself the seven core applications it thought would be enough to make the platform a success.  Only that didn’t work.  The Lisa was too expensive and seven apps weren’t enough.  So for the Mac, which was developed for far less money than the Lisa, Apple turned to third-party developers. And here’s the line they used, which I believe was the work of Alain Rossmann: “It’s obvious that graphical computing is the future, whether the Mac is a success or not. This is your chance to learn how to develop for such an environment. Choosing not to develop for the Mac, then, is choosing for your company to eventually die.”

The argument obviously worked, especially when persuasively made by guys like Steve Jobs and his surrogate, Guy Kawasaki.

Apple is doing it again, from what I understand, only this time the evangelizing is being done among print and electronic publishers. And what’s being dangled before this New York and L.A. crowd is the Hope diamond of modern electronic publishing – PAID CONTENT.

Every publisher wants to make money. The six ways to make money in publishing are: 1) selling the product outright, whether it is a book in a bookstore, a magazine on a newsstand, or a pay-per-view TV show; 2) selling subscriptions; 3) selling ads; 4) selling a combination of subscriptions and ads; 5) syndicating content – selling it for use by other publishers, or; 6) giving the thing away for free to support a live tour or event of some sort to which people in many cities and countries will buy expensive tickets.  The Internet era has supposedly taught us that almost nobody is willing to pay for a subscription so that limits publishers to ads, syndication, or touring/events – none of which appear to generate enough revenue to pay for the kind of lunches publishers like to eat, hence the fading print and broadcast industries.

Part of the difficulty here is that while we’ve effectively removed most of the production and distribution expenses from publishing, we’ve added some expensive layers, especially portals like Yahoo.  Also the old-line publishers like Time-Warner that are used to OWNING their content haven’t shown themselves to be as good as Lonelygirl15 at MARKETING it. And unlike Lonelygirl, T-W is saddled with very high overhead if very little teen angst.

Enter Steve Jobs, stage left, proffering an appealing concept (I make lots of money selling content: look at iTunes), embodied in an attractive package (the Apple tablet/reader/thingee), and suggesting an exciting outcome (the salvation of Big Publishing). And his mojo is having some effect. The New York Times, for example, is suddenly talking about paid content, having a couple years ago specifically walked away from that business model on empirical grounds. The Times and most of the other publishers (like Rupert Murdoch) suddenly taking another look at paid content have all been drinking Steve’s Flav-R-Ade.

But that’s not enough.  If Steve is going to change publishing the way he’s already changed music, he’s going to need more than what I’ve described so far.  He’s going to need a new publishing platform, a new kind of product to sell on that platform, and a new business model to pay for it. Anything less will not succeed. I’ll get into those details in my next column.  Until then talk among yourselves.

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The U.S. Federal Trade Commission this week announced rules for bloggers who take money and various other forms of booty in exchange for reviewing products. Somehow I missed this business of selling one’s soul. But I think it is a good idea to take a moment and be straight with my readers about the limits of my journalistic ethics in this space.

I don’t take money for reviewing products because I don’t review products.  Never have, never will. So don’t send me any products, okay?

Publishers send me early copies of a few books per year, generally hoping I’ll either provide a quote for the book jacket or write a positive column about it.  I do accept such books but rarely write about them. If I give a quote it is never for money, mainly because I didn’t think anyone would pay. I was probably right about that.

I once sent a book of mine to Joe Bob Briggs only to have him give it away on his web site.  Tacky.

While it is true that I write for money, in the case of this page the only money comes from those ads you haven’t been clicking on.  I have no idea what those ads will be, by the way. They are served automatically by IDG Technet, which sends me each month a check that is pitifully smaller than I was led to believe it would be.

If you want to suggest a topic to me and accompany that suggestion with a gift or a check, it pretty much guarantees I won’t write about what you want me to. This is all part of my reverse psychology plan to get Microsoft to pay me $1 million to never write anything about them again.  So far that strategy is not working.

Bear Stearns (remember them?) once offered me money to participate in a conference call with their customers.  I had done such a call before for free to talk about my Google shipping container data center column but felt too much like a talking dog and didn’t want to do it again.  So they offered money.  I said “no.”  And of course Bear Stearns is now dead.  So be careful what you ask of me.

I write for other publications like the New York Times and they pay me, but so far that pay is not from vendors except in the case of Perforce Software, where I write a column for their company newsletter. But I’ve never written about Perforce here.  Until now that is. Does that mean the FTC will now arrest me specifically because of this disclosure? Sounds like a Star Trek episode.

Most of my income actually comes from giving speeches and participating in events like brainstorming sessions, many of which happen at companies I have written about.  Often I learn things at these events that are worth writing about, though strictly within the bounds of whatever non-disclosure agreement I’ve signed (violate NDA = wife takes kids and leaves).  So in this sense I do take money from companies I might write about.  But the companies never give me money specifically to write (except for Perforce, above) and they often don’t like at all what I end up writing. Screw ‘em.

The FTC rules say nothing about giving speeches or selling one-page screenplays for $2 million.  If they expand the rules in that direction, of course, I may yet be in trouble.

In that case there’s always pizza delivery.