Third in a long series of columns about what’s wrong with IBM

The current irrationality at IBM described in my two previous columns and in the comments so far from about 300 readers is not new. Big Blue has been in crazy raptures before. One was the development of the System 360 in the 1960s when T.J. Watson Jr. bet the company and won big, though it took two tries and almost killed the outfit along the way. So there’s a legacy of heroic miracles at IBM, though it has been a long while since one really paid off.

There are those who would strongly disagree with this last statement. They’d say that with its strong financial performance IBM is right now in one of its greater moments. But haven’t we just spent a day and 2000 words showing that’s not true?

Successful companies aren’t heartsick and IBM today is exactly that, so the company is not a success.

Looking back over the 35 years I’ve been covering this story I can see in IBM an emotional and financial sine wave as rapture leads to depression then to rapture again, much of it based on wishful thinking. The first IBM rapture I experienced was pre-PC under CEO John Opel, when someone in finance came up with the idea of selling to IBM’s mainframe customers the computers they’d been leasing.  Sales and profits exploded and the amazing thing was the company began writing financial plans based not only on the idea that this conversion largess would continue essentially forever but that it would actually increase over time, though obviously there were only so many leases to be sold.

When the conversions inevitably ended, IBM execs were shocked, but Opel was gone by then, which may have set another important precedent of IBM CEOs getting out of Dodge before their particular shit has hit a fan. We see that most recently in Sam Palmisano, safely out to pasture with $127 million for his trouble, though at the cost of a shattered IBM.

Thanks for nothing, Sam.

Opel was followed by John Akers who enjoyed for a time the success of the IBM PC, though Bill Lowe told me that IBM never did make a profit on PCs. No wonder they aren’t in that business today.  Akers‘ departure was particular gruesome but it led to IBM looking outside for a leader for the first time, hiring Lou Gerstner, formerly of American Express.

Gerstner created the current IBM miracle of offering high-margin IT services to big customers. It was a gimmick, an expedient to save IBM from a dismal low point, but of course it was soon integrated into IBM process and then into religion and here we are today with an IBM that’s half IT company half cargo cult, unable to get beyond Gerstner’s stopgap solution.

Ironically, in Palmisano’s effort to continue Gerstner’s legacy, he destroyed almost every  one of his predecessor’s real accomplishments.

Where will future IBM growth come from? Wherever it comes from, can IBM execute on its plan to grow new businesses using cheap, underskilled offshore talent?  If Global Services is struggling to hang on, how well will this work for the new IBM growth businesses coming up?  As IBM infuriates more and more of its customers, how long can IBM expect to keep selling big ticket products and services to those very same customers?

Global Services is a mature business that has been around for about 20 years.  In IBM’s 2015 business plan big income is expected from newer businesses like Business Analytics, Cloud and Smarter Computing, and Smarter Planet.  Can these businesses be grown in three to five years to the multi-billion dollar level of gross profit coming from Global Services?  Most of these businesses are tiny.  A few of them are not even well conceived as businesses.  It takes special skills and commitment to grow a business from nothing to the $1 billion range.  Does IBM have what it takes?

Probably not.

Do you remember eBusiness?  Do you remember On-Demand?  These are recent examples of businesses IBM planned to grow to billions in sales, businesses that no longer exist today.  Some claim that Blue Gene is shortly to be shuttered, too.

Here’s a simple thought experiment. When it comes to these new software and Internet services, IBM’s competition comes from a variety of companies including Amazon, Apple, Dell, Google, Hewlett Packard, Oracle and others. Does IBM have an inherent advantage at this point against any of those companies? No. Is IBM in any way superior to all of them and thence in a position to claim dominance? No.

IBM isn’t smarter, richer, faster moving, better connected. They may be willing to promise more, but if they can’t also deliver on those promises, any advantage will disappear.

IBM is still buying profitable businesses, of course, imposing on them IBM processes, cutting costs and squeezing profits until customers inevitably disappear and it is time to buy another company. It’s a survival technique but hardly a recipe for greatness.

My opinion is that IBM’s services business profit will continue to decline as they try to cost cut into prosperity. Unless they find a way to grow revenue and provide a quality product (service), they’re either headed for a sell-off of the entire service business, probably to some Indian partner, or to a complete implosion. In short, it’s a race to the bottom and IBM is winning.

Yes but, readers tell me, that’s just services, not the real IBM.

There is no real IBM, not any longer.

The company has become a cash cow. You never feed a cash cow, just take money out until the cow is dead.

Hardly respect for the individual, eh?

If IBM is planning a 78 percent staff reduction, then that will of necessity involve all USA operations, not just Global Services.  Hardware, systems, software, storage, consulting, etc. will all see serious staff cuts.  This means IBM could be moving a lot of its manufacturing and product support offshore.  Raleigh, Lexington, Rochester, and several other IBM communities are about to lose a lot of jobs.

Every non-executive job at IBM is viewed as a commodity that can be farmed out to anyone, anywhere.

IBM was once so special but today there’s little difference between IBM, AOL, or Yahoo except that IBM has better PR. All three are profitable, something we tend to forget when it comes to AOL and Yahoo. All three are effectively adrift. All three are steadily selling off the bits of themselves that no longer seem to work. When Global Services is gone, what will IBM sell next?

Everything else.

Part two in a long series of posts about what’s wrong with IBM  

IBM’s 2015 plan was hatched to deliver $20 earnings-per-share to the delight of Wall Street. IBMers were offered a carrot, a few shares of stock granted at the end of 2015, as a reward for helping them achieve that target. It appears that IBM’s goal is not to issue any of those grants as they continue to conduct resource actions (IBMspeak for permanent layoffs) and remove talented and valuable US employees in favor of moving work to low cost countries such as Brazil, Argentina, India, China and Russia.

Work that stays onshore is mainly sent to what are called Global Delivery Facilities (GDF’s), two of which were created at heritage IBM locations (Poughkeepsie, NY and Boulder, CO) while starting new ones in Dubuque, IA and most recently Columbia, MO. IBM’s public position is they are creating jobs in smaller towns when in fact they are displacing workers from other parts of the US by moving jobs to these GDFs or to offshore locations.

In the case of Dubuque and Columbia, IBM secured heavy incentives from state and local governments to minimize their costs in these locations and are achieving further savings by paying the technical team members, most of whom are new hires or fresh college grads with no experience, a fraction of what experienced support personnel would require.

Let’s look closer at Dubuque, not because it is any different from the rest of IBM USA but simply to characterize the company at a finer scale.

When IBM opened the Dubuque center the people of Iowa were expecting great things.  The center was staffed by a small number of US IBMers in management positions.  IBM then brought over people from India for “training,” then sent them back.  Few H1B visas were even required.

Every time IBM sent a batch of trainees back to India from Iowa they laid off US workers.  While Dubuque was led to believe they’d get an influx of highly-paid new residents, what the city actually received was a transient workforce of underpaid people — workers that may well be invisible to local government.  It would be interesting to know how many permanent hires in Dubuque have been Iowa residents or graduates of Iowa universities?  How many workers spend less than a year in Dubuque?  Is Iowa seeing any benefit from the investment they made to open the IBM Dubuque center?

Whenever IBM has a big project they now have to bring in extra workers, usually from India.  I have been told they plan the arrivals over several days to a few weeks.  They route people through different airports.  They make sure there are never more than two or three workers coming on the same flight, effectively avoiding notice by Homeland Security.

Are any of these people paying FICA or US income taxes?  Good question. Why is IBM sneaking around? Better question.

With hundreds of thousands of laid-off IT workers in the USA, why can’t American workers be hired for these positions? Because IBM doesn’t want US employees. Or, for that matter, European employees, though these are harder to jettison.

Layoffs at IBM are rarely due to job performance, though complaining will get you sacked. IBM tends to position these actions as job eliminations, but jobs aren’t usually eliminated, they are just relocated to GDF or GR locations staffed by cheaper workers. IBM manages to skirt the Worker Adjustment and Retraining Notification (WARN) Act requiring advance notification of layoffs or plant closings by structuring these resource actions to stay just below the numbers required to provide notifications at given locations. In this way IBM has managed to avoid the mainstream media and touts itself as a good corporate citizen while continuing to expect remaining employees to work 60-70 or more hours per week to keep up with the amount of work.

These draconian tactics might be justified if survival of the company or the best interests of the customer were involved, but they aren’t. It’s mainly about executive compensation. Meanwhile IBM’s work for customers is becoming increasingly shoddy. Contract terms such as vulnerability scanning, ID revalidations, and security implementations are routinely late or not done at all. Account teams are under continued pressure to meet revenue and cost targets regardless of how poorly the contracts were structured by the sales team. Each business sector has a target to move a certain percentage of their technical work to an offshore Global Resource (GR) or onshore Global Delivery Facility (GDF) as mentioned above.

IBM’s goal appears to be to have as few employees in the US as possible, maximizing profit.  But doing so clearly hurts customer satisfaction.

Major IBM customers such as Amgen, The State of Texas, and most recently the Walt Disney Company have cut ties with IBM in favor of other providers. Many other customers are scaling back the services they’re buying from IBM as the perceived value continues to drop. Customers are starting to realize that they can directly hire offshore companies such as TCS, Wipro, HCL and Satayam and book the savings directly instead of paying IBM top dollar for support and then seeing that support fulfilled from BRIC countries.

When IBM first started its big push to offshore technical work, the account teams were asked to make a list of reasons why customers’ work couldn’t be offshored, but were not allowed to use skills as a reason. That makes no sense in a rational organization but it makes perfect sense to IBM.

This is my promised column about IBM — the first of several on the topic, all to be delivered this week.  The last time I wrote at length about Big Blue was in 2007.  I have been asked by readers many times to revisit the subject, something I haven’t wanted to do because it is such a downer. Writing the last time I hoped the situation, once revealed, would improve. But it hasn’t. And so, five years later, I turn to IBM again. The direct impetus for this column is IBM’s internal plan to grow earnings-per-share (EPS) to $20 by 2015. The primary method for accomplishing this feat, according to the plan, will be by reducing US employee head count by 78 percent in that time frame.

Reducing employees by more than three quarters in three years is a bold and difficult task. What will it leave behind?  Who, under this plan, will still be a US IBM employee in 2015? Top management will remain, the sales organization will endure, as will employees working on US government contracts that require workers to be US citizens. Everyone else will be gone. Everyone.

Now industries and businesses change all the time because they have to or want to. Big companies and small have to adjust to the realities and changing reward structures of their markets and cultures.  Or they change to better adapt to new opportunities. But what’s happening at IBM is different than that. It’s different because this incredible American success story, if it continues to follow its current course, will utterly fail. It’s different, too, because neither IBM management nor Wall Street seem to have the slightest notion of the peril facing the company. My deepest fear is they simply don’t care.

The first question we need to answer is why this is happening? I think much of that answer can be supplied by Apple co-founder Steve Jobs.  In my film, Steve Jobs — The Lost Interview, here’s what Jobs had to say about IBM, circa 1995. It applies just as well today.

“If you were a product person at IBM or Xerox, so you make a better copy or a better computer, so what?” Jobs asked rhetorically. “When you have a monopoly market share the company is not any more successful.   So the people that can make the company more successful are sales and marketing people and they end up running the companies and the product people get driven out of decision making forums.  And the companies forget what it means to make great products.  Sort of the product sensibility and the product genius that brought them to that monopolistic position gets rotted out by people running these companies who have no conception of a good product versus a bad product.  They have no conception of the craftsmanship that’s required to take a good idea and turn it into a good product and they really have no feeling in their hearts usually about wanting to help the customers.”

This is the first thing to understand about the IBM of today: the company is being run by executives who for the most part don’t understand the products and services they sell.  The IBM of today is a sales organization.  There is nothing wrong with sales if you can also deliver, but increasingly IBM can’t deliver.

The reason IBM can’t deliver is also explained well by Steve Jobs. It’s IBM’s maniacal fixation on process, once a strength but now a cancer.

“Companies get confused,” Jobs told me.  “When they start getting bigger they want to replicate their initial success. And a lot of them think well somehow there is some magic in the process of how that success was created so they start to try to institutionalize process across the company.  And before very long people get very confused that the process is the content.  And that’s ultimately the downfall of IBM.  IBM has the best process people in the world.  They just forgot about the content.”

In this instance content means the deliverable, whether a product or service. IBM smugly thinks it knows so well how to do things that they can export their entire business model to cheaper labor forces in less expensive places to do business. While this is correct to a very limited extent it has been embraced as religion in Armonk.

IBM seems to believe it is cheaper to replace a skilled worker with two or three unskilled workers to do the same job.  That is like hiring nine women to make a baby in one month.  While it looks good on paper it is not practical and is not working.  The language barrier for IBM’s Indian staff is huge, for example.  Troubleshooting, which was once performed on conference calls, is now done with instant messaging because the teams speak so poorly.  Problems that an experienced person could fix in a few minutes are taking an army of folks an hour to fix.  This is infuriating and alarming to IBM’s customers.

IBM’s five year plan ending in 2010 was supposed to double EPS from just under $5 to about $11.  (Today it is closer to $13.)  During the last five years there was an accelerated push of jobs offshore for cost reasons, high attrition rates, and longer product release cycles.  The next five year plan for 2015 is to again double EPS to about $20.  Can this be done? Probably, but the particular way they are going about it is also likely to destroy IBM.

IBM’s biggest money maker is its Global Services business, which also employs the most people.  Ten years ago Global Services was an even larger part of IBM but the company is now making a lot less on its contracts, and the turnover of business is brisk.  It is in Global Services where you see the most jobs being shipped offshore   But the problem is the offshore teams often lack the skill and experience to do the work, problems mount, customers like (most recently) The Walt Disney Company get upset and leave.

I’ll be providing more details in subsequent posts today and tomorrow but I want to end here with a point about how patently unfair and simply stupid this is. When I wrote about IBM five years ago the cost reduction program was called LEAN and it was supposed to mold from Big Blue a hyper-efficient business machine. Yet today IBM has more layers of management than it had in 2007. These extra layers come at a cost both in dollars and in accountability. Those extra layers insulate IBM’s top management from responsibility for their decisions. At the highest levels in Armonk they think things are going beautifully because they are out of touch with the reality of their own company.

Today at IBM the US workers who try to save the business are the first in line to lose their jobs.  Management accountability is gone.  The people who mess up get to keep their jobs; and those trying to retain the business lose their jobs.

How fair is that?

Back in 2007, when I was still writing for PBS, I posted a couple of columns about IBM that caused great consternation for the company. I predicted an acceleration in offshoring and outsourcing that upset IBM employees and customers alike. Thousands of IBM careers were about to be disrupted. The company denied my story and even, I’m told, made a few changes to its plan in response to what I had written. It showed the power of the blogosphere, how one person with a little insight and good sources can affect an industry. And it’s about to happen again.

This coming Wednesday I’ll post another IBM column based on a look I got recently at the company’s plan for 2015.  It’s audacious and surprising and I’m pre-announcing it now, frankly, in hopes that doing so will knock loose a few more details that I can include in that column.

If you have anything to share, please contact me at bob@cringely.com or 707-525-9519.

Though IBM completely denied that 2007 column, the more telling response came from an IBM senior manager I bumped into a few months later. “You busted us,” he said.

Until Wednesday…

Show me the money!

Nothing is ever exactly as it seems in the business of technology and that certainly applies to AOL’s recent patent auction, won by Microsoft with a bid of $1.056 billion. This event wasn’t really an auction and had little to do with patents, yet it probably marks the peak of the current patent bubble.

On the face of it, AOL selling its 800 patents to Microsoft was about raising cash for the troubled online company, allowing it to pass some of that money on to disgruntled shareholders in the form of a one-time dividend or share buy-back. And the patents were substantial, since they included not just AOL’s own productivity but also that of Netscape, Mirabilis (ICQ), and any other AOL acquisitions over the years.  Bidders were Facebook, Goldman Sachs, and Microsoft. But that’s where the obvious part comes to an end.

The reason there was an auction at all was probably because of AOL’s concern about adversarial shareholders. Had AOL simply sold the patents to Microsoft in a private transaction the company might have been at risk for shareholder lawsuits claiming the price was too low. A public auction was the best defense against such lawsuits.

Only the auction wasn’t real.  No company but Microsoft was ever going to buy those patents.

Facebook is friends with Microsoft, one of its larger investors. Goldman Sachs isn’t normally in the business of buying patents, but as Microsoft’s longtime investment banker and the company that took Microsoft public, they stepped-in as a favor to Redmond, making sure there were at least three bidders so the event at least appeared to be a legitimate auction.

The auction started on March 22nd and ended on April 8th, which was probably the shortest such auction in history. Normally the sale of hundreds of patents would have required months of due-diligence from bidders, not two weeks.

As patent theater it played well, too.  Facebook bought 800 IBM patents (notice the identical number) instead for an undisclosed but presumably huge sum, Goldman was simply out-bid, and Microsoft walked with the patent portfolio, presumably to bolster it for the coming battle with Google — a battle I’m not even sure is coming, by the way.

But Facebook’s IBM patent purchase was tiny in comparison with a price tag of no more than $70 million and probably a lot less.  When Big Blue sells excess patents by the pound, which it does regularly, the going price tends to be $20,000 for little patents and $100,000 for big ones. You do the math.

Facebook’s patent guy used to work for AOL and knew what he was passing-up.  Maybe Microsoft will cross-license with Facebook, making the loss immaterial. And speaking of immaterial, if you think the IBM patents went for more than $70 million, how was Facebook able to avoid reporting the transaction details as the SEC requires if they are material to the company’s results?

So why the drama when Microsoft could have just bought the damned patents? Part of that is covered by AOL’s needs as described, above. The rest is Microsoft’s need to make the transaction one that would be viewed as an asset purchase, adding to the company’s balance sheet, rather than a penalty, detracting from Microsoft earnings.

It’s all about accounting.

Remember AOL was one of the companies that successfully sued Microsoft for anti-trust, both in its own name and that of its Netscape acquisition. Microsoft paid AOL $750 million back in 2003. Think of this $1 billion payment as the final installment of Microsoft’s settlement with AOL.

The 2003 settlement with AOL didn’t cover patent infringement.  Even back then Time Warner lawyers felt that there was another $500 million to be recovered from Microsoft for patent infringement. Yet for some reason they never went back for the money.

So Microsoft has had that potential litigation hanging over its corporate head for almost a decade. Not only was there infringement, but that infringement could be easily documented as willful with a decade of litigation leaving a clear paper trail of causation. Microsoft couldn’t claim they were unaware of the AOL patents. And since they were aware they could be subject to treble damages. That’s a potential $1.5 billion hit to earnings.

Much better to cut the present deal, paying just over $1 billion as an asset purchase.

The price was high, but not as high as it might have been for Microsoft, and from an accounting perspective it was ideal.

But as a pure patent sale, the price was probably too high, which is why I say it marks the peak of the patent bubble. Big companies have been bulking-up their patent portfolios of late and my sense is that process is pretty much complete. Apple, Google and Microsoft might enter into a huge legal battle now but I don’t see it happening.

Just like in the Cold War, mutually assured destruction will probably keep them safe.

Jack Tramiel died this week at 83 and that means I missed my chance to know the guy. People have complained in the past that my work ignores Commodore, which Tramiel founded, and Atari, which he took over after leaving Commodore following a fight with chairman Irving Gould. That’s a fair criticism. I haven’t written much about those topics because, frankly, I didn’t know Jack Tramiel. But asking around about the guy yesterday and today it’s pretty clear that he wasn’t at all the way he was typically portrayed.

Here’s what most people know about Jack Tramiel: 1) he founded Commodore in Canada to make typewriters then digital calculators; 2) he was an Auschwitz survivor; 3) he said “business is war,” and; 4) he bought Atari out of spite to wreck his vengeance on Commodore and his former partner Irving Gould.

What I learned this week that I didn’t know before was that the people who worked for Tramiel really loved him. Jack Tramiel was no Steve Jobs: he was better.

“As tough as he appeared on the outside, he was genuine through and through,” said Antonio Salerno, who was vice president of applications for Atari.

“Jack was the most intuitive, naturally brilliant and inspirational person I’ve ever met,” said another friend who worked in engineering at Atari and asked not to be quoted by name.  “He was a true visionary and an instinctively brilliant businessman.  He could see through anyone, right to the heart of their motives.  At a personal level, I absolutely loved brainstorming new product ideas with him and I learned a lot.”

That’s an extraordinary statement coming from one of the best engineers I know: he learned a lot about computers and video games from a guy who drove a cab in New York before entering the manual typewriter business. Jack Tramiel was a genius.

What mattered most to Jack Tramiel was his family — something you don’t hear very often in Silicon Valley. But remember Jack wasn’t from the Valley, having started Commodore in Canada then moved to Pennsylvania where computers were actually invented before following to the Golden State the aroma of Chuck Peddle’s 6502 microprocessor.

The Commodore 64 was a phenomenal success. People forget that in the early 1980s the C64 outsold the Apple ][, IBM PC, and the Atari 400/800 combined. Commodore was the first to sell computers through discount retailers, opening whole new distribution channels. And don’t forget it was Jack who saw the value in Amiga, which in many ways set performance targets that took Apple years to beat.  It would have been very interesting to see how the Amiga would have faired had Jack Tramiel stayed at Commodore.

But he didn’t stay because he wanted to bring his three sons into the business, I’m told, and Irving Gould didn’t want that. The rest is history.  Atari under Tramiel took a good shot with its ST and Mega toward making a cheaper Macintosh and the Jaguar video game was the best of its time.  if the company eventually failed it was due mainly to Microsoft’s and Sony’s success with third-party developers, not Atari’s failure.

Jack Tramiel is gone but the Tramiel boys are not.  It will be interesting to see what they do next.

I have only visited Best Buy Intergalactic HQ once, to meet Geek Squad Chief Inspector Robert Stephens, but it reminded me instantly of the time about 40 years ago when my girlfriend and I picked-up her father from work at Bethlehem Steel. Her dad was a salesman and paid sales commissions but — like every other Bethlehem Steel worker — he punched a time clock every day. I don’t think they punch time clocks at Best Buy, but it has that same 20th century industrial feel that told me in 1973 that Bethlehem Steel was doomed. And Best Buy may be doomed, too, announcing last week the token closure of 50 stores, hinting at a shift to selling only mobile devices, but telegraphing loudly that the company at this point really has little idea what the Hell it is doing.

Best Buy sales have stagnated.  Some pundits feel they have held onto too much real estate for too long.  Some feel they should drop most of their consumer electronics and focus on mobile products. This would make Best Buy exactly like Radio Shack without the advantage of the Shack’s franchise model. Radio Shack would not be in existence today if it didn’t sell cell phones.  But with every mobile network having scores of retail locations, how does “focusing on mobile” help Best Buy make more money?

I can remember a time when Best Buy was a good place to get computer accessories, but no more.  Best Buy will charge me $20 for a cable I can buy anywhere else for $5.  I had to go to Best Buy recently looking for an Ethernet card. They had exactly one card in stock and it wasn’t cheap.

Appliances are cheaper at Lowes or Home Depot than at Best Buy.  It’s the same story for TV’s at places like Walmart.  Best Buy still has an excellent selection of music and videos, but their prices are not competitive.  That’s why same store sales are falling.

Best Buy’s tumble started when CompUSA and Circuit City went out of business.  Normally something like that should have been a good thing for business, but Best Buy totally blew it.  Best Buy killed both of those other electronics retailers, but then they didn’t keep on doing what they had been doing so well.  They replaced their mid range lines of consumer electronics with low cost, house brand junk.  They kept their name brand lines, but only stocked the high end stuff and priced it at a premium, abandoning the middle market that had been their traditional strength.

Best Buy has a crappy Internet sales operation.  Every competitor’s site is better than Best Buy’s.  Best Buy still hasn’t mastered the concept of gift on their website.  If I sent you a gift via bestbuy.com, you would not know who sent it.  If I wanted it gift wrapped, or a card put on it, forget it.  Amazon has had these features for how long, 10 years?

Part of Best Buy’s problem is Information Technology.  In Minneapolis, Best Buy is known as a body shop.  While they have something like 1000 IT workers, most of them are temporary contractors.  They come and go.  The number of IT people who are Best Buy employees is very small.  Too few to effectively set direction or do things well.  Best Buy depends on an army of consulting firms to do its IT planning and projects.  They do what they are asked to.  Unfortunately there is a big disconnect between what the business really needs and what IT is doing.  It is not the army of contractors’ fault. They can only do what they are instructed to do.  Their suggestions and opinions are not welcome.  There are too few real Best Buy employees with a vested interest in the business to give direction and provide leadership.

Shopping at Best Buy last Christmas was a joke.  Best Buy corporate was upset people were using their smart phones to do price comparisons in the stores.  Think about that: Best Buy was upset that their customers were too smart, that they actually used the sort of technology Best Buy purported to sell. Worst of all, Best Buy completely missed the simple point that their prices were too high.

Best Buy’s ability to sell premium products at a premium price after CompUSA and Circuit City went under was a temporary thing,  In technology prices always go down. You can’t plan on charging the same high price for something year after year.

Best Buy thought that with its main competitors on the ropes and the Geek Squad bringing in service business they could control the market through size alone. But you never control the market no matter how big you are. Even Walmart knows that.

That smug attitude is what killed Bethlehem Steel, too, where they thought the secret to employee productivity was time cards, not brain cells, competitive prices, and great new ideas.

Readers have been asking me about the news that actor Ashton Kutcher is going to be playing Steve Jobs in an independent movie about the Apple co-founder to be filmed this summer. It’s fine with me, I suppose, but if we’re going to get all Hollywood about this, the business implications are interesting, especially for Jobs biographer Walter Isaacson, because it probably means a film based on Isaacson’s book will never be made.

The reason I say this is because the last time a movie was made about Steve Jobs it was Pirates of Silicon Valley, which was originally titled Triumph of the Geeks. Sound familiar? I made them change the title, but that’s where my success story ends.

Pirates of Silicon Valley, while officially based on A Fire in the Valley, contained plenty of material that was only covered in my book Accidental Empires and documentary Triumph of the Nerds. These were events that happened after A Fire in the Valley had already been published. But you can’t copyright facts and my book was already optioned by another studio at the time… an option that was never exercised because Pirates came on the market first.  

That’s exactly what I predict will now happen to Walter Isaacson. This Ashton Kutcher movie is not based on Isaacson’s book. Walter’s $3 million deal with Sony Pictures only pays off if a movie is actually made. Isaacson has only received an option payment. I don’t know how much that would be but it’s unlikely to be more than a tenth of the total amount — nice money but nothing like what he’d get if a movie is actually made.

The presence of this Ashton Kutcher vehicle in the market will make it very unlikely that Sony’s Steve Jobs picture will ever be made for exactly the same reason that Pirates killed my chance of success in Hollywood 15 years ago. Kutcher is a legitimate star and millions will have been spent on this movie. If the Kutcher film is good, well then the story’s been done. If the Kutcher movie is bad, well then maybe there wasn’t much of a story in the first place. That’s how Hollywood thinks.

Lots more movies are optioned than are ever made.

Whether one or both Jobs films are made I still see room for a really good feature documentary on Steve Jobs. My little Jobs film gives a glimpse of both the audience demand and possible depth of material, but Steve Jobs — The Lost Interview is something else — more of an artifact than a documentary. It’s fascinating in its own right, but it isn’t a complete story.

There’s still room for a really good documentary on Steve Jobs to give the greater depth and understanding of this character that I think Isaacson never quite achieved in his book, possibly because of his outsider status.

If anyone in Hollywood is listening, I’d like to be the guy to make that Steve Jobs documentary.

Have your people call my people.

Sometime last year computers at the U.S. Social Security Administration were hacked and the identities of millions of Americans were compromised. What, you didn’t hear about that?  Nobody did.

The extent of damage is only just now coming to light in the form of millions of false 2011 income tax returns filed in the names of people currently receiving Social Security benefits. That includes a very large number of elderly and disabled people who are ill-equipped to recognize or fight the problem. It’s an impact pervasive enough that the IRS now has a form just to deal with it: Form 14039: Identity Theft Affidavit, December 2011.

The Wall $treet Journal has a story about this problem specific to Puerto Rico, but the Journal fails to mention that this is a national problem — a $30+ billion problem.

The story is going public now because tax season is upon us and there’s no way to keep it under wraps as people file their tax returns only to learn that a return under that name has already been filed with refunds paid electronically into a bank account now closed. The December date on that IRS Form 14039 shows the Treasury has been expecting this for awhile.

The question being asked about this in Washington, DC today is whether this hack was an act of war? More likely an act of Tony Soprano, I’d say. If the goal of war is to sow confusion and discontent, then okay, maybe China or Iran are behind this (you don’t have to be a superpower to take on the U.S. government anymore). But the more probable goal is simply to steal money and that’s a domestic job.

Either way, that big hacker score guys like me have been predicting for several years has finally happened with draconian policy changes sure to follow. Lucky us.

While I was out chasing computer history last week, the Linux 3.3 kernel was released. And a very interesting release it is, though not for its vaunted re-inclusion of certain Android kernel hacks. I think that modest move is being overblown in the press.  No, Linux 3.3 appears to be the first OS to really take a shot at reducing the problem of bufferbloat. It’s not the answer to this scourge, but it will help some, especially since Linux is so popular for high volume servers.

Bufferbloat, as you’ll recall from my 2011 predictions column, is the result of our misguided attempt to protect streaming applications (now 80 percent of Internet packets) by putting large memory buffers in modems, routers, network cards, and applications. These cascading buffers interfere with each other and with the flow control built into TCP from the very beginning, ultimately breaking that flow control, making things far worse than they’d be if all those buffers simply didn’t exist.

Bufferbloat was named by Jim Gettys of Bell Labs, who has become our chief defender against the scourge, attempting to coordinate what’s become a global response to the problem.

Linux 3.3 isn’t the total solution to bufferbloat but it’s a big step, particularly for servers.

Prepare for technospeak.

One issue is the very large ring buffers described above.  A typical device driver has these buffers set at 200-300 packets, a figure derived a decade ago as a worst case to allow devices to drive Gig-Ethernet flat-out using small packets. But not all packets are small, and there’s the rub.

Because these rings are necessarily expressed in packets, rather than in bytes, the length of time to transmit the packet can be radically different and this meant the arbitrary buffers can be up to 20 times larger than they need to be when sending big packets.  These rings are often constrained to be powers of two in size, and the size can’t easily be changed at runtime without dropping packets.

So the Linux 3.3 kernel now implements Byte Queue Limits (BQL) which controls how many bytes, rather than how many packets, go to the ring buffers at once.  The buffer size can now depend on the size of the packets — many for small packets, or only a few for large packets. Buffers get smaller and life gets better as a result.

BQL is currently implemented for Ethernet where the buffers can be sized so we can take advantage of smart hardware at high bandwidth. But BQL is not available for wireless networks, nor is it likely to be, simply because wireless bandwidth varies too much to express limits in terms of bytes.

According to Jim Gettys, the ultimate answer to bufferbloat is Active Queue Management (AQM), which isn’t yet ready for prime time but may be soon. Here’s Jim’s explanation from a message he sent me last week:

The purpose of buffers is to absorb bursts of traffic, which often occur in a network. You’d prefer to keep buffers almost empty even when running the link at its full speed to minimize latency; in fact, TCP running ideally can deliver packets close to “just in time” for the next transmit opportunity, so if TCP is running at the link speed, even though there is a buffer, the buffer could conceivably be kept (nearly) empty, and impose little delay.

But any size of unmanaged buffer can and will fill, and stay full. After all, TCP is designed to run “as fast as possible”.  So no matter what size “dumb” buffer you have, it can/will add latency; how much depends on its size.

In the face of variable bandwidth, and today’s internet with CDN’s, the traditional 100ms rule of thumb sizing of buffers (already excessive for good telephony) is nonsense. You don’t know the delay, you don’t know the bandwidth, so you really, really don’t know the bandwidth-delay product to size the buffers with…..

What AQM does is monitor the buffer, and signal the end points to slow down any time the buffer starts to fill, either due to that one transfer or competing transfers, by dropping or marking packets.  So the buffer is kept (almost) empty, except when it is handling a burst of traffic. So the steady state latency of the buffer, rather than being the size of the buffer, is set by the size of the bursts in traffic.  The size of the buffer becomes almost irrelevant.

Any link without AQM at a bottleneck is really defective; we must use an AQM algorithm everywhere….

The classic AQM algorithm is known as RED. It, however, is defective and requires manual tuning and can hurt you if it is mis-tuned.  As a result, it’s not present in most edge devices, and not even turned on in many ISP networks where it should be.  

What we need is an AQM algorithm that does the right thing without manual tuning, capable of dealing with varying bandwidth.  I’ve seen simulations of an algorithm that apparently works, but it’s not yet available and has not been tested or fully simulated.

This is Bob again. So Linux 3.3 with BQL is good but not good enough. AQM is required but that’s still two years away from shipping in devices while the mystery algorithm is tested and the network diplomacy begins.