Monday, December 29, 2008

Our Nation: So where do we go from here? Part 3

In my humble opinion, the two most distinctive elements of the United States of America's economy are freedom and entrepreneurialism.

The First Amendment of the U.S. Constitution states, "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances." What is so striking about this, and quite frankly all of the U.S. Bill of Rights is the negative language. "Congress shall make no law;" or "shall not be infringed" (2nd); or "No Soldier shall" (3rd); all are written to limit or forbid the Federal Government from entering into the lives of its citizenry. This is one of the most profound statements of freedom in the history of politics, society and I will argue, economy.

The Declaration of Independence is more positive in its tone, calling out "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."

It is this complete commitment to freedom which beckons millions to our country each year -- from India, from Vietnam, from Korea, from Central and South America. It is this commitment to freedom which inspires so many Americans to pursue their personal visions and start new businesses -- in technology, in medicine, in transportation, in communication, in services.

This second element is the spirit of entrepreneurialism, which beats proudly in the heart of the United States of America. My father was an entrepreneur, and growing up, I saw the passion and conviction he brought to being a founder and owner of a small business. For Jerry Bell, there was no other path. It was his purpose. He was not interested in being part of a larger corporation.

What are the hallmarks of the entrepreneur, regardless of field? I would argue that the entrepreneur is exemplified by four key traits:
  1. A clear vision of the future, many times based upon intuition, for how things should be, but are not that way...yet! Yes, there are observed facts, but the entrepreneur puts them together in a new way, or sees things in a different light. They wish to right the wrongs. They wish to make things more efficient or effective. They see solutions for problems that others do not see.

  2. They have an unique approach to power and authority. In the case of established power structures, they tend to question and rebel. They are the first to call out abuse of authority, and the evils of bureaucracy and politics. When it comes to their own companies, there is no "right way," but entrepreneurs tend to make decisions effortlessly, and eschew structure for speed. They attract people both like them, or better said, who accept them. This is why some famous entrepreneurs are autocrats, and others democrats, but both models can be successful. They are comfortable with power and authority, and pursue it in a way that is natural for them, and they attract people who are drawn to their specific approach.

  3. They embrace risk. This is not to success that they are fool-hardy or do not consider some risks too great to take. Every successful entrepreneur will have a risk/reward analysis. Every one will evaluate the likelihood of success. The different comes in the entrepreneurs ability to ACT! They will move forward when the odds are in their favor...meaning 51% versus 49%. Most people will only move on an idea when they see a 90% chance of success. This is what distinguishes the entrepreneur from the rest of us.

  4. They have the ability to galvanize support for their vision. They can persuade those who fund, and those who execute, and those who purchase the vision. They tend to appreciate diversity of opinion, and can incorporate input without losing the essence of their vision.
Freedom and the spirit of the entrepreneur are indeed the two keys to our nation's past and future success. Now do they also apply to our established corporations? Can they serve as lessons to fix the financial and banking sectors? Can they help the automotive, retail, technololgy sectors? Yes, as an inspiration for new entrants, but can they help reform that which is broken? I believe the answer is yes.

I used to call myself an intrapreneur while working at Ford and Chrysler and Microsoft. The degree to which I was able to effect positive and lasting change, I embodied these four truths. When I failed, and I indeed have had my share, I was not successful because one or more of these four elements were not clear, compelling and well executed:

  1. The vision was too much of a stretch for the existing culture and structure. The new vision was at odds with what people saw as that which made the company successful in the first place. The new vision threatened internal power blocks, and elicited overt and covert hostility by those threatened.

  2. The change was seen as a power play for the benefit of the instigator, and not as a solution for everyone's success.

  3. Large companies have more to lose when they take a risk, and are therefore prone to the "90% certainty" and not the "51% certainty."

  4. The people in large corporations chose them because they were large and "safe." They are not the same as those who "choose" to join a start-up or follow an entrepreneur. With that said, when an intraprenuer or change agent has time, people will "opt in and out" of her or his team.

As I now spend more time with start-ups, I see clearly that they will be the engine of our renewed economy. I also believe that their values can indeed inspire great reform for our nation's "old school" corporations. One reason that there are "break-ups" of companies is so they can unleash this spirit of freedom, innovation and growth. Let's hope that politics does not get in the way!

Tuesday, December 16, 2008

Our Nation: So where do we go from here? Part 2

U.S. Interest rates
Over the next two years, rates will be low by historical standards. This will be bad news for fixed income investors, and good news for borrowing costs. In the 5-10 year time frame, there will be pressure for U.S. interest rates to rise due to the size of the U.S. government budget deficit. In addition, as the economy rebounds (and trust me, it will rebound), then the Federal Reserve will raise interest rates to hold inflation in check.

So when the government spends more than it collects in taxes, who pays the difference? Today, the shortfall caused by taxes collected being less than government expenditures, has been funded by foreign government purchase of Treasury bonds of various durations. Indeed, of all of the "savings" in the world, the U.S. consumes 85% of it to finance its borrowing. Mind you, the shortfall could be funded by US citizens buying government bonds, and if investors become more risk averse over the next two decades, this may occur. But even if that happens, the U.S. government needs foreign purchase of bonds.

Quick aside: if private pensions invested more in U.S. Treasuries, safeguarding retirement contributions, we could solve two problems at once.

So let's examine this question of foreign ownership of U.S. Treasuries, and consider whether they will continue to buy them as they are today.

As in most things, there are two sides to this argument -- those who think foreign governments will not continue to buy U.S. Treasury Bonds, and those who think they will. I fall in the latter camp, but let's examine the former.

Some financial and economic observers say that foreign governments will stop supporting the U.S. government's issuance of debt. They argue that diversification theory promotes holding non-U.S. debt. They argue that the lower interest rates that are being offered are not sufficient (hence mid- to long-term interest rates should rise). They also suggest that foreign governments may "blackmail" the U.S. and threaten to stop purchases unless the U.S. does what they want geopolitically (say withdraw troops from Iraq).

On the other side, there is an argument that the "savings" in the rest of the world are driven by the sales of goods and services to the U.S. by its trading partners. For example, ask yourself, "where would China sell their goods if not to the U.S.?" The same is true for everyone. Yes, the U.S. is the 2nd largest producer of oil, but it still imports from Canada, Mexico and Venezuela (and a little bit from the Middle East, maybe 15% of the total). So the question becomes, "why would our trading partners harm their single largest customer?" The answer is, they will not. This is why the blackmail argument is spurious. Let me make certain that this point is clear -- the world builds and sells products which are sold in the USA. Without question, they sell the most profitable (e.g. highest margin) in the USA. The profit they reap from their sales of goods and services can either be repatriated (which causes an increase in both their money supply and inflation) or they can keep the profit in dollars. The way that do it is through the purchase of Treasury Bonds. If they stop buying them, they hurt their biggest customer, AND they run the risk of hyper-inflation at home.

Also supporting the argument that foreign investment will continue is the simple fact that the the U.S. government is without question the safest place to invest. Please review below all the reasons I articulated in Part 1 that make this true. The ability of the government to tax and collect; the ability to maintain law & order; and the raw assets available as collateral; all support the credit-worthy nature of the U.S.A. Where would you trust your money in lieu of the U.S.? Russia, China, India, Brazil? All have political risk. The UK, France, Germany? All have significantly lower levels of assets and a smaller tax base. Unlike our developed friends, the United States has the ability to grow. The economy is huge, but can still grow 2-3% because our population is growing; because we have space for new citizens; because we invest in education, research and development (especially with venture capital start-ups).

So will interest rates rise? Yes, they will, but more in response to the very low rates we have now. There will be pressure to fund the federal deficit, but remember, the Clinton Administration ran a surplus on the back of the Reagan/Bush/Clinton economic expansion after the last major recession (Carter). This too is possible in the next two decades.

The U.S. Dollar
Should the average citizen care whether the dollar buys more or less units of another currency? Probably not. Most Americans do not travel extensively abroad. Moreover, the travel industry is very competitive, and deals are always available. With that said, there are several reasons why the U.S. Dollar will fall over the next decade.

1. There will be higher relative growth rates in other parts of the world. In Europe, there is still considerable growth to be unlocked by the continuing elimination of national trade and competitive barriers. There will never be a "United States of Europe," but it is clear that there will be 2-3 Euro champions in each industry as opposed to the historical "national" champions (think banking, energy, aer0space & defense, consumer durables, autos, consumer perishables, fashion). Moving beyond Europe, the BRIC nations will grow faster than the U.S. in the future.

Word of caution -- the $ amount of growth that the U.S. will generate on a $13 trillion base at 2.5% growth is $325 billion per year!!! Notwithstanding, the dollar will still fall due to relative changes.

2. A lower dollar makes U.S. exports more competitive, and makes imports more expensive. This is a check upon the trade deficit. A weak dollar is one reason why oil rose so fast so far. It is denominated in dollars! Same is true of gold and other commodities. The dollar's weakness explained 20%+ of the rise in commodities in 2008.

3. The most important reason the dollar will fall from today's level, however, is that it makes the debt paid in the future cost less than paying it today. This has been a specific Bush Administration policy, and quite frankly, a good one.

To summarize, the interest rate is not the reason foregin governments buy U.S. Treasuries. They do it to maintain balance of payments for international trade and to support their biggest market. Domestic interest rates will rise but will do so for domestic economic and inflation reasons, but not to attract buyers of U.S. Treasuries. And finally, the U.S. dollar will fall again for global macroeconomic reasons, and it is not a bad thing for our nation.

Monday, December 15, 2008

Our Nation: So where do we go from here? Part 1

I wanted to write optimistically about our nation's democracy and capitalism. But before I address what I see in the next 3-5 years, I should start with my underlying assumption, and why I believe it to be true:.

The United States of America is an incredibly unique social, economic and political construction, and it is the best the world has ever known. Not perfect, but perpetually driven towards auto-improvement.

Natural Resources: which other country has the vast amounts of natural resources, in quantity and diversity, as the United States? None.

The USA has 30% of the world's natural gas, 22% of its coal, 8% of its oil, copper 15%, Gold 15%, Silver 13%, Aluminium 17%, Magnesium 29%...

Go to to see the entire data set.

Human Resources: which country has the size, scale and scope of the US education system? None.

The USA has 4,140 colleges and universities with 17,500,000 undergraduate and graduate students? No other country comes close by any measurement.

Economy: which country has the size, scope, freedom and investment of the USA? None

The United States has a GNP/capita of $46,000. While there are some countries mathematically above it, the only statistically significant difference is Luxembourg, Kuwait, Norway and Brunei (all $59,000/person and above). The United States represents 25.4% of the World's Gross National Product. At $13.8 trillion, it is 3.2 times larger than Japan (#2) and 4 times larger than Germany and China (#3 and #4).

See the World Bank data at:

Population: What nation is more ethnically diverse than the United States? None.

For Darwin fans, that means the law of natural selection is working in our favor. We also know that we are becoming increasingly diverse. See:

If you exclude refugees, the United States has the largest number and percent of population from legal and illegal immigrants. But the key here is that people WANT to come to the United States to be free! Freedom of religion, of speech, of political expression, of opportunity. People come to be safe, get jobs and educate and raise their children.

Arts, Science and Culture: By any measurement, the United States has more diveristy, opportunity, funding and excellence of the arts & sciences.

That's enough for now. I will return with some thoughts about what is next.

Post script: My son, Jon, asked me what nation was the greatest. My answer is the USA

US Autos: whichever way we go, let's get this right

A sound plan from Tom Epley's Bold Exec Blog. I agree with this 10 point plan. Worth reading...

Sunday, December 14, 2008

The search for happiness Part 1

Perhaps it is a consequence of middle age, but more and more of my friends are pondering the meaning of life. To be fair, the terrible economy is also a causal factor, as far too many of my friends have lost jobs or fear losing them shortly.

I have friends who are atheists. I have friends who are agnostic. I have friends who are both committed and causal Christians, Jews, Hindus and Muslims. I find, however, that the questions are very much the same. What is the purpose to my life? Am I loved? Do I love others? Does my life matter? Can I be happy?

Today, I was reminded of words of wisdom from Mother Teresa. As we approach the second most important Christian holiday, Christmas, we find that one of the key lessons from Advent is the discovery and pursuit of JOY. First and foremost, I should clarify that joy is not pleasure. Pleasure is sensory-based. Joy is spiritual.

Due to the fact that I graduated from Kenyon, and majored in the history of ideas or philosophy, most of my friends tend to have a bias towards intellectual exploration of happiness and the meaning of life. I find a large number of people depressed. They have an emptiness in their lives. And interestingly, the more they focus upon themselves the harder it is for them to be happy. The more they look inward, the farther they seem to be from getting to an answer.

Mother Teresa had some thoughts on this. She said that JOY should be understood as Jesus, Others, Yourself. Mother Teresa said that by reading, reflecting and implementing the Word as revealed by Jesus, people would find happiness. She also said that when one is in doubt, or sad, or troubled, then focus upon helping Others. It was this act of self-denial and focus upon giving support and care and love to Others that makes everyone more Christ-like. Now comes the interesting part -- like nature, God does abhors a vacuum. When you give of yourself to Others, then God fills the void left behind, and You feel happier. You feel content. You lose the feelings of disappointment and loss and sadness.

Wednesday, December 10, 2008

Big 3 Part 3 -- Closing in on the finish line

As we get closer to an agreement for supporting General Motors, Chrysler and Ford, I continue to press for structural reforms.

What concerns me is the lack of discussion around several issues:

1. Rationalization of brands and dealer networks: whoever becomes the Car Czar will rue the error of not being granted sweeping powers to supersede state franchise laws. GM had to pay millions to dealers when they retired Oldsmobile. This cannot be the case going forward. Furthermore, continued consolidation of GM, Chrysler and Ford dealer networks is required -- and speed and low cost is the key.

2. We need to incentivize consumers to "Buy American." I am perplexed by the failure to address this requirement. It should be a hallmark of the Obama-Biden stimulus program. I favor tax credits, like those for hybrid vehicles.

3. There are two meta-goals above this issue. President-elect Obama should use the U.S. auto industry crisis as a "laboratory" for fixing Medicaid/Medicare and Social Security. We must move to a defined contribution plan for retirement. We must get people to pay fair value for medical services. Insurance should be for catostrophic accidents and illnesses. We need to have a cost associated with not taking care of oneself (smoking, over weight, lacking exercise, etc.).

Sunday, November 23, 2008

So why not Chapter 11?

I agree with my good and respected friend, Don, who kindly left a comment. We need to accelerate the pace of de-consolidation or break-up of the parts of the Big 3 Automakers. How fast we can move is limited by socio-political structures. The key here is the UAW. Either they exist in a radically modified sense or they may not exist at all. Clearly the import manufacturers in the USA are not unionized, and they are much better off. I believe politics (especially for the Democrats) will necessitate that the UAW must exist, but with concessions and modifications. Hence, I think we evolve to Don's vision of a new approach to auto manufacturing through either Chapter 11, or a government guaranteed loan program with concessions.

Why do I favor a 1979-type of approach? The answer is two-fold:

  1. Chapter 11 will kill consumer demand. I was riding in a cab in San Franciso, and the driver, an African immigrant, said, "Hey, I'll ride in a plane of a company in bandruptcy, but I don't want a car with a warranty from a bankrupt auto maker." I think this is emotional, but real.
  2. Chapter 11 will take too long. I also think that Chapter 11 will take 2-3 years of NEGOTIATION before real work starts getting done. Yes, the companies still operate, but they will do so under "busness as usual" approaches. I want to get the radical restrucuring agreed to in the next 2-3 weeks!

Comments welcome. This is really important!

Friday, November 21, 2008

Big Three Rescue Part 2 -- Let's learn from Chrysler 1979

I am hopeful that my proposal for government-guaranteed loans and credit lines for the Big Three, in exchange for the meaningful structural changes, will soon become reality.

Without knowing it, I was in some ways recounting what happened under President Jimmy Carter in 1979 with Chrysler. Check out this wonderful article from Time Magazine’s archives:,9171,947356-1,00.html

To summarize,
  1. The government guaranteed loans to Chrysler totaling up to $1.5 billion
  2. Chrysler had to secure another $1.43 billion in private financing at reduced rates from banks
  3. Chrysler had to gain concessions from suppliers on cost and financing
  4. Chrysler committed to $462.5 million in concessions from the company’s union employees, plus another $125 million from salaried workers.
  5. Chrysler shed unattractive assets (wholly owned parts and components factories), cut the workforce.
  6. The US government also extended the deadline by two years for Chrysler to meet C.A.F.E. requirements.

As referenced in the above article, the Holy Grail was the K car platform. Since I drive one, a 1986 Plymouth Reliant to be exact, I am obviously a big proponent. The K car was under development and would lead to over 10 million vehicles produced off of one platform. The first minivan was derived from the K platform.

The other point made in the article was the charismatic sales leadership of Lee Iacocca. But the substance of the turnaround was both operating changes, AND new great product. Iacocca had to fire thousands of managers and salaried staff. The UAW leadership begrudgingly agreed to concessions. While many suppliers initially balked at the concessions required by the company, they all eventually agreed. Finally, the U.S. banking system, 442 lending institutions, agreed to terms which led to Chrysler accessing the loan guaranteed by the U.S. government.

As I have argued, a radical restructuring must take place.

The other point which cannot be forgotten is that we must stimulate demand. Iacocca did it through pragmatic patriotism. I don’t know if patriotism will work this time around.

Also remember, Chrysler benefited from falling interest rates and a rebounding economy.

Oh, and yes, President Ronald Reagan imposed a “voluntary” restriction on Japanese imports. It may be wise for President-elect Obama to consider that as well for 2009.

I believe some intelligent form of "buy American" -- I have suggested Tax Credits but another idea is more than welcome -- is necessary. Comments welcome!

Monday, November 17, 2008

Everybody wants to know what I think about the Big 3!

Well, because I spent 17 years in the auto industry, I am getting a great number of inquiries about "what should we do with the Big 3?"

What I share here are my own opinions. I do not suffer from naivete about how hard this will be. But I do wish for a sustainable resolution, and not just another short-term fix, which inevitably leads to more pain and hardship in the near future.

Here are my thoughts for beginning to truly address the Big 3 issues. I believe that there should be no "free lunch." I do not support a "no strings attached" plan for the Big 3. They need support and encouragement to make the changes they have discussed for decades.

If our government supports the domestic-owned industry with loans or grants, then in exchange, it must seek to create a viable business for employees, and a return for investors. The only way to guarantee employment is to create an ongoing and viable business model that can compete and win. To survive, and in the future prosper, the industry must reform.

Here are the types of radical changes needed in these dire times:

Topic One: Lower labor cost per unit, health care cost per unit, and pension cost per unit.

1. An immediate reduction of UAW payroll and benefits is required. I estimate a 20+% may be needed. In exchange, employment is guaranteed for one year at today's level, and the dollar value of the lost wages and benefits is placed in a government regulated health care and pension program. This same wage reduction would apply to all white collar employees, but their employment must continue to be rationalized further, with perhaps 25+% potential job losses. The white collar workers are more fungible than their blue collar counterparts. This is why employment is so critical. Re-allocating the UAW labor is not an easy thing to do.

2. I cannot do justice to the idea of creating a health and pension program for the auto industry in this blog. This process has been underway for some time. John Devine's genius work to secure a Trust for GM Pensions is one model. There is funding now, but it needs to be set up separately from the auto business. We must have a defined contribution program, and not a defined benefit program. Those days are over. Health care also needs to establish emergency support for major illness and accidents, and set a floor for support. But a new system must begin to insure some semblance of market forces. People need to make good decisions about whether to smoke, be overweight, etc. based upon the true costs to their lives. In the same way, the medical decisions they make must have some association to reality. Insurance can help for the unnatural, but elections must be market-based. I will have another entry to express the similarities between an entitlement mindset for credit (I want it now and will pay later) and the entitlement mindset for health care (I can do whatever I want and somebody else will pay).

Topic Two: Get Consumer Demand Up for Domestics

1. I can say without any embarrassment that GM, Ford and Chrysler automobiles are high quality automobiles. I am a brand marketing expert, and I know that the quality issues of the past still bias many consumers against the Big 3, and towards imports. There are also other reasons why some people like imports, but that is irrelevant to review here. Suffice it to say that if we can get people to "Try a Ford Lately?" then we will not disappoint them. Same is true for fantastic vehicles from GM and Chrysler. Up and down the line, they are really strong.

2. So what do we do? I believe that the U.S. government should provide consumers with a tax credit when they buy American cars. These are CREDITS. They would in effect be a check if no tax is due, and reduce taxes owed dollar for dollar. There should be a $1,500 minimum growing to a maximum of $5,000 (10% of net price paid).

Topic Three: Lower Fixed Costs, Research & Investment

1. Closure of excess capacity. I don't have access to the details, so I am making an informed estimate here, but General Motors has 5, Ford 2 and Chrysler 3 plants that have been frequently targeted for closure. They should be closed. It is ugly and painful, but necessary. As plants close, remaining plants must absorb as much union labor as possible. The goal will be for all plants to go to a 3 shift format. Investment from the government must go to increased plant flexibility to build 2 or more models in each factory, and move towards specific emissions and CAFE goals. There may be permanent layoffs of UAW workers after one year, but we can address that with other programs.

2. All capital expenditure for new model development should be deferred by two years to conserve cash. The only exception would be for alternative fuel power trains. Have all R&D focus on bio-fuel, electric, and fuel cell. I agree, if only to gain support for the plan, with Jennifer Granholm that we should further energy independence and national security with this rescue. I would not be opposed to having the U.S. military partner on development and deployment of new technologies.

Topic Three: Suppliers and Dealers must also contribute.

1. There may be some reductions for suppliers, but they have been squeezed a great deal in the past decade. Some of them may need to participate in the government-led wage/benefit concession for health and pension programs.

2. We learned at Chrysler in the early 2000s that dealers have options. Even still, this is very serious and I believe they will be willing to contribute if they can help save the Big 3. I believe they need to accept a lower margin on all aspects of their business (retail minus wholesale). In exchange, they could receive 180 days or more of interest free floor plan to hold full inventory in return. Again, this stimulates lending, which is good for the economy.

To summarize, the government support leads to creation of a single health and pension program. It guarantees employment and viability via management and labor wage and benefit reductions. It also incentivizes consumers with a stimulus program. There could also be a pro-lending element for financing autos, and supporting inventory and wholesale with dealers.

The alternative to government support is Chapter 11 (which is also a form of government supervision). In bankruptcy, the unions will lose. The question will be how much. They come before shareholders and after creditors. They will not easily be re-employed. They need to accept their role in all this, and take a cut for some certainty. They will say it is not there fault that Detroit cannot design cars people want. That is offensive in its absurdity. There is blame to go around. Time to put up and shut up.

There are no winners in my plan, save consumers, in the short-term. Shareholders will likely lose everything. All employees take a hit. Some factories will close. But the industry survives, and will eventually prosper. If done correctly, the pension and health care programs created can pave the way for solving our national health care and Social Security crises. In the long-term, the industry will move towards a cleaner and more prosperous future. And by long-term, I would target 2010.

Wednesday, November 12, 2008

Another Trend -- Nostaglia

What do Glen Campbell, Seal and James Taylor have in common? They have all put out cover albums in the past month. Is it co-incidence? Maybe, but mark my words, as the economy continues to suffer, people are going to be going for nostalgia. We will see it in music, in movies and TV shows. We will see it in fashion. People will want to reflect and reminisce about the past as they struggle in the present.

Monday, November 10, 2008

My thoughts for Our President, Barack Obama

While I have posted on what I think the country must do to succeed (see below..."8 points"), I would like to continue with a humble open letter to our President, who is facing a very difficult environment. But he is the leader who can indeed make the right things happen for all of us.

So what should President Obama do? Perhaps two recent articles provide a little guidance. The first was in Businessweek by Michael Porter:

In it, he outlines what has made America successful. The second piece appeared in the Wall Street Journal. It is an editorial by Henry Olsen published yesterday called "What would Reagan do?" In it, the key theme was "focus on freedom."


Both Porter and Olsen have as a foundational element this theme of freedom. Let's reflect and explore upon where our great nation must go to continue to be great. What makes us unique? Clearly freedom is a foundational element.

To summarise what I saw in Porter's article, he feels the keys to our past and future success are:
  1. Free enterprise: I believe in the entrepreneur. My father was one, and I guess for the time being, I am one too. The spirit of owning property -- real and intellectual -- and being able to make the most of it for yourself, your family and society, is at the bedrock of the Federalist Papers, and our Constitution. Being able to see opportunities outside of government, to solve problems via commerce, has been the driving force of creativity and employment for the USA. How do we make it possible for more people to create jobs for themselves and for others? How do we truly empower the people most engaged in this election; many of whom feel disenfranchised?

  2. Innovation: while this is closely linked to start-ups, it is not exclusively the domain of them. The government, mostly through the military, drives tremendous amounts of research & development. The airbag, anti-lock brakes, Google Maps, all came from our government. I am far from an advocate of bigger government (I believe George Bush and Congress have wasted trillions in the past eight years). My question is, "can we find ways to make available more of the R&D to the private sector, perhaps through the SBA, to get more people working on new business development in energy, technology, education and transportation?"

  3. Higher Education: we have the most robust university and college system in the world. Students and professors desire to attend and teach here. But the "feeder system" is in duress. We must find a new model to fund and insure excellence for all students in public education. We must also find ways to share best practices from the private, Christian and Catholic schools. My experience with private schools is that the teachers are not "in it for the money." With a mother, aunt, brother all in the teaching profession, I see that a true love for teaching is at the heart of their professional choice. How can we use technology and collaboration to provide more resources and support across the entire national system?

  4. Free markets for capital -- human, physical, financial and intellectual: We have demonstrated the ability to change faster than any other nation in history. We have restructured industries (agriculture, steel) and must do so again (autos, healthcare). We renew and restore as we innovate and grow. The key is efficient allocation of resources for optimal growth and prosperity. This means a focus upon productivity in all areas of commerce. Yes, change can be painful, but trying to avoid it just prolongs what will ultimately be much worse. Having the right programs in place to transition is key. Do we have any role models? Yes, we do. We should study how South Korea moved from ship building to autos in the 1980s.

  5. Decentralized governance of the economy: Porter argues that our nation has succeeded because we have not tried a "one size fits all" approach from Washington. Born from our federalist origins, the states and regions of the US have consistently addressed the unique problems they face on local basis. I have seen what good policies provide for urban renewal in Philadelphia (preparing for 1976 bicentennial celebration) and in Cleveland. I have seen what poor policies do as well in Detroit. Everyone should be familiar with what is going on in Nashville and Tennessee. That city has very progressive, pro-business tax and policies in place and it is exploding with jobs and growth.

  6. Acceptance of failure; learn and move on: No one likes to fail, but moving quickly beyond mistakes and getting it right the next time is a hallmark of American industry. I remember Alan Gilmour, Vice Chairman at Ford Motor Company, saying that a good strategy was being a fast follower. Ironically, some feel that this is not true to the American spirit, but that is far from the truth. Indeed, let people pioneer, but we must have those ready to pick up the pieces from any failures, and be the ones to learn and get it right the next time. Look at Apple. They did not invent the MP3 player. But they followed and got it right.

While I have laid out some suggestions above in response to Porter's plans. Let me be so bold as to suggest to our President-elect, what should we do now? My suggestions come from a profound belief in freedom of opportunity, but also a gentle hand to insure that equality is not reduced to "survival of the fittest."

  1. Let's get ready for the inevitable fragmentation which will follow the present state of consolidation. I have seen in my lifetime a consistent pattern WITHIN industries of consolidation then fragmentation. Look at airlines (mergers then start-ups, then mergers). Look at retail (start-ups then acquisitions, then spin offs). How can positive growth policies help people take advantage of new opportunities? As people "hunker down," can we not encourage small businesses in local communities. By getting stores back into the neighborhoods -- urban, rural and suburban -- we can increase law & order, education, and job stability. Why would we not wish to link our agricultural policy with the creation of retail neighborhood groceries?

  2. Trade agreements should not be tied to buying armaments. They should be tied to infrastructure investment. If they are loans, so be it, but if they are grants, then pay as the projects are accomplished. Many have lost faith in global trade, and this faith should be restored, but it will only be done by showing that our investments are yielding prosperity and stability abroad. We need strong markets for our exports, and viable trading partners for more than just commodities.

  3. Universities should be asked to use their endowments to promote research and development. And these projects should be used to create new businesses via Venture Capital and SBA support.

  4. Let's take Americorps, our National Service Corps, to another level. Remember, it was created by George H.W. Bush and strengthened under Bill Clinton. let's re-invigorate our Peace Corps with a specific commitment to a four year college education at the end of 2 years' service. Let's get a commitment from the best endowed universities to jointly fund this program, as sponsors of both the Peace Corps and Americorps. We have the national health services corps already. What is our plan to get people involved in fixing healthcare? I would suggest young people should be part of the solution.

  5. Let's get Social Security right! Let's make the tough call and move towards a Defined Contribution Plan rather than a Defined Benefit Plan for all pensions -- public and private. Let's set minimums and maximums. Let's put the funds into inflation-adjusted government bonds (TIPS). Social Security should be an incentivized savings plan for both unemployment and retirement. We should seriously look at revising our unemployment p0licies as we take on Social Security.

  6. Let's get serious about protecting intellectual property. The key for the 21st century is in authentication, validation and commercialization of software/hardware relationships. This is where some of the billions in university endowments should go. I believe both private and government R&D is making progress, but standardization in this technology could unleash billions of dollars of profit and investment if we can get a secure and stable platform.

  7. Separate public education funding from property taxes. It is a guarantee that poor areas do poorly. I also think a new alliance between private and public schools should be fostered to align excellent curriculum and professional development for teachers.

Those are my initial thoughts. More to come. The underlying support for these are freedom: freedom of speech, of thought, of property ownership, of assembly, and yes, of opportunity.

Friday, November 07, 2008

Why I love the Lex Column

For the past 20 years, I have told anyone who will indulge me, that if they could only read one thing each day, that one thing should be the Lex Column in the Financial Times of London.

Why do I love the Lex?
  1. It uses case studies to teach

  2. It is not afraid to use an advanced technical and financial lexicon.

  3. It makes me feel smart

  4. It has a sense of humor

Let's look at each in turn. First it goes without saying that case studies, when done well, are very effective tools of instruction. Granted, Lex keeps the words to a minimum, but everything that is written is tied to a company, industry or goverment. The Lex column rarely invokes theory without a specific example. While it is true that the majority of comments are negative, I would argue that Lex uses the concept of criticism in its true Latin intent; "kritikos" means "able to make judgments." Yes, the English use tends to have an overtone of "faultfinder," but Lex always discusses what SHOULD be done. It is able to make a judgement and provide guidance.

Second, for those of you who studied business, and certainly all you MBAs and Finance types, the Lex is not afraid to apply the concepts of EBITDA, Discounted Cash Flows, Current, Quick and Debt/Equity Ratios, and Interest Coverage, in nearly every column. But they frequently take a step back to remind readers as to the definitions of these concepts. They explain how they calculate them, and how they should be used. They also regularly review common financial and business measurements and discuss their relevance (Basil II comes to mind). Last, but not least, they also discuss less robust rules of thumb for evaluation.

Third, and yes, this may be repeating the fact that the majority of the Lex is "taking the piss out of someone" (to coin an English expression), but when I read about how poorly others are doing, it makes me feel smart. I think, "no matter how tough I have it, or how difficult things are for me, it certainly seems much worse for that company's management team." I also feel like I am exercising my brain by thinking deeply about issues around the globe. The Lex will have both micro and macro-economic issues discussed daily. And when I don't know what they are talking about, I tend to dig deeper to learn more about an issue.

Fourth, Lex is funny. It is a classic educated English humor, but for me, it works. They start many of their articles with a turn of phrase. They frequently cite literature and history to establish a context and reference, and most of the time, it is not flattering. Granted, it is not a belly laugh funny, but at a minimum, Lex makes me smirk if not smile.

Hope I've convinced you!

Evidence that Social Publishing is Next

Check out a very enlightening article on Financial Times online:


The quick summary is that young people -- 11 to 29 -- are using technology, both at work and at school, in very unique ways versus their older brothers and sisters, let alone parents.

Employers are finding, according to an Accenture Survey, that younger workers are not using email systems. They are relying upon social networks, instant messaging and blogs.

What is next? Check out my entries below on Social Publishing. I predict that universities and businesses will increasingly use WIKI platforms for communication and collaboration. Here we go!

Tuesday, November 04, 2008

What the 2008 Election Means to Me

I remember seeing Barack Obama speak at the 2004 Democratic National Convention. I was impressed. I also recall seeing him again in 2006, and can proudly say that on my birthday, professed a belief that he would be a bona fide candidate for the U.S. Presidency. My brother did not agree with me, and I respect his opinion as a teacher of civics, political science and history. As it turns out, I was right.

For the past eight years, I have been very disappointed in George W. Bush. I thought he would be a consensus builder, maybe even a healer, after the eight years of bickering during the Clinton Administration. I must admit that I was very bothered by the scandals (Monica, Jennifer, etc.) because I believe in the honor of the Presidency and that beyond what any single administration can do, it must represent the ideals of our society. I was also bothered, however, by the viciousness of the politics during Clinton's two terms. I have to believe in hindsight that this was caused by the zealots of the Reagan Revolution. When people feel vindicated and triumphant, as the Reagan generation did, then they act like conquerors, not leaders. When Clinton beat a weary George H.W. Bush, I think these same extreme elements decided they would fight rather than try to govern. For them, the revolution had not completed all of its objectives. Unfortunately for all of us, they did not understand that the nation did not want them to complete them all.

Back to G.W.B, I did support the declaration of war against Afghanistan, and I did not support the declaration of war against Iraq. It is not because I supported Hussein. It was because it had nothing to do with the War on Terror. The next logical move would have been Pakistan. I should mention that one of my two Masters degrees is in foreign affairs, and that I am a student of Robert Tucker's. Hence, I view national security and international affairs in a very realpolitik and tort fashion. I would also like to state that I did not support Dubya's economic policies. I believe that we have been grossly lax on our monetary policy. Too much cash seeks increasingly risky returns. Well, clearly I was right.

I recall seeing Senator Paul Tsongas, while he was speaking at Kenyon College in 1982. He said that politics was like a sail boat with a huge ballast. If it goes too far to one side, then it begins to right itself in the opposite direction. He argued that it tended to over shoot at times, but that was also healthy as the nation explored issues and policies and practices to remain a healthy democracy. I share this because after eight years of George Bush, excessive government spending, tax cuts and two wars, we should expect for the ship to tilt the other way.

So what do I hope for this Presidential election? I believe Barack Obama will be our 44th President, and I hope that he leads this country in a new direction. What I hope he avoids is overseeing a conquerors march into Washington. I hope he avoids the Democrat's turn to be like the Reaganites. What I hope he does do is help the nation restore civility and a common sense of destiny. When I read his two books, I saw a man that seriously considers the perspective of others and then carefully finds a creative and lasting solution. This is what we need in Washington and the world. We need to address education, employment, energy in a holistic way. We need to promote family and faith, without losing our inclusive and diverse heritage. We need to be proud of our technology and industry without seeing them as zero sum games where the spoils must be divided before they are earned.

This is what the election means to me. The chance to have a leader and government which thinks deeply and not dogmatically about our nation and will in turn, lead us to success in addressing opportunities and challenges alike.

Sunday, November 02, 2008

Will the Semantic Web be Next? Will it be Web 3.0?

Web 3.0 – hither and yon

Let’s turn our attention to what is next for the World Wide Web. It would appear that most commentators are focused upon something called “The Semantic Web.” The goal of Semantic Web is to enable automatic machine generation and processing of content. Semantic Web demands rich machine recognizable semantics in web pages so that machines can understand web content. The aim of the Semantic Web is to build a world of intelligent and inter-communicable web pages. In plain language, to achieve this objective everyone and everything on the Web needs to use the same approach to content. People understand statements because of syntax rules. For the Semantic Web to work, then there will need to be a common syntax that computers will all understand. The syntax of any language defines the rules for building the language statements. The work towards a Semantic Web is trying to describe all things in a way that computer applications can understand. This is where the controversy begins. Not everyone can agree on one approach. Another controversy is whether the benefits would outweigh the costs even if we agree on the technical elements.

So what would the benefits be? Well, the use of consistently universal formal terms and structures will allow all content – text, video, audio, photos, etc. – to be recognized, explained and publicly understood by humans and machines alike. The process of recognition, explanation and understanding is actually a process of semantic annotation or semantic authoring. Hence we come to the name, Semantic Web or Web 3.0. Semantic annotation and authoring in Web 3.0 will allow content in web pages to map to a formal ontology of definitions, which can be recognized and processed by machines. Clearly this is easier said than done. But why is this so important?

By using common annotation and language, machines will be able to use logic to make inferences and draw conclusions. This concept is tied very closely to that of artificial intelligence. The inferences and conclusions will not always be exact or correct, but they can improve over time.

What are practical examples of how this could benefit the average web user? For one, shopping would be made faster, more informed and would most likely save money. If information on all merchandise, whether music or cars or shoes or electronics were stored in a common method, then intelligent web applications (the machines) could collect the information from many different sources, combine that information and present it to users in a meaningful way. Moreover, web applications could be set up to monitor information and present it whenever there is a meaningful change in price, availability or features. For anyone who has tried to buy a car, or get information about prescriptions, or travel by air, can immediately see the benefits of this type of functionality. Further, managing financial information, computer updates to software, or even social contacts would all be made easier if there was a common semantic language for data,

Web 1.0 was conditional and reactive. Web 2.0 began to build social and common language connections. For Web 3.0, Semantic web pages will be embedded with web services like those described above. As a result, remote machine agents can understand the content on local systems, and local system agents can understand the meanings of remote requests.
If the Semantic Web were realized, the web would become like a society of educated people. This dream, however, has yet to be realized. There are many reasons for this. Besides all the technical difficulties, one main obstacle is the issue of consistent communication protocol. The consortium promoting the Semantic Web has developed RDF or “Resource Description Framework.”

So what have we observed in the web evolution to date? Web 2.0 represents a new generation. In terms of content, linkage and services, Web 2.0 significantly advances over Web 1.0. Content and linkage in Web 2.0 rely heavily upon collaborative activities. In contrast, the majority of content and link in Web 1.0 was based on independent activities of webmasters. In addition, Web 2.0 has advanced the types of services with web feeds and web widgets. This has moved from a “conditional reflex” on Web 1.0 to a more dynamic and interactive set of services today.
What is next is still unclear, but it looks like making all data on the web more recognizable to machines will bring benefits. But the issue of time and money has not been adequately addressed.

The Cutting edge of the Web: Social Publishing

As we know, the Internet has evolved from a crude communication tool to its current role as the backbone for global information publishing and acquisition, communication and commercial transactions. When we quickly review the changing World Wide Web, we see that we started with static web pages. They were basically brochures online. We have see from there several interesting developments in communication on the web, moving well beyond emails and instant messaging. These all fall into the category of publishing, and represent the democratization of information, and the formation of community.

The first trend in publishing to consider is “Micro-blogging” (the most famous of which is Twitter). This content is highly perishable, and only relevant in fleeting moments in time. People literally share their moment by moment experiences; their reactions to events and the actions of others. It is social small talk with a wide range of subjects. This type of information and its frequent updates is best suited for mobile phones and less appropriate for social networks.

The next and perhaps best established trend is the use of weblogs or “Blogging” (Wordpress, Typepad, Blogger are all big players). This is generally less stream of consciousness, and more considered content. It will generally have a longer shelf life. It is very common to link to other websites and even opinion blogs. The power of this software is being able to easily create and edit content, pulling different threads of information together. For the author, being able to return and edit ideas, revisiting and revising them is appealing. With an audience, there is an opportunity for limited dialogue vis-à-vis comments or discussion forums.

The third area of web publishing is the large and growing “Social Networks” (Facebook, MySpace, Linkedin, and Bebo to name the biggest). These are largely ways to present one’s identity. The content is relatively static – your sex, age, education do not change. The connections are also casual and circumstantial – where you went to high school or college. This has been a good start, but the content tends to be photographs of parties. When someone gets serious about publishing, they appear more like people using a blog or twitter with their new found audience. These sites have run into image problems because of stalkers online or false identities leading to disasters (a young woman committed suicide after a false boyfriend hurt her feelings). Also, when young people post compromising photos (drinking excessively, or committing vandalism), their potential employers find them and decide “no hire.” Thus managing a new persona, as Will Ferrell showed us as “Frank the Tank” in Old School, can be difficult if not done carefully.

The last, and most important are is “Social Publishing” (Wetpaint, Ning, Wikia are the best known). When they first appeared, wikis promised to allow “many to many” publishing and editing of information. Wikipedia has been an amazing success in one sense – it has a lot of information. But in another critical sense, it has been a disappointment. It is not easy to use. Moreover, the hierarchy created -- editors, moderators and contributors – leads to a division of power. Only administrators or editors can decide what stays and what goes. There is “an ongoing tension within Wikipedia is characterized as the inclusionists versus the exclusionists. The inclusionists argue that one of Wikipedia's core values is that it should be open to all ideas that truth emerges from a variety of directions. Better to include than exclude. The exclusionists see Wikipedia's utilitarianism diminished if too much froth clouds the valuable information inside,” according to Sean Silverthorne at Harvard Business School Cases.

What is keeping wikis or true social publishing from taking off? For one, the user interface has not been easy to use until now. With, and its competitors, anyone can follow a simple 1-2-3 process and establish a site, and then begin to “click and type” to add content. The question will move from “how can I be heard or find my 15 minutes of fame?” to “how can the power of social publishing be used to benefit my business or organization?” Some of the first benefactors of social publishing have been non-profits and charities, especially in the area of education. Also, media publishers, literally those who distribute video and music, may well find social publishing to be a way to address the chronic challenges they face in monetizing their intellectual property and securing a loyal and growing community. Let’s look at several key constituents beyond the individual creator of websites and wikis.

IT Professionals: For the most part, platforms offered by firms like wetpaint or wikia are ad-sponsored or free. In the case of wetpaint, they are easy to set up and require little training and administration. These platforms can and have been deployed for a number of internal applications, including: Knowledge management; Project documentation and collaboration; E-learning Archival record keeping; and Status reporting

Publishers: What social publishing offers to traditional is a chance to create community and engagement around their IP, and to monetize the “long tail” of content. The growing atomization of content has thus far been difficult to capture for publishers. Netflix and Amazon have done so with different business models. Social publishing encourages people to not only create community and content around books, magazines, movies, television shows, and issues, but it also establishes a commercial platform for the IP owner. The potential is only limited by the imagination:

1. User-created topical content mediated by a publisher’s editorial staff
2. User-enhanced content where additional content is added to existing material (for example, dynamically generated newspapers or newsletters created by volunteers).

Software vendors: Social publishing offers a platform for software vendors to establish customer service centers with the users aiding each other in problem solving. Moreover, users of social publishing in the software space can and will drive development of technology solutions to meet their needs. Software vendors should keep this in mind as they continue to layer functionality on top of products that may already be over- engineered. Another lesson is that if off-the-shelf products aren’t available to meet users’ needs or they are priced too high, users will invent their own solutions. Moreover, in the increasingly altruistic world of software development, they are quite likely to share their solutions with others. Open source and public domain software philosophies are completely consistent with the social publishing application to the collaborative work space.

To summarize, the newest and most exciting wave in the evolution of the web is happening right now. It is social publishing. The applications for improved individual identity and experiences on the Internet are manifold. The opportunity for community-building around any topic or passion point is nearly limitless. The implementation of social publishing in business is very promising – from acquisition to owner loyalty engagement to customer service to product development. In total, social publishing and wikis are just beginning but will soon shape everything we know as Web 2.0.

Friday, October 31, 2008

Monitorng the World Wide Web

Check out the size of these markets! What I will argue next is that the Web is quickly moving towards Social Publishing. Could it be the fulfillment of the promise of the web?...easy to create web pages, wherein all those who join can edit and contribute based upon whatever it is that interests people.

comScore MediaMetrix (August 2008)

  • Blogs: 77.7 million unique visitors in the US
  • Facebook: 41.0 million MySpace 75.1 million
  • Total internet audience 188.9 million

eMarketer (May 2008)

  • 94.1 million US blog readers in 2007 (50% of Internet users)
  • 22.6 million US bloggers in 2007 (12%)

Universal McCann (March 2008)

  • 184 million WW have started a blog 26.4 US
  • 346 million WW read blogs 60.3 US
  • 77% of active Internet users read blogs

Friday, October 24, 2008

The Past, Present and Future of the Web

Where have we been with the web? Where are we now? And where are we going? Some people would answer that in the first phase, we were in Web 1.0, and that now we are in the second phase or Web 2.0. But what does the transition mean to Web start-ups, “brick & mortar” companies, and consumers? These are the questions this paper will try to address.
By understanding the transition from Web 1.0 to Web 2.0, we may also improve our capability to see what we should be doing now in preparation of the next phase of the internet. What are we to make of Web 3.0 or Semantic Web 2.0 or Pragmatic Semantic Web? But let us begin with the promise of the internet.

For many, the promise of the World Wide Web has always been to create a virtual society in which web spaces are the residents. It has promised to make the access of information, communication with others, and commerce much easier and perhaps more enjoyable. When we think about a virtual online community, we think of the “real” world in which we live, but we expect for all of our activities to be more productive – taking less time and effort. According to a Pew Research Center study in 2000, people are “goal oriented users.” A Zatso Survey showed in 2006 that finding information, communication, commerce, managing finances, and being entertained were the key activities on the web.

So how does the virtual world of the Web work? When you think about it, web pages are like people. They have a personality. Just like people, they have different capabilities and competencies. Hyperlinks are the way that web pages relate to each other. But this is where the comparison begins to breakdown because for most of the web, the services are only reactive. People are interactive. But as the Web evolves, services will become more active and proactive, mirroring our human experience. This is when we begin to see where the Web is going next.

Web 1.0 – The beginning

In Web 1.0, web pages were for people to read and be informed. In the first generation of the Web, the majority of hyperlinks were manually assigned by webmasters. In Web 1.0, the pages contain only reactive functions or services.

Web 1.0 pages could not deliver messages back to their creators. If webmasters looked for feedback from readers of their sites, they had to keep a block of "Contact Information" on their web pages. Otherwise, no messages could be delivered back to them.

The hyperlink model of Web 1.0 was also manual, and when it was ended, it terminated completely. In the world of Web 1.0, human interactions were required by nearly all valuable web operations, and most of these interactions were controlled by a small group of webmasters and IT professionals.

In the early days of the Internet, e-mail provided one-to-one communications until the advent of the “cc” and mailing lists. The advent of HTML and the Web ushered in the one-to-many publishing era, and wikis and weblogs took things to the next level by adding a framework for collaborative authoring and publishing, while RSS creates the vehicle for distribution and syndication to a large number of sites. But we are getting ahead of ourselves. Let's understand how this "one-to-one" has moved to "many to many."

Web 2.0 – The rise of the Social

The worldwide web has been a success, but its first generation made more promises than delivered results – for consumers and for businesses. So what should we make of Web 2.0? How has it improved upon Web 1.0? How has it evolved? Honestly, many of the elemental concepts of Web 2.0 already existed in Web 1.0. Computer Scientists argue that there is basically no theoretical advancement in Web 2.0 from Web 1.0. But there are new technologies such as AJAX. The success of Web 2.0 lies on the success of two technologies: blogging and tagging. Though there are numerous Web 2.0 companies that provide various services, almost all of them stand upon these two technologies. In addition to the two, they add their specialties. For example, YouTube adds videos and Flickr adds photos. Essentially, blogging enhances the character of content, and tagging enhances the character of link. The blogging technology extends the update of content from personal activities to social activities. The tagging technology enables the creation of hyperlinks from tedious, individual behaviors to handy, collaborative behaviors.

Web 2.0 webmasters (typically blog owners) play a more important role than before on updating web pages. Once web pages have been created, Web 1.0 webmasters often only update them occasionally and slightly (such as updating daily prices). Web 2.0 webmasters, however, often significantly update web content (such as adding new blog posts). Also, through the activity of tagging, Web 2.0 webmasters teach their own web pages (which could be such as blogs, or YouTube's personal account web pages containing individual lists of favorites) new knowledge of web facts. Shared tags thus construct implicit hyperlinks among varied web pages. Most of these links could not have been created within the frame of Web 1.0.

By tagging a Web 2.0 page (such as a blog), it allows machines to recognize the content of the page. Web 2.0 evolved from 1.0 in the use of collaborative tagging with the use of common language. This has been labeled folksonomy. This system is much less formal than the subject indexing of Web 1.0. Collaborate tagging in Web 2.0 does not rely upon deep hierarchical structures. Their structure is often flat and broad. Moreover, the inter-relationships among folksonomy concepts is very casual. This is the current status of Web 2.0. By clicking tags, a Web 2.0 page can automatically re-direct web readers to "relevant" pages, which share the same tags. In fact, however, many of these "relevant" pages may not be so relevant.

Blogging technology enhances web pages with the important capability of mediation between webmasters and readers. Neither webmasters nor readers need to publish their private contact information (unless they are willing to do so) to join a communication. In fact, one could argue that this development is the first sign that World Wide Web is going to be independent of the human society. In the next evolution, the current blogging technology for humans could one day be enabled for machine agents. When machines start blogging to each other, the participation of human users is not necessary.

But for today, the practical application of blogging and tagging is to bring people together who have a common interest. Web 2.0 uses both features to build social networks. The blogging behaviors directly bring readers to the publishers. The tagging behaviors create more tags. By sharing common tags, different Web 2.0 pages are also linked. Unlike the manual and hardcoded hyperlinks in Web 1.0 pages, these Web 2.0 links created by social activities are hard to be removed because they are objective.
Another dynamic element of Web 2.0 is the “mashup.” In Web 1.0, users did not create unique services for their web pages by combining data from disparate sources. Web 2.0, however, encourages its users to build interesting and personalized service components, such as web widgets. The spread of web widgets leverages mashup applications, like Wii Seeker, Zillow, iGuide or Radioclouds.

Additionally, Web 2.0 begins to realize the theory of collective intelligence with the rise of wikis. A wiki is a web page or collection of web pages which can enable anyone to who accesses them to contribute or modify content. This is the first step towards collective intelligence. What is most exciting about wikis, is that they are yet to really catch on. The initial promise that “everyone can contribute and edit” with Wikipedia has fallen short due in part to the intimidation people feel with the programming language, PHP, built upon the MySQL database. While true that anybody can contribute, there is still a hierarchy. There are “stewards,” “bureaucrats” and “administrators. Many contributors are identified only by IP address, while others use screen names. Several hundred administrators have the power to delete entries and block IP addresses to keep vandals from changing content.

As wikis become easy to use for everyone, then the convergence of technology and information content will continue to challenge the formerly hierarchical flow of content from creation through use. This is “Social Publishing,” and it is the latest step in this disintermediation of the hierarchy, enabling authors to publish and organize content for viewing and comment by anyone with access to the Internet. The principal content creation and management tools used in social publishing are weblogs and wikis (tools for creating and linking Web content). And really simple syndication (RSS) is the main tool for syndication and distribution. In the very near future, the majority of web sites will include all of the attributes discussed in this posting. Further, I believe that high order software systems that take stock of this entire landscape are going to be in high demand. I also believe that acquiring completely separate software systems to implement each of the patterns is more costly and risky than using a unified system that handles all of the patterns well. That will be true for individuals and for businesses.

Some legal history

Have you ever wondered where "Trial by Battle" or "Throwing down the Gauntlet" came from or "trial by ordeal" or "trial by jury?" My good friend David Guenter provides a source.

Here is some insight from J.H. Baker, An Introduction to English Legal History...

Ordeals involved an appeal to God to reveal the truth in human disputes, and they required priestly participation to achieve this rapport with the Deity. Several forms of ordeal were recognized by the early Christian Church, but in England they usually took the form of fire or water. In the former, a piece of iron was put into a fire and then in the party's hand; the hand was bound, and inspected a few days later; if the burn had festered, God was taken to have decided against the party. The ordeal of cold water required the party to be trussed and lowered into a pond; if he sank, the water was deemed to have 'received him' with God's blessing, and so he was quickly fished out. There was a prolonged intellectual debate about the legitimacy of the ordeal. It was not clear how man could expect God to answer human questions; might He not, for instance, choose to absolve men who had broken the law but had repented? And what if He decided not to interevene at all, but to leave the matter to be settled by His ordinary laws of nature? Could one be sure in a given case that He had intervened? There is some evidence that those who administered ordeals, perhaps because of such doubts, began to feel a responsibility to facilitate the result they considered right: for instance, by letting the iron cool in cases where suspicion was weak, or by interpreting a burned hand liberally....In 1215, the Lateran Council, after discussing these problems, took the decisive step of forbidding clergy to participate any more in ordeals. This led in England to the introduction of the criminal jury trial.

A jury was a body of men sworn to give a true answer (veredictum, verdict) to some question....Its prominent place in criminal procedure was a direct result of the decision of the Church in 1215 to stop ordeals. Judicial combat was not affected by that decision; although the Church disliked it, the procedure was less mystic and required no clerical participation. Battle therefore remained available in appeals of felony; but it was distrusted by complainants and judges alike, and it soon went out of general use. Battle survived also in writs of right; but there too demandants were driven to alternative remedies to avoid it. Its disuse enabled battle to survive in retirement until the nineteenth century; it was abolished only after a gauntlet was thrown into a startled Court of King's Bench in 1818. [FN 10: Ashford v. Thornton (1818)....The last previous wager of battle in a writ of right was in 1638, but the fight was stopped at the last minute...In 1985 a defendant in the High Court of Justiciary in Scotland tried unsuccessfully to wage battle against the lord advocate, claiming that the 1819 statute applied only to England.

Wednesday, October 22, 2008

Trends that I see for 2008 and 2009

Personal Technology
  • Mobile video
  • Interactive television
  • iPhone/Google Phone Applications
  • GPS real-time, and location based services
  • Tiny and cheap laptops
  • High tech tooth brushes
  • Virtual currency

Entertainment (Television and Movies)

  • Hottest shows are on cable, and have surrealistic themes (Vampire, Serial Killer, Drug Dealing Mom...CSI and SVU)
  • Hottest movies also dealing with far-out content (Dark Knight, No Country for Old Men)
  • Nostalgia comes back (Mad Men, Life on Mars)
  • Anti-US and conspiracy films do not payback (Stop-Loss, Lions for Lambs, The Kingdom, Body of Lies)
  • Gossip Reality wanes in favor of Competition Reality (Survivor 17 versus DWTS)


  • DRM is Dead...Don't pay for anything
  • Megastars are out, niche is in (Mexican Indie, Indian Punk, Western Mambo, Exotic and Global)
  • iPod is cool, but so is Zune...and both should watchout for phones
  • Everything is wireless
  • Ringtones are over
  • You will get more free stuff with downloads (lyrics, art, photos)
  • Labels are losing as bands go direct to consumers


  • Bold Bright Colors (Purple)
  • Flowers and Garden themes (nature)
  • Art - Brushstrokes
  • Military
  • Americana (stripes, checks)
  • Accessories -- skinny belts, big sunglasses, small handbags
  • Jeans -- Skinny, and 1970's influenced Kick Flares and Wide Legs (Warehouse, Pueblo, Hannah and Berlin are hot brands)

Home Decoration

  • Eco Chic (reusable and bio-friendly building materials and solar panels)
  • Back to Basics (nature themes decoration; crafts; plants)
  • Cosmo Luxury (mixing Asian, Near East, Old West collectibles and art)
  • Technology integration (digital photo albums, 60s and 70s futuristic furniture, steel/wood, straight lines)


  • Luxury hotels and destinations at bargain prices
  • House swapping (exchange for vacation

Secrets of Success for Web 2.0 Start-ups

I have been working with Web start-ups for the past year, and there are several lessons I have learned:

1. Do not be a loss leader. Too many start-ups assume the business model, "we lose a little on every deal, but we'll make it up in volume." To be successful, a business model needs to have a positive variable margin. Yes, the amortization of R&D can be excluded, but it is important for customers to pay for what you sell...from the start!
2. Whatever it is you do, do it well. Do not go too broad too fast. You can have a roadmap to be broad, but you need to make certain that each step is on solid ground. Insure you have great technology, and a true advantage in the first step, then the second, and so on. Having a suite of average products will not succeed.
3. Do not overlook B2B. One truth is that businesses must spend moeny to make money. If your ultimate ambition is B2C, that's fine. Whatever you are doing to attract consumers will also be attractive to businesses trying to reach those consumers. Said differently, every B2C web app is a potential B2B app.
4. Think beyond Advertising and Search. This is related to my first point, but I want to over-emphasize it. I believe if you added up all the web start-up business plans in the US, you would find that they assume advertising revenues that are 100-200 times what is actually spent in the market. We can call this the "Me Too Google" phenomenon. Here is some advice, "Go meet with someone who buys advertising from the client side." Go straight to the brand, and skip the agency. Just ask them if they would spend money with you...theoretically. You will then get a grounding in reality.
5. Make certain you are building capability for social networks, publishing and media. But be a student of what is going right and wrong with MySpace, Bebo, Facebook, et. al. This is the right place to be, but no one has figured out how to serve customers with services for which they are willing to pay.
6. Related to point 5, make certain that your web app can become a widget and be included in social network sites, portals, and yes, mobile phones. Having a great mobile and widget version is a great way to scale and learn.
7. Make certain you have an expert in public relations, non-web customer acquisition, and channel/partner management. You will need a connection to the "brick and mortar" world, or you are missing serious business opportunities.

If you are interested, I can help with all 7 of these points. Call or write. or 425/577-8673.

Tuesday, October 21, 2008

Did I have an impact at Microsoft's Xbox? Let the Annual Report decide!

Hey everybody! Here is a direct excerpt of Microsoft's annual report. Thought I should capture this for posterity.

Management's Discussion and Analysis of Financial Condition and Results of Operaitons

"Fiscal year 2008 compared to fiscal year 2007

EDD revenue increased primarily due to increased Xbox 360 platform sales. Xbox 360 platform and PC game revenue increased $1.7 billion or 41% as a result of increased Xbox 360 console sales, video game sales led by Halo 3, Xbox Live revenue, and Xbox 360 accessory sales. We shipped 8.7 million Xbox 360 consoles during fiscal year 2008, compared with 6.6 million Xbox 360 consoles during fiscal year 2007.

Fiscal year 2007 compared with fiscal year 2006

EDD revenue increased primarily due to increased Xbox 360 platform and Zune sales. We shipped 6.6 million Xbox 360 consoles during fiscal year 2007 as compared with 5.0 million consoles during fiscal year 2006. Xbox and PC game revenue increased $650 million or 19% as a result of increased Xbox 360 platform sales, partially offset by decreased sales of the first generation Xbox console and related accessories and video games.

__________________2008 2007 2006
Revenue_____________$8,140 $6,069 $4,732
Income(Loss)_________ $ 426 $(1,969) $(1,339)"

Very proud of these results. Proud to be part of this effort and success.

Tuesday, October 14, 2008

Jeff's Plan for America - 8 key steps

Dear readers:

This is my 7 point plan (with an eighth point added by Doug Heuck) to make the United States of America a better place for everyone. The comments after each element of the plan come from Doug Heuck and David Guenther. The opinions expressed here are entirely ours, but we remain convinced that if the nation followed our plan, we would all be "better off in four year."

1. Improve the efficiency and effectiveness of government -- I have found that this happens best in business when you cut spending....tends to focus the mind. Every element should have a measurement of "impact to the citizen intended to benefit" as a percent of total spend. This is how charities are measured and how they avoid bureaucratic bloat.

Doug: An excellent point -- which has sent me into another chapter of cost oversight in the business and the family, which will no doubt find consternation reigning in both places.


2. Once we have a metric for efficiency, we need to focus in on efficacy. What is it that the Department of Energy is trying to do? How about EEOC? What's up at the Treasury? How about international aid? When any part of our government cannot articulate 3 key areas of betterment of society, then there are either none or too many to matter. In his autobiography, Clarence Thomas outlines how he ran the EEOC like a focused business (and he did not even support the concept of the agency initially).

Doug: Paul O'Neill sought to make Treasury more cost-effective and effective, and he was booted. (He also spoke too plainly for the Bush Admin and told it like it was, which the admin saw as a liability) With business, having too many costs and not being effective enough means going out of business. So there's always a present threat of non-existence. That leads to a level of vigilance and concern that govt. can only hypothesize about, never really feel. And it's also conceivable that, while govt. should clearly be cost-conscious and effective, it is also in a realm that's different from biz in some respects -- such as national security and the welfare of the people. If you make big enough mistakes there -- guns or butter -- your govt. can "go out of business." and both of those threat areas require, arguably, erring on the overspending side. And with the scale of both of those portfolios -- and with employees not motivated by increased income but by public service, it's difficult to achieve the level of cost-effectiveness and efficacy that biz can achieve in its "narrower" field.


3. Keep taxes as low as possible. You cannot have #1 if you raise any taxes anywhere. Taking pressure off politicos and bureaucrats will not work. I even see in business that the wheat is separated from the chafe when times get tough. Lots of people thought they were doing a great job when a huge domestic economy was growing by 5% per annum. Now zero growth (or 3.3% last quarter) has exposed people for "riding the wave" rather than "being outstanding." There needs to be a very clear understanding of all taxes by our national leader -- federal, state, OSADI (Old Age, survivors and disability insurance), and yes, property. The whole cost is what citizens see! Let's quit talking just about federal income tax. As an addendum, the Wall Street Journal for 9/10/08 had an editorial which commented on the Congressional Budget Office's report on our government spending. Our spend is now 21.5% of GDP (highest since 1992). Interestingly, our debt is 3% of GDP (in line with average of past 30 years), and military spending (including Afghanistan and Iraq) is 4.5% of GDP (above Clinton's 3%, but below 1970-1990 6% average). The key quote is "the substantial increase in spending, which is on an unsustainable path is in the two years that Democrats have run Congress." The article (with its fiscal conservative bias) goes on to saw, "As they contemplate their choice for President, voters might want to consider which of the candidates is likely to be a check on Congressional appetites, rather than a facilitator."

Doug: The other side of taxes is what a govt. does with them. Some places have high-tax cultures -- Wisconsin, Minnesota -- but a history and culture of delivering excellent service. And, there is the Aristotelian idea of tax fairness -- distributive justice, seen by some as "Marxist." But fairness of the tax burden is inescapable. General Maxim: raising taxes is good and fair as long as it's raising the other guy's taxes.


4. Clearly articulate and legislate an Energy policy. Develop all petrochemicals possible that we control by 2015. Invest in all alternative fuels (solar and wind) with 25% of our total powered therein by 2015. Build 30-50 nuclear power plants by 2020. Reduce emissions by 50% by 2020 with these actions (including fuel cells in all cars, and a massive public transit initiative).

Doug: Total agreement. The reason I have favored Obama is that I believe he can be more successful in promoting a "Space program" for energy. A national initiative -- a war effort -- to both save energy and create and promote new sources.


5. Define our role in the world. The isolationism of the Democratic Party is ridiculous (as it was when Republicans owned that issue). We are completely global. Our economy, our currency, our society is global. I mean, look at our demographics! Caucasians will be minority in 2042, and I say Hallelujah! We have been a bully. Yes, Jeff the Hawk says Bush has been a bully I want to be strong, but I agree with the criticism that we must "lead by the power of our example and not the example of our power." JFK was no dove, but he decided when to use force based upon a moral imperative. Every President has to not just believe that we are morally right, but actually check that we are. Bush just "knows we are" but does not check if he's right. Iraq will be won. The question is, "do we need bases and troops in Afghanistan and Iraq?" I question whether we need bases in Europe, South Korea and Japan. Clearly we don't need naval or army bases to extend our power. Hell, we didn't have any bases in the Middle East before now...didn't seem to stop us! :-) The Wall Street Journal published an op-ed piece by a former professor of mine, Fouad Ajami from JHU-SAIS. He articulates my point on definition, and to a certain degree, isoloationism. He says that since the end of WWII, there has been a "consensus over American exceptionalism and America's claims and burdens abroad." He states that Samuel Huntington articulated that America had three big conceptions in foreign policy -- "national, imperial and cosmopolitan. In the first, America remains America. In the second, America remakes the world. In the third, the world remakes America." Here the distinction is NOT that the world becomes states of the US, but rather democracy and capitalism are formed in each sovereign, but it IS the case that the rest of the world would gladly use American weakness to make it more like them. He argues that the "aloofness" of Mr. Obama is born from his background -- no military experience nor service, and an international rather than domestic upbringing. He states that "Obama offers a sharp break with the postwar consensus on American exceptionalism." As I have written to you before, I was concerned by the detached and spectator way Obama writes and speaks. Fouad goes further, "The Obama way is blig: It glides over the world without really taking it in." The risk is that "Obama proceeds from the notion of American guilt, and proposes to repair that by offering himself as a bridge." By contrast, McCain "shares the widespread attitude of the country that are not consumed with worries about America's reputation in foreign lands." I share this because at SAIS, one of my greatest teachers was Robert Tucker (Inequality of Nations) who said that "international law is ultimately governed by the executive, not the judicial branch" meaning that every nation is in it for themselves and themselves alone.

Doug: Power is an inescapable fact of the world. What is the most effective wielding of it? Machiavelli said better to be feared than loved. Perhaps at bottom, that's a necessity. But in a world of trade, the bottom line must always be just this side of being forgotten. IE, it must be accompanied by the moral compass. What is being great if not a force for good?


6. Healthcare should not be nationalized, but it is almost there unofficially. The insurance and pharmaceutical sectors are like an official bureaucracy. There are no free market dynamics at work anymore, and that's why it costs so much. Serious reform needed here. The metric is not "how many are covered," but rather health of our people and the cost of the system. Doug: Have mixed feelings here. Doubt government's ability to deliver without fouling things up. On the other hand, there likely would be big savings in making the current system less complicated.


7. Immigration. This is another issue where the Republican Party is whacked. Republicans are pro-free enterprise (or were). You lose a major support for NOT raising minimum wage, and NOT guaranteeing employment, and NOT accepting that opportunity doesn't exist for the poor, WHEN you try and "shut down the borders." The Catholic Church is very supportive of treating illegal immigrants ethically. Me too, but I'd go further -- deregulate the immigration process. Yes, we need to guard against terrorists, but trust me; the Mexicans STREAMING daily across the borders want to build up this great land of ours. They want to live in peace. They want to prosper. They want to love this land. They come because it IS better than anywhere else they could go. Doug: Immigrants are and have always been a major strength and also a lightning rod among the "already arriveds." Closing borders is like tightening a tourniquet -- blood doesn't flow to and from the heart. Attempting to cut off immigrants is attempting to change the fundamental nature of the country and make it a different country. E pluribus unum to we've reached a satisfied old empire status -- "We're about the present and the past, not the future."


8. Environment (added by Doug) Important to me. All should be done in context of being environmentally responsible. Both here and as a lead example for the world.


Jeff: I would argue that here the "example" would be in the form of innovation in development. I believe that the analogy would be that the Chinese did not install copper land lines for telephony, they jumped to wireless. In the same way, there needs to be advancement in industrial and agricultural development globally that avoids some of the wanton distruction and foolish mistakes of our own past.

Monday, October 13, 2008

The future agency model

How companies successfully engage with consumers is changing.
Web 2.0, experiential and social marketing are the new Buzzwords
But who is using jargon, and who is not just practicing but leading the new wave?
  • Large traditional agencies have always been a safe choice because of their experience and size, but these strengths keep them from succeeding in an consumer world driven by flexibility and speed.
  • Today’s consumers, especially younger audiences, don’t need or want to be TOLD anything. At a minimum, they want a dialogue, and for the most part, they want control. They want to tell YOU about everything, and they’ll tell everybody else too – they chat, text, blog, share with everyone.
  • Now consumers make the call to action, and they do it without having to use such ugly marketing words as “sale!” or “buy!” or “Offer expires 12/31/08. Offer not good in Michigan, Delaware, and Alaska. See rules for details.”
  • The new generation of consumers is more ambitious, brand conscious, peer-oriented and influential than previous generations.
  • Success is determined by the move from monologue to dialogue. It can be on the web, at the store, over the phone, with your product, anywhere. When you listen to consumers, they will listen to you. When you present them with a situation with which they can identify, which they connect emotionally, feel, embrace and affect, you’re not only giving them something truly interactive, you’re giving them something Tangible.

That is what the new breed of agency must be.