Definition of insanity

From today’s Wall Street Journal:

A familiar definition of insanity is to keep doing the same thing and expecting different results. So in the wake of yesterday's report that the national jobless rate climbed to 10.2% in October, we suppose we can expect the political class to demand another "stimulus." Maybe if Congress spends another $787 billion in the name of job creation, it can get the jobless rate up to 12% or 13%.

It's hard to imagine a more complete repudiation of Keynesian stimulus than the evidence of the last year's job market. We've now had two examples of such stimulus—President Bush's $160 billion effort in February 2008 and President Obama's mega-version a year later—and neither has made even the smallest dent in employment. As the nearby chart shows, Mr. Obama's economic advisers sold the stimulus by saying it would keep the jobless rate below 8%.
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The White House says the stimulus created as many as one million new jobs, but this is single-entry economic bookkeeping. … But such spending isn't free. Every dollar in new government spending is taxed or borrowed from the private economy, which might have put it to better use.

If the government takes $1 from Paul, who would have invested it in a new business, and gives it to Peter, who spends it on a new lawn mower, the government records it as a net gain for economic growth via consumption. But the economy is hardly more productive as a result. …

The policy lesson here is for both political parties. President Bush's cave-in to Democrats in 2008 meant that there was no debate in Washington over policies that might have produced a much better stimulus at that early point in the recession. Like so much else in Mr. Bush's final year, he lost his policy bearings and forgot the lesson of 2003: A stimulating tax cut needs to be immediate, permanent and at the margin of the next dollar earned. Instead, for the last two years, the U.S. and most of the world have been pouring money into a Keynesian cul-de-sac.

The latest example of outsourcing economic criticism in these hard times.

New York adopts an industrial policy

I didn’t get why the NY attorney general is suing Intel, other than it’s the same publicity-seeking path his predecessor to get elected governor. Antitrust enforcement is a Federal issue, whether for the US DoJ/FTC/FCC or the Eurocrats in Brussels.

However, blogger Geoffrey Manne suggests that NY has an interest in hurting Intel and helping AMD, given that AMD is talking about building a $3 billion plan in upstate New York. For some reason, I thought the idea of Federalism and the Constitution was to prevent inter-state trade wars, but I guess both have gone out the window along with original intent.

Like most lawyer-politicians, the AG’s understanding of business and economics is dubious at best. FT’s Lex aptly summarized the likely effect:

Share prices for Intel and competitor Advanced Micro Devices barely reacted. The problem for AMD, which is set to face Intel in a Delaware courtroom in March, is that legal victories offer only consolation, and perhaps the chance of a pay-out to help pay down debt. The period when the company had a clear technological advantage and opportunity to make a dent in Intel’s market share of about 70 per cent has passed.
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[E]ven if, as alleged, Intel is shown to have forced customers to guarantee market share levels in return for cash rebates, the structure of the industry will probably remain unchanged.

Maybe Google is serious about OSS

With its open source release today of its Closure JavaScript tools, Google is starting to suggest that it may eventually become a good open source citizen.

The newly released tools include a JavaScript compiler, a very broad JavaScript class library, and Java/JavaScript-friendly templates. All are released under the Apache 2.0 license, a very permissive license that essentially lets outsiders do whatever they want (rather than a viral or semi-viral license like EPL or LGPL).

Sure, Google has released other code before. Some of it has been experimental (beta quality) examples. Much consists of libraries (or example code) to get at Google’s APIs and thus provide complementary products that increase the value of Google’s services. Even Android would fit in the latter category — albeit at a larger scale — since it helps make handsets that access Google services.

However, the Closure Compiler, Closure Library and Closure Template are production level code that’s been used for years. These are the same tools that Google uses to implement gmail, Google Docs and Google Maps. Theoretically, a competitor could use these tools to make web-based services that compete with Google: Microsoft and Yahoo are unlikely to do so, but I would be surprised if some of the foreign portals (without large internal R&D staffs) don’t quickly adopt the technology.

Of course, Google’s not doing this out of the goodness of their hearts, and the ultra-secretive company has not said why this release now of this code. Perhaps it doesn’t think rivals will use it, perhaps it has a huge head start, or perhaps it’s just non-strategic commodity code. Conversely, perhaps it’s trying to shape de facto industry standards for JavaScript (now that Netscape and AOL are gone), either to influence complementors or assure a supply of well-trained newby programmers.

Still, this is only one step of openness from a semi-open company leading the race for Total World Domination. Even if — as blogger Matt Asay and Google spokesperson argue — Google is a leading (if not the leading) contributor of open source code, that doesn’t mean that they have become good open source citizens.

Revealing code is only one part of sponsored open source openness, which also includes shared authority over the future of the code and governance of the community, providing both transparency and permeability to outsiders. This has proven impossible for many companies — both big, powerful, autocratic ones used to throwing their weight around, and smaller so-called “open source” startups that use OSS as teaseware for their real (commercially licensed) product.

IBM was the first and one of the few companies to prove it was serious about open source — but then it could sell hardware and services if the OSS commoditized its software offerings. Its Eclipse Foundation remains the largest and most successful multi-vendor sponsored open source community.

Five years ago, HP had a similar business model and comparable principles (if not level of investment) in Linux and other open source efforts. However, under its new penny-pinching CEO it seems to have cut back on many R&D and community oriented efforts, and the former Linux Systems Division (later Open Source Business Office) now seems to be just a web page.

Apple isn’t normally considered an open (or open source), but its WebKit library is perhaps one of the most successful and most cooperative firm-sponsored efforts after Eclipse. Google, Nokia and now even RIM are working to make the library suitable for the industry’s wide range of mobile devices.

Meanwhile, Nokia got off to a bad start last year — following the model that Sun used for so long — of a nominally open project that’s completely controlled by the sponsoring company. Maybe both will get better someday (and to be honest I haven’t checked Sun recently), but letting go is clearly hard for big companies to do.

So will Google ever let go on strategically important code on projects? Or will it always require that it retain control of such efforts? My crystal ball can’t see through all the walls of secrecy erected by the Monster of Mountain View, so I refuse to hazard a guess. But I suppose anything’s possible.

Hat tip: Matt Asay’s Twitter® feed.

Scalable services

IT enabled scalable services such as Google and other SaaS vendors are quite different from the millennia-old model of labor-intensive services. This was the point I made in an open innovation talk earlier this week — a point I have been mulling over ever since.

Near the end of and near the end I discussed business models and the general shift away from mass production towards services. Below is a slightly expanded version of one of my slides.

Model	Example	Basis
Personal services	Blacksmith, barber	Personal skill, locaiton
Mass production	Cotton gin, Springfield rifle, Model T	Design cost, manufacturing, economies of scale, cost of goods
Information goods	Content: WSJ.com article, iTunes song†	Design cost, economies of scale, cost of license
Automated services	SaaS: Google map, search, mail	Design cost, economies of scale

† excluding information goods delivered in tangible form.

I won’t claim it’s terribly profound, but the act of making the table forced me to think about some implications.

One point was an old one — there are “services” gurus who confound information goods and services to make their area of interest seem more important than it is (even though it would be very important even without exaggeration). Stamping out an identical information good over and over again is not delivering a service — it’s selling an intangible product as is well discussed by the book Information Rules. (Normally we’d think of this as $0 COGS product, but certainly an important class of information goods are sold based on royalties.)

Also, in this intuitive taxonomy I want to hold aside “services” involving the selling and renting of tangible goods, since much (or all) of the value comes from the good and not the customized personal experience. Services involving money also seem very different, even though they’re an important recent area of open innovation research.

Some businesses include a combination of products and services. With my MBA students Wednesday night — talking about disruptive innovation — I noted that for some low-priced commodity products, the cost of providing any personalized service (such as a tech support call) will destroy all the product margins from the product.

In my talk, I also briefly mentioned the “Pharma 2010” view of systems biology by PwC Consulting (now part of IBM). If I’d had time to track down the PDF, I would have put up the opening paragraph of the PwC study (instead of paraphrasing it):

In 2010, the pharmaceutical industry (Pharma) will not only make white powders; it will sell a variety of products and therapeutic healthcare packages that include diagnostic tests, drugs and monitoring devices and mechanisms, as well as a wide range of services to support patients. Companies that learn how to make “targeted treatment solutions”, as we call them, will deliver bigger shareholder returns than they have ever delivered before.

Even this hastily drawn, over-simplified taxonomy communicated the point that I thought was important for the middle managers to understand: don’t think of services the way we used to do — or perhaps the way Accenture or EDS or IBM Global Services does — as labor-intensive, low-margin businesses. Instead, think of them the way Google does — high up front cost, positive returns to scale, that are scaleable indefinitely. These sorts of 21st century business models are completely different than the Bronze Age services model that we normally consider, and are quite feasible for companies that have access to unique and valuable knowledge that can be delivered electronically.

In making this argument, I was dimly recalling (but had no time to look up) what Randy Stross said in the talk he gave last year about his book Planet Google. The oral presentation emphasized that the ideal pursued by Sergei and Larry — in their zealous embrace of algorithmic solutions — that humans shouldn’t touch anything, but instead everything important should be delivered by the computer and not by manual labor.

By using the index and browsing my paper copy of Randy’s book (now in paperback), I was unable to find the relevant passage (which I thought would come in Chapter 3, “The Algorithm.”). However, thanks to Google Books — I did find a discussion of Sergei and Larry’s scalable business model in Chapter 2 (on pp. 48-49).

Nook vs. Kindle: next wave of Android disruption

James Fallows has a detailed comparison of the Nook and Kindle. Clearly by using ePub, Barnes is challenging Amazon’s proprietary vertically integrated content distribution system. One interesting angle mentioned by Fallows is that Google books is making its existing online (out of copyright) books available in ePub format, thus increasing the content available for Nook. (For now, Kindle owners have to convert the book to Kindle’s proprietary mobi format, presumably because Amazon doesn’t want other formats on its device).

The Nook is based on the Android 1.5 platform and thus will run Android apps. B&N is mealy-mouth on whether they’ll provide an SDK. (First they need to enable the Android WebKit browser).

Still, the Nook is a very high profile (and probably the highest volume) example to date of what my friend Bill Weinberg calls “Android Beyond Mobile.” By solving some of the UI/SDK problems of embedded Linux — without adding a lot of proprietary royalty-bearing layers on top of it — Android will be an attractive platform for many different single-purpose mobile devices.

Who knows, maybe there will even be GPS navigation devices based on Android. TomTom and Garmin shares plummeted last week when Google announced free turn-by-turn navigation services in Android 2.0, suggesting an opportunity for a disruptive market entry by rivals to make Android-based car devices without having to incur the TomTom/Garmin R&D costs.

Of course, there’s no reason Android’s ambitions are limited to mobile. Settop boxes anyone? Competitors to Media Center and AppleTV?

Hat tip to TeleRead, a very good blog on e-books.