Old disasters, new media

An operator error yesterday caused a power failure leaving 5 million people in San Diego and nearby areas in the dark. Although communication efforts used a combination of old media and new media, many of the affected people in my hometown were literally and figuratively in the dark.

Unlike the Gray Davis-Enron-energy mismanagement blackouts of a decade ago, the San Diego outage fit the pattern of the major East Coast summer outages such as the great New York blackouts: a single problem cascaded failure throughout the system. At times of peak air conditioning load, there’s little margin for error in our electric grid.

In this case, an operator error in Arizona around 3:30pm Thursday temporarily shut down one major source of imported power for San Diego. The result would have been brownouts, but when the voltage on the San Diego grid dropped below normal, the 2.2GW San Onofre power plant was taken offline and the system collapsed at 3:40pm. Some 3 million San Diego residents were without power, as were Imperial County, portions of Orange County, the Palm Springs area, and Northern Baja California.

San Diego doesn’t have a lot of experience with disasters. We don’t get hurricanes, tornadoes or blizzards, although the mountain passes are (rarely) closed for snow or wind. None of the state’s major recorded earthquakes have occurred in the region, although the 1971 Sylmar quake did cause me to run to a doorway. Unlike LA, there have been no major riots, although the 2003 Cedar Fire and 2007 Witch Creek Fire each caused scattered deaths and $100+ million in property damage.

As it turns out, at the time of the blackout I was driving to San Diego for a Marconi Society banquet honoring communications pioneers Bob Galvin, Irwin Jacobs and Jack Keil Wolf. Because I was in a car, I was listening to the radio, and heard about the blackout less than an hour later, and heard the 5pm press conference that explained what had happened.

My inlaws were sitting at home with no TV, radio or Internet and didn’t know what was going on. I called them (from my cellphone in San Diego to their landline) and told them what I knew.

I was unable to reach my mom and assumed it was because she had switched from POTS to VoIP for the free long distance. As it turns out, Cox provides for battery backup for the MTA to work during the power failure. (In fact, I didn’t realize I was calling my inlaws on their Cox VoIP rather than Ma Bell’s POTS). However, my mom lives in a large senior complex and while the POTS was reaching the building, none of the phone lines were powered to the individual apartments.

At dinner, some of the other guests were surfing CNN.com or the local paper to find news of the power outage. Cellular systems were taxed — and sometimes overloaded or some cells were without power — but in general calls were going through better than after an earthquake (when everyone decides to call at once).

Driving around, I heard various authorities said “go to our Twitter feed”. The local utility, SDG&E, did a good job of updating the news as it came in — including a link to the news that all power was restored by 3:25 a.m. Friday. The Twitter feed for San Diego County government never noted that all power was restored, but did say county courts would be in session. The San Diego Airport tweeted problems from Thursday night but had nothing Friday. Similarly, the region’s main emergency preparedness agency had no posts since this one Thursday night:

@ReadySanDiego
RT: @SDGE While we're getting power back on to some areas, it will be some time tomorrow before all power is restored to region. #sdoutage

So as with other web-enabled communications strategies, such efforts are meaningless unless you make the commitment to keep your content up-to-date: daily or weekly for most organizations, but hourly for major institutions in a time of emergency.

In the end, the only communication medium that worked reliably was decidedly old media: news radio. The local news/talk station, KOGO, dates back to 1925. Although they (and other stations) had the cable news election night/disaster syndrome — babbling when there’s nothing new — nonetheless they were able to broadcast accurate up-to-date news to the widest possible audience.

In other words, mass communications run by journalists trumped social media run by amateurs or government officials. Now if only old media could find a business model that keeps them in business.

The outage certainly makes me appreciate the crank-powered Grundig radio that (ironically) my mom gave me one Christmas. However, it takes a lot of cranking to listen to a half hour of radio, so when I got home I plugged in the charger to the wall so I’ll be able to listen for an hour or so before I have to crank.

Whither T-Mobile USA?

The Obama Justice Department filed suit Thursday to block AT&T’s proposed acquisition of T-Mobile USA. The case against the merger is compelling, but I never thought the administration would make the political decision to block the merger.

Perhaps the Justice officials bought into a slippery slope argument: if they don’t say “no” to AT&T buying T-Mobile, how could they say no to Verizon buying Sprint. Or maybe it was the strong signs of opposition from the Democrat majority in the Senate.

Even the Wall Street Journal reported that Ma Bell’s efforts to build political support never solved the legal condurum:

If breadth of backers was the main criteria, AT&T's $39 billion purchase of T-Mobile USA would have sailed through regulatory review. … But good corporate citizenry and lobbying expertise aren't the only criteria. And as the Justice Department's court challenge to the deal Wednesday demonstrated, the deal was always long on hype for how it would help consumers, and short on robust legal arguments.
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AT&T's problem is that the legal issues aren't on its side. Antitrust lawyers had said in recent days that the company's chances of winning approval rested on political issues trumping legal concerns. The fact that the government challenged—months earlier than observers had expected—demonstrates that the legal issues won the day.

On the most basic level, it was evident before the filing, the combination exceeds concentration of market share levels—as defined by the Herfindahl-Hirschman index—that the federal government generally finds acceptable. Divestitures could resolve the concentration risk, of course. But AT&T will find it harder to get around the reality that a merger would reduce the number of national wireless firms from four to three—in the process eliminating a low-priced competitor.

Given that reality, it’s hard to understand why AT&T claimed to be surprised. Shareholders should demand an immediate investigation as to what Kool-Aid® they’ve been passing out at Whitacre Tower, headquarters for SBC AT&T in San Antonio.

AT&T may fight for half a loaf, but any partial AT&T victory would leave T-Mobile in even weaker shape that when the deal was announced — except for the temporary salve of the $3 billion breakup fee.

The problem is, T-Mobile USA (misleading ads with spokesbabe notwithstanding) has no 4G strategy and has been under-investing in the business as an endgame strategy. It’s too expensive to compete with Metro PCS (or Sprint’s Virgin Mobile) and lacks the phones or service quality to compete with the big three.

Of course, if #2 AT&T can’t buy #4 T-Mobile then #1 Verizon certainly can’t. That leaves #3 Sprint, or perhaps some foreign entrant.

Some may claim that this will force a Sprint-T-Mobile merger, but it’s hard to see how. The two have incompatible technologies, and buying the Nextel incompatible technology almost killed Sprint. Also, Sprint’s market cap today is about $11 billion so there’s no scenario where they could approach AT&T’s $39 billion offer or even the $20-25 billion that analysts estimated last Christmas.

My best guess: T-Mobile AG will run the property further into the ground, with no 4G strategy and its advertising-driven price war. Then in a few years, the world’s richest man (not Mr. Bill) will buy T-Mobile USA for less than half of the $39 billion, and integrate it with América Móvil, Latin America’s most successful mobile phone business. It could put together special roaming agreements for the millions who live and call on both sides of the 30th parallel.

Meanwhile, T-Mobile USA won’t have the spectrum or money to build a 4G network, so someday it will have to rent time on a virtual 4G network, whether Sprint’s partner Clearwire or Leap’s Lightsquared.

I’m (temporarily) a T-Mobile subscriber. I suspect the prices will remain attractive as long as T-Mobile is fighting to preserve its subscriber base and prop up the eventual sale price. I’m curious to see whether T-Mobile will start any price wars, or will remain reactive to MetroPCS and Virgin price wars, but in the end I don’t think it will have any bearing on its survival.

Insanely Great

Steve Jobs is still retired, but earlier today I heard an interesting commentary on the role that he played not only for Apple but the industry.

The source was Leo Laporte, who hosts a technology-oriented radio show on weekends here. For almost 30 years, I’ve had a love-hate relationship with computer journalists (typically over their bias, lack of technical knowledge and opinionated self-importance) but I’d have to rank Laporte as one of the best — and perhaps the best in the electronic media.

What caught my attention was when Laporte listed all the things that Apple didn’t invent but perfected

• Apple II (1977) was not the first PC (1975 or perhaps 1974)
• Mac (1984) was 3 years after the IBM PC (1981)
• iPod (2001) was not the first MP3 player
• iTunes was not the first music software
• iPad (2010) trailed Chairman Bill’s failed efforts at making a tablet by a decade; and
• the iPhone (2007) was not the first smartphone

Laporte was exactly right — many forget what Apple did to change the world because we forgot what it was like before Apple changed it.

Reading between the lines, none of these Apple breakthroughs happened during the Jobs interregnum (1985-1997). Apple did do a few important things during this period — QuickTime and the first PowerBook — but I think it’s easy to argue that none rise to the level of the Mac, the iPhone or the iPad.

As Laporte noted, Steve Jobs was not about making wads of money but changing the world. He once exhorted his workers to be “insanely great” which is how Apple transformed existing product categories into something new. (Management scholars might say Apple created the Dominant Design.)

Also as Laporte noted, the world that Apple created is probably different than the world that would have existed without Apple.

I’ve read every major book published about Apple in the 20th century, and a few of the later ones. The early histories make clear two things. First, Steve and Steve and the early employees were about changing the world. Secondly, their vision was creating computing for the masses, i.e. making computing personal. (And arguments about whether the Mac stole from PARC miss the point that Xerox was never going to change the world with a $15,000 workstation targeted at the Fortune 500.)

If you look at Atari and Commodore and some of the other early consumer PC pioneers, they had a completely different DNA. They were about selling lots of products, but they didn’t really care whether they got used or not. (The Commodore 64 was a powerful machine for its day, but without decent software I suspect most got stored in a closet as ours eventually did.)

Instead of just peddling boxes, Apple created the K-12 education market, a market they owned until (post-Steve) fears about its future (and the abandonment of the Apple II) created an opening for Dell to sell commodity PeeCees. Of course, much of this success accrued to Apple’s benefit, with half of US college students wanting a Mac over a PC.

Meanwhile, the decentralized third party software ecosystem concept of the Apple II has been replicated over and over — in the IBM PC, Macintosh, Windows, Xbox/PS/Gameboy, the iPhone, iPad and Android to name a future. The idea that you make a cool box, distribute APIs and wait for third parties to provide the missing pieces is now the norm for any software-enabled device.

As someone who now teaches bioscience students — many of whom will go into drug discovery and medical devices — I want to see how we can translate and infuse this passion for making a difference into their careers. People tend to hold up Steve Jobs as a brilliant product designer — and industry strategist — but we tend to forget the part about his focus on changing the world.

End of the Jobs II era

Steve Jobs resigned as CEO today, marking the end of the 3rd and final act of a career that transformed the the computer, consumer electronics, mobile phone and entertainment industries:

• Apple (Jobs I): 1976-1985
• NeXT: 1985-1996
• Apple (Jobs II): 1997-2011 (continuing as non-executive chairman)

In between, he also bought control of Pixar in 1986 for $10 million, making his personal fortune 20 years later by selling the company for a cool $7 billion.

As Walt Mossberg notes, it’s hard to think of a single individual who had as much impact on the business world across the last 30 years. Steve brought us the Apple II, Mac, iPod, iPhone, iPad and even a new campus for Apple. Steve Jobs has had better years (e.g. 2007 or 2010) than most IT industry CEOs have had careers.

Apple has been central to half my life. I was late to the Apple II, not using one until I shared an apartment with a fellow newspaper reporter with an Apple II+. However, I bought my Mac the first week they went on sale in 1984 and have owned one in some form or another for the next 27 years. I also ran a Mac-only software company from 1987-2002, wrote for Mac trade magazines and did my PhD dissertation on the tail end of Apple’s sad decline during the dark ages between the two eras of Steve Jobs.

Despite these long ties to Apple, I didn’t buy Apple stock when Steve returned to Apple. Big mistake: if I’d put in $10,000 — my standard IRA side bet — it would be worth $1.7 million today.

Aged 56, Steve Jobs still isn’t dead, and perhaps he will remain an active chairman for a few years. Apparently he’s remaining on the Disney board as its largest shareholder, monitoring the $4.5b (7.4%) stake that will provide an ample college fund for his three youngest kids. (His out-of-wedlock daughter Lisa graduated from Harvard 11 years ago). He also has 5.5 million Apple shares worth nearly $2b.

As we pundits predicted years ago, the efficient but unexciting Tim Cook gets to be CEO, and the market was not happy. It’s even big news in South Korea. But in 2013 or 2014, Cook will become chairman/CEO and Steve will surrender what is clearly his most precious child, which recently was the world’s most valuable company.

His youngest kids are (approximately) aged 13-20, so they got a few more years with their famous dad. Jobs’ news came on my late father’s birthday, so I’m reminded that even adult children will miss their father and cherish the time that have with him during his final days.

Beyond that, what else can the man do? His first authorized biography is coming out in November, so does he need to write his own memoirs? Set up for Laurene a charitable foundation to rival that run by Melissa Gates?

Whatever it is — and however much time he has — Steve Jobs the man has certainly earned his retirement, and he seems strategic enough in his thinking to figure out how to spend it wisely now that he has nothing left to prove.

Update: YouTube now has video of Steve’s original January 1984 introduction of the Macintosh.

HP's acts of desperation

Since last week’s huge news about HP I’ve been hoping to write something, but I was traveling and didn’t time to collect my thoughts. Even after five days, the news still doesn’t make sense, other than as the death throes (or at least mortally wounded throes) of a once-great giant.

Yes, HP has serious problems. It’s been unable to find a decent CEO since its founders (NB: Apple, Microsoft). Simultaneously chasing both Dell and IBM, it caught and passed Dell for a prize it no longer wants, while it seems unlikely to ever catch IBM (at least in my lifetime).

The HP board and CEO Léo Apotheker seem incapable of dealing with the current challenges. It has come to having HP’s chairman bad-mouthing Apotheker’s predecessor for “under-investment” in the core business.

But this is only the latest desperate effort in more than a decade of throwing one Hail Mary pass after another. Its $1.2b purchase of Palm and webOS was (as predicted) a major mistake. It allowed the (previously dying) Palm cellphone business to die, and meanwhile the efforts to establish the TouchPad as a viable iPad rival has failed miserably (much like RIM) with Best Buy selling less than 10% of those ordered and HP writing off $1 billion in losses on the webOS hardware business — most of that on the TouchPad.

Yes, a couple of things make sense from the announcements. Yes it’s time to cut the losses on the webOS acquisition (Perhaps claiming it has a future as a consumer embedded OS postpones the inevitable write-down, but competing against a no-royalty embedded Linux will be difficult at best.)

And at some level, the divorce of the low margin PC business from the potentially high margin software/services business has a business logic. Mark Hurd was the right man to run the commodity business while Apotheker prefers higher margin services, and neither was suited to run both together in a single company.

The problem is that the current HP is a conglomerate of the leading commodity PC maker, the leading (increasingly commoditized) printer maker, and a hodgepodge of largely second-tier software and services businesses.

Under Hurd, the company had embraced commoditization — executing on Carly’s Compaq acquisition and doing an exemplary job of competing in commodity markets. The only cost was the heart and soul of Bill and Dave’s company, ripping it out as the company shed workers, perks and the exemplary culture that once inspired Steve Jobs and Steve Wozniak.

Then the HP board panicked over Hurd’s poor judgement and forced him out, replacing the successful commodity numbers weenie with just the opposite: a software guy that was presiding over the dying SAP franchise. Apotheker had not solved SAP’s problems — coasting on the inertia of its once-invincible lock-in rents in the BPR segment — so he was rewarded with the reins of Silicon Valley’s oldest and most storied company.

A completely different CEO meant a completely different strategy, which in turn requires a different portfolio of businesses. (It also requires different competencies up and down the line, which the latest moves pointedly do not address.)

Even if exiting PCs now makes sense, as others have noted HP has completely bungled the planned PC spinout. IBM’s decision to sell its division came as a bolt from the blue with the buyer already announced. Apparently HP shopped the PC business and didn’t get its desired price, so now the uncertainty around the PC division (the born-again Compaq) will cause it to hemorrhage customers and market value until it’s finally dumped.

In the end, I have to lay the current problems on the board, which brought us the infamous spying scandal, melodrama over the last 3 CEO appointments and of course forcing out its best directors, Tom Perkins (of Kleiner Perkins fame) and George Keyworth. As Perkins noted in a 2007 video and his memoir, the board groupthink forced out any dissenting view — which (to further mangle metaphors) is a recipe for marching lockstep over a cliff.

Who’s on the board? Two insiders, three private equity investors, a failed startup technologist turned investor (Mark Andreessen), a former consumer products exec (Meg Whitman), execs of two failing telecom companies, the CEO of a successful software lock-in business, CEO of a major consulting company, chairman of a specialty chemicals business, and Larry Elison’s longtime sidekick (turned nemesis and Kleiner Perkins managing partner).

Oddly, while the board has exemplary gender diversity it lacks the obligatory university professor or president. I suspect Intel benefitted greatly from the advice of longtime director David Yoffie — even if I didn’t always agree with his analysis. (If HP goes looking for an academic, Tim Bresnahan of Stanford has understood the economics of platform businesses longer than anyone.)

Apparently I’m not the only one fed up with the HP board. After the 20% drop in HP stock Friday, fellow Seeking Alpha contributor Vitaliy Katsenelson wrote:

Anger and frustration are the two emotions pulsing through my veins as I write this. HP (HPQ), once the symbol of innovation, is being dismantled by its high-pedigreed board and the CEO of the hour. … [In] the early 2000s, when Carly Fiorina, then CEO of HP, engineered the HP merger with Compaq. … [N]ine years and two CEOs later HP has announced that the PC business, the one it so desperately wanted just a decade ago, is too hard a business and that it will look for ways to get rid of it. Almost in the same breath HP announced that it will kill WebOS devices, a business it acquired in April 2010 for $1 billion; and management, possibly missing the irony in those two announcements, went ahead and announced another acquisition, which this time will for sure transform the company.
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I don’t need to have a great imagination to envision another conference call in August 2015, where a new CEO decides that the software business is too difficult, and HP needs to come back to its roots (maybe going back to making calculators) and will spin off the software business into a new company, take an enormous charge, and then maybe announce an acquisition that the same highly pedigreed board will rubber-stamp.
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HP’s stock sold off not because the company disappointed Wall Street but because Wall Street grew tired of the overpriced “must-have” acquisitions. Wall Street has smartened up and assumed that this acquisition, as with many other “transformative” acquisitions, will do nothing of the sort.

I’d like to hope that HP will turn around some day, but I can’t see how to get there from here. It would require an entirely new board, one with more winners than losers and more big company operating experience. HP and its board are too big to be threatened with a hostile takeover, and so will muddle along — acquiring baubles with the shareholders’ checkbook — without a coherent long-term strategy or market niche.