Dana Blankenhorn

The CBS Deal

C|Net has been bought by CBS, for $1.8 billion, a 45% premium over its recent stock price.

I mention this because my income today is wholly dependent on C|Net. I write two blogs for their ZDNet unit, Open Source and Healthcare.

I like the work for two reasons.

One, it's fun, I'm really my own boss.

Second, there's a working business model here. The company knows how to monetize traffic, and I get what I take to be a percentage of what I bring in. That means when I make money C|Net makes money. It gives me a warm feeling.

Microsoft's Hopeless Cause

I just got finished reading a big, breathless feature about Microsoft's counter-attack on Google.

It's Clueless. And hopeless. It's amazing that 14 years after the Web was spun a company can be this hopelessly stupid.

What's so stupid? It's Microsoft's reliance on advertising, specifically "display" and "video" advertising. Microsoft is talking to big New York advertisers, telling them they should place their money with Microsoft because they do more big display and video ads on Web sites than Google does.

Well, they do. But advertising isn't sales. And all the nifty tools Microsoft has announced to track the impact of its ads aren't sales.  Otherwise we'd buy stuff of billboards, not Craigslist.

The strength of the Web is not how well it can target advertising, or track advertisements. The strength of the Web lies in how it can replicate the entire marketing process -- everything from making the initial connection to the pitch, through the transaction and customer service.

By focusing on advertising, and advertisers, Microsoft is missing the whole point of the Web.

Advertising is just one flashy piece of a much larger process. It happens to be the one piece that the folks  selling goods and services have total control over. Which is why they focus so intently on it.

But it's just one piece, and a fairly minor piece at that.

Many companies spend up to half their budgets moving their merchandise. This includes the ads, finding the place to run the ads, tracking the ads, making the sale, and handling the returns. How much of that budget can Microsoft earn with this new strategy?

Not much.

But there's a far more important point in play here.

Capacitors in The War Against Oil

What if we could shrink every electric motor in the world by two-thirds, essentially doing three times the work with the same juice?

We can. And we can do more than that. (Picture from NG Manufacturing.)

I got this story from an old college buddy out in West Texas. It seems a Mexican outfit, Neuva Generacion Manufacturing, which owns most of the big U.S. capacitor makers, has patented technology to do just this.  It will first go into things like refrigerators and air conditioners, as well as industrial motors, but could be applied anywhere such motors operate.

How do they work? As my friend put it, the key to an electrical motor inefficiency lies in starting the thing. Current technology for starting motors increases the power demand by 300%. The capacitors allow start power to match the running power, so all that extra weight (and power use) goes away.

NGM has the capacity to serve the whole market, with factories in the U.S., Mexico and China. Among their brand names are Commonwealth Sprague, Barker, and Mallory.

To quote from their (admittedly poorly written) press release:

Early U.S. Department of Energy reviews of this new technology have demonstrated drastic improvements in life and dynamic improvements in most motor start applications.  Manufacturing tests have proven that many major components of HVAC and Appliances can now achieve smaller overall size with resulting savings in materials and manufacturing costs when fully integrated with the new NG / PACCAP technology solutions.   

The implications are discussed in an article at Copper.Org. Better capacitors mean more efficient motors, three times as efficient as current models. Even if the new motors merely replace old ones as they wear out, we're talking about savings of:

62 to 104 billion kWh per year in the manufacturing sector alone. This savings is valued up to $5 billion. It would also avoid the release of up to 29.5 million metric tons of carbon equivalent emissions to the atmosphere annually.

Industrial motors consume about 23% of all electrical power in this country. Existing incentives for energy efficiency can increase the turnover rate, and the savings.

Now, how can we get even more savings?

The Oil Standard

Think of this as Volume 11, Number 18 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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I have long been intrigued by what stands for value. (Picture from The Zoo.)

Throughout the 19th century, gold was the standard of value.

The 1896 Crisis, the Cross of Gold speech, these were outgrowths of the 1895 gold loan by J.P. Morgan to the U.S. government in exchange for bonds, which Morgan then sold at the "usurious" interest rate of 4%. With gold as the standard of value, the value of other commodities (like wheat) withered. Farmers suffered, bankers gained. The farmers' uprising was called Populism, and it made Democrats dominant in the farm belt for decades.

Today we have a new standard of value. Oil. And the impact is much the same. For wheat read dollars, for farmers read Americans, and for J.P. Morgan read the Saudi sheikhs, Hugo Chavez and Vladimir Putin.

What makes a "strong" store of value is the fact that its supply is limited, that it doesn't inflate. It's stable. It's sound.

The U.S. dollar is no longer sound. It's being tossed out by Helicopter Ben the way farmers a century ago tossed wheat on the market, and the result is very predictable. The age of the "dollar standard" is over, and while the world seeks a new safe haven, oil will do nicely.

There can be only one response.

Making It About Us Again

Why are people so disgusted with the present political campaign?

It's not about us. (Picture by Fred Askew from MonthlyReview.)

Candidates give lip service to this being about us, but it seems to be more about the media and the pundits and their own obsessions than about us.

Campaigns generally get into the weeds like this when the discussion about us becomes uncomfortable to the elites in power. It's not policy choices which make the elites uncomfortable. It's the idea of someone other than the elites making those choices which makes them uncomfortable.

I'm not talking here of idiots and know-nothings making decisions based on their own prejudices. I'm talking about candidates and parties addressing our real crisis, not just pandering to our short-term problems but inspiring us with a different future.

What's happening, to both young and old, is we fear losing control of our future. We don't know where our next job is. We don't know if America can ever lead again. We don't know how we'll pay our bills or educate our children. We fear we've lost control, personally, politically, economically. We're scared.

Open Source is Parallel Processing on Steroids

I was chatting up a Washington liberal today, and it was depressing.

The subject was computing. The liberal bemoaned the power of corporations to wreck a great, highly-functional government project.

The project was starved for funds, its developers allowed to leave, and now its bones were being picked by lobbyists, all aiming their "best of breed" systems as replacements for bits-and-pieces of what had once been a magnificent computing edifice.

Even if Democrats are elected this fall, he said, they don't understand these technical arguments about open source vs. proprietary. They'll be bought off just like the current crop.

Which is when it hit me, the frame he could use to tear down all those vendors and bring back what was lost, what is in the process of being lost.

Open source is parallel processing.  (Shown is the parallel processing lab at the University of Utah.)

No matter how big a vendor might be, it's still one system. Like the Von Neumann architectures that dominated computing for its first 40 years they have a bottleneck. The only way to speed up the process of finding a solution is to speed the whole process, get more GHz. It's this kind of thinking which led, by the 1980s, to so-called "supercomputers" like the Cray.

Parallel processing was developed in the 1980s at the Sandia Labs in New Mexico. The idea was simple -- to break jobs into parts, to move the parts onto many systems, and then to put the solutions together on the back end.

In the 20 years since parallel processing has come to dominate computing, relegating Von Neumann to a Wikipedia entry. First people stacked Macs to beat a Cray. Then they used parallel processing on the Internet itself, creating distributed computing projects like SETI @  Home. Today parallel processing is used inside chips -- all today's latest AMD and Intel silicon is doing parallel processing. From two to four to eight -- who knows how far we can go with it.

That's sort of how open source works. Only on steroids.

Because with open source not only do you parse out pieces of a project to different companies, or different developers, but their work can cross-pollinate. Not only can you build systems in parallel, but you can also use a vast community of users to find bugs, and another vast army to stamp out the bugs.

The genius of Linus Torvalds lies in his ability to constantly re-engineer Linux' development process, first farming out all the work, then finding new ways to coordinate the massively-parallel architecture which develops in response. And the design of Linux itself responds well to this parallel processing impulse, since it consists of central functions in a kernel, ancillary functions surrounding it, and a host of distribution providers who can build working systems from all the pieces -- sometimes using just parts of the kernel for a mobile system, embracing optional things like virtualization for a server.

The Future of Corporate-University Collaboration?

If anyone knows of any other deals like this, let me know. Because right now this looks unique.

And if anyone has any opinions, fire away, because this is not your usual blog post. This one asks more questions than it answers.

Rice has signed a deal with Lockheed-Martin in which the latter will have a sort of "mini-lab" inside the Smalley Institute. The company will pick through what everyone is doing, and fund up to six projects each year which could be quickly brought to market.

The new lab-in-a-lab is called the Lockheed Martin Advanced Nanotechnology Center of Excellence at Rice,  or LANCER.  Cute...cute name.

Community Server

Think of this as Volume 11, Number 16 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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My health is good. We're happy. But there are days when I do wish I were 30 years younger, full of piss-and-vinegar.

Days like today.

Because if I were 28 again, and just starting out, this is the kind of business plan I would dearly love to implement. It's what I dreamed of when I first put "Have Modem, Will Travel" on my business cards over 25 years ago. (The picture is from that time. That's my old Kaypro II on the right. The kitten, LoMeow, lived to the age of 18.)

I call it the Community Server, and it's designed to activate rural communities and the back-end of the Internet revolution, the people who right now are either off-line or turned off by what they see online.

Let's start with some facts. Many types of demand can be aggregated and delivered at low cost. Not just diapers and TVs, as Wal-Mart did. Not just electricity as co-ops have for years. But telecommunications as well.

I've described over the years how cheaply WiFi can be delivered, and how copper wires can be transformed by going all-digital. But now that you've got people an on-ramp, where are they going?

To a directory, first of all. City directories and phone directories. Get the data and put it online.

Build a database of it, with each listing a virtual page. The front-end can be Elgg, it can be Marc Canter's PeopleAggregator, it can be Drupal, or (here's a good idea) it can be WordPress.

Take your time selecting the platform, because it's an important choice. You want to be able to add the capabilities of sites like FaceBook, YouTube, and MySpace, as your users demand them. Few users will demand many of these new features right off -- most will be happy with a blog -- but when they're ready you need to be ready. And your platform choice will determine that readiness. You're looking for an open source platform with an active community and a real business behind it.

Your community server could be hosted in your service area, but it doesn't have to be. If you've already aggregated Internet connectivity it might be fun to host it yourself. Otherwise leave it to the pros, and get near a major Internet Exchange.  In time you'll be the cloud. For now get next to one.

So far I haven't really told you much. Anyone can do this. Many people do and wind up with empty servers. I've done it myself.

What's the secret sauce?

Wolf Blitzer Will You Please Go Now?

Let me say at the top I found protests over the Beijing Olympic torch in San Francisco to be silly.

The United States has no credibility in accusing anyone else of human rights abuses, or of ignoring democracy. After the last 8 years of suppression and war, our ability to tell the world what to do about itself is exhausted. It's a sick joke. And it will remain that way long after we change our ways -- assuming we ever do.

I had just finished work yesterday and was flipping around the TV when the protests arrived in Wolf Blitzer's Situation Room.

It was a disgusting display. Not the protests. Not the reaction by authorities. Not the irony of China glorying in an event first staged by Nazis. Not even the Chinese goons who have been part of the parade of continents. 

All that was to be expected.

What was unexpected was Blitzer's narration, which was so over-the-top in attacking the protesters and worrying about the feelings of the poor Chinese government that I was, once more, ashamed to be an American.

Why the Media is the Last to Know

One of the great ironies is that journalism, which deals in the eternal now, changes far more slowly than other institutions.

It's easy to understand when you think about it. You rise as a journalist mainly by pleasing those above you. These decision makers are older. A journalistic institution has very slow turnover in its management class, so barring bankruptcy you're dealing with people whose formative experiences lie 20-40 years in the past.

Change in journalism, in other words, is generational. The rate of change in an established journalism enterprise has nothing to do with events, nothing to do with reality, certainly nothing to do with how readers' minds may be changing. Then recall how with each new set of political assumptions one medium tends to rise and another fall -- the falling medium digs in its heels as the new medium rises.

Book publishers in the 1890s were slow to credit the journalistic ideas then rising into vogue. Publishers like Mencken were slow to credit film or radio in the 1930s, and Hollywood resented TV in the 1960s.

Yet people in today's rising Internet thesis, like Digby (above) and Glenn Greenwald, people working every day in today's rising medium, continue to get their undies in a bunch over the glacial pace of change in TV newsrooms.

They see conspiracies when they're looking at evolution.

Bias Doesn't Help

Having been a business reporter for 30 years this summer I understand the natural bias to identify with your subject.

The job of a journalist is to organize and advocate an industry, place or lifestyle. Thus, a certain bias favoring the political views held by the group you write about is natural.

But at some point your ideological blinders have to come off, or else you're doing your readers and viewers a disservice.

This has plainly happened with the financial press.

Media coverage of the Big Shitpile has ignored the Big Fact. This happened because unregulated markets were allowed to be created, to grow, to soak up much of the world's capital. When two brokers or hedge funds repackage mortgages or other things into new types of trading instruments, they are printing money, just as the Federal Reserve prints money. They're doing it in the same way, by declaring the existence of new paper, by putting a price on it, and making a market in it.

Anyone who does this has a fiduciary responsibility. You become the trustee of your investor's interest, which is supposed to trump your own. Ethical rules can police such a responsibility. So can laws and regulations.

What happened in this decade is entirely new markets and new instruments were allowed to be created, which lacked these controls.

Nothing I have seen, either from the Administration or the financial press, addresses this key point. Nothing I've seen endorsed from either is designed to control these markets. It's all window-dressing, pushing papers and organization charts around in the appearance of doing something while in fact doing nothing.

This guarantees the scandal will happen again, sooner rather than later.

Will you read this in Forbes? Will you see this on CNBC? No you won't. Jim Cramer won't tell you either. The ideological blinders of all these outlets cause them to hide from this simple truth.

We must regulate our markets, or we will lose them.

Let me put this in a way Cramer might understand. You have two casinos. One is regulated. The other is not. Where will you place your bets? Will you do it at a place where, if the casino plays 3-card monty on you they will be caught and punished? Or will you do it where the game is crooked and there's no cop on the beat?

Regulators are cops. When conservatives go on this knee-jerk "anti-regulation" jag they're arguing for lawlessness. Markets which can't guarantee transparency, which act as unregulated casinos, will over time be rejected in favor or markets where honesty is assured.

The growth of the U.S. financial industry over the last 80 years has been driven by its honesty, by its transparency, by the wealth of information on players and games which regulators of all types have imposed. Eliminating these regulations, or going around them, does not make markets more efficient. It makes them more crooked.

Law good. Lawlessness bad.

Halfway Through the Process

The first part of our national economic nightmare is over.

But only the first part. (Picture from Cashflowrollercoaster.com.)

What we've seen in stocks is a classic bear market. Prices fell roughly 20% from their highs, from over 14,000 to (briefly) under 12,000. They then re-traced about a quarter of that loss, and if they go higher still it's no all-clear signal. Most bear markets retrace half their initial loss.

What happens next is a test of the lows. This is just what happened nearly a decade ago in the dot-bomb. It's what happened in the "Asian contagion" of the late 1990s, and in nearly all previous bear markets. If the lows hold it's over.

But the lows don't always hold. That was true for Japan after 1987. It was true for Wall Street after 1930. And in this case there is real fear that the lows may not hold.

The reason is that under all this crap is the Big Shitpile, the mortgage derivatives created by unregulated markets over the last few years. Basically investment banks were creating money on their own, with no controls, by simply defining new securities based on these mortgages and selling them as though they were worth something. The ability to do this inflated home prices, because lenders didn't have to consider the risk a borrower wouldn't pay. The unregulated market was hungry for any new collateral.

Federal Reserve intervention staved off the first phase of panic, but there could easily be more to come. Millions of mortgages will re-set this year. Millions more are "underwater," more money owed than the value of the home. These are both opportunities for speculators to get-out, and since the bankruptcy law of 2005 made home debt less important than credit card debt (you have to pay the credit cards in bankruptcy now, but you can walk away from the home) there may be millions more foreclosures to deal with.

Each one of those foreclosures will have a ripple effect. Each mortgage is tied to other securities, all of which default or lose value when a homeowner walks away. How many are there? No one really knows.

So far home prices have dropped about 11%, and newspapers are saying this is a disaster, but it's really not a big deal. I think prices will fall by at least 20%, probably more, meaning lots more mortgages go underwater, as lenders tighten their standards, knowing they may have to hold the paper themselves for a while.

We have yet to see the second leg of this thing, in any market.

It's Not That They're Clueless

Think of this as Volume 11, Number 11 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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My blog friend Oliver Willis calls those in charge of our financial house clueless.

That's an easy mistake to make.

In fact, it's in the nature of our economic system that you go right up to the line of legality in order to maximize profit. Anyone who doesn't do that is an economic loser, either in the short run or the long run.

You want to go right up to the line, peer down over the edge, and maybe move your toes back a bit. That's what your lawyers are there for, to move your toes back a bit.

This is fine so long as the law is reasonable. If the law is reasonable and cops are on the beat, walking right up to the line of legality and staring down into the canyon is both legitimate and good business. It's what makes markets efficient.

The problem in this case is the law was made unreasonable, and the cops chose to look the other way.

All the problems Bear Stearns caused were through the creation of new, "unregulated" markets. An unregulated market is a market that's looking for scandal. Because there is no reasonable line you can walk right up to, it's easy as heck to become Wile  E. Coyote in such a market -- everything is fine so long as you don't look down.

The defaults on sub-prime mortgages last year were when we started to look down.

A Bigger Crime Than Iraq

With very little fanfare, a bearded bureaucrat about my age recently committed a bigger crime than our entry into the Iraq War.

Ben Bernanke, whose title is Chairman of the Federal Reserve Board, is committing half your country's capital -- $400 billion -- against securities  he knows are bogus, home mortgages that should never have been made, collateral instruments that should never have been created.  He compounded this crime yesterday by explicitly bailing out Bear Stearns, the investment bank which more than any other created this Big Shitpile.

The excuse, given even by liberals like Paul Krugman, was that Bear is "too big to fail."

Bullshit.

The Magic Word for 2008

Think of this as Volume 11, Number 10 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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Production.

Say the magic word and the debate, as well as the choices, of 2008 come into sharp focus.

The only way to get out of our current economic problems is through production of new goods. The only way to launch the War Against Oil is through production of new types of energy.

The two points are directly related. The key to production at a profit lies in reducing the energy costs of production. And the energy costs of distribution.

Speaking of which, a focus on production is how you address questions regarding the Internet. Our Internet infrastructure is in sorry shape. It needs a serious upgrade. These are the canals or roads of our time, and we need to treat Internet access just as seriously as our forefathers did those routes to market.

Production also puts many issues into sharp focus because of how the two parties have proposed to boost it.

Republicans want tax cuts. They want "incentives" for companies to boost production of oil and gas, of coal, and of Internet capacity. These have been at the heart of their economic program for years.

Democrats want competition. A Democratic program for production would focus on increasing the amount of competition in all markets.

A floor price for energy would be a good start. Lock in the current gains, tax away oil and gas whose price comes in under the floor (it won't once the floor is in place) and you provide plenty of incentives for both the production of new energy and increasing the efficiency of industrial production.

Competition is also the answer to our Internet problems. Demand that current networks, both wired and wireless, open up to new competition, as was done in the 1990s. Problem solved, thanks to Moore's Law, because it is only by violating Moore's Law and squeezing more money out of the same services that the current duopolists have stayed afloat.

Production is the answer to not only our labor problems, but (in part) to our crime problems. Production creates lots of relatively low-skill jobs. High demand for low-skill jobs will increase wages for those jobs, and create incentives for producers to take a chance on the 1% of us now behind bars. If you enable people with minimum education the chance to earn a fair living your crime problem goes down.  Create enough jobs and we can even hire Mexicans, in Mexico.  So much for immigration problems.

Production is an economic policy, it's environmental policy, it's energy policy, it's trade policy. By creating new ways to make things, which are more energy efficient, we create exports, both in the goods themselves and the machines used to create the efficiency.

The Virtuous Cycle of a War Against Oil

Think of this as Volume 11, Number 10 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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Right now the U.S. economy, and the U.S. in general, is in a vicious cycle. (Picture from DC Fred  .)

Wealth is decreasing, so sales are slowing. Sales are slowing, so the economy is tanking. The economy is tanking, so the dollar is tanking. The dollar is tanking, so we're importing inflation. Prices are rising so we can't cut interest rates. High interest rates causes wealth to decrease...lather, rinse, repeat.

What if we could replace this vicious cycle with a virtuous one, as we had in the 1990s?

We can, but it can't be the same. Back then we were building the Internet. That's built. We could improve it, add lanes, add competition, and that would be a very good thing indeed, but it won't provide the kind of virtuous cycle we got back in the day. Sorry.

But we can get that virtuous cycle if we commit to a War Against Oil.

What does a War Against Oil mean? It means a total commitment, on the order of a real war (not the kind we've been fighting in Iraq) to eliminating the use of hydrocarbons in our lives. That's the clearly defined victory, and (as the current President likes to remind us) nothing less than victory will do.

How do we do it?

Seeking Bottom

Markets are a lot like alcoholics. They can't start their recovery until they hit bottom.

In an auction market, like stocks, this happens fairly quickly. The buyers disappear, and sellers capitulate, those who were burned by the bubble lick their wounds.

The bottom is not reached until you have an honest "buying opportunity," based on fundamentals, usually at a valuation of about half what the commodity was worth before -- often less. Often this bottom will be tested, and for years after a bust your gains will be modest, even if you got what looked at the bottom like a bargain.

Lock in the Gains

With the price of oil now well over $100/barrel, the time has come for the U.S. economy to lock in its gains. (Tom Noddy does magic with bubbles.)

What do I mean by that?

There are a lot of energy saving, and energy producing ideas, which make no sense at $30/barrel but which make great sense at $80/barrel. But we can't make them so long as there is substantial risk that the price will go back to $30/barrel.

We were at a moment similar to this almost three decades ago. People were talking them about wind farms and wood stoves and all sorts of things, with oil at around $50/barrel. Instead of locking in those gains and letting innovation create a market, we decided on a strategy of killing the bastards standing between us and cheap oil. It worked. All those ideas disappeared.

The Money Trap

Hillary Clinton may be poised for a comeback on Tuesday.

The reason for that is a truth that even the Netroots have yet to acknowledge.

TV ads can be counter-productive.

This is an artifact of a changing media landscape. As the new medium rises, the old media is disbelieved. This is not news in the commercial world. It's only news to those who follow politics.

Remember 40 years ago when conservatives started railing against the "liberal media" and "liberal Hollywood," just as they were becoming a majority? Same thing. Agnew (and his muse, Safire) were reflecting attitudes which were already abroad in the world, in the new majority they spoke for, that TV was believable and "older media" was not.

The same thing is happening now. We believe what we see and read on the Internet, and discount what comes over the TV. Especially the ads.

Don't believe me? Then explain how John McCain, who was grossly outspent by his rivals, especially Mitt Romney (but before that Giuliani and even Thompson) rode to his party's nomination?

What Starbucks Can Learn from Barack Obama

I have been to several Starbucks in my travels over the last few days. (Picture from MIT's Branding Blog, which is missing the point I'm about to make.)

They've got trouble. Terrible, terrible trouble. Their merchandising is stale. The message from their all hands meeting the other night is they're happy being McCoffee.

What's worse is they think they're in the coffee business. They're not in the coffee business. They're in a host of businesses, most of which they're doing as afterthoughts. Mainly they're supposed to be in the experience business.

Their coffee equipment selection sucks -- my carafe broke today and I couldn't replace it there. Their music selection is horribly limited. Their baked goods are stale. Worse, the employees don't care -- all the chain cares about is making good coffee.

I could jazz that place up in 5 minutes. Watch me:

• Bring in musicians. Empower local stores to find them. Add their CDs to the rack. So what if each gig only brings in a half-dozen souls -- that's all the place can hold. But it starts a process of connecting to music's grassroots.
• Better doughnuts. Or brownies. Or whatever. You need your people checking out the local bakery purveyors, bringing those suggestions up the chain, and you need to empower lower-level managers to try something new. Something fresh. Something from the area.
• A Better WiFi deal. The current AT&T deal lets people with a Starbucks card get free WiFi. Why not print a daily passcode on your receipts so anyone who buys a coffee drink today gets free WiFi today?
• Better merchandise. I wanna carafe. I want better selection, which means you need better buyers who will scour the globe (as they used to claim they did) for coffee-related stuff. Start it small, buy more if it does well. Spruce things up.

Oh, the Obama headline? There's a ton Starbucks can learn from Barack Obama. But you'll have to click through to learn what it is.