Dana Blankenhorn

Break Up Amazon? Why, Yes!

Last year, after accusing the corporate culture at Amazon.Com of having “a toxic vein running through it,” Tim Bray told The New York Times it should be broken up, its store separated from its cloud.

I want to second the motion. But I think it will make me (and Jeff Bezos) a ton of money.

As I write this, Amazon is valued at about 5 times sales. That’s rich for a retailer. Even Walmart and Costco aren’t worth their sales volume. But it’s super-low for a tech company.

During the first three quarters of this year Amazon had product sales of $145 billion. But it had service sales of about $115 billion. Product sales grew at an annual rate of 32%. Service sales were up 38%.

On January 14 Amazon’s market cap was about $1.58 trillion. How would the value of the pieces compare to the whole?

They wouldn’t not at first.

Cash Flow Rules The World

The biggest financial discovery of the last decade is cash flow.

Cash flow created the Cloud Czars. Cash flow is why Amazon is worth $1.6 trillion while AT&T is worth one-eighth as much.

Cash flow has always existed. But it was something to spread around. It was profit. When calculating whether a company could afford its dividend, analysts would do it in terms of cash flow.

That’s because business accounting isn’t just about cash. It’s about all the kinds of money that flow through the business. It’s about loans and equity, about costs that are capitalized and those that are written off on taxes.

Dividends paid for with cash flow are the lifeblood of conservative investing. Financial planners make their money moving retired folks’ money into bonds or companies that pay a regular dividend. A company that pays fat, regular dividends has its stock bought by retirement funds who don’t make trouble for management.

Tech companies don’t like to pay dividends. The thinking goes, if I’m giving money to shareholders it’s because I don’t have any other use for it. Until the last few decades very few tech companies paid dividends. They saw capital gains, the rise in the stock price that comes with growth and profit, as the shareholders’ reward.

Kamala and the Cloud Czars

(Note: This was written October 25, for publication October 30. If November 3 doesn’t turn out as this column anticipates, learn Chinese.)

As I wrote back in February 2019, Kamala Harris is to tech as George H.W. Bush was to oil. I thought she’d be the nominee but, like Bush, she faltered and will become Vice President.

Bush used the Vice Presidency to cement oil’s place in power for a generation. Reagan was the front man, but Bush did the work, bringing in his friend James A. Baker as Treasury Secretary, then using him as chief of staff and Secretary of State. The Baker-Bush tandem secured our alliance with the Sauds, fighting their war to control it against Saddam Hussein in Kuwait. Their power was secure enough to get through the Clinton years, and make American knees jerk twice for Bush’s son, who finished off Iraq.

Kamala Harris’ job is to do the same thing with tech that Bush did with oil, cement a generational alliance that can dominate American politics and return America’s prominence in business.

As I wrote then:

She won’t break up Google, although she may regulate it, which is not that bad. The costs of regulation would cement the Cloud Czars’ positions on top of the business world, for a generation, until some other industry comes to take over.

The Changing Face of Retail

If all you know of me is this weekly blog, you may not know I’ve made my living for over 40 years as a business reporter.

Even when technology was my focus, from 1983 until 2009, it was always from the point of view of business. My most profitable periods were from 1997-2000, when I covered Internet commerce, and from 2005-2009, when I covered open source and health IT.

These days I make my money from InvestorPlace. It’s a great gig, if a little straitjacketed. They want single-company stories, and they want me to say whether you should buy or sell. I’ve seemed to be a genius, because the market has been rising these last few years. I assure you I’m not.

With all that as background, let me talk about the biggest transformation I’ve seen in my career, which has occurred in retailing.

In my youth retailing was simple. Retailers would buy branded merchandise in bulk, break bulk in their stores, then offer it all up for sale at a mark-up of nearly 100%. My first credit card came from Sears.

Early in my career this shifted with Walmart and “category killers” like Staples, Petco and Sports Authority. But it was still the same game. Companies would buy huge lots of merchandise, break bulk in bigger stores and take smaller markups. Even Costco is like this. The only difference is that they define bulk differently.

Dorsey of Africa

Everyone’s scared of China. Everyone thinks China is about to take over the world.

It’s not.

China is aging faster than we are. China’s authoritarian rulers stop new ideas from developing. They’re wasting just as much money, and potential, in Xinjiang and Hong Kong as we are with our Gulag and border wall.

In an age where human capital is the gating factor to economic growth, there is only one name for young men and women to know.

Africa.

This is not just about Twitter and Square CEO Jack Dorsey’s plans to spend half his time there next year. It’s about what is there whether he’s there or not.

Fall of the Moolahs

A political tsunami is most likely when Wall Street gets out of step with the economy.

While it’s not yet showing up in the statistics, the U.S. economy is already in recession.

If you import or export, your business is down. If you’re a retailer, your business may be gone. If you’re a farmer, only the government is holding you up. If you’re a manufacturer and you’re not named Boeing, you’re struggling. If you’re in transportation you’re hurting. If you’re in the oilpatch, you’re dying.

The reason this isn’t apparent can be seen in the latest headlines from Maersk, the Danish shipping company. Their sales are down, but so are their costs, so their profits are up, and so is their stock. 

How can profits be rising, and thus stock values, if we’re in a recession?

The 2020s: The Machine Internet

(This is Part II of a three-part series on technology in the 2020s, for publication while I’m at the Heidelberg Laureate Forum in Germany.)

The 2010s were the decade of clouds and devices.

But it was done through human intermediaries. People did the input and the output came from people.

Even if you’re talking to your computer, you’re still in there directing it. Our interfaces in 2019 are, in that way, not that different from what they were in 1979. Fingers are replacing mice, voices are replacing keystrokes, but you’re still making the decisions.

That’s what I think will change most in the 2020s.

It all seems frightfully late to me. I wrote about this stuff as The World of Always On as far back as 2002. Then again, I wrote A Guide to Field Computing in 1993, before the iPhone was a gleam in Steve Jobs’ eye.

The Machine Internet has been delayed by the human element. Right now, most “analysts” still assume this will keep it from happening. They’re pushed out the date for self-driving cars from 2019 to 2029. They think autonomous technology must be perfect to be useful.

It only needs to be better than you.

Heidelberg One: LaLa Lab

First in a series of essays showing how my book, Living with Moore's Law: Past, Present and Future, interacts with the bleeding edge of software development at the Heidelberg Laureate Forum, where some of the biggest brains in software history try to inspire the next generation, and be inspired by it. 

To learn more about the book, especially if you're an agent or publisher, write me and we'll talk

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I got a demonstration of just how powerful Moore’s Law of Software has become at LaLa Lab, an exhibit being held in conjunction with the Heidelberg Laureate Forum.

LaLaLab is subtitled The Mathematics of Music. It demonstrated the value of Digital Signal Processor, or encoders as Texas Instruments’ competitors call the. DSPs turn analog input into digital output or vice versa. Here they’re used not just to move the music, but to graphically show what’s going underneath, and let you interact with it.

A microphone and some instruments demonstrates how this works with a Fast Fourier Transform. Speech, the input of a variety of instruments, or just playing music comes up as beautiful diagrams ,showing just how “saturation arithmetic” fills a computer with input over time. The degree to which a note is played during each bit of a second is shown as white against the black of time itself. Each channel of input is separated, showing how a DSP can pick up a variety of types of sounds separately, giving a mixer control of it.

Nearby is a demonstration of how easy it is to control music. A tablet has sensors which turn your waving hand into output, “conducting” music from Chopin or Beethoven. The hand’s movements, and the system’s response, are displayed on a screen overhead. 

There’s a lot to learn here about math, about music and about outputting results on a screen so people can understand it. I asked one of the people manning the booth how you can get the software. It’s all online, downloadable. All music teachers, or math teachers, need to do is build a curricula around it, using the extensive documentation in the booklet she handed me and the tools at Imaginary.org.

 

The Ghost of the Eternal Now

I’ve been a reporter for over 40 years, and I’m still angry at the same thing that upset me in journalism school. (That's me on my first journalism job, wondering why someone is taking my picture.)

This is the attitude of an eternal now. It’s driven by this old chestnut – a journalist is someone who works for someone who buys ink by the barrel. The key to that sentence is the phrase “who works for someone.” Journalists are supposed to leave their minds and hearts at the door of the newsroom.

Reporters are taught to have no sense of history, or of the future. Mainly we’re taught to pretend we know nothing, and everything we’re told is equally valid. As a result, most reporting has no context, and we can’t call out stupid when it’s right in front of us.

That’s how Trump gets away with it. Any reporter who likens what he’s doing to Jefferson Davis or Adolph Hitler is accused of malpractice by agents of stupid at The New York Times. We’re just supposed to print what he says and repeat what he does, like good little stenographers. Then let Bret Stephens or Ross Douthat tell us what it means. Everything’s fine.

It’s even worse in business, which is my beat. Because we are taught to ignore the broad sweep of business history, we send readers down blind alleys. We pretend that making cookies is as cutting edge as writing software.

The past and the future have always been there in front of us. It was clear in 1979 that oil was taking over from manufacturing, but people reported from Detroit then as if that city could be saved. It was also clear that oil was a boom-and-bust business, but I was told to report from Houston that the boom would go on forever.

The Twilight of Nationalism

If mankind still exists in 2119 their historians will write about this era as the Twilight of Nationalism.

Nationalism was essential when economies were based on resources, machines or muscle. In the era of clouds and devices it’s increasingly irrelevant. The global nature of our existential crisis makes nationalism an outright impediment to the survival of mankind.

Thus, it’s no coincidence that nationalism has been a rising force in the decade now ending. Just as it concentrates the mind to know you’re to be executed in the morning, so it is for leaders and political movements. Seeing sunset in the distance you do what you can and ignore the consequences you know are coming.

The Trump election acts as a midpoint and permission slip for all this. Nationalism was already on the march, in Europe, in the Middle East, and in Asia, through the agency of Russia, when Trump came to office. But Trump has given nationalistic impulses around the world permission to act. There is no American opposition to ultra-nationalism anywhere, no alliance worth protecting, no counter example to follow.

Thus, nations push their boundaries outward, fearing any force that might threaten their power, and ignoring the natural internationalism essential to economic growth and climate action.

That’s why Brazil is going after its rain forest. That’s why India is going after Kashmir. It is why China is going after Hong Kong. That’s why England wants to detach from Europe, why Eretz Israel is a thing, why Saudi Arabia seeks dominion over its whole peninsula. If you can afford it, nationalists think, seize the day. The window is closing.