Dana Blankenhorn

Open Source Explains It All

Back in 2005 I was asked to take over a new “open source” beat for ZDNet.

It turns out to have been the most important story of my life. And yours.

Open source is software based on the radical idea that the more eyes you get on code, the better it will be. Without getting too deep into the weeds here, it works.

The benefits of open source, however, flow mainly to its users. In the old proprietary model, they flowed to developers. Microsoft and (especially) Oracle fought it so fiercely. They saw the “little guys” as ganging up to steal their competitive advantage. Microsoft finally surrendered, building a network of cloud data centers that has made it the second most-valuable company in the world. Oracle is worth barely one-tenth as much.

All of America’s biggest companies are now built on the open source idea. Apple built its cloud on open source. So did Google, and Amazon, and Facebook. Facebook extended this into hardware with its Open Compute Project. Netflix extended it into networking with Open Connect.

But open source relates to more than software, hardware, or technology.

Xi is in Trouble

Here’s something no one will tell you today.

Xi Jinping is in trouble.

There is an assumption in the West that, because China is run as an authoritarian state, and Xi Jinping is the President of that state, that he can do anything he wants.

I don’t buy it. The country is too big and too complicated for that to be the case.

Xi has been messing with China’s economy for a year now. Everything he does seems to make things worse. Going after the country’s Cloud Emperors – Alibaba, TenCent, and Baidu – made political sense. Most actions are in line with what western trustbusters would like to do with our Cloud Czars – Amazon, Apple, Facebook, Google, and Microsoft. But investors have been losing money.

Westerners don’t understand how much power the Cloud Emperors have. They dominate the entire economy, not just the cloud. Young Chinese are, if anything, more addicted to their phones than we are. They’re overworked, their homes are tiny, many are still living with their parents. The consumerism pushed by the economy, through the Cloud Emperors, has gotten pushback from millions who resent the “996” lifestyle pushed by Alibaba co-founder Jack Ma. The 996 lifestyle means working from 9 to 9, 6 days a week. This is a 72 hour workweek, not counting the time spent commuting or preparing for work. And for what, they ask?

Xi has reacted to this by attacking the phone-based playstyle that makes all this tolerable. Telling China’s kids that they can only be on their phones for an hour each day is what American parents were doing in the 1960s, attacking rock and roll. It’s out of touch.

A Simple Plan for Saving College Football

It’s Labor Day. Put down the tech, put down the markets, put down the politics and the media.

Let’s talk sport.

Specifically let’s talk about a game that’s dying before our eyes. College football.

Football is dying because of its cost. You need over 100 players, 10 coaches, training facilities. It’s impossible, except for the small number of teams that can fill huge stadiums and get on TV every week.

As with so many things today, there’s a simple solution to the problem. It starts by admitting that colleges don’t compete with professionals. The job of a college isn’t to build NFL rosters. It’s not to be a free minor league.

It’s not the job of a college to train anyone for an athletic career. Most sports recognize this. The best soccer players leave the academic environment in high school. The best basketball players are also being directed, increasingly, toward professional training.

Misunderstanding China

I think we fundamentally misunderstand China.

First, it’s not communist. Autocratic, yes. Authoritarian, certainly. Capricious and racist and a danger to its neighbors? Why, yes!

But China is capitalist as fuck. It’s a lot more capitalist than America. I was reminded of this recently writing about a company called SOS Limited. 

SOS is a Bitcoin miner. You can’t get more capitalist than that. When you visit SOS’ Web site , it’s a collection of gobbledygook and Internet buzzwords that will make you swoon. In America, SOS would have been shut down by regulators or judges years ago. In China, it’s business as usual, capitalism red in tooth and claw. I compare Chinese capitalism to Deadwood , the TV show. As Randy Newman might put it, “If Mao Zedong were alive, he’d be rolling around in his grave.”

China has been capitalist for less than half a century. A teenager in Shanghai lives in a futuristic world of apps and instant gratification. His grandmother, younger than even I am, grew up amid grinding poverty and arbitrary power. Talk about a generation gap!

The Cold War in Cyberspace

Computing is a binary process. (Image from an album cover by Trippie Red.)

I knew this when I first came online in 1985. Back then all the modems made noise, all the screens were glass, and all the networks were owned by the phone monopolies.

It was obvious, when I was reporting on the Electronic Networking Association in the late 1980s. Computing made freedom binary. Either you were free, or you weren’t. Netiquette was never more than a suggestion. That’s why the Internet didn’t open to general traffic until 1993. The military had to give up control over its tool.

Since then, we’ve done a lot to model the analog world in the digital one. But the binary nature of networking remains. We’re either free or we’re not free.

Law has acted against this like calculus against a curve, or codecs against sound. Greater or lesser effort is applied against different levels of violation. But computing remains binary. Those who are committed to ignoring the law still have the advantage.

In the analog world, it’s true that the good guys must protect every door and window while the bad guys only need to jimmy open one. But in the digital world, jimmying open one means all the doors and windows are open to anyone who has the tool.  Software now costs nothing to distribute, and networks can’t tell the difference between software that’s stealing your money and software that’s helping you buy an iPad.

Pay for the Clouds

Right now, the roughly $150 billion/year going into cloud infrastructure is paid for with cash flow. Most of that cash flow comes from free services.

It’s ad-supported services that are holding up the free Internet. It’s these ad-supported services that the clouds were first built to support.

The antitrust bills now zipping along in Congress try to end all the perceived “sins” of the Cloud Czars – Apple, Microsoft, Amazon, Google and Facebook. But they don’t answer the big question, which is where new cloud investment will come from if the Czars are broken up.

Amazon can do fine on its own. There is plenty of cash flow coming into Amazon Web Services to support its capital spending. Most of Amazon’s investment these days, in fact, is going into warehouses and transport fleets, which aren’t as profitable. Splitting AWS from Amazon, along with its digital services like Amazon Prime video, the Kindle eBooks, and Alexa cloud-based speaker, would be a stupendous opportunity for investors. It would let AWS grab share from Google and Microsoft because their clouds are tied to software that competes with their customers.

Cloud Czar Conundrum

In 2021, governments around the world hate the Cloud Czars.

They don’t like seeing companies both build infrastructure and rent it out to competitors. They don’t want Amazon to compete with Netflix or Walmart. They don’t want Microsoft hosting Salesforce, then building its own suite. They don’t like Google doing search while it rents its cloud. They don’t like the Apple app store. They blame Facebook for Trump.

It’s not just here. China is doing all the things Americans just pretend to want, taking down Alibaba, Tencent and Baidu with new regulations and demands. Of course, the same people who want Facebook destroyed pretend that China is going after Alibaba because “it’s communist” and Jack Ma a threat to the regime. (As if Mark Zuckerberg isn’t?)

Here’s the problem. Clouds are expensive. The price started a decade ago at $1 billion/quarter. Now it’s about $5 billion/quarter. That money isn’t borrowed. It all comes from cash flow. The game was said to be too rich for AT&T, too rich for IBM, too rich for HP and Verizon.

Why Business is Becoming Progressive

Most people don’t know this, because the relative positions of our political parties reversed during the Civil Rights era. For most of our history, business has been on the progressive side of politics.

There are reasons. In the late 19^th century, land grant policies that opened the West were considered progressive. In the early 20^th century, regulatory regimes kept input prices low for manufacturers and were progressive. During the middle of the 20^th century, spending that kept demand high was progressive.

It was only in the second half of the last century that business became politically conservative. That’s because resource industries don’t need people. The gating factor to growth is land. Control the land and you control the oil, the minerals, the agriculture, the market. The only people you need are cops and soldiers to enforce your control over the land. The dominant political players of the Nixon era were oilmen, or resource oligarchs like the Koch Brothers.

Inflation Bears

Right now, inflation bears are everywhere.

They worry about commodity prices.  They worry about gas. They worry especially about wages. 

Inflation might be high this year. There’s enormous pent-up demand from the pandemic. There’s a tremendous amount of spare cash running around. You can feel it on the roads, traffic jams and people driving like maniacs. Restaurant wait times, and check sizes, are up.

But as usual the worriers are fighting the last war. Inflation is no longer a threat as it was in the 1970s. Today’s threat is deflation.

Rich Folks for Biden

Right now, asset prices are vulnerable to a crash. (Image from Slate.)

There’s too much loose money around. Stocks, homes, and Bitcoin are all overvalued. There isn’t enough investment drawing a return.

That’s the problem Joe Biden’s “tax-and-spend” plan is meant to cure. Most analysts are painting the argument as being between left and right. It’s really about assets vs. investment.

The money Biden wants to remove from those making over $400,000/year is money that is sitting on assets. The $200 billion Jeff Bezos fortune is assets. So are the fortunes of most rich people. It’s not money that’s doing anything, because there isn’t a big enough market for private goods and services.

Biden wants to invest that money in social goods. People are infrastructure too, my friend. In a technology economy, human capital is the gating factor to growth. The more highly trained, empowered, and motivated people you have, the more you can use cloud hardware and software to drive value.