Dana Blankenhorn

Next Stage of the Cloud Boom

It’s cheaper for most businesses to rent a cloud than own one. But it’s even better to be one.

That’s why Apple, Microsoft, Amazon, Google, and Facebook are the five most valuable companies in America. Each is worth over $1 trillion. Each put the “ante” of $1 billion/quarter into cloud construction in the last decade. Each continues to pour $3-5 billion more of cash flow into their networks every 90 days.

Policymakers focus on the services these companies provide, but it’s the cloud that makes them powerful. Microsoft isn’t software. It’s cloud and software, which lets it take cash from competitors. Google isn’t services, it’s services and software, which also let it take cash from its competitors. Only Facebook, so far, is refusing to rent capacity, and even it sells access to what’s becoming a global fiber network.

That’s where we are today. Where will we be in 2025, if man is still alive?

Arborists on Offense

In cities built in forests, like Atlanta, it’s time for city arborists to go on offense.

For too long, they’ve been playing defense. That is, a developer (or homeowner) would decide to cut down some trees, and there would be a process the arborist could object to. That’s defense.

Offense is something else.

It starts with a much bigger budget. Use the money to hire summer workers who will comb the city on foot and by bike, with cameras, identifying lots without tree canopy. Fine those suckers, preferably through a property tax surtax from which they can’t escape. Those same summer workers can identify lots with a full tree canopy. These property owners can apply for a bonus, again in the form of a property tax abatement. The bonus would be smaller than the penalty, providing money for the arborist’s budget. The workers are also more likely to grow up as supporters of trees.

The arborist should also work with independent groups, like Trees Atlanta in Atlanta, to offer property owners advice on what trees they should plant where. Trees Atlanta can use existing programs to pay for those trees where people can’t afford them. And before poor people start futzing about huge trees falling on their houses, there are plenty of smaller trees to choose from.

We can argue about what defines canopy. Is it just the unbuilt areas of the property, or does it include roofs? Trees over a roof can cut cooling bills. But solar panels on a roof can do the same thing.

The arborist should also work with property owners and non-government agencies to get trees on roofs. Every flat roof can be a garden. Every small roof can have a canopy.

A city that wants to grow, expanding the amount of land that’s built-up, has a responsibility to let arborists go on offense. Otherwise, it’s part of the global warming problem. You don’t want that to be your political obituary. Or the actual one for your children.

Watch Them Squirm

The 2022 campaign isn’t happening on the streets. It’s happening in the suites.

You won’t be able to follow it by looking at campaign ads or finance reports. You must dig deeper, smell it out.

It’s most visible when a party suddenly changes course, when it goes “whoopsie” or “I didn’t mean that.” That’s a sign key support is dissipating, reflected less in money on the campaign balance sheet and more in a certain silence come next summer and fall.

The issue is vaccinations. 

Suddenly, after going further and further out on a limb for months in their condemnations of Dr. Fauci and the Biden vaccination plan, after telling 1,000 lies that their supporters believed (microchips), Republicans are seeing that limb chopped off behind them. They are quietly falling all over themselves, telling constituents to get the shot.

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.

Real Estate is the Republican Industry

There is an industry whose interests are solidly Republican, whose actions could derail both the technology industry and democracy itself.

That’s the real estate industry.

Real estate is the most inefficient industry we have. It’s all rent seeking, from plotting with government on what to build, through construction techniques that are a century ago, to a transaction model that’s as efficient as paying alimony with pennies.

A pro-business government would make sure housing was where the jobs were. A pro-business government would encourage new building technologies. A pro-business government would minimize real estate transaction costs.

We don’t have a pro-business government. We have a government in the pocket of the real estate industry.

The reason housing costs are so high is because, in league with government, the real estate industry makes certain of it. Everything is regulated locally, meaning it’s easy to lock-out affordable housing, which thus has a bad name everywhere else. Local building codes mandate that most homes and apartments be made of sticks and separates land uses with strict zoning laws. State regulators, working on behalf of the industry, create mountains of paperwork on every real estate transaction, driving up costs and creating artificial scarcity.

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.

Latinizing America’s Cities

One of the great fears I have for this decade is that our cities are about to be Latinized.

Blame the lack of gun control. Blame inequality. Blame whoever you like. Rich people, and the upper middle class, are scared to death, with good reason.

There’s also an historic opportunity opening the real estate market. The downsizing of office space looks permanent. Managers will complain, but it’s hard to see them foregoing the savings from renting less space. It’s hard to see knowledge workers forgoing the savings they get working from home. It’s not just the productivity. It’s being available 24-7, working until the job is done, rather than thinking of it from 9-5. It’s the clothes, the time wasted in driving to-and-from the job, the bad lunches. Uh, why?

What then happens to all that office space? It goes condo. It gets broken into apartments, with some co-working space and shops on the lower floors. I see a lot of security at the entrances. The steel construction, living above everyone, will make wealthy people feel safe. That’s Sao Paulo, skyscrapers and security surrounded by favelas, locks and armed guards, necessities for anyone with money.

Tech’s Democracy Problem

Somewhere in the Caribbean, there’s a 12-year old kid poised to control the fate of a trillion-dollar company.

Google has what’s called a “dual-share” structure. There are GOOG shares, which supposedly convey ownership. Then there are GOOGL shares, which hold most of the voting rights and convey control. This was put in place by co-founders Sergey Brin and Larry Page. Through GOOGL they control the company in perpetuity.

This is tech’s democracy problem. The democracy in corporate governance is disappearing.

Alibaba came public in New York first, rather than China, because it had this dual-share structure. You can’t buy Alibaba except through Jack Ma. China had to relent on this before Alibaba would list in Hong Kong. Yes, China’s market was (it isn’t now but it was) more democratic than America’s.

In a democracy it’s one man one vote. In a corporation it should be one share one vote. Increasingly it isn’t. The whole thing became a comedy in the mess around WeWork. Softbank’s Masayoshi Son sent billions to WeWork under the mis-named “cult of the founder.” He structured the deal so that founder Adam Neumann couldn’t be ousted. When it became apparent that Neumann was an idiot or perhaps worse, it cost WeWork billions to get rid of him. The same thing happened at Uber with Travis Kalanick.

This idea that founders should control their companies indefinitely arose in tech during the 1980s. Wall Street was able to oust Apple co-founder Steve Jobs, installing “adult supervision” that nearly wrecked the company, before Jobs was asked to return. Even after that, Jobs’ stake in Apple remained a minor one. His estate left nearly as much value from his Walt Disney shares, from Pixar, as from Apple.

Tech’s Stock Problem

In today’s technology age, wealth is defined by stock.

This is causing a big problem for those who believe in capitalism.

To exercise their vision and keep companies out of the hands of Wall Street, entrepreneurs need a controlling stake. If their vision succeeds, this can create fortunes of unimaginable size. Of the 8 “centi-billionaires” listed by Forbes on May 19, 5 were American tech executives. 

They’re not the responsible, prudent men they were in the good old days. Jeff Bezos is living out the wildest fantasies of in-your-face wealth, buying giant mansions and super-yachts with his girlfriend – he divorced his wife last year. Bill Gates has been “outed” as a hound, a sexual predator, as he goes through a messy divorce. Elon Musk is just being an asshole, manipulating crypto-currency markets with his tweets. Larry Ellison buys islands and moves thousands of people around the country if you dare try to tax him. Mark Zuckerberg, not yet 40, seems the most responsible of the bunch.

It’s not just the ultra-rich giving wealth a bad name. The merely insanely rich are also being shown to be grade-a assholes. As I explained in my recent SPAC piece, these people create companies out of cash, buy operating tech companies, win even if they lose, and turn other people into billionaires before they’ve really accomplished anything.

Austin Russell, for instance, is 26. His company, Luminar, is just one of several trying to build Lidar systems that will help make cars autonomous, self-driving.  So why is he worth $2.2 billion?  It’s because a SPAC took Luminar public, and investors have yet to catch on that sales of $5.3 million in three months, don’t justify a $7 billion market cap.