by Dana Blankenhorn
  Volume VI, No. XXI

This Week's Clue: The Recession Miracle

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For the Week of May 27, 2002

Recessions are both painful and necessary for many reasons. They eliminate excesses in the system. They expose corruption. They drive inefficient suppliers out of business.

The most important result of a recession, however, should be increased productivity. Thanks to Moore's Law, we're getting that in spades. Production per hour per worker rose 2.15% in the first quarter of 2002 alone - that's an annual rate of 8.6%. This followed a gain of 1.4% (5.5% annual) the previous quarter. In other words, the number of hours worked fell, while production rose.

How is this possible? It's possible because it takes time to not just install technology but to learn how to use it profitably. Billions of dollars went into turning local networks into Intranets, and linking those networks to the Internet, in the 1990s. But it took a long time for marketers, production managers, and financial wizards to figure out what this stuff was good for, in their companies, and to make it happen.

The recession concentrated minds wonderfully. Those who didn't find answers went under. Those who did survived.

Such gains weren't possible in the era before Moore's Law took hold (manufacturing gains were incremental, and arithmetic, for the most part), and it's just one way in which the impact of Moore's Law hasn't yet been properly understood by most people.

It's not just that chips get faster, that networks get faster, and that data radios get faster, year after year. It's not just that the cost of computing and networks declines, in relative terms, every year, and equipment may become obsolete before it's written off. It's also that, people being human, there may be a lot of time between the chip and the blip - time to write new software, to install it, to learn how it's used, and (most important) to change procedures in response to it.

There are still enormous gains in productivity waiting to be made with 1990s technology. Every time you or I visit a new doctor, why are we filling out a new form, one that has to be entered into a computer by hand? Imagine the cost savings of just arming your insurance card with a smart chip, and putting readers into doctors' offices. Yes, that means changing procedures, and it may even mean fewer secretaries in those offices. But it hasn't happened because there's no real economic pressure on the industry to use the technology - doctors don't go out of business due to lagging productivity. The medical industry, in other words, could use a recession.

Education, meanwhile, is finally putting its recession behind it. The WinTel game hosed schools for decades, because before each new generation of equipment could be installed, and teachers trained to use it, it became obsolete. But the Internet has slowed this pace of change. The underlying platform (browsers, servers, mice, menus) is fairly stable, and improvements (wireless networks, laptop computers) are incremental. If a school has a desktop-based wired Internet, teachers and students can learn to use it confident that learning won't be in vain. Add 802.11, laptops and PDAs and the productivity gains go on top of what was gained before - no more starting over.

Since the turn of the century chip-makers have gone through two new generations of equipment, without making the old stuff obsolete. For $2,000 you can now get a 2.26 GHz machine with a 17 inch flat panel monitor and 120 Gbyte hard drive, plus a DVD, a CDRW drive, etc. etc. etc. What's changed is that the $1,500, 466 MHz machine on my desk, and the $700, 733 MHz machines my kids drive, haven't become obsolete, thanks to our broadband Internet connection.

What's great for the economy hasn't been great for the tech sector. The tech sector is now depending on telephone companies for upgrades, just as Moore's Law is infecting those networks and making their stuff more obsolete every day. They can't write-off their old stuff fast enough - it's just what schools and businesses suffered through in the 1980s and early 1990s.

The answer, of course, is more of the same, or should I say Moore of the same. The wireless revolution's aim is to leapfrog all the equipment that must be written-off over time - the wired telecommunications infrastructure of the Bells and long distance companies - and get from the upgradable last-mile to upgradable fiber using upgradable radios. (Use the copper for pennies.)

Smart people are already on to the game. That's why the Bells are laying off people, why the long distance carriers are in a death spiral. These industries must be replaced by new infrastructure that responds to Moore's Law.

Meanwhile, however, we keep learning every day. We learn how to replace operators with online order-taking and customer service so that businesses actually charge you money to speak to a person. We learn the game of just-in-time manufacture and just-in-time supply. We learn how to automate our office tasks and eliminate paperwork using PCs and the Internet. We extend all this out to the shop floor with PDAs and other wireless devices. We will keep advancing on the productivity front, even if we buy nothing.

But when we're ready to buy, oh brother. We'll start it all over again. The gains will come in lower prices, in increased profits, in better jobs requiring higher skills, in new advances on every scientific front (I haven't even mentioned that before). And it will keep going this way through 2028, by which time I expect we'll have bio-chips that can jump-start productivity yet-again, and a new Moore (maybe your son or daughter) whose predictions will seem wildly optimistic, but who some analyst (maybe my grandson) will realize is just another pessimist.

If we can just replace the politicians and preachers (who reject science in favor of conflict) with technologists and scientists, this can truly be a wonderful world.


SSP (Shameless Self-Promotion)

I'll be covering Supercomm for Boardwatch from June 3-6. Hope to see you there.

You can show how Clued-in you are by downloading the animated .gif file on the upper-left side of our home page , and copying it onto your own Web site. It shows you want your business partners to get a Clue too. (Clicking directly on the graphic leads to our subscription page.)

Want a really good read? You'll find it in "Boom, Bust & Beyond: The Best of Dana Blankenhorn," now available for purchase at DanaBlankenhorn.Com. You can also order my novel, "The Time Mirror," at the same location.

I still write for Boardwatch and BtoB. You can find my old ClickZ columns here (write and demand they hire me back.) If you need some writing, editing, or consulting help don't hesitate to call on me.

The Print on Demand version of "Living on the Internet" is also available for purchase at BookSurge.Com, for $29.99. And you can get the PDF version for just $7.99 (such a deal). The March update to the book is coming, and it's easy to get on the list via e-mail.

Remember that it's journalism that keeps the Clues coming...


Shameless Promotion

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Takes on the News

An Important Correction

In last week's A-Clue.Com I made a stupid mistake many were thoughtful enough to call me on.

In writing about Europe's move to impose VAT on Internet transactions, including fees for Internet services, I predicted that the U.S. would move in the same direction, noting that Texas is heavily reliant on "income" taxes. I meant "sales taxes" - Texas is among the most sales tax dependent states, and its sales tax system is hopelessly complex, thanks to "local options." Texas has no income tax.

Sorry. But thanks for catching on. It shows you're reading carefully, and not taking what I write at face value. That's wonderful. Do the same with everything you read and you'll be on the road toward real wisdom.


The E-Mail Marketing Dilemma

Spam is keeping the Post Office afloat.

I learned this from some direct marketing experts last week in New York. They said that e-mail just doesn't work for prospecting. Despite the fact that direct mail costs $1/envelope (and it's rising) that's still the best way to go, even when you're selling a Web site.

Spam is the reason for this. Because e-mail boxes are flooded, people are going to extraordinary lengths to avoid marketers. They're not just filtering. They're changing their addresses regularly. They're getting "special" boxes for "friends only," and they're refusing to give their e-mail addresses to just about anyone. (Some are also doing what ChooseYourMail does - requiring a two-step process (with human intervention) before delivering anything.) In the process many are denying themselves great editorial products (like this) but that's a cost they're willing to pay.

It's not enough to avoid prosecution for your e-mail marketing, I said. It's not even enough to win someone's permission to take your e-mail. In order for the message to get through an e-mail marketer's target must anticipate that message, and be prepared to respond to it.

That's something which seldom happens in the direct marketing world, except perhaps for sweepstakes, and then only in some cases. (I ignore sweepstakes.) Direct marketing discipline understands that most mail gets trashed, even when it's properly targeted. They talk about "open rates" as an accomplishment, and think this applies to e-mail as well. It doesn't. When I open a paper envelope, there's a good chance I'll read the message (unless the cover is fraudulent, as happens sometimes). The fact that I mouse-over an e-mail means nothing, and that's all an e-mail "open rate" tells you.

Note the correction above. Over 1% of you responded to my error of last week, typing "income" taxes when I meant "sales" taxes. (Texas has a high sales tax rate, but no income tax rate, thus its state government has a big incentive to go after Internet sales taxes.) They read a 20K file closely enough to see the misplaced word, then they hit reply, and then they typed (by hand) their own message to me in their own words. (Some wrote me again when my own responses were too-flip for them, having done extensive research on their own.)

That's power. If you don't have that with your own e-mail marketing you're doing something wrong. If people aren't thinking about what you send and responding to it in some affirmative way, they're not going to "sign on the line which is dotted" for you.

The key to creating trust for e-mail marketing is a permission audit. My server,, does this all the time, and I've recommended it often in my "Shameless Promotion" section. But so, I've found, do some of the larger e-mail marketing consultants, like RappDigital in Chicago. And TRUSTe is working on a "TRUSTed Sender" program that will include both permission audits and a "seal of approval" on e-mail from marketers who play straight with consumers.

If marketers play straight in e-mail marketing, the Postal Service could find itself in the same death spiral as the long distance business.

This is not something that requires legislation and regulation although without it the industry won't go forward. Opponents of "privacy legislation" are just subsidizing the buggy whip makers at the Post Office.


The Predator's Ball

When I first saw this I thought it was a put-on. The story describes a party the copyright industries held in a Senate committee room, to celebrate the "success" of the DMCA and a future where everything you read, see, and hear is subject, not to purchase, but to license.

Let's be straight about this. The DMCA may have survived some tests in court, but in real-world tests it is a failure. By the industries' own admission, "piracy is rampant." Music-sharing is growing, video sharing is coming, CD encryption is being broken, and e-books don't exist (because they're not as good as the real thing).

The industry assumes that their "copy-prevention" technology will become mandatory and most people will obey rather than risk jail. But there aren't enough jails to house even 10% of the file-sharers out there. We're having a tough enough time getting the child pornographers - does anyone seriously think Britney Spears pirates are going to the hoosegow en masse? (And drug laws catch far more than 10% of all offenders - drug use has stopped declining.)

A backlash is growing against this purchase of Congress, and the Presidency, by industries that have one-tenth the revenues, and less than one-tenth the importance, of the technologies they're trying to control. The harder these industries push to enforce the DMCA - through forced-technology purchases, seizures of assets, and jail - the harder the technology industry, and consumers, will push back.

In the future we're all pirates. Until free use is explicitly allowed, the war will continue. This Predator's Ball will eventually be seen for what it was - an obscenity against the body politic, against the market, and against the free flow of ideas. Hopefully that day will come before the Red Chinese (whom the present conflict benefits) overtake us economically. And unless a way out is found, they will.


Clued-in, Clueless

Clued-in are John Markwell and David W. Brooks, who studied how the 515 links on their own Web sites degraded and found that the "half-life" of the average hyperlink is 55 months. (This also means that links turn over just once every 9 years, plenty of time to cache a falling page....)

Clueless is Rodale Inc., whose lawyers joined the parade of intimidation against small sites by sending out letters claiming links to stories on their sites constitute "copyright infringement." Such letters constitute legal harassment, and at some point a law firm will get its tits in a ringer on it - and its clients' as well. I'll cheer that day.


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