by Dana Blankenhorn
  Volume VII, No. I

This Week's Clue: Keeping the Economy Down

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This Week's Clue: Keeping the Economy Down
SSP (Shameless Self Promotion)
SP (Shameless Promotion)
I Repeat, Where's the Store?
Jeff Bezos Killed E-Mail Marketing
The Panic of 2003
Clued-in, Clueless

Dana Recommends The Blankenhorn Effect offers a powerful, positive message for our time. Once you understand how Moore's Law impacts every part of your life, how powerful it is, and how irresistible a force it truly is, you will have the power to predict the future and know how to change it. Buy it today, and make 2003 a better year for yourself, your business, and your family.


For the Week of January 6, 2003

Why has the tech recovery been delayed? Mainly, I submit, because of Clueless policies coming out of Washington.

Let's start with the policies of the last year, the DMCA actions against Kazaa and other "file-sharing" networks. The fact is programs like Kazaa are not mysterious. They're not even difficult to create. You're combining FTP with a database look-up.

It doesn't matter if that database is in one place or a million places. Once something is on the Internet it's easy to find, link to and get. Printing a URL just makes people cut-and-paste. Mentioning something in a story just makes people do a Google on it. This common journalistic Cluelessness delays the hyperlink by 10-30 seconds, no more.

The same thing is true with regards to music. Any file open to the Internet can be transferred peer-to-peer. All programs like Kazaa do is enable a simple database structure to find these files, and open a port to transfer them. The only way to "destroy" this "piracy" is to destroy the Internet itself.

So stories like this, probably written with lots of help from the RIAA, go beyond Clueless. They're maliciously ignorant, from the headline right to the end. The one truth is buried in a quote from Forrester's Josh Bernoff. "For each one that is shut down, others will arise." But Ariana Eunjung Cha, no doubt under orders from the increasingly shrill and foolish editors at the Washington Post, never followed up on what Bernoff was saying. As a result, readers were given no insight at all.

So why is it that "for each one that is shut down, others will arise?" It's because this is not leading-edge technology. Kazaa is basic to the Internet Protocol, which doesn't distinguish between client and server. It's a stripped-down protocol, designed simply to move bits. It doesn't care what the bits represent.

The "solution," if there is one, is to eliminate the Internet and replace it with a robust (slower) protocol that does distinguish bits, that knows what they mean, and that can report back to some authority about their dangerous nature as they're transferred. No doubt the Bushies and the copyright industries would like that. Put it into IP Version 6 or 7, then force everyone to upgrade and reject backward compatibility.

The cost of that, of course, is a worldwide depression. The new network would be slower, much slower, because of the protocol's overhead, than what it replaces. The world will not go backwards 10 years just for one industry's convenience. Instead all the incentives for the Third World will lie in defying The Edict and leapfrogging the Orwellians. India and China could quickly turn the Third World into the First, and the First into the Third. Remember that Argentina was once as wealthy as the U.S., a century ago - economic suicide is possible. But I doubt Americans would accept it, or accept the leaders who tried to force it on them.

The answer, as I've said again-and-again, is to negotiate with the market. MP3 is a rotten file format. Give us something better, give us a fair economic model for using it and passing its products around (both within our homes and among our friends), and your industries will grow again.

With that as review, let's look at the latest opportunity for mischief. It lies in wireless. And if you thought the Internet Protocol threatened established interests, you ain't seen nothing yet.

Wireless, in this case, includes all the great stuff I've been writing about over the last year, things like 802.11 and Ultrawideband. There is no real limit to what can be accomplished with these tools. Bandwidth is, in fact, unlimited. And we don't need no steenkin' wires to deliver it.

But look what this model destroys. The Bells are terribly threatened, not just because wireless threatens wires but because unlicensed wireless threatens licensed wireless. Incumbent phone powers are already killing 3G projects right-and-left. What happens when wireless broadband becomes as ubiquitous as cellular service, as Cometa promises? Why would anyone pay per-minute charges (no matter how low) for a cellular call when they could get TV, Web, and e-mail (along with IP voice) at the same time, and for less? For that matter, who needs a phone at all - it's just a low bandwidth input-output device.

Cable is threatened by this as well. They're already losing the heart of their market to a wireless technology, satellite TV. Broadband is their last hope to pay for their digital networks. Replace that with wireless and they're dead.

Broadcasters are equally threatened, and there's no industry with more political clout in today's Washington than broadcasters. They pay nothing for their licenses, and no longer have to do anything meaningful to keep them. They just got another hunk of frequency to move to digital service, but they're in no hurry to do so, and no one in Washington has the nerve to force them. If people can get whatever show they wish over unlicensed wireless, who needs TV? And all that bandwidth becomes worthless, because unlicensed networks make it redundant.

Of course, add all the content industries to this lot. They still haven't figured out the Internet. What if the current POTS (Plain Old Telephone Service) wireless industry is replaced by a wireless, broadband Internet? Kazaa-m!

This tsunami of interests is going to hit a government that lives by the corruption of money. Ken Lay of Enron and Bernie Ebbers of Worldcom are both walking free today, while the Iran-Contra crowd is now in charge. (Still think it's great being a whistle-blower? ) All these groups will demand that 802.11 be killed for security reasons, that unlicensed spectrum be restricted or eliminated on (false) claims of interference. I talked with Steve Stroh about this and he assumes the incumbents will win. The biggest ISPs - AOL and MSN - are getting in bed with the Bells on broadband - don't the Big Boys always win?

They won't this time. The reason: Moore's Law. Wireless broadband is no more going away than the Internet is. Pandora's Box has been opened and won't be shut. The growing stature of China and Taiwan in the chip business , and of India in the software business mean there will be alternate sources - the U.S. can't get its way on this. The benefits of wireless broadband to East Asian nations - and their Middle Eastern or African or South American customers - make it irresistible. This revolution can be delayed, but it cannot be denied.

So I am hopeful. The only reason war remains popular in the U.S. is because it hasn't really impacted us, most importantly economically. (The prosperity of the Clinton era is fueling the Bush war machine. And there's no draft to worry about.) But that inheritance has been mostly squandered. Thus, reality will intrude on a lot of people this year, in very nasty ways indeed. But if you have faith, in technology, in liberty, in democracy, and in the future, it won't intrude too badly on you.


SSP (Shameless Self-Promotion)

Buy my book. . Please.

And there's more good news. I've gotten my first big new gig in years, at MediaPost commenting on, of all things, the off-line media. (What fun!) This goes alongside new orders from BtoB and Mobile Radio Technology . Things are indeed looking up.

My book, "The Blankenhorn Effect: How to Put Moore's Law to Work for You," should be available in just a few weeks from Trafford Publishing . You can pre-order a copy with no obligation by sending me an e-mail . I'll let you know as soon as it's available.

You can follow the continuing story of The Blankenhorn Effect on my "Moore's Lore" blog . I still write for Boardwatch , Boardroom , Marketing Profs and Thom Reece's eComProfits . I still produce I-Strategy for Adventive

Tell your friends, clients, partners, and Congressperson about You have my permission to forward this newsletter widely. And if you have trouble subscribing let me know .

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


Shameless Promotion

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Takes on the News

I Repeat, Where's the Store?

It's 2003, and the people who write about the issue of Internet Sales Taxes still don't get it.

They don't understand the question, nor do they understand the burden. The question isn't, should the Internet remain tax free? The question is, on the Internet, where is the store?

In the real world you pay sales tax at the point of purchase. If you live in Vancouver, Washington and drive across the river to Powell's Bookstore in Portland, you pay no sales tax. (This is an old problem which has been the subject of intense study for years ) To be precise, however, Powell's pays no sales tax. Powell's completes no sales tax forms, and Powell's makes no sales tax calculations. The cost of accounting for sales tax isn't part of Powell's balance sheet. The store may be just a conduit for tax, but the tax is owed based on the store's location, not the buyer's home address.

Proposals for Internet sales tax turn this on its head. When someone from Vancouver buys from Powells.Com, policymakers assume he will pay the tax at the Vancouver, Washington rate (or at least at some uniform rate for Washington state). Powells.Com, meanwhile, must calculate and remit sales tax for each separate jurisdiction where it has buyers. Yes, this burden might be reduced by software, but it's only reduced - the added cost of doing business is still there, and it's just as high for every merchant online, worldwide.

After all, if the "store" is where the buyer is, why shouldn't the Vancouver resident have to pay sales tax when he buys online from Singapore? Wouldn't failure to charge the tax subsidize Singaporean merchants at the expense of those in Vancouver? So you have Singaporean stores paying for Vancouver, Washington potholes - yeah, right.

The Gilmore Ecommerce Commission tried to split this baby in two by proposing a more uniform sales tax system. Utah Gov. Mike Leavitt led the original charge and is now riding around the country like Paul Revere against "Internet tax cheats." Some 33 states signed an agreement along the lines recommended by Leavitt in November but it still must be approved by Congress. (And higher-tax jurisdictions within states are screwed by this agreement - they don't like it.)

Europe, home of the "Value Added Tax" (VAT), has been dealing with this question for years and in 2001 passed a directive demanding that VAT be paid by everyone, including online purchasers . The result has been a mess, starting with a dispute between AOL and Freeserve over whether the U.S. company owed VAT on its bandwidth purchases . Europe, in other words, expects U.S. e-commerce sites to be tax conduits for Europe-based customers.

The hard fact is that the Internet makes sales taxes, and VAT, obsolete. If American states insist on charging sales tax for Internet purchases, Internet sales sites will in time move to countries that don't recognize the burden. Taxes on income, on property, and on direct imports may be possible. Regressive taxes on sales aren't tenable in the age of the Internet.


Jeff Bezos Killed E-Mail Marketing

It's Amazon's success in spamming its customers (opting everyone in without notice) that killed e-mail marketing. Amazon followed this with outright spam (when I get notes addressed to "qanda" at it's definitely spam, and Amazon has sent a bunch to this address). Now the whole direct marketing industry is going down this slippery slope.

The Direct Marketing Association claims it's against spam, and claims it has rules against it . But Amazon is still a member. If the DMA rules meant anything, Amazon would be kicked out. And if Amazon can get away with spam, so can everyone.

For businesses, the fact is that spam is not an either-or proposition. It's a slippery slope with many stops along the way. Are you offering a business proposition to another business? Spam away. Has this e-mail address purchased from you before? Travel Smith and Peeper Sleepers say it can't be spam. You got their e-mail address through a "legitimate" purchase from a list broker? So products like Kwick-Pick and Pasta Pro spam in ways they'd never do in the real world because that would cost them real money.

You can't really police the channel, can you? So DirecTv and Symantec spam like crazy, through re-sellers. Pretty soon Columbia House hires a spam gang whose garbage not only forges headers (a different return URL for every campaign) but forces-open pop-ups on innocent users' screens and hangs up their systems. Even the University of Phoenix spams, through the "AdPro" spam gang. (I got one of these just this morning.)

It starts somewhere, however. It starts with one "legitimate" business deciding that true opt-in marketing is too much of a burden, that it's risking its financial survival on something ephemeral like "ethics." It starts, in other words, with Jeff Bezos. And if the anti-spam activists really wanted to go after someone, they wouldn't waste their bile on Alan Ralsky . They would hit the problem at its true source.


The Panic of 2003

Before the New Deal the U.S. was prone to periodic financial panics, which hosed both investors and institutions by breaking the trust markets rely on. Scott Sullivan's Boca Raton Xanadu proves those bad old days have returned. U.S. markets will remain unreliable until Sullivan and all the other crooks are doing hard time and their children are on welfare.

Between 1933 and 2001, however, the U.S. market was transparent and trustworthy. This made it a special place to invest. The point is those protections don't exist in Asian markets, not even in their history books. They don't exist, for example, in China.

So the year 2003 will probably feature a Chinese stock market collapse on the order of what the U.S. got a few years ago (maybe worse) and for many of the same reasons. I'm not alone in this prediction, by the way .

The fact is that when shares in "Internet portals" are hitting new highs (and you know that trick never works on the bottom line) it's time to question the whole market. The fact is Chinese markets are under-regulated, unsophisticated, and driven by the same factors that drove the U.S. through repeated "panics" in the late 19th and early 20th centuries. The SEC prevented such panics for nearly 70 years, until the second Bush Administration, and we're still refusing to acknowledge (or pay for) the truth (as the Japanese have yet to write down their bad loans).

The Clue here is obvious, and the first stock market to follow it will gain prosperity for its citizens. Without strict regulation to protect small investors, all stock markets are con games.


Clued-in, Clueless

Clued-in is the idea of using a Turing Test to keep spammers' robots from creating Hotmail and Yahoo Mail accounts . It's true spammers could hire people to manually create accounts. But it's something.

Clueless are anti-spammers who don't understand the chief technical challenge for 2003 is finding a way to prevent "Joe Jobs". Start by tracing e-mail based on IP numbers. Then get that into Sendmail and other e-mail routing software. Spread it to every ISP so bounces go only where they should, not to innocent bystanders.


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