by Dana Blankenhorn
  Volume VIII, No. XL

This Week's Clue: The Power of Belief

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This Week's Clue: The Power of Belief
SSP (Shameless Self Promotion)
Why Micropayments May Never Work
DVDs are Floppies
Long Island's Enron
Clued-in, Clueless
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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 2004 a better year for yourself, your business, and your family.


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For the Week of October 4, 2004

Business success relies heavily on the idea of belief as a guide. The histories are full of stories like that of Harland Sanders, who failed with a half-dozen restaurants before hitting the Kentucky Fried Chicken formula. It works in technology as well. Chester Carlson spent 30 years perfecting the principal of Xerography . Edwin Land spent decades perfecting his Polaroid process.

Polaroid and Xerox were among the big technology names of the 1960s. But notice what happened when the belief of Land and Carlson in what they were doing became rigid, went it was transformed from a guide to action into blind faith. Peter Drucker says Xerox's unswerving belief in its premium pricing was its undoing. Congressman Bill Delahunt says Polaroid's arrogant belief in its core technology will cost you money for decades to come .

In business proper belief inspires a process for creating and managing change. It must look to the future and not the past. I think history will show this as the key difference between Intel and Microsoft. Both came to prominence based on a strategy and a product, the microprocessor on the one hand, the operating system on the other. But Intel created a rigorous process out of its leadership, one that drives its future. Microsoft only had a belief in "intellectual bandwidth" and in the idea that controlling the operating system meant controlling the device. Wisely Microsoft recently realized its error and began cashing out.

Rather than looking at business history, politics or religion, how can we apply this idea of belief to your current business? Some thoughts:

  • Belief must inspire a process that adapts readily to change.
  • Belief must reach outward, to the customer. Belief in yourself is just a cult of personality.
  • Belief shows you what not to do as much as it shows what you should do.
  • Belief must be shared to be of benefit. Getting others to believe in themselves is key.
  • Customers must believe in you, and understand what that belief consists of instantly. Branding represents this creation of belief, but you have to fulfill the promises of the brand or that belief becomes an albatross.
  • Belief must be about empowering others.

When your people have a process they believe in they will create products or services that customers believe in. It's a self-reinforcing process. But it's a process that must keep its eyes wide-open. A closed business belief system is as bad as a closed mind.

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Shameless Self-Promotion

I work as a freelance writer in Atlanta, and am on the development team for EgoScout , a new kind of marketplace for cellular data services.

My last book, "The Blankenhorn Effect" won the Computer/Internet category in the 2003 Independent Publisher (IPPY) awards .

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...

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Takes on the News

Why Micropayments May Never Work

Andrew Odlyzko at the University of Minnesota sent a piece he did on the non-technical hurdles to micropayments.

What it said about the psychological hurdles to micropayments as well as the technical hurdles bear repeating.

Here's the key takeaway. When people see a meter their wallets freeze up. People would much rather pay a higher price over a fixed time than a tiny price each time they use something.

Elsevier, one of several academic publishers to try pay-per-view pricing in the mid-1990s, found that "as soon as the usage is metered on a per-article basis, there is an inhibition on use or a concern about exceeding some budget allocation."

There are other psychological problems, too.

  • It turns out that companies don't really like anonymity. It keeps them from charging different prices to different customers, which is something they like to do to maximize revenue.
  • Bundling works better for both buyers and sellers. Buyers get a deal from bundled products, but sellers also benefit with a sale at a higher, more profitable price.
  • We have no "forcing agents" demanding people use micropayment systems. Debit card use stalled until banks began pushing people to use them (to increase bank profits). It takes a lot of advertising to change behavior.
  • Debit cards themselves create real competition for any micropayment scheme.

I knew about the technical hurdles. It costs money to process a transaction. There are huge up-front costs to starting a new transaction process. And there are banking risks between transaction and collection. All these can be dealt with.

But the psychological hurdles will be far more difficult. That is the key Clue about micropayments.

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DVDs are Floppies

One thing that doesn't draw enough comment in the excitement over the iPod (and its clones) is what this says about the underlying technology.

The iPod is a triumph for the hard disk over optical storage.

When DVDs first came out in the late 1990s they were able to offer about 5 Gigabytes of permanent storage on a disk that could sell for $20, even including the cost of the content. At that time it was a big deal to have a 5 Gigabyte hard drive, and you paid through the nose for it.

Today drive storage prices are down to $1 per Gigabyte. And you can get this storage in any form factor you want. There are even hard drives in some mobile phones.

Not only has the price come down, but today's drives are sturdier than ever. Those dancers on the iPod commercials? Their music isn't skipping, as it might if they were holding CD players in their hands. (That's a subliminal point made in the marketing.) Remember tape back-up? Raise your hands if you still have it, or think you still need it.

Recently I finally decided to transfer my CD music collection to my hard drive. It took just 10 gigabytes of storage, thanks to the compression algorithms common to all new digital music formats. I have a 120 Gbyte drive with all my music on it (not to mention software and content like this) which still has 100 Gbytes free. And when that fills up I can just get another. I can even buy an "external" drive that can plug all that storage into any device with a USB port.

The optical disk, meanwhile, has become a floppy. Sure you can buy a blank DVD for as little as 60 cents, in quantity. (Fry's has a special on of 50 for $30, with rebate.) But what do you get for that? A few hours of a movie, maybe a dozen albums. And it's still not as sturdy or portable as a hard drive device.

The reason hard drives have become cool while optics drool has something to do with Moore's Law, but also the process by which these two technologies march forward.

You can introduce a new hard disk to hardware makers at any time. You don't have to meet a pre-existing standard. So long as you offer software that lets the electronics of your device read and write to the disk, who cares how it's formatted.

Optical disks, however, have to go through a standards process to become useful. (Again, like floppies.) You can't build a mass media market on a host of different standards. (You don't see people buying movies on memory cards.) You have to get together, agree on the next encoding standard, get all your ducks in a row, and then expect that the result will be stable for years. Committees don't move that fast.

There are BluRay proposals out right now that will allow 47 Gigabytes of storage on an optical disk. But before that reaches the market you not only have to get agreement on the media, but on its formatting, and (thanks to the copyright industries) on a host of other issues.

Or you can go to Fry's and buy a new 160 Gigabyte disk for $150. Or a 10 Gigabyte iPod for $200.

Opticals are floppies not just because hard drive technology is following Moore faster than optics. Opticals are floppies because committees are a government process, while hard drives are an entrepreneurial process, and the latter is always going to be quicker to market.

Long Island's Enron

Computer Associates was a classic "roll-up."

That is, it grew by acquisitions. It took second or third-place products in a wide variety of disciplines and cobbled them together into big "systems" it could bundle to big customers.

But MCI was also a "roll-up." So was Tyco. So, in some ways, was Enron.

See the pattern?

Well it goes beyond that. It now extends all the way to the courthouse, the criminal courthouse. Former CEO (and New York Islanders co-owner) Sanjay Kumar faces criminal charges, and the company faces an 18-month deadline to clean up its act or face more than the $225 million fine it's already agreed to.

Yet Banc of America Securities still rates the stock a "buy." Seems to me that Banc of America has some clients stuck in CA who need to sell and so they're looking for some suckers.

Here's a bold prediction for you. Computer Associates will file Chapter 11 within a year, and will be history within two years.

How do I know? Well for starters the company thinks its best bet for the future may be former CMP president Ken Cron. I knew Ken Cron, when I worked at CMP. He's an idiot.

You want someone to run a fire sale on your assets? Ken's your boy. You want someone to follow a failed strategy until its failure becomes obvious? Ken's got experience there. But if you want to grow, and get a second chance from the market, uh-uh.

Not that CA has many great options. Lou Gerstner, as I understand it, is not available. Nor should he be. This Titanic has already hit the iceberg. So keep the captain's hat on Cron's head and strike up the band.

Long Island is about to find out what Houston feels like.

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Clued-in, Clueless

Clued-in is Hossein Derakhshan , a great Iranian, a great Canadian, and a great example of true courage in the blogosphere.

Clueless are both finalists for heading up the CUNY J-School, but most especially City University of New York chancellor Matthew Goldstein. You can't learn journalism from bureaucrats, and you can't define journalism's future based on working for someone else. All good journalists are entrepreneurs now.

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