Software

Saving Detroit

My first car was an Oldsmobile, a red 1966 convertible I wish I still owned today. It was big and heavy yet somehow managed to average 18 miles per gallon in an era when gasoline cost 35 cents. Detroit and the U.S. automakers ruled the world when that car was built, yet now the companies say they are on the skids, bleeding money and headed for bankruptcy. What happened? And what can we do -- if anything -- to save an industry that for a century defined our nation as well as our youth? I have some ideas.

Whatever the mechanism of their demise, the car companies did it to themselves. They love to blame labor agreements, pension plans, and health plans for their precarious financial situation, yet didn't the companies negotiate and sign those deals in good faith? Surely the down-the-road financial burdens were calculable at the time. Is it that we're living longer than expected, rather than expiring early like Pinto gas tanks? Maybe that's part of it, but to blame the unions for good negotiating is worse than forgiving the companies for bad. And what does it matter? The real issue at hand -- and the only one that really matters -- isn't who to blame or even whether or not to save these specific companies, but how to get me a really sweet ride. That's because the only way the U.S. auto industry is going to survive in any form is by making cars so cool that we'll stand in line to buy them even in a global financial crisis.

It's the cars, stupid.

My hobby is building small airplanes and one of my favorites is a Davis DA-2A, winner of the Outstanding New Design contest in 1966, the same year my Oldsmobile (and my current Thunderbird convertible) was built. That little Davis can teach us a lot about cars.

I didn't build my DA-2A, but I am rebuilding it right now and know it intimately. My Davis is an all-aluminum two-seater with an 85-horsepower engine. The engine was built in 1946, the plane in 1982, and the whole thing cost under $4,000 at the time, though today I have more than that invested in the instrument panel alone. The plane weighs 625 lbs. empty, 1125 lbs. loaded, has a top speed of 140 miles per hour and can travel about 600 miles on its 24-gallon fuel tank.

Why can't I buy a car like that?

Imagine if we took the basic design parameters of my DA-2A and applied them to a modern automobile. The new design would have to carry two people and luggage, have an empty weight of no more than 625 lbs. and use an 85-horsepower engine. With a loaded weight of 1125 lbs., the car would have a power-to-weight ratio comparable to a Chevy Corvette and be just as quick -- probably even faster than the airplane's 140 mph. Driven only 20 percent over posted speed limits as God intended, the car would easily get 50+ miles per gallon.

Who wouldn't want to buy one?

At the heart of manufacturing is the simple concept of buying raw materials in volume at a low price per pound and selling manufactured products at retail for a high price per pound. The eventual retail price per pound is determined by the marketplace and ideally it ought to be high enough for the manufacturer to make a profit. The very light weight of our DA-2A car analog suggests that it ought to be inexpensive to buy, but maybe all that means is we have to look beyond the car industry to bicycles.

Car buyers and bicycle buyers approach retail pricing from completely different directions. Car buyers, whether they think about it this way or not, traditionally try to buy cars that cost the least on a per-pound basis. Do some research on the Internet and you'll see that luxury cars, whether we are talking about a Cadillac SUV or a big Mercedes sedan, tend to cost about $10 per pound; mid-range cars cost about $6 per pound; and economy cars cost about $4 per pound. Manufacturers prefer luxury cars because, given the same profit margins, they make vastly more gross profit on a fancy car than they do on an entry-level car. This pricing bias is part of what is working against Detroit right now.

Bicycles are different. Bicycle buyers, whether they are conscious of their behavior or not, try to pay the MOST per pound rather than the least. A lighter bike is always a better bike and a more expensive bike. Cheap bikes from Wal-Mart tend to cost about $2 per pound, nice bikes from a bike shop cost about $20 per pound, and top-of-the-line racing bikes cost about $200 per pound which, interestingly, is about the same per-pound cost as a top-of-the-line Ferrari or Aston-Martin.

So the trick to turning around the U.S. auto industry is to make car buyers adopt the values of bicycle buyers, which implies the willingness to pay $20 per pound of final product. The way to achieve that goal is by building cars that are both affordable at $20 per pound and EXCITING TO DRIVE.

Under this formula, the car version of my DA-2A would cost $12,500, making it broadly affordable. Yet with 6061 aluminum alloy selling in volume for around $1.60 per pound, there ought to be plenty of profit in there for the companies.

Detroit doesn't understand that.

Just as the price point bias tends to push manufacturers toward heavier cars, so do consumer buying habits and even government regulations. Trucks overtook cars in the 1990s as America's most popular vehicles and that wasn't some grand plan from General Motors or Ford, it just happened. The companies were grateful of course -- ecstatic even -- because trucks were already profitable on commercial sales alone so the consumer truck boom came with almost no additional fixed costs. Trucks were INCREDIBLY profitable and heavy.

So were SUVs. When I was a kid there were Chevy Suburbans and Jeep Cherokees, but I didn't know anyone who owned one. SUVs grew out of the truck boom and were yet another Detroit windfall, this time finding a way to charge $10 per pound for a truck. Wow!

Government regulations began pushing car companies down the path of inefficiency with the passage of the Clean Air Act in 1967. Cleaning the air was a legitimate goal but the way Detroit went about complying was not. First they installed air pumps to force complete combustion of exhaust gases IN THE EXHAUST, not in the engine where power could be produced. To make this work reliably they had to richen the fuel mixture to ensure that there was enough unburned gasoline in the exhaust to burn with the air introduced by the air pump.

Am I the only one who sees problems with this approach? To lower exhaust emissions reliably over the average 100,000-mile life expectancy of a car, the companies deliberately used more gas, hurting gas mileage. What did they care, right? Gas was 35 cents per gallon. But the companies were already on a slippery slope.

In 1972 the companies were forced to reduce compression ratios to accommodate unleaded fuel. Again the reason was laudable but the reaction was not. The lower-compression engines were less efficient, so to get performance back you had to buy a bigger engine -- paying the same amount per pound but buying more pounds. Detroit liked that.

Catalytic converters came along in 1975, and again required richening the fuel-air mixture for proper operation over the 100,000-mile vehicle life.

I'm not arguing here against environmental regulations but against the way they are frequently applied. This happens in other fields, too. Your cardiologist will recommend barbequing to reduce fat while your oncologist prefers frying to reduce carcinogen exposure. Either way you are still going to die.

For 40 years we've had a succession of slight product modifications to accommodate new automotive regulations in generally the wrong ways. The car companies fought against airbags because of the cost, not because of any safety issue. Their safety bias was always toward the heavier vehicle even though statistics show big SUVs are actually less safe than smaller cars. This was simply because they wanted to sell more pounds of car to make more money.

Technical innovations are a hard sell in Detroit because most of them fail. Even my idea of a light weight yet powerful car was tried before in the Crosley Hotshot of the late 1940s -- reason enough, many car execs would say today, to not revisit the concept.

Detroit has made poor use of new materials because they tend to cost a lot per pound. The companies could use smarter designs that required fewer pounds, but then the door might not slam with that solid sound and what if people didn't buy. Remember the Edsel?

Remember the Edsel indeed. All the Edsel had going against it was ugly design. In every other sense it was just another car with an engine in the front and drive wheels in the back. The Edsel didn't fail because it was too radical, yet that's how it is remembered.

The leaders of the Big Three U.S. car companies have about six weeks to come up with a way to save their companies. THEIR jobs (the CEOs) are toast, but the companies can be saved. All it takes is a little smarts and a lot of guts to come up with faster, smarter, more efficient cars that are uniformly 50 percent lighter than the models they replace.

I would have suggested they consult Leeon Davis, designer of the DA-2A and many other remarkable airplanes, but Leeon died earlier this year. He could have helped a lot, I know it.

Not Enough Indians

There is no joy at Yahoo, for mighty Jerry has struck out.

This week Yahoo cofounder Jerry Yang announced he was stepping down after 17 turbulent months as CEO of the big Internet portal -- a time in which the company rebuffed a buyout offer from Microsoft, flubbed an ad sales agreement with Google, and ended up being worth a third of its former self when the rest of the market is down only 40 percent.

Jerry blew it.

And rare in the annals of public companies, JERRY blew it, nobody else. There is no blame to be shared because the Chief Yahoo took his anti-Microsoft stand pretty much single-handed, having bounced Terry Semel from the job in June 2007. Semel, who was more Hollywood than Silicon Valley and never well suited for the job anyway, had backed the Microsoft deal. Freed from his duties at Yahoo, Semel also voted with his brokerage account, selling a large number of company shares while the selling was good.

If there is a lesson to be learned here it is not so much that Jerry was wrong, but that Jerry was Jerry and that wasn't the right thing for Yahoo shareholders.

There are three seminal ideas that guided Jerry Yang, who is, after all, a diverted graduate student who got on-the-job training in business. To understand these three ideas is to understand Yahoo under Yang:

1) Microsoft is evil. Yang came of age in the Netscape era and saw Microsoft break the law to destroy that company and try to control the Internet. Whatever its motivation, Microsoft did all the bad things they were accused of and more and Yang could never forget or forgive that, even at the cost of his own company. He took it personally.

2) The power of "no." There was a time in the 1990s when venture capitalists Kleiner Perkins and Sequoia Capital were trying to get Excite and Yahoo -- their respective portals -- to merge in a forced marriage designed to benefit only the VCs. It didn't feel right to Jerry, who put his foot down and scotched the deal. It worked that time, so saying "no" became for Yang the default position, especially after Broadcast.com.

3) Don't get screwed. When Yahoo bought Broadcast.com for $4.7 billion and it became clear that Yang & Co. got almost nothing of value for their money, they resolved never to get screwed on another deal again. That was the moment Yahoo embraced bureaucracy. They never made a quick decision again and in many cases hardly made any decisions at all.

Mix these three concepts together, add independent wealth and a personal golf course, and you get the Jerry Yang of today. He was inclined to say "no," couldn't embrace Microsoft's evil, and sure as heck wasn't going to be screwed by Redmond, which he knew could never be trusted. As long as Jerry was in command the deal would never happen -- and didn't.

Given all this it's a wonder Yang can remain with the company as he says he will. I couldn't do it. He must feel like Ralph Nader. Or maybe that's exactly it; Jerry Yang, like Nader, still doesn't get it.

The best thing Yang could have done for Yahoo shareholders was to sell the company to Microsoft. He chose, instead, to do what he thought was best for the Yahoo COMPANY, which is weird given that it no longer feels anything like it did back in those glory days. He threw away $20+ billion just to preserve a memory.

Comcast's Cap
Hey, I have been thinking about Comcast's new 250-gigabyte monthly download cap and what to do about it. Comcast, of course, is just trying to keep its top 2-3 percent of P2P gonzos from ruining things for the rest of us. If a tiny minority of users are taking half the available bandwidth, well they have to be somehow crushed (that's the theory). Comcast first tried slowing down the miscreants, you'll remember, denied the company was doing that, then got busted by the AP of all outfits. So now they'll try this new cap.

As a guy who sees a GRAND PLAN nearly everywhere, of course I see one here. Comcast says the new cap will affect less than 5 percent of its users, but that's now. What happens in five years as connections get faster and faster, Internet movie and video distribution explodes and the cap doesn't rise comparably?

Remember wholesale bandwidth costs are dropping by 50 percent per year and have been for the last decade, so Comcast's costs get cheaper and cheaper while at the same time more and more users will impinge on the bandwidth cap. If 5 percent are in violation today, that will be 10 percent a year from now, 20 percent two years from now and 40 percent three years from now, unless Comcast raises the cap.

I think they won't raise the cap but will rather introduce paid bandwidth as an alternative tier and get us to start paying a la carte for those parts of our Internet experience that Comcast might presently view as under-compensated entertainment products. It's just a way for Comcast to benefit financially from third-party and user-generated content.

So maybe a little civil disobedience is in order.

That 250 gig bandwidth cap, while more than 95 percent of current users require, only comes down to 3-4 days of wide open bit-pumping on a cable modem. Why not build a utility that takes all participating users to 249 gigs per month? Even a 5 percent participation rate among Comcast users would take the network to its knees and possibly force a more respectful attitude from the cable company.

But hey, it's just an idea.

Cringely's Future
Finally, readers have been asking what I'll be doing after this gig ends on December 15th. Frankly, I have no idea, but as a guy with kids ages six, four, and two, I can assure you I'm not retiring. Guys like me don't retire, we just get lots of life insurance and work until we die.

It might not make sense to hurl myself unemployed into the worst financial crisis in 80 years, but sometimes a guy just has to do what a guy has to do. Besides, as someone who has been fired from EVERY JOB I'VE EVER HELD, this might be my last and only chance to actually quit something.

I'll land somewhere, you can be sure, probably with NerdTV and my Moon shot in tow. And I'm open to ideas. Just nothing very illegal, okay?

Now For Something Completely Different

President-Elect Barack Obama has announced that when he’s in office he’ll appoint a Chief Technology Officer (CTO) for the whole darned USA. Though Google CEO Eric Schmidt already said he isn’t interested in the job, I am.

I accept, Mr. President.

And while the idea of Cringely for CTO may seem lame to most everybody I know (including my Mom), I think I can make a strong case for why I am EXACTLY the right guy for the job.

For one thing, unlike Eric Schmidt I don’t have a lot of money. Schmidt can’t afford to take the job because Google stock is down and he’d lose a fortune. Not so for me. I come encumbered only with debts, which is to say I am a true American. I’d be perfectly willing to put those debts in a blind trust ASAP.

The U.S. CTO would have to be a dynamic leader capable of speaking his or her mind and holding his or her own against a tide of critics and special interests. Hey, that’s what I do every week (sometimes twice)! Maintaining and defending technology opinions is my only business and some people think I do it too well, which I take as a compliment.

Now we need to consider why President-Elect Obama thinks the country needs a CTO in the first place. The President has long had a Science Adviser, so why appoint a CTO? It’s the distinction between adviser and officer that I’d say is the whole point; one simply advises while the other implements and leads directly. And I think there is plenty of room for new leadership in this area.

America has always been tops in science, tops in research and development, tops in medicine, tops in industrial development, tops in technical infrastructure -- tops, tops, tops. But are we tops today? I don’t think so, and I’d say we’ve been slipping steadily for the last eight years and probably for many years before that. The rest of the world has caught up and some other countries now lead the U.S. in many respects. Yes, we have technical traditions and deep institutions, but those traditions are weaker than they were and the institutions are, too. I think something can be done about that.

My belief that something CAN be done is critical, because most of the usual suspects for this job probably think it can’t. The reason I am so optimistic is because of the very financial disaster that is the current U.S. economy. Things are so bad right now that I am greatly encouraged.

Huh?

Sometime in February the new Obama Administration is likely to propose the mother of all economic stimulus packages. It won’t be a $650 check that comes in the mail. It won’t be a $700 billion equity injection in various financial institutions. It WILL be a public spending plan modeled after the New Deal of the 1930s, injecting $600+ billion primarily into infrastructure construction and reconstruction. The difference between this New New Deal and the first one is that while plenty of roads and bridges will be rebuilt, a lot of the money this time will probably go into information infrastructure. Well that’s my bag.

The U.S. CTO – at least this FIRST U.S. CTO – will be the buyer-of-cool-stuff-in-chief for the entire nation.

I would make a better buyer-in-chief than almost anyone else because of two important characteristics in my warped personality: 1) I would be immune to special interest groups so this wouldn’t turn into another National Information Infrastructure boondoggle, and; 2) yet as a true enthusiast I would buy with such reckless abandon that I’d easily fulfill the economic stimulus needs while spewing money widely enough to guarantee at least a few good technical investments for the nation.

This latter point probably requires some explanation. As we can see from the current $700 billion bank bailout, the ranks of those actually benefitting are pretty small. We’re $325 billion into the thing and consumers – the people paying for it -- have yet to benefit at all as far as I can tell. Most banks haven’t even benefitted. And those that have benefitted have done little to share their wealth. To put things in the most positive light I can, let’s attribute this to the very surgical nature of this process. To put it more honestly, nothing really changes except the rich get richer.

Look at Al Gore’s National Information Infrastructure program of the 1990s, which was intended to build for us all exactly the sort of data network enjoyed today by people in Japan and Korea. $200 billion in tax credits were distributed, primarily to telephone companies. That’s $200 billion in government revenue foregone, which is just the same, it seems to me, as writing a check. And what did we get for it? Limited Internet service in schools and no Internet service in homes. The DSL we have today we paid for, believe me – phone companies sell that stuff at a profit. However well intentioned Al was, his system was gamed by the phone companies who took the money and ran.

That can’t happen again.

If we are going to have a huge economic stimulus package that we’ll pay-off as a people over the next 30+ years, I say we should get something for it. If we hire as CTO some slick-talker from IBM or GE this won’t happen. If we hire Bill Joy it won’t happen, either. Bill’s too smart and too gentle and too darned rich for the job.

We need someone with just enough savvy to know good technology, enough independence to make the right decisions, and crazy enough to do it all 24/7 right out in public so that vaunted “transparency” we keep talking about yet never see can be proved to be more than just a modern myth.

I’m the man for that job.

AND I can use the work.

That’s because December 15th will mark my last column for PBS,

After 11 years and more than 600 columns I’ll be moving-on, perhaps into that big CTO job in Washington, but then maybe not. This is my decision, not that of PBS, which has been nothing but good to me these many years.

In the month I have left I will be filing many columns, trying in a breathless rush to put a cap on this part of my career and leave behind a few ideas of how things should be and where they can go if done right. Though it will be a couple weeks early, the last column will be my predictions for 2009.

Stick around until then. I’m right most of the time, you know.

Love-Hate

Love-Hate

Steve Jobs is not like you and me. He has millions of customers, 32,000 employees, and a board of directors who think he can do no wrong. Running a company that is immensely profitable, gaining in market share, has no debt and $20 billion in cash, he can afford to make bold moves, the most recent of which is his decision to replace Tony Fadell, until moments ago head of the division that produces Apple’s iPod. Like everything Jobsian, Fadell’s departure is part of an Apple GRAND PLAN.

The variables at work here are (in no particular order) ego, competitive advantage, ego, management technique, ego, strategic thinking, and ego.

To say that Steve Jobs’ ego can expand to fill any known space might be an understatement but I’ll stand by it anyway. Fadell’s failing in this regard is his being hailed as the “father of the iPod.” What does that make Jobs? Who made THE BIG DECISION? Who committed the company? Who – most importantly of all – seduced all the record companies? That last guy would be James Higa, but since I don’t want to get HIM fired, too, let’s just attribute it all to Steve Jobs – for all intents and purposes the REAL father of the iPod.

All hail Steve.

Apple exists solely as an extension of Steve Jobs. Remember that. Anything attributable to Apple is really attributable to Jobs. Other people work at Apple, of course, and excel at their positions, but that is primarily because they were chosen, anointed, or inspired by Jobs.

Not that Jobs doesn’t make the occasional mistake. Look at the Mac Cube, for example. But that was our mistake as consumers, not realizing that it really ought to have been worth an extra $500 to us to have a computer with no cooling fan.

Steve Jobs makes very few such mistakes, in fact. That, and his total domination of Apple at every level allow the company to be literally the only PC vendor to have anything like a strategic plan. Dell and HP have the odd strategic initiative, like getting into or out of media players or TVs, but the idea of a comprehensive corporate strategy, well that’s too much to expect from companies that are managed, not led.

Steve Jobs is a leader 100 percent in the mold of General George S. Patton. Rent the movie and it will start to make sense. Heck, rent it on iTunes.

So here’s what’s going on with Tony Fadell. First, he was vulnerable as a charismatic leader in his own right who has been talked about in the press as a possible heir to Jobs. That alone meant he had to die, but it wasn’t enough to mean that he had to die just now. That decision required an external variable in the form of former IBM executive Mark Papermaster.

Steve Jobs wants to give Tony Fadell’s job to Papermaster. It’s not that Papermaster would be any better at the job than Fadell, but there are two over-riding factors here: 1) Jobs can only have so many direct reports, and; 2) he thinks putting Papermaster in Fadell’s job is the best way to get past any legal objections from Papermaster’s former employer, IBM.

Papermaster most recently ran IBM’s blade server division and in the mind of Steve Jobs blade servers and iPods couldn’t be farther apart. One is an enterprise sale while the other is consumer. One is a clear IT sale and the other has nothing to do with IT, really, since iPods and iPhones aren’t aren’t computers or computer peripherals. Jobs thinks Apple can make this point stick with a judge and he might well be correct.

Papermaster has to be gone from IBM for a year before he can take a job that clearly competes with his last position at IBM. But Jobs doesn’t want Papermaster for blade servers, nor does he even want him for iPods. Jobs wants Papermaster for the expertise he showed two jobs ago at IBM running Big Blue’s PowerPC operation. Jobs wants Papermaster to lead Apple’s PA Semi acquisition and create a new family of scalable processors optimized for Snow Leopard and beyond.

Having Papermaster run iPod hardware is a placeholder to let him get used to Apple and get ready to take over the Apple processor job, some of which will be used in iPods and iPhones, so the job isn’t a total waste. But for the few months he’ll be running iPod hardware, Papermaster will mainly be overseeing the implementation of Fadell’s strategy.

If that seems like a game of musical chairs in the Cupertino executive suite, well it is. It’s also a game we’ve seen played over and over again.

Back to point 1 from five paragraphs ago: Jobs can have only so many direct reports. Steve Jobs believes the key to his success is in finding, hiring, retaining, then firing the best talent in the world. He would maintain in the very moment he’s firing Fadell that Tony is better at his job than anyone else on Earth. Yet still Fadell must go and that’s because – ego issues aside – Jobs had to make room in his inner circle for Papermaster.

Everyone close to Jobs is under continual analysis: is this person really (or still) the best in the world? If they aren’t, or if someone else is just as good but more important for some additional reason, then the incumbent has to go. Steve Jobs ultimately betrays all of his direct reports in this manner. It’s just the way he is. And if it costs Apple a few million to remove one extra head from the room, well that’s okay with a board that KNOWS (as we all do, to put it fairly) that Jobs really is the secret of Apple’s success. His system may be brutal, but it works.

So Fadell was already in danger because he had become known as an individual. Remember that when PortalPlayer (now part of nVidia) was making the guts of every iPod the company was forbidden by Apple to acknowledge that. Even in its financial reports PortalPlayer was forbidden to use the “A” word and simply had to attribute to some unnamed company 85 percent of PortalPlayer’s revenue.

Just as Jobs was scourging Fadell, though, he was seducing Papermaster. Jobs can be VERY seductive. And he was hardly going to seduce the IBM executive with a promise to put him two levels down. So as the most vulnerable person in Jobs’ inner circle, Fadell had to go. That Fadell’s wife was head of Human Resources for Apple and was forced, essentially, to terminate her own husband, well that was just gravy and yet another reason for Apple employees to take the stairs rather than risk sharing an elevator with Jobs.

Fear can be a remarkable motivator.

Don’t feel bad for Fadell, though. His $8+ million golden parachute stock grant is coming at a time when Apple shares are depressed and could easily double by the time he can sell them in 2010. He get’s $300,000 per year to “advise” Jobs (I’d like one of those jobs, too, Steve) and then there’s his wife’s departure package, which hasn’t been mentioned. Clearly out of the picture as an heir to Jobs, Fadell will next appear in 2010 as a CEO somewhere in the South Bay.

Of course IBM with its largest corporate legal department on earth has filed suit against Apple, trying to block Papermaster from taking the Apple position. Apple’s legal department is fairly accomplished, too, and Cupertino is a much stronger company than Armonk, which will lead to the ultimate solution to this legal problem. Apple still hopes to convince a judge that it is correct about Papermaster. But if Apple fails in that, Steve Jobs will just pick up the phone and choose IBM Microelectronics as the fab to build the next generation of Apple’s PowerPC processors – a contract worth billions, but ONLY if IBM drops all legal action.

Apple will win in the end -- I guarantee it. And the way Jobs negotiates, Big Blue will probably end up losing money on the chip deal, too.