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by Wes George



and Trading.

Mmmmmmm...... Good

News Alert! Tomorrow Has been Amazoned.
June 14th, 1999

Stop your surfing, sit still, and read this twice. It may be your last warning (it certainly wasn't your first).

No matter what line of work you are currently engaged, whether you're a corporate officer, or a shareholder, whether you're successful and secure, or just starting out, the one thing you can count on is rapid change. We live in the best of times, and we live in the worst of times, depending on where you make your financial bed. The rest of your life is likely to be one long learning curve. Let me explain.

The Internet is a tsunami that is rushing towards your business model, even now as you read this. It's actually more than that: it's a thousand obscure fields of research. Each bearing fruit far more rapidly than anyone could have predicted just a few years ago, largely because of the leverage that interconnected nodes of information, and new powerful computer-driven tools give to any idea-based operation.

It's also Moore's Law--the miniaturization of CPUs and the plethora of their subsequent uses. Eventually, every appliance will be smart, and every space will be leveraged as an information management platform.

Even the famed 'superparamagnetic limit' which physically caps data density at 30 gigabytes per square inch for disk drive storage capacity has been downgraded to the status of an 'effect' by the IBM team at Alamaden Research Center who are shooting for 100 gigabytes this year.

You already know this stuff. If you didn't, you wouldn't be online reading these words. Instead, you'd be reading this morning's pressed wood pulp with a cup of coffee somewhere in Pleasantville. If you listen, you can hear the low rumble of the new millennium approaching in the background. You can feel it in your bones, something big cometh this way. But are you doing anything about it? Or are you so comfy and secure that you can't imagine the tsunami of the future lapping at the shore of your front yard?

We are on the verge of so many revolutionary applications of new research, done in so many important realms, that the future of every major industry blurs into opalescence streaks. The only certainty is discontinuity and bifurcation--with catastrophic consequences for those who cling to the complacent safety of proven methods, operational modes and investments. Only the early adopters, the 'kaizen' who are constantly innovating, and the paranoid will survive.

Ideologies vs. Technologies

In the 20th century most social and cultural upheavals resulted from the implementation of ideologies. Fascism, Marxism, capitalism, and nationalism all led to global restructuring of almost every human endeavor. During the early 20th century each group of true believers hailed their corresponding ideology as the one visionary path to a utopian society. By the end of the century it's clear that no ideology leads to utopia and most lead down a well-paved road to hell on earth.

As we stand at the edge of the 21st century, vowing to learn from our fathers' errors, it appears that a variety of technologies, not ideologies, will be the driving force behind tomorrow's social, cultural, ecological and economic upheavals. Let's hope that we can pass through the upcoming technological dislocations with less violence than in the 20th century.

Although events currently look bullish for a peaceful transition into the 21st century, there is plenty of ideological recidivism to go around. Even the oft heard innocent hopes for the Internet to create some sort of future utopian world is frighteningly reminiscent of our great-grandparents' naive state of mind in the early 20th century.

Two Common Errors

The Missed Opportunity Syndrome

I'm constantly correcting two urban legends I hear repeated over and over. (You can just imagine what a bore I am at cocktail parties.) The first goes something like this, "Oh, the technology revolution of the Internet/info age has gone so far that I'm hopelessly left behind. I've missed the boat, so I'll just stick with what I know." Then the speaker nervously slugs back his or her martini hoping I'll leave them alone. Not likely.

First of all, the ship is still in the harbor. The Internet's first full year up and running was 1995. Undoubtedly, the goldrush is on-- it's the Wild West out there. You can start a successful business online with just your trusty old Mac, a good idea, an html editor and a domain name. Oh yeah, bring your chutzpah, too.

Don't let any per-for-view futurologist tell you that big bucks are needed to compete on the net. The best e-commerce advice comes from the post-modern wisdom of slogan-speak. Think Different, Go For The Gusto and Just Do It!

The technoculture trip of the 21st century is still in its infancy. If you're reading this you are already a pioneer in the wilderness. Never forget that your computer is a mere over-priced, tinker toy compared to the information bulldozers on the drawing board.

The Internet is the first universal, cross-platform, cross-cultural, killer app. It is the locus of next century's embryonic global civilization. Fortunately, the Internet is also the most democratic institution the world has ever known. Don't let anyone tell you that Internet can or should be taxed or censored. Like the air you breathe, the Internet is supra-sovereign; it's everywhere and nowhere at once. Only your personal access to it can be regulated, and only then by those retrograde hell-on-earth ideologues I mentioned earlier.

On the Internet, your ideas and implementation will sink or float strictly on the merits of the number of eyeballs you attract. Attention is the de facto currency of the net. This is dour news for those who have developed a successful, stable, locked-in, business model dependent on built-in inefficiencies and lack of competition for prosperity.

The market inefficiencies of today have been traditionally winked at by those in powerful positions precisely because it is those inefficiencies which create backroom business fiefdoms where the old guard can rule the roost without a daily eyeball count. Artificial barriers to entry exist in almost every business largely to protect decadent special interests. The Internet is a threat to every human endeavor that has matured into a sheltered status quo. Such interests will be the first to attempt to tax or otherwise curtail Internet-based activity.

The Myth of Invulnerability

This brings me to the second myth I often encounter at cocktail parties. It goes something like this, "Oh, my industry 'X' will never change its modus operandi and can't seriously be challenged by those under-capitalized upstarts. 'X' has always been, and always will be the market leader. I am a specialized expert in 'X', so I know." As a multidisciplinary writer who specializes in generalizing about the role of evolution in business and technology, I really irritate such people.

Of course we all know what it means to be 'Amazoned' by now. That arrogant little start-up captured 75% of the world's online book sales in less than 900 days. The giant Barnes & Noble, in business since 1965, controls only a humiliating 15% of the online market. Most of us have the classic 'that sort-of-thing-can't-happen-here' attitude.

The irony is that the larger and seemingly more secure industries, with the higher gross margins, are the most vulnerable to Amazonization. No one has real job security anymore, except Y2K programmers for the next 200 days.

Even digital enterprises aren't immune to catastrophic loss of market share. Take the example of Instinet (see the July 1999 issue of Wired). They're an electronic trading network that had a locked up and protected market niche till the SEC last year liberalized the rules to make room for a new breed of competition to flourish. Instinet, owned by Reuters, has been around for 30 years. They arrogantly assumed that they owned the market for their type of service, and have proactively discriminated against the small players.

The new breed, pioneered by Island, the brainchild of two young geniuses, is all about eliminating the middlemen in the trading world. The Island system allows investors to connect directly with each other through a network database, and instantly executes trades whenever the ask and bid match. This eliminates the role of the corrupt market makers that have, in traditional good ol' boy style, been manipulating point spreads to rip-off small traders for decades. Island's fee per trade is so small that Instinet is hemorrhaging market share as if their jugular had been slashed.

In due course, the Island, and other upstart trading networks, will revolutionize the way stocks are traded and may even someday compete with the NASDAQ and the NYSE by creating a capital generation system that is for the first time in history fair by design, transparently democratic, and perhaps even rational.

Luddites with Tenure

I had an old Physics teacher who as a young man couldn't study Einstein's Theory of Relativity or Quantum Mechanics because his university refused to let professors lecture on those topics. Yet these 'outrageous' theories were all the rage among the most clever students who formed semi-secret cells in their dorm rooms to pour over the little quantum literature they had access to.

Eventually, the old classically trained, tenured professors, literally, one by one, died, and only then could their younger replacements institute the much in demand lectures on relativity and quantum effects. I wonder how long such old codgers delay evolution, and what the true cost of their connivance is to society.

Surely such nonsense doesn't occur at today's universities, you say. Ah, but it does.

As anecdotal evidence, I offer the Master's of Library and Information Science program at the University of Texas that requires that its students read the Luddite ravings of Michael Gorman and Walt Crawford. Here's just one quote from their rabidly anti-digital manifesto, "One of the sillier forecasts of an all-electronic future is the idea that everyone will read from computer devices. Such a thing may not be impossible but it is implausible…"*.

It's distressing that the most prestigious university in Texas is not teaching students to prepare for vast upheavals in the structure of libraries that will occur during their career lives. Many of these young minds are likely to be the architects of the information superstructure that will be the legacy system of the 22nd century. There are thousands of such Neanderthals, like Gorman and Crawford, in leadership positions defending past inefficiencies and discouraging impressionable neophytes. They are holding you back from your full potential.

Today, the evolution of science and culture occurs at a much faster pace than in Einstein's time. We don't have time to wait for the old tenured fellows to die off. Multiple paradigm shifts will transpire within a single career. No one can be allowed to wed oneself to a single technology and then defend it as it decays around him or her like a sandcastle in a rising tide. The habit of learning shouldn't atrophy once you get your Ph.D. We should all learn to practice 'kaizen', the Japanese art of constant self-improvement. The rest of your life will be a learning curve.

The key to the Future.

That would be innovation. Rudely defined as novel or modified behavior patterns in anticipation or response to change. Behavioral researchers have noticed in recent studies, that the most innovative individuals are often the ones who have failed really badly, and/or the ones that are the hungriest. The implications of these findings suggest that the fat and secure aren't likely to pioneer new approaches to old problems, precisely because they cling to their successful past.

The old truism, 'don't fix it if it ain't broke', should be replaced by this hard-learned kernel of wisdom from Steve Riggio of Barnes & Noble, "It's better to cannibalize yourself than be cannibalized".

*There are so many foolish ideas in this one small 180 page book that I would urge you to buy a copy for your 20th century kitsch collection, but the darn paperback costs $30.00. They can charge that extortion-like price because a good ol' boy network of ALA educators has conspired to make this insane manifesto required reading for thousands of students.

One more revealing quote from this gem of a book,

"Production costs per copy of a mass-market paperback are almost certainly well under a dollar and probably less than fifty cents: considerably less than a CD-ROM, and probably less than any plausible means of electronic communication. Mass-market paperbacks represent the true information revolution."

At 50 cents a copy, $30 a copy represents a 6,000% mark up for…

*Crawford, Michael and Walt Gorman. "Future Libraries Dreams Madness & Reality", The American Library Association, Chicago and London, 1995, quotes from pp. 17 and 30.

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Wes George writes about the financial side of being a Mac nut. Wes has followed Apple's finances for the last 7 years and comes to The Mac Observer every Monday to tell all about his opinions. He is, in his own words, "inordinately fond of money." If you would like to write Wes, make it nice. Someday you might own a company that has something to do with Apple, and Wes will probably still be writing for The Mac Observer...... On the other hand, Mr. George is known to love a rousing, hair-raising debate, so send him your worst!

Disclaimer: This column is for informational and entertainment purposes. While Mr. George may be sage indeed, his writings can not be construed as a solicitation to buy, nor an offering to sell any particular stock. As with any trading in the financial markets, you must use your own judgment to make the best trades that you can. Neither The Mac Observer nor Wes George may be held accountable for trading advice.

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