*michael parekh on IT*

ON UNEXPECTED OUTCOMES

ABANDON SHIP

Earlier this year, there were widespread reports of an unexpected byproduct of the global economic downturn in the wealthy Gulf countries of the Middle East, such as this one:

"Local police have found at least 3,000 automobiles -- sedans, SUVs, regulars -- abandoned outside Dubai International Airport in the last four months. Police say most of the vehicles had keys in the ignition, a clear sign they were left behind by owners in a hurry to take flight.

The global economic crisis has brought Dubai's economic progress, mirrored by its soaring towers and luxurious resorts, to a stuttering halt. Several people have been laid off in the past months after the realty boom started unraveling.

On the night of December 31, 2008 alone more than 80 vehicles were found at the airport. "Sixty cars were seized on the first day of this year," director general of Airport Security, Mohammed Bin Thani, told DNA over the phone. On the same day, deputy director of traffic, colonel Saif Mohair Al Mazroui, said they seized 22 cars abandoned at a prohibited area in the airport.

Faced with a cash crunch and a bleak future ahead, there were no goodbyes for the migrants -- overwhelmingly South Asians, mostly Indians - just a quiet abandoning of the family car at the airport and other places.

While 2,500 vehicles have been found dumped in the past four months outside Terminal III, which caters to all global airlines, Terminal II, which is only used by Emirates Airlines, had 160 cars during the same period."

Now we have a different variation of this story playing out here in the U.S., as this New York Times story reports:

"The bad economy is creating a flotilla of forsaken boats. While there is no national census of abandoned boats, officials in coastal states are worried the problem will only grow worse as unemployment and financial stress continue to rise. Several states are even drafting laws against derelicts and say they are aggressively starting to pursue delinquent owners.

“Our waters have become dumping grounds,” said Maj. Paul R. Ouellette of the Florida Fish and Wildlife Conservation Commission. “It’s got to the point where something has to be done..."

"...Some of those disposing of their boats are in the same bind as overstretched homeowners: they face steep payments on an asset that is diminishing in value and decide not to continue. They either default on the debt or take bolder measures.

Marina and maritime officials around the country say they believe, however, that most of the abandoned vessels cluttering their waters are fully paid for. They are expensive-to-maintain toys that have lost their appeal.

The owners cannot sell them, because the secondhand market is overwhelmed. They cannot afford to spend hundreds of dollars a month mooring and maintaining them. And they do not have the thousands of dollars required to properly dispose of them."

Well, at least we're all high and dry together.

Images: Source 1 and Source 2

ON THE END OF AN ERA...AGAIN

CHAIN REACTIONS

End of an era, this bit of news from Microsoft:

"Microsoft's years-long-running multimedia CD-based encyclopedia product, Encarta, will be history by the end of the year. According to Ars Technica, Microsoft quietly announced the discontinuation date for Encarta to be October 31, 2009. Although the MSN press release doesn't go into too much detail on all the reasons why this decision was made, (nothing about Wikipedia for example), they do mention that the way people look for and consume information has changed substantially in the last few years, which seems like a fair assessment.

It appears that all Encarta properties will be phased out over the coming year. They will stop selling the retail and student versions by June and the online MSN Explorer content will be removed by the end of October. Customers paying for a subscription to Encarta Premium will receive a pro-rated refund around the middle of the year. Technical support, like with most other Microsoft products, will continue for three years after the official end of life.

As we mentioned, although Microsoft doesn't directly implicate Wikipedia as one of the harbingers of their decision to kill Encarta, we can only assume that it is a big part of that decision. Although Encarta's content was carefully curated, and of course factually accurate (which is often more than what you can say about Wikipedia), apparently the cost and availability of instant sources of information online has overcome the appeal of this once-novel encyclopedia."

It's a bit ironic though, since not too long ago, the world of encylopedias almost saw the end of another era, as this piece from Capitalism Magazine recalls from 2000:

"In 1768, three Scottish printers began publishing an integrated compendium of knowledge -- the earliest and most famous encyclopedia in the English-speaking world. They called it Encyclopedia Britannica. Since then, Britannica has evolved through fifteen editions, and to this day it is generally regarded as the world's most comprehensive and authoritative encyclopedia.

In 1920, Sears, Roebuck and Company, an American mail-order retailer, acquired Britannica and moved its headquarters from Edinburgh to Chicago..."

"By 1990, sales of Britannica's multivolume sets had reached an all-time peak of about $650 million. Dominant market share, steady if unspectacular growth, generous margins, and a two-hundred-year history all testified to an extraordinarily compelling and stable brand. Since 1990, however, sales of Britannica, and of all printed encyclopedias in the United States, have collapsed by over 80 percent. Britannica was blown away by a product of the late-twentieth-century information revolution: the CD-ROM.

The CD-ROM came from nowhere and destroyed the printed encyclopedia business. Whereas Britannica sells for $1,500 to $2,200 per set (depending on the quality of the binding), CD-ROM encyclopedias, such as Encarta, Grolier, and Compton, list for $50 to $70. But hardly anybody pays even that: the vast majority of copies are given away to promote the sale of computers and peripherals. With a marginal manufacturing cost of $1.50 per copy, the CD-ROM as freebie makes good economic sense. The marginal cost of Britannica, in contrast, is about $250 for production plus about $500 to $600 for the salesperson's commission."

So what the CD-ROM did to print encylopedias, the web did to CD-ROM tomes of knowledge.  At each juncture, the business models that ruled rapidly disintegrated, and new ones took their place...or not.

ON THE UNIQUE MIND OF FREEMAN DYSON

WHERE CREDIT IS DUE

The New York Times Sunday magazine has a marvelous feature on one of the pre-eminent scientists of our time, 85 year old Freeman Dyson.  A contemporary and peer of so many scientists of our age, Mr. Dyson has recently gained most notoriety for his intellectual opposition to the general consensus on Global Warming. 

Although that bit is interesting, what's really more fascinating is a peek into the mind 0f this remarkable and unique individual.  Here're some excerpts from this must-read feature:

"FOR MORE THAN HALF A CENTURY the eminent physicist Freeman Dyson has quietly resided in Prince­ton, N.J., on the wooded former farmland that is home to his employer, the Institute for Advanced Study, this country’s most rarefied community of scholars. Lately, however, since coming “out of the closet as far as global warming is concerned,” as Dyson sometimes puts it, there has been noise all around him..."

"Among Dyson’s gifts is interpretive clarity, a penetrating ability to grasp the method and significance of what many kinds of scientists do. His thoughts about how science works appear in a series of lucid, elegant books for nonspecialists that have made him a trusted arbiter of ideas ranging far beyond physics.

Dyson has written more than a dozen books, including “Origins of Life” (1999), which synthesizes recent discoveries by biologists and geologists into an evaluation of the double-origin hypothesis, the possibility that life began twice; “Disturbing the Universe” (1979) tries among other things to reconcile science and humanity. “Weapons and Hope” (1984) is his meditation on the meaning and danger of nuclear weapons that won a National Book Critics Circle Award.

Dyson’s books display such masterly control of complex matters that smart young people read him and want to be scientists; older citizens finish his books and feel smart."

There is much in the piece about his views on Global warming, and the reactions from many of his critics.  It's all very interesting stuff...but what I found particularly charming is this conversation towards the end with his wife Imme of 51 years, who is convinced that Al Gore is on the right track:

"...one evening last month they sat down in a living room filled with Imme’s running trophies and photographs of their children to watch “An Inconvenient Truth” again. There was a print of Einstein above the television. And then there was Al Gore below him, telling of the late Roger Revelle, a Harvard scientist who first alerted the undergraduate Gore to how severe the climate’s problems would become. Gore warned of the melting snows of Kilimanjaro, the vanishing glaciers of Peru and “off the charts” carbon levels in the air. “The so-called skeptics” say this “seems perfectly O.K.,” Gore said, and Imme looked at her husband. She is even slighter than he is, a pretty wood sprite in running shoes. “How far do you allow the oceans to rise before you say, This is no good?” she asked Dyson.

“When I see clear evidence of harm,” he said.

“Then it’s too late,” she replied. “Shouldn’t we not add to what nature’s doing?”

“The costs of what Gore tells us to do would be extremely large,” Dyson said. “By restricting CO2 you make life more expensive and hurt the poor. I’m concerned about the Chinese.”

“They’re the biggest polluters,” Imme replied.

“They’re also changing their standard of living the most, going from poor to middle class. To me that’s very precious.”

That's an example of his famous inter-disciplinary thinking...looking beyond the science and the whole picture, as much as one possibly can. 
Recommend this piece regardless of which side of the climate debate you find yourself.

ON TRYING TO BE PRICELESS

FREAK AND FUNK

Visa keeps making headway in making TV commercials with broad appeal, as this latest "Super-Freak" ad illustrates:

Not quite the "Priceless" campaign by MasterCard, but not bad.  My favorite Priceless ad still is this "Back to School" ad from a year ago, played to "We Want the Funk":

Still don't get tired of watching that one.  Did you notice the Visa ad ends with the word "Funky"? Priceless.

ON LIVE PRODUCTIONS GOING DIGITAL

THAT'S SLOW BIZ

One of the last bastions of entertainment may finally be dragging itself slowly but surely, from the real world of live performances on to our TVs and eventually onto the internet.  As Variety reports in it's own lingo:

"As legiters seek footholds for old-fashioned live entertainment in the world of new media, the Metropolitan Opera has struck a profitable balance between stage and screen -- and theater orgs have begun to take note.

"The Met: Live in HD," the successful series of live hi-def cinema transmissions of current Met offerings, continues to expand even as the company has been forced to downsize some of its programming ambitions in the current economy.

The growing momentum of the program -- with more than 1.5 million tickets sold so far this season -- has caught the eye of legit orgs looking for ways to boost their brands. Earlier this year, London's National Theater announced a similar series of live cinema broadcasts clearly modeled on the Met's pilot program."

The rub to date has not been anything to do with technology or potential receptivity by the market, but business model issues having to do with union contracts.  Variety goes on to explain:

"Performer and stagehand unions were initially wary of the "Live in HD" program as a potential exploitation of its members -- but they warmed up when a deal was worked out that has union members sharing in revenues once the broadcast's production costs are recouped.

"It's a model that works," Gelb says, adding that sales easily outpace the costs of production and distribution, which average around $1.3 million per transmission."

And as one might have theorized, the experiment is broadening the audience for live productions:

"Part of the benefit comes in bringing Met fare to new auds -- a goal shared by an array of Gelb's aud-building programs, including free dress rehearsals and live telecasts in Times Square on the season's opening night.

"We've seen it go from the core opera fans to a broadening demographic," says Dan Diamond, VP of Fathom, the National CineMedia branch that distribs the "Live in HD" series. "It creates a relevance to younger audiences because it's in a movie theater, and it's more affordable."

That rising profile, in turn, feeds into box office at the Opera House itself. Paid attendance, which came in at 76% before such initiatives began, rose to 88% last season."

Who knows, we may see this trend expand to live theater as well, be it Broadway or Off-Broadway.  One of these days the show may yet go on...line.  Perchance to Dream.

ON GRASS-ROOTS ADVERTISING

FROM THE HEART

With the exploding popularity of social networks and social tools to leverage them, the question arises...what if consumers produced their own ads for products or services they really cared about? What would these "user-generated" ads look like?

Certainly, this movement has already started a few years ago, with marketers in recent SuperBowls fielding ads conceived by users.

But what if it was even more grass-roots than that? Might it look something like this ad done by a fan of Trader Joe Supermarkets? With his Blackberry? Take a look:

Who knows, the song may even become a standalone hit, like some of the tunes from those Apple commercials.  And they'd give a whole different twist to Fan Pages on social networks like Facebook.

ON FINANCIAL McCARTHYISM (Part II)

COLLATERAL DAMAGE

This letter titled "Dear AIG, I Quit", written by a senior executive at the AIG Financial Products Group at the center of the current national Bonus controversy, should be a must-read for anyone with an opinion either way on this issue.  As he explains, Mr. Jake DeSantis did not have anything to do with the products that ultimately caused the downfall of AIG.  Here are some salient excerpts:

"It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P.

Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down."

Mr. DeSantis goes on to add:

"I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut. "

It's one thing for an outsider like me to talk about how our politician and the media are encouraging what amounts to Financial McCarthyism around this issue, and quite another to read the opinion on all this from someone in the middle of all this, through no fault of their own.
What's particularly poignant is the way he goes on to describe his decision process regarding the compensation these he and his peers were due for hard work done in good faith:

"You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear.
Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press."

He goes on to describe how he's donating what''ll be left of his bonus to people affected by the global downturn.
In yesterday's post, I described what was going on in the context of getting AIG employees to "return" their bonuses as "Reputational Waterboarding". 
It's clear from the comments by folks like Mr. DeSantis and others that are sure to follow, that we'll look back at this period in our history and feel the same national shame over how we're treating what's left of AIG and the financial industry at large (aka "Wall Street"), as we now do over our treatment of U.S. citizens of Japanese origin interned in camps during World War II, and the lives of thousands of Americans carelessly trampled during the McCarthy hysteria in the Fifties. 
This one hasn't been going that long and the collateral damage is not as bad as it could be. 

So it's not too late for us to all calm down a little bit, take a deep breath, and think some more about our misdirected rage. 

Oh, and let's not rush to cancel those AIG policies, unless of course we get a better deal.

Update:  Fred Wilson also had a post on this matter yesterday that's worth read, especially the comments from his readers on either side of this issue.

ON THE EFFICACY OF AFRICA AID

AID ADDICTION

One of the best things I've read in recent days is this piece by author and economist Dambisa Moyo in the Wall Street Journal this weekend, titled "Why Foreign Aid is hurting Africa".  Whether one agrees or disagrees with the premise of her piece (and her book, Dead Aid), she makes some arresting points:

"Giving alms to Africa remains one of the biggest ideas of our time -- millions march for it, governments are judged by it, celebrities proselytize the need for it. Calls for more aid to Africa are growing louder, with advocates pushing for doubling the roughly $50 billion of international assistance that already goes to Africa each year.

Yet evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower.

The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It's increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa's population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster."

She doesn't stop there:

"Over the past 60 years at least $1 trillion of development-related aid has been transferred from rich countries to Africa. Yet real per-capita income today is lower than it was in the 1970s, and more than 50% of the population -- over 350 million people -- live on less than a dollar a day, a figure that has nearly doubled in two decades.

Even after the very aggressive debt-relief campaigns in the 1990s, African countries still pay close to $20 billion in debt repayments per annum, a stark reminder that aid is not free. In order to keep the system going, debt is repaid at the expense of African education and health care. Well-meaning calls to cancel debt mean little when the cancellation is met with the fresh infusion of aid, and the vicious cycle starts up once again."

The whole piece is worth reading, again, regardless of whether one agrees with her views on this or not.  I just ordered her book, and look forward to adding it to my reading list.

ON REPUTATIONAL WATERBOARDING

AT ANY COST

(Update:  Fred Wilson bravely weighs in with his thoughts on "Financial McCarthyism" as well following a recent discussion.  He makes some very good points on the subject.  The comments there are especially interesting, on both sides of the issue.)

Happy days are here again, at least for today, as the markets enjoyed a 500 point rally, giving us all a day to catch our breath.  It's a happy day for some politicians as well, who can claim credit for going to battle on our behalf and winning a victory on the AIG bonuses.  As the Wall Street Journal reports with this headline, "AIG Executives to return $50 million in bonuses":

"New York Attorney General Andrew Cuomo said late Monday that 15 of the top 20 recipients of $165 million in retention bonuses from American International Group Inc.'s Financial Products unit have agreed to give back their bonuses -- amounting to an excess of $50 million in cash.

Of the $165 million in controversial bonuses, 47%, or about $80 million of it, was given to Americans, Mr. Cuomo says. He is aiming to recoup that amount for AIG. He added that some non-Americans, beyond the reach of his jurisdiction, have returned their bonuses. Mr. Cuomo says his office is working both with AIG executives and with individual bonus recipients to get the bonus money back."

How did they manage to do that? According to press reports, the AG's office talked to the recipients, urging them to do the right thing, adding that they:

"...see no public interest in revealing the names of people who return their bonuses..."

"...he acknowledged that returning the money is a difficult decision for many people in the unit who were not involved in creating the problematic transactions that helped topple AIG."

Unsaid here is that there was an implicit, open-ended threat that those who didn't return their bonuses, could see their names released to the public.

Remember that many AIG employees have received death threats, and have to lead their lives with increased security.  This issue came up at the House hearings with AIG CEO Liddy, as this clip shows:

So the choice for an AIG bonus recipient in the above settlement, was to "give the money back", even if they had nothing to do with the AIG downfall, and had committed no crime, OR risk their name being released to the public at large, with all the risks and costs that entails.

Talk about an offer they couldn't refuse.

As much as the end result of all this may be great for taxpayers, one can't but feel a little guilty about the manner in which the results were accomplished.

Reputation, and the security of one's family are amongst the most precious things for most of us. 

A government threatening the loss of either of those things, explicitly or implicitly, especially when the individual has not been charged with any crime, does not feel right.

If anything, the whole episode feels like reputational waterboarding.  It's a sad continuation down the slippery slope of Financial McCarthyism I've been worrying about of late.

And though it may have paid off in the short-term, one wonders what at what cost long-term in terms of what we're really about.

* Image source.

ON BANKERS AS SAVIORS

ONCE UPON A TIME...

At a time when the conventional wisdom is that "All Bankers are Evil", it's interesting to hark back to a time when that wasn't necessarily the case.  This op-ed piece by author Jean Strouse in the New York Times this weekend takes us back to that time:

"A look back at the handling of another financial crisis a full century ago underlines the point about decisive action. You just don’t want to take the wrong decisive action. Markets today are immeasurably more complex, global, fast-moving and regulated (a lot of good that did) than they were a hundred years ago, but the need for strong leadership has not changed..."

"In October 1907, when a panic started among trust companies in New York and terrified depositors lined up to get their money out, Schiff’s dire prediction seemed about to come true. The United States had no Federal Reserve, the Treasury secretary did not have much political authority, and the president, Theodore Roosevelt, was off shooting game in Louisiana.

J. Pierpont Morgan, a 70-year-old private banker, quietly took charge of the situation.

In the absence of a central bank, Morgan had for decades been acting as the country’s unofficial lender of last resort, gathering reserves and supplying capital to the markets in periods of crisis. For two harrowing weeks in 1907, with the whole world watching, he operated like a general, deploying three young lieutenants to do leg work and supply him with information, and bringing two other leading bankers, James Stillman of National City Bank and George Baker of the First National Bank, into a senior “trio” to make executive decisions. (First National and National City eventually combined to form what is now Citigroup — are the shades of Baker and Stillman writhing over what has become of their descendant institution?)

The Morgan teams ran “stress tests” on the unregulated trust companies, figuring out which were impossibly overleveraged and should be allowed to fail, and which were basically sound but crippled by the panic. Once they had determined that a trust was essentially healthy, the bankers supplied it with cash, matching their loans dollar-for-dollar with the trust’s collateral assets."

The story does have a happy ending,

"At the end of Week 1, President Roosevelt sent a letter to the press congratulating the “substantial businessmen who in this crisis have acted with such wisdom and public spirit.”
"Though Morgan had a large sense of public duty, he had not shouldered the falling church out of pure altruism. His self-interest operated on a national scale.
His clients — many of them Europeans who had invested for decades in the emerging American economy through the House of Morgan — had billions of dollars committed in the United States. In watching over their long-term interests, trying to control the excesses of the business cycle and maintain the value of the dollar, Morgan had come to serve as guardian of American credit in international markets.
His power in 1907 derived not from the size of his own fortune but from the trust placed in him by investors, other bankers and international statesman.
After Morgan died in 1913, the newspapers reported his net worth as about $80 million — roughly $1.7 billion in today’s dollars. John D. Rockefeller, already worth a billion in 1913 dollars, is said to have read the figure, shaken his head, and remarked, “And to think he wasn’t even a rich man.”

The whole piece is worth reading.  Maybe history could again repeat if given half a chance.