Four!!!

Here's a delightful piece by Kevin Maney, author and tech journalist who writes a weekly piece for USA Today. I think Kevin is one of the best tech writers in the world. He often has keen insights and his sense of humor is off the charts. Enjoy!
(steve)


What I learned from golfing in China

BEIJING — Golf is always more interesting when there's donkey on the menu.

I'm on the links at Beijing Taiwei Golf Club with about 40 Chinese tech CEOs, entrepreneurs and venture capitalists. It's a slice of life among a generation that has risen out of a business void to start growing companies such as chipmaker SMIC, Web portal Sohu.com and job search site 51Job. All have gone public on Nasdaq or the New York Stock Exchange in the past year.

Who knew you could golf near the Great Wall? Well, other than at a putt-putt course on the Jersey shore.

As we play, I even learn that the SARS flu outbreak did, in fact, have an upside for the Chinese. Since just about every office building in Asia was shut for six weeks, China's nouveau riche spent the time improving their handicaps. At least that's what the guys in my foursome say.

And this, to me, sounds like as good an explanation as any for why they are kicking my butt all over the course.

Golf, in fact, must be a sign that China is reaching a new level of capitalism and comfort — a level that's certain to be accompanied by a wave of BMWs, nail salons and plastic surgery.

China's People's Daily newspaper reports there are 176 golf courses in the country, and that doesn't count the bootleg golf courses. It seems that because of excessive water use and other concerns, licenses to operate golf courses are quite hard to come by. But that doesn't mean you can't open a "park" that looks a heck of a lot like a golf course and happens to be peppered with 18 little holes with flags in them.

Anyway, pulling into the 2-year-old, legitimate Beijing Taiwei resort — where membership costs $70,000 a year — we drive up to an angular Scandinavian-style structure that contrasts with the rounded, mystical mountains all around. Instantly, half a dozen young women in matching yellow jackets surround the car like a NASCAR pit crew, opening doors and the trunk, pulling out bags and people.

One thing China has in abundance is labor, and it's on display everywhere. At this place, it means personal service SWAT teams that won't let customers carry anything heavier than a wallet.

In the locker room, it means there are so many attendants that one guy stands right next to me while I strip for a shower, neatly folding each piece of clothing as I take it off.

How, exactly, does one handle that gracefully?

In some ways, this could be a golf outing anywhere. As the group mills around before starting, hats have Nike swooshes and Callaway insignias. The shoes are FootJoy. Balls are Titleist.

One woman wears a retro outfit, looking as though she wants to be Katharine Hepburn in the 1952 golf movie Pat and Mike. Cell phones go off all day long, playing chirpy tunes in the middle of someone's backswing.

My partners are pretty representative of the group. Michael Yang is CEO of Primeton, which makes software tools that help companies write specialized applications.

He started the company a couple of years ago, after learning the business working in China for San Jose, Calif.-based BEA Systems. Turns out a number of the golfers had learned by working for the likes of Intel, Microsoft and IBM before becoming entrepreneurs.

I'm also golfing with Tang Chuan Long, managing director of Beijing Huaguang Medical Electronic Equipment, and Calvin Quek, Beijing rep for Silicon Valley VC firm Global Catalyst Partners.

All three speak English to some degree, as do most of the others in the tech group. It's Quek's first language. He was born in London.

Like a lot of Chinese tech companies, Yang's Primeton and Tang's medical company sell only inside China. But over golf, they and other tech CEOs talk about how they want to go global. It's funny, but U.S. companies constantly say they want to get into China, with its 1.2 billion people and an economy on turbo thrusters. Yet Chinese companies say they want to prove they're good enough to break outof China and sell to markets globally.

For the most part, though, the day stays social, not about business or dealmaking. Most of those in the golf group know each other pretty well. The Beijing tech community is still relatively small. Playing golf with some of them is not unlike playing golf with any group anywhere. Same style and approach to the game. Same etiquette. Same curses — sometimes in English — when a shot lands in the water.

Sand traps — bunkers — apparently don't have a Chinese equivalent word, so they're called "bunk." I'm hearing this word many times during the day, usually in sympathy as my Chinese partners are describing where my ball has landed. "Ohhhh. Bunk."

After nine holes, we duck into the clubhouse for a quick lunch. The restaurant offers American-style meals (burger, club sandwich), Japanese meals and Chinese meals. And yes, one of the options on the Chinese side of the menu is donkey. I choose not to go there, thinking, for some reason, of Eeyore.

Yang orders an American meal, which comes with a salad — lettuce, tomato, a dab of Thousand Island dressing.

"You want that?" Yang says to me, pointing to his salad with a trace of revulsion. "I don't like such things."

Well, hey, if golf and business can be universal among Americans and Chinese, and the biggest point of contention is whether donkey or a tossed salad is disgusting — that seems like progress.

Newspaper Bears

I am a huge fan of Warren Buffett's sidekick, Charlie Munger. I think Munger is one of the greatest investors of all time. I don't think Buffett would disagree with this statement. As a professional investor on Wall Street, I naturally gravitated toward Munger's "lattice of models" approach to investing (see my book, Quantum Investing). Buffett and Munger often have wonderful insights into the business of investing. I was intrigued by this comment on the state of the newspaper business.

(steve)

A roomful of journalists could not resist asking about the prospects for newspaper stocks. Buffett and Munger were surprisingly bearish on newspapers, a major investment for Berkshire through its large stake in the Washington Post Co. and its outright ownership of the Buffalo News.

After saying that he and Munger are "newspaper addicts" and that "it's still an unusually good business," Buffett struck a somber note.

"The economics of newspapers are very, very close to certain to deteriorate over the next 10-20 years," he warned. "I see nothing that will turn around the erosion from both the circulation and advertising standpoints."

ps: for a fascinating glimpse of one possible future for the media business, check out the EPIC 2014 video at this website: http://www.broom.org/epic/

Quantum Wires

Check out this piece that appeared in the recent Special Issue of Technology Review magazine. It notes that wires spun from carbon nanotubes could carry electricity farther and more efficiently in the future.

(steve)

Richard Smalley toys with a clear plastic tube that holds a thin, dark gray fiber. About 15 centimeters long, the fiber comprises billions of carbon nanotubes, and according to the Rice University chemist, it represents the first step toward a new type of wire that could transform the electrical power grid.

Smalley’s lab has embarked on a four-year project to create a prototype of a nanotube-based “quantum wire.” Cables made from quantum wires should conduct much better than copper. The wires’ lighter weight and greater strength would also allow existing towers to carry fatter cables with a capacity ten times that of the heavy and inefficient steel-reinforced aluminum cables used in today’s aging power grid.

The goal is to make a wire with so little electrical resistance that it does not dissipate electricity as heat. Smalley says quantum wires could perform at least as well as existing superconductors—without the need for expensive cooling equipment. The reason: on the nanometer scale, the weird properties of quantum physics take over, and a wire can carry current without resistance. But until a couple of years ago, no one knew whether this amazing property would hold up when nanotubes were assembled into a macroscopic system. Then Jianping Lu, a physicist at the University of North Carolina at Chapel Hill, calculated that electrons could travel down a wire of perfectly aligned, overlapping carbon nanotubes with almost no loss of energy.

Smalley’s group has already produced 100-meter-long fibers consisting of well-aligned nanotubes. But the fibers are mixtures of 150 different types of nanotubes, which limits their conductivity. The best wire would consist of just one kind of nanotube—ideally the so-called 5,5-armchair nanotube, named for the arrangement of its carbon atoms. Existing production techniques generate multiple types of nanotubes, indiscriminately. But Smalley believes that adding tiny bits of a single carbon nanotube at the beginning of the process could catalyze the production of huge numbers of identical nanotubes—in essence, “cloning” the original tube.

Sensory Overload

If you think video games are engrossing now, just wait: PlayStation
maker Sony Corp. has been granted a patent for beaming sensory information
directly into the brain. The technique could one day be used to create
video games in which you can smell, taste, and touch, or to help people
who are blind or deaf. The U.S. patent, granted to Sony researcher
Thomas Dawson, describes a technique for aiming ultrasonic pulses at specific
areas of the brain to induce 'sensory experiences' such as smells,
sounds and images. 'The pulsed ultrasonic signal alters the neural timing in
the cortex,' the patent states. 'No invasive surgery is needed to assist a
person, such as a blind person, to view live and/or recorded images or
hear sounds.

Quantum Leap

Here's a cool article courtesy of the folks at Technology Review magazine. The article discusses the progress being made in the fascinating realm of quantum cryptography. I'm not surprised the Japanese are jumping into the quantum technology fray. Are you?
(steve)

Since 2002, when quantum cryp­tography was first commercially launched as the new gold standard in secure communication, only a handful of particularly paranoid early adopters have subscribed to it. But now a breakthrough by Toshiba is promising to make the technology more competitive with traditional cryptography and push it into the mainstream.

Toshiba has discovered a way to make quantum-cryptographic data more stable and to transmit it at five times the current rate. “We have made the technology much more stable and easier to use,” says Andrew Shields, who is head of Toshiba’s Quantum Information Group in Cambridge, England. Shields says Toshiba is talking with financial institutions in the City of London about installing the system later this year.

Quantum cryptography allows two parties to send secret encryption keys to each other while testing to see if anyone has attempted to intercept them. The keys are sent, one photon at a time, over standard optical fibers; each photon represents a binary 1 or 0. What makes the system so secure is that any attempt by an eavesdropper to intercept the photons will alter them—alerting the sender to a security breach. The problem: the hardware used to generate the photons is extremely sensitive to temperature fluctuation and movement, so it requires continual adjustment by experts.

Toshiba’s solution is to send two signals. “Along with the single-photon pulse we send a second, brighter, guardian pulse,” Shields explains. The guardian pulse provides a reference point for the receiving hardware, which automatically adjusts to ensure that the photon paths are aligned. The result: a system that Toshiba researchers have shown is able to operate 24 hours a day, seven days a week, without any human intervention.

“Stability is an old issue with quantum cryptography,” says Grégoire Ribordy, CEO and cofounder of id Quantique, the Swiss startup that was the first company to launch a quantum cryptography product. Id Quantique, which currently has about a dozen customers, uses a different method to get around the need for constant human attention. That method, however, limits the distance that a key-carrying light signal can travel to about 100 kilometers, and limits the rate of transmission to about 10 kilobits per second.

With Toshiba’s technology, on the other hand, the signal can travel up to 122 kilometers or reach rates of up to 100 kilobits per second (though not at the same time), which should make it more attractive to security-conscious businesses like banks and insurance companies. And faced with the prospect of quantum computers—which have the potential to crack all of today’s codes and render traditional encryption utterly useless—such companies may soon want all the quantum bandwidth they can get their hands on.

Enjoy It Now, You 2000

Forbes magazine Editor Rich Karlgaard serves up a nice piece on Creative Destruction that resonates with the thesis laid out in my book, Quantum Investing.
Enjoy!
(steve)

Save this issue of the Forbes 2000 and buy up any strays. You'll make money. These are sure to become hot items on Ebay in a couple of decades. Business schools will bid up their prices as professors seek to learn more about companies that made the FORBES list in 2005--and had vanished by 2025.

During the next 20 years this year's FORBES 2000 companies will depart the list in droves. A recent McKinsey study looked at the "topple rate" at which firms lose their leadership positions. This rate doubled in the 20 years from 1975 to 1995. Example: the minicomputer industry. It began, grew up, grew big, grew profitable, grew smug, grew senile and died in just two decades. Digital Equipment Corp. slid from greatness to the grave in those years. It lives as a ghost with the Duryea Motor Wagon Co.

Why did the topple rate double in those years? Credit two factors: information technology and risk capital. In 1975 Sears thought IT was about payroll. Sam Walton held an expanded view: He saw that IT offered a smarter way to manage inventory and distribution. Thus did Wal-Mart leap ahead.

In 1978 the capital gains tax was 49%. What small morsels the government left on the table were eaten by inflation. Thus did risk capital attempt to hide in dead assets such as gold and collectibles for most of that rotten decade. But in 1979 the cap gains rate was cut to 28%. Then Paul Volcker killed inflation in 1982. Risk capital took notice and began a rush back into productive enterprises. The Dow went from 777 in August 1982 to 11,723 in January 2000. And a great storm of creative destruction was let loose.

You Ain't Seen Nothing

The topple rate could easily double again from 1995 to 2015. That's what a pair of McKinsey consultants suggest in a paper called "Extreme Competition." (You can find it at mckinseyquarterly.com.) I agree with them. Here's why.

• Just as 1975 was the dawn of the cheap computer age, 1995 was the dawn of the cheap network age. It was only ten years ago that the Netscape Web browser appeared. Even then most users got to it via a slow dial-up connection. What will the average connection speed be in 2015? Surely enough to allow for TV-quality video on your computer.

• The pace of technology is not slowing down. It's speeding up. You might miss this if you look solely at software performance on your PC. The revolution has jumped outside the box to BlackBerrys and iPods and to the Web and Web-applications.

• The back side of Moore's Law is more important today than the front side. The better-known front side says that chip performance doubles every 18 months. The back side says that prices drop 30% to 40% per year at a constant performance. The back side is the reason we have $290 handheld Treo 650 Web browsers and $249 Apple iPod minis with6-gigabyte hard drives.

• The back side of Moore's Law explains why there are350 million cell phone users in China now. A price tag of $100 for a cell phone or $300 for a basic PC seems to be the tipping point of digital affordability in countries such as China and India.

• Cheap tech greatly expands the supply of talented workers around the world.

The effect of the Cheap Revolution is anyone's guess.I would bet on another doubling of McKinsey's topple rate. McKinsey itself predicts "three broad consequences--the aggregation of formerly distinct markets; enhanced market clearing and efficiency; and greater specialization, particularly in supply chains."

McKinsey makes a good point about aggregation: "Competitors in one geography can compete in another because of falling shipping costs, lower search costs for consumers (as a result of the ability to find sellers on the Internet, for example), or both." Yep--this explains the success of Amazon.com, Ebay and countless smaller retailers.

But cheap tech and global labor pools will disaggregate many industries, too. This is already happening. Growth rates of "fabless" chip companies (that design in the U.S. and farm out manufacturing) have outdone giants such as Intel over the past ten years.

Remember, too, that talent is not a commodity. Given a choice, talent usually prefers to work in nimble companies with plenty of upside. In the old days the downside of small-and-nimble was limited access to resources and distribution. That's changed. Cheap tech and shrinking transaction costs within supplier networks are two trends that outpace any large company's ability to adapt. Size may come to matter less; talent will matter more. Some big vertically organized industries could be blown apart and rearranged into networks of talent.

Auto Industry Blowing Apart?

Here's a wild speculation. The auto industry will look far different in 20 years than it looks today. It's ripe for disaggregation. Imagine that you, as a consumer, want a car designed by J Mays, but you want it to come with some futuristic 400-horsepower Toyota-hybrid engine, a BMW rear-wheel-drive feel and a Jaguar-looking interior to be equipped with Qualcomm broadband. Will you be able to buy best-of-breed, à la carte, 20 years from now? I think so. Look at the trends. Talent: dispersing to best-of-breed suppliers. Global labor costs: dropping because of oversupply. Distribution costs: dropping because of the Internet. Consumers: growing smarter.

Conclusion: unstoppable.