In The Long Run

The central fact of the information technology-driven marketplace is transparency. And the key derivative of transparency is the breakdown of price discipline. Put simply, barring scarcity, it is harder and harder to raise prices on almost everything.

This makes it ever more difficult for corporations to increase profitability, year in and year out. Which is why so much money remains on the sidelines of the stock market, despite what on paper would seem to be the beginning of another upward bounce. Philip Coggan has a good piece on this in today's Financial Times, which you can read by clicking here.

Wolfowitz on Indonesia

Deputy Secretary of Defense Paul Wolfowitz was, in a prior life, the US Ambassador to Indonesia. He offers some interesting insights about the politics of Southeast Asia and the War on Terror in this interview with the Asian Wall Street Journal.

Those unfamiliar with the Department of Defense website should bookmark it. Defenselink offers verbatim transcripts of all press briefings and media interviews.

David Feherty Should Be In The Booth

In the run-up to next week's Masters Championship, an editor friend of mine emailed to ask what story might be a good marketing/media Masters "sidebar." Obsessed as I am with media geezers, I wrote back to say that the time had come to hang up Ken Venturi's spikes and replace him with the great David Feherty, who writes a column for Golf Magazine and is an "on-course commentator" for CBS's golf coverage team. Feherty is the best golf commentator around and he has something that most everyone in television lacks; a great sense of humor.

Of course, he's Irish and speaks with a bit of an accent, so he'll never get the job. The focus groups will kill him. But one can always hope. The rumor today is the CBS golf anchor Jim Nantz might replace Bryant Gumbel as the host of whatever they call the CBS morning show. Things are definitely looking up.

One Self-Absorbed Media Geezer to Another

"At CBS News, going into a war zone is always a volunteer situation. Nobody is forced to go. Sometimes people are asked to go. But there's no prejudice if you say, look, I don't want to go. But I wouldn't want anybody to have any misunderstanding about it, Larry. With a story of this magnitude, nobody had to ask me to go. Clearly, once we had that Passover night suicide bombing, I knew the dynamic had changed. I knew that we had to get here in greater force and I had to be here." -- CBS News Anchorman Dan Rather, talking to Larry King on CNN.

Not Our Guys

The New York Times is home to many a useless critic, including the dreadful Caryn James. Today's Jamesian meditation concerns the big anchors at the big networks and their importance in a multi-channel world, which is changing, yet in many respects remains the same. It's a multi-cliche crash-up.

But here's a sentence to think about: "When dealing with hard news, networks and cable both do a solid, remarkably similar job. (Well, except for the conservative Fox News Channel, where one of its anchors, Diane Dimond, has referred to members of the United States military as "our guys".....)."

Here's a question: What does Caryn James think stands between, say, Al Qaeda and The New York Times? NYPD? The security guards on 43rd Street?

What stands between Times Square and Al Qaeda are the United States Special Forces, the United States Navy, The United States Marine Corps, the United States Air Force, the United States Army, The Central Intelligence Agency, The National Security Agency, The Defense Intelligence Agency and a host of other specialized operations that all report to the Pentagon and the President. The notion that calling the people who defend our country "our guys" is a journalistic sin, according to the Jamesian/NYT code, is insane.

Kill or Be Killed

The terrorist organization known as Hamas is "pleased" and "self-satisfied" with what it regards as the successful suicide bombings of last week. I have no doubt. You can read the full story here.

"Pittsburgh and Philadelphia with Alabama in between."

Is how James Carville once described Pennsylvania. A great line. I was reminded of it reading a good Dale Russakoff piece on the Pennsylvania Democratic gubernatorial primary that appeared in yesterday's Washington Post.

The race pits former Philadelphia Mayor Ed Rendell against state Auditor General Bob Casey, who is so much like his father (former Governor Robert Casey), it's eerie. The race is close, although Casey has an organizational edge. The primary will be held on the 21st of May.

The Masters Pool

Next week is The Masters Championship at Augusta National and I'm in two pools. The first is run by my friend Mike Doud at the Sleepy Hollow Country Club. Everybody fields a team of six players. Add up their combined scores at the end of the tournament. Low number wins. In the event of two identical teams or low scores, the tiebreaker is simple. Everyone submits what they think will be the winning number (last year I said the champion would come in at 12-under par). It rarely comes to that.

Anyway, I've picked my team: Tiger Woods, Ernie Els, Vijay Singh, Joe Maria Olazabal, Retief Goosen and Sergio Garcia. Given the new length of the course and the incredible speed of the greens, I think 10-under par will win. I feel uneasy not having David Duval on my squad. But there it is.

The Bush Thing

Those of you who know me or my work know that I am related to President George W. Bush. He is my first cousin; my mother's brother's son. A number of emailers have inquired as to what I think about President Bush, what my view of him is. I wrote about this very subject for the Outlook Section of The Washington Post just prior to the 2000 election. Following is the article, which I think I have the right to reprint:

November 5, 2000

Back in May, Alan Webber, the editor of Fast Company magazine, wanted to interview the major party presidential candidates on the subject of the new economy. As it happens, I am both a first cousin to Texas Gov. George W. Bush and a columnist for Fast Company, so Webber asked if I would help arrange things. Negotiations ensued, and in late July Webber was granted two hours with the candidate en route from San Diego to Austin. Webber knew little of Bush, other than what he had read in the papers. Needless to say, his expectations were not high. So he was "blown away," as he told me later, by how much he liked the Texas governor, how engaging he was, and how smart he was on the subject of the new economy and the impact of disruptive technologies. "Ever since then," Webber said a couple of weeks ago, "I've thought he would win."


One of the odder disconnects these days is knowing well someone who is well known. It has been my privilege, through a happy accident of birth, to have known George W. Bush all my life and to have been able to count him as a good friend throughout my adult years. (Bush is six years older than I am, so he was a "big kid" to me when I was growing up.) And I can assure you, as certainly as my counterpart Marty Peretz will assure you with regard to Vice President Gore, that the Bush I know and the Bush you have read about over the course of this campaign are two almost entirely different people.

George W. Bush is the real deal. He's smart, engaging, enormously energetic, possessed of dynamic leadership skills, funny, wry, optimistic and fully aware that what is here today may be gone tomorrow. He knows he will never be as smart as, say, his running mate, Dick Cheney--but he wouldn't undertake the responsibilities he will soon undertake without hundreds of Dick Cheneys and Condi Rices at his side. He's comfortable in his own skin and equally comfortable in the presence of strong women and strong men.

It is said of professional golfers that some learn by doing, some learn by watching, some learn by reading, and still others learn by some combination of the three. George learns by doing and watching; he's an amazingly quick political study, and his powers of observation are razor sharp. He remarked to me last year that the first 100 days of his first term were "crazed," because there was so much to learn in so short a time. "But after a while, I got into the rhythm, you know, and it came to me and then I knew I could do the job well."

The electorate saw this same quick learning curve during the presidential debates; inside of one week he went from being uncertain and nervous (during the first debate) to being confident and forceful (during the second). By the third debate, he had mastered thematic messaging, always bringing his answers back to his agenda, his frame of reference. The forums that were supposed to be his undoing became his springboard instead.

But it's not George's quick wit and keen intelligence that recommend him so much as it is his character. One of the things about quitting drinking as a decision of conscience is that it's not just about throwing away the hooch. It's about living life as you had hoped you would live it; with honor and integrity and compassion, and an abiding sense of life's possibilities and promise.

Once George committed himself to a more serious life, amazing things began to happen. He helped elect his father president of the United States. He became the managing director of the Texas Rangers and along the way built himself a political base in Texas. In 1994, he was elected governor; four years later was reelected with a stunning 69 percent of the vote. The day after that, Republican governors from across the country turned to him and asked that he be the party's standard bearer in the 2000 presidential election, forsaking their own ambitions to advance the larger cause.

All of these things happened because more and more people came to sense in George a seriousness of purpose and a willingness to put aside differences to get things done. I remember standing on the platform at the first inauguration in Texas, on a cold January day, and listening to him draw a line in the sand on immigration policy.

At the time, it was fashionable in certain conservative Republican circles (in reaction, presumably, to Ross Perot's strong showing in the 1992 presidential race) to favor all manner of restrictions on legal immigration into the United States. And the three states that dealt with this issue on a daily basis were California, Texas and Florida.

Then-California Gov. Pete Wilson would later try to ride the anti-immigration issue to the 1996 GOP presidential nomination, but George wasn't interested in fashion. He stood his ground on principle. His message, more carefully phrased than rendered here, was: "Let 'em in. We're a nation of immigrants. Don't ever close that door." After the speech I congratulated him, and told him I admired his willingness to put the issue front and center at the very beginning of his first term. "It's the right thing to do," he said, "and I'm not ever going to change my mind about that." And I thought to myself, if he holds to that, if there are issues on which he will never bend, he might just be president of the United States someday.

What's been missing from our political life for far too long has been principled leadership. In the morally berserk universe of the Clintons, in which allegations of perjury are "compartmentalized" without shame, Washington has lost its bearings. There is so much ill will in large measure because there can be no shared sense of the common good in an environment dominated by such utter mendacity and ethical squalor.

Bush's election will change that. And if he learns the ropes in Washington as quickly as he did in Texas, and stays true to himself, it is altogether possible that he just might be great. There's greatness in him. His grandmother and grandfather were great people, as are his mother and Dad. So is George. I commend him to you without reservation.

November 5, 2000

Bowden on Saddam

The new issue of The Atlantic Monthly features a long piece on the daily life of Saddam Hussein, "the Anointed One, Glorious Leader, Direct Descendant of the Prophet," etcetera. Written by America's greatest journalist, Mark Bowden (author of both Black Hawk Down and Killing Pablo), it is stunning work. Unfortunately, it is the policy of the Atlantic's editor, Mr. Michael Kelly, to not post new content on The Atlantic Monthly website until subscribers have had a chance to read it first. So you'll have to buy the magazine or wait a week. Here's my advice: subscribe.

Media Geezer Alert

Trailing both the Fox News Channel and CNN in ratings, advertising dollars and awareness, MSNBC today will announce that it has signed Phil Donahue, left-wing gasbag and ranking media geezer, to lead it to the promised land of 1.0 Nielsen ratings. Roger Ailes must be really worried now.

MSNBC began, you may recall, as the "younger demographic" news channel. By installing Donahue, who was the Oprah Winfrey of the 1970s and who is a certifiable loon on issues of national security (which are not exactly unimportant these days), MSNBC President Eric Sorenson has essentially given up trying to do anything new or different or interesting. And yet another overpaid, aged white man who should have retired (and indeed, did retire) years ago is now air-hogging younger talent out of an anchor/host slot and money-sucking entry-level jobs out of existence.

It would be one thing if Mr. Donahue offered some hope of attracting an audience that advertisers cannot otherwise reach. But since most of the news menu is comprised of shows hosted by overpaid, aged white men who should have retired years ago, there is simply no evidence that he can or will.

It's probably true that more news outlets are better than fewer news outlets. But given MSNBC's management, and its utter lack of imagination, I'm not so sure. As a practical matter, the only successful show they have is Imus in the Morning. And Imus produces his own show.

A Zapper and an Octopus

Everyone agrees that telemarketing calls are invasive and insulting. What to do? Well, you can wait for some company to come along with a national and state-by-state DNC (do not call) solution. Or you can take matters into your own hands and purchase the Telezapper (for members of my family who don't understand how this works, you double-click on the blue-colored word and that takes you to the relevant webpage). The Telezapper costs about $49 on-line or at Radio Shack. And it works.

In the bigger picture, Hong Kong is fast on its way to becoming a cashless city. How? In 1997, the public transport system introduced the Octopus Card, which enabled people to pay for their rides by swiping their card through a machine. But Octopus wasn't just a fare card, it was also a Smart card and it has become, essentially, a cash card for all who live in Hong Kong. You can visit the site to learn more. Or you can click here (subscription required) to read an excellent Wall Street Journal story on the company.

Beam Blog

Boston Globe columnist and future blogger Alex Beam today criticizes bloggers Andrew Sullivan, James Lileks and yours truly, among others. You can read it by clicking here.

Beam is likely to be tossed by Globe management in a couple of years. He doesn't fit the paper's future; which is ever more local, ever more liberal and ever more dumb. I suspect that when he finally is eighty-sixed (nicely, with a buy-out), he will start a blog.

Rumsfeld

US Secretary of Defense Donald Rumsfeld (from today's briefing):

Good afternoon.

It is important, I think, that all of us keep in mind that the September 11th attack on America was not just an attack on our country but, indeed, an attack on free people everywhere, and that terrorism was not a crime perpetrated by alleged criminals but really, it was an act of war waged by enemies who need to be tracked down, found and defeated wherever they hide, where they train, where they operate, no matter how long it takes. Unless and until that occurs, terrorism will not just continue but expand and will intensify in its power and scope.

Murderers are not martyrs. Targeting civilians is immoral, whatever the excuse. Terrorists have declared war on civilization, and states like Iran, Iraq and Syria are inspiring and financing a culture of political murder and suicide bombing. The president has declared war on terrorism. It's a war unlike any other America has ever fought -- not only in the nature of the battle and the weapons and tactics employed, which will undoubtedly change from place to place, but in this conflict, the battlefield is but one threat of many.

Not only are we attacking the enemies arrayed against us, but we're going after the sources of their funding. We're seeking to disrupt their operations and to deny them their havens. We're working to make it clear that sponsors and supporters of terrorists that being a friend to terrorists and by implication an adversary of the United States is not in their best interest. When I'm asked how long we can continue the war on terrorism, when will it end and how will we know when we've achieved victory, it seems to me there is only one answer. The question boils down to this: How long will we keep doing what we're doing to protect the American people from attack from weapons of mass destruction and from terrorism of the type we witnessed on September 11th, and the answer is, as long as it takes. And we'll produce whatever is necessary to win, and go wherever it is necessary to win.

As the president has repeatedly said, this nation will defend freedom. The American people, and the men and women who are fighting to defend them, understand very clearly and are patient and are determined to prevail.

Satellite Radio Goons Attack Wi-Fi

If you read nothing else this week, read Thomas Weber's excellent column on the effort of satellite radio operators to restrict wi-fi development. Since the WSJ is a subscription service, I'll quote the first three paragraphs in their entirety:

"Wireless Internet access was all the rage at the annual PC Forum gathering last week in Scottsdale, Ariz. High-tech gurus surfed the Web from untethered laptops while entrepreneurs touted new wireless business plans. But there's trouble in paradise, and every Internet user needs to know about it.

The problem concerns the widely used wireless technology known as 802.11b, or Wi-Fi. Satellite-radio operators complain that Net users' Wi-Fi connections could interfere with their services, and they want the Federal Communications Commission to impose new restrictions on the technology.

That could kill the wireless revolution before it gets started. If Wi-Fi equipment makers are forced back to the drawing board, plans for pervasive wireless Internet access in urban areas could evaporate. Start-ups that have embraced Wi-Fi, such as Sky Dayton's Boingo Wireless, would be out of business."

Killing the wireless revolution before it gets started is one really, really bad idea.

AOL's Woes

The Washington Post has a piece today about AOL's sliding stock price, which follows up on a Business Week story last week on the same subject. Both are useful on facts, short on analysis. What follows is a column I wrote a year ago for Inside Magazine on the AOL-TWX merger and what is required to make it work.

--------------------------------------------------------------------------------

Journalists, like the rich, protect their own. So it's not surprising that the now federally approved AOL acquisition of Time Warner has received largely favorable treatment in the news media. Investors haven't been nearly as generous, and with good reason. AOL Time Warner's stock has "short" written all over it.

It's not just the stratospheric valuation, though anything that sells at a multiple of 99 times earnings these days is certain to fall. And it's not just that the advertising market has softened, making it harder for AOL Time Warner to meet its projected top- and bottom-line numbers. Nor is it the fact that most such oversized deals don't deliver their promised synergies - a recent KPMG study suggests that 83 percent of big deals don't. These things are all true, but they aren't the core problem. No, the core issue is how AOL Time Warner manages information or, more specifically, whether it can integrate its internal and external information-technology systems and software.

To appreciate the scope of the problem, we need to back up a bit. In the '80s, Wall Street arrived at a fairly standard formula for valuing cable TV systems: Each cable subscriber was worth $1,000. Thus if Black Hawk Cable in Southern California had 1 million subscribers, its market value was roughly $1 billion. As the Internet juggernaut gathered steam in the late '90s and the possibilities of broadband access via cable television became apparent, the value assigned to subscribers escalated, culminating in ATT's purchase of MediaOne in 1999 for an astonishing $5,000 per subscriber.

Extrapolating from the '80s formula, AOL Time Warner looks OK on paper. The company says it has 130 million subscribers to its various offerings, from AOL to Time Warner Cable to TBS, HBO and Time's magazines. Apply the $1,000 multiplier, and you get a valuation of $130 billion, which is $100 billion short of the company's current market capitalization. Apply a $5,000 multiplier and you've got the most-valuable corporation in the world. Even if you assume that many AOL subscribers also are customers of Time Warner magazines and other properties (and are therefore being counted two or three times), the subscriber base is impressive. AOL Time Warner sits atop potentially explosive value.

The trick is unlocking that value. A large part of that task has fallen to AOL Time Warner co-COO Robert Pittman, whose skills are not in question. Pittman has promised that AOL will meet its revenue and earnings targets despite a softening ad market, as long as it follows his three rules: "execute, execute and execute."

And Pittman has - in concert with a couple of AOL Time Warner division heads - already produced results. Time Warner's magazines are signing up 100,000 new subscribers per month (thanks to those ubiquitous popup screens on AOL), at a fraction of the direct-mail cost. Subscribers to Time Warner magazines have been shipped a disk containing the "all-new" AOL 6.0, which has helped increase AOL's subscriber base to 27 million.

The catch, of course, is that these steps show diminishing returns: They post big numbers at the outset but less and less as time goes on. To truly unlock the value inherent in all those AOL Time Warner subscribers requires collaborative-filtering technology, which sifts through all the preferences and purchases of each subscriber and, based on that, generates suggestions as to what else that subscriber might be interested in seeing or buying. The better the collaborative-filtering technology is, the higher the click-through/sell-through success rate.

Just think about how many books or CDs you've considered buying because Amazon put them in front of you. AOL Time Warner can only realize the underlying value imbedded in its customer base if it has the very best collaborative-filtering technology. And for that technology to work - to connect its vast array of products with its vast pool of customers - all of its information-technology systems (in every division) must be integrated into one interoperable information-technology system.

This is the challenge that Pittman and his colleagues now face, since the IT systems of the various AOL Time Warner divisions were designed and built independently of one other and, as a result, are incompatible. In some cases, they're even internally incompatible (meaning that, say, a single division's marketing software programs aren't integrated with the same division's accounting software programs). In other cases, there's been no reason to integrate them. The various business units (cable television and the magazines, for instance) have been run independently. To make all the IT systems interoperable requires an investment of hundreds of millions of dollars. And no one at AOL Time Warner is interested in adding hundreds of millions of dollars to the cost side of the ledger. They'll do the best they can for the time being with "patch" software (which bridges incompatible systems) and hope that Oracle or some other code company comes up with a magic solution.

AOL Time Warner is not the only company that suffers from this problem. Indeed, interoperability is the major technology challenge facing most large companies today. But it's particularly important to AOL because at its core, it's a marketing machine; a business of "bits" of information that gathers more information through the distribution of its various media products. If the information-technology systems are not fully integrated, then the true value of those "bits" lies, to a substantial degree, dormant.

Not being competitive technologically (in terms of its IT system) puts AOL Time Warner at considerable risk, because there are technological forces lurking out there that can lay waste to some of the company's most established brands. These external challenges have been well-documented over the course of the last 12 months, as the AOL-Time Warner deal wended its way toward FTC and FCC approval. And they are, if anything, even more menacing to AOL's value chain than they were a year ago.

Take peer-to-peer computing. It is now possible, through the services of Aimster, Gnutella and Napster, to download virtually any piece of recorded music for free. That makes it hard for Warner Records to tap the potential value of an AOL music service. Apply the same peer-to-peer technology to TiVo (the digital video recording system) and you cut into the future revenue streams at TBS, TNT and Warner Bros. Films. Download Groove.net software and you have a friends-and-family communications platform that makes AOL's instant messaging look and feel like your kids' old Etch-A-Sketch. And this is just the first wave of peer-to-peer technology. As the trend accelerates, what follows could be even more threatening to AOL.

Pittman understands all this. In interviews with various media outlets to discuss the future of AOL Time Warner, he seems to be three to five steps ahead of the questions. The hardest part of his job will be to get everyone else at the company to understand all of this. The AOL Time Warner combination is often written about as a culture clash - "let's skip lunch versus let's do lunch," is how Business Week recently put it. But any culture clash masks the larger argument about where value lies. No one at Warner Records or Warner Bros. Films or at any of the magazines or television entities thinks that information technology is the key to their future success. Truth be told, they probably think IT systems are for geeks. But without the geeks, the value of AOL Time Warner will diminish over time. And the shorts won't just profit, they'll bring the company to its knees.