IBM will get a new CEO

In my old company’s news: IBM has announced that Ginni Rometty will take over as President and CEO in January. From the IBM announcement:

Armonk, NY, October 25, 2011 — The IBM board of directors has elected Virginia M. Rometty president and chief executive officer of the company, effective January 1, 2012. She was also elected a member of the board of directors, effective at that time. Ms. Rometty is currently IBM senior vice president and group executive for sales, marketing and strategy. She succeeds Samuel J. Palmisano, who currently is IBM chairman, president and chief executive officer. Mr. Palmisano will remain chairman of the board.

That Ms Rometty is IBM’s first female CEO is still remarkable, though IBM has long been more progressive than most large corporations in its promotion of women to executive positions, women such as Ellen Hancock, Linda Sanford, Jeannette Horan, Harriet Pearson, and Maria Azua have held Vice President positions in the company, and I watched some of them, including Ginni Rometty, move up from mid-level to Vice President during my time in IBM.

I have every expectation that Ms Rometty will be good for IBM, and I look forward to seeing how the company does under her leadership.

Netflix abuses its customers

In December, I complained about Netflix streaming: not enough of what I want to watch is available for streaming. But some is, and getting one DVD at a time in addition to the streaming makes up for the lack, at least somewhat. In the end, then, we decided to keep the $10 Netflix subscription.

But Netflix has just announced that it’s increasing the cost of that plan by 60%. That’s a lot!

They’re actually doing it by separating the streaming and DVD plans, and charging $8 for each. Here’s what they say about it in their email message:

We are separating unlimited DVDs by mail and unlimited streaming into two separate plans to better reflect the costs of each. Now our members have a choice: a streaming only plan, a DVD only plan, or both.

Your current $9.99 a month membership for unlimited streaming and unlimited DVDs will be split into 2 distinct plans:

Plan 1: Unlimited Streaming (no DVDs) for $7.99 a month

Plan 2: Unlimited DVDs, 1 out at-a-time (no streaming) for $7.99 a month

Your price for getting both of these plans will be $15.98 a month ($7.99 + $7.99). You don’t need to do anything to continue your memberships for both unlimited streaming and unlimited DVDs.

These prices will start for charges on or after September 1, 2011.

The good part, I suppose, is that people who do only want one of the services can save $2 a month (let’s skip the penny here or there). But the assholes nice people at Netflix are doing a massive 60% rate hike for those who want the same package they’ve been using.

And one thing that’s particularly irritating about this is that if Cablevision, Time Warner Cable, Comcast, or Verizon wanted a 60% rise in rates, they’d have to get permission for it from regulatory agencies, and they wouldn’t be allowed to dump it all on us at once. Netflix has no such restriction, and can do what it wants... it’s up to us to say No! by not buying their service.

And so I’m really undecided about what to do. On the one hand, I’ve gotten used to the streaming, despite its limitations, and it’s nice to have stuff available and to watch things on the laptop when I’m travelling (in the U.S.). It’s tempting to just drop the DVD service and continue with $8/month for the streaming.

On the other hand, I very much want to give Netflix a clear message that they can go fuck themselves, and hope they lose 80% of their customers and go out of business.

Equal-Pay Day

Today, 12 April 2011, is Equal-Pay Day in the U.S. If you took the median-salary American man and the median-salary woman, and started paying them both on the first of 2010, today is the day when the woman will have finally earned what the man took in through 31 December, about 14 weeks ago.

Of course, it’s not that simple. You can’t just take any man and any woman and make that comparison. The figure that’s used for this is the median income: take all the men’s annual salaries, list them in order of lowest to highest, then pick the one in the middle. Do the same for women’s salaries. Compare. The median of the women’s salaries is about 78% of the median of the men’s. We could use the average (mean) instead of the median, but for these sorts of economic comparisons it’s typically the median that’s used, because it doesn’t suffer from skewing by the extremes at the edges.

The problem is that the majority of the gap comes from the fact that men and women are not equally represented in all the different jobs... and the jobs that employ primarily men just so happen to pay more than the ones that employ primarily women. I can’t imagine how that happened, but, well, there it is. Nurses earn less than doctors. Beauticians earn less than plumbers. Teachers earn less than corporate executives. And so on.

And it doesn’t stop there: what about college-educated women? What about those with PhDs? Because another fact is that more women than men are finishing college, these days, and more women than men are completing PhD programs. Doesn’t that fix it?

No. For one thing, when we look at the fields that women are getting degrees in, we find the same thing: the fields that attract women more tend to be the less lucrative ones.

But also, when we break it down by field we still find differences. In April of 2007, the American Association of University Women released a study titled Behind the Pay Gap (PDF). The study showed that female biological scientists earn 75% of what their male colleagues do. In mathematics, the figure is 76%; in psychology, 86%. Women in engineering are almost there: they earn 95% of what the men do. But less than 20% of the engineering majors are women.

The other argument for why there’s a pay gap is that women and men make different decisions about their lives. Women choose motherhood, a bigger hit against career advancement and salary opportunities than fatherhood. More women work part time. And so on.

The AAUW study looked at that. They controlled for those decisions, and they compared men and women who really could be reasonably compared. They looked at people in the same fields, at the same schools, with the same grades. They considered those of the same race, the same socio-economic status, the same family situations. They didn’t just compare apples to apples; they compared, as economist Heather Boushey puts it, Granny Smith apples to Granny Smith apples.

And they found that even in that case, there’s an unexplained pay gap of 5% the year after college, which increases to 12% ten years later. From the study:

The pay gap between female and male college graduates cannot be fully accounted for by factors known to affect wages, such as experience (including work hours), training, education, and personal characteristics. Gender pay discrimination can be overt or it can be subtle. It is difficult to document because someone’s gender is usually easily identified by name, voice, or appearance. The only way to discover discrimination is to eliminate the other possible explanations. In this analysis the portion of the pay gap that remains unexplained after all other factors are taken into account is 5 percent one year after graduation and 12 percent 10 years after graduation. These unexplained gaps are evidence of discrimination, which remains a serious problem for women in the work force.

It has gotten better: if today the general pay gap is about 20%, 15 years ago it was 25%, and 30 years ago, 35%. The improvement is good news.

But the speed of the improvement is not. The disparity of pay between male-dominated fields and female-dominated ones is not. The gap in pay between highly trained men and women in the same field is not. And that unexplained 5-to-12 percent is certainly not.

Let’s keep pushing that date back, and look for the year when equal-pay day is December 31^st.

Customer service

I’ve recently had to deal with a customer service issue with a large company (from the customer side) that’s worked out like about 80% of the customer service issues I’ve had with large companies. I figure that my customer service experiences go something like this:

• Around 10% are resolved straight away.
• Around 10% are never resolved to my satisfaction.
• Around 80% work out roughly as I’m about to describe.

We can quibble about the particular balance, and perhaps yours balance very differently. But here’s what recently happened:

I went to the store with my issue, and talked with an associate. The associate was neither sympathetic nor helpful, and denied that there was a problem. I asked to speak with a manager.

The manager was, in this case, neither sympathetic nor helpful, and treated it the same way the associate did. Usually, the manager is at least sympathetic or apologetic, but not this time. There was nothing, he said, that he could do. I asked to speak with the store manager, who turns out to be out until next week.

I called the chain’s customer service line by phone, the next business day. The customer service representative said she was sorry I wasn’t happy, but, as those at the store did, merely explained why it was not really a problem. I asked for a supervisor.

The supervisor was also sorry I wasn’t happy, but accepted that a problem existed. Nonetheless, he said there was nothing his department could do. He referred me to another department, giving me their phone number.

That department was sorry, acknowledged the problem, and offered to buy me off with a store credit, which I declined. She understood why I declined, and said that she could escalate the problem and have someone call me back. I thanked her for the help and confirmed phone numbers.

The call-back came the same day, and the problem was immediately resolved entirely to my satisfaction, with apology for the inconvenience and thanks for doing business with their store.

Now, on the one hand, I am happy that they sorted things out. But I have too much experience with this sort of thing, and I’m well aware of both why they handle it this way, and what the problem is with that way of handling it.

They do this because they know that most people will stop after one or two levels. Even persistent folks will likely stop by the third, and almost everyone will take the store credit, which mostly guarantees that they’ll come back to the store to spend it. Those who give up (or those who take the store credit and don’t use it) don’t cost them any real money. In other words, for most people who call with these sorts of complaints, the business never has to make it right.

The problem with that is that it creates ill will. It leaves customers feeling angry, frustrated, cheated. They end up with people who are not inclined to go back to the store. Even if one sticks with it, as I did, until someone agrees to resolve the issue, the customer is left with a bad taste and a low opinion of the business.

Of course, exactly because it’s a national chain, they don’t care, at least not at the micro level. The loss of my business means nothing to them, and they will not get enough complaints and enough disaffected customers to amount to anything, really. And because it’s a big store that sells a lot of things, it’s likely that even most of the annoyed customers will be back anyway, despite themselves.

And, so, whenever I have to deal with a real customer service problem — not a simple return (most places handle those just fine), but a problem that one has to explain and get someone to fix — I enter into the process steeled for talks with four or five people. I’m always polite, but firm and clear about what I expect.

And when it turns out to be among the 10% where the first person responds, I’m sorry for the problem, Mr Leiba, and I’ll take care of it for you right away, well... then I’m very happy.

On streaming movies

A few months ago, I decided to try Netflix, after eschewing it for a long time. I never liked the idea that I have to pick one or two DVDs to have on hand, and that has to do for, say, a three-day weekend when it’s cold and blustery, and I feel like snuggling in and watching. What if the DVD I happen to have isn’t what I feel like watching right now? Maybe there had been a drama at the top of my queue when they sent it, but today I just want something light and comedic. Or maybe I did watch what I have, and there are still two days left with, now, nothing to watch because there’s no time to exchange a disc in the mail.

What won me over this time was the streaming. For the monthly fee, less than $10 per month, I get one DVD at a time by mail... but I can also stream anything, any time. I can watch on my computer, and I can also buy a device for my TV that will stream (in high definition, even) the movies there. That sounded great! The DVD is backup, for when something I want isn’t available for streaming, and most of the time it’ll be stream, stream, stream. I can even watch on my computer when I’m travelling! I bought a Roku box, and signed up.

The first thing I found, as I populated my queue, is that most of the things I want to watch are not available for streaming. They tell me, when I call customer support, that there are over 11,000 titles that can be streamed. And they’re right. If you want to watch the Law and Order TV series, or Barney the Dinosaur shows, you’re laughing. And, yes, there’s plenty of other stuff too. It’s just that almost everything I wanted to put on my queue is DVD only.

Now, of course, that speaks to my preferences, and one could say that it’s not Netflix’s fault. Only, I bought into the hype that the streaming would get me what I want, and, alas, to a large extent it doesn’t. I did find some foreign films that I’ve put on my streaming queue, and a few other things, as well. But for the most part, I’m left with one DVD at a time, and exactly the problem that I thought I’d have, which stopped me from signing up for Netflix before streaming.

And then someone suggested a BBC series called House of Cards (also series 2 and series 3), and I looked it up... it was streamable! Great; I added it to the queue and watched two episodes. When I went for the third, I found that it was no longer on my queue. Say what?

That was when I called customer support, and that was when they told me that they have over 11,000 titles for streaming. That was also when they told me that they negotiate streaming licenses with the content providers, and that the licenses for House of Cards and a few other things that had been on my queue had expired, and they were no longer available for streaming.

Netflix say that their goal is to get more and more available for streaming, but here’s the thing: it’s not up to them. They have to negotiate licensing contracts with the content providers — they can’t just buy the DVDs and make them available for streaming. And if the content providers are asking a lot of money for those licenses, Netflix can only afford to pay that for the titles that are sufficiently popular. If not enough people are streaming something, it doesn’t pay for Netflix to maintain a streaming license for it. So the whole system falls apart, and only the popular stuff (and the stuff the content owners are willing to let go cheap) is available. And that’s not what I was looking for.

Only, I’ve already paid for the Roku box. Does it make sense for me to kill my Netflix subscription now, and have an $80 device sitting there doing nothing? Is it worth the $10 a month to me, in order to get the streaming that I do have, along with the one DVD at a time?

Oh, and watching while I’m travelling? Yes, that works as long as I have an IP address in the United States. When I was in China, Netflix blocked the streaming, because the content licenses are only for use in the U.S.

Just be aware that as long as the content providers have a stranglehold on the system, nothing is as simple as it seems, and anything can change at any time.

Buy locally... at Walmart?

Gonzo-super-mega-chain Walmart^[1] has recently announced that they will be buying more locally grown food and doing other things to support small- and mid-sized local farming:

Wal-Mart Stores announced a program on Thursday that focuses on sustainable agriculture among its suppliers as it tries to reduce its overall environmental impact.

The program is intended to put more locally grown food in Wal-Mart stores in the United States, invest in training and infrastructure for small and medium-size farmers, particularly in emerging markets, and begin to measure how efficiently large suppliers grow and get their produce into stores.

Advocates of environmentally sustainable farming said the announcement was significant because of Wal-Mart’s size and because it would give small farmers a chance at Wal-Mart’s business, but they questioned how local a $405 billion company with two million employees — more than the populations of Alaska, Wyoming and Vermont combined — could be.

Their U.S. goal for selling local food is quite modest: the company plans to double the percentage of locally grown produce it sells to 9 percent. Given how much food they sell, that’s a lot of local food. On the other hand, as the article points out, they’re shooting much higher in other countries, such as Canada.

But the question of how local such a large company can be doesn’t really seem the right one. If they set out to do it, they could easily have stores find their own, local suppliers for meats and produce, and their size would only help them there. Of course, since they define local as within the same state, there’s quite a difference between a store in California or Texas and a store in Rhode Island or Delaware.

Also, a store in California could easily buy a lot of its produce from California growers, but how much local produce is available in Wyoming? Florida stores could buy local citrus, but not apples, with the reverse true in New York.

More to the point, maybe, is the extent to which people buying food at Walmart tend to buy packaged goods and prepared foods, rather than fresh meat, fish, fruits, and vegetables. If most folks aren’t buying fresh foods, then it’s bound to be hard for the company to increase its sales of local produce beyond a certain point.

All that aside, I think this is a good thing. I’d like to see the chain stores buying and selling a lot more local food. It’s silly to go into A&P or Stop & Shop in New York in October, and see apples from Washington. We have wonderful apples grown within a 30-minute drive of my house, yet the supermarkets have them shipped in from 3,000 miles away.

That needs to change, and if Walmart can take some steps in the right direction, that makes me happy.

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^[1] Or Wal-Mart if you prefer, as the New York Times does. Their store logos have been changed from Wal*Mart"= to "Walmart*, and their web site uses Walmart and Walmart.com everywhere except in the copyright line, which says © 2010 Wal-Mart Stores, Inc.

Competition in mobile phone service

We’ve had a long-standing problem in the U.S., wherein several incompatible mobile networks developed in parallel. The direct result of that was that phones designed for use on AT&T’s network, which used a technology called TDMA, would not work on Sprint’s CDMA network. Neither would work with Nextel’s iDEN network, nor would any of those work with GSM, which T-Mobile used.^[1]

The technology issue has eased, with the merging of companies and the development and deployment of 3G networks, and with the ability to pack more radios into a single phone and still have reasonable cost and battery life. It’s possible, now, to have a phone that will function with any U.S. provider.

The providers, though, generally block that, through a locking process, an indirect result of the original situation. When you set yourself up with a Verizon or Sprint or AT&T or T-Mobile phone in the U.S., that phone is generally digitally locked, using cryptographic keys, to the provider you got it from. The carriers use this as a mechanism to keep customers: if you leave, you can’t take your phone with you. Along with the service contract termination fees, the cost of changing phones — in terms of the money you have to spend, but also in terms of loss of features and favourite applications, and the hassle of getting used to using a new phone — deters users from switching.

None of this applies to Europe, which settled on the GSM technology early on. The European Union doesn’t allow locking, and providers have to keep their customers and differentiate their service in other ways. The nice thing, then, is that your European phone will work anywhere in Europe, on any provider. And mobile towers don’t need to be set up with different technologies, supporting different frequencies, and so on.

But there’s still a barrier, one which exists in both the U.S. and Europe: roaming charges. Those are per-minute fees that your provider charges when you use another provider’s network. In the U.S., you pay those fees if you have, say, T-Mobile service, and you go to an area that’s served by AT&T but not by T-Mobile. Use your phone there, on the AT&T network, and you pay a high charge for every minute you use, even though you thought you were making one of your unlimited weekends calls, or were well within the minutes per month that are included in your plan.

In Europe, the roaming charges generally hit when you go from one country to another, even when you stay on the same provider, because the companies are legally separate. And because going from one EU country to another is often rather like going from one U.S. state to another, the charges can sneak up, if one isn’t careful. Imagine being in New York, and having to pay 40 cents a minute to make a call when you go into New Jersey, Connecticut, Massachusetts, or Pennsylvania.

In an attempt to mitigate this to some extent, at least, the EU has regulations that put limits on how much the companies are allowed to charge for roaming. The caps are still pretty high — 43 cents per minute, in euros (about 54 cents U.S.), for outgoing calls, for example — but at least they’re something. And, of course, the companies don’t need to charge the full legal maximum.

Well, the European Commission, the EU’s legislative body, has just released a report on the rates the companies are actually charging. Surprise! It turns out that they are charging close to the legal limit:

Three years since the rules came in, most operators propose retail prices that hover around the maximum legal caps, the Union’s commissioner for telecommunications, Neelie Kroes, said in a statement. More competition on the E.U. roaming market would provide better choice and even better rates to consumers.

When you tell a company how much it may charge, it will often wind up charging as much as it may. And the problem is that most customers won’t choose their provider based on the roaming charges. Customers who frequently make calls from countries other than their home one will, but the great majority select on other factors. And even those who frequently travel have workarounds they can put in place, such as using pre-paid local service while they’re in the other country.

More competition isn’t sufficient to fix this, unless Ms Kroes has some plan for assuring that the competition addresses the roaming issue, specifically.

We’re quite spoiled in the U.S., in this regard. Many of us are used to service plans that cover our usage with no extra fees. We’re used to travelling over an enormous area without worrying about charges. On the other hand, our providers’ abuses come in terms of locked phones, multi-year service contracts, and insane early-termination fees. If you move into an area that’s poorly served by your old provider, with a year left on your contract, it may cost you hundreds of dollars extra to switch to a service that works well in your new area.

It just goes to show you: it’s always something.

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^[1] This is a bit of an oversimplification: iDEN and GSM use TDMA underneath, but in ways incompatible with each other and with AT&T’s use of it. The network details are beyond the scope of this post, and their mutual incompatibility is the salient point here.

Licenses for music venues

I’ve been hearing a few things, lately, about a push that the music industry is making to require places that host live-music events to have licenses for the music that’s played there. Here’s an article about it in the Boston Globe, and here’s a radio program that has the article’s author as a guest to talk about it.

The issue here is that if musicians play copyrighted music at a live venue, and the musicians who are performing don’t own the copyright, then the venue — not the musician, or maybe in addition to the musician — is responsible for any copyright violation. And when the copyright owners are the performance rights organizations (such as ASCAP and BMI), they are aggressively enforcing the rule, going out to small venues and shaking them down. To avoid trouble, these small venues — coffee houses, local libraries, and the like — have to fork out around $300 to each organization each year, just in case someone plays a song owned by that organization.

At one level, this sounds good: if I play your song at one of my performances, you should be paid for it. There are some problems with that, though. For one thing, if I’m playing your songs, it should be I who has to have a license from your company. It doesn’t seem that the venue should be responsible for that. For another, as you might expect, it’s mostly the PROs and the major songwriters who benefit from this. Small songwriters — the ones we’d all like to see get their due — get almost nothing from it, because, of course, the PROs have no way to know when someone happens to play your song in the South Salem Library in New York. They distribute the money based on expected balance, and a singer is much more likely to perform a cover of, say, an Eagles song than of one of yours.

Some venues have tried to insist that their performers do only original material, but they’re still getting strong-armed by the PROs, which say — correctly, I suppose — that the venue can’t be sure that the performers are complying with the demand, and if they might play covers, the venue needs to be covered.

That’s prompted some small places to stop having music, and that’s a sad thing. And I wonder where it ends. Square dance callers, who use recorded music and often call dances in school gyms and church social halls, have long had to have BMI and ASCAP licenses. But will the halls now have to get licenses as well? If so, will they refuse to rent their facilities to events such as those, which use copyrighted music? Whom does that benefit?

As I see it...

1. Demanding that both the performers and the venues have licenses from the PROs is abusive.
2. For the most part, performers should be the ones to get the licenses, since it’s they who are performing the copyrighted material, and they who are making the choice.
3. In cases where venues need to be licensed, small venues such as local coffee shops and libraries should be exempt.
4. If performers say they’re only performing their own material, no one should be expected to hold any licenses. Enforcement of this is as enforcement of anything else like it: the PROs will have to do spot checks, and challenge violations. They can’t be allowed to collect from everyone, just in case.
5. There needs to be a way for a performer to make sure the writers of the songs he sings are the ones who get paid from his license money. If I only ever cover songs by Bill Staines, say, then I don’t want Metallica getting my license fees.

Book: IBM and the Holocaust

My former IBM colleague and friend Nathaniel Borenstein has recently left IBM. He’s also recently read a book that he’d reserved for when he was no longer working for the company: IBM and the Holocaust.

The book talks about the part IBM played in supplying Hitler’s regime with technology and machines, which helped enable the rounding up of the Jews in Germany, and the transportation of them to concentration camps. What Nathaniel writes in his blog is disturbing enough; I’ll have to read the book myself to see the full extent of it.

As I read what Nathaniel wrote, I thought, How awful the company’s leaders were then, to participate in that. Surely they knew what Hitler was doing, and how IBM’s technology was helping him do it!

But, I added, mentally, that was then, and that was Thomas Watson, Sr, and much has changed since. It’s a different company now, and we can’t blame the current leaders for what happened in the 1930s.

Nathaniel had similar thoughts, writing, But the war has been over for 65 years. Nearly everyone involved in IBM’s shameful activities is dead, of course. Why should we care today? What does it have to do with today’s IBM? He goes on to explain:

It must still have some relevance, because IBM is still stonewalling. Mr. Black dug through archives and libraries throughout the world, but over a hundred requests for information from IBM were denied. Typical responses claimed that IBM has no information relevant to that era — this from a company with legendary archives and full time archivists on staff! I can only conclude that today’s IBM is actively hiding something — something even worse than what I’ve summarized above.

He asks IBM to hold itself accountable, to be open about what happened, to set free the information and records about those years. Go read what he has to say, read his suggestions; I agree with them all.

Nathaniel has confidence that the IBM of today is a good company and will, eventually, be willing to be open about this. So do I. What do my readers who are still working for IBM think? Are you willing to work toward that?

You got a coupon?

The New York Times “Bits” blog carried an item a few weeks ago about electronic coupons, sent to your mobile device at appropriate times:

How many times have you heard the prediction that one day, businesses like coffee shops will send us coupons on our mobile phones when we walk by?

That has long been the dream of mobile marketers. Still, only 9 percent of people have received a coupon or discount code on their phones based on where they were standing, according to new data from Compete, a Web analytics firm.

This could be the year that changes. People are increasingly interested in receiving coupons on their phones, especially at the grocery store, Compete found. On Wednesday, Target announced that it would start sending mobile coupons.

When I worked at IBM Research, several of my co-workers did a project involving a retail establishment and customers’ mobile devices. They dealt with electronic coupons, as well as other uses of the mobile technology, and they wrote a paper about the project. The abstract:

Toward a Mobile Digital Wallet

Mobile phones have now made their way into a large fraction of pockets and handbags worldwide. An intriguing question is whether such phones will eventually replace the physical wallets we carry. We believe the answer is in the affirmative, though plenty of challenges abound in overcoming entrenched personal and business practices and processes. In this paper, we explore the changes that need to ripple through the ecosystem to build a vibrant set of digital wallet services that potentially interact with each other to provide users both with increased convenience and a level of functionality hitherto unrealized. We describe our initial mobile wallet prototypes on web-enabled smart phones, designed to explore some of the challenges in creating the architecture and infrastructure necessary to make this vision a reality. Feedback from users and experts across a range of industries such as retail, banking, telecommunications, and healthcare indicate that we have just scratched the surface and a substantial wave of innovation is necessary to make the digital wallet a full-fledged reality.

Would consumers want to receive coupons and other offers on their phones, or would the interruptions just annoy them, seeming to be spam? My colleagues found that customers in the pilot program liked getting the coupons, and used them. In their paper, they note these results:

1. The frequency of in-store visits was greater than the visit rate of the baseline loyalty program.
2. The electronic coupon redemption rate was several times higher than traditional paper coupon redemption rates.

Indeed, going back to the Bits blog in the Times:

Thirty-six percent of consumers said they would like to receive mobile grocery coupons, 29 percent said they want cellphone apps that scan product barcodes for an offer or discount, and 26 percent want coupons from movie theaters.

Are electronic coupons the wave of the future? What about the general concept of an electronic wallet? If we could solve the privacy and security problems, would people like using their mobile devices at points of sale, in lieu of money or credit/debit cards?

I think I would.

Funding computing research

A friend sent me this recent op-ed piece, with the note, “Read this, and wherever you see ‘Microsoft’, substitute ‘IBM’. It seems eerily familiar.”

The article, written by a former Microsoft vice president, is about how Microsoft is missing the boat on Internet innovation because its internal organization is hostile to the process of getting cool things out quickly to the masses. As a result, top innovators have left the fold, and the company has become a mundane follower, looking to acquire interesting technology after the fact.

Yes, that does sound quite familiar, right from the opening paragraph:

As they marvel at Apple’s new iPad tablet computer, the technorati seem to be focusing on where this leaves Amazon’s popular e-book business. But the much more important question is why Microsoft, America’s most famous and prosperous technology company, no longer brings us the future, whether it’s tablet computers like the iPad, e-books like Amazon’s Kindle, smartphones like the BlackBerry and iPhone, search engines like Google, digital music systems like iPod and iTunes or popular Web services like Facebook and Twitter.

There’s a part that isn’t parallel, though, between IBM and Microsoft.

What happened? Unlike other companies, Microsoft never developed a true system for innovation. Some of my former colleagues argue that it actually developed a system to thwart innovation. Despite having one of the largest and best corporate laboratories in the world, and the luxury of not one but three chief technology officers, the company routinely manages to frustrate the efforts of its visionary thinkers.

But IBM did have a top-notch (“world class”, we would have said) system for innovation. Our Research Division, in its heyday, was up there with Bell Labs as one of the two best research organizations in the computer industry. It was a sparkling place to work, full of the best ideas for both hardware and software, and able to deliver them to the product line when the time came.

So, what happened in IBM?

Two things:

1. Personal computing arrived.
2. The company changed the funding model for research.

Innovation in personal computing has been a problem in IBM Research from the start. IBM has never developed — and has never aimed to develop — a system for selling to individual consumers. Perhaps you’ll recall, if you were around back then, that IBM tried to sell its personal systems through Sears.

All the software we developed in Research for the PC and its successors was aimed at businesses. Terminal emulators, systems to manage data centers, world-class speech recognition systems (marketed as ViaVoice), the best anti-virus software of its time (sold to Symantec, which then buried it), collaboration systems (before and after the 1995 acquisition of Lotus), experiments with pervasive computing... all of it has leaned toward a corporate market. Even when we had the opportunity to forge ahead with OS/2 version 2, far superior to Windows NT and boosted by the late delivery of Windows 95, we couldn’t market it. IBM sold a lot of OS/2 licenses to businesses that needed servers. But putting OS/2 on Grandma’s desktop? Not a chance.

Perhaps more damaging, though, was the change in how research was funded. There was a time when researchers at the leaves of the tree could have ideas, tell their managers, and get approval to go ahead with them. Middle management had a lot of leeway, and could use their judgment in aligning innovative work with product strategy. Results weren’t expected from quarter to quarter, or even year to year.

That doesn’t mean there was no accountability, of course. There certainly was. What there wasn’t was incessant pressure to show a direct connection between most research projects and short-term product impact.

That’s terribly important: it’s critical to separate research funding from the demands of development schedules, while still making the development end of the business have a stake in the research. We used to have that separation.

And then came the ironically named “joint programs”. Set up with representatives from both Research Division and a development division, each joint program would have funds to allocate, and would approve projects related to the development division’s product strategy. These projects would look forward, beyond the horizon that the development side normally sees. That’s the theory.

In practice, this puts development too closely in charge of the research projects, and turns much of the software research into little more than extra bodies for short- to medium-term product development. The funding is in the hands of the development division, and, as is often said: follow the money.

There certainly is still interesting work in IBM Research, and I enjoyed it there. And long-horizon, innovative concepts could be pursued as adventurous research, emerging technology, or whatever else it was called from year to year. But those had to be approved at the vice president level — the flexibility has long been taken away from middle management, the approval is difficult to get, and the accountability is tight. For most researchers, even if the work is fun and interesting, it’s a small step above product development most of the time.

The innovation that will produce the next technological innovation that will change the world... will not come from that way of funding research. You can bet that the software that makes everyone’s life different in 2013 will not come from Microsoft... nor from IBM.

Follow-up on TV content

In a recent post, I talked about television content delivery and pricing. What I didn’t mention in that post, particularly when I talked about the lack of choice, is that there is another option for content delivery (besides cable/fiber and satellite): one can get the content online, through a service such as Hulu or Apple TV.

For now, not everything is available through these services, and the limitations on available content might deter some potential users. On the other hand, for people who’re specifically looking in this direction because they don’t want the overblown content circus, getting what’s available online might be just the thing. And you don’t just have to watch it on your computer: there are setups to put it — in 1080p HD — on your television set.

To make this work, we’re really depending upon network neutrality. Because one is receiving television content over the Internet, using the same service provider that would like to provide television content through their own dedicated service at additional cost, it seems clear that the service provider has an incentive to make the experience less than ideal. If service providers are permitted to block, slow down, or otherwise interfere with this kind of Internet usage, they can steer customers away from it, and back to the provider’s television service.

When I was on the Internet Architecture Board, I began setting up a technical plenary session about net neutrality for the Stockholm IETF meeting. IAB member Marcelo Bagnulo took it over when I left the IAB, and he moderated the session. You can see the result as a transcript (search for “4. Network Neutrality”), with the slides here and here (PDFs).

TV: content vs service

As 2009 came to a close, Time Warner Cable narrowly averted the removal of Fox channels (owned by Rupert Murdoch’s News Corporation) from its channel lineup, and Cablevision failed to do the same for Scripps Networks’ Food Network and HGTV channels. The issue, of course, is money: the content providers want to raise the fees for their channels, and the service providers want to avoid passing on yet another round of higher fees to their subscribers. (See also here, and here.)

These sorts of disputes amount to a form of extortion, where the consumer winds up as the victim. We could say that it’s a free market, and we should let free-market economics decide the matter, but that would be ignoring the monopoly situations that exist here. Whether you like Fox News or not, it’s clear that it’s a unique service, and that lovers of Bill O’Reilly, Glenn Beck, and their ilk can find that programming from no other source. The Fox channels also carry popular programs such as The Simpsons and American Idol. Similarly, if one wants to watch Rachael Ray, Bobby Flay, Mario Batali, and Emeril, one finds them on The Food Network... or not.

The content providers know that, and use the power they get from the popularity of their programming to make demands of the service providers, knowing they have them over a barrel, but the service providers are not innocent either. There’s little choice of service providers even in large markets, and no choice at all in the smaller markets. Where I live, I choose between Cablevision and Verizon... or I can switch to satellite, which is not an appealing option.

The result is that the service providers can charge pretty much what they want to, and can set up their packages as they please... and we, the consumers, are stuck with what they offer, or nothing.

And what they offer is designed to have us pay dearly for what we don’t want, in order to get what we do. A few years ago, the New York Yankees demanded that Cablevision carry their YES channels on the basic cable service, ostensibly “making them available to all subscribers,” rather than having only subscribers who wanted those channels pay the extra fee. The Yankees won, and the result was that all subscribers had to pay $2 more per month, whether we wanted the YES channels or not (I do not).

The same is true with many of the other price hikes that go on: ESPN, Fox, the Scripps channels... increased rates on these force rates up for all subscribers, because we don’t have the option to choose to take one, but not the others. And that is dictated by the service providers (and by the contracts that they agree to for the content). The content providers feel they have to hike up their charges to make up for lost advertising revenue, which has been on the wane for a while.

I can’t tell you how many channels I get on my Cablevision system now — the number has gone up from “a bunch”, to “a boatload”, to “more than one can imagine”, over time. But I can tell you how many I ever watch: sixteen. There are eight I use regularly, and eight more occasionally. And that’s it. I am paying for Fox, for sports (at least a dozen sports channels, and maybe more), for children’s programming, for old sitcoms, for music videos, and for the credulous garbage aired by “Discovery” and its sisters, all without wanting to.

And it’s no small amount. When I first got cable TV, I paid $30 a month for it, and even that seemed like a lot when I compared it to getting free TV over the airwaves, paid for by advertising. I’m now paying over $80 a month, when you add everything up — the basic fee, the rental on the cable box, the rental on the remote control for the cable box, the taxes and extra charges, and so on — and the next price hike comes at the whim of Scripps (or Fox, or ESPN, or the New York Yankees).

Scripps, of course, for its part, says that they’re not being paid what their content is worth, and they have to take a stand and demand proper compensation for it. It’s hard to argue with that, particularly since the subscribers (the customers, us) can’t weigh in, at least not in a meaningful way. Not with our wallets.

Here’s where regulation needs to step in... but not to force accommodation one way or another, as the courts did with the YES situation. The service providers should be required to offer channel selections à la carte. Subscribers should be able to pay for exactly the channels we want, and not to pay for those we don’t want. The service providers may certainly offer discounted packages for channel groupings, as they do today. But unlike today, customers should have a choice, channel by channel.

And then if Scripps wants to make Cablevision customers pay a few dollars per month more, we will have the option of saying “No,” by simply dropping those channels from our subscriptions, no longer forced to keep them in order to be able to watch PBS and CNN.

There are dire warnings going around that setting up channel selection that way will kill all the small channels, aimed a specific markets — that channels such as BET and Lifetime will disappear because not enough households will pay for them, when they have to pay directly. I don’t agree with that assessment, and neither does Consumers Union, which has been pushing for this for years.

À la carte pricing won’t happen unless we demand it, loudly, both to our service providers and to our regulators. So let’s go!

Net neutrality and paying for usage

I’ve written about network neutrality before. It’s a difficult topic because of its different aspects, and because there are vehement opinions on all sides of it. Before I left the Internet Architecture Board, I started the process of setting up a network neutrality talk as the technical topic of the plenary session at the upcoming Stockholm IETF meeting — my IAB colleague Marcelo Bagnulo has taken over the planning for that, and is getting a great program lined up.

Writer and BoingBoing editor Cory Doctorow has long been an outspoken advocate of net neutrality, and he’s recently written a technology article in The Guardian, opining that failure to ensure a full, open, neutral Internet will likely block innovative new applications and services.

The article is a good one; read it.

I agree with most of what Cory says, but there’s one section, one point, with which I have to argue. I’ll quote it here, in full, though it’s a longer quote than I’d usually take:

Finally, there’s the question of metered billing for ISP customers. The logic goes like this: “You have a 20Mbs connection, but if you use that connection as though it were unmetered, you will saturate our bandwidth and everyone will suffer.” ISPs like to claim that their caps are “fair” and that the majority of users fit comfortably beneath them, and that only a tiny fraction of extraordinary bandwidth hogs reach the ceiling.

The reality is that network usage follows a standard statistical distribution, the “Pareto Distribution,” a power-law curve in which the most active users are exponentially more active than the next-most-active group, who are exponentially more active than the next group, and so on. This means that even if you kick off the 2% at the far right-hand side of the curve, the new top 2% will continue to be exponentially more active than the remainder. Think of it this way: there will always be a group of users in the “top 2%” of bandwidth consumption. If you kick those users off, the next-most-active group will then be at the top. You can’t have a population that doesn’t have a ninety-eighth percentile.

But the real problem of per-usage billing is that no one — not even the most experienced internet user — can determine in advance how much bandwidth they’re about to consume before they consume it. Before you clicked on this article, you had no way of knowing how many bytes your computer would consume before clicking on it. And now that you’ve clicked on it, chances are that you still don’t know how many bytes you’ve consumed. Imagine if a restaurant billed you by the number of air-molecules you displaced during your meal, or if your phone-bills varied on the total number of syllables you uttered at 2dB or higher.

Even ISPs aren’t good at figuring this stuff out. Users have no intuition about their bandwidth consumption and precious little control over it.

Metering usage discourages experimentation. If you don’t know whether your next click will cost you 10p or £2, you will become very conservative about your clicks. Just look at the old AOL, which charged by the minute for access, and saw that very few punters were willing to poke around the many offerings its partners had assembled on its platform. Rather, these people logged in for as short a period as possible and logged off when they were done, always hearing the clock ticking away in the background as they worked.

This is good news for incumbents who have already established their value propositions for their customers, but it’s a death sentence for anything new emerging on the net.

I can easily counter Cory’s analogies with ones of removing speed limits from roads, of elevators that must have maximum capacities, or of the shower that suddenly alters its water flow when someone flushes a toilet elsewhere in the house. But, as usually happens with analogies, these only match the situation so far before they break down. The fact is that no analogy really describes the Internet, with all its unique aspects. And no one really is proposing to charge for every click, every packet, every megabyte. The proposals — at least those currently out there — are to define thresholds beyond which a higher (and more costly) level of service is required.

It’s true that when you click on a web page, you don’t know whether what will come back represents a kilobyte of plain text, a megabyte of images, or even several megabytes of high-resolution pictures. To be sure, you could even wind up on a silly web site that refreshes a 2 megabyte image constantly as long as you stay on the page, eating up your bandwidth as you read. But that’s not what this is really about.

What it’s really about is looking at people who spend their Internet time downloading TV shows and movies, say, and who take up a lot of bandwidth in doing it. It’s certainly true that ISPs need to consider that usage in their capacity planning, and need extra capacity to support a significant amount of it. They think the users who drive that should be the ones paying for it, and that’s a defensible point.

A large part of Cory’s point, though, is that forthcoming innovations on the Internet might be — will likely be — data-intensive applications, perhaps even rivalling media downloads for data rates. Allowing companies to charge based on data transfer rates will keep these applications from getting off the ground. And that’s certainly something to be concerned about. The question is: what’s the right way to handle it?

We have ample precedent for usage fees. When you plug in a new appliance — put in a new refrigerator, install an air conditioning system for the first time, or get a newer, faster, top-of-the-line computer — you pay for the electricity it uses. And, let’s be realistic, you don’t know how much that will cost. In these days of concern about energy usage, many U.S. appliances have Energy Star stickers, and there are similar programs elsewhere. Still, I think most people aren’t sure at all about how much it’ll cost to run that air conditioner until they’ve done it for a month and seen their electricity bill. And if you run your computer all night to download television programs and movies, you get a similar effect: a high-end computer can cost $50 or more per month to run, if you live in an area where electricity is particularly expensive.

And it’s not just the cost of using more electricity billed at your flat rate. Many utility companies charge a higher rate to heavier users. Your cellular phone service, at least in the U.S., usually has some usage level included, with a fairly dear rate per minute if you exceed that. Can we say, outright, that it’s not fair to use the same model for Internet usage?

To be sure, we have yet to sort out the business model for charging for Internet usage. But we can see what does and doesn’t work: Cory points out that AOL discovered that its meter-by-the-minute plan was a failure. They learned that they can do better business by changing how they bill. But the thing is that when we started with just logging in for email, the by-the-minute method was all right. Changes in how we used the network resulted in changes to the cost model.

And so it will likely be with the next Internet innovations. The “utility companies” — the service providers — are right to say that it’s not their responsibility to “ensure that the Googles of tomorrow attain liftoff from the garages in which they are born.” On the other hand, we do have government oversight of utility companies, and some government oversight of ISPs’ rates would not be a bad thing.

The bottom line, though, shows up at the companies’ bottom lines: it costs them more to be capable of moving more data around for more users, and it’s not wrong for them to charge more for users who put a greater load on their systems.

The bagel man, the honor system, and the power of “free”

I recently ran across this old item.[1] It was published in the New York Times Magazine section five years ago, and talks about a guy who made a business of catering bagels for offices, getting his payment through an “honor system”: he left the bagels unattended, along with a box for money. If you took a bagel, you were expected to pay a dollar for it. And most people did.

It’s interesting to read his statistics about those who didn’t. I have a few comments and speculations about it all.

Note that he found it necessary to close the payment box against those who would dip in:

After the doughnuts, Paul F. loaded two dozen money boxes, which he made himself out of plywood. A money slot is cut into the top. When he started out, he left behind an open basket for the cash, but too often the money vanished. Then he tried a coffee can with a slot in its plastic lid, which also proved too tempting. The wooden box has worked well. Each year he drops off about 7,000 boxes and loses, on average, just one to theft. This is an intriguing statistic: the same people who routinely steal more than 10 percent of his bagels almost never stoop to stealing his money box — a tribute to the nuanced social calculus of theft. From Paul F.’s perspective, an office worker who eats a bagel without paying is committing a crime; the office worker apparently doesn’t think so. This distinction probably has less to do with the admittedly small amount of money involved than with the context of the “crime.”

There certainly seems to be, as most of us think of it, a difference between stealing money, stealing hard goods, and stealing abstract things such as artistic or intellectual property. There’s also a difference between small amounts and large ones. Just as more people will snitch a bagel than will steal the money, it seems likely that many who would take a single bagel wouldn’t consider grabbing a boxful.

There’s also the relationship one has with the entity one’s stealing from. Theft from a big company seems easier for us to justify than theft from a smaller company, or theft from an individual. I wonder, too, if there could be a diversity factor here. Would “Paul F.” see different statistics if he were Latino? Black? Middle eastern? East Asian? Does it matter? I think it might, overall. I certainly wouldn’t be more likely to sneak an item without paying for it, regardless of the vendor’s ethnicity — I wouldn’t do it in any case. But for, let’s say, a white male office worker who is inclined to get away with the occasional free bagel... would it matter?

The bagel man also speculates that executives, who grab freebies more often than lower-level employees, perhaps snitch them “out of a sense of entitlement.” The authors consider that maybe it’s because cheating is what they do, how they got where they are. Could either really be so? Or is it that they don’t steal purposefully? Perhaps it could be absent-mindedness in the face of a busy schedule, or simple cluelessness (“Ah, look: someone put out some bagels. Oh, hey, Susan, I’ve been looking for you. Can we talk about [....]”). Those seem more likely reasons to me. Rather than assume that someone thought he had a right to a free bagel, I’d like to think he thought they were put there for the taking, and just didn’t notice the payment box.

A lot of this reminds me of the item I talked about last year, on the power of “free”. There’s certainly something oddly compelling about the idea of free bagels, something that might push us to think — because we want to think so — that they’re out there for free. We take advantage of that aspect all the time, when we do provide free refreshments in order to draw people to meetings. When Stu Feldman was at IBM, we were talking about attendance at meetings once, and he said to me, “We can pay people six-figure incomes, and they’ll still get sucked in by free cookies.” (And now Stu is at Google, where they most certainly nudge more work out of people in exchange for free food.)

I’d like to see more formal studies on this, and I’m sure they’re out there. But there’s probably nothing as extensive and long-term as this informal one by the bagel man.
 

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[1] I’m sorry not to have a “hat tip”, but I got there through a link to a link to a link, and then it sat in my browser tabs for a few days before I read it. So I have no idea where I came from to get there.

On customer loyalty programs

In this post, Liz at Everyday Goddess notes that she prefers American Airlines to Southwest for a number of reasons, and is willing to pay more for a ticket on the former. One of her reasons is that she’s accumulating miles on AA’s frequent flyer program and plans to use those miles to get a free trip to Florida this August.

I’ve heard people say that sort of thing often, and it is, of course, why the loyalty programs are there: the airlines (and hotel chains, and so on) hope you’ll do business with them, even to the point of paying more, because you want the benefits the loyalty program provides.

But, while that sounds reasonable on the surface, it doesn’t make much sense when you look at it more closely. I said this in a comment on Liz’s blog, but I wanted to bring it here, too, because it’s so common.

In general, you should not pay more for a flight because you want the miles. Here’s why, using Liz’s example:

LAX (Los Angeles) to ORD (Chicago O’Hare) gives you about 3500 miles, round trip. Let’s say that the AA flight cost $100 more. That means those miles cost you around 3 cents per mile extra (2.857 cents, more precisely) — you didn't get them for free. You need at least 25,000 miles for a "free" ticket (or 50,000, depending upon when you want to do and what restrictions you have). At $0.03/mile, it will cost you $750 for 25,000 miles (and $1500 for 50,000).

I just priced an AA ticket from LAX to FLL (Fort Lauderdale, FL) in mid-August, and I got a fare of $265. Spending miles that cost you $750 extra to “earn”, to buy a ticket that would cost under $300 over the counter, is not a good deal.

And this is almost always the case. If you select your airline based on a desire to accumulate miles there, on the whole you will pay far more than the miles are worth. In general, you should select your airline for other reasons (price, flight schedule, on-time record, seat comfort, like or dislike of the way they do business, or whatever matters to you), sign up for every airline’s loyalty program, and let the miles accumulate all around. When one program has enough miles for you to redeem them, then you really will get a free flight out of it.

To be sure, there are times when it’s worth paying a little extra, but it’s important to think about it and do it in an informed way. For example, suppose you’ve amassed 48,000 miles on AA and were careful not to pay extra for them. And you want to redeem miles for a trip soon, but you need 2,000 more. Then it could make sense to pay an extra $100 or $200 to buy your next ticket on AA, so that you have enough for, say, a $500 ticket somewhere. Similarly, you might be willing to pay a little more occasionally to keep your account active, so your existing miles won’t expire.

So if you have other reasons to prefer one airline over another, by all means, let those reasons decide for you. But be wary of doing it because of the frequent-flyer program.

More layoffs, amid rising CEO salaries

IBM’s working on another round of job cuts, this time on the services side of the business, completing what looks to be a trimming of on the order of 10% of its U.S. workforce.

Reports of deep job cuts at International Business Machines (IBM) come at a potentially delicate time for the company—just as it is hoping to secure money from the federal stimulus package. The company will lay off as many as 5,000 U.S. workers in its Global Business Services unit, transferring some of the work they performed to India, according to media reports.

The company’s been making big moves to several countries for a while now — some of the primary ones are India, China, Brazil, and Russia — and away from the U.S. As Business Week goes on to report:

Big Blue’s efforts to trim costs by sending work overseas are not new. For several years the company has been working to improve its efficiency through a combination of computer automation, business-process optimization, and job transfers from expensive locations to offshore. Chief Executive Sam Palmisano has said those plans are part of an effort to make IBM a “globally integrated enterprise.” Since 2003, the Armonk (N.Y.) company has hired approximately 90,000 people in India and more than 5,000 in Brazil to do IT and business-process outsourcing (BPO) services work.

In the meantime, the company has trimmed its U.S. workforce. According to its annual report, IBM had 398,000 workers worldwide at the end of 2008, up from 386,558 at the end of 2007. At the same time, U.S. employment has declined, to 115,000 at the end of 2008, compared with 121,000 a year earlier.

I agree with those who think that companies moving jobs out of the U.S. should not be eligible for any of the “stimulus” money. There has to be, along with the granting of the money, a commitment from the companies to the U.S. economy. I’ve long been a general fan of globalization, but it carries significant problems with it in the best of times — including the “race to the bottom” effect, where countries try to pull in business by offering cheaper and cheaper labour. In these times, which are closer to worst than to best, we can’t allow U.S. jobs to move overseas and then reward the companies doing that with government handouts.

And, of course, right in the middle of these two rounds of job elimination, we get the report of CEO Sam Palmisano’s compensation for 2008: just shy of $21 million, up slightly from just shy of $21 million in 2007. The cash part of that was $7.3 million — $5.5 million of which was a “performance-based bonus.”

By all reports, IBM did well last year, and expects to do well this year. Nevertheless, it’s appalling to see a company fire 10% of its workers because of an economic downturn, while giving its CEO five and a half million dollars as a performance-based bonus.

I’m not really picking on IBM, here; it’s just that it’s the company closest to my heart. But we have a systemic problem of insanely large CEO salaries, salaries far out of line with what the positions are worth, and not sufficiently tied to real measures of company success and overall economic well-being. We have to find a way out of this bizarre cycle of ever increasing compensation packages for top executives.

Certainly, at the least, we should demand that companies taking help from the government not be allowed to pay their CEOs so lavishly and send jobs to other countries. It’s a violation of basic ethics.

Got visa?

I’m at the IETF meeting in San Francisco this week, and a big topic of discussion, as has been for the last several U.S. meetings, is the difficulty of getting travel visas to the United States, especially (but by no means exclusively) for our technical contributors from China.

At the previous IETF meeting, in Minneapolis, we had at least 50 Chinese participants who couldn’t attend because they couldn’t get visas. I don’t have the numbers for this time, but it’s a bunch. And I talked with an attendee from a Chinese company who’s here on a Canadian passport and who said that almost no one from his company coming from China with a Chinese passport was able to make it.

People from other countries are complaining about it too. Some say it takes too long to get a visa — 3 or 4 months in some cases — and some are just denied.

These are not terrorists. These people are threats to no one. They have good jobs back home, in high-tech companies, and they’re coming here to do collaborative work with people from all over the world. There’s no good reason to deny them travel visas.

Because the IETF’s participants come from all over the world, the meetings move around, and the organization tries to divide every six meetings this way: three in North America, two in Europe, one in Asia. And as a result of the ongoing visa problem, they’re shifting more of the North America meetings into Canada. For 2010, two U.S. meetings had been planned, but it’s just been announced that the one in November 2010 will be held in Canada or Asia instead. Many participants are calling for an elimination of U.S. meetings entirely, in favour of Canada.

And the IETF has let the U.S. Department of State know. If they continue to refuse visas for legitimate business meetings, organizations like the IETF will move more and more of their business to other countries, resulting in significant revenue loss — both from the meetings themselves and from collateral tourism — for the host cities in our country. And it will not happen through the State Department’s ignorance. They know.

Google re-prices employee stock options

According to this AP article, Google offered to reset the strike price on employee stock options to just over $300 — a more recent and more realistic price than the $500 or more than some of them had been set at — and more than 15,000 employees took them up on it.

In case you aren’t sure how stock options work, here’s the quick version: options are issued to you at a particular strike price (also called exercise price, as they do in the AP article). The strike price usually matches the market price on the day of issue. There’s normally a vesting period (you can’t exercise your options before they’re vested) and an expiration date (if you don’t exercise them before they expire, you lose them). Any time after the options have vested and before they’ve expired, you can exercise them — buy the amount of stock the options allow, for the set strike price.

Obviously, if the market price of the stock is higher than the strike price, exercising the options can be a good deal. If you get options for 2000 shares at $50/share, and five years later the stock is worth $150/share, you have a bargain on your hands. If you’re allowed to immediately sell the stock (you might be required to keep it for some period, according to the terms and conditions) you can triple your money immediately — you’ll make $200,000, less expenses and taxes. If, on the other hand, the stock is only worth $25, you would not exercise your options, because you can buy the stock on the open market for half as much (assuming, as with Google, that it’s a publicly traded company; there are other factors in effect for options on private stock).

The beauty of stock options from the employee’s point of view is that in the worst case, they’re worth nothing, and in the best case... well, they have the potential for open-ended value (which is the reason they expire, to avoid being a liability to the company forever). They also encourage you to stay (because of the vesting period, and because you usually lose your options if you leave the company before you exercise them), and they give you an added incentive to help the stock price.

The beauty of stock options from the company’s point of view is that they can give you an award that makes you feel good, but that doesn’t actually cost the company anything until you exercise them, and that only happens if the company’s done well in the interim. Not only that, but there are advantageous tax and accounting rules that make stock options appealing... though some of those rules have become less advantageous in recent years.

But here’s the thing: those rules also make it a complicated matter to re-price options that have already been issued. And it has a significant effect on the accounting for the options. The company took on a big financial liability for doing this.

Of course, the options don’t have much value for employee morale or retention if their strike price is much higher than the current market price. People who were happy to get a nice award when they were issued are often cynical when they see that they have options that are worthless now, and will most likely be worthless until they expire. It can actually be worse to have employees with those kinds of stock options than not to have given them the options in the first place.

So that’s why they did it, despite the liability, the complications... and the grumbling from shareholders who didn’t get the same deal on their stock. I have to hand it to Google for this one: they did right by their employees here.

The next step for mobile phones?

The Times wonders, “Can the Cellphone Industry Keep Growing?”:

Analysts and investors are beginning to ask whether the industry can continue growing. The challenge is both simple and daunting: how to expand when more than half of the six billion people on the planet already have phones. And even in developing countries where there are underserved markets, subscribers spend less on phones and services.

On the surface, it sounds like that makes sense, but here: many, many people have cars, computers, televisions, and all sorts of other things, but we’re not suggesting that the time is past for growth in selling these products. Car sales go through periods of ups and downs, of course, owing to their price tags and the price of fuel. But people do eventually want new ones.

Why?

The old ones wear out, and the new ones have features that people want. Snazzy new design, innovations in the technology, and new, hot features are what convince people to replace the old clunker. Hold back the updates, and people will keep their old ones longer. Give them incentives to buy, and buy they will. And the same goes for mobile phones.

How many people had phones when the iPhone came out? How many bought iPhones anyway? It quickly became the “must have” device, because it showed innovation in obvious ways.

It won’t take another iPhone to push the market again. But it will take real motion, not just production of iPhone look-alikes, devices that just remind us that the iPhone is what everyone really wants to have. I love the BlackBerry devices, but I’ve had a look at the Storm, and I’m underwhelmed. It’s trying to be an iPhone, but it does it poorly. As is usual with these sorts of copies, they’ve come up with a thing or two that’s better than the iPhone, but on the whole it still falls short.

Mobile phones are a long way, now, from being phones, of course. They are that, but they’re also address books, calendars, note pads, email and instant-messaging devices, music players, web browsers, cameras, and toothbrushes. OK, not toothbrushes, but my dentist would probably like it if they were. They do nearly everything for us, and yet the challenge is for them to do more.

Let’s look for the next innovation. And on the way, let’s make changes that are incremental, yet significant, giving buyers reasons to buy new.

If the industry can’t do that — if it keeps trying to sell the same stuff we already have, with little changed but the name — then it deserves to wither.