SMART Letter #34
February 15, 2000

!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() ------------------------------------------------------------ SMART Letter #34 - February 15, 2000 Copyright 2000 by David S. Isenberg -- "affirmation of service (AoS)" -- -- 1-888-isen-com ------------------------------------------------------------ !@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() CONTENTS > Modularity Pendulum: Tachion's Collapsed Central Office > Quote of Note: Gerald M. Levin > Smart Remarks from SMART People: Tom Petzinger, John Powell, Ozzie Diaz, Scott Baker, Ken Poulton, Ted Kochanski, Gary Hughes-Fenchel, Ian Scales, Art Kleiner > The Winners!!! The Richest Person in 2020 Contest: Robert Thomas, Scott Berry, Charles Warren, Eric Kissel, Kim Allen, Nobody > The Asia Tour > Conferences on my Calendar, Copyright Notice, Administrivia ------- MODULARITY PENDULUM: Tachion builds the central office equivalent of a laptop. By David S. Isenberg When technologies are young, engineers tweak and twiddle to coax every performance advantage from each design. This yields custom-built, tightly integrated, highly proprietary products. Then, technologies gain performance headroom, and integral products give way to modular ones. Component modules, optimized for generality rather than performance, are connected by standard interfaces. This shift is the topic of a 1999 Harvard Business School working paper by Clayton Christensen, Matt Verlinden and George Westerman. Modular product makers have trouble sustaining a market advantage, the paper says, because there are few barriers to new entrants. Think about Michael Dell, plugging modules into boxes 'to order'; he struggles constantly to keep costs low. Christensen says that Dell told him he could see his name written in blood on every page of The Innovator's Dilemma. Modularity can lead to vertical integration at a new level. "The motivation to create technological modularity can often be self- reversing and repetitive ... the pendulum of competitive advantage swing[s] back and forth between vertically integrated and non-integrated firms," the paper continues. A NEW LEVEL OF INTEGRATION The laptop is such a newly integral product; each module is designed to be a part of a tightly integrated portable package. Surprise! Laptops are the most profitable segment of the PC market today. The flood of modularization has not swept the makers of telephone equipment along; for the most part, they remain anchored to their industry's legacy. For example, the Lucent 4ESS retains its proprietary 1B processor despite over 20 years of processor progress. Furthermore, even when switches use internally modular components, they retain customer-level vertical integration. Telco attempts to specify a standard interface between fabric and processor, for example, have largely failed. Meanwhile, the central office has distinct modules for circuit switching, ATM, IP routing and a variety of different functions like multiplexing, cross- connecting, echo canceling, application processing, etc. Each organizational subhierarchy in the legacy equipment company builds its own product. In the recent past, the transmission VP met the switching VP only in the CEO's office. Now, here comes a bunch of former Bell Labs transmission geeks to rethink the telco platform without organizational constraints. They worked in founder Satish Sharma's Marlboro, N.J., basement for over a year with no pay, fueled by home- cooked Indian food and their vision of a world-changing product. When the first mainstream venture capitalist invested, they convinced him to become CEO. They named their company Tachion Networks ( - their product is the Collapsed Central Office. THE COLLAPSED CENTRAL OFFICE Tachion uses modules where there used to be vertical integration. Its 25,000- line TDM fabric is a two-chip set from Xilinx. (Yes, Tachion supports native circuit switching.) Their 6-chip ATM fabric comes from Lucent. Motorola CPU chips control the switch, the chassis and multiple line cards. Other Motorola chips run a Trillium SS7 stack. Line interfaces for DS-1 to OC-3 are off the shelf. Tachion's routing engine is based on a vendor's edge router chipset. At the same time, Tachion integrates what has been unconsciously modular. DACS and MUX are on the line card, cleverly engineered to mix TDM, frame relay and SS7 links onto a single DS-1. ATM can be on a second DS-1 on the same card. ("Multi-service, any port," says Tachion's Paresh Shah.) Then there's a pool of general-purpose DSPs that do the job of echo canceler, voice processor, announcement module and MF signaling. This eliminates an obscene agglomeration of application-specific adjuncts that add to telco-classic costs. The result is a single system that integrates switching and transmission in one- third of a standard rack. "It used to cost $10 million for us to enter a market," says Michael Lee, CTO of TelePacific, a West Coast CLEC that is one of Tachion's first customers. "Tachion lets us do it for under $1 million. The switch costs less, transport costs less and environmental costs practically go away," he says. In fact, Tachion has let TelePacific vastly expand their original, already aggressive rollout plan. As local competition heats up, more local switches are being sold than ever before. Sharma and company have ridden the modularity pendulum in both directions at once it seems, using modular components to create a compact, integrated platform - the telco equivalent of a laptop. [This article first appeared in the February 15, 2000 issue of America's Network. Copyright 2000 Advanstar Communications.] ------- QUOTE OF NOTE: Gerald M. Levin "I am a broadband person . . . I'm an interactive guy." Gerald "Orlando" Levin, CEO Time-Warner, as quoted by William Safire in the New York Times Magazine, Febryary 13, 2000. ------- Smart Remarks from SMART People From: Tom Petzinger <> on Yes "Next time please use the full, voluptuous quote: ' . . . so he could feel my breasts all perfume yes and his heart was going like mad and yes I said yes I will Yes.' The finest meter in the history of the novel: yes I said yes I will Yes." [Long as we're presenting the genu-wine original quote, we might as well give the citation too: James Joyce's Ulysses. And, yes, besides the meter yes is one of the English language's most pleasing words, yes. Wish I heard it more and spoke it more. -- David I] --- From: John Powell <> on CallWave "Any thought to offering a pop-up option that would put the call through using VoIP? It would be tough to do that for free (bandwidth hog), but many would pay a fee to be able to do that. That same feature could also allow for auto-forwarding for a mobile person." [This is a great idea, yet I have to applaud the CallWave folks for NOT doing it. They'd be biting off a pretty big hunk if they tried to do this now. Right now their job is to focus, focus, focus. -- David I] --- From: Ozzie Diaz <> on CallWave: "There's a slippery marketing ploy that could explain why LECs tell people that they don't offer forward-on- busy. It is like asking the LEC, "do you sell lettuce?", they'll say no because they want to sell you the whole BLT." [If the LEC were a delicatessen, it'd be within its rights. But LECs are bound by common carrier regulations to make tariffed services available to all comers at fair rates. So if there's a tariff for cheese, by law my LEC can't tell me I have to buy the whole enchillada. Course, this doesn't necessarily stop 'em. -- David I] --- From Scott Baker <> on CallWave "I just installed DSL on my PC, which effectively gives me a second line. But I left my analog modem in place as a backup. Sadly, this turned out to be necessary given the abysmal service of Bell Atlantic, the complicated setup, and my difficulty reaching the right kind of technician. I had to reinstall Windows, which caused my DSL to become "unsynched". Fortunately, I got my DSL back -- after 3 technicians and 3 and a half hours with varying office of Bell Atlantic. DSL is not for the average person; even Bell Atlantic admitted as much to me. "But having a real second line has advantages. Not only do I have a way to run my analog modem I have a second phone in case my primary line fails, plus a line for my fax. Believe it or not, this sounds simpler and more effective than CallWave, IMO." [Scott, puleeeze! After all that DSL hassle, you *still* think DSL is simpler than CallWave? Actually, you hint at another reason why you're not a CallWaveHead -- you're not in the right demographic! You *can* afford a second line, a fax machine, and even DSL. Twenty bucks a month for a second line doesn't phase you. CallWave is not after leading-edge nerds like us. They're aiming their virtual second-line service at the folks just now buying their first $500 PC and logging in for the first time. You know, the other 90% of the population. -- David I] --- Ken Poulton <> on taxes "I'm sorry, the idea that income taxes make up for lost sales taxes is just wrong. As transactions move from real stores to Internet stores, sales taxes are lost. On the other hand, income (and income tax) increases due to the Internet will occur whether Internet transactions are taxed or not. If you just want lower taxes (and services) then just say so and leave the Internet out of it." [Ken, my only political agenda here is to bring the benefits of the Communications Revolution to all sectors of humanity. If paying more taxes would help, indeed if paying more taxes would bring more and/or better services, I'd do it in a heartbeat. -- David I] --- From: Ted Kochanski <> on taxes "You are missing a few salient points on taxation. The trend is in favor of taxing only real estate, but there is no consensus yet. Incomes will be easy to shield from taxation through offshore (or virtual) havens. Sales taxes can't be collected in an Internet based economy (assuming strong crypto) without Draconian controls over information flows. The consequences are the collapse of the nation state and the rise of the 'Info Age City State'. "People will continue to want to cluster in cities. Telecom equipment will need to be located [on real estate] in each Info Age City State. [Because people and switches need to be located on real estate] they will be subject to the coercive force of the state, hence unable to escape taxation. This may be the only tax directly imposed. "So you'd be taxed on your domicile, place of business and possibly pay fees for use of the telecom network. But you won't be taxed when purchasing products or services or when creating wealth through various enterprises and investments. Indeed if such investments are realized as digital bearer instruments, no one will even know that you've bought or sold Amazon or" [These ideas owe much to the work of Robert Hettinga - - tpk] --- From Gary Hughes-Fenchel <> on Taxes "The opinions below are mine and do not reflect the official opinions of Lucent. "If a purchase on the Internet is tax-free while the same purchase at a brick-and-mortar store is taxed, you are handicapping the brick-and-mortar store (or, if you prefer, subsidizing the Internet). "What is the consequence? Those with access to the Internet will get cheaper goods. Those without access will continue to make purchases the more expensive way. Demographics suggest that those who have insufficient funds to purchase access to the Internet or insufficient education to use it will be stuck at brick and mortar stores. "The problem with taxing Internet sales is one of implementation: it just won't work. A better model would be to forget about sales tax completely, and raise other more trackable taxes to compensate." --- From: "Ian Scales" <> on taxes "Taxing the Internet could skew tax revenues from one gate (income tax) to another (sales tax). It might engineer enough distortion to reduce the entire revenue cake by slowing everything down. But it's power not revenue that politicians, backed by special interest groups, NGOs and others are really after. When we start playing with taxes, they see a means of leveraging such changes to their own ends. It's not where you tax, but under what circumstances you can provide a tax break that is behind much of this activity." --- From: Art Kleiner <> on taxes: "It occurred to me that another kind of tax on the Internet would not only be socially useful, but might be welcomed. Suppose that every ISP tacked on a $1/per month charge and all of this went into a large kitty. Then, at the end of every month, the money were distributed to website owners based upon the number of hits they received. "Would it just be a way of shunting money to the New York Times and porn sites? Or would it provide any information provider with some financial reward, enough to mitigate (a bit) the stranglehold of advertising on the internet? Maybe if you accept advertising, that would disqualify you from participation in this pool. "I don't know who would enforce or administer this. It's probably a stupid idea. (Which is why I thought of the smart letter as a place to ask.) But the problem of highly interactive, advertising-driven content could become overwhelming." [Yes, Art, I agree with you; it is a stupid idea. Folks, here's proof that sometimes my most exalted heroes have stupid ideas. Art wrote "The Age of Heretics," a brilliant, genius, awesome, world-changing book, so forget his dumb idea above and go read Heretics; if you haven't yet, you're in for a treat! -- David I] ------- WINNERS!!!: RICHEST PERSON IN 2020 CONTEST [If you missed this, or if you forgot what it was about, the rules are in SMART Letter #30. The contest is still open, by the way, so get your submissions in! -- David I] The people below are winners, because they have demonstrated 2020 foresight: From: Robert Thomas <> "The richest person in the world in 2020 will be the biologist who proceeds to solve most diseases, extend life and enable genetic determination in our children. (I have met one group with the potential of doing this. I have been asked to run their IS and software development shop. I said yes!)" [Investors, please contact Bob directly! I just run the contest ;-) -- David I] --- From: Scott Berry <> "Bill Gates is still a strong defender because he has enough money to sprinkle around, and he stays on top of everything new. Even if only 1 in 10 of his investments (wireless, telecom, software, standards, etc.) pays off, even if none result in a new monopoly, he stays a winner. "If it isn't ol' Bill, I predict it will be someone who doesn't appear in this contest -- someone who develops, markets, and monopolizes a solution to a problem we don't even know we have yet. 20 years is an incredibly long time even on "normal" time, not to mention Internet time." --- From: Charles Warren <> "The richest person in the world will have signed a licensing deal with the inventor of a general purpose nanomachine that lives in your body and keeps you healthy and happy for a real long time. This machine would cost a penny to make, sell for $20 and absolutely everyone would have to have it." --- From: Eric Kissel <> "The richest person in 2020 is sitting in junior high school today. The technology he will make his fortune in does not exist yet. No concept of it exists. Whatever it is, this kid will think of it and be the world's first trillionaire." [Eric, I think Billy the G just became the first trillionaire last month. Given inflation, quadrillionaire, maybe. -- David I] --- From: Kim Allen <> "The richest person in 2020 will be an industrial designer. Note that "industrial designer" describes this person about as accurately as "computer programmer" describes Bill Gates. "In the post-industrial world, ergonomics, aesthetics, and functional elegance are the qualities that distinguish superior goods. A computer can't create an object that feels good in the palm of my hand. It can't get that curve just right, or find the most pleasing shade of color. It can't simultaneously optimize energy consumption, processor power, and a sleek look. No one knows how to do this; witness Microsoft, my cable company, and whoever arranged the buttons on my car dashboard. "The designer who ensures that technology will simplify our lives and be beautiful to boot will be very rich indeed. It won't be me, unfortunately. But I'll be an early adopter." --- From: Nobody <> "There are two ways to be rich, (a) by having more, and (b) by wanting less." ------- The ASIA TOUR: February 19 - March 8, 2000. + Feb. 19-26, Tokyo. I'll be talking at GLOCOM at 2PM on Tuesday, Feb. 22; for information email + Feb. 27-29, Seoul. + Mar. 1-4, Singapore. Internet World. + Mar. 5-8, Hong Kong. I'd welcome the chance to meet SMART People in Asia. If you'd like to meet with me, or want more details of my trip, please contact me. ------- CONFERENCES ON MY CALENDAR March 9-10, 2000. Washington DC. Legg Mason Investor Workshop on "Investment Precursors (tm) in Telecom, Internet, and Electronic Commerce." I'll be on a 'technology visionaries' panel with SMART People Bob Lucky and Michael Powell. The other panelist, Royce Holland, hasn't gotten with it and signed up for the SMART Letter yet. Others on the program include Reed Hundt, William Kennard and Ed "buy 'em up" Whitacre. For more information, contact the Legg Mason Precursor Group at 202-778-1972. TELECOSM ASIA (originally March 12-15) has been POSTPONED. March 20-23, 2000. Orlando FL. IBC "Unified Communications Conference." It's not just "Unified Messaging" anymore! I think I'm giving the keynote at 8:45 AM on March 21st. The information on the web at is as thin as it comes. If you really need to know, contact Anne Bacon Blair, 508-481-6400 ext.645. May 7-12, 2000. Birmingham UK. World Telecommunications Congress. I am an invited speaker for the session entitled, "What's your network IQ?" Answer: Too high. For info, see May 23-26, 2000. Laguna Niguel CA. VORTEX. I am still lobbying Bob Metcalfe to let me run a session on "The Network We Really Want to Have, and Why We're Not Building It," but Bob is still being coy. For more info, see June 7-10, 2000. Toronto ON. TED CITY. My only role here is as a paying member of the audience, but I think that Richard Saul Wurman does a real job with his TED conferences -- every one I have been to has had deep lasting impact. You can't shoehorn yourself into his regular Monterrey CA stand in February, but there are still a few spaces for June, and I would like SMART People to be there if they can. ------- COPYRIGHT NOTICE: Redistribution of this document, or any part of it, is permitted for non-commercial purposes, provided that the two lines below are reproduced with it: Copyright 2000 by David S. Isenberg -- -- 1-888-isen-com ------- [to subscribe to the SMART Letter, please send a brief, PERSONAL statement to (put "SMART" in the Subject field) saying who you are, what you do, maybe who you work for, maybe how you see your work connecting to mine, and why you are interested in joining the SMART List.] [to unsubscribe to the SMART List, send a brief unsubscribe message to] [for past SMART Letters, see] [Policy on quotes: Write to me. I won't quote you without your explicitly stated permission. And if you ask for anonymity, you'll get it.] ** David S. Isenberg, inc. 888-isen-com 908-654-0772 ** -- The brains behind the Stupid Network -- **