SMART Letter
#34
MODULARITY PENDULUM
February 15, 2000
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SMART Letter #34 - February 15, 2000
Copyright 2000 by David S. Isenberg
isen.com -- "affirmation of service (AoS)"
isen@isen.com -- http://www.isen.com/ -- 1-888-isen-com
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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 isen.com Asia Tour
> Conferences on my Calendar, Copyright Notice, Administrivia
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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 (www.tachion.com) - 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.]
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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.
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Smart Remarks from SMART People
From: Tom Petzinger <tom@petzinger.com> 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 <john@powell.net> 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]
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From: Ozzie Diaz <odiaz@cisco.com> 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 <ss_baker@hotmail.com> 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]
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Ken Poulton <poulton@labs.agilent.com> 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]
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From: Ted Kochanski <tpk@sensorsys.com> 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 Mekong.com."
[These ideas owe much to the work of Robert Hettinga -
- tpk]
---
From Gary Hughes-Fenchel <fenchel@lucent.com> 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" <ian@scalesassoc.demon.co.uk> 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 <art@well.com> 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]
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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 <Robert.Thomas@fmr.com>
"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]
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From: Scott Berry <sberry@mmfn.com>
"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 <CWarren@scient.com>
"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 <kisselej@yahoo.com>
"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 <kjas@mindspring.com>
"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 <nobody@nowhere.no>
"There are two ways to be rich, (a) by having more,
and (b) by wanting less."
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The isen.com 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
ajp@glocom.ac.jp.
+ 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.
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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 http://www.ibcusa.com/ is as thin
as it comes. If you really need to know, contact Anne Bacon
Blair abaconblair@ibcusa.com, 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
http://www.wtc2000.org/info.htm
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
http://vortex2000.com/
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.
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Copyright 2000 by David S. Isenberg
isen@isen.com -- http://www.isen.com/ -- 1-888-isen-com
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