SMART Letter #48b
MORE NEWS BACK TALK
November 2, 2000
SMART Letter #48b -- November 2, 2000
Copyright 2000 by David S. Isenberg
isen.com -- "what snew"
email@example.com -- http://isen.com/ -- 1-888-isen-com
> Quotes of Note C. Michael Armstrong, Bernie Ebbers
> More Streetside Chat with Scott Moritz, TheStreet.com
> Conferences on my Calendar, Copyright Notice, Administrivia
QUOTE OF NOTE: C. Michael Armstrong
"Now we're creating four growth-oriented businesses. Each
will be well-financed, well-led and well-stocked with the
products and services its customers want and need. This is
the next logical step in the transformation begun three
years ago . . . The big change is in the exciting
opportunity we gain by multiplying AT&T by the power of
C. Michael Armstrong, CEO AT&T. in a letter to AT&T Employees,
Oct. 25, 2000
QUOTE OF NOTE: Bernie Ebbers
"We recognize that we, as a company, have let you down. I
have let myself down. We certainly don't look at this as
the best day of our life . . . [The attempt to acquire
Sprint] ended up a mistake - and I am certainly
accountable for that mistake . . . I'm sure with the recent
performance of this stock, people have a legitimate right
to ask if I have a right to lead this company."
Bernie Ebbers, CEO WorldCom announcing WorldCom's
restructuring, quoted in Financial Times, October 26, 2000
The TSC Streetside Chat: Telecom Guru David Isenberg
By Scott Moritz, Senior Writer, TheStreet.com
Originally posted at 8:00 AM ET 10/28/00
[This is a continuation of my conversation with
TheStreet.com that is documented (and snidely commented
upon) in "Guru Wonders -- SMART Letter #47"
-- David I]
"Ma Bell (T:NYSE) always attracted some of the brightest
minds in technology, but it also had a way of ignoring
them. Among those ignored was David Isenberg.
"As an in-house visionary, Isenberg's views (see his
article, Rise of the Stupid Network) eventually got him
ushered out of AT&T. His sin? He challenged the notion that
there was continued value in a business built on
controlling the network. New technologies such as the
Internet, Ethernet and Optics were unleashing a radically
abundant network capacity that would change all the
previous rules about networks and how network equipment was
"Earlier this week, TheStreet.com featured Isenberg's
thoughts on AT&T's current breakup plans, which he had
advocated for years. What follows picks up the conversation
with Lucent (LU:NYSE - news) and its failure to adjust to
these disruptive forces. Isenberg provides a glimpse of
Lucent's arcane product-development practices that pit
engineer against engineer and one command chain against
"Isenberg's current role as an independent
telecommunications consultant and strategist has brought
some of the world's most provocative upstart networking
companies to his door. He also reminds us that the Internet
has unleashed some powers that need to be cultivated, and
others that need to be challenged.
"TSC: [We discussed AT&T, but] Lucent, another company you
probably feel you have some ties to, has also come upon
some serious troubles. Have you been following that
"David Isenberg: Not as closely, but I know, in broad brush,
what their problem is.
"TSC: What tripped them up so badly?
"David Isenberg They thought that the switch market would be
"TSC: That's the voice switch?
"David Isenberg: Voice, yes, the circuit-switch market would
be forever, and, in fact, the circuit-switch market is
growing today, not shrinking. It's just that it's growing
in new ways. One of the companies that's threatening to eat
their lunch is Tachion. Tachion's a company in the old AT&T
facility in West Long Branch, N.J., where former AT&T
employees build telephone switches. And so the only thing
that's changed is the name on the door and the symbol in
the stock market. But it's an AT&T building, AT&T
employees serving the telephone industry.
"It was some engineers who left and literally worked in a
basement for two years, developing something they couldn't
have done at AT&T because ... well, it was AT&T at the
time, but it was the part that became Lucent.
"TSC: And they're developing circuit switch for voice?
"David Isenberg: They're developing a generic platform for
clecs [competitive local exchange carrier, or upstart local
phone company], and the platform can do circuit [switch];
it can do frame [relay]; it can do ATM [Asynchronous
Transfer Mode]; it can do IP [Internet protocol]. It can do
all the things that a clec wants.
"And in addition, in this one platform, which is like a
third of a rack, it can do Muxing [a multiplexer, a device
that merges several low-speed transmissions into one high-
speed transmission] and Dacsing [DACS -- Digital Access and
Cross Connect: Networks need one kind of DACS to cross-
connect T1 lines, another to connect T3's, etc.] and echo
cancellation, all of which were not only in a different
department, but the vice presidents of Muxes and DACS and
Echo Cancellers only talked to the vice presidents of
Switches and Adjuncts in the office of the Presidents of
Network systems. That was where it met, so there was just
no way that Lucent could field a platform like that.
"TSC: So you're using that to illustrate the problem...
"David Isenberg: It's closer to the problem, but, also,
there are these organizational barriers, that at Lucent
came with history, that just aren't relevant. So these
kids, they saw that the future was combining transmission
functionality and several different kinds of switching
functionality. I mean, imagine combining a router and a
switch in the same box? In the same product?
"Oh my God, I mean, think of the cross-organizational
burdens that that would entail at a Lucent. Every time you
put a different functionality into a product, you have to
go up and down management chains, up and down product
managers and project managers and marketing budgets and
advertising budgets and development budgets and
manufacturing and engineering. And they have to do these
sensitive negotiations about how much of the manufacturing
comes out of the router guys and how much comes out of the
transmission guys and how much comes out of the switching
guys and how much comes out of the adjunct guys...
"I mean, fundamentally, it's an impossible problem to solve
at a company like Lucent; you can't get there from here.
"TSC: I'm getting a very ugly picture. So, basically, what
you're saying is good riddance to that old structure?
"David Isenberg: Well, it's hard to do an integrated product
in an environment like that. It's really hard to cross
organizational boundaries. Now, that doesn't mean that
Lucent, that a division of Lucent that does optical fiber,
can't do brilliant optical fiber. Or that a division of
Lucent that does optical switching can't do a good optical
switch. Or a division that does network protocols can't do
good network protocols, or a division that does network
management can't figure it out.
"Because they can, and they have. But the legacy gets in the
way, and in times of change, in times of rapid change, it
gets in the way more.
"TSC: So, no cooperation among those divisions...
"David Isenberg: Well, yes. They have to compete for budget
every year, and the whole idea of merit review is based on
[that] ... This carries all the way up the chain.
"And it means, basically, that your organization has to be
better than the other organizations. So the idea of
cooperating from one organization to another -- even though
it's encouraged, top down -- there's not, at least in the
company I knew as AT&T Network Systems, there was not
enough motivation, structural motivation to make it happen.
"TSC: So, same question then for Lucent. If they came to you
for some advice, what would you tell them?
"David Isenberg: What did I say about AT&T? Same thing. Plug
it in. Break it up, spin it out, sell it off, reorganize
it, reinvent yourself, get smaller, get leaner.
"Lucent has one thing to keep it together that AT&T doesn't,
and that's that it has the sales force, and the sales
force, presumably, is where it all comes together. Where
they can go in and sell an integrated solution, so there
actually is still a reason for Lucent to be a company.
"But maybe the right thing for Lucent would be to maintain
this unified sales force, but be more like a distributor
and solutions model, where what they're selling isn't
necessarily stuff that's homegrown. And increasingly, I
think they're moving that way. Just, are they moving that
way fast enough and do they realize to what degree they're
"TSC: You were one of the first people to really champion
Clay Christensen's book [the Harvard Business School
professor who wrote The Innovator's Dilemma: When New
Technologies Cause Great Firms to Fail], and the more of
these industry tech titans that fall into trouble and
weakness ... well, I guess you would tend to think that
Clayton was on to something there.
"How do you, as a futurist and a strategist, incorporate the
need to plan around disruption and failure when you talk to
your clients and customers?
"David Isenberg: Well, the incumbents don't hire me too
much. [Laughs] But it's a problem, and, fundamentally, I
don't think you do. I think companies kind of have a
natural life cycle, and when you come to the end the few
remnants of AT&T that are left are going to have to make
like an old Eskimo some day and just take a walk in the
"I mean the average life of a corporation is 40 years. If
you get past that, it means you've been either extremely
lucky to have found yourself at the tail end of the
distribution, or you've been exceedingly flexible at
reinventing yourself to meet new times and new market
"TSC: And have we seen a dramatic change in that lifespan?
Do you think it's coming down?
"David Isenberg: If anything, it's coming down, given all
the little companies that spring up and stay in existence
for a few months or a couple of years, and then fail and go
out of business. The cost of failure is lower when you're a
"TSC: Is that a good thing?
"David Isenberg: Sure, why not? It's good because you don't
keep making the same mistake. If you're a little company
and you don't have a whiz-bang success, then you're not
strong enough to survive the punishments of the
marketplace. And so you go under. It doesn't mean that the
people who are in that company go under; they find other
jobs and other companies, and, in fact, they've learned
something in the intervening times.
"So they come back, and they're stronger, more experienced,
able and willing to try again, and so another company
springs up. The only thing that gets destroyed in a process
like that is the investors' capital, and it's questionable
whether that's a problem. I mean, presumably investors
invest because they can afford to lose, and, second,
they're paying salaries and driving the economy forward in
general, and, third, they're increasing the expertise of
the workforce in general by giving them more experience.
"In fact, the firms that invest in early stage companies
seem to do quite well, even though -- I don't know what the
statistic is -- X out of 10 of them fail, where X is far
greater than one. Maybe five out of 10 of them fail, and
maybe only one becomes a big hit, but that one pays for the
"TSC: Sure. In the three years since you've gone out on your
own, has it been increasingly hard to stay the provocateur
when you become more and more entrenched on advisory boards
and in financial relationships with some of your customers?
Are you at the risk of losing your edge?
"David Isenberg: Always.
"TSC: How do you prevent that from happening?
"David Isenberg I don't have a strategy, I'm just flowing
with it. If I had a strategy, which I don't, it would be to
engage in business only with companies I think represent
the future. And then by being part of those companies, I
can help to create the future and I can be part of the
learning stream that goes on.
"TSC: And obviously part of the financial rewards should it
"David Isenberg: You mean there are financial rewards?
"TSC: I mean, we can't ignore that there would be some
financial rewards should these companies become part of the
"David Isenberg: Well, that's a nice hypothesis, and I would
love it to come true. So far I have some paper with some
writing on it.
"TSC: Could you disclose who you work with?
"David Isenberg: Let's see, for the purposes of this chat,
let me give you a sampling: I have a business relationship,
advisory relationship with Yipes! and Terabeam, two
optical-services companies that I think represent different
spaces in the future.
"I have a relationship with Merrill Lynch (MER). They want
to know what this future is, and they need to know. I have
a relationship with two incumbents, Fujitsu (FJTSY) and
Motorola (MOT), and they -- how can I put this delicately?
-- they're desperately trying to understand the changes
that are occurring and what they can do by way of corporate
"TSC: Are you hired as a consultant to them or is it
[No, I'm a Prosultant(sm). Pro and Con are opposites. Why is
this so hard for editors to grasp? Prosultant is a service
mark of isen.com, inc., but if editors don't want to use a
service mark to describe what I do, they can call me an
independent observer, a troublemaker, a dissident, a pundit, a
commentator, an advisor. I feel strongly about this because
the CONsultants I encountered at AT&T were part of the
pathologically codependent system that kept management
detached from the company they were supposed to be running.
They were the whores of the Patrimonial Bureaucracy Club.
Ratbert says 'consult' derives from 'condescend' and 'insult';
this certainly jibes with my AT&T experience. -- David I]
"David Isenberg: The relationship varies in every case.
"TSC: But all of these have some sort of financial
"David Isenberg: Yes. Let me also mention, when I say
Merrill Lynch, I can also say MetaMarkets.com. And
MetaMarkets represents to me the future of this
disintermediated financial-services industry.
"TSC: OK, let's get to your message. What about this thing
you talk about: abundance? Do people understand what you're
talking about when you say the abundance of bandwidth
changes the value structure, or their value assumptions
about their particular niche in the network?
"David Isenberg: The patterns of abundance and scarcities
are the economy. When the abundance of land determined how
rich you were, there was one kind of economy. When the
abundance or scarcity of factory and machines determined
how rich you were, there was another kind of economy.
"And now it's the abundance of information that determines
how rich or poor you are. And so, yes, that changes
"Now the second thing that changes everything is what I call
the stupid network. This was originally articulated as the
end-to-end principle, which basically means that the
network is just an empty pipe, it's a utility, and that the
value is created where the pipe comes out of the ground at
the edge of the network.
"That actually is a direct consequence of these other
abundances, but it's a hugely democratizing influence. It
lets people have control over their own network services.
It lets people decide how their networks are going to
create value for them, rather than letting companies decide
how the network creates value.
"TSC: And you also originally had thought that it would be a
great fertile bed for a lot of innovation around the edge.
Is that coming through?
"David Isenberg: It's coming through. I mean, the email is
at the edge, the Web browser is at the edge, MP3 is at the
edge, peer-to-peer is at the edge, all the killer apps. TV
over IP is at the edge; voice over IP is at the edge; all
the killer apps of the last five years that ... let's face
it, that's the history of the Internet that we know; all of
these killer apps are edge-based applications. They weren't
invented or sold by the owners of the wires and the
" TSC: As a consultant, David Isenberg is receiving payment
in the form of cash or shares (or both) in the following
companies mentioned in this column: Fujitsu, Merrill Lynch,
MetaMarkets, Motorola, Terabeam and Yipes. Copyright 2000
[Ick, barf, gag -- I ain't no stinkin' consultant! -- David I]
CONFERENCES ON MY CALENDAR
November 5-9, 2000. Rose Hall, Jamaica. Porter Stansberry's
Pirate Investor's Ball, featuring Eric Raymond, Tom Petzinger,
Porter's impressive research director David Lashmet, and yours
truly. Porter is a big-picture guy, a cross between George
Gilder and Tony Robbins, with a nose for leading edge values
in infotech and biotech. Contact Andrea Shaw,
November 13-15, 2000. Hong Kong. Jeff Pulver's VON Asia.
VON stands for Voice on the 'Net. It's the premiere Internet
Telephony show in the U.S. and Europe; this is the first Asian
VON. I'll be doing a panel called "XON, with X = unknown."
THIS JUST IN: Dan Gillmor, the genius tech columnist for the
San Jose Mercury News, will be my co-panelist! For more, see
November 28-29, 2000. Montreal PQ. THE NETWORKED NATION:
CANARIE's 6th Advanced Networks Workshop. I'll be speaking,
and so will Francois Menard, Paul Hoffert and other (mostly
Canadian) folks who are honing Canada's leading edge.
SMART People will remember that last year the word from
CANARIE was Ethernet (see CANARIE Sings -- SMART Letter
#30, December 9, 1999). Months later the Ethernet story hit
The New York Times and Business Communications Review. This
year I hope to learn about grids -- watch this space.
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
firstname.lastname@example.org -- http://www.isen.com/ -- 1-888-isen-com
[to subscribe to the SMART Letter, please send a brief,
PERSONAL statement to email@example.com (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 firstname.lastname@example.org]
[for past SMART Letters, see
[Policy on reader contributions: Write to me. I won't quote
you without your explicitly stated permission. If you're
writing to me for inclusion in the SMART Letter, *please* say
so. I'll probably edit your writing for brevity and clarity.
If you ask for anonymity, you'll get it. ]
David S. Isenberg email@example.com
isen.com, inc. 888-isen-com
-- The brains behind the Stupid Network --