SMART Letter #89
David Dorman's Multiple Personality Disorder
August 18, 2003

CONTENTS
> Quote of Note: David Byrne on Corporate Culture
> Notes from the Intel Capital CEO Summit
> David Dorman's Multiple Personality Disorder
> Four Scenarios for "The Internet Five Years Out"
> If it's Funny, it must be True, by Scatt Oddams
> Conferences on my Calendar
> Copyright Notice, Administrivia
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Quote of Note: David Byrne

"Corporate culture, what if I could set it free?"

David Byrne, formerly of the Talking Heads, quoted by the
New York Times, August 17, 2003, Arts & Leisure section,
page 26.
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Notes from the Intel Capital CEO Summit
by David S. Isenberg

I attend many professional events. The recent Intel
Capital CEO Summit stood a head higher than the rest.
Intel's CEO Summit is founded on a practical realization
that the semiconductor business is more than a mix of
technology, manufacturing, finance, marketing, policy,
innovation, customer service and a dozen other functions.
It is a conscious attempt to shape and nurture culture, to
create an emergent aesthetic experience identified with
Intel. I arrived skeptical, but I was drinking the Kool
Aid before I left.

Intel Capital is the largest venture capital organization
in the world. It needs to be. The semiconductor business
is in perpetual oversupply, not only because of (Intel
founder Gordon) Moore's Law, but because Intel ran out of
mainframe apps to import into chip space at least a decade
ago.

Intel needs to grow if it is to exist at all, because every
new device is followed by aggressive commoditization.
Intel reminds me of a cartoon polar bear, jumping to solid
ice just as the floe that it is standing on breaks up.
Then the bear's jump causes the next floe to break off, and
the bear jumps again, and so on. Intel must keep moving to
avoid an icy bath.

Ideally, Intel Capital is the bear's hind legs, the
propulsive force behind each new jump. It ventures capital
in start-up companies that promise to open channels for
newer faster semiconductors and for different kinds of
semiconductors. It also invests in companies that promise
strategic pieces of new business ecologies that Intel
semiconductors can fuel.

The CEO Summit vigorously stirred about 100 CEOs of Intel
Capital investee companies with about 100 key Intel
executives and 100 other miscellaneous industry executives.
There were speeches, panels, breakout sessions, meals, and
mingling. There was a unique matchmaking event, where
Intel investee CEOs met one-on-one with algorithmically
matched industry executives to explain what they were
doing, get a reading on product plans and strategy from
potential customers, and otherwise make connections.
Partners changed every 15 minutes.

The climax of the event was an evening discussion between
Andy Grove and Les Vadasz, facilitated by author James
Fallows, about the early days of Intel. Grove and Vadasz
were Intel Employees #4 and #3. They told stories about
how they, as engineers, learned that marketing mattered,
about how their wrestling with knotty problems led to great
breakthroughs, about how a corporation's culture can be
cultivated, and about how there is never a good time to be
comfortable with success.

Grove pointed out that when market conditions are good,
most companies talk about their own success. They only
talk about market conditions when the market turns bad --
heaven forbid that a company would talk about its own
shortcomings. At Intel, company performance is explicitly
dissociated from market conditions. This makes for an
eyes-wide-open assessment when external conditions are
good, and it is the reason they're fully invested in R&D
(which, in large part, is spelled, "Intel Capital") when
times are tough.

Fallows asked whether there were common misconceptions
about Intel's past. Grove replied that Intel's success
today, in retrospect, has an illusion of predetermination.
That illusion, Grove said, is a misconception. In fact,
Grove said, Intel's leaders were often uncertain and
anxious. They worried about the consequences of their
actions. They didn't know if they were making good
decisions or bad ones. Looking up at us, Grove clenched
his teeth and said that the future of Intel is still
uncertain today. I waited uncomfortably for him to smile
or joke to break the tension. He didn't. He looked
worried.

Suddenly, _Only the Paranoid Survive_ has risen to the top
of my reading list. I have gained new respect for these
Intel folks. Sure they've created much of the key
technology of the information age and established a
dominant market position. Most companies would relax
(consciously or not) at this point and eventually collapse
inward. But at Intel, they're working diligently to ensure
that their corporate culture faces outward, towards the
future.
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David Dorman's Multiple Personality Disorder
by David S. Isenberg

Some forms of psychopathology, such as paranoia, can be an
advantage in running a large corporation. Multiple
personality disorder is not one of them.

AT&T Chairman David Dorman gave the Intel Summit's opening
keynote. At first, he seemed like a competent, confident
corporate leader. Sure, AT&T has lost ground in the
telecom downturn, he said. Sure, EBIDTA is down from US
$23B to US $10B. But AT&T is still the long distance
leader, he said, with a 13% operating margin, compared with
MCI's 5% and Sprint's 1%.

But something wasn't quite right. As I tried to tune into
the essence of Dorman's thinking, it seemed like I was
listening to two different people, Bellhead Dorman and
Nethead Dorman.

Bellhead Dorman lamented that AT&T's network traffic was
growing as revenues declined. He blamed it on the
Internet. "Email is a feature that nobody pays for," he
sneered. AT&T wants to lose its low-margin commodity
traffic like music files and email, he said. Dorman is
looking for more applications like voice, which is valuable
because it is "network resident."

Then the timbre of his voice changed, and Nethead Dorman
emerged. "Voice over IP wins, game over," he declared.
Arguing for a simpler network, he said that human error,
the cost of doing things over, was the largest operational
expense in the AT&T Network. He said that AT&T devotes 25%
of its capital expenditures to creating e-servicing and e-
ordering, with one goal being instant, on-line, customer-
tuned service levels. Nethead Dorman wants an AT&T network
that runs with a minimum of human intervention.

Doesn't Bellhead Dorman ever talk things over with Nethead
Dorman? The idea that you can build a network that can
operate with minimal human intervention did not connect to
the related idea that people will operate their own newly
simplified networks without paying the experts at AT&T to
keep them running. Nor did the idea that, "Voice over IP
wins, game over," connect to the idea that VoIP bits are
indistinguishable in an IP network from low-margin email
and music bits. Bellhead Dorman did not hint at how he
would build his much-desired "network resident"
applications. Nethead Dorman never explained how commodity
traffic would bring the fat profits to which AT&T has
become accustomed.

The hardest thing for any established company to do is to
replace the business model that created it with a new one.
Under the old model, telephone companies sold voice, and
then used the revenue from this voice application to
subsidize the switches and wires. Today the Internet --
literally the IP layer -- disconnects the voice app from
the physical network. Dorman sees, but does not
understand, that the Internet -- especially Internet voice
-- breaks the telephone company business model.

There was no uncertainty, paranoia or tension in Dorman's
voice. He sounded more like a COO than a Builder of Great
Companies. His response to an audience question about
telecom consolidation was de-lib-er-ate-ly wide and
general. Maybe the long-rumored acquisition of AT&T by
BellSouth is finally in the bag. Maybe there will be news
from AT&T's board meeting on September 24. Maybe Dorman's
not worried because he's already got his. If so, the fate
of a once-great company, my alma mater, is sealed.
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Four Scenarios for the Future of the Internet
by David S. Isenberg

[I was invited to the Intel Capital CEO Summit to be on
a panel on, "The Internet Five Years Out," with David
Farber and Vint Cerf, moderated by Intel's Director of
Research, David Tennenhouse, who is one of the early
explicators of a generic network that decouples the
distribution mechanism from the content it carries.

I have been on panels with my heroes before, but I found
the prospect of opening my mouth near Farber and Cerf
unusually intimidating. So I wrote down every word that
I intended to say in my allotted five minute opening
statement, then I rehearsed and wordsmithed and re-
rehearsed. Once on stage, Tennenhouse threw us a curve.
Instead of calling for opening statements, he
immediately prodded us into discussion. It was a
brilliant stratagem. We had fun, and the audience
picked it up. We also did some useful thinking in
public (e.g., that the Telecom Act of 200(6?) was
virtually certain, so it might be time to start thinking
about structural separation at the IP layer).

But my carefully prepared opening statement was all
dressed up with nowhere to go. So let this be the
alternate destination for its payload: Four Scenarios
for the Internet Five Years Out.]

Now that home Ethernet is almost as common as a cable
modem, it a misnomer to talk about, "the last mile." Clay
Shirky points out that today's Internet is dumbell-shaped;
it is fat on the premises, fat in the backbone and at least
100 times skinnier in between. So to me, the big issue for
the next five years is how the skinny middle will achieve
the girth that technology makes possible. Here are four
scenarios, alternative futures that sample the space of
possible outcomes.

Scenario #1. The telcos would have us believe that they'll
give us that fat middle pipe. They'll have to lose their
vertically-integrated business model to do it, or they'll
have to find a way to cripple the end-to-end property of
the Internet. It is a huge challenge for an established
company to change business models. And if they cripple
end-to-end, they're likely to cripple the very thing that
makes the Internet so useful to so many people. But it's a
plausible scenario, in fact it is The Official Future
Scenario.

Scenario #2. Other utilities -- the electric company, the
gas company (and maybe the cable company) -- could use
their rights of way to build the fat pipe to the premises.
Utilities are good at delivering bulk, low margin goods.
But can utilities be entrepreneurial enough to open new
lines of retail business?

Scenario #3. Customers will own the technology that
extends the fat home network towards the fat backbone,
eliminating the "access" sector. The ownership model might
be condominium fiber, or fiber owned by homeowner
associations or other kinds of small quasi-governmental
organizations. This fiber will probably coexist with
customer-owned 802.11 and other wireless link and
distribution technologies. For this to scale, premises
network infrastructure must become more self-connecting and
self-operating than it is today. A further warning -- the
only wireless solutions that scale enough to encompass any
reasonable end-game are multi-hop or packet relay networks.

Scenario #4. The telcos lawyer and lobby and legislate to
preserve previous power and prevent customers, utilities
and other competitors from building the network that we
really want. They'd use this last strength, their
remaining core competence -- to make broadband end-to-end
networks illegal. This is the scenario that's most
demonstrably happening in the United States today.
According to a recent ITU study, among the developed
nations, the United States is now #15 in broadband
penetration per capita and falling fast.

I think Intel -- and Intel's partners -- and the rest of us
-- would prefer scenario 3, where the customers own the
connection to the backbone. This outcome is not
guaranteed. To get Scenario #3 we'll need good technology,
strong partners and a rich value matrix, of course. But to
stop Scenario #4 from making #3 impossible, we will need
some major policy innovations.

Five years from now, the U.S. will have the Internet it
deserves. It might well be an Internet that is further
behind the rest of the world's Internet than we can
possibly imagine.
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If it's Funny, it must be True
by Scatt Oddams

83% of people in the U.S. believe in the Virgin Birth, 28%
believe in evolution http://tinyurl.com/k4bo . I believe
the U.S. has de-funded science education for far too long.
Of course this is a good thing if you want to deceive a
gullible public about scientific findings relevant to
Agricultural Pollution, Breast Cancer, Condoms, Drinking
Water, Environmental Health, Food Safety, Global Warming,
HIV/AIDS, Lead Poisoning, Missile Defense, Oil and Gas,
Prescription Drug Advertising, Reproductive Health, Stem
Cells, Wetlands, and Yellowstone National Park
http://tinyurl.com/jnjc .

Too bad felonious Johnny Poindexter had to retire. He's got
a point about how markets convey reliable information when
the future is hard to predict. Maybe the FCC should start a
market on telecom markets so we'll know when the real market
is going to crash. Then we could take out all our money --
preemptively, of course.

Then there's the Liberia situation, http://tinyurl.com/h3f5
-- of course it would be absurd to think that oil
determined U.S. foreign policy.

Politics isn't everything. This on-line art reminds me of
the good old days when I thought funny mushrooms was a food
group -- www.presstube.com .

Gotta go!
Scatt

[Scatt Oddams is the cartoon critic here at The SMART
Letter. You can send flames, kudos and pointers to toons he
needs to see at oddams@isen.com ]
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CONFERENCES ON MY CALENDAR
September 22-25, 2003, Boston MA. VON. I'll be hosting a
panel, participants TBD, on, y'know, what I've been saying
all along. Jeff Pulver does a great job. http://pulver.com

September 30-October 1, 2003, New York. Reuters Technology
Conference. I'll be im-moderating the telecom panel.
http://www.rvc.com
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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 2003 by David S. Isenberg
isen@isen.com -- http://isen.com/ -- 1-888-isen-com
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