Are you sane, rational, and of sound mind? And your colleagues too? Are you sure? You are! I'm so glad! OK then, given all that, how come you spend so much of your time making daft decisions, and endlessly back-tracking and re-opening issues you thought had been resolved? How come you have projects that are not aligned to orgainzation's strategic goals? Do you even know what those goals are? Which ones are the most important? Honestly? You fibber!
Well, last fall I was introduced to some eye-opening decision science tools and techniques that made me realize how "decision illiterate" I was. I'd like to share those experiences with you here. And if you're in a telecom-related industry, this should give you some ideas on how to effect change in your organization towards and end-to-end compatible business model.
Some groundwork first. We've all seen an athletic race, if only on TV. The competitors may have been wearing a number. Those numbers are merely labels. Being assigned #2 doesn't make you any better that the person with #5 on their back. The race is then run, and a big scoreboard shows who won. Whoever came first got a gold. The margin of victory was immaterial. Coming second by a slim margin doesn't get you a silver medal with gold trimmings. The board will show how much the winning margin was. Was the race a close one? And it will also show the absolute times. A win of a second on a 100m race is a very different thing to winning by a second in a marathon. The total time puts the winning interval into context. Was competitor #2 10% faster than #5, or .1% faster?
There are four types of number here: nominal numbers, which act as labels; ordinals, which give position; intervals, which show the differences; and ratio numbers, which give relative performance. You can compare ordinals; add and subtract intervals; and divide and multiply ratios. You can't do arithmetic on nominal numbers.
So that's some basic terminology sorted out. Now, what about the confusing world of business?
I bet you've seen the following happen. There was an annual budget round, or some other big resource allocation decision. A guru from finance or strategic planning was tasked with producing the World's Most Complex Spreadsheet. Filled with tabs and links, it lists the options and the measurement criteria. Some criteria are hard numbers, some are softer issues that reasonable people could differ about. Each option is given a score for each criterion. That score could be its rank (inverted, to make the best one score highest). Or could just be a simple scale like 1-10. Or it could be some formulaic derivative of something like expected revenue. At the end, they all get combined by the formula from Hell (or just SUM), and a summary splurged into a Powerpoint deck.
Then there is a Big Meeting™. A number of exceedingly well paid executives are called in to bless the result. But they don't like it. There is a big argument, and some "adjustments" are made. Success in getting up the priority list is largely guided by force of personality and imaginative over-statement of expected project benefits. A few weeks later the senior VP of finance comes back from vacation, decides she doesn't like the outcome, and strikes out a project or two. In the meantime, a product development team keeps working on a project that didn't make the cut, because the company has already invested so much in it, and you can't kill the thing now. It's just work in progress, you know. The organization flounders in meeting it's mission.
So, what happened? Well, several things. Firstly, the values for the "soft" issues in that spreadsheet were probably bogus. A small clique of people got to guess at them. There was little agreement on what the criteria should be. The weightings were pretty aribtrary, at the judgement of the "strategic" folks at middle management level. The criteria were also probably both incomplete and overlapping.
But that's not the worst bit. The biggest problem is that the results of such a spreadsheet are meaningless. You've made a classic Computing 101 error: you've combined things of incompatible types. Abort, Retry, Ignore. Blue Screen of Death. The spreadsheet was riddled with ordinal, interval and ratio numbers. Just giving ranked items labels '1', '2', '3', ... doesn't mean you can then add up ranks for different criteria. After all, you could have called them 'A', 'B', 'C', ... and A+C isn't D -- it's a total wibble. You can't multiply "$10m revenue boost" (an interval) by a weighting and assume the resulting score is twice as good as a $5m revenue boost somewhere else in your model.
I'll say that again. Such a spreadsheet has no meaning. None. Zero. Throw it away. Stop reading now -- come back once you've emptied the trash can and deleted the contents of your PC's recycle folder.
Now, an alternative method is to throw away the spreadsheet before you start. Present the raw data. Get the decision makers together. Hold a Bigger Meeting™ (start at 7am, donuts and strong coffee included). This process has a name. Quite a cute name, too. BOGSAT. Bunch Of Guys Sat Around Talking. Next time you're in a tedious meeting trying to make a group decision around some directionless agenda, that's the methodology you've adopted. No structure, no collaborative decision, no buy-in. Biggest ego wins. World's #1 choice today.
OK, so what to do about this mess. Well, these problems were identified in the 1970s. Two business school professors came up with a solution. It's called Analytic Hierarchy Process (AHP). Not the obvious name to choose if you want to market a methodology to a general business audience. Metaphyscial Acronym Confusion. It puts people off. Just imagine it's called Collective Justifiable Decisions -- trust me, it's good, despite the academic naming goof.
So, what are the key concepts? A lot is familiar: sets of alternatives, scoring criteria, and numeric scores. But there are some special twists.
Firstly, the criteria are put into a hierarchy (the "H" of "AHP"). Your strategic objective of "increase revenue" can be broken into "enter new geographic markets", "launch new products", "increase prices", etc. Want a quick-and-dirty decision to avoid all those icky costs of feasibility analysis? Just stop at the 1st or 2nd level of the hierarchy when evaluating alternative options.
Secondly, everything is a ratio metric. The inputs might be soft opinions, or hard facts. But there are mechanisms to turn these into a number that can be maningfully combined with other such numbers. And the weightings of the criteria, at every level of the hierarchy, are themselves ratio metrics. The end result of multiplying and adding the criteria weights and alernative scores is something mathematically meaningful (i.e. Analytic -- the "A").
Thirdly, it's deeply collaborative. You can blend many people's opinions into every level of the decision. Be that weighing the strategic goals (where the CEO might have a disproportionate say) to evaluating the minutest criterion (where some subject matter expert may have a greater say). It's a Process.
Finally, it can use pairwise comparisons between alternatives to recover your "true" evaluations (as ratios), using a simple scale of extreme/strong/medium/weak to express preference either way. You aren't asked to score each alternative in isolation. So, say you're using the tool to choose a new headquarters location. You wouldn't be asked whether New York has great transport facilities. Instead you would say how New York compared to San Diego. And San Diego with Chicago. And Chicago with New York. At the end they get assigned scores that tell you just how much you preferred New York to San Diego. Ratio scores.
This is a pretty subtle aspect of the methodology. If I just say "eigenvalues", will you take my word for it that there's more going on behind the scenes than your traditional Excel spreadsheet? And, in the style of QVC, not only all of that, but (for no extra charge) it tells you when you've been inconsistent, and where that inconsistency arises. There are "redundant" questions which do this for you. So if you said New York was much better than Chicago, which in turn was a bit better than San Diego, which itself was about the same as New York, then you've got a problem.
This pairwise evaluation is first done to the evaluation criteria (to get their weightings at each level of the hierarchy). What's the relative importance of increasing revenue compared to complying with regulatory and legal mandates? And so on. It can then be applied to the alternatives. How well does project A contribute to improving customer satisfaction compared to project B?
This whole thing clearly needs a tool. It's not you average problem to be solved with an afternoon of Excel macro hacking. And such a tool, thankfully, exists. It's called Expert Choice. No, I'm not being paid by them to promote it (although they did buy me dinner once). It just works. I like stuff that works. It does a ton of things I've not mentioned above. Sensitivity analysis, efficient frontier resource allocation, reports, wireless group voting using remote controls (lots of fun!), blah and blah. You can read, call a salesman if you want.
But even the salesman won't tell you what's really important to know. Because it isn't about eliminating the World's Most Complex Spreadsheet and worshipping at the ratio metric alter. It's about people. Making people involved in the process. Getting buy-in. There even being a clearly identified decision for people to discuss and a forum to discuss it -- and not a hundred invisible water cooler conversations and e-mail chains. The existence of a decision at the end that everyone can see. The ability to challenge the decision, and extract new objective criteria that might have created an illogical decision. Forcing people to re-think their prejudices about the outcome when their own opinions on the criteria don't produce the result they expected.
Decisions are about people, not mathematics, and the AHP methodology and Expert Choice tools are very good at dealing with people. Even the simple pairwise comparison is extremely user-friendly. No arbitrary weighting scales, no inconclusive mixing of objective and subjective criteria.
Now for the telco spin. As the Innovator's Dilemma pointed out, the Internet can be sustaining or disruptive to your business. For Dell it was a sustaining way of cutting out middle-men and talking directly to the customer for build-to-order. For Compaq it was the opposite, creating channel conflict and challenging the batch-built mentality. So a decision tool alone won't re-structure your business to deal with a disruptive technology innovation, should that be needed. But used appropriately, you can reasonably argue that "end-to-end compatibility" should be a corporate goal. Without a decision tool, you had no focus for influencing the corporate direction. But when the criteria for resource allocation become explicit, you can campaign to have yours added. At first they might be weighted near 0%. But repeated matching of proposed projects is likely to get questions asked. And over time, the value of that strategic objective becomes clearer and accepted. (For quite what constitutes the right criteria to become "end-to-end compatible", watch this space...)
Let's move down twenty pegs from the overall strategic problems of the telecom industry to your own career. If you don't want to have your knowledge work sent offshore, you need to be doing something beyond the ordinary. As the WSJ recently put it, you need to "move up the job chain" to survive.
Beyond basic technical knowledge lies design, innovation and business ingenuity. What better tool could there be to create personal success in these spheres than to enable greater co-operative decision making and improved strategic focus? To be the catalyst people to turn to when they need to make things happen?
Now AHP may not be the best decision process -- I'm not an expert in decision science. You'll need to work out how AHP fits into other quality methodologies like QFD. But if you're not aware of it, you're a business illiterate. And that's not where you want to be with billions of quality-focused Indians and Chinese breathing down your neck. You need to learn to read, before it's too late.
I felt like a dose of liberal propaganda last night driving home, so turned on NPR. I was amused to hear -- in an inappropriate, childish and totally irresistible way -- that Kodak are laying off 15,000 people. They have also finally noticed that the future of their business doesn't lie in overpriced paper and delicate chemical emulsions. Digital has destroyed the consumables business. Bits replicate a effectively zero cost. (Perhaps I should join a consultancy and charge $5,000 a day for these revelations...)
It so reminded me of the telco business. If you're an investor or analyst, you should be asking just two questions of the senior execs of every telco you might loan your money to. How will you make money in a world of end-to-end IP connectivity? And what processes have you out in place to align your company with that destiny? Everything else is fluff.
You can bet that Kodak haven't been measuring every product and investment decision against how it will take them towards an all-digital world. Even if -- and that's a big IF -- they truly believed all-digital was the way of the future.
This is just like telcos, who are hanging on in disbelief and denial. The proven century-old business model for voice service is going to last, isn't it? Surely we can retreat somewhere? Won't wireless be a safe refuge? Won't the government save us? Err, no. Just picture Kodak for a view of your own future.
Go on, ask them. Demand to know what the plan is. Look for proof that there is action to match the words. Trust me, you don't want a sense of schadenfreude when coming to review your own investments.
UPDATE: Interview with Kodak CEO on going digital. Note how he's assuming that what people want is more quality. It's the cameraphone issue all over again. I'm sure many people would settle for a machine always within arm's reach that would print out a little VGA-quality sticker you can give to your kids, than a heavy desktop printer with super luminescent ink. Classic innovator's dilemma stuff: move to digital is making convenience and availability the purchase criteria, not quality or speed.
UPDATE: More from the Economist here.
The theory goes like this. Everything service the user touches can be separated from the underlying transport. The transport is packet-based, low latency and with as much bandwidth as you care to buy. Internet Protocol was deliberately designed to assume the minimum possible set of things about the application. Hence any reasonably foreseeable user application can be bought independently of access. A complete re-structuring of the industry will occur as a result, because the vertically integrated telco business model becomes obsolete. The end-to-end principle and it's corollaries, in a nutshell.
It's important to know the boundaries of the applicability of your theory. If you don't know them then there are two possibilities. Either you're deeply into string theory and cosmology, in search of universal truth without bounds. Or you have a dogma, not a theory or a principle.
There are many such boundaries to the end-to-end principle, but today I'm going to focus on only one of them: branding.
Suppose you're interested in a service that performs a remote backup of your PC. You have a choice of suppliers, because that's the joy of the dumb network -- you're not tied in to your access provider for the services you need. But you're a small business, and you really rely on this service. Several employees have had their laptops go kaput in the last year. This thing needs to work when you have a problem. Who do you turn to for the service?
The problem is that smaller start-ups may not have the brand strength to compete against an incumbent telco offering the same service. If you really care about the supplier being around the day after a hard drive crash, then telcos have an impressive history of longevity. The nature of capital-intensive multi-billion dollar network industries is that things tend to move slowly. The turmoil of the last decade has been the exception, not the rule.
Once the dust settles from the decline of the PSTN, access providers will still be advantaged in offering critical services. This could be due to concerns about availability, privacy, reliability or other non-functional aspects of the service. Remember, in our laptop backup example you could be relying on that provider staying in business. The recent past would make many wary of "backups.com" becoming a key supplier.
At the same time, those access providers are unlikely to be performing much service innovation themselves. It's a question of how to associate 3rd party services with their own brand. One common way today is through a portal, which acts as a trusted recommendation engine to premium content and services. You can go elsewhere for free, but this stuff is all guaranteed to work on your phone and be exactly as described. But the fenced garden isn't the only way.
Another possibility is what you might call the "Marriott Model". In this case, their hotel franchise has been extended into new sub-brands, such as Courtyard (low-end business travel) and Fairfield (family travel). The logo on the hotel reads "Courtyard by Marriott". You're getting the brand promise, but the ability to do service innovation goes beyond the management of the traditional Marriott hotel chain. Not very far, but it's something.
It isn't hard to imagine a telco hosting a service, and then imbuing it with its own branding and privacy/security/availability promises. For instance, you know your data is secure, because it is inside a hardened telco network operations center. The customer gets the best of both worlds: innovation as well as operational trust. Who knows, maybe one day we will be seeing "AOL Vonage Voice Service by AT&T"!
Telcos aren't the only big players with strong brands. But given you have to buy access, they're strongly positioned still to retail services (even if they rarely conceive or product manage them). The end-to-end principle allows the functional aspects of the service to be located anywhere. But it doesn't automatically distribute to the network edge non-functional attributes such as financial stability of the service provider.
Radical industry change is in the offing, and many participants will become extinct. Yet it would be wrong to assume that end-to-end means decimation of all telco participation in service revenues. The brand, distribution network and existing customer bases are too strong for that to happen universally. The challenge is to understand all the things the customer values -- not just the raw service functionality -- and use your brand strength and operational capabilities to stay part of the value chain of a 3rd party product.
Dana Blankenhorn puts in writing something that I've been thinking (and practicing) for some time: the destiny of any fixed PC is to become a server, always on and always plugged into the Internet. (Hat tip to Emergic.org.)
This should portend at least a product modest strategy change if you're in a telco. All those million-dollar voicemail systems, address books, directory servers and messaging gateways aren't going to go away. But their relative technical and economic importance is going to decline. Users won't expect to host their address book with every service provider they ever touch. Instead, they'll have it at home, accessible via a web service. The same will happen to all their other data. A few, wanting a more "business class" service will pay for someone else to host it. But information flows to the edges, so why build a business model that tries to push it uphill?
(It should also suggest a change in product strategy if you're at Microsoft: ever more complex client operating systems may be exceeding user needs.)
One of my reasons for going alone was that I wasn't prepared to pay a 3rd party to hold all my emails, but I also wanted access from any client PC. Locally downloading was not an acceptable solution. As users generate huge amounts of pictures and (in future) videos, self-hosting becomes a more attractive propsition. Why take your iPod to work when you can just stream your music from home? Why can't I have all my voicemails forwarded to my home server whene I can process and access them with any software or device I want? Why do I have to wait for a centralized telco system to be installed to get the features I like?
At home, I've got a Linux server what I set up myself. I use it to host my email, a few pictures for the web, act as a file and print server. I know I'm not alone. But within 48 hours of be flying to Europe for Christmas, I was stuck. There was a power cut back in Kansas City. My server happily powered itself back on when the power returned. However, unknown to me it got stuck at boot prompt asking me if I wanted to repair a possible glitch in the file system caused by improper shutdown. All I could tell was that it had disappeared from the Internet. The only possible resolution was to quickly buy some hosted email space and redirect all my domains to point there instead. There's a market here to package up a more reliable solution. And I can't imagine many people wanting to configure a NAT router to forward service appropriately. But I can imagine people not wanting to pay AOL amazing amounts of money for a piddly dot of hosted space.
Another development that will have to occur is to make PCs less intrusive. Quiet PCs are becoming a modest phenomenon. I myself ripped out the noisy original PSU fan and hard drive from the server, and put in new quiet components. In a classic "Innovator's Dilemma" fashion the PC market seems to be overshooting the performance needs of the public in terms of CPU cycles and polygon rendering. At the same time, it falls short as a piece of unobtrusive information plumbing that you can live with. A business opportunity beckons.
Am I the only skeptic on the whole social software phenomenon? Probably not. There are two problems with the current "connection-enabling" approach of social software.
The value of the social software system increases with the "strangeness" of the other party. I have an address book to track friends and acquaintances. There's no serious money in address books any more, and certainly no pot of gold in subscription address management. But I rarely acquire new friends (those cold-hearted Brits!). And acquaintances come naturally enough through business contacts, blogging, conferences, and everyday serendipitity. So the market is damned small. And the social occasions where stangers need to meet have had matchmakers for millenia, whose existing businesses are much more amenable to an on-line extension. Believe it or not, people actually got laid before the invention of packet data networks. Amazing!
The B2B hub boom-and-bust neatly illustrated how hard these intermediary businesses are to establish in a totally virtual world. It's those spillover moments into the messy analog world that really count.
The upside potential of an online social network is limited by the number of matches I want to make (which is generally small). However, the downside potential is almost unlimited. There are untold numbers of salesmen, gurus, whackos, activists, believers and marketers who want a slice of my attention. All I want is an electronic buddy to automate the "Scram!" sign at my virtual picket fence. And the value increases with the scale of the attention deficit problem. People who want to make a lot of connection generally are offering low value to their connectees. The more the system is used, the less value it has!
So the value ("money") is probably not where people are currently looking. We need "anti-social software", if you'll excuse the grammar abuse. Connecting people isn't the problem. It's stopping the wrong connections. It's proving that the luscious 17 year old girl in the dating chat room isn't really a 48 year old divorced guy with time on his hands. Friendster? More like Foester!
Via Wi-Fi Networking News comes the hint that Craig McCaw is back hunting in the US. The tea leaves in the bottom of my cup say this will be a broadband wireless 802.20 play. Nextel's concurrent limited deployment of a Flarion OFDM network will, in the colorful words of one colleague, prove to be an "oh my God moment" for the wireless industry. The difference compared to what we have now is like that between monochrome and color TV. Combined with the technology difficulties of W-CDMA for 3G elsewhere in the world, this will be a hot story. And suddenly we'll have a pervasive low-latency, reasonably symmetric, packet-friendly broadband network. Vonage for wireless, anyone?
For today's little sermon, I though I'd remind everyone of the power of the end-to-end concept. Four times, now, we've seen a leap in the possibilities that the world's most pervasive public network can offer, each time the innovation occuring at the end points, not in the middle. And which network is this hotbed of end-to-end innovation? The good old circuit-switched telephone network, of course!
This year, the answering machine celebrates its half-century since inception by Kazuo Hashimoto. All that was needed was a box that took the standard wires in a subscriber's premises. No access to the central switching or routing capabilities of the network. And (technologically) no permission required from the carrier.
Of course, in the USA there were the later monumental battles on the consumer's right to attach such "unapproved" devices. This culminated in the Carterphone decision of 1968, establishing the user's right to add any equipment that passed a non-discriminatory safety test. These battles raged elsewhere too, which takes us to our next example of end-to-end innovation.
I remember in the 1980s seeing endless adverts in the UK computer press for discount modems. These always bore underneath a red triangle sticker saying that they were prohibited for use on the public network. I guess the restrictive testing requirements at the time of the British Approvals Board of Telecommunications were keeping products from reaching the market at an affordable price -- drop me a line if you're an old timer who knows the full story. Anyway, the modem again squeezed extra functionality out of the network. In principle, the telcos could have come up with a low-bandwidth packet data solution at a reasonable price. ISDN ("It Still Does Nothing") might have been that technology, except for endless deployment and marketing snafus. So the public by-passed all that telco mess in most of the world, and we waited another two decades for always-on packet data connectivity in the home. A few islands like Germany were exceptions.
The fax machine has deep roots in Victorian technology. Interestingly, part of its development did indeed occur with the help of AT&T. But the explosion in popularity didn't occur until electronics and printers improved sufficiently for a smaller version, free of telco interference, was available to the general public. As usual, there was a lot of shennanigans by the telcos to try to force people to "upgrade" their lines to fax quality, because of the bridges, splices and filters that had been patched on the network in the meantime.
Voicemail, our final example, came about fairly recently. Gordon Mathews came up with the idea in the late 1970s. The beauty of the system? No absolute need to interface to the carrier's SS7 signalling network to be able to route incoming calls to voicemail. Of course, smarter systems came along later, and cellular voicemail today is 100% network-based. But the telcos were forced to open up to the market, because the customer were going there regardsless.
So, it's not just those nice, sexy modern communications services -- e-mail, IM, the Web, wikis, etc. -- that did not come out of the carriers. The old innovations came from outside the system too.
A selection of musings by Dr Cluetrain on using GPS navigation prompted a little thought. Here's the meme fodder first:
It did route me home in a sub-optimal way. I'm sure the route looked like the fastest on paper, but you really don't want to go through Harvard Square at 6pm on a Saturday night unless you have to. Also, while it's legally possible to make a left onto Comm Ave the way it told me to, you'd have to violate the laws of physics to do so, particular the clause that says two bodies can't occupy the same space at the same time.
Now, if Garmin can ever close the loop, they've got a killer business model. Every time someone disobeys the directions, there could be a reason. Aggregate those events, anonymously. Record the time of day. See what the patterns are. Then offer subscriptions to the enhanced service that includes not just a static routing, but a dynamic one based on historical and present behaviour. Nobody ever turns left there at rush hour, so don't suggest it.
You may have noticed that mobile phone subscribers are all equipped with network-locatable devices. But the location dip business may prove a mirage as the handsets become able to locate themselves, that you very much. I'll leave you to figure out the obvious lessons for retaining middleman role an end-to-end world.
Please do sit down. Should the shock cause you to suddenly lose consciousness, I hereby disclaim all responsibility for any subsequent loss or injury. I'm about to defend the anthrax of the Internet: NAT.
Network Address Translation is a hack to enable private IP addresses on one side of a router (inside your network) to talk to public IP addresses on the other side (on the Internet, outside your network). It really doesn't matter how it works. The consequence is that unless the router is specifically configured, outsiders can't get in uninvited. So those on the inside can't, by default, act as servers of any service to the outside world. Even worse, even if your administrator sets things up for you, you're still limited. Without some amazing additional magic, only one computer can be a server for any particular type of service (such as delivering web pages, or answering phone calls). Ouch.
Now, this would leave you wondering, why on earth does anyone use this restrictive technology? The usual, superficial -- and incorrect -- answer is that it alleviates a shortage of public IP addresses caused by the original 32-bit address space conceived in an era before the Internet exploded in popularity. This has been repeatedly shown as bunkum. Even allowing for the inefficiencies of the original class A/B/C etc. address structure (and subsequent refinements), there are plenty of addresses for every PC and terminal ever manufactured to date. We could construct governance mechanisms to dole them out if the political desire existed. An easy way would be to simply burn a static IP address into each device at birth, and then spend a pile of cash on improved routing directories and protocols.
No, the real reason is a familiar one to programmers, particularly of object-oriented paradigms: encapsulation. It hides the inner implementation of a network from what's outside. No contract exists between us that guarantees every PC will keep hold of some sort of unique identifier. It's a means of reducing complexity among humans. The encapsulation complements the abstraction that DNS provides, each suitable for different circumstances.
But that isn't the real reason I would defend NAT. It is much more subtle than that. Even based on the above, you could reasonably argue that the loss of functionality and damage to the end-to-end nature of the Internet outweighs any administrative gains. Indeed, this is exactly what an article at Circle ID last autumn just did (NAT: Just Say No).
Corporate use of NAT is really just a short-cut to preventing lowly subordinates from taking control of the ship's wheelhouse. Complete routability between all endpoints is simply not going to happen this side of a martian invasion and complete revision of the human genome to eliminate the hereditary insecurity of senior management over employee insurrection. So there isn't a discussion to be had. It it wasn't NATted, it would be firewalled off anyway.
Now, in the consumer space things are different. IP addresses are kept artificially scarce. If you're a really good girl, you might be given a static one you can keep and treasure. But if you're not the teacher's pet, you'll get a few dynamic IP addresses that change at the whim of your provider. And if you're a bad girl, you'll get a meagre single IP address. (Those condemned to a special education regime might even get a pre-NATted private IP address, but that's considered extreme punishment.)
This is a simple means of price discrimination. And, as Andrew Odlyzko eloquently points out two recent papers, in moderate doses, that is a good thing. The $300 economy ticket from New York to London can't exist without the $3000 business class lumpy bed in the front. But without a rabble of cheapskate plebs, the businessman would be shelling out $30,000 for fractional ownership of a corporate jet, in which he could pretend that the inability to stand up tall and stretch is the height of luxury. Everyone wins.
The reason consumers like to use NAT is that it just works: even if I have a generous connectivity provider that gives out IP addresses like candy at Halloween, I still use NAT because I just don't care to investigate. And the vendors don't care to educate the public, because remedial Internet literacy isn't a profit centre.
So we sift out those happy with just web and email, or passive consumers of megamedia visual candycrap. This leaves the refined tastes of the homebrew server crowd. They'll have to pay extra. This is a good thing overall, even if us techno-elitists don't like the end of the free ride.
Moaning that NAT is the devil's technology doesn't help you. Skype made the technology easy to use through an overlay network. Speak Freely didn't, because that was seen as an impure thought. The real world clearly values usability over ideological correctness. The day may come when the NATted user of Skype can determine that they receive worse service (e.g. worse voice quality, or a slower frame rate on a video version of Skype.) They will then upgrade to a more expensive Internet connection with more IP addresses for all their proliferating gizmos.
IPv6 doesn't solve this. The existence of a gazillion unused addresses doesn't force your limited choice of suppliers to hand any of them over to you. They can simply refuse the route ones they didn't allocate. Tough luck.
NAT is economically efficient because it is part of a scheme of price discrimination through control of the supply of IP addresses. The market has spoken. Get used to it. Move on.
UPDATE: More here.
Over Christmas, I was visiting my family back in the UK. A few years ago, I clubbed together with my brother and bought my parents a PC. To our combined surprise, the oldies managed to get online, and have slowly mastered email, instant messaging and web browsing. To move them into the 21st century, I recently foised a broadband connection on them (goodbye international call charges, hello Skype).
I flew back to the US yesterday. This morning, I was having the usual "yes, I managed to get myself home safely from London to Kansas City despite being only 32 years old" conversation. They were telling me that they've phoned up their old dial-up ISP to cancel the account, now that the broadband connection is working fine. But they were worried: would they still be able to set their home page to their old ISP? They constantly use its portal for news, search and retirement property hunting.
Now, you and I know that the default web page is merely a browser setting (the end point) and not a feature of the access network. Hurah for end-to-end! But that isn't obvious to the intelligent casual observer. Just as, over time, I've come to see things like right-clicking and file shortcuts as deeply confusing concepts when you have to explain the rationale about them to a newcomer.
I'm wondering if the end of telecom-as-we-know-it will take longer than expected. Does it require generational and demographic change? Does is matter that we are in short supply of cash-stapped young people in most western economies, and have an excess of (smart but not techno-clairvoyant) silver surfers?
It would be an interesting exercise (which I'm too lazy to perform) to gather the following information:
- A list of major technology innovations that transformed society and the economy (e.g. railroad, telegraph, automobile, birth control pill).
- Identify key social and economic metrics associated with the above. For instance, the percentage of goods bought remotely, or the participaton of women in the workforce.
- Map out how the lag between technology introduction and structural change has varied with time. Presumably it has shortened.
- Extrapolate to the Internet. Use some baseline (e.g. reaching 10% of eventual market saturation penetration) as your "year zero" for each technology.
I'm wondering if increasing life expectancy will eventually make this into a 'reverse-J' curve. Initially new technologies diffuse increasing rapidly into the economy and cause structural change. Automobiles killed off the pony and trap quicker than railroads killed the horse-drawn canal boat. But new technology is increasingly complex to use. The Windows paradigm is harder to learn than buying a train ticket, poping a pill or driving a car. The ability of us moderately befuddled old people (i.e. anyone over 25) to adopt it is relatively fixed. And we're an increasing proportion of the population, and the trend to having children later increases the generational cycle time. Structural change may eventually take more, not less, time.
Will demographics dampen the fires of change? I wish I knew.
I've been lucky. I've never had my car break down somewhere remote, or on a freeway. Touch wood, things will stay that way -- but I never drive off without my phone with me, just in case. But why do I feel this way about my phone?
I was rcently watching some people talking about their cell phones, and someone made a comment that made me think. They noted that they needed a cell phone in their car, because nobody stops any more to help a stranded motorist. Now, there are many reasons why this could be so. Fear of strangers. Increasing complexity of cars making casual mechanical knowledge less relevant. But surely, a key factor must be simply the assumption that everyone else carries a cell phone, and a breakdown is no longer much of an emergency. More of an inconvenience.
So the pervasive use of cellular technology has caused a social change. It's the opposite of smart mobs: we no longer interact with good samaritan strangers, because our handsets beat a direct path to formal rescue. And who these days is often selling those roadside rescue packages to the security seekers? The phone companies, who spread their handsets into every sweaty palm in the first place.
In the same conversation, another person noted thathis elderly father wasn't interested in having a cell phone. He valued the control he has over who can access him -- simply go out for a walk, and he's disconnected from interruption. The man's father had always assumed that pay phones would be around if he needed to contact anyone. But this was increasingly no longer the case. And you can guess why -- again, pervasive use of cellular technology causes economic change. So some day this man's father will be squinting down at one of the latest undersized and overpowered products of the wireless industry, trying to make a phone call while out for a walk. And not because he wants to, but because he has to.
The pattern here is that mass adoption of a product can cause unintended consequences. If you are able to anticipate these macroscopic changes, you have a market opportunity. Hence the current fad for silent ring tones (paid for with real money!), to help cure the chirping during movies. Or even automatic muting of phones in public places.
Indeed, at what point does the spam killing market exceed the value of the (open source and free) email server market? The obesity drug market exceed the value of the chocolate gateaux and hamburger market? It is quite conceivable that the cure is a bigger market than the disease.
The billion dollar question is what social changes will occur with the arrival of pervasive broadband access? In particular, what are the ills of always-on access that will cause a stampede of product designed to protect your attention, privacy and sanity? And are the telcos smart enough to continue marketing the disease and the cure without getting hit with a backlash? Watch this space...