On The Value of Things - at a Garage Sale

The proceeds

I spent this past Friday and Saturday pondering the value of all sorts of things- toys, games, books, furniture, household items, clothing. I had four colors of stickers. Green was one dollar, blue was two, and red was just fifty cents. yellow dots we priced "as marked" which meant more than two dollars. Three dollars seems to be a lot to ask - at a garage sale.

We had a beautiful day on Saturday, and people came non-stop. The timing was great- people are starting to think about the holidays, and we had lots and lots of toys. The sale was a great success for us- about 80% of the stuff we put out disappeared, which is a good thing, because otherwise we'd have to figure out another way to get rid of it all. My colored dot assignments weren't about intrinsic value; it was more about how much we wanted to get rid of a thing.

Putting a price on things also meant that people had to value them. If 50¢ was two much for someone to pay for a kitchen knife, well, that person was unlikely to provide the knife a worthy home. Of course some people felt compelled to bargain, despite the dime-on-the-dollar pricing. So I bargained a bit, and they left happy. Others apologized for the low prices; they left happy, too.

The free items were my favorites. I had a bag of shoes in the garage; originally meant for discard. A gentleman asked if they were for sale, and I said they were free to our good customers. So he tried them on, and he was so happy that they fit. They were old shoes, but Rockports do last a long time.

Another fellow had selected bunch of books including several of my father's old particle physics books. Why my dad, an electronics engineer, had particle physics books, is one story; why I shipped them from Indianapolis to store them in my basement is entirely another. But anyone that interested in particle physics deserved to get those books for free!

Dad said: "Just go to bed!"

Most of the books we were selling were ones that our kids had grown out of. They were a dollar each, half off if you bought more than 10. Chapter books were 25 cents each, though I couldn't bear to part with Mercer Mayer's "Just Go to Bed" at any price and took it off the sale shelves.

One eleven year old gleamed when she found out there were books for sale. Her mom had bought some furniture and was arranging to pick it up later. "You can look at the books when we come back" she said, herding the girl and her 8 year old cousin to the car.

The Librarian from the Black Lagoon

It was dark and the sale was long over when they returned for the furniture. I had already packed the leftover books into my basement. After helping to load the furniture into the car, I told the mom that if the kids wanted to see the left over books, I'd be happy to give them any books they wanted. So the four of us went down to my basement and looked at the books. "Oooh, I want!" said the girl at some age appropriate books. "Ooh look, Shakespeare, Mommy! I want!" The mom and I looked at each other and smiled. The mom's smiles were understandable to any parent; mine were because it was the copy of "A Midsummer Night's Dream" that I had read in high school. The cousin did not go away empty handed. I pushed some "Black Lagoon" books on him.

Reflecting on the joy I experienced in seeing kids excited to get some books, I got a better understanding of why so many librarians love what they do. Imagine if you could do the same thing for lots and lots of kids. It would be like taking that joy and multiplying it by thousands.

Maybe that's why I've been obsessed with "ungluing ebooks".

Personal Note: I believe that in life, when you discern a calling, you need to remove whatever obstacles there may be to answering that call. I hear this call to "unglue" ebooks quite personally and clearly. And also to have a "bounty market" to make it happen ready before Thanksgiving in 2011. You can consider that an announcement. For now, why not celebrate Thanksgiving by taking a book off your shelves and find the person who is meant to read it next?

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Content is Bling

In about 1973, my father helped start a company that spun off from the CMOS chip manufacturer, Solid State Scientific, that he had previously helped to start. He was unhappy being a marketing executive and wanted to get back into engineering. The new company, Integrated Display Systems, Inc. (IDS), was formed to combine integrated circuit technology with the newly commercialized liquid crystal displays (LCD) to design and manufacture modules for LCD digital watches.

In the box of tech relics from my dad that I brought down from the attic last week was one of the watches that he worked on. It's a "Chronosplit" built for Swiss watchmaking giant Heuer. Introduced in 1975, the Chronosplit was the first digital wristwatch to combine a digital stopwatch function with a quartz digital timepiece. It was a tour de force of the day's technology, and I remember my dad being very proud of it. The Chronosplit used two separate displays for the two functions. The LCDs of the day were too slow to support the stopwatch function, while the LEDs sucked too much power to constantly display the time.

Much has been written about the Swiss watch industry and how it was disrupted and almost destroyed by the invention of the quartz digital watch. Although we're now used to the way consumer electronics drops in price with market penetration and manufacturing scale, the rapid reduction in digital watch prices that occurred in the early 70's is still astounding. From 1972, when the first LED watch, the Pulsar, was introduced at a price of $2000, to 1976, when Texas Instruments launched a digital watch that retailed at $20, the watch industry experienced a bewildering technology and business transition.

The 100-fold reduction in price could have been predicted. From the user interface point of view, the Pulsar was rather clunky. Even though the watch had no hands, you needed two hands to read the time, because the display was normally off. A subsequent version added an accelerometer that turned on the display when you flicked your wrist. In order to sell the Pulsar, its manufacturer had to capitalize on the novelty value. The Pulsar came in a gaudy gold case- which looked great when it was featured in a James Bond movie, Live and Let Die. The resulting manufacturing bill of materials was thus dominated by the case. Japanese manufacturers realized that by putting quartz modules in cheap cases, they could deliver accuracy as good as the most expensive Swiss watch for a fraction of the cost; Swiss manufacturers took decades to recover.

The first few years of the digital quartz watch were marked by incredible creativity and diversity. Eventually,  economies of massive scale resulted in a shake-out among digital watch producers. (IDS went bust and my dad moved to Hong Kong to run a watch factory.) If you go to the store today to buy a watch, you find an amazing diversity of digital watch cases and a depressing lack of diversity of the electronics inside them. The watches are sold purely as jewelry- even watches that cost hundreds of dollars use electronics modules that wholesale for a few pennies.

At the center of the US watch industry of the 70's was an electronics importer called North American Foreign Trading (NAFT). NAFT was a company owned by New York's Lowinger family. Maurice Lowinger was a survivor of the Holocaust who emigrated from Hungary to New York and built a business importing consumer electronics and other items from Japan and Hong Kong. Among the items they dealt with were inexpensive watches. When Hughes Electronics went looking for a partner to sell digital watches, they were rejected by numerous Swiss and American watch makers. Lowinger jumped at the opportunity, however, and became one of the top watch producers in the US. The consumer electronics company that resulted, Unisonic,  was successful in a number of similar businesses, including electronic calculators and digital phones.

Today, Maurice's son Andrew leads the family business, which has become the DMC Worldwide group of companies. DMC includes companies specializing in private equity, logistics and supply chain management, GPS tracking devices, luggage, and even life insurance settlements. Their latest venture aims to create a new distribution channel for ebooks, called the Copia. It's a major investment.

On Wednesday evening, I had a chance to chat with Andrew Lowinger at an event where the Copia platform was being introduced to the New York publishing community. He emphasized DMC's long history of working with many partners, integrating technology, marketing, distribution and sales so that each partner could focus on their core competencies and overlay their business models onto new technologies. The message to publishers was that working with DMC would allow them to stick to publishing great content and avoid all the messy techy and selling stuff they hate.

The Copia platform will include e-Commerce, social networking, reading applications and a line of ebook reader devices; platform components will be launching gradually throughout 2010. The Copia hopes to provide infrastructure and technology to a variety of "powered by Copia" partners. Although there's nothing innovative about any single aspect of what the Copia is doing, the combination of all these pieces represents a level of ambition and effort that's right up there with Apple, Amazon, and Google.

What DMC and the Lowinger family really bring to the table is experience in successfully exploiting rapid technological change in consumer markets. My guess is that DMC will repeat its strategy of providing value to the consumer by pushing prices lower, just as in the watch, calculator, and phone handset markets of the past.

A look at the evolution of these industries suggests a possible future for ebook readers. In each case, an existing industry is invaded by new technology. At first, the new technology is pricey and a bit clunky, but as technology advances and manufacturing moves to scale, prices drop. In each case, successive generations of devices add functions at the top of the line while continually lowering the price of the base model. Prices drop until a floor is reached. The base model then adds functions in new iterations until the high end of the market is marginalized.
 
For digital watches, the price floor today is set by the case and the batteries; for ebook readers, the display and batteries are likely to set the price floor, at least in this decade. DisplaySearch, an analyst firm covering the display industry, estimates global production of 22 million e-paper displays and $431 million in display industry revenues in 2009. (That's an average price of about $20 per display.) For 2018, they forecast a market of 1.8 billion units and $9.6 billion total revenue. That's $5 per unit. eBook readers are forecast to consume 77 million of those units, suggesting that display prices will be driven down by applications (such as shelf tags) having nothing to do with ebook readers.

If the price of an ebook reader drops by a factor of 10 from today's Kindle, it will be $26, less than the list price of a new hardcover. If it drops by a factor of 100, the way digital watches did in five short years, it will be $2.60, similar to what it costs to print a book; the print book would join the mechanical watch as a low volume niche product.

The recovery of the Swiss watch industry in the 90's came about as Swiss watch manufacturers began  once again to market their products as jewelry. The value of a watch today is not in the mechanism, it's in the bling. When the cost of an ebook reader drops by more than a factor of ten, the value of the reader will once again be in the content it holds. Once again, content will be bling.

I'll write more about the implications of cheap ebook readers in my next post.
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Second Sourcing, Application Interfaces, and a 16 Bit Static Ram

While returning my Mac Plus to the attic, I decided to bring out some electronics relics I have from an even earlier era. The photo shows an undiced 1.25" wafer of integrated circuits and two packaged chips from around 1969. (The acorn hat is for scale) There are about 200 transistors on each chip. I think it's a 16 bit static RAM chip- with a magnifying glass, I can see and count the 16 cells. For context, when the Mac 128K Mac came out, it shipped with 64Kb DRAM chips. (about 1000x more dense). Today 4Gb chips are in production, a factor of a billion denser than my relic, and the silicon wafers are 30 cm in diameter.

My father was one of the founders of Solid State Scientific, Inc., (SSSI) a company that made CMOS integrated circuits. SSSI, located in Montgomeryville PA, started out as a second-source supplier for RCA's line of low-power CMOS logic chips. In the electronics industry, it has been a common practice for component manufacturers to license their circuit designs or specifications to other manufacturers so that their customers would be assured of an adequate supply. The second source company could compete on price or performance. For example, engineers could design systems with the 4060 14-bit ripple counter chip with internal oscillator, and know that they could buy a replacement chip from either RCA or SSSI. If RCA's fab was fully booked, SSSI would be able to fill the gap. There was no vendor lock-in.

Second source relationships could be tricky- AMD and Intel famously ended up litigating AMD's second-source status for the 8086 series of microrocessors. Logic family chips were commodities, and profit margins were thin. The second-source gambit was a judgment that a company could make more money by driving prices down and volume up. Companies like SSSI were always chasing after higher profit margins in new applications such as custom circuits for digital watches. The large volume parts would pay for their fabs, and the proprietary circuits would earn the profits, or at least that was the idea. Vendor lock-in, while while it might discourage adoption and reduce volume, is good for profitability.

As chips become more and more complicated, the chip manufacturing industry realligned. Today, apart from giants like Intel, most chips are manufactured by foundry companies that don't do chip design at all. Chip design companies try to maintain high margins with exclusive intellectual property; the foundry companies aggregate volume and drive down cost by manufacturing chips from many different design companies.

I've been thinking about the way that the advance of technology moves application interfaces. In the days of the CMOS logic chips, the application interface was a spec sheet and a logic diagram. That was everything an circuit designer needed to include the component in a design. Today that interface has migrated onto the chip and into software;  chip foundries provide software models for components ranging from transistors to processor blocks for designers to include in their products.

When software engineers talk about application interfaces, they're usually thinking about function calls and data structures that one block of software can use to interact with other blocks of software. These interfaces, once published and relied on, tend to be much more stable over time than the code hidden behind them. To some extent, software application interfaces can hide hardware implementations as easily as they can hide code. One result of this is that new chips may come with software interfaces that persist through different versions of the chip. In something of a paradox, the software interface is fixed while the hardware interface moves around.

Software has become more and more part of our daily work, and interfaces have become important to non-engineers. File formats are a good example of application interfaces that are important to all of us. The files I produced on my Mac Plus 25 years ago are still with me and usable; because of that, but you can read the Ph. D. dissertation I wrote using it. OpenOffice serves as a second-source for Word, and I can use either program with some assurance that I will continue to be able to do so into the future.

There's some backstory there. The "interchange format" for the original Word was "RTF". RTF is a reasonably good format, informed by Donald Knuth's TeX, but it was always a second citizen compared to the native "DOC" format. Microsoft published a spec, but they didn't follow it too closely and they changed it with every new release of Word. One result was that it was difficult to use Word as part of a larger publishing system (which I tried to do back in my days as an e-Journal developer). The last thing Microsoft wanted was for competition to Word develop before it grew to dominate the marketplace.

Cloud based software (software as a service) depends in a interesting way on application interfaces. Consider Google docs. You can send it a ".DOC" file created in Microsoft Word, do something with it, then export it. In a sense, Word is a "second source" for Google Docs, and consumers can use Docs without fear of lock-in. Docs adds its own web API so that developers can use it as a component of a larger web-based system. This is the "platform" strategy.

These new interfaces offer a user lock-in trade-off. While the customer gains the freedom to use a website's functionality with services from other companies, the control of the interface leaves the other companies at the mercy of the  company controlling the API. Developers coding to the interface are in the same situation as a second source chip supplier- always exposed to competition, while the platform provider becomes more and more locked in with every new component that plugs into it.

We now see a very interesting competition in platform strategies emerging. Apple's iPad/iPhone/iTouch software platform tries to lock-in consumers by opening an attractive set of API's for app development. It goes further, though, by attempting to control a marketplace (the app store) and imposing restrictive terms on app vendors. Google's Android platform tries to do the same thing in a much more open environment. Apple seems to have learned an important lesson, though. The biggest difficulty facing a company trying to plug into a platform is profitability, and the iPhone software marketplace appears to be offering viable business models for developers. It remains to be seen whether that condition will last, but it's clear that technology shifts are pushing services (such as phone service) that used to be stand-alone products into large, more complex ecosystems.

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After 25 Years, My Mac Plus Still Works

On this day 25 years ago, I got my first Mac.
It had 128KB of RAM, a single-sided 3.5 inch internal floppy drive and a Motorola 68000 microprocessor running at 8 MHz. The black and white 9-inch CRT screen had a resolution of 512×342 pixels. My purchase was a bundle that included a 1200 baud modem, an Imagewriter printer, an external floppy drive, and a copy of MacPascal. As a Stanford student, I was eligible for a discount, so the whole package cost me $2,051.92, including sales tax. About a year later I got it upgraded to a Mac Plus.

I'm currently typing on the 8th Mac that I've used as my main computer. It's a MacBook Pro.  It has 4 GB of RAM, a 320 GB hard drive, An Intel Core 2 Duo Microprocessor running at 2.53 GHz, and a 15 inch color LCD screen with a resolution of 1440x900 pixels.

I never got rid of my original Mac. To celebrate its 25th birthday, I went up to the attic to bring it out for some air. My kids were excited to get a look at the antique. It still works.

What was interesting to me is that apart from being alarmed at the disk drive noises, and asking "is this what they called a floppy disk?", my teenagers sat down and immediately knew how to use MacPaint, MacDraw and Word 3.0. They understood how to interact with Ultima II. The graphical user interface notions introduced with the Mac are still alive and well.

This got me thinking about the longevity of user interfaces. For example, the rotary dial telephone that I grew up with was an interface introduced in the US in 1919. It lasted about 60 years. The Model T Ford that I wrote about last July had the same basic driver interface as my car does today and is still going strong, but the television I grew up with has almost nothing in common with the one I own today.

My all-time favorite YouTube video is taken from a Norwegian comedy show. It imagines what it might have been like for users when the new-fangled "book" came along:


The book's "user interface" (more precisely, the Codex) has had a pretty good run; it's in its third millenium. Kids 25 years from now will know how to use the codex interface, though I'm guessing they'll consider books to be hopelessly out of date, like the vinyl LPs that I had to move around to get at the Mac in my attic.

It won't be the Nook that replaces the book, though. I got to play with one the other night, and while it has some pretty interesting features, the user-interface, which uses a small touch screen and a larger e-ink display, is not long for this world.

It's possible that my long run of Macs will eventually end with a touch oriented device, such as the iPad. Its hard to imagine the devices that, 25 years from now, will make my very nice MacBook Pro seem as much an antique as my Mac Plus.

The kids lost interest in the Mac Plus after about 20 minutes. It had no internet.

More pictures of my Mac are on the Facebook fan page.

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