Sepy 09 Cookrep

THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009

Offshoring in a Rapidly Changing Networked Age A Case Study of Arcadia as a Talent Enabling Ecology Fit for Joshua Cooper Ramoʼs 21st Century World

Joshua Cooper Ramo, the cady at his apartment in St. Volume XVIII, No. 6 author of a beautifully written Petersburg at the end of May, September 2009 ISSN 1071 - 6327 and fascinating book, The an interview in which I asked Age of the Unthinkable, lays him to recount the develop- rather an ability that enabled claim to a wide range of ideas ment and history of his suc- him to survive in Soviet in helping all of us cope with cessful and now 15-year-old times. Rather than become a the increasingly rapid pace of 160-person-strong offshore dulled and sullen apparatchik, communications and technol- software development com- he specialized in flexibility ogy change on a worldwide pany “Arcadia.” and then went on to make all scale. Ramo's goal is to set a manner of what he calls ser- new paradigm for the estab- In addition to recounting the endipitous connections with lishment and analysis of history of Arcadia, I asked people in the chaos of the foreign-policy -- a breathtak- Arcady, whom I've known 1990s. These were actions ing scope indeed. I think he since 1994, to describe the that enabled him to coalesce hits the ball out of the park business models that have people and resources around with a beautifully written enabled him to be successful what is possibly Russia's ear- eclectic overview of where in a time of unprecedented liest offshore software devel- “viable intelligence” is to be political and economic opment company. found. “Viable” as opposed to change. Now, in overlapping be peculiarly American self- the model that Ramo pre- Ramo makes clear that the centered variety that under sents with the history of Ar- most successful spies, George Bush led us into Iraq cadia, it seems clear to me and so many other disasters. that's what has made for a On the Inside unique and long term viable Birth of Russian My purpose here however is enterprise is not Arcady’s to use Ramo's ideas to intro- ability to program in machine Software Industry duce my Russian friend Ar- language which he has done; Contents p. 73 cady Khotin. I have been or his ability to manage Please read Explanatory Note spending a lot of time editing teams of people or his ability page 66 the interview I did with Ar- in many other areas but

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 1 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 businessmen, entrepreneurs telligence agent to serve out the context in which they -- agents of any stripe on the a full four-year term from must play. I invite readers to international scene -- are 2002 through 2006 some- contemplate Arcady’s skill in those who are sensitive to thing that no other person in developing a contextual un- relationships, contacts, and his position had done before. derstanding of the ways in people in general, and those The common ability seems to which he needed to act to who have the ability to see be one of understanding in build his market ranging from the big picture and build a the finest detail the context being one of the creators of place for themselves without, that binds people technology the first Russian software As- in the more typical American, and events together sociation to creating his own style marketing themselves executive search firm. as someone special whom Ramo describes an experi- the world must follow. Ramo ment in visual perception. And to add a higher and suggests that being able to The experiment compared more so-called ground level I display a strong challenge for American graduate students find myself thinking of the empathy in new and unex- to Asian. And he comes to Russian philosopher Peter pected situations may be the very interesting and I be- Chaadaev who wrote in his worth as much as the more lieve true observation that 1829 philosophical letter traditional 19th century bat- the Americans visually seized tleship or 20th century car- first on the largest and most You would think that with rier group. imposing objects be they one elbow resting on animals, persons, fortresses, China and the other on Arcady describes in the inter- military-machinery, or what Germany we would some- view that follows not just an ever in the pictures that they how have developed an organization that offers were shown. When the Chi- ability with in our own skilled programmers for hire nese students were shown culture to build a bridge and writing code for some the same pictures, their eye between East and West foreign purchaser but rather movements focused not pri- and combine the strengths a company that is attuned to marily on the largest object of both within that of our develop processes that put its in the picture but on the con- own country. Chaadaev’s operations within the cus- text in which it appeared. conclusion was bitterly pes- tomer’s culture and within simistic but I am wondering, the shoes of its customers. My conclusion may be a bit if in this one case, almost two To use the old cliché technical premature and somewhat centuries later, Arcady can skills may be a dime a dozen flippant because I certainly claim to have been successful but people skills are much have no authoritative re- - operating in effect with one more rare. Ramos describes a search on which to place it. elbow in China and the other broad array of military, com- But, having known Arcady for in Europe. puter, economic, and intelli- some 15 years and studied gence challenges. His de- Russian history and culture, I scriptions include the Japa- find myself wondering nese genius whose ability to whether a Russian offshore do mash-ups of unlikely ideas software corporations may yielded the Nintendo Wii. He have a strength in bridging also describes the way of the ability to see both the perceiving the world that en- primary players but also to abled Farshak the Israeli in- see them operating with in

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 2 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 Arcadia: a Case Study in Navigating the Turbulence of Post Soviet Russia The Strategic Evolution of a Firm that is not a Body Shop But People and Internet Centric

to civil life and went to work they are now. From Radio for one of many Research In- Engineer to stitutes in St. Petersburg. I The change was very inter- was hardware developer, esting and exciting one that Internet building testing equipment took me all around Moscow Entrepreneur that by modern standards and St. Petersburg to many was quite primitive. very unusual places. I worked COOK Report: How did you at companies involved in the get started? COOK Report: I remember development of the Russian you telling me that while your space shuttle and on scien- Khotin: I had a relative who work was interesting the cul- tific experiments. And at the was a radio engineer. When I ture and the environment same time I found myself was a young student, he was terrible: very bureau- having a project with a com- taught me some basics and cratic, bound to a clock pany that was automating very soon I was assembling punching routine and conse- the production of plastic radio receivers and transmit- quently not productive. Cor- troughs for feeding cattle. ters at home. rect? From the exotic to the mun- dane, and a wide variety of COOK Report: And you went Khotin: That was indeed the projects that taught me a lot. to the Aviation Engineering case. Institute in St. Petersburg -- COOK Report: I remember Leningrad at the time -- and After some additional training you telling me many years got a degree in radio engi- in the late 70s they told me: ago that you were responsi- neering? if you guys are not into mi- ble for two programs in par- croprocessors and into pro- ticular. One program that Khotin: Yes. And I was im- gramming, in a few years could monitor the tempera- mediately drafted to serve you'll find yourselves on the ture conditions of the chemi- my two years in Red Army. It street. In 1978 I took their cal stuff on a conveyer belt was tough but exciting at the advice very seriously and quit and decide whether parame- same time. My unit was 60 my job in the radio field. I ters were out of order and km from Tallinn, Estonia, started working for a com- operation needed to be shut which we Russians consid- pany that was very much in- down. A decision that had to ered to be a “foreign country” volved in software develop- be made 15 minutes before a at that time, so every Satur- ment and hardware and net- crisis point was reached. And day I was able to “travel work infrastructure. These that you learned the “chemi- abroad”. were all things that at that cal stuff” was some type of time had different names and rocket fuel with features In 1972 I eventually returned were very much simpler than close to gunpowder.

And the other program being perestroika. By 1989 Dia- use the funds so they were developed was to measure logue completed the meta- largely wasted. Some of the the ceramics cover stress be- morphosis into a joint ven- money went for luxury tween the part of the space- ture with a registration num- goods, other parts went for craft facing the sun and the ber that was something like offices and a small part for part in the shadow. I mar- 14 - that is the 14th joint business development. Unfor- veled at the complexity and venture in all of The Soviet tunately we had no idea how asked you how it was possi- Union. There is lots of infor- to accomplish that. But we ble with the computer hard- mation about the Dialogue were trying hard. ware you had. You responded Joint Venture on the Internet that because the hardware even now. Our Moscow guys started was weak indeed you wrote working with Microsoft. They mainly in machine language http://findarticles.com/p/artic localized MS Word and other or if you were fortunate you les/mi_m0REL/is_n11_v89/ai products. They also started could use assembler. _7911594/ dealership for several other Western IT companies. We in Khotin: Yes it was good http://www.businessweek.co St. Petersburg were also very mental training. m/archives/1992/b326368.ar much involved. We built one c.htm of the first Bulletin Boards in COOK Report: What hap- Russia. We joined FIDONet. pened next? (In 1990 the Internet was not COOK Report: So early in yet available in Russia). The Perestroika and Joint 1990 Dialogue took you to Moscow JV Dialogue employ- Venture Dialogue New York and Boston? ees built almost the first node in Russia, we followed. They Khotin: In 1989 I had a Khotin: Yes it was my first were numbered 2:5030/2, trip to the US -- exciting for while we were given the phone call from a guy with whom I had worked with ear- me -- simply unbelievable. number 2:5030/9 which lier and who liked what I did. Work at JVD was very good meant that we were #2 and He invited me to become a and everything was fantastic 9 in all of Russia! software director for the St. except that we had zero business knowledge. This was Under these conditions, it Petersburg (Leningrad at that time) office of one of the very the joint venture -- a Russian was not surprising that by first Russian-American joint part that primarily supplied 1992, our software business ventures in software devel- programmers and an Ameri- in St. Petersburg had almost opment -- a company called can part that funded us and completely disappeared. I was lead by a guy named Joe decided that I would quit and Dialogue. We called it JVD. Ritchie and his employee Jack start something on my own. COOK Report: So life from Byers. Joe was from Chicago So for a year, beginning in 1989 and on was better? and involved with some kind 1992, I took a job as an as- of a stock exchange -- he is a sistant professor at a campus fantastic guy -- I met him of one of the universities in Khotin: Yes absolutely. It was the time of perestroika just a few times when visiting St. Petersburg. It paid a tiny and high hopes. This com- Moscow. Anyway, he gave us salary and the work was not pany, Dialogue, adapted itself money. The problem is we interesting and I was not quickly to the environment of had no business skill and no happy. However, there was idea what to do and how to one thing that gave me an

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 4 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 extraordinarily important ad- Jack Rickard the Editor as the in Russia in return. In his vantage. At this university I President of the St Peters- January 1993 issue he pub- had free access to the Inter- burg Clipper User Group. I lished my email and agreed. net. In early 1992 this was told him how much I liked an amazing luxury. Boardwatch and that Esther In his May 1993 issue pp. 75- Dyson had given us a free 76, Jack published the At that time one of my subscription to Release 1.0 lengthy report on BBS and friends gave me a small lap- and RelEast. I asked if he internet in Russia that I had top computer. Consequently, would do the same for promised to send him. in the daytime I was teach- Boardwatch saying I would ing, while in the evening I write him a column on events My understanding of publicity was using computers and Internet at my office and at night browsed BBS world from that tiny laptop with just small floppy instead of HD.

One of my discoveries during 1992 was Boardwatch magazine edited by Jack Rickard. At that time I was discussing business opportunities with Jeff Bennett – an American with whom we still cooperate and are friends. On one of his Russian visits in 1992, Jeff brought me a copy of that magazine.

Boardwatch and Communicating One to Many

Ever since 1989, when I was working with JVD and later when I was trying to start my own business, my idea was to communicate with anybody who would be able to bring me business. I tried everything - Boardwatch was just one of the channels. I tried to contact them and get some publicity from them. Toward the end of 1992 I emailed Arcady and Larissa Viktorovna (Khotina) outside Mariinskii Theater Sept 26 1994. First row orchestra opening night seats were $5 each.

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 5 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 was trying to get exposure. Consequently, somewhat earlier I had written a letter to PC World. 400,000 subscribers and one letter of five lines. Eleven responses - zero business. More than 20 responses from the first Boardwatch article in January 1993.

COOK Report: I made my first visit to Andrei Sebrant and stayed in his apartment at the Red Gates near the main Moscow railway station square in April 1992. In Sep- tember I visited Andrei again and this time Rickard sent me over with a new 9600 baud modem for the St Petersburg Fidonet chief and some Boardwatch copies. contacted NBC Nightly News. this address, we have re- Dave wanted NAPLPS pro- I followed up on an idea was ceived more than 3000 graming done. I put him in sent to me by one US friends messages from across the touch with Andrei whom he made while I visited US first country and around the visited n November 1992 and time. He suggested that I world from places as far hired at $100 a month. Dave send an email to NBC Nightly away as Australia and Is- sent Jack a picture and report news where they might actu- tanbul. Most were about which he published in his ally read it on the air in the our series. One however February issue. Then Hughes evening. It worked – Brian was different. It was ad- returned in early March 1993 Williams read on the air. Click dressed - to pick up the NAPLPS code. on this URL to listen http://www.offshore-software To: All of us. Khotin: Yes and having just .ru/fl_movie1.htm Subject: From Russia with received the February issue Love with the page shown above, I December 1993 – Brian decided I had to meet this Williams: “for those of you D e a r A m e r i c a n s , M y American Cursor Cowboy and who have access to the warmest seasons greet- took the over night train to Internet we invite your ings from St. Petersburg Moscow for a six hour meet- comments. Our Internet Russia. Please keep up ing before having to go back address [email protected] your great work in helping to the train station to return - no spaces – we look for- us to dig ourselves out home. ward to hearing from you. from the deep hole that in the two days that we we got into about 70 years At the end of 1993 I also have been broadcasting ago. I am sure it will be

take care of my daily affairs and then send him e- mail. He would be up and running in Florida by late afternoon my time and we would exchange three or five or even 10 e-mails in a 24-hour period. He was extremely helpful he sent me the modem, then a laptop, and then invited me over. He gave me invalu- able help in developing my early business.

COOK Report: And that first laptop he sent with me right? Arcadyʼs Doctorate of Entrepreneurism from St. Petersburg School of Capitalism also known as “Schwartz University” rewardable for both na- life in Russia if he tions. Cheers. Arcady would print it. It was Khotin one of these articles that Philip Schwartz in I got about 40 answers – Gainesville Florida zero business… read, in late 1993.

COOK Report: Wow! So It turned out that we that came from a series of were same age and events kicked off in part by had similar interests my own interaction with in many areas. Phillip Rickard and Hughes in 1992 and I began a very and it explains how my friend heavy e-mail commu- Dave Hughes, the old cursor nication over a period cowboy, found out about you! of weeks and then Amazing! The odds of that months and now even happening are certainly tiny. years. I was asking What caused you to send it him tons of questions off to Boardwatch and to about how to do busi- NBC? ness. We called that e m a i l s t r e a m Khotin: I think it was just Schwartz University. serendipity. A chance inclina- tion that paid off. And when it This was possible for did, I sent an offer to Jack me to accomplish in Arcady at the New Jerusalem Monastery northwest of Rickard that I would send part because of the Moscow May 14 1994, where we went sightseeing after him an article about online time shift. I would he picked up his new laptop, I spent much of the day telling him everything I knew about Dave Hughesʼ Rogerʼ Bar. © 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 7 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009

I wanted more and thought I could do more, so I started looking for new projects and I was successful in getting them here and there. Some- times interesting, sometimes not so interesting. Living standards were so low in Russia at that time, that I was able to charge $150 a month for a good programmer. No wonder it was at- tractive! But “offshore outsourcing” was a bad word at In Moscow Arcady receives his Scwartz University laptop at the apartment that time. Consequently sell- of relatives of a neighbor of mine in Trenton NJ. ing our inexpensive brain power was still a challenge. Khotin: Yes. tomer was a man named Jeff Bennett from Jericho, Long COOK Report: Did these COOK Report: I remember Island. This is the same Jeff new projects come from the it was the beginning of May who brought me Boardwatch. friends of Jeff or those of of 1994 and I was coordinat- You and I visited him once. Phil? ing with you my arrival in I opened a St. Petersburg of- Moscow and you told me fice for Jeff. All people were Khotin: Unfortunately not. about his existence and his employees when we Primarily just through wide asked if I would be willing to started. I was lucky to find reading on the Internet and carry the laptop over and of very bright fellows. Two of sending many many individ- course I said yes. He them left us after a few ual e-mails tailored toward a FedExed it to me and got it to years, one started his own specific situation and offering me about 48 hours before I (very successful) company in service. The idea of spam left. When we met in 1994, I US, another one became a was just becoming known think you told me you had freelancer, also is very suc- and I took of course great three employees? cessful and manages to care to avoid being perceived spend winter on Cyprus and in that way. Primarily, I Khotin: Yes. The three were summer in St. Petersburg would read articles in Com- all Jeff’s guys. suburb known as Pushkin. puterworld or BBS message Two other guys are still with boards and see the name and COOK Report: Please take us, working on Jeff’s projects e-mail address of the author; me through the events of the since 1994! send him e-mail about the next two or three years. article; get in a conversation I was flexible and had a lot of and then offer my service. I First Customer and energy. I wanted to explore was not asking. I was offer- Comdex and, since my hands were ing service -- volunteering to not tied, I started looking for do some things for free with Khotin: Business was rather other customers. The ar- the idea that if they liked slow. My first paying cus- rangement with Jeff was them then perhaps I could do keeping me afloat. However them for pay.

I go with him to the Comdex computer show in Las Vegas in 1995.

COOK Report: You went there in marketing mode?

Khotin: Yes for the first time I had a proper business card. For me it was a real eye- opener. I understood that America was terrific and wonderful country but all so I realized that it was very very far away. By 96 my business Arcadyʼs first MacIntosh in 1996 in his fifth floor walk up former Soviet was demanding that I fly communal apartment located only 100 meters from Nevskii Prospect. back and forth to America as many as three times a month COOK Report: How did you in helping me formulate and it began to become really convince them to pay you? proper estimates. tiring. I understood by 96 or so, when I had a going con- Khotin: it was difficult. My COOK Report: This was cern and profits for further business English at that point happening then in 1994 when investment, that I needed to was almost nonexistent. I I met you for the first time in look closer to home in order had no idea about how to May and in September of to establish a sustainable and speak at the terms of pay- 1994 when I visited you in stable business. ment. I had no idea of the St. Petersburg for the first concept of things like retain- time? ers. My Soviet mentality did DataFellows and not allow me to ask. I was Khotin: Yes. Getting Some waiting for them to offer, that Geographic Focus it was not very good because COOK Report: Consequently when someone asked me in 1994 you began to get With my first real profits, I how much I wanted to be educated in business eco- took my best developers and paid for this activity, I had no nomics, statements, invoices, went to Finland and took part idea how to arrive at an ap- price negotiation terms of in a seminar called “Visual propriate figure. I began to payment and so on? What Basic for the Internet” given ask Philip for help and advise happens next? You visited by a Finn, Otto Burman. Otto which he began to generously me in New Jersey in 1995. invited me. I had no money offer me. to pay for his seminar but I In trying to price a small pro- Khotin: My first real income said look if I can make a ject I had no idea how to say came from customers in the presentation, will you let me it would be about $500 or it United States and I hoped to in? He said sure. As a re- would be in the lower hun- get more. Philip was kind sult, my best programmer dreds of dollars. Philip had enough to send me the lap- and I went to Helsinki in software development expe- top and offer much advice 1996. My first impression rience and he was very good and he suggested to me that was that, if you do not pay

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 9 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 attention to the architecture which is very Russian, everything was like the USA. Eve- rything is available, people are smiling at you, everything is clean and safe and the society seems to really work.

We went to the seminar and spent six hours listening to presentations in the Finnish language and then we made our own presentation and English. People were com- plementary and I thought “wow, we will get some projects” but we returned back to St. Petersburg and nothing happened. I definitely had raised some interest but I had a zero marketing skills including a lack of understanding of how to follow-up. I even went without business cards. They said we will send you something but they did not even know my e-mail address. I was still a very inex- perienced person.

I was still learning. I received valuable help from Esther Dyson whom I had met during the joint venture Dia- logue days. She gave me Arcady and Philip Schwartz in May 1998 in front of the grave of Nikolai free ticket to her High Tech Rimskii Korsakov Forum Europe in Amsterdam, 1997. A year later I was able These meetings were terrific COOK Report: And mean- to pay for my visit to High exposure to real business while when my major contact Tech Forum Europe in Stock- with people who were in the at the National Science Foun- holm 1998, and after that to middle of everything. Listen- dation was unable to give me High Tech Forum Europe in ing to them, speaking to Ira Magaziner’s email address Budapest 1999 and High Tech them, seeing them helped me and you told me that Ira was Forum Europe in Barcelona a lot to dare to drive Arcadia speaking at Esther’s 1997 2000. on an upward path. meeting. I asked you to met

Ira and get his email address. guys I would hire would be time you were hopeful of get- You did and for the next two able to do the work he ting some kind of partnership years I was very much in- needed. that would allow you to share volved in things ICANN their good fortune. through Ira. Aa the cliche After the visit to Finland goes - fate works in strange nothing happened for three Khotin: Despite the so-called ways. or four months but then I got wonderful "experience" that I an e-mail from two friends, was telling you about, I did Khotin: True. Meanwhile, Risto and Ari, who said they not understand that I needed back in 1996, I had a number wanted us to do something to ask. This is my Russian of ongoing projects including small for them. We did. They mentality. I have learned now some work for Microsoft that gave us more work. The re- that you need to ask. But at Jeff Bennet gave us. I had a lationship grew steadily and that time I would look for few customers on my own as fifteen years later we are still them to offer and if they did well. There was one fellow doing major work for this not offer I would not ask. in Boston who, when I came company which, at the time, And of course why would to the US, gave me a Macin- was known as Data Fellows. they be crazy enough to offer tosh to take back to develop The company is now called F- me stock for which I had his software. I brought it Secure and, during the .com never asked? back, hired a Macintosh pro- boom, the company went grammer in St.Petersburg very high and made lots of Getting back to the original and we developed software money. It has never looked work for DataFellows which for him. The same was true back. It never crashed. was very exciting, I found with Jeff. I had no computers that all their people were initially, but Jeff sent me COOK Report: I remember very bright and skillful. But I three computers so that the you were telling me at the also came to understand that I needed to establish Ar- cadia on a proper professional level. I was getting useful feedback from Philip Schwartz as well as from a guy named Ted McMahon from Boston University. Ted came to Russia to teach English and I was using him to teach my programmers English. I hired him to teach me how to write better business letters in English and I took them with me once on a trip to Helsinki to help in my negotiations. The problem was that salaries were rising and, in order to pay them, I had to re- Acadia Offices in 1997 as “Mom and Pop Shop”

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 11 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 negotiate my agreements structure. I must do with my customers almost the same. You use every year. As you under- accounting software I stand, renegotiation can be a m u s t a l s o d o t h e very difficult process. You same. As time passed, need to be very adept to de- I learned lots of things liver the necessary message. that were really a by- The problem was English is product of living in Fin- not my native language land with a normal Western business envi- Consequently, both he and ronment. Philip have visited F-Secure in Helsinki and helped me Being Paid in negotiate with F-Secure. By Dollars at the the way, later on Ted made great career in Russia, he Time of the 98 was the one who helped to Ruble Crash build one of the biggest retail Allowed Us to Sergei Baklan Managing Director, Arcadia chains in St. Petersburg Grow Up as a called “LENTA”. Company so they would certainly have plenty of access to dollars. COOK Report: But Philip vis- At the beginning 1998, we ited you only once so far yes? were still a mom-and-pop Khotin: Yes that is correct. It was in May of 1998 and company. It is true that we One of my old friends Sergei the end of my visit over- had four or five important Baklan was working for his lapped with the beginning of and relatively long-term cus- aviation company. (He took his? tomers. We had 40 or 50 you to Novgorod in Septem- employees but we had no ber 1994.) I was fortunate to Khotin: That is correct. He clear idea of where we were be able to persuade him to and I went to Helsinki shortly headed in the future. How- come to work for us. I of- after you returned home. I ever that August there was fered him a share in the think I owe our success to the Long-term Capital Man- company and he has become serendipity and to Philip and agement crisis and the Rus- Managing Director of Arcadia. to the luck of having some sian government default and Another fellow whose name is early good customers like Jeff in one month the ruble went Vlad Voronin was also work- Bennett and F-Secure. from 6 to 30 rubles a dollar. ing with a different software It was devastating for many company in the local market I want to stress that F-Secure Russians but because all our in St. Petersburg. He came to is an outstanding software customers paid us in dollars me offering to work on qual- company – one that is very all of a sudden our income ity control. I was not sure we good at business processes went up 500%. and project management. needed it. But quality management is a mandatory part Observing how they did COOK Report: And this in- of every company with seri- things became like a finishing cluded the Finns? It was, af- ous business practices. And school for us. We emulated ter all, before the euro and Sergei recognized how impor- them. You have someone they were a world company running your network infra- tant this was.

COOK Report: Is this is focused primarily on code testing?

Khotin: No. It is much bigger than that. The idea behind quality management is the establishment of company-wide quality goals covering every aspect of your company's life. And then you manage them by empowering people and you discuss with your management what we have to do to reach those goals and make these goals our own goals as well as the goals for the company.

COOK Report: This is like ISO certification?

Khotin: Yes - the goal was to become certified and have quality objectives and standards in place that matched international standards. Most value of certification is that it is confirmation that you have reached the objectives you have established. Consequently, with Sergei and Vlad in place we completed ISO certification around the end of 2002 or the beginning of 2003. That transformed our company from a mom- and-pop shop.

The Formation of ARCADIA ++

Professional Team Building - Arcadia Annual Party in But let me turn back to June 1999

1998 and 99 when the Y2K high demand from the West chance to benefit from its problem was being very our people started leaving us success as long as you con- forcefully articulated. Of and finding employment in tinue to work for us. If you course we understood the the United States. As we leave, you will have to sell issue and wanted to get a were now part of an associa- the stock back to us. piece of the action. We tion, we had a window that wanted to get work not only allowed us to see that the COOK Report: How did you on the international market same brain drain was hap- get business for the recruit- but also within the Russian pening across all the mem- ing company? market. As a result we bers of our association. started to learn who is active Khotin: Word-of-mouth. in the Russian market and We saw an opportunity in the Personal meetings. Friend of became familiar with several situation and started a sub- a friend. Web sites. Nothing other local companies. Before sidiary company called Arca- special. We tried advertising this time, we had never even dia ++ that functioned as an several times in some news- thought of looking at any executive search and soft- papers and found generally domestic market – it still was ware developer’s recruiting that it was useless because non-existent. agency. We would say to we would have to spend a programmers: if you want to really big money in order to Our search brought several go to the US we will help you get results. Word of mouth, quite unexpected results: to get there. And it rather we found, worked much bet- than fight the inevitable ter. - Time to market was trend, we will earn some in- very important, even come from it. But our timing This is how our recruiting ef- in Russia. We were was not good because by the forts started and nowadays late and the niche time the recruiting company we have around 200 potential (very small one) was was officially formed and we clients who return to us from filled by a number of had created and populated a time to time looking for peo- v e r y d e c e n t l o c a l database, and you have the ple. Of course we touch base companies. We got to .com crash and the demand with them and have about know each other and disappeared. 30,000 CVs in our database. later on created an As a result, quite often when a s s o c i a t i o n . M o r e Nevertheless, we decided to someone wants a specialist, about it below. make the most of the situa- we can dig through our data- - tion because executive base and find a few good - We have noticed great search companies can make candidates. opportunity with serv- some money. And, as a result ing companies with of what we did almost 10 COOK Report: This gives employee and execu- years ago, we have this small you some added cash flow tive search. subsidiary where several of then? What percent of your our key employees are overall business you think it Now in 2000 with the resolu- shareholders. We use it as a would be? tion of the Y2K problem, the retention instrument. demand for programmers Namely, while you are an Ar- Khotin: I would say it con- stayed quite high until 2001 cadia “key employee,” you tributes between about two when the .com crash brought are given stock in this re- and three per cent of our it down. And in 2000, with cruiting company and have a gross revenues. But it is not

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 14 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 just the money that it brings Soft. And it is not just St. was a very commonly ac- in. There are other ways in Petersburg but it covers all of cepted feeling that Russian which it adds value. It gives Russia now. And companies companies and programmers us a competitive advantage. in St. Petersburg and Moscow simply did not respect intel- This offers us a lot of infor- and in Siberia and all big lectual property and pirated mation about prevailing sala- players from Ukraine and Be- software when it suited them ries and specialties in de- lorussia. Over all more than to do so. And furthermore, mand. It is a window into the 80 companies now that Russia also had an un- labor market. And sometimes stable economy and govern- we even print and sell small COOK Report : S o y o u ment. reports on the salary situa- started with ten and grew to tion in St. Petersburg in vari- more than 80? We made many presentations ous areas of IT. and once even went to Wash- Khotin: Yes. We had more ington DC and appeared be- RusSoft - Russian than 80, when oil money fore a committee of the Association of started pouring in, some of United States Senate. . I the companies turned 100% remember my amazement Software of their attention to local when in my search for Men’s Companies Russian business and left. Room I saw a plaque on the Some of them are returning wall saying “Senator Edward As I said earlier, 1999 back now. Shortly after you Kennedy” and saw this white brought us a lot of new chal- arrived here this time I had haired guy inside the office. lenges and opportunities. We to leave you for part of the Eventually our message was found that we had a bunch of evening and attend a board heard and we received useful very nice people around us of directors meeting of the publicity. running very decent and Association. good companies who were in COOK Report: As a member the same boat as we were – Having RusSoft was very use- of the Board of Directors of running outsourced software ful. We learned how our this Russian Software Asso- projects coming from the friends operated their busi- ciation, it seems like this po- West. We started meeting nesses and shared experi- sition must enhance your with them and exchanging ences. Our next step was to business capability? ideas and eventually Arcadia organize a group of three or and nine other companies four companies and to travel Khotin: It does indeed. For founded on September 9, together in marketing mode ten years now the Association 1999 an Association of Soft- to Finland and Sweden. For has been run with the same ware companies. We gave it these trips will try to organize president with which it was the name FortRoss. We meetings with 10 or 15 local founded. The president, Val- thought that everyone in US companies. Aside from the entin Makarov, whom we se- would know what it is (first general marketing of our lected back in 1999 had been Russian settlement in North- services, one of our goals deputy to Mr. Putin during the ern California). was to try to get some pub- time in the 1990s when Mr. licity and recognition for Rus- Putin was deputy to Anatoli COOK Report: Is it still sian IT and Russian software. Sobchak the mayor of St Pe- called Fort-Ross? tersburg. It was important to do this Khotin: It is called Russ- because, at that time, there COOK Report: So your first

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 15 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 president who is also now the for us. to understand there was an- current president came to other very important person you with his hands on posi- Arcadiaʼs named Vlad Voronin. He tions of power? Evolving came to us and helped us develop our quality manage- Khotin: Absolutely. This guy Business Model ment system and took us had all the important con- through the ISO certification COOK Report: Tell me about tacts in city government and and then moved on to Mos- your business model and how regional government. And he cow to another company it changed over time. also brought to us the under- where he fills a managing di- standing of what we needed rector role, very similar to Khotin: We have several to do with the RussSoft -- that of Sergei Baklan. He is closely linked business mod- namely to lobby the interests now a competitor but a good els. Business model number of the emerging Russian friend at the same time. one was with Jeff and similar software industry with the Probably, only in Russia! partners and it is so-called Russian government and get- cost plus. Under cost plus ting a clean image of our I am happy to see that these Jeff was paying all the costs services in the West. guys who work with us not of running the business plus only contribute to the quality a small additional percentage In September of 1999 we of our work but on occasion which is our profit. were 10 different companies when they leave they seem and we were not together. to have always learned well The second one was called Valentin helped us to form a enough with us so that they “time and materials” where more common vision and can go out and do very well we are paid for time we have outlook and a more uniform on their own. Something spent at agreed hourly rate approach to the world. He that shows that these guys plus possible expenses. The helped us to understand what are sincere and I value that third one could be called an Association can do for us evidence very much. “fixed price”. We rarely take and he still works very hard. projects at so called “fixed COOK Report: Cooperation price”, we always look for Presently he is doing this and collaboration -- critical long time cooperation. In re- lobbying and he is meeting evidence of what makes the ality, we often use a combi- with ministers of the Russian Internet really work. nation of both. government in order to raise the visibility of our associa- Khotin: It is true that even As far as the recruiting com- tion to the level where we though we compete with pany went, we would just can speak to ministers and to each other, we also help each charge a flat rate. The rate Duma deputies and make our other out. would be 10 or 15 or some- opinions heard. On June 10 times 18% of the annual sal- we will have an annual meet- COOK Report: It seems this ary paid to the person hired. ing of our Association where attitude is necessary for sur- we will be addressed by a vival nowadays. COOK Report: So with Ser- deputy minister. Not as a Po- gei Baklan onboard you were temkin village but with a real Khotin: Yes. developing a more strategic opportunity to discuss what approach? we can do for our country Khotin: Yes, but I want you and what our country can do

shore issues rather than domestic.

Khotin: Yes. I need to implement a different approach I see that there are a lot of niche areas in the local markets that are unfilled.

COOK Report: Do you see this through your contacts in the A s s o c i a t i o n o r through your recruiting business?

The Pushkin House building that houses the Institute of Russian Literature on Vasilevskii Island Khotin: Also everywhere and in all manner of Oil Money and the indeed, even if your software meetings and discussions. To services were the best, you make a serious entry into Domestic Market really could not hope to sell these niche areas requires a COOK Report: Tell me a bit anything unless you were lot of money which I don't about how the window able to pay some kind of a have. We still live much opened for domestic produc- bribe to the purchaser. Kick- more hand to mouth than I backs were ruling the deci- ers. am comfortable with. But sion making process. now for the second year in a Khotin: In 1993 I would row I am trying to implement have rather worked for Rus- Now when Oil money started another idea. Namely, to sian customers because my pouring in the local market work in markets in Sweden, started flourishing and a lot English and western business Norway Finland and the US knowledge was almost non- of demand appeared. I was which already have solutions. existent. But there was no focused abroad and a bit late demand for my services in to catch up on these devel- COOK Report: You mean Russia. There was only a opments. I do have however solutions to the things that a small project with the Insti- handful of companies working are niche areas here? in the local market which was tute of Russian Literature at very small. As the 90s wore the Pushkin House. In Scandanavia a on I was very much into off- COOK Report: Pushkinskii Niche Market Product shore work and of course, not dom: wonderful! That's that Can also Be so much interested in any where I got my microfilm of Localized for Russian local market. This was a Chaadaev in 1970. But to re- Domestic Market situation reinforced by the turn to the subject by 2002 perception that any local when the shift occurred your Khotin: Yes. So my idea market operation was really skills were focused on off- now is that I will try to match governed by corruption. And

CRM guys and helping my Scandinavian customer to move its solution into Russia.

COOK Report: Hah! What I am seeing more and more is your extreme versatility and ability to synthesize opportunities. You are definitely the Fox who has a high-level understanding of the universe and know how to bring many different parts and opportunities together to create value rather than just staying stuck in one or two specialized si- An Arcadia programmerʼs ofﬁce in May 2009 los. them. I will add to my sales vey results a really accurate How would you describe your pitch and when I knock on reflection of the survey customer mix? You have sev- the door to an existing Nordic goals? So the company that eral foundation customers or US customer or begin dis- I do this for has asked me to with which you been working cussions with a potential new look around and see if there a long time. One being F- customer I will tell them look may be some Russian cus- Secure in the antivirus soft- not only can I help you with tomers that might want to ware area. problems within your own use this project for CRM cus- markets today, tomorrow we tomer relations management Corporate Culture and can function as a sales and and sales management the Offshore support and localization and follow-through. Development Center implementation force for you in Russia because what you We have discussed the idea Business Model are doing for you is an exist- that we could help them lo- Khotin: Let me begin to an- ing unfilled niche there. calize the software for the swer you from a slightly dif- Russian market by giving it a ferent point of view. I love I can give you an example. Russian language interface the metaphor that if you look We have a Scandinavian cus- and other appropriate at a sheet of paper from the tomer who comes to us for changes. There is also an edge you see just a very tiny software development for interest in the development line but that if you look at it survey questionnaires. The of a plug-in for the CRM soft- face on, you see the entire software behind it -- like arti- ware which will permit them thing. ficial intelligence -- allows to get information as to sal- you to find some controversy ary desires and concerns they If you look at my business in the answers as well as al- find and bring it back and from this angle we have 10 lowing you to have a better plug that in to the CRM soft- similar units within our com- idea of what the person was ware. So this is what I'm do- pany. We call them off- really thinking. Are the sur- ing. I am speaking to various shore development cen-

them very directly and with no obvious order. Pulling the strings, he tells them: do this, do that. And we have no idea what to do over the course of the month. We call it “the taxi driver offshore development center.” Turn left, turn right. But those people are not very happy because they have no idea where they are going in a month or in six months or a year. They don’t grow. Instead, they go day-to-day, week-to- Arcadia Managing Directors Ofﬁce - May 2009. Plaques are professional program week and month-to- certiﬁcations. month without a recognized career path. ters. We consider them to be the product of that calcula- extensions to the research tion is what you Bill. Next there is Data Fellows centers out our customers - now known as F-Secure. or to the customer’s produc- COOK Report: And your ISO They are tightly linked to us tion facility. quality management in effect and well integrated. This says to them there is a cer- week we have five Finns on- COOK Report: In other tain roadmap that you have site in St. Petersburg. A few words, you are selling some- pledged to follow and that weeks later, all of our staff thing far more than just help will be a common roadmap who work for them may be in on a specific programming that is understood by both Helsinki. Then, they may be project? You are selling a parties?? If I am your cus- sent all the way to Microsoft long-term relationship and tomer, in effect, we will both in Redmond Washington for a the ability to have your em- be on the same sheet of pa- conference. With this par- ployees integrated into their per so to speak and under- ticular company what makes business to an unusual ex- stand our mutual obligations. this possible is not due to tent? Is that the way it works? ISO or anything like that. Rather it is company culture Khotin: Yes. And from the Khotin: Yes, but if you turn and company business proc- other angle it is very similar: the paper face on rather than esses and quality manage- all work is based on time and on the edge, you will see a ment. materials. The more time we lot of differences. We have a spend, the more time we different situation with each COOK Report : C o n s e- charge the customer.. This is long-term customer. For ex- quently, as you work in a ma- a simple business model ample, there are several guys jor way with five or six differ- where you multiply an hourly who work continuously for ent companies I gather you rate by number of people and Jeff Bennett. He manages have to get a highly accurate

what I am talking about has nothing to do with technology but rather is a people and business processes model. More people than anything.

COOK Report: So this is a serious advantage of an off shoring business? You see different cultures among your c u s t o m e r s a n d c a n choose the strengths w h i l e i g n o r i n g t h e Microsoft Certiﬁcation at left in May 2009 weaknesses. understanding of your cus- us how to organize these tomer’s culture and business processes so they will work Knowledge Transfer processes in order to work better than ever before.” and Quality with them to the point of Management maximum effectiveness. This is a value which we bring to our customers because Khotin: Absolutely. And you Khotin: Absolutely. You need across these groups everyone can share what you learn. to learn your customer's cul- wants to be the best of the People pay you to be a good ture and business processes. best. In effect, we learn the contractor and you learn and And on the one hand this is state-of-the-art from working then share what you learn difficult but on the other hand with F-Secure and others and with others about the best it is positively exciting. I then take back that learning ways to get the job done. Of have come to understand – translate it into in general course this is very very diffi- that in a company like F- processes and apply it to our cult to do right. This Secure that has some of the other customers. Some of knowledge transfer is the best processes I've ever our big corporate customers responsibility of the qual- seen. also has something to say ity management group about the process we offer within our company. We work and we learn from them to implement, which we our customers. Someone in- translate in our relations with Sergei Baklan and the side Arcadia can be moved F-Secure. And everyone is people around him are re- from one unit to another and happy. sponsible for doing this. tell his buddies and custom- This is our strong point ers of this particular group: Everyone of our customers and our differentiator look this is how it should be has its positive sides. We use from our competition. You organized. And they will be all of this learning to cross give us a project and we will extremely happy and say fertilize our customer proc- do it like any other guy. But "wow, these Russians know esses so that everyone bene- this other guy never had more than we. They will tell fits. I want to stress that more than 10 years work for

F-Secure or a simi- larly long period of collaboration with Johnson & Johnson or other big corporate customers and can not see 10 meters deep to antici- pate all possible problems and have them solved before they arise.

COOK Report: Let’s assume that I am a potential customer and I'm sitting down with you. Explain to me please how we might agree to work together.

Khotin: When we start with a new customer, it is always with a pilot project to which we assign the employee with the needed managerial skills to get it done. If we win customer’s con- fidence and get the project, then all infrastructure required by project implementation is Arcadia Group Area --library kitchen and exercise machine - May 2009 created around it – people, hardware, software, security issues, reporting, proper records in our file sys- your reports. This is the business, invoice structure – tem. The system is well mailing list that you will use even door locks if needed. structured. It explains to its for the software developers. users that this is where you This is a different mail list From that day one we have a will keep your source code. that you will use for business “project starting” process. No This is where you will keep related discussions and prob- project starts without a name bug - tracking software. lem escalation. and number and all the This is where you will keep

COOK Report: And it is this managers fell down in his your own Corporation. framework that you were work and in his reporting. able to build because of the And he was not doing a good What exactly you want us to 98 crash putting more money job and where we did not find do by way of software devel- onto your bottom line? out about this immediately. opment is usually not that We did find out however and meaningful. Code, quality, Khotin: Except for a full time got the project back on track knowledge - this all is taken accountant, myself and a in a few weeks taking the for granted. Nobody will give system administrator, this necessary expenses to do so us work if they do not believe was the first time that I of course out of our own we can do it. But can we do it would hire someone whose pocket. The key thing is that the way they want it to be hours are not directly billable. this same customer works done? Communicating - In '98 I was able either buy a with us from that time until emailing, answering, making Jaguar for myself or hire Ser- the present and we hope for jokes, smiling - the same way gei and Vlad and pay their many more fruitful years of the guy across the corridor salaries for long time through cooperation. from your office would do it. overhead. Since then, the We need to create that feel- initial investment has been http://www.infoworld.com/d/ ing in you that we are good; returned multiple times with developer-world/russia-outso that you can trust us, and quality management results urcing-deal-points-lessons-le that we will not let you down. and helped us to convert Ar- arned-335 Now, if you want some very cadia to serious business specific skills, we can supply from a Mom and Pop Shop. As far as our technology fo- them. And of course while we cus goes I would describe us will develop what you are The fact that we are well- as being a top notch special- looking for, what we will also organized in this manner im- ist in major technologies on give you is people and a de- presses smaller players and the Microsoft platform. Win- velopment process that can likewise larger clients un- dows, both desktop and be finely tuned to operate in derstand that we under- servers, and other application a way compatible with your stand how things are done software for Microsoft. And own internal standards. in the major leagues - in even within these areas we other words that our busi- are strongest in certain spe- If we are looking for someone ness processes are likely cialty subsets. But overall with specific skills for you, we to be similar to their own. our strongest point is will either turn to our recruit- And secondly, because when people management, pro- ing company to accomplish we start a project the proper ject management and that, or we will find someone way we are able to assign business process organi- and train him or her in a way and send an outstanding pro- zation because this is the that should be valuable to ject manager to each new most important part. We you because he will not only customer. call it PPP – People, Proc- learn the needed skills, he esses, Projects. When you will also learn how to accom- But no one is perfect. I told want to organize an offshore plish them using the business you once a little bit about software development labora- processes that are compatible something that happened tory for your business, you with your organization. So about five or six years ago want the operational and over all we would describe with a Scandinavian client business processes of the ourselves as specialists in where one of our project laboratory to match those of catering in a very fine tuned

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 22 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 and detailed way customer ject with the Israeli company pany called PointSec. Point- needs on Microsoft platforms. called Check Point. Suddenly Sec bought a UK company in April 2009 they closed the with similar skills and product Arcadia Customer project with Arcadia. line that Arcadia was working Base on. Check Point brought COOK Report: Out of busi- PointSec in a year and after ness? evaluation of their product COOK Report: How many foundation customers -- siz- line, decided that because able long-term ones -- do Khotin: Initially, our cus- they already have a compet- you have and how many tomer was a Swedish coming line of products to close niche customers?

Khotin: I think we may have one or two smaller customers and about seven large ones. One is small. This is Jeff Bennett who started in 1994. Among the largest is F-secure since 1996. As big, or even bigger is Aditro. We started with them in 2000. (It used to be called TietoEnator and it is described in the link listed above). It is a consulting company with clients all over the Nordic countries. They specialize in human resource management and in salary calculations.

COOK Report: And the others?

Khotin: There is the John- son and Johnson pharma- ceutical company. We work not with their American offices but with offices in Europe. The project involves data mining. We develop tools for data mining and of course never see any of their data which naturally they do not share with us. Until recently we had a pro- Arcady, in may of 2009, at the Front Door of the building where Arcadia occu- pies two full ﬂoors. The white sign with black letters is an Arcadia help wanted listing. © 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 23 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 their operation in similar ar- good, I can ask the acquain- requires video and audio dis- eas and selected to axe us. tance to help out. I knock on cussions with their counter- the door and say “hey I have parts. If we have several COOK Report: How would spare resources. Can you VOIP conversations going in, you describe what you did for help me to find someone who the smallest delay and them? can put them to work?” transmission will immediately spoil them. We need suffi- Khotin: It was low-level COOK Report: And this is an cient bandwidth for that. And data security software that accepted cultural process? it's already a tradition that would allow the user to pro- outsourcing companies keep tect things that he was work- Khotin: Yes it is used in this their source code in a safe ing on. With the system we way. It is used most often to place on the customer's site. worked on installed, one check references. Of course So we must maintain virtual would be able to leave his for many people there is no private network connections notebook in taxi and sleep response. But sometimes to customer’s servers where well afterwards. We were in- there is a positive one. the customer maintains all formed by Check Point that, the source code. as of May 1, they would no Importance of longer be responsible for Broadband and of Our developers start every paying the 10 programmers morning by opening both that we had working on Security their computers and a VPN PointSec’s projects. They connection and retrieving COOK Report: What you were a good customer of ours their source from wherever have described is an ongoing for many many years but this the customer asks it to be need for Communication on is just one example of how stored. Now this must hap- many complex levels with these things happen. pen quickly otherwise the many organizations and programmer sits and wastes many people ranging from e- COOK Report: How do you valuable time. After you mail to file sharing -- secure go about finding work for the work on it, you need to be channels for tunneling - and stranded programmers? able to put it back promptly this is why affordable broad- because the customer may band Internet is something Khotin: I am pulling all my have someone in another without which a business like strings. I have almost 600 time zone that needs to pick yours could not possibly ex- connections on Linked-in. To up where we left off. ist? e-mail my contacts about the availability of these people I Broadband then is a must for Khotin: Absolutely. would search within Linked-in us. We are triply homed with for data security and throw in broadband connections from COOK Report: Other than a few other appropriate three different providers to files get larger and with terms to find a subset of my ensure that we will always be broadband Internet they are contacts in Scandinavia or in available 24 x 7 x 365. We easier to deal with how does Russia to whom I would send also use bandwidth manage- broadband rather than dial- e-mail. If the guys are in my ment that means our system up affect your operation? network, I can send e-mail administrators put some lim- Khotin: Yes. A significant directly to them. If they are its on private things that are part of our company works in in the network of an acquain- developers may do from time so-called agile mode. This tance and look especially to time.

COOK Report: You showed we use no computers. houses I mean a company me many series of locks on that develops software – like all the doors that weren't Of course they have plenty of F-Secure. Or they are con- there when I saw your offices computers now. The first fi- sulting companies like Aditro. 10 years ago. Is that ISO re- ber optic connection between lated? St. Petersburg and Finland In other words, there are was done by a subsidiary several basic business models Khotin: no. We are merely called Lenevo that was estab- into which our customers fall. following customer standards lished to join the greater St. We are the same service for If the customer is security Petersburg area electric grid all of them. Namely we help minded and they want to be with that of the Helsinki re- them to expand their produc- sure that everything is closed gion. tion or research facility and in and compartmented we will doing so we bring them sav- do as they ask. And of course Going up the Supply ings in terms of money or for us it is also safer. Twice or Chain time to market or in new three times a year we have ideas and talents we supply visits from auditors sent by them with. But while we are COOK Report: In an earlier different clients. Asked how discussion you had men- doing this we do not really do we ensure security and in tioned to me that you found capable to understand in any sure that information does it desirable to have one or detail what they are doing not leak. Where are your two of your own employees within their home base so to paper shredders? Where is speak. spend time directly inside the fire brigade and where's your customer's company. I the closest police station? see now that doing so would We speak to them in the lan- And what happens if you provide the opportunity to guage of software in our have a medical accident and learn the customer culture in process of finding out what all this kinds of questions they want. For example John- a way that you have shown that are important to know to be important. Is this an- son & Johnson wants tools for and be able to provide imme- other part of your ability to data mining. We have never diate answers to. be effective for your custom- seen any of their data. We ers another part of your dif- develop software salary cal- A final anecdote referring to culations for Aditro but we've ferentiator in other words? the year Y2K problem. At never seen any data on who the end of 1999 one of my Is this something that you their end-users are. In other customers F-Secure sent me have been doing for a while words no real-life data on a an official note. Please pro- or you just beginning it? person, his age, his Social vide us with confirmation that Security number, his training on January 1, 2000 you are Khotin: This is something or anything else that would still in business -- that you that I've been working on for make the user of our soft- will have electricity and a few years now. We call it ware in to a real person Internet. So I sent an offi- going up the supply chain. rather than an abstraction. cial letter to Lenergo, the The majority of our custom- huge St. Petersburg utility ers are IT organizations COOK Report: Do I under- company and somewhere I within larger companies or stand that it is a kind of an have their official answer they are software houses. issue where you are inviting which said don't worry you And when I say software yourself in over the firewall of will have electricity because your customer? A situation

a firewall between himself and us being instructed in greatest detail what kind of information he may give to us and what kind of information is forbidden. He will explain to us the context and in general terms the content of where our products are being applied. These days customers expect us not only be on time and on budget but also expect us to be onsite and know their business as well or even better than they would.

COOK Report: Then this is a kind of liaison that can translate on many levels -- standards of business process and cooperation and the like between two different cultures?

Khotin: For example, you go on a business trip from Russia and live in Finland, you take it for granted that you will be paid in advance and when you return, you fill in a report and they pay you extra if you had some un- foreseen expenses. In Rus- sia, because we are poor Arcady demonstrates a test program for the “wii” where, with pressure ap- people, we take it for plied by the foot to the balance board, the user learns how to revolve the pur- granted that they give you ple cube. this money in advance. But if where for example Johnson & effective in doing what they you develop this software for Johnson would never give want? So you will send an a Western business trips or- you any of their actual data, employee to live and work ganization, someone must but where, if you have no with them? And that em- touch the screen and say or- idea of what they use the ployee will get a much better ganize my trip. The Russian tools you provide them with understanding? developer will understand for, how can you possibly give that one of the first choices them something and that is Khotin: Yes and he will have for the code he writes must

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 26 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 be an item that says give me explain to them the benefits trying to do this for how the money. But outside of of taking this course of ac- long? Russia in Finland or the rest tion. It is a kind of cross- of Europe or most of the rest pollination. Khotin: For the last two of the world, this item is not years. Our customers’ top needed. This is but one ex- The Challenge of management understands ample of many cultural nu- Trying to Merge that they need to do this with ances that we increase our us. However middle level competitiveness by making Different Business management seriously op- sure our developers under- Cultures poses this process because, stand the context. they may lose their jobs and Khotin: Yes it is something their uniqueness. For exam- COOK Report: One of the that we need to do. But we ple, I am a unique architect strategies that you can follow do not necessarily have to living in Gothenburg Sweden then when presenting your- send someone to them. They and only I know the right ar- self to a customer is to say: could send one of their peo- chitectural solution. If you look we can start with this ple to us. The key thing to will send someone who works pilot project, but when we understand is that the two next to me, then this guy completed we should build business cultures must from your company will know into our mutual business plan merge, if you want to go up everything that I do. This is that at an appropriate stage I the supply chain. If not, we a serious problem for all out- will send one of my develop- stay separated. sourcing companies. ers to you and he will live and work at your place for at COOK Report: You've been COOK Report: So when you least three months and m a y b e a s l o n g a s a year so he really inter- nalizes the n e c e s s a r y a s p e c t s o f y o u r e n v i- ronment and can transfer them back to the rest of the develop- m e n t t e a m that we have f u n c t i o n i n g as your own development laboratory in S t . Pe t e r s- May 29, 2009 - Arcady and daughter Ann on Editors last night of visit. In 1998 Ann contributed “Captain burg. You COOK” to the COOK Report logo.

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 27 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 are working in this site area tunately, as a whole, the gave me the Nintendo Wii these ideas occur to you and people I found were neither Sports and Wii fit I had no they are not really unique to particularly capable of or in- idea about any of this. I your company alone? terested in doing this. Even- spent about 200 days using it tually, we parted with these before I developed an under- Khotin: That is correct. The people. I am still struggling standing that exercise with other guys who are on the with the need to find good Wii is a great thing. If you ball will also understand the people. had asked me 200 days ago need and some will be able to about physical exercise I execute it better than others. Wii in Finland would've said “are you kid- I realized that we needed to ding?” get closer to our customers COOK Report: Would you and my earliest effort at do- explain then how your inter- However, I see enormous ing this was my decision to ested in developing software possibilities and can use the start our business in Finland for the Nintendo Wii came little company Ardin I have in 2002. My idea was that I about? put some years of effort into would hire some Finns who as a means of selling tailor- would work for a Finnish sub- Khotin: I have been in Fin- made applications and devel- sidiary called Ardin that in land long enough to under- opment services to enter- turn belongs to Arcadia stand that this country, as prises and to healthcare op- shareholders. Consequently, many other Western coun- erations in Finland. So it be- instead of sending people tries, faces a problem of peo- comes a serendipitous soft- from my customers to work ple getting older and older ware development project. at Arcadia, or sending people and the need for active peo- And in this kind of a project from Arcadia to work at my ple in IT only goes up. What I because I know both the customers, I would hire Finns want to do with Wii in Finland Russian and the Finnish way and pay them to help Arcadia used to make serendipitous of doing things I can provide understand better what its use of the fact that we have a the expert cultural liaison customer needs are. Finnish subsidiary and that needed. tailor-made wii plug-ins may COOK Report: So the Finns be of interest to Finnish in- COOK Report: And perhaps in 2000 were one of your first dustry and healthcare and with you playing this liaison initial approaches to the cross the fact that we have Russian role the friends with whom polarization issue? programmers who can pro- you work will comment to vide expert development of understand much better the Khotin: Yes. But now I un- such plug-ins if we can get need for it and how to bring derstand that an ordinary agreement from our Finnish it about? well-intentioned Finn in the contacts to subsidize some IT area is not sufficient. What early efforts. The goal is to Khotin: That is a possibility is needed is someone going make active life of any Finn a because I will speak with Fin- to be good in IT and even bit longer, turning him/her nish industry organizations better in human resources, from coach –potato into a that give money to innovative people skills and at individ- user of our Wii “Serious companies. Ardin in Finland ual motivation. Someone games”. is an innovative company who is very aware of and that applies for a sponsorship dedicated to embracing these Before my wife and daughter to develop a business plan cross cultural issues. Unfor- toward this end. In our busi-

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 28 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 ness plan we will say what a similar company in the we will do and note that the Future Direction West - Be it in Finland Swe- Finnish population is getting den, Norway and the US older and we want to improve COOK Report: Well let me elsewhere in Europe -- a their health. Your tailor- conclude by asking what your similar consulting company. made programs appropriate plans for Arcadia are for the to various population sub- next six months or year or groups enable some trans- two years. Where are you Bibliography sectoral savings in the health trying to go? care area and further save Articles about Arcadia and money by the use of Russian Khotin: I have a solution. I Russian off shoring may be programmers. We would think it is clear that we will found at also like to see a situation not be able to progress in the http://www.offshore-software where TEKES, Finnish Inno- direction we are trying to go .ru/articles.htm vation Funding organization without good partners. We would say to the next appli- are actively seeking partners cant: we don't see any Rus- who will help us make it to sian programmers here -- the next level. For us the why not? Speak to Arcady. next level is integration with

A Summary of and ing an ever larger pile of rapidly than the Western di- Quotes from The Age sand looking for the one rect to desktop down military grain that would cause a or business or scientific or of the Unthinkable by sudden and systemic collapse technical or economic com- Joshua Cooper Ramo not of just a part of the pile mand can cope with. but often of the whole pile. In his remarkable book, What Per Bak saw was He asks how one can manage Ramo sets out to look at the that there was indeed no it by military means. Be it a changing face of history on way to predict the course nation or a business large or the world stage. He describes of this sandpile environ- small -- how can one manage the relatively rigid hierarchies ment in the 21st century. in the midst of such chaos in of the 19th century and the With everything so inex- such unpredictability? The change fermented by the first tricably interlinked in so answer is that of course in two decades the 20th century many complex ways, life the traditional ways of the especially in Vienna. He then in the 21st century cannot 19th and 20th century one points out the evolution of be looked at as a stable cannot manage and conse- superpower leadership where system to be governed via quently one fails. the victors of World War II top-down planning. p. 48 and eventually the United He then suggests two power- States tried to set the course Ramo then goes on to give ful cultural differences in the for the entire world. Finally a examples from many differ- approach problems between clash of communications and ent fields: technology, mili- on the one hand Americans culture powered a diffusion of tary, strategy, business, and and on the other hand the power to players at the pe- epidemiology and so on that Asian or Chinese point of riphery, he describes why, in -- especially when brought view. He looks at the case of the first decade of the 21st together in unexpected com- Aharon Farkash, the head of century, all this has broken binations or mashups -- pro- Israeli military intelligence in down. duce events that cannot pos- the winter of 2001. On page sibly be foreseen or planned 134 he writes “when Farkash He points out that both the for. Bringing together time in -- finished his term in office 19th and the 20th century China and an extensive -- his complete term -- in were run for the most part knowledge of Asian culture early 2006, before that disas- from the point of view of top- philosophy and military strat- trous Lebanon war, he had down and stable hierarchy egy, he presents a stunning not only avoided the fate of and then shows why, given contrast between the Ameri- those now dismissed chiefs the speed of travel and com- can and Western way of but had established a record munication and globalization, mounting a huge army in a of devastating clarity.” [snip] cultures have become inextri- brute force attack on the per- cably interlinked to the point ceived problem only to see “Buddhist masters like to say where they display extreme, the situation metamorphose that if you're trying to reach sudden and unexpected vul- and the problem melt into enlightenment, you must de- nerability to systemic crises. the distance. If the problem velop, in this order, “right He uses the research of the recedes it leads the attacker view, right intention, and Danish physicist and biologist into an area of quicksand right action.” But if you're Per Bak who figured out how where it's effect slides off the not seeing the world to study the process of mak- enemy who is changing more properly you have no hope

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 30 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 of any sort of break- United States and Israel run down the list of things through. The question I about far, should not only be- to pack for a vacation un- want to explore now is this: cause he was renowned for derwear swim trunks sun- what is the right view when it finishing his whole term but screen.” Page 143 comes to life in a revolution- because he was known as ary age? When the defining one of the great instinctive Ways of Seeing trait of life is the sandpile de- spies of his generation. Go velopments that by definition, see Farkash was a refrain p. 155. Nisbett dates his cu- are new in our experience, amongst the spies and ana- riosity about the subject to a how should we look at the lysts I most respected. You debate he had with a Chinese world? Do we have any- could joke that he was the graduate student in the early thing to learn from people Israeli Yoda, filled with barely 90s when he discovered that who are particularly suc- inscrutable insights but his there were fundamental dif- cessful in places where record spoke for itself. He ferences in the most basic fast change and surprise seemed, my friend said, to elements of how the two of are facts of daily life? have made the uncertainty of them thought. The Chinese These are vitally impor- the world around him and believe in constant change tant questions if you are intuitive part is. This was his student told him by way trying to train yourself to they said we should all aspire of possible explanation. make sense of a world or- to be. p. 135 Westerners live in a simpler, der that looks increasingly more deterministic world. out of control. If you're What Farkash was proposing They think they can control running a corporation, plan- was a “way of seeing that events because they know ning for your kids education, never lingered on a single the rules that govern the be- figuring out what countries to variable. This week you havior of objects. bomb and which to befriend might look at how many -- what should you be looking tanks Syria had, next week at Until that moment Nisbett for? We'll turn later to the the most popular program on later wrote, ‘I had been a other Zen master problems of Iranian television. The goal lifelong universalist concern- how to think about such a was to watch for change, to ing the nature of human world and how to act in it. see how the society was thought.’ That is Nisbett, like But if we can't even master moving and understand that most other psychologists, be- the art of seeing then as this snap of instant change lieve that everyone basically Lewis Halle said we are not could come from many sur- thought and reasoned in the very likely to get what we're prising places. Gorbachev's same way; any differences aiming for.” pp. 134-35 regime shifting nomenkla- were due to the quirks of our tura, for instance, or the education, families, or expe- “Many of our problems today combination of airbag tech- riences. [SNIP.] are not the result of too little nology and games that is in information. Instead they the Nintendo Wii.” The more Nisbett thought come from the challenge of about what his graduate stu- sorting through a huge and [SNIP.] “What you could dents had said the more curi- growing amount of data, all never do was treat what ous he became. Culture, he constantly changing, and you needed to know as figured, had to make some much of it irrelevant or mis- something fixed, some- sort of difference. But expla- leading. I had heard through thing that could be man- nations about how it might friends both in both the aged the way you would

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 31 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 do that he found were sur- explanations of why we often large opted object in what prisingly under developed. make the errors the type that Nisbett called any realistic p, 156 Lewis Halle warned against in complex background -- a ti- that Farkash and Mauritz ger in a forest for instance or [Snip.] somehow instinctively a horse in a field of flowers. avoided. 157 The research subjects were “The question that soon ob- shown 36 images for about 3 sessed Nisbett was whether In late 2004 Nisbett and two seconds each. After each im- these early cultural twists in graduate students, Hannah age, the screener returned to Western and Asian education Faye Chua and Julie Boland, the white background with a played out in later life. Did set out to recruit a group of cross and the students were they for example offer insight 50 graduate students from asked to refocus on the cross into the old truisms about around the University of when a new image appeared Asians being more family Michigan campus and Ann a few seconds later the eye centered on Americans being arbor. Half of the students tracker silently recorded more rebellious?” 156-57 have been raised and edu- where the students looked cated in the United States the and for how long. The screen So starting in 1993 Nisbett other half, though now stu- then went to white again and began a series of experi- dents at UM had been raised the process was repeated. p. ments that offers some of the in China. 158 first reliable data on how culture shapes thinking. It was a On the day of the experiment When the students had fin- controversial work. After all, the students ride arrived at ished, Nisbett sorted the eye suggesting that culture Nisbett’s lab and filled out a movement data and found a shaped thinking seem awfully short questionnaire about pattern is so clear that his close to making of the other their personal histories then first instinct probably uncomfortable suggestions Chua led them to an awkward should've been to wonder if about how culture might limit looking lab set up on the ta- there was a mistake some- into the intelligence or indi- ble which included a com- where. While observing the vidual potential. The re- puter screen at one end and images flashed in front of search could quickly lead crit- a chin rest on the other on a them, the American students ics feared into ideas like desk nearby was a head immediately looked at the Asians can't handle democ- mounted device that would foreground objects -- the racy. track the students on move- horse or the Tiger for exam- ments after strapping on the ple,. And once they spotted So Nisbett stuck tightly to device the research subjects that image, they spent the quantitative side of science, placed their chins on the bulk of the time, before the and most of his papers -- and small plastic rests and the screen went white again, those of his researchers to lights in the laboratory turned looking right at it. join his work -- were carefully off. A picture of a small cross written to avoid stretching was beamed onto the screen The Chinese, by contrast, the conclusions about what in front of them and then one usually look at the environ- they found in the lab very far by one at three second in- ment around the named ob- outside it. But what they did tervals a series of pictures ject first, probing the realistic find, particularly in experi- appeared on the screen. complex background of For- ments about how people see, The pictures all had a similar rest or field. They did look at offered one of the clearest visual motif an image and a the focal object but for far

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 32 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 less time than the Americans. complex social networks with mattered more than the cen- There was no time point at prescribed role relations. At- tral image. That was why which the Chinese were fixat- tention to context is therefore their eyes constantly moved ing on the object significantly more important for effective from place to place. Taking more than the backgrounds functioning. In contrast in the context of an image Nisbet later wrote. 158 Westerners lived in less con- such a view produces a very straining social networks that different logic of action, one This was, to a Western point stress independence and al- that sees us and sees our of view, a bit weird. It was low them to pay less atten- aims is only one part of a ever if someone took out his tion to context.” That was larger system (whether it is own wallet to show you pic- partly true and you can see the Middle East or global fi- tures of his kids and you had why in a world where con- nancial markets) instead of started complementing the text matters so much, as the center. If you can un- furniture in the snapshot. It Western-style seeing derstand that by mastering was too simple to say that might now have become a the environment around your the Americans stared at the liability. p. 159 enemy, you can indirectly main object to the exclusion manipulate him, which is far of everything else but when SNIP more effective and inescap- the researchers later tested able than trying to persuade the students to see what they This emphasis on everything or to confront him directly it recalled, this was more or around us instead of a “me would be like making it rain less the pattern that first" view of life reveals a on the day that someone has emerged. The Americans had quirk in the Asian way of see- a picnic planned instead of a better ability to recall spe- ing, one that also showed up trying to talk or argue her out cific objects they'd seen in Nisbett’s study, if we look of it. Manipulation of the en- --horse, car, dolphin. at it in the right way. Western vironment in this way is science saw the world as faster, in a sense and more The Chinese often forgot something that could be un- reliable than persuasion -- a what the object had been in derstood and dominated. But fact is true for dealing with a given scene but recalled the ancient Chinese thinking was Iran as it is for picnickers or backgrounds in detail. In fact obsessed instead with the tumors. But this demands simply by changing the back- mysterious, impenetrable making contact with and us- grounds, Nisbett and his col- part of nature. p.160 ing the whole system.” pp. leagues could fool the Chi- 211-212 nese into saying they had not Page 211. Direct confronta- seen a particular object be- tion with problems is COOK Report: In other fore. You can flash a picture more than a habit of words that whole system that of a brown horse in the field, Western culture; in many inextricably links the linked a stream, or a forest, but if ways, it is a defining trait. and carefully balanced and you put the same brown unstable sandpile of parabolic horse and Street scene later But what would happen if, for linkages on and asked the Chinese a moment, you looked at the students if they'd ever seen world as those Chinese stu- Ramo ends his book (p. it, they usually answered no. dents in Nisbett’s lab did? 263) What was going on? Nisbett What if you asked them to hazarded this guess “East plan a war? Recall that they The people and institutions Asians living in relatively believed the environment we might once have relied

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 33 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 upon to rescue us can't. But It means accepting -- be- threatens much that we cher- what we decide to do now, cause this can never be ish. Is the question that the decisions we make as his- proved in advance -- that Kiefer was trying to answer, tory touches each of us, will change will always produce the question my friend Li had mark the future for all of us. more good than bad. This is to come to terms with. And The power of individuals has the hope without which great now it is also the one we never been greater. This is acts of self-sacrifice and must all confront every day the energy that we have seen imagination that we now re- of our lives in this unstable, animating people as indecent quire will be impossible. It is terrifying, and hopefully new as those Hezbollah guerrillas the optimistic spirit buried, order, the one, yes, you and virtuous as Tony Mole. finally, in the answer to the must, in two seconds, answer It's the spirit that prompted question everyone asks that for yourself and for the peo- me to write this book to see those moments when history ple you love: what we could do once we bursts through its diorama understood the nature of the case, when it unthinkably ap- “this age, what does it de- tsunami coming our way. But pears in front of us, when it mand of me?” p. 263 answering this call requires, finally, a leap of faith.

Symposium June 17- July 17 Differing Content Distribution Models

On June 25 Hendrick Rood: gramming is irrelevant. Dis- lishers was entirely identical So why is Disney or the NFL ney can charge lots for con- via the Internet, well en- different than Elsevier Sci- tent when they bundle it to- forceable and even far better ence and their contract with gether and when I have no manageable and with less university libraries? I have choice. When I have choice, paper costs by changing to see some discussion about they can only charge what mainly distributing over the this NFL-issue over the list. people are willing to pay. Ob- Internet. Thus, Disney asks a fee from viously, they would prefer to ISPs to provide access to make everyone pay -- even a Don Marti: How do I get their NFL website. trivial amount per sub -- than access to ESPN360.com? to charge what a willing Elsevier Science asks a fee viewer will pay. ESPN360.com is available na- from university libraries to tionwide, but you must sub- get access for their staff to Elsevier Science charges scribe to a participating high their journals. If you browse anyone who wants to pay for speed Internet service pro- a Journal on their website access. Disney gets the par- vider. There is no option for from an university network, ticipating ISP to pay for eve- a user to subscribe individu- you see in the corner of the ryone on its system whether ally. They're counting on us- page "Welcome University they want the access or not ers to ask their ISPs to sub- ....". As far as I know they -- in part because doing so is scribe for them, cable TV- filter on public IP-address necessary or reduces cost on style. ranges. They get the IP- the video programming side. address ranges of the univer- This must inevitably show up It's not a simple IP address sity from their contract part- in pricing for all subscribers. match -- they apparently do ner (the Chief Librarian). allow users to create an ac- Rood: It's as simple as that count using a participating Feld: OK. There is a fairly and done that way for years. ISP, then get access from standard model on the inter- Want to view an article and elsewhere. net that you charge whoever not working at a university? can get to your site for ac- You can pay for a single arti- Feld: Disney bundles access cess. That's fine. Whoever cle download. to ESPN360.com with its wants to pay, pays. Whoever ESPN offering. It's a classic doesn't want to pay, doesn't A few years ago I saw the tying arrangement. get in. Dutch government's main economic policy think-tank Rood: Elsevier lets the Chief In the U.S., cable works dif- boldly declaring that Science University Librarian pay for ferently. The cable system Journals would encounter all students/employees in an pays the cable network pro- dark clouds and had a dark university for access to a grammer based on the total future in front of them. They bundle of papers. I doubt number of system subscrib- hadn't a clue that the busi- there is that much difference. ers. Whether I want the pro- ness model of Scientific Pub- Universities deploy authenti-

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 35 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 cated VPN-routers to allow (modulo previously-listed ex- law per se, which is out of employees/students to work ceptions; thanks, Rollie) over control and raises its ugly lit- both from home and else- a piece of IP. tle head in all sorts of places. where and access scientific journals. On occasion, government And yes, I do think that El- tries to limit this by imposing sevier's deals with various Getting access however to a rules upon licensees who deal libraries offer a good analogy. more specific economics in IP. So TV stations are Just because it impacts more journal at a technical univer- regulated based on the scar- people doesn't change the sity is difficult because "not city theory of licensing, and principle. all are in the bundle". The those rules sometimes impact same applies in reverse for how they can deal with copy- Feld: Fred, I wasn't suggest- an university with a big eco- right holders. Likewise cable ing necessarily solving this nomics department, who tend is regulated and those regu- from the ISP side. I'm quite to have limited access to lations can impact how they, happy with imposing an un- technical science journals. as regulated entities, deal bundling rule by extending Not so different in my view. with copyright holders. This is Section 628 of the Communi- Replace university by ISP and indirect copyright regulation. cations Act to include web- grasp the point that at your based content. university you are in a con- But newspapers are freer, tractual relation as student/ and have less protection. So Goldstein: Section 628 is employee which contains when Rupert Murdoch bought about CATVs' (well, MVPDs payments (tutorial fees or a comic syndicate, he pulled writ large) anticompetitive salaries & perks). some popular comics from behavior. It's like the old the Boston Globe and gave rules about TV networks. Feld: Of course, a transac- them to the Herald. No re- Networks were not regulated tion that covers nearly a course. Freedom of the press at all, legally, but TV licen- quarter of the U.S. broad- and all that jazz. sees could be prohibited from band market is exactly the carrying the content of net- same as a library ordering a So while consumers may not works that didn't do what the bunch of journals. And the benefit from these copyright FCC wanted. Again, a level of economic impacts are just as tying arrangements, I don't indirection. (It's so very trivial. think that a good approach is American to regulate that to turn ISPs into licensed, way.) And ISPs are like supermar- regulated entities, like TV kets. The drive to make pol- stations, whose deals with So your only legal nexus icy by dumb analogy never copyright holders can be here, to restrict the rights of fails. A classic example of regulated in the same indi- publishers (ISPs) to enter what I call the "all things or- rect manner. Just because into copyright deals, seems ange" fallacy we're not happy with every- to be by noting that those . thing that results from the same copyright holders sell http://www.wetmachine.com freedom of the Internet to regulated entities. So ei- /totsf/item/1262 (which is, I suggest, more ther you regulate publishers akin to a publisher than to a directly, (Do you REALLY Goldstein: It may be... but TV station), that doesn't want to go there?), which copyright is like that. It mean we directly regulate it. would be the impact of ex- grants monopoly control Better to focus on copyright tending 628 to ISPs, or you

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 36 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 ban MVPDs from buying suite of programming (the ance petition based on VZ's channels from copyright ABS/Disney merger and build overwhelming actual market holders who don't enter into franchises through bundling), share without "adequately deals with publishers on Disney exercises market considering" the potential terms you like. That just power over content. Con- competition). But potential strikes me as legally tenuous sumers and competitors (who competition only works where and risky. Better to just ad- are denied access to or customers have a sufficient dress copyright. charged outrageous prices for number of choices and where content) suffer the conse- switching is easy enough that Cooper: The Disney model is quences. a firm fears swift erosion of a classic example of anticom- marketshare if it does not petitive bundling. Disney If we were to address the respond quickly. If we ever forces cable operators to put underlying competitive prob- manage to get structural ESPN into ever home and lem, we would solve the separation in this country, I charge every subscriber, even original problem that started would want us to continue to though three quarters would this thread. In a competitive regulate dominant carriers not pay the freight if given marketplace, where content until actual marketshare re- the choice, by bundling it providers are not allowed to flects that competition has with all the other ABC/Disney collude the "pay anywhere" genuinely taken hold. content it offers. Cable op- model is unobjectionable. erators claim they would pre- Abramson: Sure, Disney fer the Elsevier model by oc- Feld: Mark, I think you are and Elsevier tie access to casionally threatening to put right -- but with the warning platform subscription, impos- ESPN into a sports tier to others that it will take ing switching costs. The Dis- (wherein only those house- more at this point than sim- ney switching cost is chang- holds that want it would pay ply imposing structural sepa- ing ISPs. The Elsevier switch- for it). Of course, they would ration. As you know, but oth- ing cost is changing universi- only put sports programming ers here may not, we didn't ties. they do not own into the spe- stop the regulation of AT&T cial sports tier. They would with the 1984 divestiture. We But we don't "subscribe" to keep their owned sports pro- continued to regulate AT&T universities solely, or even gramming on the basic tier. as a dominant carrier until mainly, for access to journals. Elsevier charges an outra- they dropped below 50% And, anyway, the tying is in- geous price, as would the market share. In the UK, I complete, as we can get ac- sports programmers, if they recall hearing from BT that cess to Elsevier journals were forced into a separate they are regulated as domi- without switching or joining a tier. nant until they drop below university. Not so for 35%. ESPN360. The analogy does All of the anti-consumer, anti- not hold. competitive aspects flow from One of the big problems in the existence of market the last 20 years has been Goldstein: I'm now going to power. Lacking little competi- the belief that potential switch from my copyright- tion at the point-of-sale, ca- competition is as good as ac- critic hat to my techie hat. ble operators get away with tual competition (as evi- bundling that picks the con- denced in the recent DC Cir- There is a good reason why sumer's pocket. Having been cuit case reversing the FCC's ESPN360 and ISPs want a allowed to acquire a massive refusal to grant VZ's forbear- priori agreements. It's more

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 37 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 to protect the ISPs, but also -- it's not even rational to use improves the usability of Goldstein: I do point out a multiplier, since the cost of ESPN360. Video eats tons that while Canada has had IP is so much greater than and tons of streaming band- serious discussion of regulat- the fiber cost. But then if width, the kind that doesn't ing Internet broadcasting per you're an ISP and don't own slow down (TCP slow-start) in se, applying content-related your own fiber to the Back- the face of congestion. Under rules like "Canadian content", bone, you have to pay carrier congestion, it degrades (verb such discussions are entirely rates, and if it's Special Ac- intransitive, referring to it- beyond the pale of the cess, then it's inflated to be self), and it degrades (verb American system. Cable and much more costly per bit transitive) the quality of Internet content is basically than routed IP. That's sort of other applications sharing the unregulated -- that's why we like artificial scarcity, but in congested link. This makes it have hard-core porn on cable practice they're happy to sell "anti-social" when sharing a but broadcast TV gets grief you all you want, so long as link with data (TCP). for a trivial "wardrobe mal- you pay for it by the DS0 toll function". call. The obvious workaround is to minimize the common facili- Abramson: I guess one Now they are, so we should ties. So the cable-ISPs who could call it "indirect copy- ask the same questions about are in on the trial are proba- right regulation", at a stretch, these bottleneck facilities as bly connected directly to and if one was unfamiliar w e u s u a l l y d o . I f a CDNs that actually host with this domain. But it's cer- rightholder holds a monopoly ESPN360. Perhaps The Mouse tainly nothing new or unusual in the making available of has built its own CDN, or the in any jurisdiction in which certain types of audiovisual networks have. But I am multi-channel video competi- content, and wishes to deal fairly sure that the cable tion exists. Except, of course, exclusively with some plat- CTOs have figured out that if that it is taking place on top forms as opposed to others, 1000 of their subscribers in a of a platform in which physi- there is a competitive issue head-end cluster are watch- cal intermediaries had not yet to be addressed. I would not ing ESPN360, there will not levered that status to create go as far as Mark Cooper in be 1000 separate streams artificial scarcities. simply calling this anticom- going back to Bristol. There petitive -- we'd have to look will no doubt be some kind of Goldstein: "Artificial scar- at what content, what near- fan-out server. city" is a common paranoid substitutes, and instances in trope concerning the Inter- which there are policy rea- The BBC is already doing this net. We heard a lot about it sons for wanting broader ac- in England. There has been here a couple of years ago, cess to the content. some controversy over their from a former list member. streaming service, and con- OF course he was sure that it Earlier Goldstein: I don't flict with BT which, if I recall, was really possible to send a have a problem with applying has led to some CDN-type gigabit down a five-mile long pro-competition rules to facilities at the ISPs. copper local loop, and the copyright. But then I have a DSL industry was covering lot of problems with the Abamson: As for legal tenu- this up to protect scarcity. copyright system. I'm not a ousness -- it is hard not to be Raw fiber transmission bits "freetard", as some dub the dubious. This is typical are cheap. IP routed bits are anti-copyright extremists, but broadcasting regulation. many times more expensive I think things have gone way

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 38 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 too far over to favor the out re: Premier League and the public interest to bundle "rights" of so-called IP own- other soccer rights in Europe. platform-switching costs. I ers. The Internet is just an- The issue is not that all con- see nothing particular about other medium for this to be tent is public-interest content Internet access networks, manifested. But then copy- with respect to which policy- when interconnected with right is the sort of thing that makers think it a good idea content servers configured in breaks down if there are any to unbundle switching costs. the manner described above, loopholes. It's that some of it is. that would change that.

Abramson: Fred, you'll get Finally, I have no particular Cole: Anti-bundling rules no disagreement from me as purchase on the term "artifi- (whether on copyright or an- to there being very good rea- cial scarcity", and it might titrust grounds), as are sons as to why ESPN360 or not be the best to describe sometimes proposed for ca- ZillionTV would want to set what I mean. You're right ble groups of channels (al- up SLAs and other agree- that, at the end of the day, though a "channel" is itself a ments with ISPs -- if there there's nothing particularly form of bundling) are one weren't very good reasons, artificial about the decision to proposal for dealing with all Akamai and Limelight bundle switching costs to the this. Query -- is "the world" wouldn't have very good cost of accessing content -- it and/or various parts of it business models. But that is, after all, a classic market (songwriters, performers, doesn't make the policy is- strategy for information publishers, record companies, sues go away. The two simply goods (like video content), fans) better off because aren't mutually exclusive. and some years ago Carl iTunes will sell individual Shapiro and Hal Varian de- songs instead of ONLY al- As to "Canadian content", voted a whole whack of a bums? which rules are intended to pretty good book to explain- provide an opportunity for ing why. This is certainly the How would we feel about a domestic producers to access point at which the technical resurrection of "B sides" in audiences despite a lack of and strategic reasons for that in order to get song A, scale economies, sure, those working with ISPs become you also had to buy song B, rules do not exist in the U.S. difficult to distinguish. But, at which was picked by some- However, those are only one the end of the day, the point one other than the buyer? aspect of broadcasting regu- is really that an Internet en- lation. The goal of maximiz- v i r o n m e n t i n w h i c h At one level, we have shows ing diversity of voices and rightsholders go directly to (or even episodes within access to agonistic content is ISPs, looks different than an shows); at another channels; typical of broadcasting policy Internet environment in and at another "channel in most jurisdictions. Creating which they work with packages." The courts are a more robust competition by universally-addressable in- bit divided on whether requir- looking very carefully at tying termediaries like CDNs. If we ing that you also buy (or li- such content with platform start to end up with the for- cense) copyrighted work B in access, when such tying cre- mer rather than the latter, order to get work A is or is ates significant switching then the usual policy ques- not over-reaching of the law- costs to the choice to con- tions arise. Regulators in ful monopoly on work A. But sume certain content, is not many jurisdictions have felt it is NOT solely a copyright particularly Canadian, I sus- that there are some content issue. pect -- as someone pointed bundles with which it is not in

Abramson: Again, I don't mer to subsidize creation of terest component, then it think describing broadcasting the latter; the marginal cost might be a harder policy policy as copyright policy is of supplying the unpopular question, no? particularly illuminating -- it's product along with the popu- an approach to regulating lar one is nothing; and the competition in a particular creators are basically unable domain, which domain de- to know in advance which pends on copyright for the products which be popular regulated commodities to co- and which unpopular. So it is here. The two are certainly hard to think of contexts in related, and I suppose that if which outlawing content bun- it helps someone relate back dles, on a given platform, to how the sector coheres in would help anyone: if iTunes the first place then it is a wants to move towards an A/ useful term to use. But it B side model, it is certainly rings a bit hollow. free to do that, especially if it does not hold exclusive dis- Content-bundling -- horizon- tribution rights in the content tal tying, really -- is in most that it distributes (I had un- contexts a different question derstood that this was the than vertical tying. Bundling case). If its rights were ex- popular and unpopular prod- clusive, and some of it what ucts together allows the for- it distributes has a public in-

COOK Report: John Hagel more and more debt to juice sonal) addiction to debt. To and John Seely Brown have ROE, both Wall Street and understand this, it's impor- come out with their first ex- America's corporate elite are tant to grasp the difference tensive report on the way the engaged in a massive shell between return on equity world works from the Deloitte game, in which the average (the classic Wall Street Center for the Edge. investor is the mark." measurement) and return on assets. A case study of Gen- Here is a snippet of Cory COOK Report: in my opinion eral Motors from 2003, when Doctorow's take. what Taplin writes below is SUV's were selling like hot more important than the De- cakes and the management Financial shenanigans wiped loitte report....unless one al- was touting it's ROE is in- out all productivity gains ready knows this... I did not. structive. from digital technology Posted by Cory Doctorow, America's Corporate Shell Let's calculate ROE for the June 27, 2009 11:26 AM | G a m e ( J o n T a p l i n ) automotive giant General Mo- permalink http://jontaplin.com/2009/06 tors for 2003. To get the nec- /27/americas-corporate-shell essary data, go to the GM's The new report from the De- -game/ Investor Information website loitte Center for the Edge and look for the 2003 Annual says that, "return on assets Return On Assets Report. You'll see on GM's for U.S. companies has 2003 Income Statement that steadily fallen to almost one its net income totaled $3.822 My friend John Seely Brown quarter of 1965 levels, at the billion. On GM's 2003 Balance just sent me a report from same time that we have seen Sheet, you'll find total stock- his Deloitte Center for The continued, albeit much more holder equity for 2003 was Edge called The Shift Index. modest, improvements in la- $25.268bn and in 2002 it was They make no attempt to bor productivity." Jon Taplin $6.814bn. hide the bad news for the explains, "any productivity U.S. Economy-"return on as- gains from the digital revolu- To calculate ROE, average sets for U.S. companies has tion have been more than shareholders' equity for 2003 steadily fallen to almost one wiped out by our corporate and 2002 ($25.268bn + quarter of 1965 levels, at the (as well as personal) addic- $6.814bn / 2 = $16.041 bn), same time that we have seen tion to debt. To understand and divide net income for continued, albeit much more this, it's important to grasp 2003 ($3.822bn) by that av- modest, improvements in la- the difference between return erage. You will arrive at a re- bor productivity." The mean- on equity (the classic Wall turn on equity of 0.23, or ing of this is staggering-any Street measurement) and 23%. This tells us that in productivity gains from the return on assets...By mask- 2003 GM generated a 23% digital revolution have been ing their absolutely dismal profit on every dollar in- more than wiped out by our performance in the last 40 vested by shareholders. corporate (as well as per- years in ROA, by taking on

Many professional investors shows how this is true: as- ing the numbers of his com- look for a ROE of at least sets = liabilities + sharehold- pany in creative ways, so as 15%. So, by that standard ers' equity. This equation tells trigger his stock options. alone, GM managements' us that if a company carried ability to squeeze profits from no debt, its shareholders' eq- Six months ago I wrote about shareholders' money appears uity and its total assets would the role of Mike Milken in rather impressive. be the same. It follows then transforming the economy that their ROE and ROA from ROA metrics to ROE Now, let's turn to return on would also be the same. metrics by creating the Junk assets, which, offering a dif- Bond. Milken started in the ferent take on management's ROA gives an idea as to how early 1970's and by the time effectiveness, reveals how efficient management is at he went to jail in 1991, any much profit a company earns using its assets to generate company that wasn't lever- for every dollar of its assets. earnings. If Wall Street and aged to the gills was a target Assets include things like investors had been focusing of a corporate raider or pri- cash in the bank, accounts on GM's ROA in 2003, they vate equity baron. receivable, property, equip- would have seen that it was a ment, inventory and furni- train wreck about to happen. It's time to return to sanity. ture. ROA is calculated like The Wall Street analytical this: But it's not just GM as the community must start using Deloitte report points out, it's ROA as a key performance Return on Assets = (Annual the whole corporate econ- measurement. The folks at Net Income/Total Assets) omy. By masking their abso- the Center for the Edge have lutely dismal performance in some great ideas about how Let's look at GM again. You the last 40 years in ROA, by we can increase ROA through already know that it earned taking on more and more knowledge flows. But until we $3.822bn in 2003, and you debt to juice ROE, both Wall recognize the basic problem can find total assets on the Street and America's corpo- we are living in a fool’s para- balance sheet. In 2003, GM's rate elite are engaged in a dise. total assets amounted to massive shell game, in which $448.507bn. GM's net in- the average investor is the The Shift Index (Deloitte come divided by total assets mark. The Deloitte study Center for the Edge) gives a return on assets of points out the real game, al- http://www.deloitte.com/dtt/ 0.0085, or 0.85%. This tells though in somewhat opaque article/0,1002,sid%253D227 us that in 2003 GM earned language-"While the per- 141%2526cid%253D266128, less than 1% profit on the formance of U.S. firms is de- 00.html?introlist resources it owned. teriorating, at least some of the benefits of the productiv- Vest: I'm not sure that the This is an extremely low ity improvements appear to switch to an ROA perspective number. In other words, GM's be captured by creative tal- would redeem us entirely, at ROA tells a very different ent, which is experiencing least not in cases where the story about the company's greater growth in total com- assets in question are capa- performance than its ROE. pensation." I love the term ble of generating Moore's The big factor that separates "creative talent" as if we Law-like effects. ROE and ROA is financial lev- were talking about Steven erage, or debt. The balance Spielberg, instead of some Demanding a valuation sheet's fundamental equation CEO who is good at massag- method that incorporates all

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 42 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 applicable liabilities is a no- what investors should expect near zero cost, always on brainer, but that will still from the "new economy" will communications. I am work- leave investors with the chal- only be partially answered by ing on a paper for the Silicon lenge of understanding what changing the term on the Flatiron Broadband Migration kind of "R" to expect (and other side of the "o". conference in January enti- demand) in markets where tled technology rewards incre- Cooper: Return on equity mental capex injections with was a good capitalist and How to Win Friends, Influ- very large productive gains. useful measure as long as ence People and Make a Little Should investors expect/ debt-equity ratios were rea- Money in Cyberspace: The demand returns that track sonable and the assets of the the Long Tail Meets the the incremental investment firm were tangible (i.e. capa- Sneak Exponential. The scale trend, or returns that resem- ble of actually producing a of human interaction in real ble the superlinear productiv- stream of goods and serv- time has been transformed. ity gains? It seems to me ices). In the past 30 years we that we spend a lot of time have abandoned the real Cowen: If you are writing on this list glorifying the new economy and allowed the fi- about the commercial models possibilities that the Internet nancialization of everything, and business models for the has/could provide to end us- so those basic verities no future it may be worth ad- ers -- many of which have no longer obtain. Technically the dressing the following 3 direct monetary return (e.g., productivity gains have not points: the amateur websites/blogs, been wiped out. WE can still local-local services, et al. that produce a much larger 1) Revenue Assurance. no one expects to earn $ stream of goods and services In many consumer from directly). because labor is more pro- markets the business ductive. Because of the mas- model is one where To an investor who expected sive increase in inequality the consumer has every increment of increased and the failure of workers f r e e d o m t o b e a productivity to yield a corre- (both in the U.S. and abroad) "fickle follower of sponding return, these activi- to share in the gains of pro- fashion". This means ties might be regarded as ductivity, consumers cannot adaptation by suppli- squandered opportunities afford the goods and services ers to meet swiftly (i.e., needlessly generous they produce. We financed changing demands. consumer surplus) -- espe- our life style with debt that No problem, I hear cially in sectors with little or became unsustainable. the economists cho- no competition. Would those rus... that is what activities still seem as With respect to the 25 key markets are supposed promising/exciting if each of ideas, for me they boil down to do and, with a tip them were guaranteed to to one thing. The Long tail is of the hat to social carry (at least) a time or dead, the sneaky exponential e vo l u t i o n , w e a r e usage-based price tag that is the future. The revolution- supposed to be happy paralleled that of consuming ary aspect of the digital revo- with a society where "premium" third-party con- lution is not in the ability to producers and the tent? If yes, then perhaps extend the one-to-many people who work for there's no "incentive prob- model into the long tail, it is them get slick at lem" for investors. If not, in the power of self-forming meeting these ever however, then the question of groups made possible by changing demands.

For the suppliers the issue sets or other gadgets, as- assets with the new and pro- is one of revenue assur- suming that the develop- ductivity should improve. a n c e : m a n u f a c t u r e d ment and launch costs for This doesn't happen for a products can be replaced every new product is po- number of reasons; the old and the factories adapted tentially crippling (?). assets are revalued according but this would be too What you're describing to the revenue that they pro- risky/not possible without sounds like a kind of ven- duce, so if an old asset has assurance of revenues. dor financing for CPE been written down but it con- Without such assurance (equivalent) -- in which tinues to produce good reve- factories close, people get case, so long as it's not nues or revenues can be allo- laid off, capacity exits the c o m p u l s o r y, a n d t h e cated to it as part of a sys- market, expertise is lost "vendor" in question does tem, it looks to be a profit- etc. A good example of not command significant able thing to keep on a bal- revenue assurance is the market power (SMP) over ance sheet rather than to longer-term service con- the transport media be- spend scarce capital and re- tract offered by mobile tween the customer(s) place the (profitable?) asset. phone companies. These and everything else, then I think that behavioral psy- agreements are about I'd be inclined to agree. I chology plays a part here cash from customer to also agree that it's a too; the equation is complex supplier and that assur- tough call though -- the and it is easier to stay with ance allows the supplier region of defensible prac- the status quo than it is to to meet the changing de- tices between (a) anti- make a change; we are less mand with some under- competitive exploitation keen to take a risk on some- standing of its income. of network facilities to thing we don't know and we When we put the first cross-subsidize handsets, value loss to a higher level deals together in the UK, and (b) anticompetitive than we value the benefits to bundle handset and exploitation of handset from change and opportunity. phone tariff we were ac- requirements to cross- So assets don't get replaced cused of anti-competitive subsidize network facili- as often as they could. bundling; the dividing line ties is probably not all is not easy but in my that broad, and never go- Vest: I think that most peo- opinion the revenue as- ing to be very easy to ple would agree with every- surance model we created demonstrate. thing here. But the big un- through this innovation spoken question seems to has allowed the mobile Cowen: 2) "Technological be: what are the implica- phone industry to fly. Discontinuity Shifts" and tions? Following your sugges- "Sweating Assets". The first tion, I could easily imagine 2) Vest: As a former phrase is difficult to say and this line of reasoning as a key supplier myself, I can the second prevails: when a component in a psychological completely understand wave of innovation takes explanation of various anti- the supplier's commercial place it often means that as- competitive behaviors/ need for revenue assur- sets need to be replaced by business strategies. But as an ance, and the argument new equivalents that are explanation only -- not as a for capacity preservation cheaper/faster/better but this justification. At what point does undersupply become seems like it could be happens less often than it "strategic" and constitute a compelling when made by should. It is financially ra- a manufacturer of hand- tional to replace the older de-facto restraint of trade

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 44 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 and/or barrier to entry? In turn' and trust that financial gave rise to the competitive the absence of compulsory markets will see a more effi- advantage. bundling and/or some other cient firm and value it ac- artificial or naturally occur- cordingly. Vest: Again, all perfectly sen- ring SMP across any bottle- sible. However, the question I neck segment of the service All of this makes perfect was trying to highlight in my delivery path, I guess the an- sense, given the fact that Fiat previous message was more swer is "never." In the pres- plays no role, significant or along the lines of: where ence of such conditions, otherwise, in the provision/ would investors interests lie? however, someone will availability of any segment of -- And what strategic/ probably have to make an roads, rail tracks, air routes, business model adaptations "arbitrary" determination etc., and also does not enjoy should we expect the (i.e., one that by definition SMP in any of the CPE (strong) influence of financial could never be accepted by (equivalent) markets that de- markets to induce? -- in all parties involved)... rive their entire value from cases where some combina- the existence of unob- tion of opacity (lack of trans- Cowen: 3) The use of infor- structed, end-to-end, land/ parency) and artificial or mation technology in busi- air/sea paths. naturally occurring SMP actu- ness systems makes them ally gave Company X the more productive, and many Vest: All of this makes per- power to internalize all of of the productivity gains fect sense, given the fact that those productivity gains? If come from process innova- Fiat plays no role, significant managers are motivated to tion. This means that the or otherwise, in the please investors, and inves- customer may be able to take provision/availability of any tors are most pleased by time out of its innovation cy- segment of roads, rail tracks, some combination of net cle and become better at air routes, etc., and also does revenues first, growth/ competing. A great example not enjoy SMP in any of the market share second (i.e., is the Fiat company. In the CPE (equivalent) markets they are neither short-term past few years Fiat invested that derive their entire value speculators, nor infinitely pain ICT and reduced its time to from the existence of unob- tient aspiring future monopo- market for new models by 6 structed, end-to-end, land/ lists), then are managers like months; taking a dramatic air/sea paths. to under- or over-extract the 30% out of its new model gains from those technologi- development cycle. Was this Cowen: I think that the firm cal advances? kept as a profit for Fiat and has improved from the above its shareholders or passed on innovation but it is going to Cowen: The fact that the to consumers in the form of far to say that the productiv- financial markets cannot new products designed to ity gains have been wiped value something does not meet the changing customer out; they continue to exist mean it is not valuable. demands: I think the answer and will endure for so long as is both, since the gain to the they are the latest innovation Vest: I could not agree firm is not a 'one-off' and the in the industry; the process is more, but your statement consumer has seen the new dynamic and continuing so has (at least) two plausible models. How is this valued as has to be continuously im- interpretations. My personal a return on capital or return proved upon so in one sense experience has been that on assets? I don't think it is. is never ending but not wiped some ambitious managers, We are supposed to talk out until the industry has all which over the last decade or about 'total shareholder re- adopted the innovation that two has been synonymous

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 45 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 with "managers whose com- efficient ways. teed (although "best effort" pensation is now or in the for broadly defined services is future could be significantly Vest: It's a reasonable as- usually "good enough" on increased by their receiving sertion. Assuming you are both sides). The disjointed- credit for a major cost- correct, what do you think ness of revenue and expendi- cutting or revenue-producing are the implications? Some of ture streams is often (al- change," will respond to the most obvious ones (to me ways?) intentionally lever- Moore's Law-driven opportu- at least) would seem to be at aged to cross-subsidize nities by seeking to capture odds (e.g., greater efficiency whatever the management 100% them -- if not more. > lower cost > reduced taxa- and board agrees is impor- When they succeed, they tion requirement, vs. greater tant enough to merit a sub- tend to get promoted, and as public dependence > broader, sidy. Post facto, If the market a result of the corporate evo- stronger requirements for disagrees with the particulars lutionary scrum I imagine transparency, accountability, of the subsidy arrangements that this particular cohort is security > tighter regula- (assuming that they are well represented in the tion)... What do you think are aware of them), they have senior-most management of the most important implica- the power to punish the many tech companies that tions? bums either indirectly or di- benefit from ML effects. If I'm rectly, i.e., by throwing them not off base here, that im- This is no mean feat since out. Actually, it seems like plies that financial markets they are often unclear (on gov comes out pretty well in cannot assign value to some purpose) about goals objec- this particular comparison ;-) valuable things because, in tives etc for fear of being some cases, that value has caught out. Politics thus Cooper: Attached is a brief been fully or very nearly fully thwarts technological pro- essay I wrote a while back (+/-) internalized. gress and society is the using the framework outlined poorer for it. In many ways by Albert HIrschman in a lit- And if I'm not entirely off this is the same problem as tle book entitled "Exist and base, this fact would not be revenue assurance in 1) Voice" to describe the ex- altered much by a shift from above; the customers' needs panded role of consumer RoE to RoA. require greater definition sovereignty in the digital both in terms of the service economy. It echoes Tim's Cowen: Incidentally, my required and the amount that themes. guess is that some of the we are willing to pay for it. biggest productivity gains The services in the cellphone/ Cowen: One thing I forgot to from adoption of information mobile phone industry is one mention; return on assets and communications technol- where the definition of tech- may lead to gold plating the ogy should be in government nology and revenue has been assets. in terms of delivering serv- done; where has that been ices to society in a more effi- done in other industries or Cerf: That was the problem cient way. Here there are government? with return on investment enormous opportunities pro- regulation, was it not? vided the governments and Earlier Vest: I think I see departments are clear about more commonalities than you the services they are deliver- do. In both cases, costs are ing and their mission so that not completely transparent, they can adapt and provide and the services are not those services in ever more 100% defined and guaran-

Technologies of Flocking

Technologies of Flocking, by have besides the commercial tion out of the country from Jaap van Till, NL June 28 and economic impact of cellnets and webpages in 2009. (TrimO) Internet technology we dis- every way they knew of. And cuss on the Arch-Econ list of still the images get through. "Only from the heart can you Gordon Cook. Social media is It is not wise to tell too much touch the sky." Jalal ad-Din more than just a "nifty" thing about how this is done but Rumi, Persian Poet now. Real people connected part of the parallel worldwide to real people are changing internet paths are kept open No, they could not twitter the world. This short paper by volunteers that installed Ahmadinejad out of his presi- tries to give a bit more per- proxies [3] faster that the dential palace, but the Ira- spective on (1) what civilians authorities could stifle them. nian netizens did surely dem- can do with net-tech during The massive use of simple onstrate that the internet is rebellions and (2) how they and powerful technology in mightier than the pen, to organize themselves to em- the hands of the people (aka paraphrase the famous 1839 power themselves and each ppl) turns out to be unstop- sentence of Bulwer. A new other. pable. As are the shouts of and wired middle class is the slogan of the 1979 revo- waking up. There are now 34 You surely will have noticed lution from the rooftops at million women in Iran, of [2] from the post-election night. which more than 70 percent (June 12) protests and tur- is below thirty years of age, moil in Iran that the combi- This has been done before, who have shown on the net nation of on the spot cell- and every time ppl have that after 30 years of this re- phones and photo's and films found another clever tele- gime that they no longer on the Web may in some in- communication system to co- want to be treated as ob- stances be more effective laborate p2p and to bypass jects. Out of respect for them than kalashykovs and axes government info-blockades to it is interesting to take a against demonstrators. This the outside world. Informa- closer look at what is hap- fast communication of short tion technology changes the pening online and why. Some group-messages is a handy balance of power between things have really changed way of sharing info and syn- civilians and their rulers. irreversibly in Iran and the chronising actions and dem- Each time they surprised and netizens there deserve a onstrations. baffled the authorities by monument for that ((see il- audacity and unstoppable lustration)). At first the authorities had technology. Some examples: not noticed this social net- (the net tech shown was of- So the heavy use [1] of Twit- work and thought that they ten used in combination with ter birdtweets (short mes- had blocked the demonstra- other tele-tools and many sages) by Iranians and ex- tors by taking out part of the other old fashioned and patriates showed how much internet and the SMS traffic proven mouth-to-mouth links social and political impact in Iran. The authorities tried are present everywhere) networking technologies can to stop the flow of informa-

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 47 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 a. The Pirate Bay movement these movements described, and political party in Sweden: but what appears is: massive So what happens during the blogs from the courtroom and unstoppable free flow of rele- use of these powertools? Re- a clear rebel messages. vant messages that show recently Clay Shirky explained b. Blogs from disaster sites ality by and between those very clearly the shift in com- by those present being better present and bypass the munication patterns from informed and faster than the authorities and invalidate the 'central' to 'lateral' in a spec- media reporters. official broadcasted version of tacular recent speech [5] on c. Belgrade, Internet Radio what ppl are supposed to see TED, as far as I know before relayed from Amsterdam. and think. The central offi- the recent turmoil in Iran, d. Gdansk Solidarnost: cials are often faced with a and he did see this trend Walky-Talky radio links and dilemma with openness and coming in his book [6]. While donated faxmachines. would rather isolate the re- the established view of many e. Vilnius: FidoNet dial-up bels: to block communication people about Internet is that email linked bulletin boards + channels would harm the is a new vertical broadcasting international links and CNN publicity, command & control to the ppl (I) medium for PR, Satcom. links of the state too and news, high attention celebrity f. Mexico Zapatistas: Citizens would harm education and gossip and commerce; side Band radios economy. So what is happen- by sides with classical one- g. Moskow countercoup ing that can make a few way distribution channels ad- against Gorbachev was de- thousands of twittering young vertisements, newspapers fused by the NREN networks boys and girls in Tehran so and TV; a much more signifi- h. Bucharest : the TV & important? cant role is discovered by communication tower was two-way vertical dialogues constructed to be defendable Long before Internet, ICT and (II) of authorities and com- but the rebels where inside. telecommunications started panies with citizens, clients. i. The present Iranian clergy be be in such a vital infra- Not a bad idea to talk to your rulers overthrew the Sjah re- structural position, the vi- subordinates, what?! A fa- gime in 1979 by .....audio sionary Ted Nelson already mous demo of the power of tape distribution. Every week described [4] the liberating dialogue was the sudden the Ajatollah Khomeini in effects personal computing shouting back from the audi- Paris recorded a sermon and messaging would have. ence gathered to hear yet which was smuggled to Iran another lengthy monologue on a audiotape with for in- j. In the early 2000's young from Ceausescu on December stance Elvis on the cover. volunteers of the Open Soci- 21 1989. He was baffled. Then these tapes where cop- ety Institute [5] helped to What in 2009 takes and took ied and copied and copied establish new economic, so- many by surprise is that a until every mosque tower in cial and cultural life flows in third form of communication: the country could sound it on the former USSR countries horizontal/lateral collabora- the loudspeakers for all in the with the help of computers tion (III) between ppl is a country to hear. and networking. George So- much more potent stuff. The ros, its Maecenas, was cer- essential change from I What are the recurring pat- tainly conscious of the power- and II is that now the terns from all these uprising ful role of young profession- communication is not only cases? As a scientist I do not als using linked PC's can play between controlaholic rul- automatically sympathize for a post dictatorship open ers and individual citizens with every protestor or all society. but the latter organize

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 48 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 themselves ad-hoc into [More] Problematic is that that value for the participants close knit groups/teams "managers" and bureaucratic themselves is growing by be- which we can call "flocks". planners are in this new (III) ing able to be part a number context less relevant or at of tribes or flocks at the same k. The Obama pre-election least not at the core of the time on- and offline which campaign heavily used tele- primary process anymore. was defined as Reed's Law com and internet for I, and Often they fail to grasp what which is Value ~ 2 to the II, but exploded with bottom- is going on. Clueless. Or if power of N, which is the up success in III "grass roots they do try to simplify, linear- amount of flocks you can be Community Action". This ize and freeze the new living member of / or not at the campaign surprised many complex, nonlinear and dy- same time. I have defined a with the power it had of mo- namic situation by imposing fourth law in which the value bilisation of voters and end- even more control and red for each participant grows user innovations. Obama did tape, which puts them in a with N ! of unique and differ- not only talk to the ppl and parallel bureaucratic universe ent participants and idea's ! with the ppl but they locally of 'nowhere men' which may you can collaborate with is a flocked together into strong fade away sooner or later. number of combinations [8]. teams with lateral P2P links Van Till's Law of synergy by between themselves. Bands The power of flocking via network combinations: Value of new middle class activists/ networks Broadcasting has a ~ N ! = N * N-1 * N-2 * N-3* troupes that clustered/ co- network effect in the sense ...... *1. To summarize for agulated around certain tasks that for the maker of the those who whose eyes glaze and issues with the help of publicity and for instance the over when confronted with internet networking and by state propaganda (see (I) math formula's, the above finding volunteer-specialists above) the value of the me- simply says that propaganda who could help solve prob- d i u m ( 1 : N , o n e t o and top down control (I) only lems. many)grows with the number grows in power additive N of readers/viewers (eye- 1+1+1..., hence their craving What these flocks do is P2P balls). This is Sarnoff's Law V for mass audiences. And on value creation. Groups of ~ N = 1+1+1+1+ ...., which the new side of network soci- professionals and connectiv- is additive, and in some cases ety value for each participant ists, each of them very good of celebrity fame addictive. grows multiplicative by con- at something with unique Communication (1:1, one on necting flocks of unique and skills and knowledge inter- one dialogues) between N creative professionals (III) connect at a site and/or on- people grows in value for the who can organise them- line to design something, network provider as N * N-1 selves. Their combined net- solve problems together or = N squared, So it is stronger work power is stronger!! crate new idea's or concepts and more valuable than by synergy from mixes of broadcasting N. Content is Network power grows by available idea's or skills. not king !! This is Metcalffe's leaps and bursts. One of the Working network relations Law. A better version on this first scientists who studied are more important than ego law is the Odlyzko-Tilly's the emerging phenomena of or position. On a larger scale Law: V ~ N * Log N. And the coming "information soci- this synergy happens in new state dialogues with citizens ety" was the enlightened Prof value chains between special- (II) are also valuable but only Tom Stonier. In a ground- ised small companies in the N to 1 which is also additive. breaking paper [9] he (dou- new network economy. The third networking law is ble logatithmic) charted the

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 49 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 teledensity, then fixed tele- and FttH there will be several of the experience of the en- phone lines per 100 inhabi- such distinctive thresholds in emy. Here you want to cause tants, in a number of coun- flocking behaviour. And the confusion confusion, fear and tries versus the average BNP. transitions are unstoppable. retreat. I think it can hardly These two are highly corre- be a coincidence that both lated and show a remarkable No new network society inno- Barack Obama, now Presi- range of different incomes vation can happen without dent of the USA and Hillary and teledensities. But what is rebels. Wether vested parties Clinton, now Secretary of more important that coun- or companies like it or not, State (minister of foreign af- tries which over the years these transitions do appear in fairs) both where students of broke though the threshold of various breakthrough disrup- Alinsky, so they will be, I as- 20 phonelines/ 100 inhabi- tive innovations as well and sume, very much aware of tants all changed regime. also businesses start to think flocking network power all Stonier stated "no dictator in terms of co-creation of over the globe. can survive for any length new products and services in of time in communicative a process which is driven by So cellphones and internet- society (III) as the flows black swan rebels and activ- connected laptops are not of information can no ists. Prof. Rao of Princeton politically neutral stuff, in the longer be controlled from University wrote an interest- hands of the emerging class the centre (I)" In this paper ing account of these activist of young flocking netizen pro- he did rather precisely fore- movements in his recent fessionals they will be more cast the fall of the USSR book [10]. Rao quotes the powerful than destructive around 1990. He later ex- advice a famous American men with motorcycles, clubs plained that the teledensity social community organizer and axes. Thus the little birds was just a measure of a new Saul Alinsky (1909 - 1972) will not only twitter and tweet middle class of Wired "knowl- gave to rebels active in mobi- but will also flock in net- edge workers" appearing, or lizing communities to act in worked groups and then they what we now would call the common self-interest in the will suddenly swarm up high online highly educated young form of four rules to link hot above all of us. I wish you creative class alive on band- causes and emotions: 1. Pick good connections. width. In fact. during an in- the target, freeze it, person- terview, one of the gener- alize it, and polarize it. The For the footnotes grab the als in Moskou who tried and opposition must be singled entire paper at failed to deliver a counter- out as the target and "fro- http://www.vantill.dds.nl/floc coup (g) said that he was zen". 2. Ridicule is man's king.html baffled by a totaly new type most potent weapon. It is of workers/activists on the almost impossible to Conal Henry: This is an in- streets: young knowledge counterattack ridicule. It credible piece of analysis and workers!. So a certain density also infuriates the opposi- I think starts to capture how of internet & cellphone con- tion, who then reacts to and why new communica- nections must be present to your advantage. 3. Never tions are going to change the make the transition on a go outside the experience of world. wider scale in a country. So your people. When an action the process of renewal is dis- is outside the experience of One thought strikes me as continous once thresholds are the ppl the result is confu- you talk about the power of crossed. And on the charts of sion, fear and retreat. 4. ((III) type) horizontal or lat- teledensties of cellphones Whenever possible go outside eral communication, given its

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 50 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 reliance on multiple distribu- The world cannot ever be the the same percentage (that is tors to multiple networks same. almost 100 percent). then the more inherently appealing/powerful/right the Cole: However -- we need van Till: I got my paper on- message the more impact it MUCH more development line now at my own site and will have. (IMHO) of the means for en- several other sites will post it couraging, supporting, ana- later today. Feel free to for- Unlike the other forms of ((I) lyzing, and responding to ward it to whoever you like type) Broadcast and ((II) such P2P conversations. who is interested in the type) central dialogue - (III) political/social effect of neti- type communications (which Wikipedia is one such tech- zens & technology. The title can suppress the opposite nology; Sharepoint is an- as you may have guessed is view) will only work if the other. I think the attempt to an allegory on the famous message is powerful, it will develop questions for the FCC "Technologies of Freedom" be impossible to communi- chair nominee by offering 19, book of De Sola Pool, but he cate any old cr*p widely us- asking for comments on mainly fought for the free ing this platform as it is, in those, plus suggestions for flow of information of the effect, self-censoring. As I others, is another. press and other broadcasting think about this I start to re- media. alise that this is a completely We have had decades to de- new, active, form of democ- velop techniques for conduct- racy and one for which "the ing and analyzing surveys; machine" is not prepared. we need similar development where the goal is identify Bringing this back to my own new policy alternatives, ana- life experience I think that lyze them, and hopefully access to this communication reach a decision about mov- platform could, potentially, ing forward. have prevented the 30 year "troubles" in Northern Ireland The blogs have learned to by exposing the unjustness of offer a place for comments; British rule and the subse- government agency newslet- quent unjustness of the re- ters, even the electronic sulting IRA lead tyranny early ones, have yet to do the and easily. equivalent at anywhere near

The NOFA - First Reactions

Estrada: Here's my first re- seems dumb. Lots of cities It was good to see the 4 FCC action. with urban density will be principles and the rules for http://demandbroadband.blo very happy to see that. open networks. But, overall, gspot.com/ it seems like a wimpy start to The money chunks (available a national broadband plan. As you probably know, the funds) are oddly constructed. Seriously, 200 Kbps upload Notice of Funds Availability It's not very clear why. The reminds me of some of the came out today for the BTOP BIPpers have made all of lyrics in Boom Boom Pow: and BIP (sounds like a kid's their $2.4B available, "I'm so 3008,You so 2000 cartoon show...) billions. It chunked out as $1.2B for last and late." was an interesting first read, mile projects -- remote or mostly to figure out how they non-remote areas. Middle Feld: Plowing through. Some defined the key criteria. mile projects are alloted good and some bad. More $.8B. The BTOPers set aside good on policy, bad on im- Broadband is defined as 768 $1.6B in this round out of plementation, which illus- Kbps down and 200 Kbps up. their $4.3B. $1.2B goes to trates some of the key im- The good news is that, with infrastructure but only $50M plementation problems -- limited funds, this really to public computer centers particularly trying to do this keeps the focus on areas that and $150M to sustainable fast in agencies gutted after really have crappy service, if broadband adoption in this 8 years of Bush and without any. The bad news is that round. Kinda cheesy. their actual heads. providers can bid this unbe- lievably lousy service level Underserved and unserved My quick summary. and "comply" with criteria. definitions require more The only hope we have is study and a deep knowledge Policy: Computer III is back that there will be enough of Census blocks, last calcu- on the table, but this "man- folks that bid higher speed lated in 2000. There is also a aged services" loophole frees levels than those who want to strange and weird condition providers to prioritize their bid the slower ones and the of funding where after an or- own VOIP and IPTV offerings. slow ones won't get funded. ganization has jumped Keep your fingers crossed. through all the stage 1 and 2 Speed: I am in the minority hoops, the BIPpers and in thinking they played this The BIP has more definitive BTOPers will post their right. There are too many evaluation criteria than the planned awards so the good projects potentially ex- BTOP. Kudos to the BIPpers. masses can object to funding cluded by allowing only if there is already service in speeds of 45 mbps or better Cost-effectiveness for the the area awarded. This needs (what the House originally BTOP local loop projects is much further cogitation and I proposed). I dislike relying on based on the ratio of the total can see a potential of some advertised speed rather than cost of the project to house- very bad outcomes due to actual speed, but that prob- holds passed. That just this rule. lem needs to be addressed

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 52 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 globally because trying to en- Most likely bog issue for FCC Only in that way one can force it here is too damn dif- based on these tea leaves: start to challenge assump- ficult. Special access, roaming, and tions. other "middle mile" issues. Big telco& cableco win = cri- That sounds more like a de- teria that skew to rural. No Biggest secret winner: Cable- liberate act of business de- chance of a real competitor cos. They will benefit from velopment from the tech in- emerging, no embarassing special access reform but TV dustry with some construc- pilot projects anywhere folks Anywhere is now a "managed tion companies, than a mu- subscribing for $50/month for service" they can prioritize nicipal project, although a 7 mbps advertised can see. over other video traffic. municipality might be very happy to be the location of Worst implementation issue: Cerf: the definition of such a demonstrator project the artifical break between broadband sucks so badly and facilitate it. last mile, middle mile, public we should use it to se- computing, and innovative quester carbon dioxide. One of the genuine issues programs makes producing around broadband is that the integrated programs that Don Clark: I feel your pain. most operators have the Commerce say they want NZ has committed to 100mbs strong urge to keep the real very difficult. Also, the docu- to all schools within 5 years. costs hidden. mentation of underserved by (maybe with the exception of census block will be a real a handful of very remote I recall that our regulator bitch and a half. ones). This is a White knight OPTA had put Analysys Ma- project to drive fibre into re- son to task last year to calcu- Biggest unknown: Who is the mote uneconomic communi- late KPN's FTTH cost on the contractor from the mysteri- ties with the help of subsi- fibre plant and came up with ous solicitation a month and dies. an €18 pro month figure for a a half ago who will screen fibre loop pair and our regu- applicants? Rood: Consequently, the real lator was quite surprised to issue is simple. learn that Reggefiber and Applicants Most Likely To GNA could do it for prices in Succeed: From my reading, If you genuinely want to get the €12-14.50 range. the best applicant would be the case for an open fibre UTOPIA with a public safety network, you have to create An "open accounts" demon- element or projects such as the demonstrations in a non- stration project in a model Wally Bowen at MAIN. Go municipal, corporate setup. town at real prices may Wally! Not by municipalities, but by benefit the tech industry, far a team up of say an equip- more than attempts to sell to Applicants Least Likely To ment manufacturer, a con- the incumbents. But surely Succeed who Should Suc- struction company and an incumbents would not like ceed: City of San francisco. outside investor (funds from that kind of ultra- Intel Capital, Google etc.?) transparency effort, it is Telco most likely to be that want to put the stuff in mainly in the interest of con- screwed: Qwest and actually open up their struction companies and books to show the real costs. those who want to make a Telcco least likely to be point about real bandwidth / screwed: Verizon network costs to carry their

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 53 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 advanced applications or away and understand it's ally lose ground on both fu- hook their new devices onto. relevance. Or isn't the Broad- ture funding and future pol- band mapping in reality not icy. So do not count too much on that relevant and is the dis- the well-known major equip- cussion on it's key impor- The thing that finally broke ment suppliers to step in with tance quite a bit overstated my willingness to believe was the demo in a model town, so nobody could convince this eyewitness report I got they are very wary to distort companies to fund creating from my brother and busi- existing relations with incum- an alternative to Connected ness partner, Shmuel Feld, bents and will not pilot, ex- Nation? who attended the first NOFA cept with an incumbents OK. Workshop held Tuesday, July Editor’s Note 7 here in DC. A representa- Only with some demonstra- tive from RUS was explaining tion / example already in, how applicants must fully From here things went stead- you can get the kind of sup- document “unserved” and ily down hill. port for something like a “underserved” at the census Broadband Data Act. Con- block level — but without ac- Harold Feld on July 17: nected Nation new that, cess to any carrier data be- Will NTIA Smother BTOP that's how they tilted the cause carriers regard this as In The Cradle? Why that demand, by doing something proprietary. Then, assuming would be a disaster for at small scale and wow politi- the application survives to policy, and how to fix it. cians' favor as well as the NTIA/RUS “due diligence” http://www.wetmachine.com roughly end-up writing that round, the agency will invite /totsf/item/1591 act above those who knew broadband access providers better but could actually only in the area to submit confi- More and more, I'm feeling say "how to do it well" and dential information to dem- like a volunteer for the “Mark not set the example them- onstrate that the area desig- Sanford in 2012 Committee” selves. nated by the Applicant is not finding out what “hiking the underserved or unserved. Appalachian Trail” really What genuinely surprises me The applicant will have no means. I have been a huge is that there isn't hasn't been opportunity to rebut any evi- supporter of this program a joint initiative from some dence submitted against the from the beginning. Even tech firms to get a better al- Application. From my though I have had some con- ternative to Connected Nation brother's report, this cerns along the way, I have on it's feet, when it was obvi- prompted the following ex- tried to keep the faith. ous that they would get more change: or less a free pass if not But the more I see about how competed with, by an actual From Audience: If we, the this will get implemented, challenger. people, do not know where and the more deeply I delve the (BB) structures are or into the details, the more I So is my conclusion right, what the penetration num- worry that a potentially great that there is much more re- bers are and the big compa- program capable of funda- thoric among many tech nies are not sharing these mentally altering our broad- companies, than genuine ef- numbers or can deny them in band future for the better to fort to get better alterna- the second round (when it is something so ridiculously tives? I think they could see convenient) under the due screwed up that we will actu- the mapping coming from far diligence investigation, then

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 54 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 how will we find out all of the The RUS guy's next line was to anyone from RUS or NTIA information necessary for the a suggestion like “boots on reading this. Giving Appli- application? the ground and canvassing a cants an impossible task is county” I could not hear him not a “challenge.” It is a rec- (Direct quote of RUS guy): clearly because of the (I am ipe for failure and a sign that Well that’s quite a challenge, serious) laughter. you — NTIA and RUS — have isn’t it? screwed up big time. OK, let me explain something

MagicJack Business Model and Plans for FemtoJack

Cole: I would love to have http://www.voipplanet.com/s ates on licensed CMRS fre- comments from the list on olutions/article.php/3827416 quencies, under the carrier's the following article. Basi- license, so you can't just buy cally, the same firm that sells COOK Report: Cool idea. a Femtojack. the "MagicJack" through Ra- dio Shack (device that allows Alexander Andreev is the COOK Report: What is not "normal" handsets to become president and CTO of SJ Labs so widely known is that the VOIP through the user's - the company that among MagicJack business model Internet connection) is con- many other things did the depends on the existence of templating offering a "femto- original MagicJack software the YMAX Corp CLEC that Bo- cell" device that would con- and has been a member of rislow owns and that Magic vert existing cell phone hand- arch-econ since June of last Jack makes its money as an sets into "WiFi like" phones. year. SJ Labs was founded in arbitrage play by arranging 1999 in Solon Ohio and oper- for the user’s calls to go If, and this is a big if, the ates a Software Development through the CLEC switches. legal/political system would Center in St Petersburg Rus- Femtojack would presumably allow "femtoJack" users to sia. He is also founder and direct tons more calls avoid cell phone minutes -- CEO of Softjoys.com. see through those switches flow because they are OFF the cell http://www.linkedin.com/in/a very large additional amounts phone operator's network -- lexandreev and of money. I base these this could be a big game http://www.russoft.org/direct statements on comment by changer. If, like current op- ory/?profile=49 Based on Scott McCollough to Cy- erator femtocells, the opera- what i found out during my bertelecom about two months tor wants the user to pay for renewal of my MagicJack li- ago. To be precise April 22, the equipment that saves the cense, MagicJack marketing 2009 4:30:56 PM EDT. I operator network load AND and their business accounting have known Scott for a dec- pay for the minutes used -- I are done from YMAX Corp ade - he knows what he is suspect it will not make any headquarters in Palm Beach talking about. A very inter- appreciable difference. At Florida. esting business model which present, femtocells are only is perfectly legal. As Scott an economically bad substi- Goldstein: From what I can said “This is an access charge tute for an external to inter- tell from the article, Stratus arbitrage play..” nal antenna system -- the Telecom (recently purchased user pays the operator by Magic Jack's parent com- Levine: I don't get it. Mobile money for saving load on the pany YMAX Communications, frequencies are all licensed, operator network. the CLEC) has posited how so a femtojack not run by the FemtoJack would work, one of the licensees is basi- Game Changer?: but does not have agree- cally a cellular jammer, which MagicJack's impending ments with the wireless car- the last time I checked was 'femtoJack' riers yet. A femtocell oper- highly illegal. I sort of under-

that interfered with Levine: But I do not under- their networks and stand why you expect your siphoned off traffic. carrier to allow anyone to sell such a device, which would What am I missing siphon off billable minutes, to here? you.

Cole: Y o u a r e The problem is that you don't missing houses like really want better service, mine (stucco, with because you're not willing to a c e m e n t b l o c k pay for it. Right now if you basement). I can pay $10/mo you can get T- receive calls inside Mobile's hybrid GSM/Wifi m y h o u s e , b u t service which routes calls p e o p l e c a n n o t over Wifi at home or at any hear me unless I of their public hotspots, and go above ground GSM elsewhere. For a one and stand near a time $249 you can get VZ's window. So I would broadband femtocell, or one be a candidate for time $99 plus $5/mo you can s o m e i t e m t h a t get Sprint's. But if you're not would transmit and willing to pay, why should receive radio waves they care? The SJ Labs booth at VON in March 2007 during which time the sale to YMax was being closed. within my house (my WiFi router I still don't get it. reaches from my stand the motivation for basement to my top floor just Cole: I'm willing to buy a de- phone users to use such a fine). vice -- I just think $249, or device, although large minute $99 plus $5 per month is "too bundles make users care a Levine: Yes, lots of people much" for a device that saves lot less about their phone us- have crummy mobile recep- the seller money. At the same age than formerly, and I'm tion, and I can understand time, I am not asking that not sure how thrilled they'd why you would like such a my minutes not count, since I be with a device that makes device. am way below my max for their phone outgoing only. (If the month. the device doesn't register Cole: But I refuse to pay ex- them with their carrier, they tra for a device that saves I can get 100 Mbps Up and have no incoming service.) the seller much more than it Down via fiber in my home saves me. It reminds me of right now, too, but the going I can also sort of imagine a the early ATM's -- they saved rate is $8000/MONTH! (yes carrier with a limited foot- the bank something like $90 MONTH). So wanting to pay print, which means T-Mobile, per transaction, and me $10, less than current prices, es- who already offer a similar so they wanted to charge me pecially when I am saving my wifi device, being willing to $3 or more. My response was supplier money, strikes me as work with them, but it's in- to go inside and talk to the highly reasonable. conceivable that VZ or T or teller very slowly . FON would tolerate a device

What I do not get is why you of the country, we never System! :-) (I'm mostly jok- think I am "unwilling to pay" come close to using all our ing. The other CLEC that because I want a lower price minutes.) bought a switch company is than the one offered. Global NAPs, who bought So -- signal relay is valuable, Convergent Networks, but BTW T-Mobile has other as is the various features of a neither of them is doing par- tradeoffs in my area, having cell phone for landline calls -- ticularly well now, so far as I to do with coverage once I cordless, auto-dialing, etc. can tell. A few CLECs roll am outside my house. their own, though.) COOK Report: The impres- I have put myself on the list sion I have is that should the FCC rules have long distin- for Google Voice -- I can new FCC seriously change guished between local and solve part of this problem by interconnect rates this would long distance calls; since the using it to direct calls to my have a very major impact on early 1980s, the regulatory landline when I am home, Magic Jack cash flow. If I model for the latter has been although I still like my Veri- were advising Dan Borislow. I that the long distance carrier zon device better than the would say BE CAREFUL be- bills the subscriber and pays cordless phones I have seen. cause this will enrage the in- "access" to the LECs at both cumbents and they will put ends of the call. VoIP claims To my mind, if I am offload- huge pressure on the new an exemption from access ing signal from the network, FCC and we will then see charges, which the Bells my calls should be discounted whether the new FCC has grudgingly tolerate (they play or free. There are devices nerve enough to anger the too), while the rural ILECs that use an external antenna incumbents. fight it tooth and nail and to "bounce" signals to and demand access. The FCC from the outside to the in- Goldstein: Intercarrier com- never had a clear rule. Local side, but these also require pensation has been on the calls are supposed to be ex- permission and do not save table forever. YMAX is indeed changed at cost. In 2001 network load. an arbitrage play. I will admit (eight years ago last April), to having other carriers who they opened a docket on Note how Google Voice, if it have figured it out too and "unified intercarrier compen- works as described, may be are pursuing it. The initial sation", which could have yet another disruptive tech- round of VoIP operators united the systems (i.e., nology. I could use it to direct seemed allergic to CLEC abolished access). They were cell phone calls to my lan- status, and depended instead afraid to act, though, since dline, or landline calls to my on other CLECs. So Level 3 ATT, VZ, and the rurals cell phone. I sometimes use does a ton of money for VoIP couldn't agree on a plan. In my cell phone inside the operators, and it's the heart November, they put out for house (near an above ground of CommPartner's business discussion yet another round window) as it is a better too. of detailed proposals, for cordless phone than I have comment. So the new FCC found for my landline. Now if YMAX operates the CLEC and will have to get around to I could use it as a "landline" makes the adapter (the Magic this. Everyone knows that device inside my house, it Jack). Since it also owns the high access charges will come would save network load. (As switch vendor (Stratus Tele- down or perhaps be united John suggests, now that my com), it is vertically inte- with local reciprocal compen- 20-something daughter is out grated. Sort of a mini-Bell sation. It's more a matter of

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 58 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 how quickly, leaving a win- you use your cell phone, and this possibility, probably from dow for the VoIP arbitrageurs instead of going to the near- a femtocell supplier. (who bill access on inbound est tower, it goes to your calls and claim exemption on femtocell and then rides your Under pressure from British outbound). broadband Internet connec- large telecom users, this tion to the PSTN. Inbound, GSM-guard band has been COOK Report: A quote from they might even reroute the freed up there three years the article Rollie picked up. call to over the Internet to ago. So you can install your your femtocell. So it gives femtocells and picocells that "You plug it into your com- them, in effect, a free tower works for a GSM by configur- puter, and now when you with free backhaul. What's ing them to use a frequency walk in with your BlackBerry, not to like? It's not as if most of this unlicensed band. your iPhone, or whatever it subscribers were paying for is, that's your radio tower-so minutes anyway -- they pur- In the Netherlands our De- when you make an outbound chase big blocks of airtime. fense Telecoms Organisation call from your phone, it'll go has conducted a large trial out over the magicJack net- COOK Report: Dan Borislow with these GSM-Guard bands work, and if somebody calls has a house in Philadelphia since early 2008. They have you on your magicJack num- likely not more than an hour acquired an E.212 Mobile ber, it'll ring your cell phone." drive from me. I'd love to in- Network Code (first 5 digits terview these folk of the 15 digit E.212 number Goldstein: Technically plau- on your SIM-card) and ac- sible, but ringing a cell phone Rood: John, quired access to interconnect requires permission from the traffic via SS#7 by contract- licensee (carrier) to use their You might make a mistake on ing with Tele2, who adver- radio frequencies. "all licensed" mobile frequen- tises and routes signalling cies. That is not everywhere from and to their MNC on a COOK Report : T h e the case anymore and you global scale. MagicJack network is Boris- really have to go through all low's clec. its name is Ymax. the details on spectrum They have set up their own http://www.ymaxcorp.com/ plans, before you can make 2G/3G-core with two redun- such a statement. dant servers. Those servers Now I have read the whole work over their own IP- article. WOW!!! Just awe- In the UK and the Nether- network and they just hook- some. I hope they succeed lands, the so-called DECT- up the local femto- and pico- but they better be aware that guard band, which is covered cells in their buildings on in doing this they are walking by your commercially avail- their LANs. These 2G/3G-core right up to the noses of the able handset, has become servers are in effect just the Verizon, Qwest and ATT license free for low power use smallest IMS-servers, 1 dragon and smacking all to businesses. This is the Height Unit high (pizzabox), three on the nose with a band that was not put out for cost around €30k a piece and baseball bat. GSM-1800 licenses as it was able to support up to 100k adjacent to the DECT-band. mobile handsets. Very, very Goldstein: Not really. They affordable. have femtocells too. What it I have the strong impression does it unload their radio ac- t h a t s o m e o n e b e h i n d The mobile core systems and cess networks. You are home, MagicJack has learned about femtocells were supplied by a

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 59 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 firm that specialises in Pri- ering / low-power licensing large critical buildings like v a t e G S M s o l u t i o n s : regime for indoor cellular so- e.g. the Pentagon - what http://www.radioaccess.nl/en lutions in buildings should happens if firms start to im- /. They co-operate for Private also be established. port this in the US and just GSM together with the Eng- started deploying it, like what lish firm: Cole: I wonder how realistic happened in several Euro- http://www.privatemobilenet this is? (Hendrik also pointed pean countries. works.com/ But their other out that the existing wireless suppliers are LGC Wireless licensees might object.) We Keep in mind that in some of (SS#7 softswitch and active do have exceptions for low- these "active indoor" solu- indoor distribution equip- power radio in some circum- tions there is a substantive ment, an ADC subsidiary), IP stances, and these devices effort made by the Network Access (femtocells / nano are likely to be used in situa- Manager of a business to im- GSM-basestations) and Coiler tions where the radio signals prove coverage, but even the (repeaters). will not "escape" to the larger more passive - repeatered environment (such as my solutions (so called "open The bottom line for the USA: basement). So what if a radio coax") are considered wrong 1. The FCC should seriously emission below a certain by mobile operators, but are start to contemplate opening power, in contained environ- difficult to trace as the radio- up E.212 numbering ranges ments, is deemed to be "non- transmission is only visible for corporate businesses (op- interfering"? One, it could when someone actually erating a 2G/3G-core does open the market to those of places a call or receives one. not require a spectrum li- use "who want a pony" ie a cense, but maintaining such cheaper femtocell, and it I am in particular interested servers is definitely too ex- might be a breach in the dike in whether large American pensive for a consumer or that could eventually lead to businesses deploy this inside small business to contem- FCC licenses for smart radios their buildings. Some of the plate. Hence the MagicJack that use whatever spectrum firms are American, so I had service provider models. but jump around to avoid in- the impression, that some- E.212 MNCs is a business terference. thing is going on in this field market, just like operating in your country too. routers with BGP is not a skill As I said, ever the opti- found in every firm's network mist..... Earlier Rood However count department and not all busi- on that this will be the new nesses ask for AS-numbers) Rood: The point here is that "fighting" area between in- 2. The FCC should look after these systems do exist and cumbent telco's and all kinds unused guard-bands (hint you can order them and they of new entrants, arbitrag- they are at the edges of the are also installed. eants and also large telecom assigned blocks) for low- users. During the presenta- power femto/picocell use or The really interesting questions made at the BTG create them. 3. There are tions: - are there already Themedays by RadioAccess.nl sufficient numbers of arbi- similar kinds of firms deploy- explaining what they had put trageants around that will fill ing this inside US buildings to up for show, it was clearly the gaps with installing sys- improve coverage - If not, remarked that the entire tems to provide services for how is cellular coverage in- "Carterfone" experience since roaming/routing/ side buildings then? - how is the sixties, including all kinds interconnection. 4. A repeat- coverage done in particular in of obstructions on "harm to

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 60 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 the radionetwork" seems al- replacement for the various ness model is brilliant, but ready to go in a déjà vu. WiFi specifications..." Source: sad to say it is run on the P . S . T h e http://arstechnica.com/hard cheap. Two articles need to http://www.privatemobilenet ware/news/2009/05/wifi-goe be added to the discussion. works.com/ website shows s-gigabit-but-wont-go-throug aside from field installation h-walls.ars Here is the first: some rapid deployment methods via satellite uplink Partridge: Long ago (about MagicJack forced to re- and e.g. femtocell/ ten years ago), I was on a think its customer service basestation in convoy, on team that looked at gigabit Sarah Reedy April 20th, 2009 navy ships etc. wireless in higher frequency bands (gotta know the fre- MagicJack, maker of the Cole: WiGig Spec Could quency -- lower frequencies small voice-over IP device Change the In-home Net- might get through walls). made popular by late-night working Game infomercials, today reached a http://nl.internet.com/c.html We concluded you could settlement with Florida’s at- ?rtr=on&=1,4js3,1,igfq,ebmt, probably put a small repeater torney general over allega- 4jvj,dyiv [May 8, 2009] In- inexpensively through door tions that it charged custom- dustry leaders, including Mi- jams. WARNING: Paper study ers for long-distance calling crosoft, Atheros, Intel, and -- actual mileage would no during its advertised 30-day Dell have formed a new alli- doubt vary. free trial. Without admitting ance to promote the WiGig guilt, the company agreed to specification, a wireless tech- But, pragmatically, gigabit make changes to its tech nology capable of transfers within a room, plugged into a support and reimburse the up to 6 gigabits per second. Gigabit Ethernet wall sock, state the $125,000 the inves- has advantages too. tigation cost. Is this right? If "the last 50 feet" could be entirely wire- July 21 Postscript The investigation into less, would the world MagicJack began last summer change? I put coax and cat5 from the Editor: when the onslaught of cus- throughout my house when tomer complaints reached remodeling, so this is not an I have used MagicJack for a Florida attorney general, Bill issue for me, but I am guess- year. The early version was McCollum. According to his ing it may be an issue for all terrible. It has however got- office, the investigation found of us who do not remodel ten MUCH better. Good that the company did not where we live.... enough that I decided to re- properly disclose the VoIP new my device for another device’s limitations nor did it Reto Bleisch: "...wireless year. I started on July 8th have enough customer serv- gigabit comes with some se- and succeeded only on July ice representatives on hand rious drawbacks. These (for- 20th after an absurd number to deal with the issues with tunately) do not affect the of wasted hours. Perhaps ten it. MagicJack CEO Dan Boris- gonads or cause 'roid rage, hours in all. The customer low said that the company but they do mean that you service is beyond abysmal has resolved 500 customer won't likely be using wireless and their software would not complaints since the investi- gigabit to transmit through take my credit card. Only gation began. walls. This is an in-room tech problem it did not tell me the only, and therefore not a full transaction failed. The busi-

As part of the settlement, Wireless substitution may be acquisition, he said. But if MagicJack to institute new a lot less prevalent than Magic Jack users are actually customer service practices, many believe, if the Magic using that service to replace including a guarantee that all Jack voice-over-IP (VoIP) their home phone lines, wire- inquiries will be responded to service is actually succeeding less substitution rates are within 24 business hours and as its founder claims, said much lower than the industry a disclaimer on its Web site Bernstein Research analyst is assuming. to clarify the requirements Craig Moffett. Moffett, known for a free trial. for diving into data and mak- The other explanation is that ing sense of the numbers, MagicJack buyers aren't ac- MagicJack came on to the has been focused on the resi- tually using the low-cost scene in 2007, promising dential access line loss num- service or they are using it prices as low as $19.95 a bers of AT&T and Verizon but for some calls but keeping year through an unlimited last week turned his attention their existing wired phone as voice-over IP service. Since to Magic Jack, the consumer well, Moffett said. "It could then, consumers have devel- VoIP product sold through be what we are seeing is a lot oped an acute love-hate rela- late-night infomercials. of second-line usage. It could tionship with the company – be that there are people who some just plain hate it, oth- (See what MagicJack founder have gotten Magic Jack and ers will defend it to the grave Dan Borislow had to say haven't plugged it in yet or and still others love the serv- about Moffett's reports) are just using it for some ice, but just hate the cus- calls. It's hard to imagine tomer service. The company In his report, Moffett cited that more than a quarter of has clearly been successful, published reports of Boris- all access line losses are go- selling two million devices in low's contention at the recent ing to one company and a the first 11 months of busi- Consumer Electronics Show late-night direct marketer at ness, but it also has shown that his company has sold 2 that." that cheap service can’t jus- million units during its first tify inadequate customer 11 months and is now selling Moffett admitted that, from service. snip -remainder at at a rate of 250,000 per the telco perspective, line http://blog.telephonyonline.c month. In a phone interview, losses are line losses, and om/unfiltered/2009/04/20/m Moffett said he isn't disputing this is "cold comfort for the agicjack-forced-to-rethink-its- Borislow's numbers -- only telcos for whom the reason customer-service/ Here is pointing out how they fit into for line losses may not mat- the second -- an article by a bigger picture. ter much," but adds that it's Carol Wilson - one of the very "important for any serious best reporters in teleom: Those numbers amount to student of consumer behavior http://telephonyonline.com/r 28% of the telecommunica- in the telecom sector." esidential_services/news/ma tions industry's line losses gic-jack-landline-replacement last year, Moffett points out. MagicJack launched service in -0202/index1.html Many of those lines were the fall of 2007, promising commonly assumed to have consumers who connected its Making sense of Magic been lost to wireless substi- device to their phone line Jack's math tution, which to this point has that they could have phone been measured by the differ- service for $19.95 per year. Feb 2, 2009 11:04 AM, By ence between telco line The company has continued Carol Wilson losses and cable voice line to expand – as have some

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 62 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 complaints about the lack of became a horse breeder at iam). But the one on Satur- customer service. one point. day wasted two hours of my time with promises that were But Moffett is not examining Borislow's genius is as a not fulfilled. I finally got the the quality of MagicJack's marketer, Moffett said. While credit card processed with a service, only looking at its Vonage and other consumer 40 minute phone call to a market success. He chroni- VoIP services tanked shortly number set up for billing dis- cles MagicJack founder Dan after the cable industry swept putes that I found in Google. Borislow's history in telecom, in with its "digital voice" ver- Three times i was told to use which includes founding long- sion of VoIP, Borislow has a different card. I have only distance reseller Tele-Save, found a way to get consum- one credit card. When the which once struck a $100- ers to see VoIP in a new light. rep took the data from me million deal with AOL but via phone, low and behold it later faced hard times and, at COOK Report: I had a very worked. (I have copies of one point, a securities fraud good customer service chat both chat sessions.) suit which was settled. Boris- today (Mir low had left the company before its stock plummeted and

farms in a cloud on Internet). way from your display to the Google This blowing up of the clumsy cloud of server farms that Chrome, the and bulky "MS machine" has process and store your data. been described by me in a Fiber-to-the-X is therefore a Netbook, and blog some months ago about precondition for the success Enabling the The Stupid Computer (in of Chrome OS and other German Das Dumme Kom- Linux based Net architectures Cloud puter ) in analogy of The like this.. Some may argue Stupid Network idea of Isen- that by sharing documents Van Till: Since I am curious berg where most network- and data in a cloud the huge about your, and especially services have gone to user down- and uploading of cop- Vint's & colleagues, reactions devices AND more central ies will result in less volume I post here my analysis of server farms. Isenberg’s of datacom and therefore what is going on. It was trend showed a vacuum ap- lower bandwidth consump- p o s t e d o n pearing in the networks of tion. That may be the case http://siliconinvestor.advfn.co the providers, I pointed at a but my point is that not the m/readmsg.aspx?msgid=257 vacuum appearing in the volume but the URGENCY of 78904 as well. place where the Desktop PC data traffic between distrib- is now. This trend is also uted computer parts in clouds The New Large NETbook Is known as Virtual Desktop In- will drive bandwidth de- "Das Dumme Komputer", by frastructure or VDI but I mand!! The new bursty bus Jaap van Till, NL think that is too vague. traffic on the net for Chrome OS is between computer Most reactions in the press to This new trend is driven by cpu's who do not want to wait the announcement of Google the fact that if you have suf- like humans for response on that it is working on a the ficiently fast Internet connec- queries. new Chrome OS are rather tions, preferably through superficial and aimed at the LANs and local access FttX, it Google wants the applications general public's perception of does not matter anymore for us to run well and FAST the PC. About less hassle, where the hardware of the remember! Chrome OS will less cost, better collaboration servers are placed. And you eat bandwidth but if you are with the intended power and can split the PC's hardware well connected like we are in simplicity of the new Web- into display and storage & NL that is no problem. browser based apps & cloud- processing parts. Fttx optic computing. But the analysts fiber broadband is a pre- Marti: Not a lot of details out miss at least two strategic condition for this since you there about Chrome OS, but points, important to inves- need the speeds between the if they're planning to make it tors, providers and telco's as parts to be similar to what viable for laptops, they've got well. What Google and others you where used to when they to make it viable over weak are trying to achieve is to were in one box under your cellular links and random cof- split the present desktop PC desk, connected by the back- feehouse APs. Gears is into two parts: the display of plane computer-bus inside. probably a step toward that. the applications ( on any But then the internet connec- smart device) and the proc- tions must have the speed http://code.google.com/apis/ essing and storage (some- (bandwidth peak capacity) of gears/articles/take_app_offlin where in the world on server a computer backplane all the e.html

and to make everything work In the 1980s, they added Gears for storage, plus the on the average connection of GUIs via X Windows. X Ter- fast JavaScript engine in the today or the slow connection minals came out, along with Chrome browser, plus possi- of tomorrow. what I called "workless disk- b l y N a t i v e C l i e n t stations", but they didn't (http://code.google.com/p/n Collaboration software is get- catch on. Cycles are dirt ativeclient/) for even faster ting smarter faster than net- cheap; a $150 video card components -- Google is not work latency is getting now has 800 floating point counting on networks to get shorter. processors on it, and there better. are even some APIs that ex- van Till: Which does not pose them to non-graphics If you add all the Google make some computer manu- applications. I can see why I open-source stuff together, facturers happy. Yes the pre- might want to put shared you don't get VNC, an X ter- sent NetBooks/ NetTops do data on a secure remote site, minal, or an IBM 3270. You have small screens, but there but this would be the excep- get a PC that happens to do is no real reason for that tion. its persistent storage at a other than cutting costs even Google data center, instead of further for schools and port- I'm still not sure what a local drive, by default. able use. My guess is that Chrome OS is. Some ac- BIGscreen NetBooks will ap- counts say it's Linux. We Van Till: A second point pear soon and even Multi-Tile need yet another Linux distro which is IMHO misrepre- Display versions for the office the way New Jersey needs sented by the analysts is that and at home. These will need more mosquitos. If it were a Chrome OS and similar Web- Gbit/s netspeeds but that is genuinely new OS, it might service oriented architectures another story. be interesting, but without a is specificly for SMALL and Windows API, it wouldn't cheap Netbook computers. Cole: I feel the need to re- have much desktop software The new OS will run on any peat my "child of the 1960's" to run on it. well connected end-user de- comment. I do NOT want to vice which can handle a web- trust ALL my storage, and July 14 Van Till: Thanks for browser. From IPhones to ALL my processing to "da the responses. In looking smartscreens everywhere. Man," no matter who he (or back you will all remember From small to large screen. she or it) is. And with even the endless rows over how to The cheapness and simplicity Google going down for hours split the three tiers (display, comes from the fact that at a time, having the CHOICE processing, storage) in a most processing and storage of where to store or process shared data corporate envi- are taken out. is valuable, even for those ronment over clients/servers/ with more trusting politics. archives on the network. One Marti: Storage yes, process- of the mantras was to keep ing no. The business logic of Dumb terminals, IMHO, are a (business process) processing a big application ends up at dumb idea. So there! and storage of shared data in the data center, but that's one place, to keep things un- just part of all the cycles that Goldstein: Yes, I always der control and fast since the a modern browser uses. wonder why they keep on network links did not allow Google has every incentive to reinventing timesharing. otherwise. Now we can mi- make the client do as much grate hardware. of the processing as possible,

Surely this 3 tier model is a The point I tried to make is server farms optimized for simplifications since process- that since bandwidth is be- power etc. That is the mes- ing and storage are every- coming more and more avail- sage I get from the way Goo- where. 3270 screens and able ( > 2 Mbps, symmetric, gle and others are moving. VT100's where very success- sustained) not only can we And yes, it will eat (neutral) ful but there is no turning play with where what hard- bandwidth !! back. That would be silly. In ware box is, but even split fact the most recent game the boxes in two parts (more consoles have graphics proc- decentral AND more decen- essor cards more powerful tral) as long as the link be- than we could ever dream. haves like a backplane of the No doubt Apple, who broke old box. We may end up with through years ago by their a stupid/virtual/dumme/ or trick to refresh the screen should we call it a "Blonde" from memory for half of the desktop computer(sorry la- cpu cycle,will come up with a dies): wonderful to see the mighty fast video tablet, but dazzling display but the real WITH fast cloud processing shared processing is done through the Net. somewhere else: in huge

A Note from the Editor on the September 2009 Format and Presentation

This issue leads off with an essay on Joshua Cooper Ramo’s thought on strategy and survival in the 21st century. We write in the context of the long interview that portrays the strategy and history of the development of Arcadia as a Russian off shore software ﬁrm. The article is a tribute to a dear friend but offered me and I hope my readers a very interesting insight into the evolution of the offshore software business.

Coming in the October 2009 issue - out by August 30th, an interview done on July 26th with Martin Geddes on the mission of BT Innovate & design. http://www.btplc.com/Thegroup/Ourcompany/Companyproﬁle/Groupbusinesses/BTInnovatean dDesign/index.htm the focus of what JP Rangaswami and Al-Noor Ramji are trying to do is becoming much more clear and is very exciting. Google is still viewed as the chief competitor. Possibly in October and absolutely in November we will explore medical records and the internet.

Text, URLs and Executive Summary: I have attempted to identify especially noteworthy text by means of bold- face for REALLY good “stuff” . Also the proper Executive Summary in this issue continues. I hope you find it useful. Feedback welcomed. You will also find live URL links and page links in this issue.. (I am also no longer changing British spellings of things like fibre to the American fiber.) Thanks to Sara Wedeman - see www.becgllc.com for assistance with the masthead logo. Captain Cook now charts direction by looking at a compass rosette.

I am omitting the contributorsʼ page since a cumulative list may now be found at http://www.cookreport.com/index.php?option=com_content&view=article&id=121&Itemid=74

Letter to the Editor

Editor’s Introduction: I reply. actively solicit opposing views started the Architecture and to my own – indeed we have Economics of IP Networks “Firstly, a word of explanation published several pieces from mail list in April 2004. It has as to why I am writing here. Mr Budde himself this year, always been a private not for In seeking to expand my along with access seekers, attribution list and members knowledge of how open- FTTH advocates and many are warned not to send mate- access fibre network advo- others from across the spec- rial outside the list without cates make their case, I trum of industry opinion. permission of the author. sought access to authorities The first violation of this of in the area – and a subscrip- No mention of the fact that which I am aware happened tion to the Cook Report was, the column of mine posted by on shortly before April 22 thus, high on my list. Mr Budde was preceded by 2009 when Paul Budde said another one which described to the list that a copy of his The general thread of the him as a most influential man email to the list wound up on group-think against yours in telecoms – which Mr Budde the desk of the Minister for truly is that I have embarked himself said he found “flatter- Broadband. on a pro-Telstra tirade, and ing”, nor that it was followed that I am a mere schill of the by a reply from Mr Budde, Despite a warning to the list incumbent in Australia, rein- and several reader letters – about the April leak and a forced apparently by one ar- some positive, some critical reminder that doing so was ticle asking an economist of Mr Budde. grounds for expulsion, on who has consulted for both May 11 I received from Paul Telstra (and the regulator) (!) No mention of the fact that Budde privately another leak, to run some numbers on the for several years a major namely the Communications proposed NBN and a selected theme of my commentary Day article that I republished quote from one interview has been criticism of a regu- in the August issue. Since I with the former incumbent latory regime, that amongst was named as the proprietor CEO. other things, prices unbun- of the list on which Paul was dled loop access in metro ar- relying to help the Australian So what else do I observe in eas at half the rate of re- government build this new the overall "indictment"? gional centres, thus mandat- national fiber network, I was ing in POLICY a digital divide, No mention of the fact that I quite irked and felt under at- and perpetuates a reliance on tack myself and took the and a team of journalists Telstra retail revenue cross- generate 20,000 words a matter public to the list. This subsidies in framing whole- week of researched journal- initiated the discussion that I sale pricing structures. Three republished along with Gra- ism that gives more attention years ago Mr Budde accused to the affairs of Australia’s hame Lynch’s complete text me of pro-Telstra, regulator- in the August issue on pages 200 non-incumbent competi- bashing in making such an tive carriers than any other 27-32. argument. In repeating such media outlet in Australia. an argument just last week in Grahame Lynch has written reference to how this regime No mention of the fact that I and asked me to publish this might frustrate the transition

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 67 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 to a wholesale-only NBN, Mr framed statistics to make this tion to me, well perhaps he Budde now praises the same case. That the then opposi- should read and reflect on sentiment and emailed his tion took up the PR theme of what they say. Surely he Digital Economy Working Telstra, went into govern- would not dismiss either of Group to recommend they ment and turned it on Telstra them? read the article. – largely because it mis- judged that specific political Finally let me make an ob- Perhaps Mr Budde can now party’s instincts- does not servation on the participants recognize the nuance of my take away from these facts. on this thread and, more long-held contention that generally, the “wholesale regulator-designed markets Now let me turn to my ap- only, publicly funded open carry unintended conse- parent incumbent-inspired access FTTH network” advo- quences – such as how can criticisms of Mr Budde’s influ- cacy crowd. They, too often, one progress beyond them if ence on policy. Unfortunately suffer from a tremendous one wants to upgrade and it is not as cut and dried as problem of “groupthink”, remake the network in accor- some here make out. The where the legitimate ques- dance with the sensitivities of CEOs of two of Australia’s tions regarding business access seekers, consumers major competitive operators cases, costs and benefits, and investors? That my ar- publicly went on record to evidence-based policy and gument was co-incident with share their concerns about Mr realistic assessments of the one thread of an incumbent’s Budde and the current policy current state of broadband set of causes circa 2005-8 vogues in Australia. Bevan are swept away with slurs does not make me that in- Slattery from Pipe Networks about “pro-incumbent atti- cumbent’s intellectual drone operates one of Australia’s tudes” , “Luddites” and the bee. major non-Telstra fibre back- like. bones, and who with his new Neither would Mr Budde Guam-Sydney cable has done When the Australian govern- seem to countenance another considerably more at his own ment effectively tripled the inconvenient set of truths – personal risk to deliver com- build cost of its proposed the moral panic about the petitive broadband outcomes NBN to a world record poor state of broadband in for US$34b, Mr Budde said Australia which gave birth to CommsDay was “scaremon- its NBN policy was actually Australians: http://www.com gering” when we reported the the creation of the PR de- msday.com/node/330 and dreaded “Telstra-supplier” partment of the incumbent. Jason Ashton from BigAir, Henry Ergas’ calculations that Indeed, the current govern- which offers a 100Mbps fixed this might cause average tar- ment went to the last election wireless service using bonded iffs to rise to US$160 or so promising a government co- WiMAX tails to businesses in from US$80 or so today. funded FTTN network that some major Australian cities, was based almost entirely on again at great personal finan- But this isn’t considerably a Telstra powerpoint presen- cial risk: more than the ARPUs gener- tation from 2005. I was, and ated by real-life FTTH net- am, a long standing critic of http://www.commsday.com/ works in the here and now, this idea of Australia as a node/331 and the analysis of others in “broadband backwater” and Australia including two major particularly critical of the I admire both men greatly stock broking firms (Southern misleading use of poorly and if Mr Budde takes excep- Cross Equities and BBY) con-

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 68 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 curs with the Ergas analysis. As one broker said to me is essentially an economic “I’m sure the NBN will make argument by recourse to the Significantly all three cited money one day. Not just for perceived economic self- provided their methodologi- its first set of owners!” interest and bias of the indi- cal assumptions for criticism vidual making the argument, and scrutiny, whereas their Mr Budde’s most public re- fine. But let’s look in the mir- critics such as Mr Budde pro- sponse to such concerns ror at the same time, ‘cos I vide no alternative analysis about NBN economics was to see the same self-interest at to the same evidence level. stand up at a CEBIT confer- work here as well. ence in Sydney and accuse Mr Budde speaks vaguely of me of being a “Luddite”. I’m Anyway, I look forward to e-health, smart grids and e- sorry but I demand a little reading Mr Cook’s newsletter learning filling the revenue more substance and a little as a new subscriber and un- void but not to any evidence less insult if I am to sign up less personally criticised level that would satisfy a to his cause. again, intend not to post and passer-by, let alone an inves- prosleytise but to read and tor – even though the gov- I note the criticisms on this learn.” ernment proposed to vend thread about the economic 49% of the network to pri- interests of incumbents and Regards Grahame Lynch vate equity and finance much their “suppliers” in critiquing of the rest through market “new wave” telco models. I Paul Budde has the follow- raisings. note that some of these crit- ing comment on Grahame’s ics have their own economic letter: I will not apologise for asking motivations – they are em- difficult questions and shining ployed directly by open ac- “I would like to let the results lights into the dark places cess network operators or of the recent decisions made where policy gets influenced, operate in the professional by both the Australian gov- including the meetings that “advocacy/analysis/ ernment and by Telstra speak Mr Budde has with govern- consultancy” sector that sur- for itself. True there will al- ment. rounds such activity. ways be people who don’t agree with that but so be it. If people like me don’t ask [Editor’s Comment: I be- People on the list can make these questions and demand lieve that Grahame sees the their own judgments about evidence-based thinking, world in black and white Grahame’s position on these then the first major NBN pol- terms here that are two nar- issues.” icy experiments will INEVI- row. There is a larger na- TABLY fail to meet their tional and public interest that heady expectations and the can and should be served because of pervasive fibre ac- yond and above private inter- cess investment will be set ests. This is a lesson that in back a generation. We saw it my country since Reagan all before in 2001 – it’s just ushered in the dominance of this time the bubble is being free market fundamentalism fueled by taxpayer dollars has been forgotten and must and legislative mandate, and be rediscovered.] not share market speculation. If one wants to diminish what

Executive Summary

Arcadia Interview edge of the business culture zation because this is the is as important as writing most important part. We clean code. Both are neces- call it PPP – People, Proc- On May 26, 2009 we inter- sary to do an optimal job in a esses, Projects. When you viewed in St Petersburg Ar- globalized world. want to organize an offshore cady Khotin, our friend since software development labora- 1994. Arcady tells us the re- Finally we see how it is pos- tory for your business, you markable story of how he sible by means of building a want the operational and survived and prospered using relationship with the cus- business processes of the the Internet during the tran- tomer based on empathy and laboratory to match those of sition from Soviet Russia to detailed knowledge to go far your own Corporation. his current role as owner and beyond just writing code and Managing Director of a 160 begin to develop what can What exactly you want us to person strong offshore soft- become processes of busi- do by way of software devel- ware firm. ness consultancy. This is opment is usually not that done while all time under- meaningful. Code, quality, The article covers the history standing the complexity of knowledge - this all is taken and business model of Ar- the interrelated decisions that for granted. Nobody will give cady’s company: Arcadia. must be made in order to en- us work if they do not believe We see that to survive and sure and ongoing successful we can do it. But can we do it prosper it was necessary for relationship with major cli- the way they want it to be Arcady to be intimately famil- ents with whom in most done? Communicating - iar with the changing envi- cases, Arcadia has been emailing, answering, making ronment around him. We find working for more than a dec- jokes, smiling - the same way that he has developed a ade. the guy across the corridor management style very much from your office would do it. compatible with that de- As far as our technology fo- We need to create that feel- scribed by Joshua Cooper cus goes I would describe us ing in you that we are good; Ramo in his recent book The as being a top notch special- that you can trust us, and Age of the Unthinkable. ist in major technologies on that we will not let you down. the Microsoft platform. Win- Now, if you want some very We learn that successful off dows, both desktop and specific skills we can supply shoring is far more than the servers, and other application them. And of course while we delivery of code. It is, from software for Microsoft. And will develop what you are Arcady’s point of view, the even within these areas we looking for, what we will also development of a partnership are strongest in certain spe- give you is people and a de- with his company's custom- cialty subsets. But overall velopment process that can ers -- one that gives them our strongest point is be finely tuned to operate in what he describes as an off- people management, pro- a way compatible with your shore development laboratory ject management and own internal standards. for their own company and business process organi- one where acquiring a knowl-

Symposium Discussion think a decisive victory for a performance in the last 40 single regulatory point of years in ROA, by taking on Content view. more and more debt to juice Distribution ROE, both Wall Street and America's corporate elite are Models p. 35 Return on Assets versus Return on engaged in a massive shell game, in which the average June 25 Hendrick Rood: So Equity p. 41 investor is the mark." snip why is Disney or the NFL different than Elsevier Science COOK Report: John Hagel The Shift Index (Deloitte and their contract with uni- and John Seely Brown have Center for the Edge) versity libraries? snip come out with their first ex- http://www.deloitte.com/dtt/ tensive report on the way the article/0,1002,sid%253D227 F e l d : E l s e v i e r S c i e n c e world works from the Deloitte 141%2526cid%253D266128, charges anyone who wants to Center for the Edge. 00.html?introlist pay for access. Disney gets the participating ISP to pay Here is a snippet of Cory Vest: I'm not sure that the for everyone on its system Doctorow's take. switch to an ROA perspective whether they want the access would redeem us entirely, at or not -- in part because do- Financial shenanigans wiped least not in cases where the ing so is necessary or re- out all productivity gains assets in question are capa- duces cost on the video pro- from digital technology ble of generating Moore's gramming side. This must Posted by Cory Doctorow, Law-like effects. inevitably show up in pricing June 27, 2009 11:26 AM | for all subscribers. snip permalink Technologies of Cooper: The Disney model is The new report from the De- Flocking p.47 a classic example of anticom- loitte Center for the Edge petitive bundling. Disney says that, "return on assets No new network society inno- forces cable operators to put for U.S. companies has vation can happen without ESPN into ever home and steadily fallen to almost one rebels. Wether vested parties charge every subscriber, even quarter of 1965 levels, at the or companies like it or not, though three quarters would same time that we have seen these transitions do appear in not pay the freight if given continued, albeit much more various breakthrough disrup- the choice, by bundling it modest, improvements in la- tive innovations as well and with all the other ABC/Disney bor productivity." Jon Taplin also businesses start to think content it offers. Cable op- explains, "any productivity in terms of co-creation of erators claim they would pre- gains from the digital revolu- new products and services in fer the Elsevier model by oc- tion have been more than a process which is driven by casionally threatening to put wiped out by our corporate black swan rebels and activ- ESPN into a sports tier (as well as personal) addic- ists. Prof. Rao of Princeton (wherein only those house- tion to debt. To understand University wrote an interest- holds that want it would pay this, it's important to grasp ing account of these activist for it). the difference between return movements in his recent on equity (the classic Wall book [10]. Rao quotes the Editor: And so on for a Street measurement) and advice a famous American round robin through the return on assets...By mask- social community organizer regulatory jungle without I ing their absolutely dismal Saul Alinsky (1909 - 1972)

© 2009 COOK NETWORK CONSULTANTS 431 GREENWAY AVE. EWING, NJ 08618-2711 USA PAGE 71 THE COOK REPORT ON INTERNET PROTOCOL SEPTEMBER 2009 gave to rebels active in mobi- worked groups and then they MagicJack & lizing communities to act in will suddenly swarm up high FemtoJack p. 56 common self-interest in the above all of us. I wish you form of four rules to link hot good connections. Despite horrible customer causes and emotions: 1. Pick service MagicJack has been the target, freeze it, person- The NOFA - First extremely successful selling alize it, and polarize it. The Reactions p. 52 perhaps as many as 250,000 opposition must be singled USB based soft phone plug- out as the target and "fro- Harold Feld on July 17: ins to internet broadband us- zen". 2. Ridicule is man's Will NTIA Smother BTOP ers a month. (I have used most potent weapon. It is In The Cradle? Why that the Mac Version for a year almost impossible to would be a disaster for and just renewed.) counterattack ridicule. It policy, and how to fix it. also infuriates the opposi- http://www.wetmachine.com We discuss in detail plans re- tion, who then reacts to /totsf/item/1591 ported in your advantage. 3. Never http://www.voipplanet.com/s go outside the experience of More and more, I'm feeling olutions/article.php/3827416 your people. When an action like a volunteer for the “Mark is outside the experience of Sanford in 2012 Committee” the ppl the result is confu- Google, Chrome, finding out what “hiking the Netbooks and sion, fear and retreat. 4. Appalachian Trail” really Whenever possible go outside means. I have been a huge Enabling Clouds p. 64 of the experience of the en- supporter of this program Van Til -- What Google and emy. Here you want to cause from the beginning. Even others are trying to achieve is confusion confusion, fear and though I have had some con- to split the present desktop retreat. I think it can hardly cerns along the way, I have PC into two parts: the display be a coincidence that both tried to keep the faith. Barack Obama, now Presi- of the applications ( on any smart device) and the proc- dent of the USA and Hillary But the more I see about how essing and storage (some- Clinton, now Secretary of this will get implemented, where in the world on server State (minister of foreign af- and the more deeply I delve farms in a cloud on Internet). fairs) both where students of into the details, the more I This blowing up of the clumsy Alinsky, so they will be, I as- worry that a potentially great and bulky "MS machine" has sume, very much aware of program capable of funda- been described by me in a flocking network power all mentally altering our broad- blog some months ago about over the globe. band future for the better to The Stupid Computer (in something so ridiculously German Das Dumme Kom- So cellphones and internet- screwed up that we will actu- puter ) in analogy of The connected laptops are not ally lose ground on both fu- Stupid Network idea of Isen- politically neutral stuff, in the ture funding and future pol- berg where most network hands of the emerging class icy. of young flocking netizen pro- services have gone to user devices AND more central fessionals they will be more Editor: Unfortunately Harold server farms. powerful than destructive only scratches the surface. men with motorcycles, clubs Some one or something got and axes. Thus the little birds to these people during the will not only twitter and tweet month of June but will also flock in net-

Contents

Offshoring in a Rapidly Changing Networked Age A Case Study of Arcadia as a Talent Enabling Ecology Fit for Joshua Cooper Ramoʼs 21st Century World p. 1

Arcadia: a Case Study in Navigating the Turbulence of Post Soviet Russia The Strategic Evolution of a Firm that is not a Body Shop But People and Internet Centric

From Radio Engineer to Internet Entrepreneur p. 3 Perestroika and Joint Venture Dialogue p. 4 Boardwatch and Communicating One to Many p. 5 First Customer and Comdex p. 8 DataFellows and Getting Some Geographic Focus p. 9 Being Paid in Dollars at the Time of the 98 Ruble Crash Allowed Us to Grow Up as a Company p. 12 The Formation of ARCADIA ++ p. 13 RusSoft - Russian Association of Software Companies p. 14 Arcadiaʼs Evolving Business Model p. 16 Oil Money and the Domestic Market p. 17 In Scandanavia a Niche Market Product that Can also Be Localized for Russian Domestic Market P. 17 Corporate Culture and the Offshore Development Center Business Model p. 18 Knowledge Transfer and Quality Management p. 20 Arcadia Customer Base p. 23 Importance of Broadband and of Security p. 24 Going up the Supply Chain p. 25 The Challenge of Trying to Merge Different Business Cultures p. 27

Wii in Finland p. 28 Future Direction p. 29 Bibliiography p. 29 A Summary of and Quotes from The Age of the Unthinkable by Joshua Cooper Ramo p. 30 Ways of Seeing p. 31

Symposium June 17- July 17

Differing Content Distribution Models p. 35

Return on Assets versus Return on Equity p. 41

Technologies of Flocking p. 47

The NOFA - First Reactions p. 52 Editor’s Note p. 54

MagicJack Business Model and Plans for FemtoJack p. 56 July 21 Postscript from the Editor: p. 61

Google Chrome, the Netbook, and Enabling the Cloud p. 64

Letter to the Editor p. 67

Executive Summary p. 70