SMART Letter #72
The New Cisco Kid
June 11, 2002
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SMART Letter #72 -- June 11, 2002
Copyright 2002 by David S. Isenberg
isen.com -- "a toy now, but watch out"
isen@isen.com -- http://isen.com/ -- 1-888-isen-com
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CONTENTS
> Quote of Note: Robert Kahn
> The Spectrum Commons Bill
> Clayton Christensen, The New Cisco Kid?
> Quote of Note: Lawrence Lessig
> Quote of Note: George W. Bush
> Conferences on my Calendar
> Copyright Notice, Administrivia
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QUOTE OF NOTE: Robert Kahn
"The Internet is an architectural philosophy, rather
than a technology."
Robert Kahn, quoted in The Washington Post, May 23, 2002
(p. B1).
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THE SPECTRUM COMMONS BILL
News flash? On May 2, 2002, Congressman Ed Markey, the
ranking member of the U.S. House Telecom Subcommittee,
introduced what he calls "The Spectrum Commons Bill". See
http://www.theorator.com/bills107/hr4641.html. Why has
this been such non-news lo these last six weeks?
Section 113(j)(1)(C) of the bill says that the Secretary
[of Commerce, I think], "shall, not later than January 1,
2003, prepare, make publicly available, and submit to the
President, the Congress, and the [Federal Communications]
Commission a report that . . .
"designates a 20-megahertz band of contiguous frequencies
located below 2 gigahertz, and a band of between 300 and
500 megahertz of contiguous frequencies above 2
gigahertz and below 6 gigahertz, for reallocation to the
public for unlicensed use."
Huge chunks of newly unlicensed spectrum! That's news!
Markey's intent, as he expressed it at the Massachusetts
Broadband Confrence that I attended on June 10, 2002, is
that this newly liberated spectrum would be a toehold for
post-1934 spectrum management policy, a place where new
cognitive radios using new modulation and signal processing
techniques could create new services and new markets.
People more fluent in legi-speak than I should scrutinize
HR 4641. There's a lot of prescriptive language in the
bill that runs counter to the twin ideas of (1) providing
options, not solutions and (2) devolving control to the
edge. Furthermore, I note that even though he seems to
"get it", Markey comes from the same party as Fritz
"Disney" Hollings and John "Tauzin" Dingell. (Not that the
other party is a better friend of the New Network --
clearly it isn't.)
However, at first blush, a proposal to create a couple of
huge new chunks of unlicensed spectrum as a toehold for new
forms of spectrum regulation is a giant step in the right
direction!
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QUOTE OF NOTE: Lawrence Lessig
"The architecture [of the Internet] is analogous to the
Constitution."
Lawrence Lessig, quoted in Reason, June 2002.
http://www.reason.com/0206/fe.jw.cyberspaces.shtml
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CLAYTON CHRISTENSEN, THE NEW CISCO KID?
by David S. Isenberg
I came away with a cool, distant, detached feeling after
reading Clayton Christensen's October 2001 paper,
"Innovation in the Telecommunications Industry" (with Scott
D. Anthony and Erik A. Roth)[1].
When I read Christensen's 1997 book, _The Innovator's
Dilemma_, I thought, "Hot!!!" Christensen had assembled
impressive data on market disruptions and had drawn
important, perception-altering conclusions. I was excited.
I wrote a glowing review; Christensen wrote back saying,
"Don't change a word." I went up to Harvard and had lunch
with him, and over several visits it felt like we were
developing a warm collegial relationship. _The Innovator's
Dilemma_ has become (and remains) a cornerstone of my
thinking.
I was hoping Christensen would take his telecom work in a
different direction. I was hoping he would amplify on his
Andy Grove anecdote, the one where, Christensen says, Grove
exclaimed, "I get it! It is not the technology that is
disruptive, it is the way the new technology disrupts the
old business model." [Note: My own paraphrase from memory
-- David I]
It's the business model, SMART People. Telephony is
vertical, Internet horizontal. Telephony integrated,
Internet modular. Telephony centralized, Internet creates
its value at the edges. Telephony financial returns do not
distinguish network transport from application, but in an
Internet world it is very, very, very difficult to make
money providing pure network transport (see
http://netparadox.com).
Once, in response to Christensen's speculation that fiber
optics is a sustaining technology, I tried to tell him how
the same technology could be either disruptive or
sustaining depending on the business model that employed
it. My example was that Internet telephony could be
disruptive when it is a shrink-wrapped, end-to-end
application, but sustaining when it is used PSTN-Gateway-
style by the telco to lower the cost of minutes. But I
came away feeling that my argument had not hit home.
It was hard for me to believe that Christensen and I were
on different wavelengths. So I looked hard for that magic
spark in "Innovation in the Telecommunications Industry",
but I could not find it. Maybe it was a timing problem, I
thought -- the paper came out right after September 11,
2001. Maybe, I told myself, my shock at larger events had
overshadowed it.
But I just re-read it, and I still can't get excited. And
this time, I think I've figured out why.
Christensen has become an incumbent in his space. Like all
good businessmen, he's listening to his best customers.
He's trying to help big companies like Cisco (which he now
calls innovators) figure out which technologies to hitch
their wagons to. He's serving up business ideas that are
increasingly aimed at the established market for such
ideas. He's trying (unconsciously or not) to lose the
disruptive fringe of business ideas that threaten his best
customers, those down-market toy ideas that seem irrelevant
to his clients today but that could grow up to nuke the
Ciscos of the world tomorrow.
Helping Cisco and company find new winner technologies is a
low stakes game. It's *not*the*technology*, SMART People;
it is the business models enabled -- or disrupted -- by any
given technology.
The subtitle of the paper, "Separating Hype from Reality",
is a strong clue. Reality is a word I rarely use without
thinking. Whose reality?
Cisco seems to have worked itself into its own dilemma by
its explicit choice of Lucent and Nortel as competitors.
If Cisco succeeds, it becomes a voice company, catering to
incumbent telcos. Of course, Cisco says that voice will be
free (meaning that voice will no longer be billed by the
minute), and of course it is right. But I don't think
Cisco understands that if telephony as we know it is
destroyed, Cisco itself goes down the tubes with it. So I
conclude that Cisco wants a little disruption, but not too
much. Cisco may want to be the disruptive innovator, but
by choosing Lucent and Nortel as competitors, Cisco has
opted into a business model based on sustaining, old
marketplace values.
Speaking of "Whose reality?", I recently spoke at Cisco,
and the symptoms of patrimonial bureaucracy were so thick
you could cut them with Occam's Razor. I was taken aback
so abruptly I did not have time to dust off the corporate
culture part of my presentation. I failed to get the
Stupid Network Message or the Corporate Culture Message
across effectively enough. Cisco's corporate culture, as I
saw it, was so strong that it threatens to hobble the
company even before the real disruption begins. A strong
distortion field, of which its people may not be fully
aware, defines Cisco's reality.
[Note that I don't say this about Microsoft, which appears
to know *exactly* what it's doing, the master, not slave of
its culture.]
Once I understood that the authors of "Innovation in the
Telecommunications Industry" were vested participants in
Cisco's reality, the paper made sense as a window into that
reality.
The paper has four sections; below I dig briefly at the
soft spots in each one.
Section One presents a series of putative litmus tests that
a corporate middle manager might use to guesstimate the
success potential of a new ahem-disruptive technology. The
litmus paper turns red, e.g., if the new technology has the
potential to attract customers away from the mainstream
market and if there are not barriers to adoption.
We need Harvard Business School for this? It ain't so easy
to tell if a new technology has the potential to take
customers out of the mainstream market. Just ask Western
Union about the telephone, or Keuffel & Esser about the
hand-held calculator, or DEC about the PC.
Furthermore, there are *always* barriers to adoption of
any new technology -- and these seem even higher when an
incumbent looks at them. As AT&T once said about the
Internet, it'll never work, and even if it would work we
would not allow it. Such barriers.
One of my teachers once said something that applies to the
proposed litmus tests: "Nice tiger soup recipe, now all you
have to do is catch a tiger." The litmus test analogy is a
vast oversimplification -- in reality (whose reality?) you
need to hire a Harvard Business School consultant to tell
you what color the litmus paper is. And he could be wrong.
Section One also introduces three other descriptors of
technology's effects on business: Distraction, Displacement
and Discontinuity. Introducing more than the customer can
absorb is what Christensen calls "overshoot". These four new
categories are overshoot. The dichotomy introduced in _The
Innovator's Dilemma_, sustaining versus disruptive, was
quite powerful. In fact, it is often more than people can
understand; I have grown tired of hearing people describe
their sustaining technology as disruptive. It is not clear
to me that there is a telecom-specific advantage (or a
decisive general one) in introducing a more elaborated
four-fold taxonomy.
Section Two declares that while telephony has been
relatively immune to disruption the enterprise data-
networking marketplace, has been rife with disruption.
(Why have you seen my new Cisco router? It is positively
dis-ruptive!)
It an old saw that innovation starts in the enterprise and
moves into "the network" -- I've heard it for almost 20
years. (PBX features became Centrex features, which became
CLASS features, etc.) Actually, the Internet changes this.
For the first time we are seeing "residential" or "consumer"
(yuck!) applications, e.g., instant messaging, move from
the home to the office. Because technology is so cheap and
so available, and because the Internet is end-to-end, new
innovative, even disruptive applications can appear
anywhere, e.g., a teenager's bedroom, and move anywhere,
e.g., an equities trading floor.
Section Two draws a distinction between telephony's one-to-
one property and the Internet's any-to-any. Clearly, any-
to-any is an important property for group forming (find
Reed's Law with Google). But any-to-any would not be easy
without the Internet's end-to-end property. If you had to
ask permission of a centralized service provider to connect
your "any" to my "any" it would be as hard as (oh, let's
pick a random example) multi-party teleconferencing. But
because we have end-to-end, any-to-any has fewer barriers.
The paper misses the primary importance of end-to-end
completely, but this is not surprising -- Cisco's reality
includes both intelligent networks, where the network owner
participates in value creation, and stupid networks, where
value is created at the edge. It has to fudge this key
distinction.
In Section Three, the authors attempt to eat their own dog
food. They try to predict the potential of several "in-
process 'disruptions'" using the methodology they have
laid out in Sections One and Two. It is an admirable
attempt, but it seems so riddled with blind spots, I bet it
will be hilarious reading in a couple of years. I
fearlessly predict that it will fare no better than the
predictions of other pundits and prognosticators. (Yes,
gentle reader, including those of this very author, but I
ain't selling no 4-D Litmus Harvard Snake Oil to no Cisco.)
The Litmus please! The disruptive winner, according to
Section 3 -- the IP/PBX! What a coincidence -- Cisco just
happens to have a strong position in IP/PBXes. It acquired
its IP/PBX technology from Selsius, which fielded a product
that looked and worked a lot like a business telephone.
What new properties (besides easier moves, adds and drops)
will it bring to the market that were not there before?
(Or, as the authors admit, "Some may argue that this is
really not a new growth opportunity.") Wouldn't we rather
call it (in the authors own term) a displacement? Or maybe
even a *sustaining*technology*?
Voice over IP (VOIP) has already arrived as a sustaining
technology that almost all telcos now use to lower the cost
of minutes. If VOIP turns disruptive, we won't be able to
describe it in telco terms like "PBX". It might arrive
more like a kind of instant messaging or a new way to blog
or a Game Cube capability. (Can you spell SIP?) If the
old Clayton Christensen is right, Cisco won't respond to
the disruptive potential of VOIP until VOIP in its new,
disruptive form, has destroyed or transformed a substantial
portion of Cisco's established marketplace.
Notwithstanding the blind spots of the other three
sections, Section Four contains some good (if Cisco-
flavored) scenario thinking about the evolution (or
revolution) of the telecom space. In this section, the
authors back off and consider alternative outcomes. They
may not have the right outcomes, or even the right
variables, but they make a valiant attempt to do difficult
work -- to consider forces shaping the industry and project
a few alternative outcomes.
However, why should I destroy the mood of this essay by
giving Section Four a pass? The box called, "Ubiquitous
Broadband: A Boon or the Return of Theodore Vail?" is
entirely too centrist. It asks whether the U.S. Government
will subsidize last mile connectivity. But it fails to
consider the different ways in which such subsidization
might occur, or even if subsidization is the best form of
government intervention. Indeed, the question is loaded.
Theodore Vail fathered an era in which the United States
had the best telephone system in the world -- to juxtapose
this against "boon" is an injustice. I can only hope that
the next United States national network, whatever form it
might take, will provide the same kind of world leadership.
Unfortunately, under current policy it is more likely that
the U.S. Network will follow the path of U.S. Automobiles,
U.S. Steel, and U.S. Consumer (yuck!) Electronics.
In summary, I'm disappointed. "Innovation in the
Telecommunications Industry", has very little of the
parsimonious explanatory power of _The Innovator's
Dilemma_. It was a well-meaning attempt by some smart people
to draw conclusions and make predictions on the basis of
incomplete data and culturally larded explanations. _The
Innovator's Dilemma_ rose above consultant-speak and biz-
babble. "Innovation in the Telecommunications Industry"
does not. I am afraid that the disruption in
telecommunications is going to come from other sectors than
the ones the authors are looking at. If Cisco drives that
disruption, I'll eat these words.
[1] You can read "Innovation in the Telecommunications
Industry" at
http://www.claytonchristensen.com/workingpapers/Christensen
TelecomWorkingPaper_v1.0.pdf.
If you do, I'd like to hear your opinion!
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QUOTE OF NOTE: George W. Bush
"I read the report put out by the bureaucracy."
George W. Bush speaking about a U.S. EPA report released in
May 2002 calling for mandatory reduction of greenhouse gas
emissions, quoted in the New York Times, 6/4/02.
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CONFERENCES ON MY CALENDAR
June 12, 2001, New York. CIBC Telecom Food Chain
Conference. I'll be delivering the morning keynote tomorrow
-- 7:45 A.M. (sharp!) at the Plaza at the SE corner of
Central Park. http://www.cibcwm.com/conferences/comms02/
October 8-10, 2002, Atlanta GA. Fall VON. I'll be giving
an Industry Perspective talk. Time and date to be
determined. See http://www.von.com/
October 15-17, 2002, New Orleans LA. Fiber to the Home
Council Annual Conference. I'll be giving a keynote (on
why neither telco nor cable TV co will bring us fiber to the
home). Nothing on the website yet, but keep checking
http://www.ftthcouncil.org for information. This FTTH
Council is doing excellent work.
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COPYRIGHT NOTICE: Redistribution of this document, or any
part of it, is permitted for non-commercial purposes,
provided that the two lines below are reproduced with it:
Copyright 2002 by David S. Isenberg
isen@isen.com -- http://isen.com/ -- 1-888-isen-com
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