Archive for July, 2007

Hotmail – testing the limits of market power

Tuesday, July 24th, 2007

Market power (scale, network effects, or other) allows an operationally inferior firm to sustain a position. To see see how powerful this effect is, consider that people are actually still using Hotmail.

Since April, everything I send to Hotmail is classified as spam. Everything. Even mail to myself. Hotmail then deletes all spam after only 5 days.

So, when I email any client at Hotmail, it goes to spam, 100%, even if we’ve corresponded for months. If he doesn’t check within 5 days, Hotmail deletes, and I can never prove delivery. This renders Hotmail unusable for business.

This problem occurs only at Hotmail. My domains and IPs are not blacklisted. I have never sent bulk mail. I send fewer than 20 messages per month to Hotmail, all to clients who have paid me in advance to deliver to them.

Is this really a problem with Microsoft? Consider what happens when you try to fix the problem.

First, set up Sender Policy Framework. This is good practice — I should have done so long ago. However, at Microsoft, due to the principal-agent problem in the marketing department, SPF is called “Sender ID.” It has no discernible difference from SPF other than the name.

Once Sender ID is configured, instructs you to notify Oops:
Remote host said: 550 5.1.1 User unknown

So they’ve shut down the Sender ID cache update address, and failed to document it on their own instructions page. Ominous.

Undaunted, I found the next noodle in this strategic spaghetti: MSN Smart Network Data Services. To proceed requires signing up for Windows Live (formerly MSN), which yields this:

From the user’s point of view, it looks like Windows Live is offline in the middle of a weekday. Actually, it’s yet another case of silent failure on incompatible browsers, a widespread Microsoft problem mentioned in previous posts.

No problem. Changed browsers. Got a Windows Live account. Went back to Smart Network Data Services, and was greeted with this:

So Microsoft’s email security site has a bad SSL certificate. It’s a security site. With a bad security certificate. Ah, what they hey, I’ll risk it. Set up SNDS, and all was done.

After all that, everything sent to Hotmail is still classified as spam. No change.

Just one option left, according to the MSN postmaster: “Sender Score Certified,” formerly “Bonded Sender,” formerly “Return Path.” Under this scheme, you can rent the right to send anything to Hotmail, for a fee of US$1,400. To send 10 messages a month. Right.

Fortunately, there is a much cheaper and simpler solution, for some reason not mentioned at the Hotmail support site: I can refuse to support Hotmail, and persuade clients to use a different email provider. This has been effective.

Agency problem in MSFT product marketing

Tuesday, July 17th, 2007

The Orphans of the Sky scenario at Microsoft is not limited to the engineering department. With no overarching plan to guide them, various hives of Microsoft product marketers buzz with pointless activity, endlessly renaming myriad half-finished products and services.

Sample paragraph from a recent .NET propaganda piece:

“At MIX07 in Las Vegas, Microsoft detailed planned .NET programming support for Silverlight, formerly known as Windows Presentation Foundation/Everywhere … also disclosed was the Dynamic Languages Platform, itself based on the Dynamic Language Runtime.”

In 2 sentences, two “initiatives” are renamed for no discernible reason.

Another good example is “Sender Score Certified,” the new name for “Bonded Sender,” which was itself the new name for “Return Path.” (This service lets spammers tunnel into Hotmail, with MSFT approval, for a fee of $1400).

What does this marketing sound and fury imply? High turnover. How’s that? Well, it works like this.

You’ve just graduated from a major business school. You want to get into tech, but have no experience. No problem: Microsoft will take you, based on your pedigree. But the only position open to you is entry-level product marketing.

You feel this job is beneath you. You are an ambitious Harvard MBA. You want out, as fast as possible. But how best to do it? Answer: put easy-to-identify accomplishments on your resume, purpose-designed talking points for a job interview.

Just one problem: you inherited “Windows Presentation Foundation/Anywhere,” a 3-year-old project, as your first gig. How can you turn this into a bullet point? Simply rename it. Suddenly your resume says “Founding project manager, Silverlight.” Fantastic! Call the recruiters! You land a COO position at a VC-backed startup, and you’re off to the races.

In business school, we call this the principal-agent problem.

Soldiers of Academia – Part Two – Efficacy

Monday, July 2nd, 2007

“Soldiers of Academia” is my phrase for children molded from birth, Spartan-style, by competitive parents hoping to secure admission to the Ivy Leagues.  As described in the previous article, this was effective a generation ago, though perhaps did not result in happier children.  

Today, there is a second problem:  the Soldiers of Academia regimen may have become a false promise, even for those who are solely interested in external measures of success (money, alumni bumper stickers, etc.).

The causes of this new change?  Increasing competition and declining return on investment.

Increasing competition

The Soldier’s competitive funnel begins in first grade, with millions of children competing for just a couple thousand Ivy League spots a decade later. Twenty years ago, few people thought of primary school in this way, so the few who took the Soldier approach could easily outdistance non-Soldiers to grab all the spots at Harvard.

Just one problem now: everyone knows the Soldier model worked. K-6 math and chess tutoring is available in every city. The pool of qualified applicants is exploding. It’s reasonable to expect that, by 2020, your 17-year-old Latin-speaking, Rachmaninoff-playing chessmaster may not seem very special to the Harvard admissions board.

Under those conditions, just as most people would consider it irrational to spend 100% of their childhood preparing for an NBA career, parents may no longer want to bet everything on this particular type of academic boot camp.  The expected value is too low.

Declining return on investment

Even if you beat the odds and get into the Ivy League, today’s payoff is lower. The cost of top-tier private college has risen much faster than inflation, while professional real income per work hour has stagnated.

If you doubt this, interview someone who has just gone to his 20-year high school reunion. Inquire about how his classmates have made out. You may be surprised, as I was, to find the very best students in their high school class are not consistently the most financially secure. Often the opposite.

Top students go to private undergraduate and graduate schools, incurring debts of $150k to $350k. Educational choices (graduate school) and high debt then guide them into professional jobs with high pay, but extremely long work hours (management consulting, investment banking, law, medicine, etc.), which in turn delay marriage and home ownership well into one’s 30’s.

By their 20-year reunion, at age 38, many have no family (either still single or age-induced infertility), just getting out of debt, just thinking about a first house, and so forth.

In contrast, sensible second-tier students go to state schools, incur little debt, settle down early, buy homes, and by age 38 are well on their way to financial security.

I’m not saying, “don’t try for the Ivy League.” But it does make sense to reevaluate the range of possible outcomes, and their probabilities, before sacrificing your child’s joie de vivre in a do-or-die, decade-long rush at the Harvard admissions committee.

Of course, some teaching pressure is well warranted. Everyone applies at least some to help their child to read, write, swim, ride a bike. But there is a point past which this mode of learning is less efficient than intrinsic motivation.

Intrinsic fulfillment can produce a good payoff in all conditions. After laying an appropriate groundwork, if you can encourage your child to find something he loves, and to seek marketable applications of that love, your child will probably become highly accomplished at something unexpected. College admissions boards LOVE this, because their dull job is rendered briefly interesting by a quirky candidate. But even failing the run at Harvard, your child will learn early how to seek fulfillment while making a good living, so the Harvard stamp becomes less critical.

My current favorite examples of classical education followed by intrinsic fulfillment are this guy, and also this guy. Call it goofy if you will, but speaking as a guitarist, I can say this is impressive.

Summary: compared to 20 years ago, a decade-long academic push is much less likely to get you into Harvard, and, even if successful, has a lower payoff. As a result, it would seem parents are better off laying a very broad educational groundwork, then letting the child pursue something meaningful and marketable.

Soldiers of Academia – Part One – Dissatisfaction

Monday, July 2nd, 2007

Coastal California knows two large groups of K-12 students I’ll call the “American Indolents” and the “Soldiers of Academia.”

The American Indolents are descended from parents and grandparents who knew only limitless American power and riches: suburban comfort, economic ease, and relative job security. These kids coast on imperial momentum — or think they do — spending afternoons watching TV, smoking pot, playing video games, and generally goofing off.

The Soldiers of Academia are descendants of recent immigrants. Poverty is in recent family memory. Economic advancement is the primary famiy value. Intellectually, they “work to failure,” a weightlifting term meaning that you stop only when physically unable to continue. Imagine the “Rocky” theme song playing in the background as these kids are pushed relentlessly, from early childhood, to maximize academic opportunity. They spend their afternoons playing piano and chess, learning Latin, and going to Kumon math tutoring.

Based on my 30-year observation, the economic outcome is what one would expect: in general, today’s Soldiers become tomorrow’s prosperous doctors and lawyers, while today’s Indolents become tomorrow’s struggling gas station attendants and retail service workers.

Yet these two groups share a common feature: dissatisfaction. Naturally the Indolents are trapped like sharecroppers in dead-end subsistence work. Less obviously, the Soldiers, who marched and drilled through their childhood years to the pleasure of their parents, can sometimes be resentful, anxious adults, unsure what occupational fulfillment might mean.

There is a third, smaller group we’ll call “Intrinsics.” Before the age of 15, they find a calling, vocation, or hobby, intrinsically satisfying, and adaptable to have economic value. Not all Intrinsics are happy, and not all are rich (though many are), but most of them have something more important than wealth, or even than happiness: a sense of fulfillment, purpose or meaning in life.

A key benefit of this approach is that personal fulfillment is not contingent on big success. At the same time, it seems to increase the odds of stratospheric success. There is no external motivation (e.g. money, parental approval) powerful enough to drive you to global excellence. It has to come from being really, really interested in something first.

Warren Buffett did not begin trading stocks at age 11 under pressure from his parents. Teenage Bill Gates did not program minicomputers because his mom forced him. Walt Disney’s love of drawing and entertainment drove his success, over the objection of his father. In all cases, intrinsic enjoyment and curiosity drove achievement, not the other way around.

Thus a parent might prefer to encourage their child to be an Intrinsic instead of a Soldier — someone who knows how to identify a dream, make it marketable, and follow it through. At age 70, I would feel successful to have a happy, relaxed, purposeful 40-year-old daughter. Financial security would probably be a component of her relaxation, but as a means, not an end.

This is particularly important now, because I suspect the Soldiers of Academia model may not work as well in the next 20 years as it has in the last 20.

Exclusionary college admissions

Monday, July 2nd, 2007

The Wall Street Journal says top private U.S. university admissions discriminate by race (”Is Admissions Bar Higher for Asian at Elite Schools?”, Wall Street Journal, 11/11/06, subscription required).

Despite the statistical evidence of bias, these colleges, apparently including the Ivy League, deny the practice exists, as they did when excluding Jews in the early twentieth century. While the problem has waned in the past 15 years — the University of California confessed and went meritocratic in recent years — the SAT disparity mentioned in the WSJ article suggests the practice persists.

For our Wisconsin readers, here is a primer on Asian-American academic excellence. Lesson one: there’s nothing Asian about it. It’s simple opportunity cost: every hour spent on one thing is an hour not spent on something else.

So, to produce academic overachievers, immerse your kids in academia. Go to the library every afternoon. Read. Write. Cancel your summer vacation, and spend the money on Kumon (a respected private math tutor).

Walk into a coastal California public library on a weekday afternoon, and note most faces are Asian (including south Asia). 12% of the California population, but 60% of the library population. This adds up. Consistent effort yields results.

It should come as no surprise, then, that after years of consistent study, many of these kids are academic superstars. What else would you expect? That they’ll get into Harvard by going surfing every afternoon? Unlikely.

“Asian” is an irrelevant red herring. Anybody can do this. By a twist of cultural fate, those who actually do are mainly recent descendants of Asian immigrants. To put quotas on their Ivy League acceptance is to punish a family reverence for academia.

“Reverence” is not too strong. Imagine the family strain of such a singleminded effort. Mom driving the kids around every afternoon. Kids abandoning sports, friends, parties, all in favor of intellectual excellence.

Now imagine, after a dozen years in this academic boot camp, you get a cursory rejection from Harvard, in favor of a less qualified person, due to ethnic background. You’d be mad, wouldn’t you? What could be more contrary to American meritocracy?

Beyond unfairness, in the limit case, this may be socially destabilizing. I suspect such policies will not exist in 10 years, but in the meantime, write your congressman.

That’s the university admissions perspective. The family perspective, covered in the next post: is it actually a good idea to put your kids through 12 years of academic boot camp?