Archive for August, 2009

Teacher, teach thyself

Wednesday, August 12th, 2009

Our 4th-grader’s summer writing teacher — a UC Irvine professor — corrected the her misspelled “philosophocal” to instead read “philisophical.” Thanks, big improvement.

The teacher’s assistant then “corrected” a run-on sentence by adding a period in the middle, so that the second “sentence,” now a fragment, began with “but” and a comma — introducing multiple errors with a single change.

That was UC Irvine. The public schools are worse, though we live in a (purportedly) top district.  Either we are misinformed on that point — quite possible — or the situation is still worse elsewhere.

There are at least two potential solutions.  Teachers could learn to spell, or they could dispense with spelling entirely and rely on computer spellchecking. Either solution would be an improvement.

Stop or I'll shoot… myself

Monday, August 10th, 2009

Microsoft’s latest competitive brainstorm is to give away Office, its flagship product, in online form.  This recalls an old comedy scene, in which a thief, cornered by police, points his gun at his own head and says, “Let me go or I’ll shoot!”

The media inexplicably painted this as a countermove against Google.  But, ah, how is dropping your own price to zero an offensive maneuver?

Microsoft still has momentum, but two big things changed in July 2009.

  1. For the first time, a competitor with vast engineering resources pledged to release a free alternative operating system.  It will run on netbooks, the fastest-growing computer segment, and where Microsoft is weakest due to performance problems.
  2. For the first time, Microsoft pledged to give away a version of Office.

Most of Microsoft’s profit comes from those two products, and ever-increasing price pressure is now nearly certain.  I had purchased MSFT very cheaply last November at about 20, on the stock market swoon, and was only too happy to dump it at a 20% profit last month.

One risks later embarrassment by mentioning specific trades, and that may well happen here.  I prefer to hold for years, so this runs against style.  Moreover, I still think MSFT could have years of stability ahead.  But I’m less sure of it than before.  Selling now offered over 30% CAGR pretax.  A very pretty bird in the hand.

Street smarts

Tuesday, August 4th, 2009

Yesterday morning, I heard two construction refit workers arguing in a parking lot next to their utility trucks.  One looked and sounded typically Californian, while the other was Hollywood’s interpretation of a Bronx hoodlum: musclebound, bandanna, prison tattoos, body piercings, and a deafeningly loud, apishly guttural New York accent, unusual out West.

Apish New Yorker was the smart one.

“Dang, it’s hot today.  I want an inside job,” said Californian.

“You’re a f***ing idiot,” said Apish New Yorker.  ”We got da perfect jobs.  In 10 years dere ain’t gonna be inside jobs.  Dey all goin’ ta India, and da recession jes’ makes ‘em go away faster.  Dey ain’t comin’ back.  You work on a phone or a computer, you history, you gonna be lining up to work for guys like me.  The face-ta-face job, dat’s da job dat sticks, ‘cuz dey can’t move it offshore.  Get wit’ da f***ing program.”

I might have put it differently, but pretty accurate.

Knowing industry competition

Tuesday, August 4th, 2009

It’s surprising to see big companies fail simply by misunderstanding the nature of competition in their own industry.  I do not mean misunderstanding their competitors — that is more common, and more understandable.  But to misunderstand the nature of competition itself, the terrain on which the battle is fought, never ceases to amaze.

Contemplate the decline of Network Solutions (hereafter NS), which was the #1 Internet domain name registrar in 2000, but now a fraction the size of GoDaddy (hereafter GD), which has registered 5x more names.

NS was a pain to use, but not unusable.  Support was bad, but not terrible.  GD beat them somewhat on these fronts, but they are not the reason for the lopsided outcome.

The battlefield was simply price. Domain name registration is a nearly pure commodity, and GD took over simply by charging less.

It didn’t have to end this way.  NS was much bigger, and hence presumably had at least a small cost advantage a decade ago.  If NS had simply charged a penny less than GD, there would be no GD.  That option no longer works, because GD now has huge scale and presumably the lowest costs.  Inexplicably, NS never reacted.

At the time, I recall reading that NS treated the business as a cash cow.  Rightly so:  domain registration is a good business for a sustainably low-cost producer, as with any commodity business.  But you have to connect the dots tactically, watch the competition, etc.

GoDaddy management, though undoubtedly sharp, really owes its biggest thanks to the mistakes of Network Solutions (which still charges triple vs GD).  If NS had done the right thing, no amount of brilliance at GD would have worked.

Another business facing this same situation is the Corporation Service Company, which most people have never heard of.  Venerable CSC provides “registered agent” services in Delaware.  Tons of corporations form in Delaware, because it has a huge stack of corporate case law, making lawsuits cheaper for both sides to resolve.  But to form there, you need a “registered agent” there.  CSC is the gorilla of that business.

But till recently, they were not a nimble gorilla.  As the world moved online, cheap one-person shops arose to provide the same service.  I saved 70% by changing to one of these.

Unlike Network Solutions, CSC got wise, simply phoned all their lost customers, matched the low offer, and got all their business back.  This is not brilliant — it’s simply doing the obvious, which NS didn’t.

Healthcare: two megaphones

Saturday, August 1st, 2009

There is little actual news on the healthcare debate.  Instead, as with much of modern media, we instead simply see dueling press releases, half repeated verbatim by MSNBC and Huffington Post, and the other half repeated verbatim by Fox News and the National Review.

Lost between the two megaphones are a few simple facts, mentioned by no one.

First, US healthcare is already socialized.  Requiring businesses to provide health insurance to employees is a market-distorting government intervention, functionally identical to a healthcare tax, except that coverage is less universal.  Free marketeers thus have little cause to argue against change — we would merely move from one socialist scheme to another one.  Free markets lost this fight in the 1960’s, so why argue for the status quo now?

Second, the Administration’s argument for a “keep-them-honest” public health insurer is based on the unproven assumption that existing health insurers are not competing.  Is that really true?  Why?  No one has explained this.  If health insurers are already free to compete for business, why are costs rising at quintuple the inflation rate?  Collusion?  That’s a problem we can attack through existing regulatory structures, not a new insurer.

There is no question that the existing system does three things wrong:

  • Fails to independently measure and publicize the ROI (return on investment) of preventive medicine and lifestyle changes.
  • Fails to provide high-ROI medicine to the uninsured population, which would be cheaper than fixing the same population’s acute problems later at charity hospitals.
  • Fails to measure and publicize the ROI (positive or negative) of using expensive patented drugs and devices instead of cheap generic drugs and devices.

In short, the problem is a lack of transparency.  Sound familiar?