January 10, 2006
Arik Johnson's ReconG2 Weekly from Aurora WDC - 09 January 2006 - Competitive Intelligence for the Need-to-Know Enterprise
Happy New Year! I hope you all had as great a holiday season as I did, but I imagine you're also eager to get back in the swing of things as well. So, here are some highlights from today's edition of the newsletter to get you started.
If you haven't already noticed a lack of new blog entries lately that's because we're migrating www.ReconG2.com to a new extranet platform, but with the Vegas Consumer Electronics Show last week, and the Detroit Auto Show and Macworld this week, you can expect to see all new strategy and product analysis in the days ahead.
What's that you say? Don't know much about conference and tradeshow intelligence? Then, you should read our Technique of the Week:
Likewise, in the absence of my own blog entries, at least there are a few you can read elsewhere, since I've been guest-blogging at the new Coemergence weblog (http://blog.coemergence.com) alongside a few of the best thinkers in the CI field. Pay it a visit and share your ideas, then join me and friends Craig Fleisher and Michael Chender for the free webinar "Creating a Predictable Advantage" Tuesday 17
January, from KMWorld Magazine, sponsored by Coemergence:
Aurora will be presenting in person at events around the country over the next 30 days, starting Monday 23 January in Princeton, NJ at CBI's 2nd Annual Predictive Intelligence Forum. My friend Jordan Frank from Traction Software and I will doing our "Collaborative Early Warning" drug-development workshop simulation focused on the unique standards of CI best practices required by pharmaceutical, biotech and medical device markets. Plus, mention you're a friend of this newsletter and you'll get a $500 discount for you and your colleagues - then register three, and the fourth attends free:
Later in the week, I'll be visiting the SCIP Boston Chapter for a meeting Thursday 26 January for a primer on Disruptive Innovation Theory and the relationship between this revolutionary approach to understanding competing technologies, anticipate industry changes and predict the outcomes of competitive product battles in advance. First written about by Clayton Christensen of Harvard, we're lucky enough to have Prof. Christensen keynoting SCIP 2006 in Orlando the end of April so I'm shamelessly promoting by spreading the word. Click to the SCIP Boston Chapter page on SCIP.org to register:
Next, Aurora will be appearing at Frost & Sullivan's 13th Annual Competitive Intelligence event in La Jolla, CA starting Sunday 5 February. Always a valuable experience, this time around, Aurora has a surprise in store for attending delegates that we hope will set the stage for the rest of our year, and I don't mean the Super Bowl tailgate party - to find out what it is, click through to have a look at the program:
Finally, SCIP's Orlando Conference program is finally online and ready for registration - it's a truly stunning program with lots of surprises in store for those of you who've been before... as I've always said, not only is it the world's largest CI event, SCIP also has the best price-performance ratio to boot:
As always, my sincere thanks for reading the ReconG2 Weekly. Feel free to forward at will to all of your friends and colleagues if you think they'd enjoy it. Send me your comments, editorial ideas, suggestions & other feedback anytime - Arik.Johnson@AuroraWDC.com.
Best wishes for a happy, healthy and prosperous 2006,
1> Technique of the Week: Conference & Tradeshow Intelligence
The cornerstone of every CI collection activity is penetrating the target-rich environment present at live industry events, such as conferences and trade shows. Aurora has a disciplined HUMINT model that brings both active as well as passive collection and analysis on board as you leverage the presence of the rest of the people in attendance from your organization:
2> On The Road Again: Winter 2006 Worldwide Appearances Calendar
As we present our updated winter calendar of appearances & workshops at the CI events around the world that matter most, we encourage you to follow the links wherever your interests take you and come join Aurora and our partners in person to celebrate and learn about the benefits and best practices of CI in your organization.
Webinar - "Creating a Predictable Advantage" - 17.Jan.2005
Decision makers at all levels are frequently blindsided by shifts in the business environment and, as a result, face damaging surprises and near-misses. Hindsight always seems 20/20, so how can we use organizational memory to recognize the danger signs? Moreover, how do we use the information we already have at hand to predict and capitalize on windows of opportunity in the struggle for market share growth day-to-day? Knowledge managers can help evangelize a new �predictive� direction to the C-Suite and demonstrate how early opportunity identification, risk management, and CI techniques come together to substantially increase a firm�s capacity to negotiate the short- and long-term competitive environments. You will learn what all knowledge managers need to know about competitive intelligence:
� Using the power of networked intelligence to vastly improve the early recognition of opportunities and threats.
� Capturing non-traditional data to elicit insights, generate intelligence and trigger action.
� Creating proactive IT support for predictive executive decision making.
� Recognizing potential triggering events and early warning signs for identifying opportunities and managing risk.
Join my good friends and me for this important examination of predictive decision-making, featuring University of Windsor Professor (and SCIP Board President-Elect) Craig Fleisher, Coemergence CEO Michael Chender and KMWorld magazine Publisher Andy Moore. It's all available FREE, January 17, 2006, at 11AM PT/2PM ET. Register now:
Princeton, NJ - CBI's Predictive Intelligence - 23-24.Jan.2006
In addition to my good friend Jordan Frank from Traction software and I delivering our "Collaborative Early Warning" workshop on Monday morning, through Tuesday the 24th, you'll also hear a top-shelf faculty discussing cutting edge CI applications. Here are a few examples:
- Forecasting Results of New Product Launches - Johnson & Johnson
- Using CI to Benchmark Internal Drug Development - Pfizer
- Trend Monitoring - Endo Pharmaceuticals
- Connecting Scenario Learning with Market Monitoring - Amgen
- Neural Network Models & Time Series Analysis - Sanofi-Aventis
- CI in Evaluating M&A deals - Odyssey Pharmaceuticals
... and a bunch more ... Wow, great stuff, huh?!
In the bet-the-ranch world of bio-pharma, anticipating future market dynamics isn't nice-to-know, it's need-to-know. So take five minutes today and call Glen Manseau at CBI at 781-939-2513 (or email firstname.lastname@example.org) to join us and qualify for the special discount. If you need further details about what we'll cover, click the link below to view the complete program; if you're active in CI and related fields in bio-pharma, you can't afford to miss it.
Boston, MA - SCIP Chapter: Disruptive Innovation - 26.Jan.2006
Winners and Losers in Disruptive Innovation - the theory created by Harvard professor Clayton Christensen, who will also be keynote speaker at April's SCIP Conference in Orlando, refers to the market dynamics that govern products or systems that respond to the varied demand curves of the so-called undershot, overshot and nonconsuming contexts of competitive posture and customer value proposition. I'll offer a CI-oriented sample of Christensen's ideas on how every firm can gain competitive advantage by understanding and anticipating the threats and opportunities from your current and future rivals, then join us in Orlando in April to get the full story of how to predict industry change and see what's coming next:
La Jolla, CA - Frost & Sullivan 13th Annual CI Event - 5-8.Feb.2006
Next, Aurora will be appearing at Frost & Sullivan's 13th Annual Competitive Intelligence event in La Jolla, CA starting Monday 6 February. Always a valuable experience, this time around, Aurora has a surprise in store for attending delegates that we hope will set the stage for the rest of our year - to find out what it is, click through to have a look at the program:
Orlando, FL - SCIP Annual Conference & Exhibition - 26-29.Apr.2006
SCIP's Orlando Conference program is finally online and ready for registration. It's an impressive program with lots of surprises in store for those of you who've been before... as I've always said, not only is it the world's largest CI event, SCIP also has the best price-performance ratio in the CI event world anywhere:
3> JOBS: Are you relentless? Aurora is Hiring Research Analysts
Business is brisk and Aurora's never-ending pursuit of the best talent marches on. If you consider yourself among the best and brightest in the CI field, we want you to join Aurora's elite team of versatile professionals. Learn how to combine your CI skills with Aurora's systemic approach to awareness and predictability in market-oriented decision-support with proprietary infrastructure and tools to help our clients see clearly the risks and rewards that await them and create an unfair advantage in achieving their sustainable market success.
Aurora's broad foundation of furnishing the most respected clients in diverse industries with the Competitive Intelligence business leaders "Need-to-Know" means we must again expand our corps of research analyst staff with opportunities across North America for human source collection experts. In addition, you must possess the talent to clearly deliver high-impact analysis, communicate advice and positioning guidance and exhaustively optioned recommendations.
Field experience in target-rich environments is a must and only those possessing unquenchable curiosity and a relentless drive to succeed in delivering what clients Need-to-Know need apply.
For consideration, send a brief professional history describing your related qualifications plus non-proprietary output examples to Mr. Derek Johnson, COO and Director of Research & Analysis Support Bureau services:
4> INFO: Subscriber Services, What We Do, How to Reach Us
Aurora WDC is a Competitive Intelligence professional services firm headquartered in Wisconsin and consisting of two highly complimentary businesses.
Run by Aurora's Founder and Managing Director, Arik Johnson, the CI Best Practices Institute is based in Chippewa Falls, while the Research & Analysis Support Bureau is based in Madison, expertly operated by Derek Johnson (yes, in case you're wondering, Arik's brother).
If your business or organization needs strategic or tactical CI collection help, advice or training, call us: 1-800-924-4249.
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October 24, 2005
RIM's BlackBerry Under Threat from Rivals & Other Risks
The refusual to stay the case comes two months after a three-judge panel from the appeals court upheld most of the 2003 verdict, which has raised the seemingly remote possibility that RIM might be forced to stop selling BlackBerrys without a settlement.
But the August decision also identified certain errors during the trial, thereby reversing some of the infringement finding and asking the trial court to review whether those errors tainted the overall jury verdict.
NTP, based in Arlington, Va., has disputed the significance of that ruling as well as a series of recent "preliminary" rejections by the U.S. Patent and Trademark Office of the five patents RIM was found to have violated.
RIM has asserted that the patent office's actions hold enough weight to sway the court case, while NTP has dismissed them as a common formality in the agency's lengthy review process.
Settlement talks in the case broke down in June, several months after the companies appeared to reach an agreement that called for a $450 million payment to NTP.
RIM has indicated it will ask the trial court to enforce the settlement, while NTP has maintained that the companies failed to reach a definitive agreement over licensing terms for the patents in dispute.
"We're willing to settle the case, but not on terms that RIM is going to dictate," said Donald E. Stout, an attorney for NTP. "If the judge says `NTP you're right, there's no contract,' we will offer RIM a license with terms and conditions that we're willing to grant them a license under. And if they don't take that, we'll seek to enforce the injunction" fro RIM to stop selling BlackBerry mobile devices and service."
RIM, in a statement, said it "maintains that an injunction is inappropriate given the facts of the case and substantial doubts raised subsequent to trial as to the validity of the patents in question."
On the other hand, it would seem NTP's patents aren't that strong in the first place:
American Technology Research analyst Rob Sanderson said the latest ruling should not come as a surprise.
"What RIM was asking was to not move this case forward until the Supreme Court can decide. That request is almost never granted, so it's not unexpected," he said.
He said decisions for the lower court judge will include whether to reconfirm the injunction, whether to stay it pending review, and whether the earlier settlement was valid.
Sanderson said RIM may have helped its position by showing it was willing to settle, as courts prefer to see settlements in such cases.
He also noted that the U.S. Patent and Trademark Office recently finished reexamining eight NTP patents and issued initial rulings rejecting 100 percent of the claims.
Those rulings are not final and NTP has said it plans to see the full reexamination process through, which could take years. Some analysts have said that until that process is complete, the patents remain valid in the eyes of the court.
Still, the bigger they are the harder they fall and everybody wants to be king of the hill - with that, competitors were coming out of the woodwork with solutions at the recent CTIA wireless show:
Several mobile e-mail access companies this week will announce products and services designed to compete with Research In Motion Ltd.'s BlackBerry platform, but RIM continues to hold its own, with new carriers and device partnerships due by year's end.
At the CTIA Wireless IT & Entertainment show in San Francisco, Intellisync Corp. will introduce Intellisync Unified Messaging for Mobile Devices. "Intellisync has moved into the wireless enterprise space full force," said Bill Jones, a product manager at the San Jose, Calif., company. "This is really unified messaging."
A new version of the company's Intellisync Mobile Suite, the new platform makes e-mail, voice mail, text and instant messaging accessible on a single device screen. This includes the ability to view all the major IM networks, including AOL, Google, Jabber, ICQ, MSN Messenger and Yahoo IM, as well as corporate platforms such as Microsoft Live Communications and IBM Lotus Sametime.
The platform has new presence capabilities, officials said. An IM client allows others to see when a user is online, but Unified Messaging lets users specify how they would like to be contacted, setting their status to let colleagues know to use a text message rather than a voice call.
Unified Messaging also includes a data collection feature that lets a user see all the information relating to one contact?e-mail, voice mail and SMS (Short Message Service) messages?in a single view.
Supporting PalmSource Inc.'s Palm OS, Microsoft Corp.'s Windows Mobile and Symbian Ltd.'s Symbian OS, the Unified Messaging platform will be available in November, both as a private-label offering from carriers and directly from Intellisync's enterprise sales force, officials said.
Nokia's e-mail platform challenges Blackberry. Click here to read more.
Seven Networks Inc. will announce three new carrier partnerships in Europe and Asia, resulting in a total of 73 carriers offering the Redwood City, Calif., company's mobile e-mail platform.
Currently 140 carriers sell BlackBerry devices and services, and that number will soon exceed 200, said RIM officials in Waterloo, Ontario.
Visto Inc. at the show will announce support for 17 new devices on its Visto Mobile platform, meaning the platform supports 60 devices, said Visto officials in Redwood Shores, Calif.
But RIM has been slowly inching out of its BlackBerry device comfort zone via its BlackBerry Connect program, which enables non-RIM devices to work with the BlackBerry Enterprise Server. BlackBerry Connect has been slow to gain traction in the United States, but that seems to be changing.
By the end of the year, BlackBerry Connect support will be available in the United States on both the Nokia 9300 and on Palm Inc.'s Treo devices, according to industry sources. Cingular Wireless will be offering these BlackBerry-connected products, sources said. By November, T-Mobile USA Inc. and Verizon Wireless will be selling Windows Mobile devices that support BlackBerry Connect, sources said.
Competitors argue that BlackBerry Connect is not the same as building support for a device from the ground up. Still, it's not easy to pull customers away from the BlackBerry.
"It would take a lot for me to switch from RIM at this point," said Nicholas Gass, IT manager at Color Kinetics Inc., a digital lighting company in Boston. "Our infrastructure is established, both back and front end, and we've established a comfort level with all aspects of the BlackBerry product line."
All competitive comparisons aside, I have to say, it's hard not to admire RIM's founders for all the philathropic work they do which also serves a dual purpose role in original research to support economic development - and in so doing seem to be building Canada's future competitiveness in the process.
Google vs. Microsoft
Even as Microsoft won a victory recently against its new and increasingly agile young competitor Google in the case of Kai-Fu Lee, Google continues to nibble at the margins of Microsoft's more existential questions - the need for its software in the first place in an age when Web development architecture has taken the "Web 2.0" route offered by schemes like AJAX.
On the Lee case, Microsoft has said it wants the case to be decided in the state of Washington, where a judge ruled last month that the hiring can proceed, with the stipulation Kai-Fu Lee cannot recruit from Microsoft. Google is attempting to keep the case in California where non-compete agreements are said to be viewed with less rigidity.
Microsoft initially filed suit in Seattle's King County Superior Court in July, claiming Kai-Fu Lee violated that agreement when the search giant hired him. Google then countersued Microsoft in California, in an attempt to have the noncompete clause declared invalid.
The battle for Kai-Fu Lee, a former vice president with the software giant, underlines a growing animosity between the two companies, with Microsoft CEO Steve Ballmer allegedly pitching such a fit after losing one executive in 2004 that he threatened to "kill Google" over the continued poaching of Redmond's top brass, even flinging furniture and dropping more F-bombs than I've heard tell in awhile.
Well, Microsoft won its latest round in the fight that has at last made explicit the smoldering rivalry between the two otherwise mostly indirect competitors.
But announcements between Google and Sun have indicated Google's interest in helping partners like Sun compete head to head with Microsoft in the office suite market with the recent release by Sun of OpenOffice.org 2.0 - a significant upgrade to the prior version which, if reviews are to be believed, is a virtual replacement (for free under the open source GPL) for MS-Office. According to Jonathan Schwartz, Sun's president:
?OpenOffice.org is on a path toward being the most popular office suite the world has ever seen; providing users with safety, choice, and an opportunity to participate in one of the broadest community efforts the Internet has ever seen. As a member of that community, I?d like to offer my heartiest congratulations.?
For sure, it gives Sun a new lease on life after a very tough few years after being the dot in the dot-com crash. McNealy was in full effect with his "network is the computer" mantra, so much exemplified by Google's strategy. If you can call it that: Eric Schmidt, who used to work for Sun and is now Google's CEO (after jumping ship a few years ago from the sinking Novell) even mentioned how he delights in the absence of a strategy... well, I guess. No matter how underwhelming the actual announcement, it creates powerful symbolism in the marketplace where Microsoft has left an opening.
Still, OpenOffice.org has Microsoft running scared from OpenDocument - a revolutionary file format that could at last end the Word/Excel/PowerPoint tyranny even more than PDF has done. Which is why, perhaps, Microsoft licensed PDF support for next year's release of the the updated MS-Office suite. But their enthusiasm for SaaS (Software as a Service) is palpable amid McNealy?s remarks about Windows being the last, sad representative of the old client/server computing world and is ?so last millennium.?
Microsoft's reaction to the announcement took the move in stride, but the evidence lies in nothing less than Google's patents that they've got Microsoft squarely sighted in, as it "builds a patent fence" around search and takes on Yahoo first, then leveraging cutting edge user interface design technologies present in Google Maps (which could challenge PowerPoint) and Gmail (the RTF technology already offering about 70 percent of the functionality behind Word). Deployed on the "Googleplex" platform Google has created as its supercomputer-like infrastructure, calling into question Microsoft's very necessity isn't far around the corner.
Of course, Microsoft has seen such threats before - when Netscape challenged the idea that an OS was even necessary and applications could be run in Sun's Java within the browser. We all know how that ended... despite continuing market share battles with Mozilla Foundation's open source alternative to Internet Explorer (which I use myself), in Firefox.
But Redmond won't go down for the count easily. They've just reorganized decisively to take on such threats. And, while Microsoft might not have invented the idea of "embrace and extend"; they do seem to have perfected it.
September 07, 2005
Sony vs. Toshiba in DVD Format Wars: Samsung Positions for Ultimate Victory with Dual-Format Device
Even as Sony renews its determination that its new DVD format Blu-Ray will not to relive the painful Betamax experience of losing to VHS, Samsung seems to be positioning itself as a quiet arbiter of standards cross-compliance for consumer electronics customers as Toshiba's HD-DVD wages a pitched battle with Sony for DVD dominance.
At the core of both formats are blue lasers, which have a shorter wavelength than red lasers used in current DVD equipment, allowing discs to store data at higher densities needed for high-definition movies and television. However, the coating used in the Blu-Ray format requires a retooling of DVD manufacturing equipment not necessary for HD-DVD, despite the advantages of higher storage capacity.
Now that HD-DVD has suffered the setback of pushing its U.S. launch back from late 2005 to early 2006, it'll have a MUCH tougher time competing with Blu-Ray, when Sony hits the street with the PS3 game console:
The next-generation DVD format known as HD-DVD won?t be launched in the United States until early next year, setting the stage for much tougher competition with the competing Blu-ray standard.
The consumer electronics company (Toshiba), which is the major backer of the HD-DVD format said, however, that technology will be launched in Japan before the end of 2005 as planned.
The delay in the U.S. all but eliminates the only advantage that the HD-DVD camp enjoyed over the Blu-ray format: time to market. Initially the HD-DVD camp had planned to launch products in the U.S. before the 2005 holiday season. HD-DVD has been waging a three-year format war with the Sony-backed Blu-ray format. The Blu-ray products are planned to reach stores in the spring.
Although the delay will not greatly affect the volume of HD-DVD sales, it will hurt the group?s image, Ms. Levitas said. ?In terms of any momentum [HD-DVD was] going to build this year, they are shooting themselves in the foot,? she said. ?They are giving a chance to Blu-ray to catch up.?
Another reason for the delay could be Hollywood studios losing confidence. ?Maybe the studios are getting cold feet that you can succeed in [acquiring] consumers to move to blue lasers without a standard,? Ms. Levitas said.
It appears so far that Sony's winning and seems to be tipping the scales it's direction - Slate.com had an analysis and rave reviews for Blu-Ray:
If history is any guide, changes in technology that make entertainment more convenient make a difference in the way it is experienced. The advent of mass television, for example, came very close to killing the movie business, cutting the average weekly moviegoing audience from 90 million in 1948 to 20 million in 1966. Once Americans had color TVs, some 70 million people a week stopped going to movie theaters, forcing Hollywood to revive the movie audience with massively expensive television advertising. Videos and DVDs?and the ability to churn out pirated copies of them?have wiped out most of the movie theaters in large parts of Asia and Eastern Europe. So, what effect does Sony expect that its new Blu-Ray DVD will have on what remains of the moviegoing audience? To find out, I proceeded from the ground-floor showroom to the 34th-floor executive suite and put the question to Sir Howard Stringer, the British-born?and first non-Japanese?chairman of Sony.
Sony's fabled success story began more than half a century ago, in 1946, in a bombed-out basement in Tokyo. Akio Morita and Masaru Ibuka started the company (originally named Tokyo Tsushin) with the intention of manufacturing necessities, such as rice cookers and space heaters, for the war-ravaged population of Japan, but they quickly found an export market in America for consumer electronics. They went on to introduce a string of remarkably inventive entertainment products?including the CD. Along the way, Sony also bought a number of American companies to get content for these products, including CBS Records (now Sony Music), the Columbia TriStar studio (now Sony Pictures Entertainment), and, most recently, MGM.
Even though Sony helped bring about the digital revolution, the company has failed to adapt to it. The standardization required to manufacture consumer digital products undercut the value of Sony's branded products. For example, the Chinese and other low-labor-cost manufacturers, using the same computer chips, could make the same DVD players and digital TV sets as Sony for a fraction of the cost. The result was a commoditized rat race that became unprofitable for Sony. When it became clear that Sony had to "revolutionize itself," as Sony's previous chairman Nobuyuki Idei termed it, the revolution involved transforming Sony from a company that had focused on engineering proprietary products, such as the Trinitron color television set, the Betamax VCR, and the Walkman, into one that could capitalize on?and protect from piracy?the streams of digital data that would include games, movies, music, and other intellectual property. When Sir Howard assumed the leadership of Sony this year, part of his mandate was to move the company, as he put it, "from an analog culture to a digital culture."
The Blu-Ray DVD is a critical piece of this strategy. As I learned in Tokyo, its multiple layers not only can store vast amounts of digital data, they can also be used to record data downloaded from the Internet. For example, after buying the Blu-Ray DVD for Spider-Man 3, a consumer could then add on a game, music video, or a prior sequel from Sony's Web site. When I asked Sir Howard if there was concern that the Blu-Ray DVD would result in a further eroding of the world moviegoing audience, he answered that it was "a chicken-and-egg problem." The "chicken" was theatrical movies; the "egg" the DVD (plus television and licensing rights). Sir Howard, who is also chairman of the American Film Institute, pointed out that it would be difficult to conceive of great movies, such as Lawrence of Arabia, being made without a movie theater audience to establish them; the dilemma is that it's the "egg" not the "chicken" upon which the studios increasingly depend for their money.
So, even while trying to avoid fatally injuring the chicken?movies?Sir Howard said that studios are under increasing pressure to "optimize" their profits from the proverbial golden egg, the home audience. Indeed, the Blu-Ray DVD make this balancing act more difficult: With its interactive features, it appeals to the very teenage audiences on whom the multiplexes now so heavily depend. It's also a vital part of Sony's latest version of its PlayStation, due to be released next year. The prior versions of PlayStation have sold more than 100 million units and have provided the Sony Corporation with up to 40 percent of its profits. PlayStation 3, while it may sound like a child's toy, is in fact an incredibly powerful computer, exceeding in its processing power IBM's famed Deep Blue. The Playstation 3 can play high-definition movies and super-realistic interactive games and surf the Internet, providing a gateway for further digital consumption. In addition, the Blu-Ray will allow Sony to reissue its movie titles in high definition. In fact, part of the stated justification for acquiring MGM was the profits to be realized from reissuing the 4,100 films in MGM's library in the Blu-Ray format.
At some point, Sony has to overcome a competing high-definition format, HD-DVD, sponsored by its traditional rival, Toshiba. HD-DVD, like the Blu-Ray, uses a blue laser optical reader and renders an equivalent high-definition picture. The principal difference is that Toshiba designed the HD-DVD so that discs can be stamped out by existing DVD manufacturing equipment (which unfortunately is also owned by video pirates). That design makes it less expensive to implement, but the HD-DVD lacks the recordable multilayers or massive storage space for interactive features of the Blu-Ray.
While Sir Howard preferred not to speculate on the outcome of this potential format war, I predict that the Blu-Ray will prevail for three reasons. First, Sony has a critical mass of movies that it can release on Blu-Ray. Aside from its own titles, Disney, 20th Century Fox, and Lions Gate have agreed to release their titles on Blu-Ray. Next, almost all of the leading computer manufacturers, including Dell, Hewlett-Packard, and Apple, are committed to using Blu-Ray. So, if a studio wants its high-definition DVDs to be playable on personal computers?or for that matter on PlayStation 3?it will have to issue them in the Blu-Ray format. Finally, the situations of Sony and Toshiba are not symmetrical. For Sony, the Blu-Ray is an integral part of its overall strategy. For Toshiba, the HD-DVD is just another product they manufacture. If the company reached an accommodating deal on licensing fees, it could also make money by manufacturing the Blu-Ray DVDs. One way or another, however, the moviegoing public will soon have one more diversion from movie theaters.
Meanwhile, Samsung says it goes both ways:
Samsung Electronics Co. will bring out a DVD machine next year capable of playing both Blu-ray and HD DVD if backers of the rival standards fail to agree on a unified format, a newspaper said.
Competition between the two camps has hampered the launch of the next generation of optical disks, which will have greater capacity and higher definition, as movie studios hesitate to commit to printing disks on either standard.
Samsung's head of consumer electronics, Choi Gee-sung, told the Financial Times Deutschland: "We would welcome a unified standard but if this doesn't come, which looks likely, we'll bring a unified solution to market."
"It won't be simple but you'll see our solution in the coming year. Consumers will be too confused otherwise," he added in the interview published on Tuesday.
Samsung is a backer of Blu-ray, which promises higher capacity than HD DVD and better interactivity and security.
But supporting all standards?as Samsung has done with cellphones and mobile video?could give it an advantage in the multibillion-dollar market for DVD players, PC drivers and optical disks.
In the end, it might all come down to porn - which is what happened with VHS.
My instincts tell me we won't still be wondering who'll win this thing when Sony's PS3 hits the market. Now that HD-DVD has been pushed back, execs from Sony are claiming the Blu-Ray will "overwhelm" HD-DVD, citing its bundling with the PS3 and the fact it holds more data as trump cards. However, Toshiba has countered the argument, saying HD-DVD is cheaper to produce, which will ultimately draw the porn industry to it, and where porn goes, industry follows. Score one for Toshiba.
Plus, Toshiba says, "We're also not convinced that consumers would need to store so much data on disks, especially now that internal hard drives are more popular," which just goes to show you business analysts aren't the only ones completely out of touch with what consumers want.
Regardless, it's about now when consumers either go with Samsung's dual-format solution (Samsung could be the biggest winner in all of this) or simply throw up their hands and wait a year or two to see how things really turn out and go with the victor. One way or another, the stalemate is bad for BOTH Sony's and Toshiba's competing camps.
Seen another way, with Blu-Ray so critical to Sony's overall strategy, and HD-DVD not for Toshiba, Samsung also had little choice but to support both.
Still, one of the big factors in all this will be who the content providers - meaning Hollywood - will go for. And that, my friends, will boil down to who has the best copy protection. Sony scored a big one there too, with assurances that Blu-Ray equipment will Internet-connected to report any hacks to Big Brother's central command and the device can then be disabled. As in all things, vested-interest politics shares much of the blame. This speaks to the long-time, silly "regional code" that prevents DVDs made on one continent from playing on another.
For anyone who's ever bought a DVD in Australia, South Africa or China and brought it home to the U.S., this is often a rude awakening, as it was for me. This regional code can be removed in the players - as I have done myself to enable them to play - but in a Blu-Ray world, mods like that will not only be taboo, they'll earn you a dead DVD player.
September 06, 2005
Intel's AMD Antitrust Rebuttal: We're Not Bad, You're Just Stupid
Intel fired back at AMD in rebutting its antitrust lawsuit, saying the company has only itself to blame for not being competitive as a microprocessor supplier, with an inability to ship products on time, which helped to earn the company a bad reputation as a supplier with a poor track record of manufacturing investments:
Advanced Micro Devices Inc.'s failure to compete effectively with Intel in the microprocessor market is a "direct result of AMD's own actions or inaction," and weren't caused by any illegal actions by Intel, the microprocessor market leader said in court documents filed Thursday.
The filing in U.S. District Court was Intel's first formal response to AMD's lawsuit filed in June that charged Intel with using bribery and coercion of computer makers and retailers to limit the use of AMD processors.
AMD has used "out-of-context snippets ... to create the impression that Intel engaged in misconduct," Intel said its response. AMD's lawsuit also represents "a case study in legal dissonance. Although AMD has purportedly brought its complaint to promote competition, its true aim is the opposite. Under the cover of competitive law, AMD seeks to shield itself from competition."
Intel claims in its response that AMD is seeking to blame Intel for its own "many business failures ... that have determined its position in the marketplace." AMD's position in the marketplace "reflects its uneven track record, and its repeated failure to deliver on its promises."
Specifically, Intel points to AMD's "playing it safe ... with anemic investment in manufacturing capacity, leaving Intel to shoulder the burden of investment to enhance the usefulness of computers and enhance the market." In addition, Intel claims AMD has been "dogged" by a reputation of being unreliable as a supplier, has traditionally lagged in innovation, and has seen products delayed well beyond original launch dates.
When AMD has been able to deliver competitive products, such as with its Opteron server processors, it has seen share gains, Intel said.
AMD's allegations center primarily on the PC market, where chairman and CEO Hector Ruiz says the company has been unable to increase market share despite having highly competitive products in the past year. According to Mercury Research, AMD has seen its share of all x86 processors shipped, including those used in PCs and servers, rise from 15.1% in the second quarter of 2004 to 16.2% in the second quarter of 2005. When counting only x86 processors used in server applications, AMD has fared better, with its market share increasing 51% in the second quarter, from 7.4% to 11.2%
Intel argued that it hasn't violated any law or committed any wrongdoing. Intel said the AMD lawsuit is full of contradictions, including the claim that Intel's competitive actions could render it "nonviable." Ruiz has stated that the company "is in the strongest position we've ever been in."
Intel said it has demonstrated over a 30-year period that it can deliver faster, better, and cheaper products to consumers, in part because of its continued multibillion-dollar investment in new capacity and research and development even during downturns in the semiconductor market.
"In short," Intel wrote in its response, "AMD's colorful language and fanciful claims cannot obscure its goal of shielding the company from price competition."
Tom McCoy, executive of legal affairs and chief administrative officer for AMD, says Intel's response is "an attempt to divert attention from what this case is really about. Crossing swords of rhetoric is fun, but it's time to put the truth on the table in the courtroom. The industry problem is that [computer manufacturers and retailers] are under threats from retaliatory and potentially lethal price increases by Intel if they give too much business to AMD."
Evidence of Intel's illegal practices has already been substantiated by a prior ruling by the Fair Trade Commission of Japan that found Intel guilty of antitrust violations, and by ongoing investigations in Europe, McCoy says.
"There is an global regulatory focus on how Intel controls the IT industry, and it is plainly a serious industry problem that requires the light of truth," he says.
McCoy dismissed Intel charges that AMD's difficulty in competing was of its own making, pointing to a 25-year history of AMD consistently being a low-price leader in the x86 processor market, and the company's plans to open a 300-mm wafer fab in Dresden, Germany in October.
AMD was quick to respond to the charges. "It is true that with our early K6 processor, we had difficulty ramping one of our steppers. That hurt us for a couple of quarters," Thomas McCoy, AMD's executive vice president of legal affairs told internetnews.com. "But it's overwhelmingly true that we've been a worthy competitor for over twenty years, and now we have the technology lead. The problem is that Intel is using its monopoly power to force the world to accept Intel monopoly prices and is illegally insulated from having to compete on price and performance. We know that Intel is not the price leader, AMD is. Intel maintains a very constant monopoly margin it's proud of."
Intel did furnish a backhanded compliment, however, giving AMD credit for its success with the 64-bit Opteron processor for the server market, where it brought out a dual-core offering ahead of Intel. "When AMD is able to combine competitive products with reliable supply, the market responds," said Intel.
"Let's not debate it anymore," said AMD's McCoy. "We brought this case to put light on the truth. We'll put it in a courtroom and the world will see for itself."
"Crossing swords of rhetoric (REALLY) IS fun", "colorful language and fanciful claims" aside - what's not to love about this fight?!
September 05, 2005
Labor Day 2005: The Sad State of Labor Unions
As we recall this Labor Day 2005, I'm inexplicably drawn to ponder the future of organized labor, which seems to have been dealt such crushing blows over the summer, the latest having been the Northwest Airlines mechanics strike that has, by all appearances, been a non-event for the company.
But before that in July, much more serious events took place. Three of the AFL-CIO's biggest unions - the Teamsters, Service Employees International Union and the United Food and Commercial Workers - bolted from the federation. Critics complained the labor group, made up of more than 50 unions, was spending too much money on political campaigns and not enough on organizing unions, and lacked a good strategy to increase its numbers.
AFL-CIO President John Sweeney said today he was in talks with the disaffiliated unions' leaders. He added that a recent move to create local agreements known as "solidarity charters" - which would allow local and state organizations with the breakaway unions to work with AFL-CIO unions in central labor councils and state federations - had received mixed responses. Though the two sides had made some headway in recent weeks, it was too soon to say when the groups might reunite with the AFL-CIO.
Still, labor is sick and tired of being sick and tired... and has taken its eye off the ball. The once-contentious issue of wage parity, the extent to which hourly pay should keep pace with CEO salaries, now seems quaint - workers no doubt would welcome a return to the days when their biggest complaint was that the boss made 100, or even 150, times more money that they did. And even as the economy grew last year, according to a recent Census report, income stagnated last year and the poverty rate rose. The flat income figure was the fifth in five years, a record the nation would have been better off not setting.
The connection between organized labor and wages generally was made last year in the annual report, "The State of Working America," by Lawrence Mishel, Jared Bernstein and Sylvia Allegretto of the Economic Policy Institute. They measured the decline of labor from about one-fourth of the working population a generation ago to about one-eighth by 2004.
Their conclusion is worth recalling today: "This falling rate of unionization has lowered wages, not only because some workers no longer receive the higher union wage, but also because there is less pressure on non-union employers to raise wages," they wrote. The gap in wages and benefits between union nonunion and union then was $30.76 an hour vs. $18.11.
I maintain that organized labor has seen the enemy and it is them. Unions cannot be expected to continue to remain a force for position change if they can't get their own house in order. I found the following story in the Sunday San Francisco Chronicle illustrating California's take on the split:
The three unions represented some 4 million of 13 million AFL-CIO members. Before July, they poured more than $20 million into the federation's $126 million annual budget.
They complain that the AFL-CIO has spent far more on political races -- with mixed-to-poor results -- than on organizing, which is necessary to shore up membership and clout.
Inside the AFL-CIO, the anti-Sweeney charge was led by Andy Stern, president of SEIU, one of the few unions that has grown in recent years. But Stern, once mentored by Sweeney at SEIU, lacked the votes to force an agenda change and present a successful challenge to Sweeney.
Stern is pressing on with a separate coalition of dissident unions called Change to Win. It includes SEIU, the Teamsters and the food and commercial workers union, plus three unions still in the AFL-CIO: the Laborers, Unite Here and the United Farm Workers. The Carpenters Union, which left the AFL-CIO in 2001, also joined. The coalition plans a one-day founding convention Sept. 27 in St. Louis.
"We are not going to try to recreate the AFL-CIO, but to try to build something new,'' Stern said. "Our goal is to build a more modern, dynamic, flexible 21st century group that can reward American workers in the same way we could in the industrial society, where we had union and government policy that created the greatest middle class in the world."
Last week, Sweeney said he believes the dissident unions will eventually return to the federation, the Associated Press reported. "I think we will see a united labor movement again,'' he said at a news conference, saying the dissidents know well that management has long tried to divide and conquer workers. "When workers unite they're stronger. The same goes for unions,'' he said.
At its peak in 1955, organized labor represented 35 percent of U.S. workers. Since 2000, the percentage of union-represented workers has slipped from 13.5 to 12.2 of the workforce. Less than 8 percent of non-government workers are unionized.
In California during that time, the figure has remained steady at 16 percent of the workforce. That's largely a reflection of an increase in the number of unionized health care workers, offsetting losses in other industries, said Ken Jacobs, labor policy specialist at the Center for Labor Research and Education at UC Berkeley.
"California has continued to buck the national trend," Jacobs said.
Labor's critics say union leaders have brought their troubles on themselves.
"The AFL-CIO is an intellectual Jurassic Park,'' said Peter Morici, an economist at the University of Maryland and former chief economist at the U.S. International Trade Association.
"In a world where size matters less and innovation and adaptability are 95 percent of business success, the company that succumbs to union demands for wages greater than the market will bear or for work rules that reduce agility and efficiency, will be vanquished by a swarm of competitors,'' Morici said.
He added that he is proud to have been a member of the gravediggers union and the United Auto Workers.
Peter Hurtgen, a law partner representing employers for the firm Morgan Lewis in Los Angeles and former chairman of the National Labor Relations Board, said he believes labor's decline in the private sector is due to a flawed message and image, and a misreading of workers.
"Employees don't want conflict and a fight in the workplace,'' said Hurtgen, a veteran contract negotiator and former director of the Federal Mediation and Conciliation Service. "I think they prefer a collaborative, partnering approach.
"Labor still essentially organizes, tries to organize, on the basis of the old fight paradigm. The original thought was there was eternal enmity between capital and labor, and we have to have this constant conflict. Hence, (labor needs) a champion, a fighter on their behalf to confront capital.
"I don't think a majority of American employees see it that way anymore. There are different interests that employers and employees have, but there is far more in common that they would try to collaborate on rather than fight over, and unions concentrate on the fight.''
Many union leaders don't buy that argument.
"Hell, we're not fighting enough,'' said Tim Paulson, executive director of the San Francisco Labor Council, representing more than 100,000 union members.
Paulson noted that in the long-running dispute between SEIU and Sutter Health hospitals in the Bay Area, the employer has rejected the union's proposal for the kind of cooperative relationship Hurtgen proposes.
Sweeney also blames employers for the lack of cooperation.
"I would love to see a period of time in this country when we could have more of what Hurtgen suggests. But this is a very hostile climate. Why do employers resist the right of workers to have a greater voice and to organize? That has caused a lot of confrontational issues and that is why we have to fight to achieve some dignity and fair collective bargaining,'' he said.
In San Francisco, Mike Casey, president of Unite Here Local 2, represents hotel workers who are among the best paid in the country. He said San Francisco hotel workers would not be doing so well if the union did not have contracts with 85 percent of the city's Class A hotels.
"Fifteen years ago, it was 74 percent, but if we had not organized 11 hotels over the last 15 years, it would have dropped to 60 percent. Would we achieve what we do with that? No.
"But even with that, it's only a matter of time. In our industry and other industries, the decline of unionization has absolutely led to the decline of the middle class.''
Casey has joined other California labor leaders in a battle to try to defeat what he says are anti-labor initiatives on the Nov. 8 ballot.
Proposition 74 would increase teachers' probationary periods to five years from two. Proposition 76 would give the governor greater flexibility over the budget, potentially affecting school funding. Proposition 75 would require teachers, firefighters, police officers and other public workers to give written consent before their union dues could be used for political purposes.
In the minds of some California labor activists, the threat posed by these measures is enough to make the AFL-CIO dustup pretty remote.
"Labor unions in California are as united as we have ever been,'' Paulson said. "We will turn the public's outrage at the governor's wasteful and unnecessary special election to defeat all his corporate-sponsored propositions, which were put on the ballot to further limit our voice at work. "
Karen Hanretty, spokeswoman for the California Republican Party, wondered if union leaders and members are on the same page. "I think there is a big divide between leadership and workers whose union dues are going to support issues and candidates that are either irrelevant to worker rights or potentially harmful to their jobs,'' she said. "As long as that continues, unions will have to fight for their long-term relevance.''
I found a good example of the disunity in organized labor in none other than the flagship newspaper in the heart of the labor movement, the Chicago Sun-Times in a story about two dissenting unions and their disagreement over organizing strategies at Chicago-based Advocate Health Care and Resurrection Health Care:
The recent split at the AFL-CIO put the spotlight on organizing and disagreements over how to best rebuild organized labor's depleted ranks.
But as workers pause to observe Labor Day, two major unions on opposite sides of the debate have found it difficult to organize major health care providers in the city.
For more than two years, the American Federation of State, County and Municipal Employees Council 31, which remains an affiliate of the AFL-CIO, has sought to organize nurses, technicians, housekeeping staff and other workers at Resurrection Health Care's nine hospitals.
Over the same period, the Service Employees International Union, which broke from the AFL-CIO in July, has targeted nurses, certified nursing assistants, dietary and other workers at Advocate Health Care's eight hospitals.
Despite the lengthy campaigns, no union representation votes have taken place at either health care provider. And the unions say workers and their representatives have had no success in landing meetings they've sought with the health care providers' executives to discuss a process by which fair elections can be held.
Hospital workers and representatives of both unions say Advocate and Resurrection hired consultants and created a climate of fear by using intimidation, unfair discipline and "captive audience" meetings to speak against unions, preventing fair elections.
Said Linda Luczak, a nurse at Our Lady of the Resurrection Medical Center, Workers "are just afraid that if they get involved, ... they're going to get fired."
She said she wants union representation in order to have a greater voice at work, and her concerns are insufficient staffing and its impact on her ability to deliver the best care to patients.
A registered nurse at Advocate Lutheran General Hospital, who is opposed to unionization and didn't want her name used, thinks no vote has occurred because workers would vote against unionizing. But she also believes workers are afraid.
Advocate and Resurrection representatives say they have good employment practices, including competitive pay and benefits and good working relationships with employees, making the unions unnecessary. They deny any wrongdoing and say they support workers' right to make their own choice through the traditional National Labor Relations Board process, which requires the unions to gather enough signatures from workers and to petition the federal government for an election.
The unions label the NLRB process flawed. AFSCME spokeswoman Shannon Gilson contends employers often violate the law and remedies are often ineffective.
In the midst of their campaigns, both unions have issued reports critical of the hospitals. The reports have prompted inquiries from legislators and other state officials and drawn community support for the unions' efforts.
SEIU issued a report last year accusing Advocate of spending significantly fewer dollars on capital improvements at hospitals in minority communities than it does at hospitals in predominantly white suburban neighborhoods. That followed reports and lawsuits that accused the hospital of charging uninsured patients more than insured patients.
AFSCME has issued reports criticizing reductions in charity care at Resurrection and its collection practices and supported efforts to revoke its tax exempt status.
The health care providers contend the reports have been inaccurate and misleading. Management of both institutions argue their hospitals are unfair victims of union corporate smear campaigns that have as their primary goal organizing their workers.
SEIU Hospital Accountability Project Director Joseph Geevarghese counters that SEIU is concerned about "broader social justice issues," which include affordability of health care as well as workers' rights to decide if they want union representation. Such issues have resonated with pro-labor community groups.
Gilson says AFSCME's reports reflect concerns about quality care and the affordability of care raised by workers at the hospitals.
Despite the absence of elections, the campaigns to unionize workers and address broader health care concerns are the correct strategy, according to Robert Bruno, a labor consultant and associate labor professor at the University of Illinois at Chicago.
"They have built up institutional campaigns using every means possible," he said, adding that working with community and religious groups is key.
Hospital representatives say the absence of organizing elections speaks volumes about the unions' ineffectiveness.
The lack of a vote does damage to organizing efforts in and outside Advocate and Resurrection, said Edward Herenstein, head of labor education at the University of Illinois in Champaign.
"It's not a good picture when people see that and they also see perhaps (workers involved in the campaigns) losing their jobs," he said. "Workers at other facilities are much less likely to want to undertake such activity."
The unions say they were prepared for a long campaign. Geevarghese said a similar effort at Catholic Health Care West in California, which ended with workers voting to unionize, took five years.
More interesting was my local newspaper's take on things, that rising benefits costs have pretty much wiped out raises and generally, the working-life stinks:
The U.S. workforce has undergone a serious facelift since New Yorkers staged the nation?s first Labor Day parade 123 years ago, complete with German singers, Irish fiddlers, union bands and fireworks.
Labor Day hasn?t been about organized labor since long before the Service Employees International Union, Teamsters and United Food and Commer-cial Workers and their 4 million members broke from the 50-union AFL-CIO this summer.
The three unions departed over complaints the AFL-CIO failed to cultivate members among 40 million white-collar and service workers whose jobs won?t flee overseas. It leaves federation ranks filled with public-sector employees, not traditional assembly-line workers, at a time when just 8 percent of private-sector employees are unionized.
Traditional manufacturing has lost more than 4 million jobs since January 2000, even as the overall economy added more than 6 million jobs so far in the 21st century ? including 2.4 million the last year. That 152,000-a-month average job growth kept pace with growth of the workforce since the employment market bottomed out after the 2001 recession.
But all is not lost in U.S. manufacturing, according to David Huether, chief economist for the National Association of Manufacturers. He cites reports of accelerating orders and production to foresee future gains in factory hiring above today?s 14 million manufacturing employees.
Even before Hurricane Katrina sent oil prices spiking above $70 a barrel, workers saw gasoline costs soar 40 percent and other expenses claim a larger chunk of household income, which stayed steady at $44,400 the last three years.
Worker pay and benefits rose a scant 0.7 percent last quarter, the slowest pace in six years, even as rising energy costs pushed up consumer prices at a 3.3 percent pace. When inflation is taken into account, average hourly wages stood at $16.13 last quarter, almost what they were when the current recovery began in 2001.
Even so, Americans are working longer and harder for the money, losing the equivalent of a paid holiday the last 15 years, and they?re still at it even though productivity has slowed from a blistering 8 percent-plus pace early in this economic expansion.
Wages also are giving way to higher benefit costs.
?In many ways, benefits have replaced salary as the No. 1 consideration of employees when deciding to change jobs,? Janemarie Mulvey concludes in her ?American Workplace 2005? report for the Employment Policy Foundation, the conservative Washington think tank she heads.
Consider that premiums for employer-provided health insurance mushroomed 59 percent since 2000, ?far outstripping wage gains,? according to National Bureau of Economic Research analysts Katherine Baicker and Amitabh Chandra.
?For workers who continue to get health insurance, more and more often the increased price of premiums is coming out of their salary: A 10 percent increase in premiums is offset by a 2.3 percent decrease in wages,? the two find.
Besides health coverage, Mulvey also cites rising pension costs brought on by the three-year bear stock market and administrative overhead. The upshot: Traditional pension plans have shrunk to 20 percent of the workforce, with 401(k) accounts and other defined-contribution plans that were all but nonexistent 25 years ago exploding to cover 40 percent of workers.
As of this month, it?s been eight years since the federal minimum wage last increased, to $5.15 an hour. Economist Isaac Shapiro of the Center on Budget and Policy Priorities, a liberal Washington think tank, said the purchasing power of the minimum wage has sunk 17 percent in the years since and is at the lowest percentage of today?s $16 average hourly wage of nonsupervisory employees since 1949.
Put another way, United for a Fair Economy, a Boston group that charts corporate executive pay, says the minimum wage would be $23.03 an hour today had it kept pace the last 25 years with the hike in CEO pay, which spiked last year to $11.8 million on average, or 431 times the average worker?s paycheck.
For most working families, you are where you live when it comes to payback for your labors. A new ?Basic Family Budgets? report from the Economic Policy Institute, a liberal Washington think tank backed by business and labor groups, lets you compute basic living expenses in more than 400 communities nationwide. It finds that two adults and two children face the cheapest basic family budget in rural Nebraska at $31,080 a year. Boston is the most expensive, at $64,656, for that same family of four.
It's a real question also whether the labor movement is perhaps not a victim of its own success - the early wins it generated for Americans everywhere are today taken for granted. Which also represents and opportunity for renewed power by labor unions in an era when offshore outsourcing is impacting negatively the wage gap between the extreme rich and the middle class. Here's an excerpt from AFP that explores exactly that:
Even though most Americans acknowledge the overall gains from the labor movement, some say unions have failed to keep up with the global economy.
"While at one time organized labor played a valuable role in establishing workers' rights when there were few protected by government, today it is clinging to a world that no longer exists, and, in doing so, risks becoming completely irrelevant and ineffective," said Thomas Donohue, president of the US Chamber of Commerce.
"Ultimately, American business and organized labor should want the same thing: a more competitive and prosperous America."
But Dan Cornfield, a Vanderbilt University sociologist, said that unions have played a role in promoting equality of wealth.
Since the peak in labor union participation in the 1950s, he said, "income inequality has gone straight up, meaning a growing gap between haves and have-nots in our society."
There are some signs that the worst for the labor movement may be over.
A Peter Hart survey for the AFL-CIO found nearly 60 percent of working Americans are unhappy with the US economy, and that a record 53 percent who don't belong to a union would join if given the chance.
A recent Gallup poll showed that 38 percent of respondents said they would like to see unions have more influence, up from the prior year.
A Harris poll however gives unions negative grades -- similar to those of corporate America. The Harris survey found 75 percent believe unions improve wages and working conditions for all workers, but most said unions were "too involved in politics."
Mike Asensio, a labor lawyer who represents mostly employers, said that companies over the past few decades "have learned to be responsive to employees' needs," heading off organizing drives and leaving unions with less to "sell."
To revitalize the labor movement, Asensio said "unions have to show they can become more relevant" by moving beyond bargaining for pay and benefits.
Tim Kane of the conservative Heritage Foundation said in a report that unions may be a victim of their own success.
"The interesting cause of organized labor's demise is perhaps earlier victories -- the vast majority of Americans are now empowered and skilled to the extent that they do not need collective bargaining," Kane wrote.
Alas, as my father used to say, "find someone to buy that which you love most to do and you'll never work another day in your life". But for most Americans who find themselves worried about their income keeping up with prices, it's not nearly as much fun as those of us blessed with enriching work find our circumstances.
August 30, 2005
Hurricane Katrina: Disaster Impact on Energy Markets
Hurricane Katrina made landfall Monday but avoided a potential "Worst-Case Scenario" for the U.S. energy industry... and, as an extension, for the U.S. economy as a whole.
As crude oil futures on the New York Mercantile Exchange reached $70.80 Sunday night (topping $70/bbl again Tuesday), up $4.67 from Friday, refineries and oil rigs on the Gulf Coast were shut down, and employees evacuated, shrinking oil output and creating more anxiety about fuel. Gasoline prices are expected to climb as refinery capacity is limited by the storm, and the impending storm cut oil production in the Gulf of Mexico by more than 600,000 barrels a day, or more than a third of the area's normal output of 1.5 million barrels a day. Large refining and oil-shipping installations in southern Louisiana shut down for the weekend too, which left energy analysts biting their nails because the Gulf Coast is such a major hub for both oil production and refining. "We are still in the soap-opera phase where everyone is still wondering what is going on," one analyst told the NYT. But the Times also spoke to a super-specialist, a guy who does disaster-risk analysis for refineries, and he didn't seem too bothered. "Usually the refineries fare pretty well, as long as they batten down the hatches and wait it out," he said.
Meanwhile, the White House suggested President Bush is at least open to tapping the U.S.'s strategic petroleum reserve; the only inconsisency in this approach being, the strategic reserve is full of crude oil, while the potential Katrina-caused shortage isn't of crude. As one analyst put it, "The crunch is on refineries." So, if the reserves will just have to queue up for refining, apart from the PR (and market-calming?) effect, how much good would it do to open up the reserves?
Most of the energy facilities in Louisiana, Mississippi and Alabama were shut down as Katrina roared through the region, which accounts for about one-third of the 5.5 million barrels of oil that the United States produces each day and more than 20% of its daily natural gas output.
If repairs to damaged Gulf oil platforms, refineries and pipelines take weeks or months, shortages of oil, gasoline and natural gas could develop, sending prices of those commodities even higher and threatening the U.S. economy, analysts said. But it will take time to gauge the full extent of the hurricane's damage, adding uncertainty to the energy markets at a time when oil suppliers struggle to keep pace with rising demand.
"We're in an information vacuum because it's going to be another couple of days until we get a meaningful damage assessment," said David Pursell, a principal at Pickering Energy Partners Inc. in Houston.
The industry's trade group, the American Petroleum Institute, urged consumers to "use energy wisely" in the meantime.
Analysts noted that the region was slow to recover from last year's Hurricane Ivan, in part because damage to underwater pipelines wasn't immediately apparent or easy to fix.
Pipeline damage "is generally more difficult and costly to repair," analyst Doug Leggate of Citigroup Global Markets Inc. said in a note to clients.
The U.S. benchmark grade of crude oil for October delivery shot as high as $70.80 a barrel in overnight electronic trading before closing at $67.20, up $1.07 for the day on the New York Mercantile Exchange. That fell short of the Nymex record close of $67.49 a barrel set Thursday. Adjusted for inflation, oil peaked at more than $90 a barrel in early 1981.
But natural gas and gasoline futures set Nymex records Monday.
Natural gas for September delivery jumped $1.055 to $10.847 per million British thermal units as the winter heating season looms. Natural gas also is used to generate nearly half of California's electricity.
Gasoline futures for September delivery soared 13 cents to $2.061 a gallon. The rally probably means motorists will see pump prices climb even higher.
In California, the average retail price of regular gasoline hit a record $2.77 a gallon in the week ended Monday, up 2 cents from the previous week, the Energy Department said. The price stood 67 cents higher than a year earlier. The U.S. average price slipped two-tenths of a penny to $2.61 a gallon, up 74.4 cents from a year ago.
Still, industry experts found silver linings in the hurricane's clouds. They noted that some refineries continued to operate, albeit at reduced rates. The stock market closed higher, including shares of oil companies that are major players in the Gulf of Mexico, such as Exxon Mobil Corp., Chevron Corp. and Marathon Oil Corp.
Oil giant Saudi Arabia also said it stood ready to boost its daily production by more than 1 million barrels a day, to 11 million, to fill any supply shortages caused by Katrina.
And President Bush didn't immediately release oil from the U.S. Strategic Petroleum Reserve ? a storage facility filled with 700 million barrels of oil for national emergencies ? signaling that the White House didn't yet expect a major shortage of supplies. The government might use the reserve to make oil loans to refiners facing shortages, government officials said, just as it loaned more than 5 million barrels after Hurricane Ivan.
The reserve "is there for emergency situations, and that would include natural disasters," White House spokesman Scott McClellan said on Air Force One as Bush flew from Texas for appearances in Arizona and Southern California. The administration has rejected calls to release some of the reserve to mitigate high energy prices, saying Bush would consider the move only in response to a major disruption in supplies.
On Capitol Hill, Rep. Joe L. Barton (R-Texas), chairman of the House Energy and Commerce Committee, asked Bush on Monday to take such action if the hurricane "wreaks havoc" on U.S. oil supplies. Sen. Barbara Boxer (D-Calif.) urged the president to immediately tap the reserve to provide "some relief from skyrocketing oil prices."
Although Hurricane Katrina's damage has yet to be tallied, the initial effect appeared to be less than the cataclysm some feared, said Phil Flynn, senior market analyst at Alaron Trading Corp. in Chicago.
After a weekend filled with televised images of Katrina bearing down on the Gulf Coast, "it looks like New Orleans may be spared from annihilation, the levees might hold and the refineries might not be underwater, and that is a big positive for our country," Flynn said.
Still, there was no discounting even the initial pain of Katrina's punch.
Tracking devices on two drilling rigs under contract to Shell Exploration & Production Co., a U.S. arm of Royal Dutch Shell, showed that they had drifted from their normal locations, Shell spokeswoman Darci Sinclair said.
"Until the storm has completely passed and it's safe for us to send out crews and evaluate, we won't know what, if any, damage has occurred," Sinclair said. Shell expected to start sending out crews Monday evening, she added.
Another drilling platform broke free of its mooring in Mobile Bay, Ala., and slammed into a bridge, the Alabama Department of Transportation said. It was uncertain who owned the platform.
The fundamental question of what the price of oil will do, and the resulting pressure on gasoline, natural gas and heating oil prices heading into fall and winter, has more to do with refining capacity (which has just been cut, remember, by Katrina) than with exploration and extraction.
I predict the price of a barrel of light sweet crude will fall back to $40/bbl even while natural gas, heating oil and gasoline goes in the other direction. After all, we'll be in oversupply of rawer materials until refineries can get back online.
August 27, 2005
The Long Tail
As I consider myself something of an "insider" on new and emerging trends (doesn't everybody?) I'm almost ashamed to admit that, after having been hearing for the better part of a year about "The Long Tail", Chris Anderson's essay in Wired Magazine (where he's editor-in-chief) from October 2004, I'm only NOW getting around to grasping the idea...
Anderson introduced the concept 'that demand for products not available in traditional bricks and mortar stores is potentially as big as for those that are. In other words, the potential aggregate size of the emerging "niche" market rivals that of the existing "hits" market.' Early next year, he's turning this into a book as well. Here's an excerpt from Anderson's blog that gives the rest of the story:
Traditional retail economics dictate that stores only stock the likely hits, because shelf space is expensive. But virtual retailers (from Amazon to iTunes) can stock everything, and the number of available niche products outnumber the hits by several orders of magnitude. Those millions of niches are the Long Tail, which had been largely neglected to date in favor of the Short Head of hits.
When consumers are offered infinite choice, the true shape of demand is revealed. And it turns out to be less hit-centric than we thought. People gravitate towards niches because the satisfy narrow interests better, and in one aspect of our life or another we all have some narrow interest (whether we think of it that way or not).
Our research project has attempted to quantify the Long Tail in three ways, comparing data from online and offline retailers in music, movies, and books.
1) What's the size of the Long Tail (defined as inventory typically not available offline)?
2) How does the availability of so many niche products change the shape of demand? Does it shift it away from hits?
3) What tools and techniques drive that shift, and which are most effective?
The Long Tail article (and the forthcoming book) is about the big-picture consequence of this: how our economy and culture is shifting from mass markets to million of niches. It chronicles the effect of the technologies that have made it easier for consumers to find and buy niche products, thanks to the "infinite shelf-space effect"--the new distribution mechanisms, from digital downloading to peer-to-peer markets, that break through the bottlenecks of broadcast and traditional bricks and mortar retail.
And, here are a couple of selected excerpts from the original essay to flesh out the idea for you:
Ask consumers, on the other hand, and they'll tell you that 99 cents is too high. It is, for starters, 99 cents more than Kazaa. But piracy aside, 99 cents violates our innate sense of economic justice: If it clearly costs less for a record label to deliver a song online, with no packaging, manufacturing, distribution, or shelf space overheads, why shouldn't the price be less, too?
Surprisingly enough, there's been little good economic analysis on what the right price for online music should be. The main reason for this is that pricing isn't set by the market today but by the record label demi-cartel. Record companies charge a wholesale price of around 65 cents per track, leaving little room for price experimentation by the retailers.
That wholesale price is set to roughly match the price of CDs, to avoid dreaded "channel conflict." The labels fear that if they price online music lower, their CD retailers (still the vast majority of the business) will revolt or, more likely, go out of business even more quickly than they already are. In either case, it would be a serious disruption of the status quo, which terrifies the already spooked record companies. No wonder they're doing price calculations with an eye on the downsides in their traditional CD business rather than the upside in their new online business.
But what if the record labels stopped playing defense? A brave new look at the economics of music would calculate what it really costs to simply put a song on an iTunes server and adjust pricing accordingly. The results are surprising.
Take away the unnecessary costs of the retail channel - CD manufacturing, distribution, and retail overheads. That leaves the costs of finding, making, and marketing music. Keep them as they are, to ensure that the people on the creative and label side of the business make as much as they currently do. For a popular album that sells 300,000 copies, the creative costs work out to about $7.50 per disc, or around 60 cents a track. Add to that the actual cost of delivering music online, which is mostly the cost of building and maintaining the online service rather than the negligible storage and bandwidth costs. Current price tag: around 17 cents a track. By this calculation, hit music is overpriced by 25 percent online - it should cost just 79 cents a track, reflecting the savings of digital delivery.
Putting channel conflict aside for the moment, if the incremental cost of making content that was originally produced for physical distribution available online is low, the price should be, too. Price according to digital costs, not physical ones.
All this good news for consumers doesn't have to hurt the industry. When you lower prices, people tend to buy more. Last year, Rhapsody did an experiment in elastic demand that suggested it could be a lot more. For a brief period, the service offered tracks at 99 cents, 79 cents, and 49 cents. Although the 49-cent tracks were only half the price of the 99-cent tracks, Rhapsody sold three times as many of them.
Since the record companies still charged 65 cents a track - and Rhapsody paid another 8 cents per track to the copyright-holding publishers - Rhapsody lost money on that experiment (but, as the old joke goes, made it up in volume). Yet much of the content on the Long Tail is older material that has already made back its money (or been written off for failing to do so): music from bands that had little record company investment and was thus cheap to make, or live recordings, remixes, and other material that came at low cost.
Such "misses" cost less to make available than hits, so why not charge even less for them? Imagine if prices declined the further you went down the Tail, with popularity (the market) effectively dictating pricing. All it would take is for the labels to lower the wholesale price for the vast majority of their content not in heavy rotation; even a two- or three-tiered pricing structure could work wonders. And because so much of that content is not available in record stores, the risk of channel conflict is greatly diminished. The lesson: Pull consumers down the tail with lower prices.
How low should the labels go? The answer comes by examining the psychology of the music consumer. The choice facing fans is not how many songs to buy from iTunes and Rhapsody, but how many songs to buy rather than download for free from Kazaa and other peer-to-peer networks. Intuitively, consumers know that free music is not really free: Aside from any legal risks, it's a time-consuming hassle to build a collection that way. Labeling is inconsistent, quality varies, and an estimated 30 percent of tracks are defective in one way or another. As Steve Jobs put it at the iTunes Music Store launch, you may save a little money downloading from Kazaa, but "you're working for under minimum wage." And what's true for music is doubly true for movies and games, where the quality of pirated products can be even more dismal, viruses are a risk, and downloads take so much longer.
So free has a cost: the psychological value of convenience. This is the "not worth it" moment where the wallet opens. The exact amount is an impossible calculus involving the bank balance of the average college student multiplied by their available free time. But imagine that for music, at least, it's around 20 cents a track. That, in effect, is the dividing line between the commercial world of the Long Tail and the underground. Both worlds will continue to exist in parallel, but it's crucial for Long Tail thinkers to exploit the opportunities between 20 and 99 cents to maximize their share. By offering fair pricing, ease of use, and consistent quality, you can compete with free.
Here's the conclusion from the same piece:
But Netflix, where 60 percent of rentals come from recommendations, and Amazon do this with collaborative filtering, which uses the browsing and purchasing patterns of users to guide those who follow them ("Customers who bought this also bought ..."). In each, the aim is the same: Use recommendations to drive demand down the Long Tail.
This is the difference between push and pull, between broadcast and personalized taste. Long Tail business can treat consumers as individuals, offering mass customization as an alternative to mass-market fare.
The advantages are spread widely. For the entertainment industry itself, recommendations are a remarkably efficient form of marketing, allowing smaller films and less-mainstream music to find an audience. For consumers, the improved signal-to-noise ratio that comes from following a good recommendation encourages exploration and can reawaken a passion for music and film, potentially creating a far larger entertainment market overall. (The average Netflix customer rents seven DVDs a month, three times the rate at brick-and-mortar stores.) And the cultural benefit of all of this is much more diversity, reversing the blanding effects of a century of distribution scarcity and ending the tyranny of the hit.
Such is the power of the Long Tail. Its time has come.
Time to put this one on my Amazon wish list...
August 26, 2005
The Greenspan Era Confab in the Tetons: Easy Money & the Real Estate Bubble
Federal Reserve Chairman Alan Greenspan's warning that the current housing bubble is by no means burst-proof. Home prices could plunge, Greenspan implied, if long-term interests rates go up. Those rates, which are based on finicky international market forces, have been low for some time, in part because investors believe the U.S. economy is healthy and ergo safe for money-lending. But such relatively safe conditions, Greenspan cautioned, are "too often viewed by market participants as structural and permanent."
Speaking at a symposium entitled, "The Greenspan Era: Lessons for the Future," Greenspan went on to praise what he called the "flexibility" of the American economy. Globalization and deregulation have strengthened the markets, he said, leaving them less susceptible to the precipitous boom-bust cycles of the past. What the Post coverage omitted, though, was the chief's noteworthy treatment of the "fear of change," both among American workers and policy-makers. "Increased fear of job-skill obsolescence," he said, has prevented U.S. workers from being competitive in the world labor market?a problem that must "be addressed through education and training."
So, after reading an explanation about how and why real estate agents (not all are "Realtors®" you know!) aren't getting rich with the booming housing bub... er, market, I found it interesting to read remarks by Greenspan about risks to the consumer foundation of the economy. But, first, a couple of choice excerpts from Slate.com's piece about the housing bubble and how real estate agents aren't getting any richer because no barriers to entry into the profession mean there's less to go around for everybody:
One seemingly obvious path to riches is to become a real-estate broker. For many decades, agents have successfully kept their payments steady as a fixed share of the value of the houses they sell. In most cities, the rate is around 6 percent, split between the buyer's and the seller's agents. The lack of price competition has attracted the notice of anti-trust authorities at the Justice Department who are planning to sue the National Association of Realtors over some of their anti-discounting policies. Economically speaking, it's hard to explain why the steady commissions have lasted so long?perhaps agents band together to blacklist competitors who undercut prices, or perhaps the NAR's extensive "education" program for realtors excels at indoctrination.
Whatever the explanation, the realtors' reliable cut of 3 percent each means that the housing bubble should be all upside for them. If house prices double, then agents make twice as much. Sell a house for $500,000 and keep $15,000; sell the same house for $1 million and keep $30,000. The agents are Levi Strauss without the copper rivets.
There is just one problem with this?a principle that economists term the "zero-profit condition." In a business with free entry, new participants will keep entering until no money remains. And becoming a real-estate agent is almost free. Most states require applicants to take a short class and a test to get a license. For $99, an online company will prepare you to pass. This kind of entry into the housing market is a lot cheaper than, say, building a steel mill. Every month, thousands of new brokers get certified?more than 8,000 in California in May alone.
With all these new agents swarming onto the scene, the price they charge may remain constant, but the number of houses each sells will not. The zero-profit condition predicts that, in locales where housing prices rise, the number of agents will also rise, and acquiring new clients will become that much more difficult. The occasional star agent will always make a bundle. But the theory suggests that the average agent won't make much more in places where house prices have risen than in places where they haven't.
A recently published study bears this out. Enrico Moretti and Chiang-Tai Hsieh of the University of California, Berkeley, studied the real-estate agent business in 282 metropolitan areas during a 10-year period. They compared agents in inflated markets to agents in flat-lining markets and found overwhelming evidence of the zero-profit condition in action. When housing prices rose, the number of agents did as well, and this, in turn, reduced the number of houses each agent sold by almost exactly the same proportion as the price increase. In Moretti and Hsiesh's data, for example, houses cost 5.9 times more on average in San Francisco than they do in Steubenville, Ohio. But the average full-time agent working in Steubenville sells more than 22 houses per year, whereas the same agent in San Francisco sells less than one-fifth as much.* The average income for real-estate work in the two locales is virtually identical. Moretti and Hsieh found that the direct correlation between housing prices and agent productivity held true across all markets. A rise in housing prices in an area has no significant impact on the average wage of the brokers in that market. It's the oldest line in the economics book: No barriers to entry mean no big profits.
Meanwhile, in Jackson Hole, Greenspan delivered a brief history of 20th century economics and monetary policy, followed by an appreciation for his legacy in an era of asset-value accumulation:
The structure of our economy will doubtless change in the years ahead. In particular, our analysis of economic developments almost surely will need to deal in greater detail with balance sheet considerations than was the case in the earlier decades of the postwar period. The determination of global economic activity in recent years has been influenced importantly by capital gains on various types of assets, and the liabilities that finance them. Our forecasts and hence policy are becoming increasingly driven by asset price changes.
The steep rise in the ratio of household net worth to disposable income in the mid-1990s, after a half-century of stability, is a case in point. Although the ratio fell with the collapse of equity prices in 2000, it has rebounded noticeably over the past couple of years, reflecting the rise in the prices of equities and houses.
Whether the currently elevated level of the wealth-to-income ratio will be sustained in the longer run remains to be seen. But arguably, the growing stability of the world economy over the past decade may have encouraged investors to accept increasingly lower levels of compensation for risk. They are exhibiting a seeming willingness to project stability and commit over an ever more extended time horizon.
The lowered risk premiums--the apparent consequence of a long period of economic stability--coupled with greater productivity growth have propelled asset prices higher.5 The rising prices of stocks, bonds and, more recently, of homes, have engendered a large increase in the market value of claims which, when converted to cash, are a source of purchasing power. Financial intermediaries, of course, routinely convert capital gains in stocks, bonds, and homes into cash for businesses and households to facilitate purchase transactions.6 The conversions have been markedly facilitated by the financial innovation that has greatly reduced the cost of such transactions.
Thus, this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent. To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy. But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.
Broad economic forces are continuously at work, shaping the environment in which the Federal Reserve makes monetary policy. In recent years, the U.S. economy has prospered notably from the increase in productivity growth that began in the mid-1990s and the enhanced competition engendered by globalization. Innovation, spurred by competition, has nurtured the continual scrapping of old technologies to make way for the new. Standards of living have risen because depreciation and other cash flows generated by industries employing older, increasingly obsolescent technologies have been reinvested to finance newly produced capital assets that embody cutting-edge technologies.
But there is also no doubt that this transition to the new high-tech economy, of which expanding global trade is a part, is proving difficult for a segment of our workforce that interfaces day by day with our rapidly changing capital stock. This difficulty is most evident in the increased fear of job-skill obsolescence that has induced significant numbers of our population to resist the competitive pressures inherent in globalization from workers in the major newly emerging market economies. It is important that these understandable fears be addressed through education and training and not by restraining the competitive forces that are so essential to overall rising standards of living of the great majority of our population. A fear of the changes necessary for economic progress is all too evident in the current stymieing of international trade negotiations. Fear of change is also reflected in a hesitancy to face up to the difficult choices that will be required to resolve our looming fiscal problems.
The developing protectionism regarding trade and our reluctance to place fiscal policy on a more sustainable path are threatening what may well be our most valued policy asset: the increased flexibility of our economy, which has fostered our extraordinary resilience to shocks. If we can maintain an adequate degree of flexibility, some of America's economic imbalances, most notably the large current account deficit and the housing boom, can be rectified by adjustments in prices, interest rates, and exchange rates rather than through more-wrenching changes in output, incomes, and employment.
The more flexible an economy, the greater its ability to self-correct in response to inevitable, often unanticipated, disturbances. That process of correction limits the size and the consequences of cyclical imbalances. Enhanced flexibility provides the advantage of allowing the economy to adjust automatically, reducing the reliance on the actions of monetary and other policymakers, which have often come too late or been misguided.
In fact, the performance of the U.S. economy in recent years, despite shocks that in the past would have surely produced marked economic contraction, offers the clearest evidence that we have benefited from an enhanced resilience and flexibility.
Taking into account both documents above, I tend to agree with the Washington Post analysis of his remarks:
Federal Reserve Chairman Alan Greenspan warned Friday that recent gains in U.S. home prices, stock values and other forms of wealth may be temporary and could easily erode if long-term interest rates rise.
Households and businesses have been able to spend more by transforming houses, stock and other assets into cash, he noted. But Americans should not assume that such good times will roll on forever.
"What they perceive as newly abundant [cash] can readily disappear," Greenspan said.
His words followed statements the Fed chief has made in recent months that housing prices in some markets have risen to unsustainable levels and that individuals are taking on increasingly risky mortgages. But Greenspan's comments Friday represent a broader warning, with the Fed chief indicating he believes much of the run-up in housing and stock prices over the past decade has been due to low long-term interest rates, which could rise if global financial conditions shift.
"History has not dealt kindly" with those who underestimate such risks, Greenspan said in remarks delivered at the opening of an economic conference here focused on his 18 years as Fed chief.
Stock prices fell in trading Friday after Greenspan suggested that the value of such assets may be headed lower in the future. Financial markets have responded to Greenspan's warnings in the past, only to shrug them off subsequently. In 1996, he famously warned that "irrational exuberance" might be pumping up stock prices; stocks fell briefly only to climb almost continuously for the following three years.
At the conference's opening session Friday, Greenspan was lauded by current and former colleagues and other analysts for his performance and wisdom as Fed chief. "When the score is toted up, we think he has a legitimate claim to being the greatest central banker who ever lived," wrote former Fed vice chairman Alan S. Blinder and Ricardo Reis, both Princeton University economists, in a paper presented Friday.
The Fed has been raising its benchmark short-term rate for more than a year and has signaled that it probably will keep lifting it in the months to come to keep the lid on inflation. But the Federal Reserve does not set long-term rates, such as those that determine mortgage rates and corporate borrowing costs. Those are affected by international financial markets in response to many factors.
Long-term interest rates remain very low, in part because inflation has remained tame outside of energy costs. Overseas investors have been pouring money into U.S. stocks and bonds, helping dampen long-term rates. But Greenspan said low long-term rates also reflect investors' belief that the U.S. economy is so healthy that there is little risk in lending money here.
Thus, lenders set rates lower because they demand a lower "risk premium," Greenspan said.
"This vast increase in the market value of [stocks, bonds, houses and other assets] is in part the indirect result of investors accepting lower compensation for risk," Greenspan said. "Such an increase in market value is too often viewed by [investors] as structural and permanent."