Internet Changes Everything

August 29, 2006

Universal backs free music rival to iTunes

FT.com / Companies / Media & internet - Universal backs free music rival to iTunes

y Joshua Chaffin and Aline van Duyn in New York

Published: August 29 2006 05:02 | Last updated: August 29 2006 05:02

Universal Music, the world’s largest music company, is backing a start-up that will allow consumers to download songs for free. It will rely on advertising for its revenues, offering a different business model from that of Apple Computer’s popular iTunes music store.

The move reflects music companies’ willingness to experiment as they try to capture some profit from the boom in digital distribution still dominated by illegal file-sharing networks.

ADVERTISEMENT

The service, SpiralFrog, represents a departure from Apple’s 99 cents-a-song business model and other legal download services which charge a subscription fee by being completely free. It is due to start up in December.

A report released last month by the International Federation of Phonographic Industries revealed there were still 40 illegal downloads for every legal one.

Although Apple’s iPod and its iTunes music download service has 80 per cent of the market for legally downloaded music, competition is expected to hot up in the run-up to Christmas.

This year, the IFPI has predicted that 60m music players will be sold worldwide, many of them MP3 players not compatible with Apple’s services.

As well as start-ups such as SpiralFrog, established companies are getting ready to flex their muscles. Microsoft is to launch Zune, which will offer music players and a music download store. MTV has launched Urge, a service that has downloadable music and music videos via subscription.

“Offering young consumers an easy-to-use alternative to pirated music sites will be compelling,” said Robin Kent, SpiralFrog’s chief executive and the former head of the Universal McCann advertising agency.

Mr Kent has held talks with labels Warner, EMI and Sony-BMG and hopes they will be lured by the surge in online advertising.

Merrill Lynch last week raised its forecast for the sector’s growth, predicting it would expand by 35 per cent this year in non-US markets to $11.6bn (£6.1bn). US growth is expected to increase by nearly 30 per cent to $16bn.

Perry Ellis, the fashion company, said it would advertise on SpiralFrog. Levi’s, Aeropostale, Benetton and others have expressed interest. “Our audience is into music and can be more easily reached on the web,” said Oscar Feldenkreis, president of Perry Ellis International.

Other music services are looking to advertising for their revenues. The new Napster allows consumers to listen to up to five tracks for free while they view advertising. Meanwhile, video-sharing sites, such as YouTube, have held talks with music companies about showing music videos, which would then be supported by advertising.

Mr Kent said his research revealed that young consumers would be willing to endure advertising as long as the brands and products were relevant to them.

Copyright The Financial Times Limited 2006

August 29, 2006 at 09:48 PM in Business Models | Permalink | Top of page | Blog Home

August 28, 2006

Driving loyalty by managing the total customer experience

Courtesy of McKenna Group.  (Registration required)

(1/15/1999) CRM Project Volume 1
By John Calhoun, McKenna Group

In order for CRM to reach its true potential and for those implementing CRM to move beyond the "minimal success" ratings that dominate, organizations need to establish a strategic direction that can have a significant impact on the organization. A roadmap must then be established that ensures CRM investments support this direction and are integrated into something that fundamentally improves the total customer experience.

Introduction
In order for CRM to reach its true potential and for those implementing CRM to move beyond the "minimal success" ratings that dominate, organizations need to establish a strategic direction that can have a significant impact on the organization. A roadmap must then be established that ensures CRM investments support this direction and are integrated into something that fundamentally improves the total customer experience. The real impact of these technologies will be realized only when CRM technologies are used to support a strategic direction - rather than as a strategic direction.

CRM is a Strategic Initiative
Making a commitment to technology-enabled CRM should be a strategic decision with an end goal of having a real impact on the way the company competes in the market. This impact can only be realized if CRM is implemented in a strategic context - where the technologies are used to support a strategic direction rather than become the strategic direction. CRM should be about managing (and improving) the customer's total experience with the organization:

• Across all touchpoints (call center, Web, kiosks, service technicians etc.)
• Across all company divisions or departments
• Across all experiential elements (pre-sales activity, product/service experience, post sales support etc.)

A significant impact on the organization can only be realized when the Total Customer Experience (TCE) is the focus for improvement. This is not to suggest that companies will dedicate the time and resources to implement a complete CRM solution - that addresses all experiential elements - as one large project. In fact, companies will need to start very small and expand as they go and learn. However, these incremental investments and projects need to be done in a coherent and integrated manner. The CRM mantra needs to change from "move quickly and reap early rewards" to "move quickly and work towards achieving a strategic objective." The prevailing short-term focus immediately places emphasis on doing things in a compartmentalized manner (e.g., the call center operations of the consumer products group) with little coordination across other elements of the Total Customer Experience. As each department implements its own "point solution," the enterprise ends up with a series of disjointed initiatives, each somewhat unsatisfactory in its impact on the organization.

The vast majority of CRM projects do not involve an enterprise perspective or a strategic objective. The technology is purchased and implemented through the initiative of a sales, service, or marketing manager within a specific product group or department. The focus is on improving a particular process or function and is generally motivated by short-term tangible benefits. In research we have recently completed on CRM, businesses site four primary drivers of their CRM projects:

• Attract new customers
• Increase sales per customer
• Reduce costs through optimization of business processes
• Improve customer relationship/increase loyalty

When we investigate what specifically most businesses have done and how they are measuring success, all the focus is on some combination of the first three of these objectives. Increased customer loyalty is a "nice to have" rather than the reason for the CRM initiative. The vast majority of the projects are really focused on targeting customers better, cross selling more effectively, or handling customer requests more cost efficiently. There is little attention on how to alter or improve the customer's experience with the organization. This is partially due to the fact that CRM technologies are naturally about customer data and workflows, not about relationship building. Relationship building requires the creative thinking necessary to operationalize the data and workflows into a better customer experience. This creative or strategic thinking is conspicuously absent from most of the CRM projects we have examined.

In this age of decreasing customer loyalty, increased customer choice, deregulation, changing competitive boundaries, and "stealth-like" Internet competitors, the focus of CRM projects should be improving customer loyalty. In fact, research conducted with CEO's indicates that improving customer relationships and increasing loyalty is the number one priority of businesses within the U.S. It appears that somewhere in between the CEO's business priority and the sales and marketing manager's need to move quickly and justify a budget, the focus on improved customer loyalty gets lost.

Click To Enlarge

Moving Beyond Better Customer Interaction
Improving customer relationships and increasing loyalty isn't simply about managing customer interaction better or targeting them better. It is about serving them in a fundamentally improved way - generally requiring changes outside of the sales and marketing area in order to redefine the customer's experience with the organization in some meaningful way.

Organizations that have taken this broader, more strategic view of leveraging CRM technology have benefited tremendously. The success realized by Dell Computer in building a structure that allowed its customers to custom build their own PC is well known. Their focus on using technology to "interact and serve" customers in an improved manner rather than simply "interact" more effectively has created a significant shift in market share and a new basis of competition.

Pitney Bowes is an organization that has recently leveraged CRM technology as a means of serving the customer better and driving customer satisfaction. Customer loyalty and satisfaction were being severely hampered by Pitney's inability to accurately configure their complex mailing systems to customer specification. Using CRM technologies, the organization is now able to sit down with a customer and configure, quote and order a system on a real time basis — allowing for real time adjustments based on pricing, availability and delivery times. Six months after implementing the system, the number of order cancellations is down by 27% and order-processing times have been cut by 45%. Serving the customer in a more accurate, timely manner will drive increased loyalty and advocacy - ultimately increasing market share.

These kinds of CRM successes require strategic insight on how to serve the customer better and senior executive involvement/commitment within the organization in order to align departments and divisions to a common strategic goal. CRM needs to be about business strategy, supported by technology, not about reducing marketing costs or simply interacting more effectively.

Loyalty is Driven by a Total Customer Experience
Serving the customer better does not necessarily mean serving him/her in a more expensive manner. The goal is to ensure that you have aligned your service elements to each and every customer's need. Identifying and eliminating areas of "over serving" can more than compensate for areas where your service or offering needs to be enhanced to become more competitive. Where a more expensive form of serving the customer is required, it is critical to ensure that it is done for a customer set that the organization can afford to serve better.

Click To Enlarge

Much of the benefit of CRM technologies is in improved customer understanding. Unfortunately, many organizations have collected vast volumes of information with little understanding of how to take strategic advantage of it. This customer information is the enabler that allows new business strategy to be activated. A first step is to understand what the "business strategy" is - allowing you to then determine what elements of the varied customer information are most critical to operationalizing the strategy. It is commonly recognized that 80% of the strategic value of customer information is in 20% of the data - the difficulty is in knowing which 20%.

When this customer data is not used effectively, CRM initiatives can depersonalize the way each customer is served and therefore reduce loyalty. For example, one of the organizations that we have worked with is a manufacturer of industrial cable. Approximately 80% of their profit came from 25 large industrial accounts. One of the big issues expressed by their customers was the length of time the manufacturer required to generate quotes and confirmed delivery dates for non-standard (customized) cable orders. Custom orders required a flurry of phone calls, faxes and time consuming interaction with sub-contractors and component suppliers to produce an accurate price quotation and delivery commitment. This quotation process typically required 4-5 days while the entire manufacture process was only 3 days. The company implemented a web-based system that allowed customers to input the specifications for custom orders on-line. The system automatically routed the special requests to the most suitable sub-contractors and component providers and received back same day quotes on-line. A consolidation of quotes was done automatically and a confirmed cost and delivery schedule was generated for the end customer within 24 hours (reducing turnaround time by 75% and lowering the cost to process a custom order by 90%).

The CRM initiative was launched with huge success for the cable manufacturer, its customers and its suppliers. Customers were being served in an improved manner. However, within six months of launch, the volume of online custom orders dwindled from a high volume to close to zero and the manufacturer suspended the CRM initiative.

What the manufacturer discovered, is that their largest customers had reverted back to the physical order system for custom orders. These orders were placed through dedicated sales representatives that "advocated" for their large customers to obtain attractive pricing for custom orders. This set of informal business decision rules was not reflected in the web-based CRM system. This forced the company's senior management to establish a set of business decision rules around pricing levels for large volume customers. The CRM system was adjusted to identify a customer, determine customer profitability and adjust pricing based on the extent the manufacturer could afford to serve the customer at low margin. Once the system was re-launched, large customers returned and today over 75% of customer orders are received online. The end result is a vastly improved process that drives customer loyalty amongst the manufacturer's most important customers.

Defining a Total Customer Experience
Requires an Enterprise View
Customers define their loyalty to an organization through their total experience with the organization. For example, their loyalty (or lack thereof) is typically with Insurance Company X, not with the home insurance division separate from the auto insurance division, if they happen to deal with both. Similarly, they define loyalty through their sum of their experiences with the organization — across all touchpoints and across all experiential elements: pre-sales, order and delivery process, product/service experience, post-sales support etc. The means that CRM initiatives that have improved loyalty as a key objective need to take a holistic view of the Total Customer Experience with the organization. Interacting with customers over the web or call center in a customized manner while doing nothing to improve their product or service experience will have limited impact on loyalty. Similarly, utilizing the latest CRM technology in the home insurance division while the auto insurance division lags in the dark ages will have little impact on loyalty for customers that deal with both.

Unfortunately, as discussed at the outset of this paper, the vast majority of organizations implement CRM initiatives in a compartmentalized, "point solution" manner with no guiding principles or roadmap as to how initiatives will be brought together to alter the Total Customer Experience. The right levels of the company hierarchy are not involved in any meaningful manner to ensure this happens. CRM is viewed as a technology initiative rather than a strategic initiative, supported by technology.

Customer loyalty is driven by bringing the TCE service elements together (as illustrated in Figure 2.0).

Implementation Frustrations Center Around Achieving an Enterprise View for CRM
Most businesses are far from achieving a redefined and integrated customer experience today. In fact, in most cases, the data gathered and utilized in one CRM initiative is not easily shared with other CRM initiatives. Forrester Research reports that only 2% of businesses have an integrated or single view of their customer data. Research we have recently conducted with businesses that have implemented CRM solutions, indicates that they have two dominant sources of frustration with their CRM projects:

1. The inability to integrate disparate initiatives in CRM that have been driven at a departmental level
2. The inability to achieve an integrated view of customer data

Click To Enlarge

These frustrations overwhelm issues associated with "ease of use" which typically dominate in emerging application areas. Businesses with experience in CRM recognize that the first frustration (lack of integration) reduces their ability to redefine a "total customer experience" and the second frustration (common data view) prevents them from making business decisions that optimize benefit to the total enterprise. Meeting these two objectives is critical to turning an organization's CRM investment into a strategic initiative that has significant upside for the organization rather than a departmental tactic with bounded potential for success.

The Need to Avoid "Siloed" Initiatives
The practical reality is that businesses will need to implement CRM through relatively contained and simple initiatives that are cost effective in their own right. However, these initiatives need to be part of a broader strategic initiative that will drive customer loyalty by redefining the Total Customer Experience. There are three imperatives to ensure CRM investments result in strategic benefits to the organization:

Click To Enlarge

1. CEO/COO level involvement and commitment to a CRM vision or TCE redefinition
2. Success measures that focus in the short-term on milestones or evidence of redefining the TCE (improved order turnaround, fewer mishandled orders, higher degree of product/service customization or choice, etc). In the long-term, the focus should shift to the benefits of redefining the TCE (higher customer satisfaction ratings, lower customer churn, higher market share etc.)
3. A CRM roadmap that guides the individual initiatives to ensure they are executed in a coordinated manner that works towards TCE redefinition

The most difficult of these and the one that most rarely exists is the third - a CRM roadmap to guide individual initiatives. This roadmap needs to be custom developed for each organization and must be based on a core business strategy or direction for serving the customer better. The fundamental difference between the roadmap approach and the common "siloed " approach is that each initiative is part of a complete process improvement from the customer's perspective (i.e., at least one element of the TCE is truly redefined and improved). An illustrative case is summarized below.

Conclusions/Recommendations
In order for CRM to reach its true potential and for those implementing CRM to move beyond the "minimal success" ratings that dominate, each organization needs to establish a strategic direction that can have a significant impact on the organization. A roadmap then needs to be established that ensures CRM investments support this direction and are integrated into something that fundamentally improves the total customer experience. Only when CRM technologies are used to support a strategic direction, rather than as a strategic direction, will the real impact of these technologies be realized.

About McKenna Group
The McKenna Group is a Silicon Valley based consulting firm with over 25 years of history in the information technology sector. The firm earned its reputation early on by having defined many of the key high-tech marketing revolutions in the 1980s and 1990s. Its work with Apple in the early 1980s was instrumental in assisting the PC revolution. The company helped Intel launch the first microprocessor, and it helped 3Com reposition itself and launch the LAN business. Today, the firm's focus is on helping vendors and users of technology to anticipate, understand, and leverage major shifts in technology. Much of this effort is concentrated on the Internet and the impact it has on competitive strategies, as well as the opportunity it creates for Business Re-generation and real-time customer relationships. The firm's differentiation stems from its focus on e-business strategy consulting, real-time marketing, and business partnering.

Visit www.mckenna-group.com for more information.

The material contained within this document is the proprietary information of The McKenna Group LLC and may not be duplicated in whole, or in part, without the express written consent of The McKenna Group LLC. To obtain reprints or to request authorization to copy, contact The McKenna Group at 1755 Embarcadero Road, Palo Alto, California, 94303, or call 650.852.0800.

August 28, 2006 at 12:05 PM in Online Marketing | Permalink | Top of page | Blog Home

August 27, 2006

EMC on expansion tear

EMC on expansion tear - Yahoo! News

By BRIAN BERGSTEIN, AP Technology Writer Sun Aug 27, 4:31 PM ET

HOPKINTON, Mass. - Dennis Hoffman has his suit jacket off and a blue marker in hand, ready to sketch his view of the massive transformation at EMC Corp. He begins by writing "CIO."

That would be "chief information officer" — the executive in many companies who determines how technology dollars are spent. But while EMC is well known in tech, it hasn't always had CIOs' ears.

After all, EMC built its business selling data storage hardware. And for many CIOs, the logistics of archiving files on humming disks were easily delegated to storage-specific underlings.

That worked well enough for EMC when its storage gear was a must-have for many companies. But for years the cost of disk space has plummeted, pressuring profits. And with technology becoming increasingly complex, many CIOs are consolidating their vendors to give them "fewer throats to choke," in the words of Hoffman, EMC's vice president for information security.

These factors threatened to squeeze EMC into irrelevance. And so EMC has responded by expanding. It has spent $7 billion buying companies and assets in the past three years, topped by this summer's $2.1 billion deal for RSA Security Inc.

Instead of just providing machines to store business data, the new EMC hopes to secure files from prying eyes, funnel information into Internet applications and track records for regulatory compliance. It wants to scout for problems throughout networks and automate fixes.

"The biggest obstacle we face is what we spent the whole decade of the '90s doing — that EMC is the storage company," said CEO Joe Tucci. "We have to get customers to view us, as we're calling it now, as an information infrastructure company."

But EMC isn't just fighting perceptions. By seeking to be a more intimate (and better-paid) adviser to CIOs, EMC is picking a fight with powerful competitors.

Notably, IBM Corp. and Hewlett-Packard Co. have much bigger staffs of consultants and longer histories of serving as throats for CIOs to choke. IBM and HP are also leading storage vendors, plus they offer servers and other key parts of business systems. EMC relies on partnerships, including one with Dell Inc., to help customers get servers.

That difference is huge to customers like Dr. Fred Clark, CIO for the Medical University of South Carolina.

When the center recently adopted new health care software, Clark decided to run it on IBM servers and replace EMC storage with IBM machines. Clark believes using only IBM systems will ensure better performance. He also likes having just one call to make in case of trouble.

"If you have a single vendor, you have more leverage with them," Clark said. "If they're not performing, we don't pay them, and it doesn't take them long to pick up the phone and say, `What's going on?'"

Meanwhile, rivals such as Oracle Corp. and Microsoft Corp. are using their software — already deeply ingrained in corporations — as a sturdy basis from which to reach some of the same fields EMC is targeting, such as document management.

EMC also has to stay ahead of nibbling competitors in data storage who claim that EMC's expansion is making it lose focus.

"It's going to be interesting to see how successful EMC actually is," said analyst Rich Ptak of Ptak, Noel & Associates. "They're faced with the dilemma of moving into a whole new space without losing their core market. They can and will be able to capture a piece of it, but whether or not they're going to move up to the top tier ... is still an open question."

EMC has already taken huge steps. It now gets more revenue from software and services than from hardware. Thanks largely to its $1.7 billion acquisition of Documentum Inc. in 2003, it leads a hot software field known as "enterprise content management," in which disparate documents are brought together for business applications.

"I think they come to the table today with a much better story, a holistic solution," said James Hull, head of engineering services at MasterCard Inc., a large EMC customer.

Analysts say EMC has done well at swallowing its many acquisitions, one of the thorniest tasks in technology. Notably, top executives from several companies bought by EMC have stayed aboard rather than using their newfound wealth to move on.

That might reflect EMC's strategy of trying not to overly mess with the operations of acquired companies. Joseph Walton, who oversees integration, describes it as "protecting the acquired company from EMC."

"They're not coming in telling us how it's going to be," said RSA chief Art Coviello.

The downside can be that, at least at first, many EMC customers find themselves called on by multiple sales people. EMC has moved toward a system in which large customers get a single point of contact. But every new acquisition reshuffles the process.

It is perhaps because of this flux that EMC still struggles to spread the word about where it's headed.

"We have major relevancy that's just not understood," said Mark Lewis, EMC's chief development officer. "It's a cultural change on the outside."

Yet this change might be nothing compared to one EMC survived a few years ago.

Founded in 1979, EMC was part of a seminal shift in computing. Previously, centralized mainframes handled most computing tasks, including storing information. The new era was largely about gaining efficiencies from distributing those resources — first with the rise of flexible servers and then with external data storage machines.

In the 1990s, EMC's top-of-the-line storage devices helped many companies that were moving onto the Web and generating copious digital records. EMC was the decade's best performer on the
New York Stock Exchange.

Then the tech bubble burst, wiping out many customers or their capital. Competitors such as Compaq Computer Corp. grabbed market share with lower-priced storage systems. In just two years, EMC's revenue cratered from $8.9 billion to $5.4 billion. The stock crashed from $100 to $4. One-fourth of the employees had to go.

Suddenly a company with a reputation for arrogance faced humbling questions. Tucci, who had turned around a bankrupt Wang Global in the '90s, found himself with another rebound project after he became EMC's CEO in 2001.

Now, revenue is nearing $11 billion. The stock has spent the past 52 weeks between $9 and $15, and the work force is 28,000, above the dot-com era peak of 24,000.

Some executives credit EMC's hard-charging environment, where a significant chunk of compensation is determined by whether employees meet specific goals set by managers. "EMC people work like their hair's on fire," Hoffman said.

EMC expanded its share of the $16 billion external-disk storage market to 27.3 percent last year, a rise of 1.6 percentage points, according to IDC. That increase equaled the gains posted by HP and IBM combined; HP held 18.5 percent and IBM had 13.7 percent.

But competitors say EMC, perhaps distracted by its overhaul, is leaving them openings. EMC admitted that execution issues this spring left it unable to meet some orders for a new storage system.

IBM and other rivals also cite a concept known as "virtualization." Among other things, it lets network administrators maximize the efficiency of their storage setups.

This would figure to be a natural for EMC, given its storage expertise and its $635 million acquisition of VMWare Inc., a leader in virtualizing the operation of servers.

But EMC was late getting a major storage virtualization product, Invista, off the ground. Executives say EMC was careful in developing Invista rather than rushing it into a young market.

"You put all the (industry's) virtualization revenues in a thimble, you'd have plenty of room for your thumb," Tucci said.

However, even reasonably explained delays may lead to perceptions that EMC can't afford.

"The larger vendors, all included, they're slow to innovate in some of these things," said Toby Ford, chief technical officer of USinternetworking Inc., which has EMC storage but recently bought a virtualized system from 3Pardata Inc., a private vendor backed by Oracle, Symantec Corp. and Sun Microsystems Inc.

One large EMC customer, Steve McCaa, principal technical architect at legal records analyzer Kroll Ontrack Inc., says that if Invista's ongoing development achieves its goals, it should outperform existing virtualization techniques.

Still, he added: "I think Invista development has been a little slower than I would like to have seen." He's not sure whether to blame EMC's perfectionism or the company's transformation.

"I do have a fear that as they try to expand that information focus they're going to lose some of the engineering prowess they've shown in the storage environment," McCaa said.

EMC executives say they're not finished mapping the future, and seem to have some flexibility. The company has no debt. Even with its acquisition spree it has had enough cash to be a big buyer of its own stock — to the tune of $1 billion last year and $3 billion this year.

"If you look at the tools they have, they're pretty far along," said analyst Jasmine Noel at Ptak, Noel. "What they haven't done yet is put the wrapper on it."

August 27, 2006 at 11:34 PM in Web/Tech | Permalink | Top of page | Blog Home

August 16, 2006

The Power of Productivity (McKinsey)

Poor countries should put their consumers first.

William W. Lewis

2004 Number 2

After the Second World War, a vast array of international and national institutions—the United Nations, the World Bank, the International Monetary Fund, and a host of nongovernment and government aid organizations—was created to better the lot of the world's poor. Conventional wisdom came to hold that improvements in infrastructure, technology, capital markets, education, and health care would eliminate the stark distinctions between rich and poor nations.¹ Fifty years and billions of dollars later, this wisdom has proved wrong.

At the beginning of the 1990s, the Soviet Union's fall precipitated a new conventional wisdom. This "Washington consensus" focused heavily on macroeconomic policies, such as flexible exchange rates, low inflation, and government solvency, while also embracing microeconomic elements—for instance, price decontrol, privatization, and good corporate governance and market regulation. Market reform swept through the world, including countries as diverse as Argentina, Brazil, India, Mexico, New Zealand, Poland, and Russia. Most were thought to be doing virtually everything needed to spark rapid growth.

But once again the results were disappointing. By the end of the 1990s, most of these countries' growth rates had returned to levels so low that the profile of the global economic landscape wasn't changing at all. Today more than 80 percent of the world's people still get by on less than a quarter of the average income in rich countries, much as they did 50 years ago.

Even worse, only a handful of countries, having moved out of dire poverty into the middle ground, enjoy a real prospect of joining the rich ones (Exhibit 1). This failure is worrisome because it means that today's poor countries will probably be poor 20 years from now. Economic development is a slow process. Even if poor countries grew at the extraordinary rate of 7 percent a year, it would take them 50 years to catch up. At current rates, it would take them a couple of centuries—if they ever did. As the tenacity of oppressive regimes and the rise in terrorism in these poor countries amply demonstrate, this gap between rich and poor is a major threat to global stability.

 

Your javascript is turned off. Javascript is required to view exhibits.

Conventional solutions have failed because they don't address the real causes of persistent poverty. The Washington consensus, like the 50 years of development economics before it, is grounded in an analysis of economies at the aggregate level. But that's like trying to learn about the physical universe by using only the telescopes of astronomy; most real understanding in physics has actually come from studying the interaction of the tiniest particles in the universe. In economics, it is necessary to understand why individual companies operate as they do, since they are the ultimate sources of growth and job creation. Most economists can't afford the time and resources needed to look, in detail, at the way an entire country's economy works. They rely instead on broad national data sets and complex econometric tools that yield qualified answers at best.

At the McKinsey Global Institute (MGI) we have had, since 1990, the luxury of studying the dynamics and evolution of a representative group of industries in 13 countries: Australia, Brazil, France, Germany, India, Japan, the Netherlands, Poland, Russia, South Korea, Sweden, the United Kingdom, and the United States. In each, we analyzed the performance of 6 to 13 industries and compared it with the performance of the same industries in a handful of other countries. Our work is thus based on detailed studies of individual businesses, from state-of-the-art auto plants to black-market street vendors. It builds an understanding of the economy from the ground up, not the top down—a grassroots rather than a bird's-eye view.

This research has produced a new and unexpected understanding of the persistence of income disparities among nations. Economic progress depends on increasing productivity, which depends on undistorted competition. When government policies limit competition, even unintentionally, more efficient companies can't replace less efficient ones. Economic growth slows and nations remain poor.

It's productivity

GDP per capita is widely regarded as the best single measure of economic well-being.² That measure is simply labor productivity (how many goods and services a given number of workers can produce) multiplied by the proportion of the population that works. This proportion varies around the world—though, interestingly, not by much.

Economists must understand how individual companies—the sources of job growth—function

Productivity, however, varies enormously and explains virtually all of the differences in GDP per capita (Exhibit 2). Thus, to understand what makes countries rich or poor, you must understand what causes productivity to be higher or lower. This understanding is best achieved by evaluating the performance of individual industries, since a country's productivity is the average of productivity in each industry, weighted by its size. Such a micro approach reveals the important fact that the productivity of industries also varies widely from country to country.

Your javascript is turned off. Javascript is required to view exhibits.

This approach yields two crucial insights. First, to understand why some countries are mired in poverty, it is necessary to look beyond broad macroeconomic policies, such as interest rates and budget deficits, and also consider the myriad zoning laws, investment regulations, tariffs, and tax codes that hold back the productivity of industries and thus a nation's prosperity. Of course, macroeconomic stability is necessary. MGI's studies of Brazil, India, and Russia show that without it companies concentrate on making money by exploiting the instability rather than by raising their productivity. Yet a stable economy alone isn't enough to make countries prosper and grow: Japan has had a stable economy for decades but has suffered from ten years of stagnation.

The second insight is the realization that the income level of a country is determined, above all, by the productivity of its largest industries. High productivity in the unglamorous "old-economy" sectors—retailing, wholesaling, construction—is most important, since more people work in them. The fabled high-tech enclaves and financial markets are less so. MGI's study of rapid US productivity growth in the 1990s found that it was caused by just six industries, including retailing and wholesaling, not by the vaunted "new economy."³ IT investments played a modest role. In India, the fast-growing IT industry has yet to raise the living standards of more than a minuscule part of the population.

Differences in productivity also explain the persistence of disparities in wealth among rich nations. Twenty-five years ago, the economies of the United States, Europe, and Japan were generally expected to converge because technology, capital, and business practices flowed freely among them and their workforces were healthy and well educated.

In fact, significant disparities of wealth remain even among rich countries. Despite Japan's world-class automotive and consumer electronics industries, for example, its average per capita income⁴ is about 30 percent below the US average. Japan has followed a path different from that of the United States and Europe (Exhibit 3): economic growth during the past 30 years has been generated more by massive increases in the number of hours worked and the amount of capital equipment used than by an increase in the productivity of the workforce. South Korea has followed a similar path. But there is a limit to the number of hours that can be worked, and massive inputs of capital that don't earn an economic return eventually lead to diminished growth. Since 1990, Japan's real per capita income has barely grown. South Korea's tiger economy is running out of steam as well.

Your javascript is turned off. Javascript is required to view exhibits.

Barking up the wrong tree

Many economists still attribute differences in the productivity of countries to differences in their labor and capital markets. These economists therefore believe that big investments in education and health and generous development loans and grants are the keys to economic growth. MGI's research, however, found that these factors explain few, if any, differences in economic performance.

Consider education. In the early 1990s, Germany and Japan seemed to be passing the United States in economic performance. One of the principal reasons cited was the poor education of the US workforce. Since then, Japan's carmakers have built US factories that achieve 95 percent of the productivity these companies enjoy at home. Whatever the faults of the US education system, on-the-job training clearly compensates for them.

This truth holds for poor countries as well. Some of Brazil's private retail banks are as efficient as any in the world. South Korea's POSCO (formerly Pohang Iron & Steel) may have the highest productivity of any integrated steel producer. Carrefour operates with nearly the same efficiency in emerging markets and in Europe. Poor education systems haven't hindered these companies. If illiterate Mexican immigrants can reach world-class productivity levels building apartment houses in Houston, illiterate Brazilian workers can do so in São Paulo.

Similarly, MGI found that a lack of capital to finance investment isn't the main constraint on growth in poor economies. If local businesses organized and managed themselves as the world's best companies do, they would unleash rapid productivity growth. About 20 percent of India's people work in companies that are structured somewhat like those in the developed world, but their average labor productivity is only 15 percent of what their US counterparts achieve. MGI calculated that these companies could increase their productivity to about 40 percent of the US average without any additional capital investment,⁵ just by reorganizing the way they conduct work. In 1983, the high-performing Japanese auto company Suzuki Motor invested in a joint venture to make cars in India. Suzuki, which had operational control, built plants like the ones in Japan, organized the work as it is organized in Japan, and trained employees to work as they do in Japan. As a result, the productivity of these facilities is 55 percent of the US auto industry average.

Poor nations don’t have to wait to build school systems and educate a whole generation of workers

Poor countries thus don't have to wait until they build bigger and better school systems and educate a whole generation of workers. Nor do they need to wait for more development aid from rich countries. If local businesses followed the proven approaches for organizing production and managing a workforce, poor countries could grow much faster than most people realize. Domestic savers and foreign investors hungry for good returns would also supply these countries with plenty of capital for new investments.

Competition is the key

If differences in labor and capital markets don't matter, what does? In each of 13 country studies, MGI found that the primary answer was the nature of competition in product markets.

Competition is the mechanism that helps more productive and efficient companies expand and take market share from less productive ones, which then go out of business or become more efficient. Either way, consumers benefit as companies offer better goods at lower prices, and this may in turn unleash a burst of new demand.

But government policies sometimes stand in the way of competition and prevent innovation from spreading. Such policies might exclude potential competitors, such as start-ups or foreign companies, or might favor particular classes of companies, such as mom-and-pop retailers. Often, policies (zoning laws, for example) have unintended consequences for business. When they do, competition is less intense and inefficient companies aren't pressured to change. Productivity growth is slower and countries remain poor.

The Washington consensus of the 1990s profoundly underestimated the importance of a level playing field for competition. Over and over again, MGI found industries in which more productive innovators were excluded and less productive companies favored. In much of Europe, for instance, zoning laws prevent large retailers from expanding as fast as they could and therefore from replacing less efficient small retailers. Because retailing is one of the largest sectors in most economies, it has important ramifications for a nation's standard of living. For instance, Tesco, the United Kingdom's largest food retailer, has failed to obtain planning permission to build a modern supermarket on the site of a derelict hospital—broken windows and all—near central London because the building is over 100 years old. The result of such failures is lower productivity for the UK economy and higher food prices for consumers.

In Japan, a combination of zoning laws, tax policies, and government subsidies has allowed the smallest, most inefficient retailers to thrive. Today they account for slightly over half of all retailing employment, compared with less than 20 percent in the United States. In one small shop in central Tokyo, I have seen the same hat sit unsold on a store shelf gathering dust for the past 15 years. Every time I'm in Tokyo, I check to see if the hat is still there. It is. The proprietors don't have to sell it to stay in business, since they get subsidized loans. Their shop sits on some of the world's most valuable land, so they know their estate will repay the loans.

Even the United States isn't immune to policies that limit competition. The 2002 steel tariffs, which have since been declared illegal by the World Trade Organization and withdrawn, protected US steel producers from lower-cost foreign competitors. The recent increase in US agricultural subsidies does the same.

Poor countries, however, have adopted much more severe market-distorting measures. After the Soviet Union's fall, a flurry of new business activity took place in Russia. It was assumed that more productive companies would replace the unproductive Soviet ones and that Russia would rapidly become rich. But MGI found that the new Russian companies were no more productive than their Soviet predecessors. Why? More productive companies either tried to enter the market and failed or didn't bother to try. For instance, Carrefour, perhaps the best international retailer, concluded that it couldn't make money in Russia. Like virtually all multinationals, Carrefour pays taxes. The competitors it would face in Russia—the open-air markets—don't and thus have a decisive tax advantage. Before the ruble crashed in 1998, open-air markets also sold smuggled or counterfeited goods at prices Carrefour couldn't match.

A similar situation exists in Brazil. About 50 percent of its workers aren't registered with the government. Although many of these people are poor and wouldn't be taxed heavily, the total revenue forgone is substantial because of the number of workers involved. As a result, Brazil must collect twice as much in profit, employment, value-added, and sales taxes from corporations as the United States does to finance its government.⁶ When taxes are included, it costs more productive companies as much to do business as it costs less productive, informal ones, which don't pay taxes. Modern, productive enterprises can't easily take market share from their unproductive counterparts, and the economy's natural evolution is stymied.

Meanwhile, in India the government has directly limited competition by insisting that several hundred consumer goods can be manufactured only in small-scale plants. As a result, Indian consumers pay higher prices than they should, and India, unlike China, hasn't become a global center of low-cost manufacturing. (China actually exports to India.) Moreover, in housing construction, competition among developers and construction firms is based not on cost and productivity advantages but on gaining control of scarce parcels of land with clear ownership titles. Over 90 percent of land titles in India are subject to dispute, and nobody is going to invest in land someone else might claim.

Your javascript is turned off. Javascript is required to view exhibits.

If poor countries eliminated the policies that distort competition, they could grow rapidly. India's government, for instance, abandoned many of the limits on foreign investment in the country's automotive industry during the early 1990s. Subsequently, prices fell, demand for cars exploded, and output nearly quadrupled (Exhibit 4).

The barriers to growth

The main obstacles to economic growth in poor countries are the many policies that distort competition. Why are they so pervasive?

For one thing, most people favor the social objectives that inspire high minimum wages, small-business subsidies, and other business policies. They may not be aware of the unintended adverse consequences that create major barriers to growth. Instead of attempting to achieve social objectives by limiting competition, countries should allow fair competition and thereby generate more national income, which can then be redistributed through taxes and government subsidies for the desperately poor.

Countries follow bad policies, above all, because they benefit powerful or well-connected people

Even more important, countries have bad policies because they benefit certain people. In rich countries, special interests generally aren't allowed to have their way so much that they can significantly undermine the common good. Most poor countries lack these limits. Moscow's government officials, for instance, allocate housing contracts to their cronies in the old Soviet construction companies. As a political favor to small companies that can't pay their bills, local governments in Russia prevent energy companies from cutting off their power. India's domestic retailers are wholly protected from foreign direct investment by global best-practice retailers.

In poor countries today, every domestic firm is a potential special interest that stands to lose from more competition. These unproductive firms' workers often think, mistakenly, that they too stand to lose. Certainly, the prospect of finding new work in an economy where most jobs pay near-subsistence wages is frightening. But to have healthy economies, countries must allow unsuccessful owners and managers to fail so that more productive ones can take their place. In that healthier economy, workers will find a better job market.

Think consumer

Undoubtedly, dismantling barriers to economic growth is difficult. Some firms must be allowed to go out of business, thus forcing workers to find new jobs. Industries must be opened to foreign competition, and the enforcement of tax codes and other regulations must be strengthened. And governments must stand up to special interests.

How can countries muster the political will to do all these things? The answer lies in focusing on consumers, not producers. Many people think that production itself creates economic value—an idea that sometimes makes governments protect businesses regardless of their performance. This approach is mistaken. Such people and governments fail to understand the link between production and consumption. Goods have value only if consumers want them. Otherwise sheer production does little to raise standards of living.

Most poor countries are far from having a consumption mind-set. Their governments and leaders, like those of the former Soviet Union, focus instead on output. A consumption mind-set requires some notion of individual rights, including the right to buy what you want from anybody who wishes to sell it to you. Consumers want to patronize companies that offer better products and services or lower prices. Those are the companies that survive if competition is equal. Thus, consumer interests are served when competition isn't distorted.

If policy makers in poor countries—and the many development experts who advise them—can accept this overlooked fact, those countries could unleash rapid growth. Only then will the shape of the global economic landscape begin to change for the better.

About the Authors

Bill Lewis, a McKinsey alumnus, was the founding director of the McKinsey Global Institute. This article was adapted from chapter 1 of his new book, The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability (Chicago: University of Chicago Press, 2004).

Notes

¹ For more on the failure of development economics, see William Easterly, The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics, Cambridge, Massachusetts: MIT Press, 2002.

² Some people argue that indicators of health, life expectancy, and social well-being are just as important, if not more so. But men and women the world over want more than a subsistence living, and that is why millions of them emigrate from poor countries to rich ones, even doing so illegally and risking their lives in the attempt. The Soviet Union achieved military power but ultimately collapsed because it didn't provide enough consumer goods.

³ See William W. Lewis, Vincent Palmade, Baudouin Regout, and Allen P. Webb, "What's right with the US economy," The McKinsey Quarterly, 2002 Number 1, pp. 30–40.

⁴ Measured at purchasing power parity, not current exchange rates. PPP compares standards of living in different countries more accurately because it measures the amount of goods and services different currencies can command in their home markets.

⁵ Because of low labor rates, the lack of automation would prevent them from matching US productivity.

⁶Brazil's bloated government contributes to the high tax burden and thus is an obstacle to growth. It currently spends 39 percent of the nation's GDP, compared with 37 percent in the United States. Back in 1913, when the United States had the same per capita income Brazil has now, the US government spent only 8 percent of the country's GDP.

Site Map | Terms of Use | Updated: Privacy Policy | mckinsey.com

Copyright © 1992-2006 McKinsey & Company, Inc.

August 16, 2006 at 11:27 AM in Business Models | Permalink | Top of page | Blog Home

Internet use - Canada

Related tables: Internet.  

Internet use by individuals, by location of access, by province
(Saskatchewan, Alberta, British Columbia)

2005

Canada
Sask.
Alta.
B.C.

% of all individuals aged 18 years and over¹

Location of Internet access

Any location²
67.9
66.2
70.6
69.3

Home
60.9
58.3
63.9
63.3

Work
26.3
24.0
30.1
25.0

School
11.7
11.6
11.5
11.3

Public library
10.2
8.2
10.9
13.8

Other location
20.3
19.7
20.0
22.0

Note: The Canadian Internet use survey (CIUS) tables beginning with 2005 replace the Household Internet survey (HIUS) tables from 1997 to 2003. The unit surveyed is now the individual rather than the household. Only adults aged 18 years and over were surveyed.
1. Percentage of all individuals, aged 18 years and over, who responded that they had used the Internet in the previous twelve months for personal non-business use from any location.
2. Internet access from any location includes use from home, school, work, public library or other location, and counts an individual only once, regardless of use from multiple locations.
Source: Statistics Canada, CANSIM, table (for fee) 358-0122.

August 16, 2006 at 10:35 AM in Internet evolution | Permalink | Top of page | Blog Home

August 13, 2006

The green machine

The green machine - August 7, 2006

Lee Scott is no tree-hugger. But Wal-Mart's CEO says he wants to turn the world's largest retailer into the greenest. The company is so big, so powerful, it could force an army of suppliers to clean up their acts too. Is he serious?
FORTUNE Magazine
By Marc Gunther, Fortune Magazine
July 31 2006: 2:00 PM EDT

(Fortune Magazine) -- "Doesn't it feel good to have this kind of commitment made by the company that you are part of? Don't you feel proud?"

The 800 Wal-Mart Stores employees gathered in the home office for an all-day meeting were used to this kind of rah-rah talk. Top executives from Fortune 500 companies regularly trek to Bentonville, Ark., to pay homage to one of the world's most powerful companies and to shout out the Wal-Mart (Charts) cheer.

This time, though, the cheerleading was coming from an unlikely source: Al Gore.

Wal-Mart had invited America's most famous environmentalist to show his movie, "An Inconvenient Truth." "Having the former Democratic Vice President was a shock" to some people at the company, chief executive Lee Scott told the crowd. "At least based on a couple of my e-mails."

But as the credits rolled, Gore strutted onto the stage to a standing ovation. Dressed in a blue suit and cowboy boots, he joked with the audience, answered questions in his best Southern drawl, and coyly denied that he had any plans to run for President again. (This wasn't exactly his base: He took just 32% of the vote in Benton County in 2000.)

Before heading off to dinner with Wal-Mart chairman Rob Walton and Scott, Gore delivered a parting thought: As Wal-Mart embarks on a far-reaching plan to adopt business practices that are better for the environment, he said, the world will learn that "there need not be any conflict between the environment and the economy."

Wal-Mart, you see, has decided to help save the earth.
Environmental values

Just listen to Scott. "To me," he says, "there can't be anything good about putting all these chemicals in the air. There can't be anything good about the smog you see in cities. There can't be anything good about putting chemicals in these rivers in Third World countries so that somebody can buy an item for less money in a developed country. Those things are just inherently wrong, whether you are an environmentalist or not."

In a speech broadcast to all of Wal-Mart's facilities last November, Scott set several ambitious goals: Increase the efficiency of its vehicle fleet by 25% over the next three years, and double efficiency in ten years. Eliminate 30% of the energy used in stores. Reduce solid waste from U.S. stores by 25% in three years.

Wal-Mart says it will invest $500 million in sustainability projects, and the company has done a lot more than draw up targets. It has quickly become, for instance, the biggest seller of organic milk and the biggest buyer of organic cotton in the world. It is working with suppliers to figure out ways to cut down on packaging and energy costs. It has opened two "green" supercenters.
Credibility questioned

Plenty of people won't buy it - or anything else from Wal-Mart. To labor leaders, left-wing elites, and the small-is-beautiful crowd, the $312-billion-a-year retailer stands for everything that's wrong with big business.

They see the company in a race to pave the planet and turn it into a giant emporium of cheap goods built on the back of cheap labor. The union-funded website walmartwatch.com dismisses Wal-Mart's environmental push as a "high-priced green-washing campaign."

Wal-Mart, though, has a whole lot more to worry about than convincing a few ideological critics that its eco-intentions are pure. Its business, for starters.

Its same-store sales growth has slowed down, trailing Costco's (Charts) and Target's (Charts). Its stock price is another big concern. After rising 1,205% during the 1990s, the stock has fallen by 30% since Scott took over as CEO in January 2000.

It's no wonder that inside Wal-Mart some veteran executives grouse that Scott's green crusade will be a costly distraction. Many remember the last time Wal-Mart set out an initiative this broad: founder Sam Walton's 1985 "Made in the U.S.A." campaign.

That move burnished Wal-Mart's red-white-and-blue image, but it wasn't long before critics noted that Wal-Mart continued to seek out goods from the absolute lowest-cost supplier- and typically that meant "Made Anywhere but America."

Indeed, Wal-Mart's single-minded desire to save its customers money has been its raison d'être for 44 years. Which raises two questions: Why is the world's largest retailer so determined to become the greenest? And how green can a company that operates 6,600 big-box stores really get?

Rob Walton, his son Ben, Pearl Jam guitarist Stone Gossard, and conservationist Peter Seligmann were scuba-diving off Coco Island, a lush, uninhabited Costa Rican national park populated by manta rays, dolphins, and sharks.
High-level influence

During a ten-day trip in February 2004, Seligmann, co-founder and CEO of Conservation International, a big Washington, D.C., environmental organization whose mission is to protect the world's biologically rich habitats, had been pointing out fleets of fishing boats that were destroying the delicate Costa Rican marine habitat. Toward the end of the trip, Seligmann looked Walton in the eye: "We need to change the way industry works. And you can have an influence."

Like all Sam Walton's children, S. Robson "Rob" Walton, 60, grew up in the Ozarks with a love of the outdoors. "All our family vacations were camping trips," he says in a rare interview. His younger brother John, who died last year in a private plane crash, was a conservationist. And his son Sam, who worked as a Colorado River guide, sits on the board of Environmental Defense, a nonprofit group.

About four years ago, after a trip to Africa, Rob Walton began to think about ways his family could help preserve wilderness areas through its foundation, which has assets of about $1 billion. (The Walton family's 40% stake in Wal-Mart is worth about $80 billion.)

A mutual friend then introduced Walton to Seligmann. Over the next two years the preppy ex-biologist guided Rob and his two sons on a series of adventures. They hiked in Madagascar. They took a boat trip through the world's largest freshwater wetland, in Brazil. They went diving in the Galápagos Islands.

"We spent a lot of time diving and talking," says Seligmann. The family foundation eventually made a $21 million grant to CI for ocean-protection programs, and Walton joined the group's board.

But Seligmann had another agenda, one that he finally put on the table in Costa Rica. Whatever money the foundation could contribute would pale in comparison to what Wal-Mart the corporation could do. "I suggested to Rob that Wal-Mart could be a driver of tremendous change," Seligmann says.
Huge footprint

He wasn't exaggerating. The company is the biggest private user of electricity in the U.S.; each of its 2,074 supercenters uses an average of 1.5 million kilowatts annually, enough as a group to power all of Namibia.

Wal-Mart has the nation's second-largest fleet of trucks, and its vehicles travel a billion miles a year. If each customer who visited Wal-Mart in a week bought one long-lasting compact fluorescent (CF) light bulb, the company estimates, that would reduce electric bills by $3 billion, conserve 50 billion tons of coal, and keep one billion incandescent light bulbs out of landfills over the life of the bulb.

If Wal-Mart influenced the behavior of a fraction of its 1.8 million employees or the 176 million customers that shop there every week, the impact would be huge. And because of the extraordinary clout Wal-Mart wields with its 60,000 suppliers, it could make even more of a difference by influencing their practices.

Walton was intrigued, but he had taken himself out of an operational role at Wal-Mart years ago. He didn't want to overstep his bounds. "We are really, really careful about mixing personal interests and the business," he says. Still, he agreed to introduce Seligmann to Lee Scott.
PR play

The timing was fortuitous. Scott had just undertaken a review of Wal-Mart's legal and PR woes - and it wasn't a short list. A lawsuit alleging that Wal-Mart discriminated against its female employees had been certified as a federal class action. Opponents blocked new stores in the suburbs of Los Angeles, San Francisco, and Chicago.

A study found that Wal-Mart's average spending on health benefits for its employees was 30% less than the average of its retail peers. The company's environmental record was nothing to boast about either: It had paid millions of dollars to state and federal regulators for violating air- and water-pollution laws.

For years Wal-Mart simply brushed off such criticism. "We would put up the sandbags and get out the machine guns," Scott recalls. After all, business was good. They were saving their customers billions, fighting for the little guy.

But as the upstart rural retailer grew into one of America's biggest companies and clashed with unionized competitors, it made powerful enemies. Expectations of business were rising, and Wal-Mart was failing to meet them.

A McKinsey & Co. study leaked to the press by walmartwatch.com found that up to 8% of shoppers had stopped patronizing the chain because of its reputation.

Scott wondered, "If we had known ten years ago what we know now, what would we have done differently that might have kept us out of some of these issues or would have enhanced our reputation? It seemed to me that ultimately many of the issues that had to do with the environment were going to wind up with people feeling like we had a greater responsibility than we were, at the time, accepting."

In a drab Bentonville conference room, Scott, Rob Walton, Seligmann and Glenn Prickett of Conservation International, and a friend of Seligmann's named Jib Ellison, a river-rafting guide turned management consultant, convened a pivotal meeting in June 2004. For a presentation to the man who is arguably the most powerful CEO in the world and the man who is inarguably one of the richest, the pitch was surprisingly informal.

The five men chatted about the environment and about ways Wal-Mart could improve its practices. Seligmann and Prickett talked about their work with Starbucks (Charts), which developed coffee-buying methods to protect tropical regions, and about McDonald's (Charts), which was helping to promote sustainable agriculture and fishing.

Their argument was simple: Wal-Mart could improve its image, motivate employees, and save money by going green.

If there was any group that could deliver such a message to Scott, it was CI, whose board members include former Intel (Charts) chairman Gordon Moore, BP chief executive John Browne, and former Starbucks CEO Orin Smith. CI works closely with corporations, and about $7 million of its $93 million in 2005 revenues came from such consulting arrangements.
Accepting responsibility

Scott hired CI and Ellison's management consulting firm, called BluSkye, and asked them to measure Wal-Mart's environmental impact. The assessment would include not just Wal-Mart's operations, but the impact of growing or producing all the products it sells and shipping them to stores.

Wal-Mart was defining its responsibility broadly, in a way that would bring its vast supply chain - where its environmental impact is greatest - into the picture.

About a dozen people from BluSkye, CI, and Wal-Mart spent nearly a year measuring the company's impact. Fairly quickly, the environmentalists spotted waste that Wal-Mart's legendary cost cutters had overlooked.

On Kid Connection, its private-label line of toys, for instance, Wal-Mart found that by eliminating excessive packaging, it could save $2.4 million a year in shipping costs, 3,800 trees, and one million barrels of oil.

On its fleet of 7,200 trucks Wal-Mart determined it could save $26 million a year in fuel costs merely by installing auxiliary power units that enable the drivers to keep their cabs warm or cool during mandatory ten-hour breaks from the road. Before that, they'd let the truck engine idle all night, wasting fuel.

Yet another example: Wal-Mart installed machines called sandwich balers in its stores to recycle and sell plastic that it used to throw away. Companywide, the balers have added $28 million to the bottom line.

"Think about it," Scott said in his big speech to employees last fall. "If we throw it away, we had to buy it first. So we pay twice - once to get it, once to have it taken away. What if we reverse that? What if our suppliers send us less, and everything they send us has value as a recycled product? No waste, and we get paid instead."

That was talk any Wal-Mart executive could understand, even if few knew it came straight from the pages of Natural Capitalism, an influential book by Paul Hawken, Amory Lovins, and Hunter Lovins that lays out a blueprint for a new green economy in which nothing goes to waste.

Not coincidentally, Lovins and his Rocky Mountain Institute were also hired as consultants by Wal-Mart to study a radical revamp of its trucking fleet.
Casting a wide net

Wal-Mart was pulling ideas from everywhere-consultants, NGOs, suppliers, and eco-friendly competitors such as Patagonia and Whole Foods (Charts). This open-source approach worked so well that the company decided to form "sustainable value networks" made up of Wal-Mart executives, suppliers, environmental groups, and regulators; they would meet every few months to share ideas, set goals, and monitor progress.

Today there are 14 networks, each with a focus: facilities, internal operations, logistics, alternative fuels, packaging, chemicals, food and agriculture, electronics, textiles, forest products, jewelry, seafood, climate change, and China.

Experts from the World Wildlife Federation, the Natural Resources Defense Council, and even Greenpeace have made the pilgrimage to Bentonville. "I can honestly say I never expected to be at Wal-Mart's headquarters watching people do the Wal-Mart cheer," says John Hocevar, a Greenpeace campaigner. Environmental Defense announced plans to open a satellite office in Bentonville.

Though hundreds of people are in the networks, only five Wal-Mart employees, led by corporate strategist Andy Ruben, work full-time on the initiative. Key decisions are decentralized. "If you are a buyer, sustainability is going to be your business," says Scott.

Some environmentalists who are part of the networks worry the initiative is understaffed. They say that the Wal-Mart people responsible for keeping the networks going, all of whom already had full-time jobs like running truck fleets or buying jewelry, are stretched thin.

Still, getting tree-huggers and Wal-Mart lifers in the same room led to some unexpected benefits. "Sustainability helped us develop the skills to listen to people who criticize us and to change where it's appropriate," Scott says.

His managers are learning "not to be so afraid of venturing out there, thinking that if people see our warts, they're just going to castigate us." It also gives them another reason to feel good about Wal-Mart, a sense of working for a "higher purpose," he says.

Scott, too, was filled with the zeal of the newly converted. "I had an intellectual interest when we started," he says. "I have a passion today." As a lifelong angler from Baxter Springs, Kan., Scott, who is 57, was particularly worried about pollution in the world's rivers and oceans.

He visited Mount Washington in New Hampshire, where he chatted with a maple-sugar producer about the impact of global warming. And he traded in his Volkswagen Beetle for a hybrid Lexus SUV.

Hurricane Katrina, after which Wal-Mart employees mobilized to deliver vital supplies to victims, deepened Scott's resolve. "We stepped back from that and asked one simple question: How can Wal-Mart be that company - the one we were during Katrina - all the time?"

The environmental campaign that Scott admits started out as a "defensive strategy" was, in his view, "turning out to be precisely the opposite." His people were feeling better about the company. They were saving their customers money. That was one of Wal-Mart's strengths. Another was twisting the arms of suppliers - who would soon learn all about Wal-Mart's new crusade.
Sustainable agribusiness

In the cold waters off Kodiak Island, Alaska, where the sockeye salmon are running in early June, a 45-year-old third-generation fishing-boat captain named Mitch Keplinger is having a disappointing day.

Operating under Alaska's strict regulatory regime, Keplinger and his crew labor for more than 12 hours to haul in about 1,000 pounds of sockeye, which they sell for 70 cents a pound to Ocean Beauty, a Seattle-based processor and Wal-Mart supplier. They catch another 500 pounds of pink salmon, which sells for 35 cents a pound. That's $1,050 before expenses, to be shared by the four of them - barely worth the effort.

What does that have to do with Wal-Mart? Keplinger - and fisherman like him who play by the rules - are getting killed by competition from unregulated fisheries and farmed salmon. In February, Wal-Mart announced that over the next three to five years it would purchase all its wild-caught seafood from fisheries that, like Alaska's salmon fishery, have been certified as sustainable by an independent nonprofit called the Marine Stewardship Council (MSC).

The company is working on a similar certification system for farmed fish, and it hopes consumers will come to value "brands" like MSC-certified as they do the organic label. Says Rupert Howes, chief executive of the MSC: "It's supply-chain pressure of the best kind."

Keplinger and his buyers at Ocean Beauty are watching Wal-Mart closely. Says Tom Sutherland, Ocean Beauty's vice president of marketing: "When Wal-Mart hiccups, it's all we can talk about."

It's not just Alaskan fishermen who are talking. So are corn farmers in Iowa (who want to sell more ethanol through Wal-Mart), coffee growers in Brazil (who are being promised higher prices for their beans), and factory bosses in China (who are being told to cut their energy and fuel costs).
Organic clothes, too

Wal-Mart's campaign has already turned the small world of organic cotton upside down, thanks in part to Coral Rose, a ladies' apparel buyer for Sam's Club. In spring 2004 - just before Wal-Mart held its first meeting with CI - Rose ordered a yoga outfit made of organic cotton for Sam's Club; the tops sold for about $14, the loose-fitting pants for $10. The 190,000 units sold out in ten weeks

That got Scott's attention. Sales of organic food had grown at Wal-Mart; he wondered if organic cotton could do as well. With Scott's encouragement, Wal-Mart's buyers visited organic cotton farms. They learned about the environmental risks posed by conventional cotton farming, which uses more chemical pesticides and synthetic fertilizer than any other crop.

Wal-Mart's purchases of organic cotton have eliminated millions of tons of chemicals, Scott says. Today, Wal-Mart and Sam's Club stock a range of organic-cotton products - baby clothes under the Baby George brand, teenage fashion, and a line of bed sheets and towels.

The organic-cotton industry had found its best customer. Five years ago global production of organic cotton amounted to about 6,400 metric tons, and some farmers who converted to organic methods, which can cost more, could not find buyers willing to pay a premium.

In 2006, Wal-Mart and Sam's Club alone will use 6,800 metric tons, and they've made a verbal commitment to buy organic cotton for five years, giving farmers an assurance that there will be a market for their crops.

Wal-Mart is also increasing the amount of organic food it sells, but some even find fault with this, assuming that it buys only from massive corporate organic farms. Not true. Wal-Mart buys locally in two dozen states, striving to reduce "food miles" to save shipping costs and increase freshness.
Peer pressure

Scott, meanwhile, is personally pushing his cause with Fortune 500 CEOs. He has talked with Jeff Immelt at GE about LED lighting for Wal-Mart's buildings. He's talked with Tom Faulk, the CEO of Kimberly-Clark, about "compressed toilet paper," which squeezes three rolls into one. Steve Reinemund, PepsiCo's CEO, just sold Wal-Mart on a massive recycling contest involving Aquafina water.

Wait a minute. Recycling's great. But why consume Aquafina in the first place? Bottled water is bad for the environment, period. But neither PepsiCo nor Wal-Mart will stop selling it as long as consumers want to buy it. This is one place where tensions arise between what's good for business and what's good for the planet.

Packaging is another thorny issue. On my grocer's shelf are a bulky, 100-fluid-ounce, orange plastic jug of Procter & Gamble's bestselling Tide and a slim 32-ounce aqua plastic bottle of Unilever's "small and mighty" All.

Both contain enough detergent for 32 loads of wash, but the smaller package, made possible by condensing All, saves energy, shipping costs, and shelf space - a big win all around, right?

Not quite. Bigger packages command more shelf space, provide more surface area for advertising, and suggest to consumers that they're getting more for their money. Unilever executives voiced all those worries when they went to see Scott. He agreed to make "small and mighty" All a VPI (that's Wal-Mart code for "volume-producing item," and it means that Wal-Mart will promote it heavily). "That helps to increase their confidence," he says. You can now find "small and mighty" All in supermarkets everywhere.

And guess what? This fall Procter & Gamble will replace the bulky plastic jugs with condensed, slimmed-down versions of all its liquid laundry detergents - Tide, Cheer, Gain, Era, and Dreft - in a test in Cedar Rapids, Iowa, to prepare for a likely national rollout.

We wondered if Wal-Mart had anything to do with that. "We've been doing sustainability for quite some time," replied a P&G spokeswoman. "And we're pleased to work with all our distributors, including Wal-Mart." You figure it out.

This is why Wal-Mart's eco-initiative is potentially more world-changing than, say, GE's. GE sells fuel-efficient aircraft engines and billion-dollar power plants to a few customers. Wal-Mart sells organic cotton, laundry soap, and light bulbs to millions. When shoppers see a display promoting "the bulb that pays for itself, again and again and again," they'll be reminded of their own environmental impact.

By buying CF bulbs they'll also save money on their utility bills, leaving them more money to spend at, you guessed it, Wal-Mart. The bigger idea here is that poor and middle-income Americans are every bit as interested in buying green products as are the well-to-do, so long as they are affordable.

Plenty of places sell fair-trade coffee, for example. Only Wal-Mart sells it for $4.71 a pound. "The potential here is to democratize the whole sustainability idea--not make it something that just the elites on the coasts do but something that small-town and middle America also embrace," says CI's Glenn Prickett. "It's a Nixon-to-China moment."
Eco-stores

Several weeks ago a dozen Japanese supermarket industry executives flew halfway around the world to visit a store in a suburb of Denver that is unlike any they had ever seen. They snapped pictures of wind turbines and solar cells and listened as a tour guide explained how dirty cooking oil from the deli and used motor oil from the lube department are recycled to heat the store.

They ran their fingers across jewelry cases built of renewable bamboo and peered into the dairy case at the superefficient light-emitting diodes that illuminate rows of organic milk.

The visitors wandered among shelves stocked with tuna certified by the Marine Stewardship Council and coffee endorsed by the Rainforest Alliance. They learned that spoiled food was composted into fertilizer and resold. They walked on sidewalks that are - no joke - made of recycled airport runways.

This is Wal-Mart Store No. 5334, which opened last winter. It's one of two experimental stores the company built to test ways to cut energy and reduce waste.

It sounds terribly futuristic, but this isn't totally new ground. In 1993 the company debuted a Bill McDonough - designed eco-store in Lawrence, Kan., with great fanfare. Two more stores followed, but the concept quietly died.

Wal-Mart's more serious now, but skeptics remain. Jeffrey Hollender is president of Seventh Generation, a Burlington, Vt., maker of nontoxic household products. Though Scott met with Hollender in Bentonville and offered to carry some of his line, Hollender declined. "We might sell a lot more products in giant mass-market outlets, but we're not living up to our own values and helping the world get to a better place if we sell our soul to do it," he says.

Scott understands there are some critics he will never win over. He knows that not everyone at Wal-Mart shares his vision. But he's quite certain that one person would.

Midway through the daylong sustainability summit, the one where Al Gore showed his movie, Scott did what Wal-Mart executives always do when they want to get people's attention: He invoked the name of Sam Walton.

"Some people say this is foreign to what Sam Walton believed, that Sam Walton focused solely on the customers, driving prices down so the average person can have a higher standard of value," Scott said.

"What people forget is that there was nobody more willing to change. Sam Walton did what was right for his time. Sam loved the outdoors. And he loved the idea of building a company that would endure. I think Sam Walton would, in fact, embrace Wal-Mart's efforts to improve the quality of life for our customers and our associates by doing what we need to do in sustainability."

Then he posed a challenge to the audience: "What other company in the world could do this? This company is uniquely positioned. But we will not be measured by our aspirations. We will be measured by our actions." Of that there's no doubt. This is Wal-Mart, after all. The whole world will be watching.

Reporter associates Doris Burke and Jia Lynn Yang contributed to this story. Top of page

August 13, 2006 at 02:08 AM in Business Models | Permalink | Top of page | Blog Home

August 08, 2006

Google makes deal with MySpace

globeandmail.com : Google makes deal with MySpace

Associated Press

New York — Google Inc. reached a deal Monday with the owner of MySpace.com to pay at least $900-million (U.S.) in shared advertising revenue and become the exclusive search provider for the popular online hangout.

The deal, which marries the Internet's leading search engine with the top social-networking site, means News Corp. will have essentially paid off the bulk of the $1.2-billion it spent last year to acquire both MySpace and the online video-game company IGN Entertainment Inc.

Under the multiyear deal, News Corp.'s Fox Interactive Media unit will add Google search boxes to MySpace and other sites, likely by the end of the year, and Google will provide search results and keyword ads targeted to people's search terms. Google will also get first rights to sell any display ads not sold by Fox directly.

Because the primary reason people leave MySpace now is to conduct searches on Google, according to Fox executives, letting MySpace users enter such queries directly on the site allows it to retain visitors longer and thus boost its advertising potential.
Related to this article
Latest Comments Comments

* Start a conversation on this story

The Globe and Mail

But just as importantly for Google, the deal lets the search company benefit from queries at MySpace instead of seeing those ad dollars go to rivals Yahoo Inc. or Microsoft Corp.'s MSN.

August 8, 2006 at 01:02 AM in Portals | Permalink | Top of page | Blog Home

August 06, 2006

For those who missed it the first time...

TheStar.com - For those who missed it the first time...

Aug. 6, 2006. 01:00 AM

While the terms Internet and Web tend to be used interchangeably, the Web — like email, videoconferencing, streaming audio and video — travels across the Internet. The Net is a global infrastructure of computer servers, fibre-optic trunk lines, "routers" that direct electronic traffic, and the slender phone and cable lines running into your home. A rough analogy would be the Web as a train and the Internet as the tracks.

"On the Net," Tim Berners-Lee has explained, "you find computers. On the Web you find information — documents, sounds, videos. The Web could not be without the Net. The Web made the Net useful because people are really interested in information (not to mention knowledge and wisdom!) and don't really want to have to know about computers and cables."

Berners-Lee is the son of two mathematicians who worked on the Manchester Mark I, one of the earliest computers. At age 25, the erstwhile tiddlywinks league player at Oxford University devised a primitive version of the Web he called ENQUIRE, after a Victorian book, Enquire Within Upon Everything.

ENQUIRE's advanced version, debuting on this date 11 years later, was built on HTTP (HyperText Transfer Protocol), HTML (HyperText Markup Language) and URL (Universal Resource Location) — the last being of the most critical importance.

The HTTP determines how and where Web pages are sent. The HTML is the language by which a Web page is formatted for the Internet. And the URL is the unique address assigned to each Web page, enabling a Web user to retrieve it from its precisely identified location, be it deep in the bowels of an enormous mainframe computer at the Johns Hopkins medical school, a United Nations agency or the University of Tokyo, or on the website of a gun dealer in Birmingham, Ala.

August 6, 2006 at 05:07 PM in Internet evolution | Permalink | Top of page | Blog Home

A slow death by progress

TheStar.com - A slow death by progress

If our global civilization dies, what's left to replace it?
Aug. 6, 2006. 10:08 AM
RONALD WRIGHT
SPECIAL TO THE STAR

The following was to be the keynote address by Ronald Wright to the Couchiching Conference this Thursday. Wright, the author of the bestselling book A Short History of Progress, had to withdraw from the conference at the last minute for personal reasons. The theme of this year's conference is "Wedded to Progress: For Better, For Worse." For more information, visit http://www.couch.ca.

For at least 60,000 years — ever since religious belief first shows itself in the burial rites of Neanderthal Man and the great cave paintings of the Old Stone Age — human societies have probed the mystery of existence with mythology and art. Then, a few centuries ago, the Enlightenment accompanied the rise of modern science and the world quickly became a lonely place, for Man deposed the gods and put himself in charge. And as industry began to remake both nature and society, Western civilization became conscious, for the first time ever, of runaway change, and therefore self-conscious about its destiny.

Literature on this theme is usually called "utopian" or "dystopian," depending on whether it pictures the best, or the worst, of all possible worlds: a future we think we might want, or one we know we don't want. For our purposes here, I'm defining "civilization" in an anthropological way — to mean complex societies with large populations based on the domestication of plants, animals, and human beings. When moral weight is attached to it, "civilization" can become a dangerous word. The notion that civilized people not only smell better but behave better than "savages" doesn't stand up well to scrutiny: The biggest and most notorious incidents of human sacrifice — the public killings of ancient Rome, the bonfires of the Spanish Inquisition, the Aztec heart-extractions, the Nazi death camps — were all the work of highly civilized folk. So-called savages have done no worse.

Almost everyone on Earth today is civilized in the technical sense: enjoying the fruits, and bearing the consequences, of an experiment that began when farming first arose in several key areas of the world — the Near East, the Americas, and Asia — soon after the end of the last Ice Age. This discovery is what archaeologists call the Neolithic or Farming Revolution. With it began a population boom that has yet to level off.

By about 5,000 years ago, farming had led to the first big towns and cities; to specialists and priesthoods; to kingdoms, empires, and theocracies; to the rule of the many by the few. For those at the top it brought wonderful things: most of art, literature, music, and science. For the masses it brought monotony and toil.

A span of five millennia may seem long enough to declare the experiment of civilization an unqualified success. But its entire run is barely one-fifth of one per cent of the human career on Earth. Even our modern subspecies, Homo sapiens sapiens — people with the same physical and mental abilities as us — has existed between 10 and 20 times longer than its oldest civilization. The settled, urban life we regard today as normal is not the life that made us; not the life by which we evolved.

For me, the greatest mystery of what we call the "ancient world" is how recent it really is. No city or monument is much more than 5,000 years old. Only 70 lifetimes of 70 years have been lived end-to-end since civilization began. Yet civilization has displaced almost all other ways of living, often forcibly. There is now no viable alternative, no blank on the map, no going back without catastrophe. As we climbed the ladder of progress, we kicked out the rungs below.

We look at the Pyramids, Stonehenge, the Mesopotamian ziggurats, or the colossal stone heads of Olmec Mexico, and such ruins seem of vast antiquity, proud markers of the human permanence on Earth.

Or we can draw a different lesson from them. In Europe, Asia, Africa, America, and Oceania, the abandoned monuments stand as proof that, like individuals, civilizations are mortal: They are born, they flourish, and they die.

Except ours. Ours, we like to believe, is different, the beneficiary of all the rest. The sunny afternoon in which we thrive will stretch ahead forever, its permanence underwritten by scientific progress. Indeed, with the Industrial Revolution arose the very idea of progress, as defined by the historian Sidney Pollard in 1968: "the assumption that a pattern of change exists in the history of mankind... that it consists of irreversible changes in one direction only, and that this direction is towards improvement."

Anyone who looks over the events of the past 100 years with a clear eye will, I think, have to concede that progress, like most things in life, comes in two kinds: good and bad. The invention of Viagra was good, it seems to me, not for any personal reason but because it softened the market in rhino horn, seal penises, and other supposedly aphrodisiac bits of wildlife.

The invention of nuclear weapons (a brilliant feat technically) was the worst kind of progress, because it may yet kill us all. Most inventions fall somewhere in between, and whether their effects are ultimately good or bad is often a matter of scale. And of time: What strikes me most strongly, when I look at the wake of the human voyage, is the runaway progression of change — or, to put it another way, the collapsing of time. From the first chipped stone to the first smelted iron took nearly 3 million years. From the first iron to the hydrogen bomb took only 3,000 years.

In my book A Short History of Progress, I coined the term "progress trap" for a seductive trail of successes that leads to a catastrophic end. The first of these, I argue, was the overkill of big game late in the Old Stone Age.

Ancient hunters who learnt how to kill two mammoths instead of one had made real progress. Those who learnt how to kill 200 — by driving a whole herd over a cliff — had made too much. By about 10,000 years ago, most people on Earth had ruined hunting as their main way of life. Some escaped from that trap by the discovery of farming, only to repeat the pattern of overconsumption on a grander scale, as many of the world's most creative civilizations wore out their welcome from nature and collapsed.

The Sumerians of early Iraq, arguably the world's first full-blown civilization, had developed large-scale irrigation by 3000 BC. For several centuries all went well — the Sumerian people and their dozen cities grew as the agricultural base expanded, as canals and ditches led more and more water to the thirsty land.

But what the Sumerians didn't know is that groundwater nearly always holds some mineral salts, and these become concentrated over time by irrigation: the water evaporates; the salt stays behind in the land. By 2000 BC, Sumerian scribes were writing that the fields had "turned white"; the very thing that had built their society turned their farms into saltpan, leaving the mud-brick ruins of their cities standing in a wasteland of their making.

The same problem afflicted many other parts of the world, and is still degrading arid regions of North America, Asia, Argentina, and Australia to this day. Farming also tends to wear out land by deforestation, erosion, and nutrient loss — troubles that beset the Greeks, Romans, Maya, and many more.

Urbanization is another common trap. A small village on good bottomland beside a river begins as a rational and seemingly harmless settlement pattern. But as the village grows into a town and then a city, the best land disappears beneath buildings, and farmers are driven onto marginal soils.

Some ancient peoples, among them the Maya, made this elementary mistake; others, such as the Incas and Egyptians, were more farsighted. Modern societies, especially in North America, and now Asia, are behaving like the Maya, allowing Los Angeles, Vancouver, and Shanghai to turn cropland into industrial parks, suburbs and shopping malls.

Societies often make things worse than they need to be by falling victim to what anthropologists call "ideological pathologies" — self-destructive delusions, usually religious in nature. The mini-civilization of Easter Island, for instance, eventually wrecked its whole ecology for the sake of its statue cult. The last tree came down to put up the last colossus. The bare earth then washed or blew away, leaving hunger, war, and death.

Our present faith in an ill-defined material progress and our capitulation to the market forces that claim to drive it (the very forces that turn fields into parking lots and forests into paper towels) may not seem religious, but is hardly less dangerous or delusional. When, how, and above all why did we start believing that the stock market must run the world?

In the past, the cycles of rise and fall were regional. As Babylon died, Rome grew; as Rome fell, the Maya rose; and so on. Setbacks were local; the experiment of civilization carried on elsewhere. But when one region, Europe, came to dominate the rest of the world, and — strengthened by the wealth and food staples of the civilizations it conquered — to industrialize, the graph of human impact shot skywards.

In 1492, when Columbus sailed, there were about 400 million people on this planet. It had taken us all of our existence to reach that number. But since 1492 — a matter of only seven lifespans of 70 years — that total has multiplied by 16 times.

The bets our ancestors unwittingly placed when they invented civilization now rest on a single high-stakes throw. We have in effect one big civilization, feeding on the whole world at such a rate that we can observe the exhaustion of natural capital within our own lifetimes, whether it be the loss of wildlife, clean water, coral reefs, rainforests, or topsoil. We are cutting old-growth trees everywhere, we are irrigating everywhere, we are mining and fishing everywhere. And no corner of the biosphere escapes our haemorrhage of waste. As each year goes by, the world loses an area of farmland greater than Scotland to erosion and urban sprawl, while 70 million extra human mouths must be fed.

Some years ago, I called civilizations "pyramid schemes," partly because they build pyramids (costly but unproductive projects that may take the form of colossal statues, extravagant tombs, sumptuous temples, office towers, or missile shields) but mainly because civilizations often behave like "pyramid" sales schemes: thriving only while they expand, paying the present by stealing from the future, collapsing suddenly in political and environmental bankruptcy.

The creation of imaginary worlds to comment upon the real one has long taproots in mythology. The tales of Icarus, Prometheus and Pandora illustrate the risks of being too clever by half, a theme also known to Genesis. Perhaps the most insightful ancient story of this kind — particularly as it comes from a civilization that had suffered collapse — is the "Rebellion of the Tools" in the Maya creation epic, the Popol Vuh, where human beings are overthrown by their farm and household implements:

"And all [those things] began to speak... `You... shall feel our strength. We shall grind and tear your flesh to pieces,' said their grinding stones... At the same time, their griddles and pots spoke: `Pain and suffering you have caused us... you burned us as if we felt no pain. Now you shall feel it, we shall burn you.'"

As the Cuban writer Alejo Carpentier pointed out, this was perhaps our first explicit warning of the threat in the machine.

Such warnings became common in the 19th century when, for the first time ever, wrenching technical and social change could be felt within a single lifetime. In 1800 the cities had been small, the air and water relatively clean — which is to say the water was more likely to give you cholera than cancer. The sound of machinery was almost unknown. Nothing moved faster than by wind or limb. A person from Shakespeare's day, from 1600, transported to 1800 could have made his way around quite easily.

The facts really don't seem to matter anymore. How else can we explain the re-elections of Tony Blair and George Bush?
But by 1900, there were motorcars on the streets, and electric trains beneath them; movies were flickering on screens; and Albert Einstein was writing his Special Theory of Relativity.

Early in the 19th century, Mary Shelley pondered the new science with her Frankenstein. And Charles Dickens gave the social costs of industry a scalding and prescient critique in his novel Hard Times, asking whether "the Good Samaritan was a Bad Economist" and foreseeing the new religion of the bottom line: "Every inch of the existence of mankind, from birth to death," Dickens wrote in 1854, "was to be a bargain across a counter."

In his 1872 novel Erewhon (an anagram of nowhere), Samuel Butler created a remote civilization beyond the mountains of New Zealand that had industrialized long before Europe, but where the side effects of progress sparked a Luddite revolution.

The great danger, wrote an Erewhonian radical, was not so much the existing machines as the speed at which they were evolving: If not stopped in time, they might develop language, reproduce themselves, and subjugate mankind.

Butler was sending up Darwinism here, but the anxieties stirred by the panting monsters of the Steam Age were real enough. Years before he became Queen Victoria's favourite prime minister, Benjamin Disraeli had anticipated Erewhon's fears in his novel Coningsby: "The mystery of mysteries," he wrote in 1844, "is to view machines making machines, a spectacle that fills the mind with curious and even awful speculation."

The faster the hands began to move on the clock of progress, the more writers and thinkers began to ask themselves Paul Gauguin's question: Where are we going? If so much was happening so quickly before their eyes, what might happen in the future? Butler, H.G. Wells, William Morris, Richard Jefferies, and many others developed a new literary form that could present their imaginings to a broad reading public: a blend of fantasy, satire, and allegory that became known as the "scientific romance."

In The Time Machine of 1895, Wells sent a traveller to a distant future where the human race has split into two species. The Eloi, a sybaritic upper class, live brainlessly on the industrial toil of the underground subhuman Morlocks, never guessing that the latter — seemingly their slaves — are in fact raising them for meat.

In his novel, News from Nowhere, William Morris dreamt up a post-industrial New Age — a utopia of honest workmanship, good design, and free love — from which he attacked the first great wave of globalization, the World Market ruled by the steamship, the telegraph, and the British:

"[A]rtificial necessaries... became, under the iron rule of the aforesaid World-Market, of equal importance... with the real necessaries which supported life...

"To this `cheapening of production,' as it was called, everything was sacrificed: the happiness of the workman at his work, his most elementary comfort and bare health... His life, in short, did not weigh a grain of sand in the balance against this dire necessity of `cheap production' of things, a great part of which were not worth producing at all... The whole community was cast into the jaws of this ravening monster, the World-Market."

The 1890s. Or the 1990s? While we may learn from the past, we don't seem to learn much. That last generation before World War I — the time of the young Einstein and of Joseph Conrad's terrorism novel, The Secret Agent — was in many ways a time like ours: an old century grown tired; a new century in which moralities and certainties were withering, mad bombers were lurking in the shadows, while industrialists declaimed from their mansions that unfettered industry would bring a glittering future to all.

The dystopian writers sensed that change was running out of control and began to fear that, with the might of industry, mankind had found the means to suicide. They saw jingoistic nation-states equipped with high explosives and steel warships; they saw social exploitation and vast urban slums; chemically contaminated air and water, and civilization conferred on so-called savages through the barrels of machine-guns.

What if those guns were turned not on Zulus or Sioux Indians but on other white men? What if the pollution and degradation of the slums caused degeneration of the human race? What, exactly, was the point of all this economic output and activity if, for so many people, it meant deracination, misery, and filth?

By the end of The Time Machine, Wells's Traveller sees "in the growing pile of civilization, only a foolish heaping that must inevitably... destroy its makers in the end."

Many say that we stand here, a century later, to prove those gloomy Victorians wrong. But do we? The dystopian writers may have been wrong on the details they imagined for the 20th century, but they were right to foresee trouble. Just ahead lay the Great War and 12 million dead, the Russian Revolution, the Great Slump — leading to Hitler, the death camps, the Second War with 50 million dead, the atom bomb. And these in turn to the Cold War, the greatest squandering of human and natural wealth in history. To say nothing of the Korean War, the near-fatal Cuban Missile Crisis, Vietnam, Cambodia, Rwanda. Even the most pessimistic Victorian might have been surprised to learn that the 20th century would slaughter more than 100 million people in its wars — about half the entire population of the world in Roman times.

The Victorian scientific romances had two modern descendants: mainstream science fiction and profound social satire set in nightmare futures. The latter includes several of the past century's most important books: Aldous Huxley's Brave New World, George Orwell's Nineteen Eighty-Four, J. M. Coetzee's Waiting for the Barbarians, and a number of post-nuclear wastelands, of which Russell Hoban's Riddley Walker has to be the masterpiece.

With the nuclear threat fading (maybe), modern apocalyptic novels have concentrated more on the whimpers than the bang at the world's end. There has been a revisiting of concerns first raised before Hiroshima, especially the unforeseen risks of new technologies, and how our species might conduct itself so that we do not breed, poison, and murder ourselves to extinction on the one hand, or abandon our humanity for antlike order on the other.

Perhaps the most disturbing aspect of Brave New World was the good case Huxley made for the devil of order — a case harder to answer today than in 1932. Consider this homily delivered to the outsider called the "Savage" by the world ruler, extolling genetic selection, Pavlovian conditioning, and mind-numbing hedonism:

"A happy, hardworking, goods-consuming citizen [is] perfect... Otherwise the wheels stop turning... You're so conditioned that you can't help doing what you ought to do. And what you ought to do is on the whole so pleasant... that there really aren't any temptations to resist. And if ever, by some unlucky chance, anything unpleasant should somehow happen, why, there's always [the drug] soma... to make you patient and longsuffering... to give you a holiday from the facts."

In 1932, real soma hadn't been invented; now we have it in Prozac, Zoloft, and the like. The facts really don't seem to matter anymore. How else can we explain the re-elections of Tony Blair and George Bush? About half the adult population is now on antidepressants, and many of those who aren't still soak them up in drinking water from the Great Lakes and the Thames.

Meanwhile, the clanking monsters of Erewhon have taken subtler forms that threaten the entire biosphere: climate disruption, toxic waste, new pathogens, nanotechnology, genetic engineering.

One of the dangers of making up a nightmare future is how depressing it is when you get things right. About a dozen years ago I began work on my novel A Scientific Romance, a title I chose to acknowledge the Victorians, and because my theme was our culture's heady romance with science.

For satirical purposes I made what I thought were wild extrapolations from things in the news. I had a character die of mad cow disease, thinking that in the final draft I would probably have to kill her off with something less farfetched. By the time the book was published in 1997, dozens of people really had died of mad cow.

Other elements of the satire — climate change that turns wintry London into a tropical swamp, a race of genetically modified survivors, and a GM grass that doesn't need mowing because it has the self-limiting properties of pubic hair — no longer seem quite the funhouse mirrors they were when I began.

Just lately something more specific came to haunt me. In the jungly ruins of London, my protagonist finds a street blocked off and buildings fortified with concrete slabs. Here, he deduces, an embattled British government must have spent its final days in the 2030s. Only last year I read in the newspaper that the Blair government actually has plans to surround the Houses of Parliament with a 15-foot concrete wall and razor wire.

I don't want to be a prophet, and I certainly don't claim to be. It doesn't take Nostradamus to foresee that walls will go up in times of crisis — though the thickest walls are in the mind. A telling feature of the real mad cow disaster was how long the British government did nothing except hope for the best.

Hope may be a virtue, but it has its risks. Hope drives us to invent new fixes for old messes, which in turn create ever more dangerous messes; hope elects the politician with the fattest empty promise; and as any stockbroker or lottery seller knows, most of us will take a wild punt over prudent and predictable thrift. Hope, like greed, fuels the engine of capitalism. And so we all conspire in the upward concentration of wealth that ensures there can never be enough to go around. In the past it was only the poor who lost this game; now it is the planet.

But the world has grown too small to forgive us any more big mistakes. The species that has lately brought the Earth atomic war and nuclear waste, DDT, thalidomide, mad cow disease, Chernobyl, and the Bhopal chemical spill must recognize itself for what it is: clever but seldom wise. Put baldly, we are not as smart as we think we are. If Homo sapiens is to survive the accumulating consequences of its half-evolved intelligence, it must become aware of its habitual shortcomings, like drivers who keep their speed within their skill.

Our greatest experiment — civilization itself — will succeed only if it can live on nature's terms, not Man's. To do this we must adopt principles in which the short term is trumped by the long; in which caution prevails over ingenuity; in which the absurd myth of endless growth is replaced by respect for natural limits; in which progress is steered by precautionary wisdom. This ideological shift is the most urgent task for science and society, for professors, politicians, priests, and writers.

What we humans — with our Easter Island-like faith in the bigger, the better, and the more complex — have naively called "progress" is now moving so quickly, and with such unforeseeable consequences, that its promises can no longer be taken at face value.

Instead of hoping for the best, we have to imagine the worst — and by doing so strive to forestall it.

August 6, 2006 at 05:06 PM in Internet evolution | Permalink | Top of page | Blog Home

The worldwide whatever

TheStar.com - The worldwide whatever

Aug. 6, 2006. 07:36 AM
DAVID OLIVE

"Legend has it that every new technology is first used for something related to sex or pornography. That seems to be the way of humankind."

— Tim Berners-Lee, inventor of the World Wide Web

Last week, Playboy Enterprises, Inc. teamed with a Toronto-based specialist in gambling software to announce the launch later this year of the first Playboy-branded online poker website.

CryptoLogic Inc.'s president, Lewis Rose, lauded Playboy as "one of the world's premier entertainment brands." And Christie Hefner, CEO of Playboy, blew an air kiss Rose's way, heaping praise on his firm's "technical and industry strength."

In the United States, where online gambling is illegal but thriving, federal legislators now attempting a crackdown on the illicit industry might see the deal differently — as the partnership of a porn purveyor with a firm exploiting another of man's primordial weaknesses.

Fifteen years ago today, Tim Berners-Lee launched the World Wide Web with a noble vision for it as "a force for individual, regional and global understanding."

It's a safe guess that the great majority of the more than 1.1 billion people who now use the Web are more in tune with Playboy's vision of it than Berners-Lee's. For them it's about searching for a job or a new-home listing. Making a last-minute mortgage payment online. Comparison shopping for Advil at Walmart.com and Walgreens.com. Making arrangements for a trip to Disney World, including a stop at Lavalife.com to check out potential travelling companions. Downloading a screensaver of the cutest Coldplay band member. Filling out a collection of limited edition Hummels. Or ogling porn sites and visiting chat rooms — the "killer application" that drove Web-surfers to the first "cybercafés" in the early 1990s.

The Web has shrunk Marshall McLuhan's global village into a town square. Its most intimate manifestation, perhaps, is MySpace, a hangout for 100 million people, many of them teens who share photos with friends and exchange history-class horror stories.

The Web phenomenon of "social networking" has yielded scores of websites where people with common interests daily congregate, including Connect. ee for the Estonia diaspora; Reunion.com, where 25 million users re-connect with friends and family; and VampireFreaks.com, a seven-year-old Web community of 550,000 mostly teen-aged "cybergoths." Long-time members are granted access to The Dungeon, where they can view each other's buttocks. Possibly this is what George W. Bush had in mind when he warned of "children living, you know, in the dark dungeons of the Internet."

The mostly prosaic uses of the Web can only be a disappointment for Berners-Lee, a self-effacing man nonetheless infected with his share of that geek high-priesthood conviction that he's on a mission to refine our civilization, in ways we technophobes can't quite understand.

Just the same, Sir Tim (he was knighted in 2004) and his collaborators on the nascent Web project back in 1991 succeeded in creating a means by which their aspirations for a world less plagued by conflict, disease, and ignorance might yet be achieved.

In Boston, the dogged Sir Tim, now 51, is now at work at the Massachusetts Institute of Technology (MIT) on another potential triumph. Dubbed the Semantic Web, it aims to develop a "thinking" computer network that gathers, with a minimum of instruction, copious amounts of vaguely related data worldwide.

Cleverly interpreted, such a data accumulation could demystify the most stubbornly misunderstood diseases, or "connect the dots" of terrorist-group activities — a task beyond the abilities of intelligence agencies who so abysmally failed before the terrorist attacks on New York, Washington, Bali, Madrid and London.

Computers read but can't manipulate the billions of bytes of information out there. But with "global semantic data," says Berners-Lee, "you'll be able to combine the data you know about with other data that you didn't know about.

"The big challenges such as cancer, AIDS, and the drug discovery for new viruses require the interplay of vast amounts of data from many fields that overlap — genomics, proteomics, epidemiology, and so on. Some of this data is public, some very proprietary to drug companies, and some very private to a patient."

The challenge for Berners-Lee and his MIT colleagues is to develop computer programs that protect propriety and personal information while gathering and manipulating it all the same, to make trailblazing connections across hundreds of fields, encompassing everything from regional weather patterns to racial origin to household finances and job vocations, in order to determine predictors of disease incidence or avoidance.

"Our lives will be enriched by this data," Berners-Lee explained in a 2004 interview, "which we didn't have access to before, and we'll be able to write programs that will actually help because [the computer will] be able to understand the data out there rather than just presenting it to us on the screen."

Many of us would settle for changing the world just once a lifetime, as Berners-Lee did on Aug. 6, 1991. The Web came into being that day when, at age 36, the soft-spoken English computer programmer at a scientific think tank in Geneva put his first "Web" site onto the Internet, thus creating the World Wide Web, a term he coined.

That first website explained the set of Web protocols, of which Berners-Lee was the principal author, and by which millions of pages of data stored in far-flung computers worldwide could be retrieved with relative ease for the first time.

Among the most important acronyms of all time, the protocols HTTP, HTML, and URL (see sidebar this page) transformed the three-decade-old Internet from a repository of arcane technical data into the most powerful tool of today's Information Age.

Like running water, the Web is now a ubiquitous utility as familiar as the phone and cable companies that provide access to its congeries of 98 million websites (up from 50 in 1992). Websites are maintained by the Prime Minister's Office and comedy-club booking agents, by blue-chip corporations and local scrap yards, advocacy groups like Amnesty International and the Sierra Club, and possibly your neighbourhood church and pub, eager to post their calendar of choir practices and darts tournaments.

Not to overlook the estimated 30 million sites operated by "bloggers" — online diarists, or "Web loggers," who carry on about the perfidy of the Bush administration or its detractors, fly-fishing techniques, or updates of the Henderson family's progress, complete with holiday snaps, as it retraces the 18th-century trade route of the coureurs de bois.

Last year, Canadians purchased close to $40 billion dollars worth of merchandise online. Canadian households viewed 1,373 Web pages and spent 28 hours online each month. And that doesn't include Web surfing in the workplace.

The global count of Web searches worldwide is now 5.7 billion per day. For many of us, the Web is the first place to look for weather, travel and financial information and, thanks to Google Maps, the exact location of the dinner party you're to attend tonight.

`The information superhighway will... open up a huge opportunity to waste your time'

Harold Geneen

1970s management guru

The world's embrace of the Web is invariably described as unusually rapid. The widespread acceptance of the telephone took some 70 years; of cars, 60 years; of passenger aviation, 70 years; of radio and television, 30 years each; of microwave ovens, 28 years; and of VCRs, 35 years.

But the first "Internet cafés" appeared in London, Toronto and Helsinki just three years after Berners-Lee posted his 1991 manifesto proclaiming the newborn Web to be "an easy but powerful global information system."

And in the comparatively brief decade or so since the Web became a commercial medium, with the emergence of Amazon.com, eBay Inc. and other Web vendors in the mid-1990s, two-thirds of North Americans, or 227 million of us, became regular Web users.

Similarly startling were the early predictions made about the Web's certain impact.

Medical and other scientific discoveries would occur at a breakneck pace. Abroad, tyrannical regimes would succumb to new leaders empowered by information disseminated from freedom-loving societies, while at home political and corporate governance would be sanitized by thorough scrutiny from the proliferation of both revelations of wrongdoing and of the independent watchdogs (as political bloggers style themselves) who dug them up.

Traditional stores would be killed off by e-commerce, as computer-mouse "clicks" triumphed over "bricks." The mainstream media would be supplanted by Web broadcasts and electronic publishing of books, newspapers, and magazines.

"Commerce in the next decade will change more than it's changed in the last hundred years," Jack Welch, CEO of General Electric Co. and one of the globe's most respected management gurus, declared in the late 1990s.

Even earlier, Hugh McColl, CEO of Nationsbank (now Bank of America), said the Web "is like a tidal wave. If you fail in the game, you're going to be dead."

Bill Gates, chagrined that he had initially underestimated the Web's impact, said, "The Internet is only surpassed by mental telepathy."

The Web's usefulness is, of course, undeniable. But seldom has the significance of a major innovation been so exaggerated.

The industrialized world was primed for the Web well before it was launched. The Internet, of which the Web is something of a mere application, was 20 years old already and largely built, and personal computers were widespread in homes