Telecosm - Ike Elliott

Patent Pigs Join Forces

The Wall Street Journal reports that several of the largest patent holders are joining together to try to defend themselves from patent lawsuits, in part by acquiring potentially dangerous patents before they can be used against members of the group.  The group is called Allied Security trust, and initial members are rumored to be Verizon Communications, Google, Cisco, Ericsson, and HP.

These companies are some of the biggest patent-holders around.  Why are they worried about being sued for patent infringement?  Can't they just agree to cross-license some of their intellectual property when they are faced with a particulary scary or expensive patent lawsuit? 

They are afraid of patent trolls, such as NTP (who won $612M in a settlement with Research In Motion).  Sometimes, the patent-holder that is suing you is not interested in getting a license to your other technology.  Sometimes, they just want your money.

Patent lawsuits have been growing, as shown by research by Michael Meurer and James Besson of Boston University, in this research paper.  Here is a chart from their paper showing the growth in patent lawsuits from 1984 through 1999:

Okay, so that's interesting, but the data runs out 9 years ago.  What has happened since then? 

The Coalition for Patent Fairness says this about that:

"Nationwide, the number of patent litigation cases more than tripled between 1990 and 2007, and the number of defendants sued for patent infringement quadrupled, with a total increase of +404%. In 2007 alone, there has been a 30% increase in patent litigation cases since 2006, fueled primarily by the rising number of suits filed in the Eastern District of Texas."

So, the spike in patent lawsuits has continued and is getting worse.  It's gotten so bad that even the big boys are worried about getting sued.      

Taking Advantage of Other People's Cameras

Lately, I've been catching up on reading Guy Kawasaki's blog, How To Change The World, and I ran across an interesting post about a UK band that played a series of concerts in front of closed-circuit security cameras as a cheap way to get videos done (and as a publicity stunt).  The story says there are over 13 million closed circuit television cameras in the UK, and that the band, "The Get Out Clause", was simply leveraging other people's cameras.

What gets my attention here is the 13 million CCTV cameras in the UK.  If there are that many cameras in the UK, how many are there worldwide?  The proliferation of cameras in recent years must be enormous.

Two big take-aways:

• You are being watched a lot more than you imagine.
• A lot of that video is going to end up on the Internet.

Reminds me of this online video clip from a surveillance camera watching a recent tornado approaching a building in Windsor.   

The natural outlet for this kind of thing is the Internet.  It kind of falls into the long tail, too niche to put on a cable "video on demand" library, but it is definitely something that people are interested in seeing.   There's got to be a way to monetize this.

More on Cost Allocation and Org Structure

I had a thought-provoking comment this morning about yesterday's post about telecom organizational structures and cost allocation, from a gentleman named Mark, countering my contention that in telecom, efficiencies gained through distributing authority and control can more than pay for efficiencies lost through redundant departments and systems.  Here are some excerpts:

"This bit about control gets over-played. Certain functions should be shared; it's a more efficient use of capital. The rub comes when managers won't do the hard work to understand the cost drivers; measure and accurately report them; and work across the table with their peers to jointly minimize, at the margin, all costs - not just the shared ones. Substituting organizational structure for good cost accounting practices is a smokescreen."

Mark makes a good point, that part of the job of a manager is to work together with other managers across departments and collaborate on cost reduction or new product development, and I don't think I gave that enough attention in yesterday's post. 

I can certainly cite examples where, as a line of business leader I had to rely on colleagues to help make the right decisions for the business, and where that worked well.  One particular area was where our business counted on an external department to do capacity planning and trunk installation in support of an application-layer service.  I think it would be silly to insist that my application-layer business unit needs to have its own circuit deployment department.

On the other hand, I can point to examples where relying on a central, shared department did not work nearly as well.  In one case, the same application-layer business unit relied on an external, shared IT department for all systems development.  The IT department served business units covering the whole gamut of services, from colocation, to wavelengths, to high-bandwidth long-haul transport services, to Internet access, to application-layer services.  The IT department faced the impossible task of fielding requests from all business units and from operations, and prioritizing those requests in the midst of a great deal of lobbying on the part of the requesters, while simultaneously trying to serve their mandate to implement all of these requests on common systems for each function (order entry, provisioning, inventory, billing, etc.).  The IT department was funded with a budget that defined their capacity, and a resource allocation committee of highly-paid SVPs, VPs, and Directors would regularly meet for hours at a time to try to figure out how to allocate the limited IT capacity. Lots of time and energy, and money, was spent in those meetings.

Departments soon sprouted "program managers" whose primary function was to make sure that the IT group followed through on committee decisions to fund a particular project.  More time and energy and money spent.  The resource allocation committee sometimes changed their mind about priorities (suprise!) and the IT group was asked to change course, leaving half-finished projects and hoping to get back to them, someday.  Definitely a sub-optimal arrangement, in my view.

Of course, many business unit leaders don't have the experience or time to understand all of the ins and outs of information technology, so it won't always make sense to give each business unit their own IT department.  And some systems should be shared, and there should be some synergies by developing experts in certain systems and software and re-using those experts across multiple business units. 

So, is there a good alternative to the resource-allocation approach?  I can think of one potential solution: give each business unit their own budget, their own P&L, and allow each business unit to decide how much of their budget they want to spend by hiring the shared IT group to build a new wrinkle into the billing system, or develop some of the systems in support of a new product.  If the central IT group is over-subscribed, they need to develop more capacity or outsource the project.  Price competition can be introduced by allowing competitive bidding from external IT shops.  Yes, you will get some proliferation of redundant systems that way, it is a trade-off, for sure, but you also get the benefit of freeing hostage business units to do what they think is right to meet their business goals.

There are other approaches as well.  I only bring up this example of IT as an example of how shared functions can generate more "hard work" for managers than can be justified.  In my experience, managers are often eager to "work across the table with their peers."  They just aren't happy about it when it is clear that the organizational structure is creating a great deal of waste... waste that they will pay for when it comes back to them as an allocated cost on their P&L statement. 

Telecom Organizational Strategy and Allocated Expenses

Sandi Mays has a great post on the Business Tools Blog this week, laying out the case against expense allocation across a telecom corporation's business units.  If you've spent time trying to manage a business unit in a telecom company, you will know exactly what she is talking about.   

If you are managing a business unit, It boils down to this:

1. If you don't control a cost element in your own department, you are either going to ignore it or you are going to spend precious hours trying to influence another department to bring that cost down. 
2. If you don't control enough resources to determine which new products to invest in, or which automation projects to launch, then you are either going to give up on getting your priorities served by other departments, or you are going to spend an ungodly amount of time making the case for your priorities to be served by other departments.
3. If your distribution channel is shared across multiple business units, then you are going to lay awake at night wondering if the sales force is giving your product line enough of its time and attention, and you are going to spend gobs of time making sure the sales force gives you a fair share.

Say you are managing a business unit, and you get your monthly profit and loss statement. How many of the cost line items are under your control?  If you don't control much, then you are a business unit manager in name only. 

Of course, the argument against de-centralization is often persuasive.  "We can't de-centralize IT, we can't decentralize operations, we can't de-centralize engineering, because we will lose the cost synergies we currently enjoy because of shared systems and shared departments."  For some businesses, the synergies from centralization may be significant and worthwhile, but in many businesses, at some point you spend all of your "synergy savings" on the inefficiency of cross-company "influencing"  and "infighting," and the scrapping for resources soon drains the life blood of the company: serving customers.

I've lived this.  I congratulate Zayo Group on deciding to de-integrate their company into three independent companies.  When in doubt, err on the side of de-integration and autonomy for your business units.   

Comcast Wins a BUNGL for Misleading Advertising

It's way too easy to pick on Comcast's marketing department, I know, but sometimes you just have to shine a spotlight on the idiocy.  Comcast is now running ads boasting that they have the "largest fiber optic network", and that their fiber optic network serves "ALL our homes."  Give me a break!

This "We already have a fiber-optic network serving ALL our homes" spiel is SO annoying.  So Comcast runs a fiber optic cable to the node somewhere near your home.  Big whoop.  SO DOES EVERY RESIDENTIAL NETWORK IN AMERICA.

This deserves a BUNGL in the worst way.  Everybody knows that Verizon's FiOS service runs fiber optic cable all the way to your house, and Comcast's service does not, and that Verizon's fiber to the home gives each customer much more potential bandwidth than Comcast's bundle.  That's why Verizon doesn't have to compress their HD channels as much as Comcast does, and why FiOS customers usually get higher Internet bandwidth than Comcast customers.

What burns me about this ad is that it disrespects the customer.  The very existence of the ad shows that Comcast believes their customers aren't smart enough to figure out that they are engaging in a snow job.   

Bottom line: customers are mostly interested in stuff that matters to them, stuff like real available bandwidth, uncompressed HD video, and high availability phone service.  Right now Verizon's FiOS is winning on all three of these measures that matter, and Comcast's only answer is the promise of an upgrade and some lousy FUD advertising about network design.

Congratulations, Comcast.  You are the first two win two BUNGLs!  I can't think of a more deserving winner. 

 

The Triangle of Discipline

In yesterday's post, I looked at one of my favorite shape-based strategy tools, Guy Kawasaki's famous 2x2 matrix on marketing strategy, which basically says you should sell something that has a lot of value to customers, and that if possible it should be something that your company alone can sell.  Today, we'll move from squares to triangles and draw from Michael Treacy and Fred Wiersema's classic 1995 book, The Discipline of Market Leaders.

The theory of the discipline triangle is that your company needs to make a deliberate choice about where it wants to be "the best in the world", or it risks losing focus and descending into mediocrity.  The authors contend that there are only three basic focus areas for any company:  Operational Excellence, Product Leadership, or Customer Intimacy (hence the three corners of the triangle of discipline).  Choose one and only one or resign yourself to being an also-ran in your industry.

Most of the big telecom carriers need to adopt the Operational Excellence focus, since they are selling a commodity and they need to be efficient and make sure that their costs are low in order to keep their prices in line with their competitors. This is especially true for wholesalers like Level 3 Communications. 

However, the effects of regulation on the telecom industry often skew the normal market effects that would ordinarily force a company to choose one corner over another as their primary focus.  As a result, it's harder to say where AT&T or Verizon or Qwest is focused...probably if pressed they would choose Operational Excellence, but sometimes they act more like they are focusing on Product Leadership. 

Other telecom players will sometimes focus on a single application or group of applications, sold as a service to their customers, and as a result they would probably choose a Product Leadership focus.  Often these players don't own their own infrastructure and are providing value-added services on top of the basic bit-pipe.  Google, for example, might choose to focus on Product Leadership instead of Operational Excellence.

The third category, Customer Intimacy, is often the domain of telecom consultants, system integrators, and certain kinds of telecom sales agents.  These companies get close to customers, spend a lot of time understanding their needs, and partner with them to create solutions, often from a re-usable toolkit of software, hardware, and carrier partners.  Most of the companies that focus on Customer Intimacy in telecom are not household names, but they have an avid and loyal following of lifetime customers.

Companies are often tempted to choose more than one focus, especially in telecom.  You tell your operations team to achieve excellence in service availability or efficiency, and turn right around and tell your sales team to get close to teh customer, and then tell your marketing and engineering team to dream up wonderful and unique products.  It's okay to ask each department to be the best that they can be...but it's important to know which focus area is going to get the bulk of your attention and your investment.

The Importance of Being Different

Guy Kawasaki has long been one of my favorite authors and public speakers.  He's full of witty stock sayings that help you remember key rules for how to define a marketing strategy or how to run a startup company.  I'm helping some clients develop a new marketing strategy right now, so I was reminded of a classic 2x2 matrix that Guy once did in a talk (and, of course, as a friend once told me, I'd lose my consultant's union card if I didn't trot out a 2x2 matrix every now and then). 

The thought behind this chart is pretty simple:  you've got to sell something that customers really want, and it helps a lot if you are the only one selling it.  For most communications companies, the first part, the "X-axis", is cake.  After all, most of us carbon-based life forms like to communicate, even from far away if necessary, and the forms and user interfaces and bells and whistles keep evolving.  So, telecom companies usually get a check mark on selling a product with value to a customer. 

The problem for most companies in the telecom industry is the second hurdle, the "Y axis" of Guy Kawasaki's chart. The first time a Harvard MBA asked me "What makes your product unique?", I wanted to hit him, because he had caught me being complacent about our business prospects, and I didn't want to admit weakness.  So, like most good managers I figured violence would be a good way to shut him up and make the problem go away.

Fortunately, I didn't assault the smug smart guy, and I eventually admitted that our business plan might be a little bit flawed in that one little teensy-weensy area.  The hard truth here is that if your product or service is not different from what everybody else is selling, then you are selling a commodity and you will eventually have to use price as a primary differentiator. 

Now, I know what you are thinking.  "Ike, it's not really that simple...I can think of all kinds of ways my service is different from my competitor's."  The key thing, though, is that these differentiators need to matter to your customer.  For example, if you are a national network operator and you are competing with a bunch of regional network operators, it might matter to some customers that they can do one-stop shopping with you versus buying from multiple regional guys.  But be honest with yourself...how many of your potential customers would skip the big price savings for the convenience of dealing with one carrier?  And, for the ones who are willing to buy services piecemeal, you are right back to competiting on price.

Lots of carriers are scared out of their minds of the "C" word.  They can't stomach being a commodity, and for good reason.  To thrive in a commodity business, you have to have to be really big and really efficient and embrace those values above all others.  Level 3 Communications talks a good game on this point, often saying that they know they are in a commodity business, and that they want to be the Fed Ex of telecom.  They have yet to achieve the Fed Ex vision, but at least they are honest, recognizing that what they sell is usually not unique.

For the rest of telecom companies, the ones that aren't big, don't have economies of scale, and aren't incredibly efficient, the differentiation question is harder to answer, and more important to answer, because the long-term survival of the company is at stake.      

Gauging Internet Growth

Rob Powell has an excellent post today on how the wholesale Internet access market is not necessarily a great proxy for how much the Internet is growing overall.  The bottom line is that the measurement you get depends a lot on where the measurement is taken.

Wholesale Internet access revenue derives from Internet transit charges, where a smaller Internet Service Provider (ISP) pays a bigger ISP for the right to send or receive traffice to or from the rest of the Internet.  All the little ISPs need to do this to avoid the cost of interconnecting directly with all of the other little ISPs.  Similarly, all the enterprises need to pay to connect their businesses to the Internet. 

As Rob points out, though, the flow of Internet traffic is not limited to these "transit" connections.  More and more Internet traffic is flowing through peering links.  Peering links are direct links between ISPs who agree to exchange traffic at little or no cost beyond the cost of the interconnection equipment and circuits.  Rob points out that the relative cost of peering has been dropping faster than the cost of transit, therefore more and more traffic is going through peering links instead of transit links.  Since there is usually much less revenue associated with peering than with transit, this Internet traffic can't be easily tracked by tracking Internet revenue figures.

Peering breaks down into two categories: public peering and private peering.  Public peering can be tracked through public web sites, but private peering usually can't be tracked.  The current hypothesis is that most Internet growth is happening on peering links, and that private peering is growing even more quickly than public peering, while public peering is growing more quickly than transit.

So, the good news for folks who want to see the Internet grow, bandwidth could be growing much faster than wholesale Internet access provider revenue.  The bad news: the growth of peering means that a lot of that Internet growth can't be monetized by the wholesale Internet access providers.

Skype 4.0 For Windows Places Bigger Bet on Video

Skype launched a beta version of their new Skype 4.0 for Windows software this morning with a worldwide conference call.  Skype calls the new 4.0 beta a "major redesign" of the user interface to try to make the client software easier to use, and to upgrade the video quality in the client. 

What's new? The most impressive work centers on improved video quality.  The video capability is truly outstanding, taking advantage of a larger window size, and an improved user interface lets you start a video call with a single click.  Skype uses an adaptive video codec that adjusts the amount of bandwidth used to the capacity of your Internet connection, so a video call can use as little as 48 Kbps, but the video really starts to look good at about 300 Kbps.  Skype is clearly trying to ride the momentum of a growing base of video callers, saying that the percentage of calls carrying video has grown from 8% three years ago to 28% today. 

One of the questions on the conference call asked "Why do you think video will take off with VoIP, when it clearly hasn't with 3G video calling?"  Michael Bartlett, Director of Windows Product Management at Skype, answered by saying that the mobile phone form factor doesn't lend itself to video calling as well as a desktop or laptop computer, and that Skype's own data show that video is taking off, again citing that 28% of calls carry video.  They clearly expect that percentage to grow.

The new software has also made a number of other improvements to the user interface, also taking advantage of greater screen real estate.  It is now easier to find friends or contacts, easier to start and manage conversations, and easier to share files with each other in a conversation.  Skype is eating deeper into the territory of Webex and the other web collaboration players.  

Skype hasn't set a hard date for launching the final public version, saying they really want to listen to users during the beta testing to "make sure this is the best piece of software we've launched in our history."

Skype says they "anticipate some criticism" as users adjust to the new software.  First impressions are good, though, and in my view it represents another step forward for Internet video in general, and for Skype in particular.

Why Network Nirvana is Elusive for Wholesale Internet Access Players

Sometimes, for Wholesale Internet access players, their business must seem like trying to fill a bucket with a hole in the bottom.  You sell more and more bandwidth, but every month, the price goes down for both new and existing customers, so some of the revenue keeps "leaking out" of your bucket.

Why does it have to be this way?  Why can't wholesale Internet access players just hold the line on pricing and enjoy rapidly increasing revenues? 

The answer lies in simple economic theory and market theory.

Wouldn't the laws of supply and demand mean that the skyrocketing demand for Internet bandwidth would result in increasing prices?  If the bandwidth world had a limited supply, then yes, big demand would result in higher prices for Internet bandwidth.  However, we don't live in a world with a limited supply of wholesale Internet bandwidth. Til now, bandwidth has been plentiful, and backbone bandwidth has gotten easier and easier to provision, as network equipment keeps growing in capacity and dropping in cost. 

In addition to the basic laws of supply and demand, we also need to look at market theory, especially the parts of market theory that pertain to competition.  What are the barriers to entry in the wholesale Internet access market?  Can just about anybody become a wholesale Internet access provider?

Until now, the answer has been yes, you too can be a wholesale Internet provider.  Cogent is a clear example of a wholesale Internet access provider that does not really own their own backbone network.  It didn't take a massive capital investment for Cogent to jump into the market.  It didn't take licensing any kind of restricted intellectual property.  Just buy a few routers and string them together with rented circuits, and you are in business.

The result of all of this easy market entry and ever-increasing supply of bandwidth is sliding prices.  Telecosm commenter Paolo Gorgo quotes Internap as having a 23% price decline for the year ending March 31, 2008.  Level 3's pricing declines may have been a little higher than that in 2007.

Will this situation ever change?  I think we have been seeing signs of change for the last two years.  The rate of price decline is moderating at the same time as bandwidth demand (in unit terms) is increasing.   Also, as prices continue to decline, opportunities for competitive differentiation among the wholesale Internet players who are still standing are increasing.  It is beginning to matter more if you own your own network, as fewer and fewer network providers are available to sell services to the smaller players.  It is likely that the next twelve months will see further consolidation among network providers, and that, in turn, will enable network owners to be less willing to enable smaller competitors by selling dark fiber and substituting peering for transit.  That, in turn, will deepen the divide been the "haves" and the "have-nots" of the network backbone world, allowing network backbone owners to set pricing at levels that can't be matched by non-owners, and then allowing backbone owners to reduce the rate of price compression.

The coming surge in bandwidth demand due to video over IP has been widely reported as the root cause of the continuing recovery of the wholesale Internet access market.  But it's the continuing consolidation of network backbones that will really lay the foundation for the surviving wholesale Internet access players to thrive.    

 

Internap's Internet Growth Rate

We've had a running debate on this blog about how fast the Internet is really growing, with Dan Caruso's Bear on Business blog usually taking the position that revenue and unit growth rates are higher, and yours truly taking the position that the Internet is growing really quickly but not as fast as some wish to believe.  Rob Phillips, of the Telecom Ramblings blog, has now waded into these murky waters with a thought-provoking post about Internap, saying that they might be a good proxy for overall growth in the wholesale Internet transit market, and that their 17% year-over year IP services revenue growth in 2007 is evidence of rapid Internet revenue growth.  Here are the stats from Internap's annual reports:

	2005	2006	2007
Internap IP Services Revenue ($MM)	$      99.8	$   104.4	$   122.2
Year-over Year Revenue Growth %		4.6%	17.0%

If you dig a little deeper into the company's annual reports and investor presentations, though, you will find that the company says:

"Our IP growth is faster than the market."

In fact, the company said in an investor presentation in August of 2007 that they think the compound annual revenue growth rate in the IP services market is 5% per year, based on Gartner data.  They updated that stat in an investor presentation in early June, 2008, now saying that the market is growing at 7% a year.

This reinforces the assertion I made in April, that Dan and others dispute:

"Last week found that the Internet is still growing at a brisk 50-60% rate, in terms of bandwidth utilization.  That is certainly not as good as the 250% to 500% rate predicted by some (as in a recent speech from John Chambers of Cisco), but it is still a rapid growth rate. 

The problem for the wholesale Internet service provider industry, though, is that revenue is not growing at a corresponding rate, because wholesale Internet access service prices are compressing at a rate that very nearly offsets all of the bandwidth growth.  So, for the provider of Internet backbone services, you get little or no additional money for providing 50% more capacity every year."

This condition of having price compression offset most unit growth has been dogging the wholesale Internet access business for many years, ever since the big Telecom meltdown.  That's the bad news.  The good news is that we are seeing signs, as Rob Powell points out, starting in 2006 and onward, that some wholesale Internet players are starting to post better performance.  Internap's 17% revenue growth in 2007 is a fine example.

Rob himself followed his Internap post with a post that does a good job of explaining why even Internap's numbers don't necessarily reflect the state of the overall wholesale Internet market. 

I expect that in April of 2009, I won't be able to make the same claim as I made in April of 2008, and we will finally be able to see that price compression is no longer erasing most of the gains from unit growth in the wholesale Internet access business.    

Music: Before Coldplay, There Was The Verve

British alternative rock band Coldplay released their new album, Viva La Vida or Death and All His Friends, this week, to great acclaim.  Reviewers are calling it amazing, thrilling, and winning.  I like what I have heard of it, too...it is a worthy addition to the band's growing collection.

However, I'm not going to do a big review of the new Coldplay album today.  Instead, I'm highlighting one of my older favorites: a band that I believe had a great deal of influence on Coldplay.  In fact, Coldplay lead singer Chris Martin has called this band's lead singer "the best singer in the world."  Which band am I talking about?

The band is The Verve, and the album is the outstanding Urban Hymns, released in 1997, the same year that Coldplay was formed.  I don't think The Verve gets enough credit for this groundbreaking album, the best of their collection.  Yes, lots of poeple have heard the super-hit, "Bitter Sweet Symphony," but most didn't really explore the album further, and the entire album is full of fantastic songs.  Some of my favorites are "The Drugs Don't Work,"  "Lucky Man," and the 15-minute marathon song, "Come On."

One interesting detail that a lot of people don't know about "Bitter Sweet Symphony":  the song used an Andrew Oldham Orchestra sample from the Rolling Stones' 1965 tune, "The Last Time", as the foundation for the song.  As a result, The Verve ended up having to give songwriting credit to Mick Jagger and Keith Richards, in addition to the credit for the lyrics to Richard Ashcroft, The Verve's lead singer and main songwriter. The Verve ended up having to give all of their royalties for the song to the company that owns the copyright for "The Last Time," so The Verve didn't really have a financial benefit from their mega-hit.  The band split up shortly after that. 

The band did re-form, though, and they were back in the studio working on a new album late last year, so we are expecting a new release from them.  Here's to a great comeback!

I highly recommend Urban Hymns, it gets five stars from me.  Check it out!

The Cogent Strategy

One of the key questions in any company's strategy is "What is our sustainable competitive advantage?" Cogent's CEO Dave Schaeffer had some interesting things to say about his company's strategy in an interview this week:

"Our advantage boils down to really four factors – the first two are balance sheet related and deal with how we acquired assets to build Cogent, but those will disappear as we consume that initial capacity, and will eventually go away."

Let me decode what he's saying about these first two "advantages" a bit, before looking at the rest.  The reference to balance sheet advantages that will eventually disappear refers to the fact that Cogent bought really cheap fiber optic cables from Level 3 back in the telecom recession of 2002, and eventually that capacity will be fully utilized and Cogent will be forced to buy additional capacity at higher prices.  Also, Mr. Schaeffer is referring to how Cogent didn't spend tons of capital to dig ditches and lay their own fiber, as Level 3 did, so Cogent isn't burdened with as much debt as Level 3.

This second thought is true enough, Cogent doesn't have as high a debt burden as their biggest competitor, but the source of that debt for Level 3 is also the source of one of Level 3's big advantages...Level 3's incremental cost of service per bit-mile is lower than Cogent's, simply because Level 3 owns the network.  Mr. Schaeffer raises an interesting question, though: if you burden Level 3's incremental cost per bit mile with debt payments, would Level 3's cost actually be higher than Cogent's?  I'll give a conditional answer:  If Level 3's debt-burdened cost per bit mile isn't already lower than Cogent's, then it is about to be, because as every day goes by Level 3's debt-burdened cost is diving faster than Cogent's, for these reasons:

• As Level 3 grows, they get to spread their debt service costs over a greater and greater number of bit miles.  Level 3 has stated that they expect their Internet backbone to grow by 75-80% in unit terms this year.  That means that they get to spread the debt service costs over 75-80% more bit miles this year. 
• Level 3's debt burden is about to shrink, as the company has said they expect to retire over $300M in debt next year, and may have additional opportunities to reduce their debt load.
• If we could know Level 3's true incremental cost per bit mile, without the debt burden, I believe we would find that Level 3's cost is already well below Cogent's, and improving more quickly than Cogent's, due to the fact that Level 3 owns the network and Cogent doesn't. 

So, Mr. Schaeffer is right to say that these advantages will disappear, and soon.  In effect, Mr. Shaeffer admitted that his company will shortly be paying a higher cost of goods than his competitors. No sustainable advantage there.

Mr. Shaeffer goes on to point to other advantages that he feels are more sustainable, deriving from the fact that he offers fewer products than his competitors.  He explains why it is better to have only 8 products as compared to "thousands" offered by its competitors:

"Those thousands of products come at a very high cost, consuming a huge amount of people and infrastructure.  A Cogent employee produces 20 times as many bit miles as a Level 3 employee."

Cogent's claim is that by focusing on fewer products, and by operating less of the infrastructure themselves, that their payroll costs and other overhead costs are lower than Level 3's, as measured on a cost per bit mile basis.

It may well be true that Level 3 carries a higher SG&A costs than Cogent, for now, though the claim of Level 3's costs being 20X higher than Cogent's seems exaggerated.  Perhaps I'll dive into that in more detail in a future post.  Meanwhile, let's just assume that Mr. Schaeffer is right to claim that Cogent does have lower SG&A costs and that the source of the efficiency advantage is the fact that Cogent has a smaller product catalog.  Is that really a sustainable competitive advantage?

If I were Cogent, I'd worry about how sustainable that SG&A cost advantage is.  Level 3 is steadily reducing SG&A costs this year as they gradually absorb and integrate their many acquisitions.  And, if Cogent is placing the right bet that their 8 products are the best and most profitable products to offer (a bet I wouldn't place), then couldn't a competitor winnow down their product line to achieve a very similar focus? 

The bottom line for me is that Cogent's CEO hasn't done a convincing job of articulating anything sustainable about his company's competitive advantage.  Yes, I do think that Cogent's customers probably do recognize some benefit from Cogent's focus on a narrower product line.  I just wonder if that benefit will be enough to continue to attract customers to Cogent when their price "advantage" has completely disappeared.

 

Cogent CEO Helps Ike Win Bet With The Bear

Interesting article in Telephony Online yesterday:  Cogent Throws Down Pricing Gauntlet.  Interesting for a bunch of reasons, but the most important one to me: because the company's CEO refuted Dan Caruso's single lame attempt to win our bet over whether wholesale Internet revenue experienced significant growth in 2007, in revenue terms, and whether the Internet as a whole was experiencing accelerating growth.  I said Internet revenue grew slowly in '07, and Dan said it grew more quickly, and we have a nice dinner riding on the outcome.  We've been throwing data at each other ever since in an online food fight that has left us both dripping with gravy and mashed potatoes.

Here's what Cogent CEO Dave Schaeffer said about why Cogent is cutting prices, yet again:

“We have seen Internet traffic growth slow over the past year as measured by a couple of references.  The rate of growth in percentage terms has slowed and that is because of a number of factors. The casual video and social networking sites that drive a lot of traffic are maturing and we have not seen the huge wave of displacement by professional video services that would cannibalize cable and satellite TV. Part of the new price points is to stimulate that business and new business in general.”

Back in April, Mr. Caruso claimed Cogent was proof that Internet growth was accelerating, in this post.  Here is a relevant excerpt:

"The only pure play public company that provides wholesale Internet access is Cogent. Here is a summary of their 2007 financial performance. Fantastic growth matched with rapidly growing EBITDA. If you look at their enterprise value, their investors seem to be thrilled with their performance. Cogent’s EBITDA multiple is 14.3x. Sound like resurgence is in full swing for them."

I responded with a post saying that Cogent isn't really a pure play wholesale Internet player because they also sell circuits connecting their customers to the Internet.  In any case, Cogent's business isn't looking so rosy right now. 

Of course, the performance of any one company can't be taken as a proxy for the entire wholesale Internet market, due to timing differences on pricing changes and operational performance of each company.  Two big examples are Level 3's operational problems of last year, and Cogent's recent suffering at the hands of Level 3's more aggressive pricing. 

The irony of the Cogent CEO's confession is that he might be wrong, and that at present the Internet may actually be seeing a surge in growth.  Level 3 is certainly predicting a healthy growth of 75%-80% in traffic on its Internet backbone this year, which does not represent any significant slowdown from recent years.  Why is Cogent's CEO complaining about a slowdown then?  Could it be that the company's notoriously aggressive pricing is no longer highly differentiated from their competitors?  Could it be that Cogent is losing market share while the Internet is continuing to grow rapidly?

My bet with Dan aside, I think Cogent is facing a difficult road right now.  The company does not have a broad product set, and therefore can't cross-subsidize from as many other products to boost their Internet product's lack of profitability.  Also, Cogent mostly buys network capacity in bulk from others and resells that capacity as higher-layer Internet access services, leaving Cogent vulnerable in a world where their suppliers are also their competitors, and where their suppliers are in a mood to raise prices for Cogent's supply on less-competitive routes.  I smell a profit squeeze coming for Cogent. 

Cheap VoIP Options: Skype

There is a lot of buzz flying around this week about cheap VoIP options.  Three of us bloggers covered Magic Jack on Monday (Jon Arnold, Doug Mohney, and me), and with the launch of the new iPhone on Monday, I covered a new iPhone VoIP-over-WiFi application, iCall, on Tuesday. 

iCall is by no means the only app that allows a mobile device to make calls over a wireless network.  Darren Loher commented on this blog that Skype works pretty well on a 3G network on a Windows mobile handset, and that iSkoot works well on his Blackberry. 

For today, let's take a closer look at how Skype stacks up against Magic Jack and against iCall.  Skype made its early splash as a software client that runs on your PC, allowing VoIP calls to other PCs with remarkably good voice quality, considering the calls were happening over an unmanaged IP network.  From there, Skype extended their service into the traditional phone network, allowing calls to be placed to regular phones and calls to be received from regular phones.  Skype also sells devices similar to the Magic Jack, allowing you to use a regular phone for Skype calling.  So, basically, Skype has just about everything you get from Magic Jack, and more. 

How much does Skype cost, though?  Here in North America, unlimited outbound Skype calling is $2.95 a month, and receiving an unlimited number of inbound calls on your own phone number is $2.50 a month (with a 12-month subscription).  Add these together for a cost of $5.45 a month for Skype service, which is quite a bit higher than Magic Jack (see the table below):

	Unlimited Domestic Calling, Monthly Recurring Charge, First Year	Unlimited Domestic Calling, Monthly Recurring Charge, Second Year	Inbound Calling Phone Number and Usage	Total Annual Cost, Year 1	Total Annual Cost, Year 2
Magic Jack	$ 3.33	$ 1.67	$  -	$ 40.00	$ 20.00
Skype	$ 2.95	$ 2.95	$ 2.50	$ 65.40	$ 65.40
Vonage	$ 22.91	$ 24.99	$  -	$ 274.89	$ 299.88

So, Magic Jack is a better deal than Skype, right?  As with most things, the answer is "it depends," because it is not exactly an apples-to-apples comparison.

First, Magic Jack reserves the right to show you advertising based upon the phone numbers you are calling.  Jon Arnold likens this to Google showing you advertising based on the content of your search terms.  It remains to be seen if people will want to put up with that kind of intrusion into their privacy.  Basically, when you are buying a Magic Jack service, you are selling your privacy for $25 in year one, and for $45 in year two and every year thereafter.  Me, my privacy is worth more than that.

Another disadvantage for Magic Jack: so far, it is just a VoIP phone service with a few standard residential features, and nothing more.  Skype, on the other hand, is comparatively feature-rich, with a bunch of other integrated features, like instant messaging, video, and the ability to run a Skype client on a number of different cellular handsets, so your Skype service is not tethered to your PC.

That brings us to the comparison with iCall, where Skype also wins in a head-to-head competition.  iCall is an app that only runs on the iPhone (so far), and only really allows you to siphon off some of your cell phone minutes to a WiFi network.  Skype's cellphone clients run on a wider variety of cell phones and the Skype application is again more feature-rich than iCall's.  iCall is free, hence its appeal, but like Magic Jack, iCall hopes to make money on you by charging advertisers for a priority listing on the iCall directory service.  So, there is no free lunch.

And to think that Vonage was once considered the low-cost VoIP provider!  Vonage is now over 4 times more costly than Skype, and over 6 times more costly than the first-year Magic Jack service.

In the end, Skype still gets my vote for the best value in this cheap VoIP space, because it doesn't compromise my privacy and has a better feature set.    

Cheap VoIP Service: iCall on the new iPhone

With yesterday's launch of the new 3G-capable Apple iPhones, VoIP over WiFi is getting a boost.  I still believe using VoIP over WiFi will be often be plagued with quality problems, but if you are really interested in conserving your cell phone minutes, you might want to check out a new iPhone app called iCall. 

iCall is a free VoIP over WiFi application for the iPhone, and you can download a beta version of it now.  Basically, it's a tool to save minutes if you are on a limited minutes cell phone plan.  Whenever you are within range of a WiFi network, you can elect to make outbound calls over the WiFi network instead of AT&T's mobile network, and you can elect to transfer calls that you have received on AT&T's mobile network over to the WiFi network.  When the call is on the WiFi network and not on AT&T's network, then you are not eating minutes from your cell phone plan's minute bucket.  

This is a lot like the T-Mobile "Hotspot @Home Talk Forever Mobile" service that won a BUNGL few months ago, except that it's free.  (That was probably the most controversial of the BUNGL awards...took a lot of heat for that one!  Needless to say, iCall won't be winning a BUNGL.)

How can iCall afford to give away domestic long distance and local phone service?  Good question.  The web site says this about that:

"Why would we give this to you for free? The answer is simple - iCall wants you to call the businesses who pay to be listed in our directory, and we'd also love to sell you a headset or dirt cheap international calling rates."

So, it's an ad play, supplemented by upselling on international long distance and accessory sales.  I hope they generate enough revenue from that to cover their costs, or there are going to be a lot of disappointed iCall users!

More on Magic Jack

Coincidentally, Doug Mohney over at FierceVoIP also posted on Magic Jack today.  He added a bit more detail to the business plan, that I didn't cover in my post: the company plans to sell advertising and reserves the right to tailor ads based on the phone number that you dial.

According to Mohney's post, Magic Jack is adding users at a rate of over 7,000 a day, faster than Vonage! 

Congrats to Envysion on winning a 2008 Apex Award!

A couple of monts ago I interviewed Matt Steinfort and Rob Hagens of Envysion, an up-and-coming managed video as a service company, based here in Louisville, CO.  This month, we got the good news that the Colorado high-tech community is starting to notice that Matt, Rob, and the team are creating something pretty cool in the Internet video space.  Congratulations to the Envysion team for winning the CSIA "Most Innovative Technology Product of the Year" for 2008! 

Cheap VoIP Option: Magic Jack

My friend Michael Remacle, who now runs business development for Vail Systems, suggested I do a post on Magic Jack, one of the truly inexpensive VoIP options out there for consumers.  No, I'm not talking about Level 3 CTO Jack Waters...though I understand how you might think that!  No, Magic Jack is a separate company that sells a really cheap consumer VoIP device and service.

Here's how Magic Jack works:

1. You buy a USB "magic jack" dongle for $40, which includes all of the fees for your first year of service.
2. You plug the USB dongle into a USB port on your PC.
3. You plug your standard, traditional analog phone set into the phone jack on the USB dongle.
4. You start to make and receive unlimited VoIP calls to and from any regular telephone.
5. You also get free voice mail.

So, it's basically $40 for your first year of service (including the USB dongle), and $20 a year for every year thereafter.  This computes to about $3.34/mo in the first year and about $1.67/mo for every year thereafter.  Cheaper than chotskis at a VON conference!

I have never used the service so I can't vouch for it.  It certainly is low-cost, though!

How can anybody afford to sell VoIP service so cheap?  After all, if you assume an average of 500 minutes of long distance per user, per month, then in the second year they are basically charging $1.67/500 = $0.00333 per minute of use.  That's well below current wholesale long distance prices, let alone retail pricing, so you do have to wonder how Magic Jack is selling phone service for so little.

Here are some theories on how Magic Jack can sell so cheap:

1. They are enjoying interest on the float, since they are collecting annual fees up front.
2. They are benefiting from some breakage from folks who buy the service but end up not really using it (so the average long distance minutes used per month is actually lower than 500 minutes).
3. They are gaming the reciprocal compensation system to get paid for some of their inbound calls (more on reciprocal compensation in a future post).
4. The cost of goods on their magic jack dongle is really tiny, like less than $5.00, so if you attribute $20 of the intial $40 payment as the retail price for the jack itself, then they are making really healthy margins on the cheap hardware.  (It would have been great to have a sub-$5.00 dongle 9 years ago...this would have come in real handy when we were searching for cheap bricks back then!)

Even with these benefits, though, it's hard to see them making much money at it.  Just another example of how it's hard to compete as a consumer VoIP service provider these days.  It's a good deal for consumers, though!   

VoIP Business Survey Responses Starting to Roll In

On Friday, I put out the call for responses from all business VoIP service providers to participate in a survey of this emerging space. The responses are starting to roll in, thanks to some help in spreading the word from Peter Radizeski at RAD-INFO, and from Rob Powell over at Telecom Ramblings. Many thanks to those who have already responded to the survey, including VoxBone, Vivid IP - LogiSIP, and Versature.

The survey responses will be published in early July. Please help to spread the word...the more responses we get, the better picture everyone gets!

Calling All Business VoIP Providers

A few days ago I posted a small roundup of business VoIP service providers (see "Four Different VoIP Business Models"), and I have had a bunch of comments and emails about that post, wondering why I didn't list any of a number of other examples of business VoIP service providers in that post.  The truth is, business VoIP providers are thicker than summertime flies in Maine right now, and there are many more than four different variations of VoIP business models.  Most of these companies are privately held, so they are harder to track than public companies. 

There is a real lack of comprehensive information about these companies, so I am proposing that we keep a public listing of these companies in a quarterly posting on this blog.  This could be a win-win for everybody:

1. The VoIP company gets a little more publicity, and I'll post email/phone/website contact information for each company on the list.
2. The blog's readers, the VoIP companies, and I get a more accurate view of how this market is developing.
3. I get to put interesting stuff up on my blog!

Here is how I propose it should work:

• If you are a VoIP company that focuses on serving businesses, email me (at ike@practiq.com) all the info you are willing to make public, hopefully including:
  1. company name,
  2. contact phone,
  3. contact email,
  4. web site URL,
  5. number of seats served at the end of your most recent quarter,
  6. Sales strategy: wholesale/retail/both,
  7. Sales geography: selected cities/national/international (list specific geographic focus if you wish)
  8. Distribution strategy: feet on street/telemarketing/retail stores/indirect channels (agents, etc.)
  9. QoS strategy: managed/unmanaged
  10. Do you sell Internet Access?
  11. Do you sell a service that allows your customer to run their own traditional PBX (often called a "trunk replacement" service)?
  12. Do you sell a service that allows your customer to run their own IP PBX (often called a "SIP trunking" service)?
  13. Do you sell local and long distance minutes?
  14. Do you sell hosted IP PBX services?  If so, do you own and operate your own IP PBX, or do you purchase acess to a wholesale IP PBX service?
  15. What is your average number of employees per customer site?
• Any info you don't want to share I'll just list as "DNR", or Did Not Report.
• I'll compile all of the responses I get in tabular form and post it once per quarter.  First posting will be in early July so the deadline for responses for the first posting will be June 26th. 
• I'll also do interviews with executives from this company list from time to time, and post them on the blog.

So, submit your info, and we'll get going on this!  If you are a Telecosm reader and know of companies who may want to participate in this survey, you can help by sending a link to this post to your contacts, so we can get as comprehensive a view of this market as possible.

Thanks!

   

Singapore's Telecom Utility Model

A few days agos, Tim Flavin suggested that the US needs to move to a telecom utility model in order to achieve the lower costs per Mbps enjoyed by consumers in other countries.  The basic idea is that in exchange for a guaranteed rate of return on investment a telecom infrastructure provider must permit any content provider to interconnect with them.

It turns out that Singapore is moving down a very similar path to the one proposed by Mr. Flavin, having issed an RFP last year to create a state-sponsored network that will bring fiber to every home and business in the country by 2015.  Of course, Singapore is hardly a good proxy for the United States...it is a tiny country measuring only about 253 square miles, with a population of 3.87 million.  It's a better proxy for the Seattle metropolitan area, really.

But there is something interesting going on in Singapore.  The plan is to create a single Netco that owns and operates the fiber optics, and a single wholesale Opco that owns and operates switches and routers.  The Opco has to sell services to any retail service provider that comes along. 

The government is giving a grant of $543M (US) to the Netco company to help with construction of the network.  Bids for the Netco and Opco roles have been received by the government, and they plan to select the Netco winner in the third quarter this year, and the Opco winner should be selected early next year.  It will be interesting to see how Singapore is doing on the international cost-per-Mbps rankings by 2015. 

Even if Singapore's plan is successful, it doesn't necessarily mean that the US should follow suit.  However, it would be interesting to see if individual US cities could create a similar plan, and get away with it.  Considering the lawsuits pouring out of the major incumbent telcos when cities tried to put up free WiFi networks, cities wanting to commission a telecom utility would face major opposition.

By the way, I first learned about Singapore's plans from an excellent post on Brough Turner's Communications blog a few months ago.  Check it out if you want to learn more.

Will a Utility Model Reinvigorate Lagging US Broadband?

In Monday's post about how US consumers pay 3 to 4 times more per Mbps than leading broadband countries such as Japan and France, I offered two reasons for our lackluster performance:

• Many of us are more spread out and more expensive to reach,
• The rest of us who live in high-density areas are victims of a lack of real price competition.

I had a comment from Tim Flavin, offering a theory that our regulatory policies in the US favor large incumbents and are designed to extract the most money from consumers instead of maximizing consumer benefit.  He goes on to say:

"For wired broadband we should go back to the utility model. The last mile provider is given a guaranteed rate of return on investment. In turn they must permit any content provider, like Netflix, 8x8 or an ISP to interconnect with them."

This is an idea that has been kicking around for many years now, based on the theory that there is a natural monopoly in parts of the network, despite the fact that most homes are now served by at least two network connectivity choices (a telco and a cable company). Still, I get the point: having two lumbering incumbents does not make for significant price competition.

Plus, many businesses have only one connectivity choice: the incumbent local exchange carrier.  That ILEC is often required to resell their plant to competitors on a wholesale basis, but with the rise in granted forbearance petitions at the FCC, there isn't much price competition there, either.  Network connectivity prices are actually rising in many locations.

So, we don't have enough competition in the local loop.  Is the utility model the answer? I admit I have my doubts.  To some extent the ILECs have been forced to wholesale their plant for twelve years now, and it hasn't produced meaningful price competition in the local loop.   

Still, there are those that hope a fiber-optic-based utility model will be more effective. Tomorrow we'll look at a country that is taking that approach, and we'll examine how they are structuring their telecom market. 

Why SIP Hasn't Won Yet

Brough Turner has a wonderful, succinct summary of why the Session Initiation Protocol (SIP) hasn't realized its potential, at least not yet.  Brough and I agree that peer-to-peer SIP is the best chance for the protocol to completely change communications as we know it.  Check it out!

Big Threat to Cable: Free Internet Content

Time Warner Cable leader Glenn Britt had an interview in the Wall Street Journal yesterday, in which Mr. Britt disclosed the fear that keeps him awake at night:

"I'm not too worried about the cable business, but I am about the whole entertainment economic ecosystem... If all of the programming goes to the Internet, and it's free, then there is a whole source of revenue that the entertainment business is not going to have anymore."

Mr. Britt is mourning the looming loss of the two-sided economic model, in which cable sells network connectivity along with content subscriptions.  Now, content creators are bypassing cable and going directly to consumers over the Internet, and in many cases they are offering their content for free, in exchange for advertising revenue.  Cable companies are worried that they are at a competitive disadvantage because they charge monthly fees for video content, while consumers can get the same content for free, elsewhere. 

Mr. Britt has good reason to be worried.  I remember sitting at dinner with some cable senior managers three years ago and warning that their video franchise was about to be disintermediated, and at that time I heard a lot of denial and disbelief.  Now, I think the threat is more obvious.

Why would a content creator turn down subscription money from cable distributors in favor of an advertising-revenue-only model?  Could it be that content creators think that cable marks up the price of their product too much, and therefore limits the audience size?  Could it be that content creators hope to reach a large audience through the Internet and drive higher ad revenue as a result?  Could it be that content creators are realizing they don't need to pay a middleman anymore?

Mr. Britt grieves over the poor entertainment industry and how it won't have as much money to invest in quality programming any more.  Maybe, deep down, he is really lamenting the fact that the cable video distribution channel has a new, lower-cost competitor.   

The Bear on Content

Dan Caruso's excellent Bear on Business Blog has teed up a topic near and dear to my heart: is content king of the network?  I had a post on the topic a few months back, and  I'm looking forward to seeing what Dan has to say.

Why is the US Falling Behind in the Broadband Race?

Residential subscribers in the Unites States pay about $12.60 per megabit of peak bandwidth capacity, according to the Organization for Economic Cooperation and Development.   By International standards, that's high.  We pay:

• over 4 times more than Japan
• over 3 times more than France
• over twice as much as the UK, Italy, and Korea

Wall Street Journal columnist Walt Mossberg cornered FCC Chairman Kevin Martin in an interview a couple of days ago, asking him why we are doing so badly, and Martin trotted out the standard answer:

"I think you do have to put in the context some of the demographics of the United States and some of the countries we are competing against...Because it costs a lot more to build out in more rural areas and people who live further apart… We have a history of averaging some of the cost to make it affordable for people in Montana."

Well, okay, that does explain some of it.  At least it explains why prices in rural America, and in sprawling suburbia, are higher.  It reduces your costs as a service provider if the people you serve are all conveniently located in apartment buildings downtown.

However, that doesn't explain why unregulated competitive carriers, who don't have to serve rural areas if they don't want to, and who can target the more lucrative sardines in the city, have to charge the poor sardines so much.  I mean, shouldn't there be some benefit from living in a thin-walled closet next door to an aspiring rock drummer?

Yes, there are taxes and subsidies that even competitive carriers pay, and supposedly those dollars find their way to rural carriers, but those taxes don't come close to explaining why prices in the US are massively higher than elsewhere.

When I look at why prices for high-density populations in the US are still so high, I think the reason is simple:  service providers charge so much because they can.  There is no other service provider out there undercutting them on prices, forcing a more aggressive pricing structure.   

It's either a triumph of pricing discipline among service providers, or it is an utter lack of real competition.  Either way, the American sardine is the loser.  Oh, and sorry about having to live beside the next Carter Beauford. 

Self Esteem is Overrated

I've been reading this book called When the Game is Over, It All Goes Back in the Box, by John Ortberg, and ran across some funny statistics:

"In one survey, 800,000 high school students were asked whether they were above or below average in social skills....Want to guess what percentage of students rated themselves below average? Zero Percent!  Furthermore, 25 percent of all students rated themselve in the top 1 percent!"

And then there are these gems:

• "88% of college professors rated themselves above average.  25% rated themselves as truly exceptional."
• "Another survey of two hundred sociologists found that half believed they would become one of the top ten sociologists in the world."

It makes me wonder about all those theories about the supposed self-esteem deficit in the nation's schools.  The theory goes like this: "If our kids just felt better about themselves, they would have the confidence to try more things, and try harder."  So, teachers are encouraged to lavish praise on students.

Some managers take this approach with their employees, too.  I have a problem with that.  Heaping more praise on students or employees that aren't really making the grade just exacerbates our built-in tendency for self-deception.  As Mr. Ortberg's stats say, most of us already vastly overestimate ourselves.  I suspect I do.

In business, taking this "everyone is above average" approach is a sure recipe for underperformance. 

Don't get me wrong...I love the idea of taking a positive, encouraging approach with employees, and I am all for good coaching.  The key, though, is to set clear standards for performance.  Then, you have to be consistent about applying that yardstick. 

Or, we could take the Scott Adams/Dilbert approach and go on living without a clue.