The computer in my lap has 12 connectors on it and supports two wireless protocols. In other news General Motors is considering the possibility of putting an audio input on the radio of some future model. They released a photo! How can that possibly be news worthy?

When you make something – a computer, a car, a website, a communication’s network, intellectual property rights scheme – one of your design choices is leaving some open connectors. Leaving open some options for other the customers to fool around with. What guides a designer, a business architect, in making those choices? Why do car makers tend to horde these options while PC makers tend to bleed open interfaces?

One driver for hoarding is value pricing; a few options (leather seats) are valued very highly by a small number of customers. If you left your car open to customization then 3rd parties could undercut you and selling the high margin options. For the car maker the after market is a competitor; and unlike the software business they lack network effects to lock-in their customers.

One driver for open designs is innovation; a highly open architecture allows the vendor to sample the long tail of creatives. Innovations the pop out of that space will often change the game. If you get in early and their network effects you get to grab elite positions on the power-law distributions that emerge. That leaves your competitors bewildered. The car market has a reasonably vibrant after market. Where in the software world we call them hackers in the car world they call them tuners. They do innovate, and the majors do capture those innovations. But it’s not at the scale you see in the PC world.

Presumably the idea that GM would provide an audio connector is news because people have so totally accepted that car makers horde most of the options. In that world, even this tiny bit of giving away is news worthy. Those who want access to the machine’s data bus will have to wait.

Makes me wonder if there is a disruptive move in the car business. Somebody gives up the hoarding and builds a business around empowering the after market. Something an emerging nation’s car maker might do.

This strikes me as a fine idea and good fun for all parties concerned. Nice.

My bank as recently decided they will charge an annual fee for the overdraft protection feature on my checking account. In the current low interest climate it’s been very very hard for banks to make a profit on their deposits sufficient to cover their costs. That has forced them into the uncomfortable position of having to raise fees. Their marketing departments have been very clever, and I don’t mean that in a nice way, about finding means to do that while avoiding being straight forward about it.

So it was with some interest that I read that the credit card industry captured an 18% increase in fees last year. You’d think that an industry that is, oh, 10 thousand years old and right in the sweet spot of our productivity improvements wouldn’t be growing like that. But what with deregulation it looks like usury is making quite the come back.

There is kind of a stack of points in the relationship with a customer where a firm spends and makes money. Looks something like this:

• Exceptional events, like an overdraft.
• Typcial transactions, deposits, check cashing, etc.
• Account Maintainance
• Account Setup or “Provisioning”
• Customer Acquisition, aka sales.
• Market Development

The firm can play lots of games with were in this stack it make v.s. spends money.

Some of the games played here are really obnoxious. I keep getting letters from one of my credit card companies that offers me %1.9 percent on balance transfers, but deep in the fine print it says that if I ever have an exceptional event the interest rate then goes to 29.8%. Included in the suite of exceptional events is any late payment.

It’s an interesting counter point to the discriminatory pricing games. There the seller would like to get a better model of your willingness to pay. In these pricing games the seller wants to create a haze of obscure pricing structure which makes it impossible for you to perceive what the price really is. Privacy is a two way street in all the negotiations.

One weird side effect of all this is that as the firms have begun to play this game better they have started to play a particular game that somebody who’s time is worthless can play to their benefit. The firm works to make a profit over all N layers in that stack. It is often willing to forgo revenue in the lower layers that it believes it will make up in the upper ones.

For example the cell phone companies bribe you to sign up, with a free phone for example, and then make the money back on the monthly fees and “exceptional” transactions. They also lock you in with n-year contracts.

If your not locked-in then your almost certainly able to benefit from being disloyal and regularly switching vendors. For example it’s very common for credit card vendors to offer short term cash back deals. 5% off all purchase for 2 months for example. Presumably if you switch cards ever few months you can maintain that cash back rate.

I wonder if they have worked out some way to damage your credit rating if you do that consistently.

John Robb has been in an entirely appropriate lather about Google Toolbar modifying the pages the user is visiting without the consent of the page author. He’s been trying various approaches to verbalizing his discomfort. Today he stumbles on a real good one

I don’t think that Google clearly thought through its decision to move to Web page modification.  If they succeed in nullifying the opposition to this, they will open the floodgates to Microsoft to rerelease its version of the concept.

Through modification of the browser,  Microsoft could put this on 1,000 times the desktops Google could with its toolbar.  Opposition to the concept is the only thing that is stopping Microsoft from doing it  today. 

It gets worse.  The basis of this modification  is search-based services.  If Microsoft is able to put a basket of search-based services into every Web page  most people  view with a browser (“search in situ” vs. the site based model), Google could be in real trouble.  It could quickly turn Google into Netscape, and I am sure Bill Gates knows this.

This is a bet the company decision.

Sound about right to me. There are days I think this industry is a memory less process.

When our play opens, in the 1960s, computers were housed in temples and represented a significant capital expanse for the organizations that housed them. In the 1970s the mini-computer allowed departments to play; and in the 1980s the personal computer allowed individual professionals to play. That trend made it reasonable to assume that computing was a democratizing force; something likely to drive more and more power into the hands of smaller and smaller individual units in the economy.

The data center crowd played a starting role, as villain, in the PC revolutionary’s version of the story. The PC disrupted their power. Bewildered their process, their budgets, their software, and their ability to set standards. Those of us working on the PC considered these folks to be the enemy; Luddites. In some some fairy tail versions of the story the play ends with their death. In the B movie version in the closing scene we see a guy scrapping their name off the office door; but then a few moment’s later he’s putting up a new name. That name is IT.

These IT folks have, in some organizations, regain a lot of their power over how the organization deploys it’s computing resources. The complexity of the Window’s solution and strong network effects around internal organizational tools such as calendaring and email created carrots and sticks that brought the modern in-house IT organization back to life. And then a number of enterprise software packages began to emerge that had one foot in a corporate data center an another on all the PCs of this or that class of professionals. Sales, HR, Purchasing, Document Managment, etc. etc. Many of these sport a centralized database function, which further concentrated power into the data center.

So, what is this. A cyclic process? Did we misread the story of the 60s, 70s, and 80s? Were is the power of the corporate CIO/IT organization going from here? I have an intuition, only that.

I do not believe the power is going to stop in CIO’s data center. I think it’s just passing thru. I think it’s headed up and into the net. There it will fall into the hands of a small number of players as the network effects emerge and cause condensation. Consider email, calendaring, HR, sales pipelines, etc. etc. none of these has a strong reason – beyond illusions of privacy – to remain parked in the company data center. I’ve observed at least four of sales groups at this point that run two sets of books, i.e. two sales pipelines. One in the internal system because they were required to, and another on some internet embedded service run by a 3rd party because it was simple, effective, better socialized, more “situated,” and extremely adaptive.

Pity the poor CIO/IT dudes; 30 years of fighting to get on top again and, if I’m right, it’s only a very short lived interval as the work moves up and out of the firm entirely.

What percentage of the expansion slots on PCs lie empty? 90%, 98%? That’s a lot of empty real estate! Who’s paying for that and why? Think of what all that empty real estate costs to create!

Slots and connectors create a set of options for the both the buyer and the market to play with. But why create those options if they are mostly not used? First let me work thru one explanation that I don’t find sufficient.

Options that don’t get used can be extremely valuable. For example, phones are almost never used call the fire department, but the option to make that call is still exceptionally highly valued. So, part of the answer is about risk. The empty slots lower the buyers’ perception of their risk. The slots as creating the option to solve problems; problems the buyer can not even name. That suggests that slots are more signal value and use value.

I don’t think that’s a strong enough value proposition to explain all this empty real estate. So let’s take another try; this time at the market dynamics rather than the individual buyer value.

Slots create options for the entire marketplace. In a sense they create the possibility that the market repair vendor errors. The slots a sign that the vendor is humble – i.e. willing to admit he can not do it all. But humble isn’t exactly right; the vendor is also signaling that he is generous. The slots say something about the abundance of value he is creating.

When the vendor creates a slot he’s relinquishing control over some amount of value creating energy implicit in his offering. At first glance that seems like an odd move on his part. Giving away the option to create value? Certainly the rational actor would horde those options. Presumably it is not just his humble nature that triggers this giving away.

That starts to get us closer to a plausible answer to the question of who’s paying for all this empty real estate and why?

Markets are not as simple as buyer v.s. seller! Most markets have a number of complementary players. It maybe we need to look these to find out who ordered the empty slots.

If the OS or CPU vendor is powerful he might force it. Both the OS vendor and the CPU vendor prefer an open hardware bus because it encourages a more commodity market in their complements. I suspect this is the key to puzzle. Microsoft/Intel ecology has so many empty slots. Other platforms have fewer. It’s no surprise then that the Apple keeps trying out product offerings with few or no slots.

In this model those slots are paid for by the hardware vendors to create a space of options who’s exercising creates value for the dominate market players, i.e. Microsoft and Intel. The landscape of empty slots is a substrate for a generative process, a process that adds to the network effect around their business model. Of course they are both so large that their business model is the industry’s business model.

Why do Macs have slots? I suspect that’s because the market expects it. That Apple garners little benefit from the slots, and it’s users don’t get much either. But it would be interesting to see statistics about how much of the slot landscape is filled in on both ecology. Of course Apple, like Linux does, benefits from the hardware vitality created in the Microsoft/Intel ecology so it’s a small price to pay.

The underlying idea in here is that the space of empty slots is like real estate. In an economic universe that implies that it serves an economic function. Typically that means somebody owns it. Somebody is maintaining it. Somebody it taking a tax off. Somebody benefits.

In the American story the huge swaths of unowned real estate that was left behind after European plagues wiped out the native american populations provided a very different dynamic from that seen in old Europe. All that land enabled made labor extremely valuable. The combination of ample options to move on, and high wages gave labor vastly increased freedom to experiment.

The same pattern exists on the landscape of empty slots. The space of empty slots lowers the barrier to experimenting. That output of that experimentation is valuable to those who create the landscape of empty slots. I.e. Microsoft and Intel.

Notice then what happens if the percentage slots begin to be filled in. If there is anything consistent about how they get filled in; for example they all start sporting graphic’s cards – that’s not stable. The industry will absorb any consistent slot usage into the core.

So then, is the space of empty slots a long tail? I.e. is their a generative process here who’s distribution is power-law which creates the occasional elite member, (in this case we could consider the graphic accelerator card as an example of a elite member). For this generative process to work it draws upon the power-law’s long tail of activity. In this case the long tail of activity actually has negative value. Since the majority of buyers don’t use the slots they are getting no value from them. The hardware makers are including them not because of buyer demand but because the dominate players in the market want them. The dominate players in the market want them because they tap into the the value created by the generative process that all that empty real estate creates.

Of course Moore’s law and his friends are all about creating huge swaths of empty real estate. So empty slots on motherboards are just one example.