The Blankenhorn Effect: How to Put Moore's Law to Work for You [Paperback]

Dana Blankenhorn (Author)

Book Description

Publication Date: July 6, 2006

The Blankenhorn Effect explains how Morre's Law, a challenge laid down in 1965, has been applied to all the technology we touch. Not only do billions of circuits dance on slivers no bigger than a fingernail, but similar improvements have been made in magnetic memory, optical memory, optical storage, and even radio to create today's Internet.

Editorial Reviews

About the Author

Dana Blankenhorn has been a technology journalist for over 20 years, and a professional journalist for 25. His fans compare his writing style to that of H. L. Menken, for its acerbic wit and biting satire.

Over the years Dana's articles and columns have appeared in dozens of newspapers and magazines, and on dozens of Web sites. His Interactive Age Daily was the first online news column covering the World Wide Web, in 1994. He as also written (or co-written) a half-dozen books. He's a proud alumnus of Rice University, and holds a Masters' in Journalism from Northwestern's Medill School. He currently writes the free weekly newsletter A-Clue.com, and a blog about technology trends. He lives in Atlanta, Georgia.

Excerpt. © Reprinted by permission. All rights reserved.

The Kitten Market

In the middle of the Internet bubble, a Houston company called Enron was playing fast-and-loose with technology, markets, and (possibly) the law.

Enron was launched in the 1980s as an energy company. I knew its predecessor firm as Houston Natural Gas, a staid gas utility. But a combination of factors - the Internet, hubris and its own corporate culture among them - caused Enron to take another turn in the 1990s.

Instead of just making and selling energy, Enron began making markets in energy. It bought, sold and traded gas, oil and electricity the way Wall Street firms did pork belly futures. But there was a difference. Not only did Enron organize the markets, it played in them, earning the kind of profits a dealer with a knowledge of fancy shuffles can earn at a poker table. Allegedly it played all sorts of other games to hide profits (and losses) from its shareholders, moving money into offshore affiliates and debt instruments. The Internet was Enron's great tool. The Internet allowed its traders to stay in touch with the markets, with one another, and with other traders. Enron's culture seemed to be like that of Microsoft, where the smartest people with the "highest bandwidth" (Microsoft-speak for smarts) were given free rein. In developing this culture Enron was following the advice of its own consultants, McKinsey & Co.

Enron was politically plugged-in (its executives advised Governor George W. Bush and his Presidential campaign, while also giving substantially to Democrats), its results always seemed to "beat the market," and its stock price kept rising through the bubble years.

Then, in 1999, Enron decided to enter yet another market, the market for fiber bandwidth. The company began to sign contracts for using the data carrying capacity of its own fiber network. It signed many such contracts.

But bandwidth, as we've seen, isn't like oil, or gas, or electricity.

In the energy markets, you have a good idea of supply as well as demand. (I started my journalism career in Houston, covering the oil boom of the late 1970s.) Someone in the "oilpatch" might bring in a new field, or a utility might adjust its generating capacity in response to summer's demand for air conditioning. But a savvy trader can balance supply-and-demand, on a yearly, monthly, or even real-time basis. Plus if you're both running the market and playing in it, you're like a Vegas card dealer who knows some card tricks and is betting in their own game - you can't lose.

Bandwidth doesn't work that way. Bandwidth supply can explode, exponentially, and quite suddenly. A company has one line, but changes the electronics at each end, and suddenly it has 100, or 1,000 lines. Or a company is using a half-dozen fibers in one line and then decides to "light" the rest, again exploding capacity.

The best analogy I can come up with is kittens. Economics teachers like to talk about widgets in their classes - imaginary products with endless utility but no real economic value. I figure kittens are the same way.

Enron was trading kittens. It signed a contract for bandwidth, then assumed all its lines would sell for the same price. It knew the bandwidth was really costing it nothing to produce, so it set aside all that money as pure profit.

The same thing can happen with kittens. Mr. & Mrs. Enron have two cats and a litter of 8 kittens. Some fool offers them $100 for one of the kittens. So they take the money, call it profit, and look again at the litter. I guess that means we have $700 worth of kittens, they figure, plus we still have the cats. Those cats might produce, say, a half-dozen more litters over their lifetime. And the kittens will produce cats, too. So the "asset value" of the two cats might be as much as $10,000. Guess where they put the money? Right, they bought more cats.

But anyone whose cat has ever gotten pregnant knows that's not right. Yes, some fool might buy one of your kittens. But generally, kittens are hard to even give away. It's a relief for most families to relieve themselves of litters, and the next thing most families do is take those cats to the vet to get fixed, so the nightmare won't return.

Unfortunately Enron's oh-so-clever "bandwidth traders" didn't know they were selling kittens. They thought they were selling an asset like oil or gas, something whose supply was limited and whose demand was growing. In fact they were selling something whose demand was constrained but whose supply was unlimited.

A lot of other companies made the same mistake. In fact, the whole energy sector was treating bandwidth as an energy market. But when reality hit, when final demand didn't meet the unlimited supply made possible by DWDM and Moore's Law, Enron (and the other players) were caught-out.

In 2001 executives debated whether the "bandwidth glut" was "fact or fiction." But reality eventually hit. So-called "OC-3" circuits, 155 Mbps lines running between New York and Los Angeles, worth $1.8 million per year in 2000, were trading for under $150,000 just 16 months later.

Product Details

• Paperback: 220 pages
• Publisher: Trafford Publishing (July 6, 2006)
• Language: English
• ISBN-10: 1553953673
• ISBN-13: 978-1553953678
• Product Dimensions: 8.9 x 5.9 x 0.6 inches
• Shipping Weight: 9.6 ounces (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars  See all reviews (5 customer reviews)
• Amazon Best Sellers Rank: #4,584,960 in Books (See Top 100 in Books)

Customer Reviews

Most Helpful Customer Reviews

1 of 1 people found the following review helpful:

5.0 out of 5 stars Mencken + Vision = Blankenhorn. Fabulous., February 21, 2003

By 

Rob Frankel (Encino, CA USA) - See all my reviews

This review is from: The Blankenhorn Effect: How to Put Moore's Law to Work for You (Paperback)

In this day and age of hypemeisters and hacks, Blankenhorn's observations stand out like a beacon of truth. His lateral obsevrations not only make sense, but thoughfully demonstrate how Moore's Law impacts everything you do on a daily basis. Thanks to this book, what was once relegated to microchips and silicon can now be seen in a much larger sense, explaining why so many are so bewildered at the lack of stability in their lives. Want to know the deeper reasons why we're all stressing out? Read it. A great piece for thinking people interested in making sense of our strange new world.

1 of 1 people found the following review helpful:

5.0 out of 5 stars Important (and fun), February 5, 2003

By A Customer

This review is from: The Blankenhorn Effect: How to Put Moore's Law to Work for You (Paperback)

Want to know how to predict the future? Want to understand your kids' world?

Then you need this book. In just a few hours you'll get to know the forces that control our working lives, and the heroes behind it. People like Gordon Moore, Jack Kilby, and Hedy Lamarr. (Yes, THAT Hedy Lamarr.)

This isn't a technogeek kind of book. It's a simple, down to Earth, and readable book. It's filled with stories and anecdotes you'll nod your head with, and some stories "ripped from the headlines" you will see with new eyes.

Best of all, this book does not leave you hanging. You will know the secret to accelerating change, and to decelerating it. You'll also be introduced to new technologies that will drive future progress.

All in a book you can read in a single evening. Not a bad deal.

5.0 out of 5 stars Very insightful...a definite read for every business person, June 14, 2003

By 

Jeffrey Vick (Earth) - See all my reviews

This review is from: The Blankenhorn Effect: How to Put Moore's Law to Work for You (Paperback)

This is the type of writing you only get from experienced business writers. This is not magazine type writing..this is highly thought provoking and very well written. Every Congressman in America should read this book....if they did they would realize big business is not where its at. Good read!