Madoff’s Programmers


In my last blog entry, I took exception to Mark Cuban’s use of the term Financial Engineering to imply that the word ‘engineering’ was synonymous with the word ‘fraud’. It has been my experience that engineers hate to be wrong about anything, which is no doubt due to their analytical nature, and so as a rule, they are not very good liars. To every rule, however, there are exceptions.

We see evidence on the Internet every day that technically skilled individuals are applying their skills to cheat people out of money. I like to believe that the perpetrators of these scams are a small minority, and it’s only because of the vast reach of the Internet that they seem so ubiquitous. I suppose there may also be cases where otherwise honest programmers are persuaded to help dishonest people because they are desperate for money or want to keep their jobs.

I recently read the book, Madoff with the Money about Bernie Madoff’s Ponzi scheme that swindled investors out of more than $50 billion. The details of the how the scheme was pulled off are not really covered in the book, but all the while I was reading it, I knew that Madoff must have had technical help. Madoff barely possessed the computer skills to send an email. His computer, which basically was set up to display stock ticker data, confounded him. By all accounts, he was of average intelligence, not the financial genius that many people thought he was.

Madoff’s results at significantly outperforming the market year-over-year for more than a decade were baffling to most Wall Street insiders. There are a lot of really motivated people in the financial arena who have access to the brightest minds and best information available and they couldn’t figure out how he was doing it. For that reason alone, many assumed he was doing something illegal. There was even one whistle blower, Harry Markopolos, who contacted the SEC several times including going so far as sending detailed complaint letter describing in excruciating detail 29 ‘red flags’ that indicated that Madoff was either front running stocks (basically a form of insider trading) or, more likely, operating a Ponzi scheme. Markopolos had first contacted the SEC about Madoff in 1999 and several times after that. They ignored him.

About a month ago, two of Madoff’s programmers, Jerry O’hara and George Perez, were arrested and charged for their role in the fraud. They have been subsequently released on $1M bond. Apparently, they are the ones who wrote the programs and operated an old IBM AS/400 computer known as ‘House 17’ that printed out the fictitious statements and reports that made the investment results look real. Below are a few examples of the statements that Madoff investors received.



Apparently, using historical market data, they were able to adjust the market entry and exit dates and ratios of stocks to achieve any return rate that they wanted for the month. Prediction is hard, especially about future events, but predicting the past is easy. But there were a lot more nuances to the fraud than just revisionist history of trading events. They had to make sure that the trades wouldn’t look out of scale with daily volumes or any other anomalies that would set of alarm bells with auditors and regulators. When Madoff had only a few large investors, it was possible to generate statements with this method manually, but as the number of investors grew, so did the complexity of generating the fictitious earnings reports and so it was necessary to employ computer programs to help generate the reports. And of course, any Ponzi scheme must get bigger and bigger to stay alive and to be able to be able to make good on early investor redemptions or it would otherwise collapse. Neither Madoff nor his lieutenant, Frank DiPascali, had any computer skills, so they needed some programmers to help them. I wish I could have been a fly on the wall during those discussions.

I have to wonder what excuse their lawyers will come up with to assert their innocence. Were they just carrying out orders from the higher-ups? Some of the world’s greatest crimes have been perpetrated by people who were just following orders and trying to please their bosses. Their claims of innocence will be challenged because at one point, they decided they didn’t want to participate in the scheme any longer and they withdrew their own funds from the phony investment account, reportedly worth several hundred thousand dollars each. But then they made the mistake of taking $60,000 bonuses and 25% raises to reverse their decisions and continue on with the fraud. That makes it look a lot like taking ‘hush money’. It will be extremely damaging to their claims that they were unwilling participants. Another troubling fact is that they participated in the scheme for more than 15 years. They are now facing up to 30 years in jail.

The irony of all of this is that these programmers had the technical skills to make a decent living, and yet for the sake of making some extra money or to keep their bosses happy, they will lose all of that money defending themselves in addition to facing the prospect of jail time.

Engineers are generally pretty good at understanding the nature of cause and effect relationships, and so it’s hard to explain why a programmer would choose to aid and abet in a criminal activity. Perhaps it was the Svengali-like charm of Madoff himself. After all, he successfully tricked a lot of really smart people into handing over their life’s savings. Maybe it was a case of getting in so deep they didn’t know how to get themselves out it. Whatever defense they use, it should make for some interesting legal wrangling in the courtroom.

Engineering is not Fraud


Mark Cuban, owner of the Dallas Mavericks, recently wrote an article in his blog and used the term Financial Engineering, implying it was responsible for ruining financial markets. I agree with the points he makes, but find his application of the term ‘engineering’ to be a gross misapplication of the word. I suppose it puts engineers in good company, since the term ‘doctoring the results‘ has similar negative connotations, even though doctors are generally thought to be upstanding members of the communities they serve.

I shouldn’t give credit to Cuban for coining the term since there is a short Wikipedia entry for Financial Engineering. It reads:

“Financial engineering is a multidisciplinary field involving financial theory, the methods of financing, using tools of mathematics, computational and the practice of programming to achieve the desired end-results.

The financial engineering methodologies usually apply social theories, engineering methodologies and quantitative methods to finance. It is normally used in the securities, banking, and financial management and consulting industries, or as quantitative analysts in corporate treasury and finance departments of general manufacturing and service firms.”

Not that the Wikipedia is an authority on the topic, but Cuban’s use of the term financial engineering, implying that it involves fraudulently manipulating the market to profit a select group by creating huge losses for true investors, is not consistent with that definition.

Engineers are measured by how well they can discern and explain truths. If you’re an engineer and prone to lying about your calculations, you won’t be an engineer for very long. You could even get someone killed. I’m not saying that it’s impossible for an engineer to lie, it’s just that engineers who do lie usually aren’t very good engineers and generally leave the profession, usually moving on to areas where that skill is better appreciated.

Some professions actually place a high value on stretching the truth and consider it a desirable trait. Marketing comes to mind :-). One of the most prolific writers on the subject of marketing, Seth Godin, actually wrote a book entitled ‘All Marketers are Liars‘, and it became a best seller. I read it and it’s very good, just like his other books. Godin originally wanted to call the book “All Marketers are Storytellers”, but used the word “Liars” to sell more books. That’s an example of lying wrapped in the guise of clever marketing.

Marketing isn’t the only profession where spinning a good yarn can be appreciated. If you’re guilty of some crime, you probably would want a lawyer who could spin the facts to make it look like you’re actually innocent. Used car salesmen are often times thought to be quintessential liars, not all of them, mind you, just the really good ones. If you’re an actor, you have to lie to convince the audience you’re some character that you’re obviously not. So lying may be a necessary skill in some professions, but engineering is not one of them.

That’s why when Cuban uses the term ‘financial engineering’ as the cause the stock market bubbles and current credit crisis, it rings hollow for me. I’m not suggesting he call it ‘financial marketing’, ‘financial lawyering’, or ‘financial acting’, although those terms might more closely align with his implied definition than ‘financial engineering.’

I wish I could help Cuban out by coming up with a new term for the financial fraud that periodically gets perpetrated on Wall Street, but perhaps we should just call it what it really is, that is, fraud, since there’s no reason to tarnish a profession by implying that its name is synonymous with the word ‘fraud’.

Should All Businesses Have a Blog?


I’ve been blogging since 2001, primarily on my own personal website just as a hobby and creative outlet. When I started an engineering consulting business, I didn’t initially include a professional blog on this website. I had just a few static pages. After I converted my static website to WordPress and had a chance to see the effect that just having a few articles can make, I truly believe that most businesses can benefit by having blogs associated with their websites.

Blogging can be used in place of a company newsletter which, in many cases, is just a thinly-veiled form of advertising. In exchange for informing or educating the reader, a newsletter gets something that is very valuable — the reader’s attention. And by providing his attention, the reader subtly gives the company a place in his subconscious mind. The next time he needs a product or service that the company offers, it is a short trip to the subconscious to retrieve the name of that company. But this process wears off eventually, sort of like bathing, and that’s why it needs to be repeated on a regular basis.

The problem with company sponsored newsletters is that many of them lack an authentic voice. If it isn’t on someone’s list of objectives to produce a newsletter, it often fades away after a few issues. And if a newsletter is created by a reluctant author, the results usually speak for themselves. The newsletter can degenerate into a clipping service for stale or unoriginal articles. Margaret McDonald, a communications expert, recently made the observation in her twitter feed that if you send an e-mail newsletter with “Newsletter” in the subject header, you’re saying “This is entirely unnecessary; skip it.”

We are overwhelmed with information today. In addition to conventional sources like newspapers, TV, and radio, the Internet delivers copious amounts of information by email and social networking services like Twitter and Facebook are also competing for our attention. There’s so much information arriving that we sometimes just want to turn it off. However, when we actually want to find some specific information, we want it immediately. This is usually done with a keyword search in one of the popular search engines like Google.

Search engines seem to love blog articles. They give high rankings to fresh content that can’t be found anywhere else. That’s one of the reasons why this website, which is really just a ‘shingle’ on the Internet for my engineering consulting business, has this blog. I can write about topics that are at least tangentially related to engineering consulting and product design and it improves my website’s chances of appearing in search results. If I fail to blog for a month or so, my search engine traffic declines. Hopefully, some of the articles will find an audience and someone in that audience may be looking for an engineering consultant.

To get found on search engines, your website has to have some content for them to index. And if you allow the website’s content to get stale, it will negatively affect your position in the search results.

Unlike high traffic blogs that are written for the sole purpose of delivering eyeballs to advertisers, a consultant may only need a few hundred potential clients to visit a website each month to attract sufficient consulting business. You don’t need to have thousands of visitors per day, but you do need some visitors to attract potential clients. Otherwise, you probably wouldn’t have a website in the first place.

Writing a blog also allows a potential client to ‘get inside your head’ to see if you’re someone who sounds trustworthy and knowledgeable. If you can string a few words into a sentence, and string a few sentences into a coherent paragraph, and then spin a few paragraphs to tell a story, you can stand out from the crowd. It also helps if you can avoid misspellings and grammatical errors, of course, or you may otherwise undermine your credibility and chances of success in attracting clients.

I’m not suggesting that there is no downside to having a business blog. If you come across as being clueless or, worse yet, an egotistical know-it-all, it can work against you. But if you can manage to be genuinely helpful and show mastery of your profession, then adding a blog to your website is a great way to help potential clients to find you. And the best thing about clients finding you through a search is that they may actually have a need for your product or services, or else they would not have been searching for relevant keywords in the first place.

Are Atoms Really the New Bits?


Chris Anderson, editor-in-chief of Wired Magazine and author of the books, The Long Tail and the soon-to-be-released book called Free: The Future of a Radical Price, used the expression, ‘atoms are the new bits’ in his Twitter stream. To clarify what he means, he’s referring to the phenomenon of Open Source Hardware (OSH), a relatively recent trend that follows similar principles to those of Open Source Software. Chris recently ran two open source hardware projects called the Ardupilot and the Blimpduino so he’s quite experienced with open source hardware. Chris also has a great writing style and if Free is as well written as The Long Tail, I expect it will meet with the same kind of success and fanfare as his previous book.

The term open source software can have different meanings depending on its particular open source licensing agreement, of which there are many. In its simplest form, open source software means openly sharing the underlying instructions on how to reproduce a software product. For software to be truly open source, not only should the source code be provided, but the tools needed to modify and re-compile the source should also be readily available. The requirements for providing the source code is often subject to interpretation, and many companies claim to abide by the the open source licensing agreement yet fail to deliver the ability to modify the source. This usually happens because they’ve left out some critical files that may not be bound by open source licensing requirements, and if those files are necessary for compiling, then without them the open source files are not very useful.

Source code for commercial software is usually kept secret to insure that customers will actually pay for the software and to prevent competitors from gaining access to a company’s intellectual property. To insure payment, a company usually needs to prevent others from simply copying the source, compiling it, and distributing it. Most companies selling closed source software will even lock down the compiled bits with digital rights management schemes that make sure the payment is made before supplying a unique passcode to unlock it. Otherwise, the compiled code could be copied and shared freely once the first copy of it was purchased. If a company locks down the compiled code, providing the source code would be like providing the keys to everyone.

There are many different open source licensing agreements and they usually fall into categories somewhere between “do anything you want with it” to “always include my name in the credits.” Some are more restrictive, for example, such as “if you make money with my source code, then you must pay me, otherwise, it’s free.”

Software is virtually free to reproduce and distribute. Hardware is a little different. Before you can do anything with hardware, you not only need the instructions to put it together, but you must also acquire the physical material, i.e., the atoms. And unlike a free software compiler, turning hardware into a usable product requires material and capital equipment that can be expensive. Providing instructions on how to make a hardware product has some value but it is much less of a proportion of the final product’s overall value than it is for software. People are often willing to give away information for free, but if a product includes atoms and if you give them away for free, you’ll go broke eventually. In other words, if I give you information, I can still keep my copy of it, but if I give you something made from atoms, then I no longer have them. This is a critical distinction between atoms and bits.

How much of the value of software is just information or bits? Software is primarily information so the instructions on how to create it would account to nearly 100% of its value. Some would argue this point and say that software always needs user support, basically education on how to use it, and that information also has value. In fact, this portion of the value is where open source software companies generally seek to make their money. For a fee, they will answer questions about the free software or customize it for you.

How about hardware? Where is its value stored? With products made of atoms, there is always some material cost, and the percentage of cost attributable to the atoms can vary considerably depending on the product. For basic commodity products, one can argue that the cost of the atoms is very close to 100% of their value. That’s why farmers have to remain competitive with the current market prices for commodities. Just a few percentage point change in the wrong direction and the farmer loses money. Energy commodities like oil, coal, and gas have similar economic constraints.

Manufactured goods may have a much wider range margins. Luxury goods, for example, have material costs that may be a very small percentage of the selling price. Perfume and jewelery come to mind. But the other costs of selling luxury goods such as demand generation and retailer margins usually make up for the low percentage of the actual material costs.

In the case of consumer electronics, it’s been my experience that the material costs are typically 30-70% of the selling price. There are a few exceptions, of course, such as integrated circuits where actual material costs are a very low percentage of their price. But integrated circuits have enormous capital costs for the manufacturing equipment along with a high development cost for the circuitry. There are even loss leaders, where retailers will sell certain products below cost just to get customers to visit their store. But for the most part, a retailer needs to maintain some margin to make money.

So far, open source hardware has been primarily confined to small circuit boards for hobbyists to build gadgets. The Arduino hardware platform is starting to give open source hardware some new momentum. I think that the Arduino has the potential to be a game-changer because its open source nature is all-encompassing. Not only is the software and hardware open sourced, but so are its development tools. Products based on the Arudino hardware platform are not your typical consumer electronic products. An Arduino-based product might remind you of a science project. Granted, it would be more sophisticated than what passed for a science project a few years ago, but still a far cry from a product that would sit on the shelf at a retailer like Best Buy. In addition to the software that goes inside these gadgets, the schematics, parts list, and artwork files to produce the circuit boards are included, thus helping them to earn a description of truly being ‘open source hardware’.

Providing schematics for electronic products is nothing new. Many electronics equipment manufacturers provided schematics up until the past few decades when they no longer had much value because electronic products became so highly integrated that is wasn’t possible to repair them in the field. Schematics were generally included primarily to help someone repair the product when it failed. The printed circuit files that are now part of open source hardware are a new twist and they have some value to the consumer, but only if one intended to produce multiple copies of a circuit board. Otherwise, it is more economical to purchase the board from someone who is already selling them, preferably with components already soldered to them, due to the economics of building multiple vs. one-off products. But supplying board files does have the effect of limiting the markup one might ask for raw board since with these files, anyone could have a board manufacturer produce the boards, and maybe even add some new features or improvements to it. This additional information, along with the Creative Commons license invites competitors to produce your design and that has been virtually unheard of in the world of manufacturing.

Soldering together a kit of parts was a common activity for electronics enthusiasts before surface mount technology largely replaced the easy-to-hand-solder electronic components. I took great delight in putting together many electronics kits from Heathkit in the 1970’s and 1980’s. Although it is possible with some practice to solder surface mount components to circuit boards by hand, most hobbyists tend to avoid it. It requires patience, steady hands, and some form of optical magnification to do it properly. In production environments, assembling surface mount boards can only be done economically by expensive robotic pick-and-place machines.

I’ve long thought that it would be great to have a manufacturing machine that could take basic raw materials and some downloaded information to assemble them into a finished product. There’s actually a name for this concept. It’s called a Santa Clause machine. I could imagine a machine that took in recycled aluminum, possibly empty beer cans, and produced car parts like the frame, body, wheels, and engine. After downloading the information, the rate at which you could produce a car would only be limited by your rate of beer consumption (or you could collect cans from along side the road to speed things up, of course). In reality, the machines needed to manufacture any product today are highly specialized and would not lend themselves to putting together products atom-by-atom. But this hypothetical machine is fun to contemplate and has been a topic of frequent conversation by those who have trouble differentiating between science fiction and the real world. Many people think that rapid prototyping technology like stereolithograpy has ushered in a Santa Claus machine era, but I’ve been having plastic parts made with stereolithography for more than 15 years and despite solid progress, it’s still nowhere close in terms of cost, speed, and functionality of plastic injected molded parts and doesn’t seem to be destined to ever close that gap. Laser cutters allow you to quickly make some interesting 2D parts, but it has limited applications when making 3D parts. And, of course, you almost always need some metal components and there are no Santa Claus machines for those parts. I am not holding my breath for the Santa Claus machine to arrive.

There’s also the issue of regulatory compliance requirements which is where you have to get the approvals from regulatory agencies like the UL, FCC, CSA, CE, etc.. which basically make sure you don’t:

1. burn down someone’s house
2. electrocute anyone
3. interfere with radio reception

You think that might be easy to pass these certifications, but it’s actually quite involved. That’s what is required for basic consumer electronics products. Some industries have many more additional regulatory requirements. Many open source hardware enthusiasts seem to be blissfully unaware of these testing requirements. Until you’ve actually shepherded a few products through these regulatory approval gauntlets, you haven’t really designed anything the general public could purchase in large quantities. Hobbiest products generally fall below the radar when it comes to regulatory agencies. And when you meet these requirements, it’s important that the end consumer does not make changes to a product that would jeopardize the test results that allowed the approvals to be granted. For those who want to sell products that can be modified by end customers, it’s a bit of a Catch-22.

So are atoms really the new bits? I think open source hardware has definite potential for growth, but like Linux, it will appeal primarily to individuals who thrive on knowing how things actually work, that is, learners and do-it-yourselfers who are technology enthusiasts, or, in other words, less than 10% of the population. The rest of the world just wants to purchase finished products, preferably those that are aesthetically pleasing and carry the brand of a well-recognized company and/or have the endorsement of some celebrity.

When you’re an engineer, designing products for other engineers is technically engaging and fun. You’re basically designing for people who think like you do. Designing for the masses can have an element of drudgery because you may have to intentionally limit products to make them acceptable to non-technical people so they will be mass marketable. Is it possible to do both? That is, can you make something that is technically elegant and capable of modification, yet acceptable as a mass-marketed product? I don’t know for sure, but it’s always fun to dream it is, and if a product like that does come to fruition, it will likely emerge from the open source hardware community. It should be interesting to see what innovations arise from this new trend.

Would you sell foo foo dust?


One definition of “foo foo dust” is a product or feature that really doesn’t do anything, but promises nearly magical properties. It can be used to differentiate one’s products from a competitor’s offerings.

I once worked at a place that made robotic optical libraries. These libraries worked somewhat like a jukebox where the data resided on optical cartridges that were pulled from slots and inserted into drives where their data could be retrieved. Data stored in this manner is called ‘near line’ storage. That is, data that could not be accessed instantly, but could be accessed in under a minute without any human intervention.

The libraries came in sizes from a small desktop model with 16 cartridges and a single drive to products larger than a refrigerator that held 300 cartridges along with 12 drives. One of the innovations of our library was a dual-cartridge picker. This feature saved time because the robot could grab a cartridge and take it to a drive and remove the cartridge that was in the drive and insert the new cartridge without having to store the old cartridge first. That cut the cartridge ‘swap time’ down from about 20 seconds to about 12 seconds, and swap time was very easy to measure and explain to a customer. Thus, it was easy to describe the dual cartridge picker as a competitive advantage. Everyone was pleased.

However, after we’d begun selling this miraculous innovation, someone in the organization reported that the robot was idle about 95% of the time in a typical data room application. Wouldn’t it make more sense to just remove the cartridge from the drive after it was no longer being accessed thus allowing the drive to be empty when the next request to load a cartridge came in? After all, when you got a command to insert a new cartridge into a drive, you had to make the decision about which drive to use so why not empty it during the long periods that the robot was idle? However, if the library did that, it would make the dual-cartridge picker feature useless. This report went over like a ton of bricks. It was not welcomed by the marketing people using the dual-cartridge picker to help sell the product, nor by the engineers whose names were all over the patents. The report was quietly swept under the rug, never to be mentioned again.

We had been unwittingly selling foo foo dust. We had a feature that sounded cool, was easy to explain in a few words, but one that didn’t actually deliver real value. When you dig deep, it’s not hard to find differentiators that sound good when you first hear about them, but that don’t really deliver true value.

It can be very awkward to point out a foo foo dust feature when there is a reverence bordering on worship its perceived value. Sometimes, the head honcho may even have been placed on high because of his involvement in introducing the foo foo dust. So even broaching the subject that you’re selling foo foo dust can be a career limiting move.

What can you do when you suspect your organization is trafficking in foo foo dust? One thing you can do is to bring in an independent party to evaluate the features that are being touted as competitive advantages and, without prejudice, get an honest evaluation on whether what you’re selling really adds value, or if it just give the sales people something to talk about. An independent party can make an evaluation without fear of a reprisal from anyone who has a stake in any potential foo foo dust features. Then at least you’ll know where you stand. If you’ve got features that aren’t actually delivering value yet still costing the customer money, you must ask yourself whether it safe to remove them without losing sales revenue. This can certainly pose a moral dilemma. But in the end, you’re better off avoiding features that add little or no value. The problem with foo foo dust features is that although they can help you sell your products, they will often come back to bite you when your customers find out that they were sold useless features, or perhaps even paid extra because they had been upsold those features.

The long term viability of an organization is best served by avoiding features whose only benefit is that they sound cool. It would be better to ask yourself, ‘If this feature is so great, why don’t any of our competitors offer it?’ And it would also be beneficial to smoke out any foo foo dust in your competitor’s product lines. For example, I’m sure our competitors would have loved to have a copy of the aforementioned report that had been quietly swept under the rug.

Cloud Storage: A Drain for Money and Data


Cloud storage is getting a lot of attention these days, and not all of it is good. Over the years, lots of money has been plowed into building a business model in subscription-based on-line storage. Many of these companies have already gone bust or have been acquired. Just recently there was an article that Carbonite, a leader in online storage, is suing a hardware provider for losing customer data.

A good backup strategy requires a multi-pronged approach, not a single “silver bullet” solution as cloud storage is sometimes thought to be. People who do backup for a living understand this, yet many consumers are just beginning to become aware of a need to keep irreplaceable data like digital photos safe from computer viruses, hardware failures, fire, theft, and natural disasters. A major attraction of cloud storage is that presumably the data is stored on very reliable hardware and looked after by IT professionals and copied to redundant, geographically distributed data centers. But if you’re happily storing your data in some amorphous data cloud, if any data goes missing, you might be the only one likely to notice. That may happen quickly if it is data that is accessed frequently, such as data on an active website, but in the case of an archive of digital photos, if you don’t bother to check them periodically it could be a few years before you might notice some or all of the photos are gone (most likely while you’re attempting to do a restore). If that happens, what are the odds of getting your data back? I’d say not very good, since backup media like tape in data centers is frequently re-cycled and overwritten. Sure, there may be an archive copy off-site in a box of tapes, but I’ve been down that road and I know where it leads, and it’s usually not to your lost data.

What happens if the cloud storage company isn’t able to cover its expenses and turns into a money loser for its investors, as has happened several times already? Odds are, they will cut and run, telling you in a hasty email that your data is there for the downloading. You have a month to get it, otherwise it’s gone forever. That’s what HP’s Upline service told its customers recently.

I don’t think that cloud storage is necessarily a bad idea, it’s just that it’s hard to make money with it because people don’t like paying perpetual monthly fees for a benefit that is largely invisible to them. Companies offering a service love recurring revenue models, and will go to extreme measures to create one, not unlike a crack dealer giving away the first hit for free. People do crazy things for crack, and companies do crazy things when they hear those magic words as if sung by angels, ‘recurring revenue stream’.

I was comparing the price of Amazon’s S3 service to using a web hosting account like GoDaddy as one’s personal cloud storage. For 150GB of storage and 1.5 TB of monthly throughput, GoDaddy charges $7/month. There are many other providers with similar hosting plans. For Amazon’s S3, it costs $.15/GB per month of storage + .10/GB bandwidth charge for uploading and $.17/GB for bandwidth charge for downloading. It sounds cheap, but if you already have a hosted website you may have about 145 GB of storage left over, and thus the web host solution is free whereas the Amazon S3 solution would set you back another $22/month for 145 GB of storage. And you would need to spend about $40 extra for the bandwidth to upload and download the data just once.

Moving 145 GB of data on a typical broadband connection with a capped upload speed of 1 Mbps would take about 300 hours (~13 days) of continuous uploading. That’s another downside to cloud computing. The data transfer times are usually deal breakers, if one bothers to do the math. Would you wait 2 weeks for a backup to complete? I sure wouldn’t. Even to restore that amount of data on a respectable 3 Mbps download connection would take more than 4 days. Again, not a very compelling solution.

There is a place for cloud storage, but it’s probably best done in small amounts, perhaps a few GB of really important digital photos, and in those cases, a simple regularly-scheduled upload to a web host would be the most economical way to go.

Product and Customer Abandonment


Designing products is not like making movies, although today it seems to be moving in that direction. My friend Don, who spent 30 years in Hollywood as a film editor, sometimes felt like he was abandoned at the end of each major project and left to his own to find his next gig. Fortunately for him, he has amazing talent, and it became easier each time a project finished to find his next position. Over the years, he eventually worked for every major Hollywood studio. His last job was on the popular, long running series, called “Murder, She Wrote“. When you work on a long-running series, you don’t have to worry so much about what will happen to you after the season is over. There is always the next season to look forward to.

Designing successful products, if it has anything in common with Hollywood, should be thought of more like a long-running and popular series as opposed to a blockbuster movie. Each successive generation needs to build on the last generation like a foundation and, if you continue to do things right, everyone will know about your product. You don’t simply design a product, promote it like it’s going to be a blockbuster, and then abandon it if it fails to meet expectations, yet it is common to treat new product introductions like this in high tech industry.

There have been instances where popular TV series, both Seinfeld and The Office come to mind, struggled to find their audiences before they took off. People often forget the first tentative steps a successful series may take prior to what appears to be its apparent ‘overnight success’. Had the people who created these series cut and run at the first sign of struggle, we may never had heard of them.

Each generation of product has an opportunity to build on the strengths of its predecessor, eliminate its weaknesses, and hopefully establish a loyal following. You wouldn’t tell the people who worked on each season of a TV series that you won’t be needing them again and they’re now free to leave and then scramble to hire a new cast for the next season. Similarly, a product development company must give the cast of characters who work on a project some incentive to stick around to work on successive generations. You want to avoid starting from scratch with each product generation and having to relearn everything over. If the only thing in store for the team at the end of the design cycle is a pink slip, they may decide to beat you to the punch and jump ship midway through the project.

The reason I’m writing this is because I’ve noticed a trend in the industry where companies try to create blockbuster products and if they don’t catch on immediately, they lay off the participants and move on to the next big thing. But successful product design doesn’t work that way. If you create and then quickly abandon products, you also abandon the products’ customers, and they will think twice before investing their time, energy, and trust in you again. Not only that, the knowledge accumulated in the design process is extremely valuable and it’s not written down neatly in some manual you can refer to next time. It’s in the heads of the people who poured their hearts and souls into creating the product.

If you want to be successful in creating products, you need to start with the expectation that your product will be around for a few generations before it hits its stride. It’s not a good idea to hastily throw something together and get it out to customers to ‘see if it sticks’, because if you do, your lack of commitment will shine right through, and the only thing that ‘sticks’ will be a damaged reputation and the foul taste you’ve left in the mouths of customers who were naive enough to trust you.

In Defense of the SUV


I’ve written a lot about renewable energy and so people might classify me as an environmentalist, a tree hugger, if you will. I thought it would be time to address the 4700 lb. elephant in the garage. That’s right, like many Americans, I own a Sport Utility Vehicle (SUV). It’s a 1999 Dodge Durango that I bought 10 years ago and I hope to be able to keep for at least another 10 years.

It seems that over the past few years, SUVs have been getting a black eye in the court of public opinion so I wanted to write a little about why I think they remain so popular in spite of their status as gas guzzlers.

There are those who think that anyone who drives an SUV is an enemy of the environment and deserves to be vilified for it. After all, most commuting is done solo, and it is wasteful to be carrying all the weight of an SUV simply to move a single person around. It’s almost as if SUV critics feel everyone should be required to use either public transportation or a compact vehicle that gets at least 40 mpg? My Durango gets 14.7 mpg average, 19 mpg highway. In warm weather, I ride a motorcycle which gets about 50 mpg and that helps to improve my annualized personal fuel economy. In the past few years, I’ve used the motorcycle for nearly half my annual miles driven. A small economy car could provide a similar fuel economy as my combination of SUV/motorcycle, but that solution doesn’t work for me. I prefer having an SUV and a motorcycle to having a small economy car.

Why are SUVs still outselling hybrids more than 10:1 and were doing so even when recent U.S. gas prices climbed to over $4/gallon? I’d say that much of the reason is because the SUV has fewer limitations than most other vehicles. They just seem to be able to ‘do it all’. For example, there have been several instances where the Durango has allowed me to get home in snow storms that would have been unthinkable in a 2-wheel drive vehicle. Each time that’s happened, the peace of mind that 4WD provided more than paid for its increased operating cost. Many critics of SUVs will point to the fact that SUV owners rarely, if ever, take them off the road. But if you live in any state that gets regular home delivery of snow, you will likely put your SUV in 4WD at least a few times per winter season. For a one-week period around Christmas a few years ago with well above average snowfall, SUVs were the only vehicles with enough ground clearance to make it out of our neighborhood. The Durango also can hold 7 adults, making it possible to leave an extra car in the parking lot when carpooling. I have carried 4′ x 8′ sheets of plywood in it and filled enough wood to rebuild a deck. I carried the fuselage of my airplane inside it as well as its 300 lb. engine and each of its wings, one at a time, of course. I’ve towed a camper with it. I’ve actually driven it off-road along with a 4 person crew to repair a ham radio repeater at the top of a mountain. It’s truly a versatile machine with its only limitation being its fuel economy when compared to a compact car.

A 300 lb. aircraft engine fits in easily…

…and so does an 11-foot airplane wing

When I was younger I was a boy scout. The boy scout motto is ‘be prepared’. An SUV helps its owner to be prepared for virtually anything. Sure, there are many missions where I could use a more fuel efficient vehicle, but I don’t want to own multiple cars, one for each potential mission. Our garage is only big enough for two cars and a motorcycle. And just owning a vehicle costs money, even if you don’t drive it. Each vehicle has a capital expense, which needs to be amortized over the miles driven in its lifetime, along with insurance, ownership taxes, and periodic maintenance. Sitting parked in your garage, a vehicle costs money whether it’s used or not. And the capital expense of owning a vehicle usually constitutes a larger per mile expense than its fuel bill.

My wife has a BMW 328i sedan that gets 28 mpg, about twice the fuel economy of the Durango. It’s a great car and a lot of fun to drive. When we go on long trips in nice weather, we often take it instead of the SUV. Recently, we flew to the east coast for a week and when contemplating which vehicle to leave at the airport, we both independently arrived at the same conclusion. Since it was winter, and we didn’t know what kind of weather to expect when we returned, we chose the Durango. Sure enough, when we returned we landed late at night in a blizzard. But it was no problem to get home in the Durango. It would have been a harrowing, white-knuckle, 2-hour drive if we had instead chosen the sedan, and it could have ended up in a ditch in need of a tow, like several others we saw on the way home.

The major costs of owning a car can be divided into the categories of purchase price and operating costs. Operating costs are comprised of items such as insurance, taxes, maintenance, and fuel. The annual fuel cost for most vehicles is surprisingly low in comparison to these other costs. Compared to the purchase price, fuel may be just a small percentage per mile. That’s why people who can afford to spend $60K on a 10-mpg Hummer H2 are not deterred by having to spend $5K per year for the fuel. They could instead have a 45-mpg hybrid along with a $1000 annual fuel bill but it’s a not an issue if they can afford the Hummer’s gas. Now I know there are some who think that fossil fuels belong to everyone and it’s not fair for someone to use more than their ‘fair share’. I have to wonder when a resource is finite and irreplaceable, what would constitute a reasonable ‘fair share’ per person. Because I use my motorcycle in the warmer months, my SUV has been averaging less than 5,000 miles a year, and so it’s actually burning less fuel annually than a compact car racking up 15,000 miles a year. A vehicle’s fuel economy isn’t the only factor that determines how much of an impact someone is having on the environment. A person’s transportation-related carbon footprint also includes the amount of travel one does annually.

If your job requires you to travel frequently by jet, you may be using large quantities of fossil fuels even if you don’t own a car. I’ve known people who fly more than 100,000 miles a year and don’t seem to realize that it also impacts their overall energy consumption and hence their carbon footprint. I find it particularly ironic when energy efficiency evangelists jet all over the world spreading the gospel about conserving energy as they themselves seem to be unaware that their air travel is generating a huge carbon impact. It’s a case of ‘do as I say, not as I do’. Sometimes they buy carbon credits, thinking it makes up for their ‘unavoidable’ energy use. That seems to me as nothing more than purchasing indulgences to assuage their guilt.

Public transportation vehicles use fossil fuels in large quantities, although many public transportation proponents don’t seem to realize it. Commercial jets typically average 50 miles per passenger per gallon, buses around 80, and trains around 200. These are typical values, not the maximum theoretical numbers, which would assume 100% seat utilization. Most public transportation vehicles need to have excess capacity and thus travel many miles with empty seats. A person who flies enough to make it to an airline’s annual 100K club uses more oil than a Hummer driver racking up 20,000 miles per year.

Sometimes when people talk about hybrid cars and public transportation, they seem to feel that if everyone would just start using these modes of transportation exclusively, both the fossil fuel depletion and global warming problems would be solved. They won’t. Better fuel economy just pushes the problem out a few years since those modes of transportation consume fuel too. And since these more efficient modes are often erroneously considered to be virtually carbon-free, people may be induced to travel more miles annually.

We all like to have our mobility. Our modern society is defined by it. If we had to travel exclusively by foot or on horseback, you can rest assured we’d do a lot less of it. I’ve certainly done my share of traveling and so I’m in no position to criticize others for their travel habits.

So if you own an SUV, I recommend you keep it. If you feel guilty about it, you can try to drive it fewer miles per year, if possible. You can augment your travel needs with a motorcycle, scooter, or bicycle. Or work from home when you can. Having an SUV will allow you to be prepared for anything and keep you from joining the ranks of those who smugly berate SUVs and their owners with adjectives like ‘revolting, insidious, and despicable’.

Technology consulting