August 18, 2017

Archives for June 2007

Behind the iPhone Frenzy

Let me say right up front that I have not accepted the Jesus Phone as my personal Lord and Savior. The iPhone might turn out to be insanely great. It might become the best-selling mobile phone ever. Or it might not.

Either way, the iPhone’s arrival and the attendant frenzy mark the beginning of a new phase in the mobile phone world – a phase based on the radical notion that it’s possible to make a pocket-sized device that is a pretty good phone and a pretty good networked computer at the same time.

From a purely technical standpoint, this isn’t surprising at all. Phones are basically computers, and we know how to cram a decent computer into a small, low-power package. The engineering isn’t trivial but we know it can be done. Apple might have modestly better engineering, and significantly better human-factors design, but what they’re doing has been technically possible all along.

Yet somehow it hasn’t happened, because the mobile carriers don’t want it to happen. They have clung to their walled garden models, offering limited, captive services rather than allowing easy development of Internet applications for mobile devices. An open system would provide more benefit overall, but most of that benefit would accrue to consumers. The carriers would rather get a big share of a small pie, than a small share of a big pie.

In most markets, competition keeps this kind of thing from happening, by forcing producers to account for consumer preferences. You would expect competition to have forced the mobile networks open by now, whether the carriers liked it or not. But this hasn’t happened yet. The carriers have managed to keep control by locking customers in to long contracts and erecting barriers to the entry of new devices and applications. The system seemed to be stuck in an unstable equilibrium. All we needed was some kind of shock, to get the ball rolling downhill.

Only a company with marketing muscle, design mojo, and a world-historic Reality Distortion Field could provide the needed bump. Apple decided to try, in the hope of selling zillions of the new, more capable devices. The real significance of the iPhone, whether it succeeds or fails in the market, is that it will trigger the transition to more open networks. Once people see that a pretty good phone can be a pretty good mobile computer, they won’t settle for less anymore; and mobile networks will be pried open.

Whether or not the Jesus Phone achieves worldly success, it will succeed in its own way by convincing people that the world can be different.

Why CEOs and Companies Break the Law

Ben Horowitz, CEO of Opsware, offers an interesting essay on why so many bigshot CEOs seem to be in legal trouble. Why, he asks, would a rich and powerful executive risk going to prison? The easy answer, greed, is too simple because many of these guys were already tremendously rich and stood to gain little or nothing personally from the illegal acts. There must have been something else driving them.

One answer is pride. Exhibit A is WorldCom CEO Bernie Ebbers (now doing 25 years for fraud and conspiracy).

As WorldCom grew at a rapid pace, Bernie set expectations high. This led investors to give him advance credit, thus boosting his stock, which was the currency he used to build his company. When Bernie saw that WorldCom wasn’t going to meet those high expectations, and that thousands of shareholders to whom he had promised great performance would lose their money, and thousands of employees who he had hired would lose their jobs, he was willing to do anything to make things right. Even if it meant doing things that were wrong.

Like a killer committing his second murder, the decisions to commit fraud must have come easier as Bernie gained experience. In addition, the stakes continued to get higher. He continued to commit fraud, because if he hadn’t, there was a 100% chance that he would let everyone down who mattered to him and he would no longer be the person that he had worked so hard to become. He wouldn’t be Bernie Ebbers #11 in Time Magazine’s Cyber Elite; he’d be Bernie Ebbers, former milkman, bouncer, and disgraced CEO.

If this is right, Ebbers defined himself by the success of WorldCom. If the company failed, then his work – his contribution to society – would evaporate.

Even beyond pride, some executives see themselves as great benefactors, bringing happiness to employees, wealth to investors, and great products at low low prices to customers. If WorldCom’s growth was good for humanity, then it was worth taking risks to defend. And when the time came to take risks, the Great Man stepped forward.

While working on the Microsoft antitrust trial, I read Titan, Ron Chernow’s biography of John D. Rockefeller. Rockefeller saw most things clearly, but he had one blind spot: he honestly saw little distinction between the growth of Standard Oil and the advancement of humanity. Cheap, high quality oil would transform American life, and Standard Oil would be the agent of that transformation. America needed Standard Oil. Rockefeller had an uncommonly strong drive to do good in the world, a drive that was channeled into an intense need to win every business skirmish. His opponents, who were only trying to make money or run a business, were no match for a guy trying to save the world.

One gets the sense that WorldCom grew as big as it did, and the house of cards stood up for as long as it did, because Bernie Ebbers had a Rockefeller-like drive to make it so. He would do almost anything to keep WorldCom afloat, which is what made him dangerous to his employees and investors.

He was a danger, too, to his competitors.

Once WorldCom started committing accounting fraud to prop up their numbers, all of the other telecoms had to either (a) commit accounting fraud to keep pace with WorldCom’s blistering growth rate, or (b) be viewed as losers with severe consequences.

How severe were the consequences for not breaking the law? Well, like a baseball player who refuses to take steroids, CEO Mike Armstrong of AT&T did not keep pace with the cheaters. As a reward for his honesty and integrity, he was widely ridiculed in the press prior to being fired and AT&T, perhaps America’s most valuable brand, was acquired for cheap. Now you see why Barry Bonds needed something to help him keep pace with Mark McGwire.

The steroids analogy helps explain why corporate criminals must face serious punishment. It’s not enough for the average performer to know that the leaders probably aren’t cheating. Given the choice between believing that the other guy is cheating, and believing that he is honestly outperforming you, most people will go for the cheating theory. People need to know that nobody in their right mind would cheat – a lesson that Bernie Ebbers will be teaching us for the next twenty years or so.

Woman Registers Dog to Vote, Demonstrates Ease of Fraud

A woman in Seattle registered her dog to vote, and submitted absentee ballots in three elections on the dog’s behalf, according to an AP story.

The woman, Jane Balogh, said she did this to demonstrate how easy it would be for a noncitizen to vote. She put her phone bill in her dog’s name (“Duncan M. MacDonald”) and then used the phone bill as evidence of residency. She submitted absentee ballots in Duncan’s name three times, each ballot “signed” with a paw print. She says the ballots did not designate any candidates and only had “void” written on them, so the elections were not affected.

Nevertheless, she broke the law and now faces charges.

This relates to an issue every applied security researcher has faced: how to demonstrate a security problem is real. People take a problem more seriously when they have seen a real, working demonstration of the problem – otherwise the problem will be dismissed as theoretical. Often there is a lawful way to demonstrate a problem, for example by “breaking in” to your own computer. But sometimes there is no way to demonstrate a problem without breaking the law. Careful researchers will stop and assess the legality of what they’re planning to do, and will hold back if the demo they’re considering breaks the law.

Ms. Balogh went ahead and broke the law. Beyond that (serious) misstep, she did everything right: admitting what she did, avoiding any side-effect on the elections by filing blank ballots, and leaving obvious clues like the paw prints.

Fortunately for her, the prosecutor decided not to charge her with a felony but instead offered to let her plead guilty to a misdemeanor, pay a $250 fine, and do ten hours of community service. She was lucky to get this and will apparently accept the deal.

Any readers considering such a stunt should think again. The next prosecutor may not be so forgiving.