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| http://www.gilder.com/ | Issue 361.0/October 24,
2008
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HEADLINES:
- The Week / George Gilder: The Coming
Creativity Boom
- Friday Feature / David Malpass: Curbing Washington’s Growing Power
- Friday Blogger Bonus / Chris
Anderson: Gilder at his Prime
- Readings /
The
Week /
The Coming Creativity Boom
GEORGE
GILDER, Forbes Special Market Report: “Intelligent Investing” (10/23/08): Knowledge
is about the past; entrepreneurship is about the future. In a crisis the world
of expertise pulls the global economy ever deeper into the past, where
accountant-economists ruminate on the labyrinthine statistics of leviathan
trade gaps, tides of debt and deficits, political bailouts and rebates,
regulatory clamps and controls, all propping up the past in the name of
progress.
The
crucial conflict in every economy, however, goes on. It is not between rich and
poor, Main Street and Wall Street, or even government and the private sector.
It is between the established system and the new forms of wealth rising up to
displace it--all the entrenched knowledge of the past and the insurrections of
futuristic enterprise and invention.
The
real source of all growth is human creativity and entrepreneurship, which
always comes as a surprise to us, especially in the worst of times, as Rich
Karlgaard notes. No amount of knowledge about the present can predict the
specific profile and provenance of innovation. From the pits of the crash of
2000, when the Internet and the dot.com siege were famously dismissed as a
barren "bubble," came Google (GOOG) and MySpace to rise
up and take all the chips and establish a new Internet economy. If creativity
was not unexpected, governments could plan it and socialism would work. But
creativity is intrinsically surprising and the source of all real profit and
growth.
Because
the U.S. remains the world's largest economy and still leads the world in
business and technological creativity, the current crisis is mostly confined to
boondoggles of finance. It will pass rapidly and evolve into a new boom.
Emerging is a parallel, unregulated financial system based on entrepreneurial
creativity and invention.
At
the heart of this multitrillion-dollar engine of growth are 741 venture capital
firms that traffic in creativity as a business. These firms command $257
billion under management and have launched companies generating $2
trillion-plus in revenues. Complementing the venturers are some 10,000 hedge
funds and private equity players, with upwards of $2 trillion under management.
Like everything else, the hedge funds are down this year. But collectively
losing 12%, they have succeeded in preserving the bulk of their capital. More
important, these funds represent a vast laboratory of capitalist ferment and
experimentation beyond the heavy hand of politics. (Full disclosure: I run
several hedge funds and have financial interests in two companies discussed
below--Seldon Technologies and iCrete.)
At
some 0.2% of U.S. GDP, the amount of venture capital is tiny compared with the
oceans of debt and money commanded by other institutions. But venture funds are
fertile and catalytic. Data gathered and tracked by Thomson Financial shows
that the revenues of companies created by the venture industry generated 17.6%
of U.S. GDP in 2006. For every venture dollar invested between 1970 and 2001,
venture-backed companies produced $7.90 in U.S. revenue in 2006.
Let's
acknowledge the risk and the losses, too. The year of the crash saw a massive
$100 billion in outlays to innovative companies. Following this unsustainable
peak was a fast slide to around $45 billion in 2001 and to $20 billion in 2002
and slightly lower in 2003. Since 2003 outlays have been rising every year, and
they reached close to $30 billion in 2007, decisively higher than any year
until the 1999 boom. Although an industry of surprises makes many mistakes,
scores of the firms supported during the boom are maturing, and a number are
ready to go public. With 86 initial offerings, bringing in a total of over $10
billion, venture-backed companies in 2007 achieved record median valuations of
$346 million and average valuations of $623 million.
The
key to huge growth in technology is structural change. Emerging today are
companies exploiting four large intersecting developments under way in the
U.S.: "cloud computing," graphics processing, nanotech engineering
and energy-saving construction materials.
Long
governing the computer industry has been Moore's law, the projection of the Intel
(INTC) founder that chip densities and thus computer efficiencies would double
roughly every two years. Industry pioneer C. Gordon Bell has offered a
corollary of that law: Every ten years, with computing power rising a
hundredfold, a radically new computer architecture is born. That architecture
is now coming into place.
The
new structure is called "cloud computing," and it represents the
dispersal of computing resources across the Internet into new data centers.
Google has reportedly built several dozen data centers for "the
cloud" across the globe, and Microsoft (MSFT) recently announced
that it would be building 27 new data centers with an average size of 500,000
square feet. Often regarded as a new centralization of computing, the new
architecture in fact unleashes huge new efficiencies and opportunities on the
edges of the network, impelling vast new tides of traffic across it. The rule
for the new architecture is that hardware softens on the edge and software
hardens at the core.
At
the core of the network, the basic technology is hard: crystalline fiber optics
in worldwide webs of glass and light. Most of the global fiber network was laid
in the late 1990s before the telecom crash by scores of innovative but
ultimately bankrupt companies such as Global Crossing (GLBC) and Flag
Telecom. The huge challenge today is adapting Moore's law electronics to
the gigaspeed hardware of the existing fiber optics global web.
This
means a set of new computer architectures feeding an ever-expanding set of
technologies for software "virtualization." New companies such as VMWare
(now part of EMC) of Palo Alto, Calif. and Xsigo Systems of San Jose are
spearheading this move. Amazon is the leader in exploiting it. Separating the
function of the system from the hardware that embodies it, virtualization turns
the Internet into a general purpose computing system, with huge gains in
versatility, speed and efficiency.
This
vast expansion of the scale of computing across the network, however, renders
Moore's law doublings inadequate to meet the need for speed. A key answer is
the movement of optical technologies to chips themselves by such companies as Luxtera,
a venture startup in Carlsbad, Calif., technologies based on Caltech advances
that link fiber directly to chips. Azul Systems of Mountain View is
pioneering a combination of Java-based parallel processing with virtualization
software to produce multitrillion-bit-per-second performance in data centers.
A
further development, even more unexpected, is the advance of graphics-processor
devices optimized for real-time PCs and game machines from Nintendo
(NTDOY.PK), Sony (SNE) and Microsoft. Two companies have been
playing leapfrog in graphics processors for more than a decade--ATI, now
owned by Advanced Micro Devices (AMD), and Nvidia (NVDA), last
year's FORBES Company of the Year. In press conferences and at trade shows from
New York City to Shanghai, AMD is showing off integrated computer graphics,
virtual world and 3-D special effects capabilities from a young entrepreneur
named Jules Urbach. (I helped him raise funds for one of his companies.)
Even
more fundamental is the emergence of nanotech, referring to technologies
measured in the range of billionths of meters. Inspired by an inadvertently
misleading speech by Richard Feynman in 1959, where he envisaged bypassing
chemistry to manipulate atoms directly at nanoscale, nanotech for the last
half-century has yielded an increasing pitch of hype bearing relatively little
fruit. Notable have been improvements in wrinkle-proof clothes, more-resilient
golf clubs and more-efficient ways of painting cars, but meeting disappointment
has been the idea of transforming electronics and medical care.
This
year nanotech is breaking out. The most spectacular invention in nanotech has
been the carbon nanotube, famously researched by Richard Smalley and his group
at Rice University in the early 1990s. With hundreds of times the strength of
steel and conductivity of copper, nanotubes offered amazing properties but no
obvious function. At first they struck the industry as a promising new way to
make what it was already making: transistors for chips.
Now
it turns out that the best application of nanotubes is as a radically superior
way to make filters for fluids and gases. Seldon Technologies of
Windsor, Vt. has invented ways to tune carbon nanotubes for fast removal of all
impurities from water, including viruses and metal toxins, without use of
power, chemicals or ultraviolet light. One product is a large nanomesh straw
that allows a soldier or a hiker to suck superpure water out of a fetid puddle.
Usable in Third World or emergency situations far from the power grid, Seldon's
water filters yield water clean enough that the company is testing it for use
in plasma injectable into the body.
Regardless
of views on global warming, the need for new energy and building materials is
urgent and undeniable, and although most attention focuses on transportation,
some 40% of greenhouse gas emissions in the U.S. comes from buildings. Gary Winnick,
who led Global Crossing during its glory years before it crashed and burned,
has launched a new company called iCrete that addresses one of the
world's most polluting industries, building construction. Relying on a
radically new and cheaper way to make concrete, iCrete drastically reduces the
amount of cement and associated emissions in new buildings. Ten times as cost
effective as existing concrete, it is enabling a revival of architectural
innovation in skyscrapers, such as noted architect Frank Gehry's Beekman Tower
in Manhattan. Even as it is used in some applications as a cheaper, stronger,
lighter and safer replacement for steel, iCrete technology is being used in the
foundation of the Freedom Tower on the site of the old World Trade Center.
Amid
the surprising creations of entrepreneurs around the globe, all these
technologies depend upon a vibrant and free U.S. economy without oppressive
regulations or taxation. Creativity is the ultimate source of all forms of
power and freedom.
Read more of George Gilder’s work.
Log on to the Gilder Telecosm Lounge with your subscriber password at www.Gildertech.com
today.
|
The Gilder Telecosm Forum To
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Friday Feature / Curbing
Washington’s Growing Power
DAVID MALPASS, Forbes Special Market Report: “Intelligent Investing” (10/22/08): Big government is walking away as the knock-out winner over the private
sector in the latest financial crisis. Washington spinmeisters have placed the
blame for the crisis on too much capitalism and too little regulation, with no
blame left over for Washington's own bad regulatory, monetary and tax policies.
The solution offered by big government is even bigger government. If unchecked, the Washington "fix" for the financial crisis would create its biggest power expansion since the New Deal. Luckily, there's a key weakness in Washington's timing: The power expansion coincides with Washington's lowest-ever public approval ratings and perceptions of competence. This leaves an opening for the private sector to cut its losses, working with the new Administration as it sets the economic tone for the next decade. Rather than Washington cementing its 2008 power bulge, it might still choose a more pro-growth course--it could sunset or limit some of its new superpowers, letting the nation rebuild its lost competitiveness.
In
creating a new fund within the Treasury, Washington gains responsibility for
extracting $700 billion from the private sector. It will decide what debt
instruments to purchase and how to manage and eventually sell them. It will
also make massive purchases of bank stocks and guarantee bank loans, competing
with Warren Buffett and sovereign wealth funds. The most dangerous outcome: a
public/private partnership in which many banks operate more like utilities than
vital capital allocators…. Read on: http://www.forbes.com/forbes/2008/1110/029a.html
Read more of the Forbes
“Intelligent Investing” Special Report:
http://www.forbes.com/2008/10/22/intelligent-investing-economics-cz_1022invest_land.html
__________________________________________
Friday Blogger Bonus / Gilder at his
Prime
CHRIS ANDERSON, “The Long Tail” blog (10/22/08): My
least favorite question is "what's the next big thing in technology?"
for a lot of reasons, from the excessive importance put on "big
things" (whatever that means) to the small matter that I still can't predict
the future, despite many years of fruitless practice.
What
I usually say is that the industry I'm watching most closely these days is
energy, not IT, and that not only do I not expect a new "big thing"
in IT anytime soon, but we're still just figuring out how to absorb the
genuinely revolutionary advances of the 1990s. It's hard to look around at the
Web landscape today, from cloud computing to social networking, and see
anything that wasn't at least sketched out a decade ago.
With
that in mind, I happened to be reading a 15-year-old interview in Wired
between Kevin Kelly and George Gilder, and it struck me as profound today as it
was then. (Recall that this is before the Web!). Gilder has always been
something of a hero to me, and it was delight to be reminded why. Choice
quotes:
Gilder
anticipating "Free" and, while he's at it, YouTube:
In
every industrial revolution, some key factor of production is drastically
reduced in cost. Relative to the previous cost to achieve that function, the
new factor is virtually free. Physical force in the industrial revolution
became virtually free compared to its expense when it derived from animal
muscle power and human muscle power. Suddenly you could do things you could not
afford to do before. You could make a factory work 24 hours a day churning out
products in a way that was just incomprehensible before the industrial era. It
really did mean that physical force became virtually free in a sense. The whole
economy had to reorganize itself to exploit this physical force. You had to
"waste" the power of the steam engine and its derivatives in order to
prevail, whether in war or in peace.
Over
the last 30 years, we've seen transistors (or switching power) move from being
expensive, crafted vacuum tubes to being virtually free. So today, the prime
rule of thrift in business is "waste transistors." We
"waste" them to correct our spelling, to play solitaire, to do
anything. As a matter of fact, you've got to waste transistors in order to
succeed in business these days.
My
thesis is that bandwidth is going to be virtually free in the next era in the
same way that transistors are in this era. It doesn't mean there won't be
expensive technologies associated with the exploitation of bandwidth - just as
there are expensive computers employing transistors; but it does mean that
people will have to use this bandwidth, they'll have to waste bandwidth rather
than economize on bandwidth. The wasters of bandwidth will win rather than the
people who are developing exquisite new compression tools and all these other
devices designed to exploit some limited bandwidth.
Kelly
asks "What is the fabric of the network?"
Gilder:
Photons. Electronics are not good for communications. Photons - optical
computing - are. What makes photons so great for communication is they don't
interfere with each other. They collide and pass on unaffected. You can send
them two-way, and they are not subject to electromagnetic disruption. Many
signals can flow through one fiber. But the fact that photons don't affect each
other means they are cumbersome for computing, since you want interactions in
computing. You need to have the charges affect one another - that's the heart
of computing. The heart of the transistor function is that you can control a
bigger force with a smaller force. But photons don't control each other. So for
computing functions I still think that electronics will prevail; but for
communications, photonics will prevail.
Read the complete 1993 interview:
http://www.longtail.com/the_long_tail/2008/10/gilder-at-his-p.html
__________________________________________
Readings /
Stocks Falter as Gloom Deepens
http://online.wsj.com/article/SB122484171623466137.html
Can Math Cure Cancer?
http://www.forbes.com/forbes/2008/1027/074.html
Raising the Genius Bar: 7 Years of iPod
Evolution
http://www.wired.com/gadgets/mac/multimedia/2008/10/gallery_ipod_anniversary
After the Crash
http://blog.pff.org/archives/2008/10/creativity_is_k.html
Apple’s Quarterly Disclosure
http://drtaxsacto.blogspot.com/2008/10/apples-quarterly-disclosure.html
Lenovo IdeaPad: Review
http://www.wired.com/reviews/product/lenovo_ideapad_s10
Samsung Pulls Out off SanDisk
Deal
http://www.byteandswitch.com/document.asp?doc_id=166546&WT.svl=news1_4
__________________________________________
Friday Letter Editor: Mary Collins George / mcollins@gilder.com
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