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Digital Rules
Our Challenge Is Change, Not Globalization
Rich Karlgaard 11.27.06, 12:00 AM ET
America's role in the world--regarding terrorism, foreign wars, immigration and economic globalization--was the alpha issue of the Nov. 7
election. It is certain to be the big issue again in 2008.
Take one aspect, economic globalization. This incendiary topic alone has succeeded in pitting Republican against Republican and
Democrat against Democrat. On the right, antiglobalists are an emergent force in talk radio, a medium dominated by conservatives.
Michael Savage, the number three radio host behind Rush Limbaugh and Sean Hannity, trumpets his "borders, language, culture"
theme to at least 8 million listeners 15 hours a week. Lou Dobbs, who calls himself a Republican, offers nightly rants against global
capitalism on CNN. Another antiglobalist is thoughtful Rod Dreher, the conservative religious writer, who opines for local organic farming
in his book, Crunchy Cons.
Democrats are equally divided. The globalists include Bill Clinton, his former Treasury secretary Robert Rubin and economic adviser Larry
Summers, and most liberal executives and financiers on Wall Street and in Hollywood and Silicon Valley. The antiglobalist camp comprises
popular progressive writers, such as David Sirota and Thomas Frank, left-wing bloggers at the Daily Kos; and heartland populists, such as
Sherrod Brown of Ohio, Byron Dorgan of North Dakota and Jon Tester of Montana.
Antiglobalists are on the rise in both parties. This is bad, if for no other reason than the antiglobalists dangerously mistake symptom for
cause. The cause of America's angst is not globalism. It is change, and rightly so. The pace of economic and business change is
accelerating. Wildly and unstoppably. Here's why.
Declining cost of technology.
Economies run on a digital platform, and the cost of that platform is dropping 30% each year. The 312-megahertz chip in my BlackBerry
8700 costs about $20 when purchased in volume. The chip's performance/cost is 675 times greater than that of the 1989 version of
Intel's 33-megahertz 486 chip, adjusted for inflation. Even more dramatic: The BlackBerry 8700 costs less than $300. The first PC to
use Intel's 486 chip was the Compaq DeskPro 486--it cost $13,999, in 1989 dollars.
Billions can now afford technology. It took more than a century to populate the planet with 1 billion telephones. The second billion
took only five years. By the end of this decade 2 billion people will own not just phones, but phones with Web browsers. That means
2 billion people will shortly have a ticket into the global economy.
Internet search and transparency.
A decade ago, if I wanted to do competitive research on the operating models and economics of any industry and business, I might
have gone to McKinsey & Co. or Goldman Sachs. The research would have cost tens of thousands of dollars. Today I can sit a couple of
bright M.B.A. students in front of computers with access to Google and get the research faster and for free. In China there's a saying:
"One man's margin is another man's opportunity." Now millions can imagine opportunity from your margins and mine.
The mash-up economy.
Despite the proliferation of cheap hardware technology, one barrier to entrepreneurs existed until recently: costly enterprise software.
But during the last two years a startling development has occurred: software that lets you build custom applications on the cheap from
prefab code that you can "mash" together for your own needs. A pioneer of this is Salesforce.com, which competes with giants SAP
and Oracle. Salesforce gives its customers tools to build their own software.
A glut of risk capital.
A few columns ago I speculated that the sum of all venture capital, private equity and LBO funds in the world totaled somewhere
north of $500 billion. Whoops, I was wrong. It's more like $2.1 trillion. This actually makes my point better: There's an ocean of money
sloshing around the planet in search of opportunity. Large publicly traded U.S. companies no longer have a capital advantage over
smaller and nimbler private and foreign companies. The companies with the best prospects will get the money.
Incredible capital efficiency.
Here's an irony. In today's Wild West economy the most disruptive startups are those that need the least capital. They are just too
darn capital efficient. Craigslist, the little San Francisco outfit that matches buyers and sellers of apartment rentals, used cars and
personal services, generates $25 million a year and has only 24 employees. With its vastly lower costs Craigslist is like a terrorist threat to
the $30 billion-a-year U.S. newspaper classified-ad business.
Amazing human-capital efficiency.
Consider that Google's revenue per employee is around $1.3 million, on a forward basis. Shockingly, that's more than twice as high as
the revenue-per-employee figures at Microsoft, Intel and Cisco – powerful companies and talent farms in their own right. This is the
trend we see: Each new generation of tech leaders does more with fewer people. The employees are exceedingly bright and driven.
To recruit them, Google posts math problems on highway billboards. The correct answer leads to a Web site that poses another
question. That answer leads to a request for a résumé, a clever screen for a company bombarded with job applications.
The pace of change is accelerating. Rewards are going to those companies that are exceedingly fast, clever and capital efficient. There
is no mystery here, no conspiracy, no abstract villain. Globalization is not the problem. Change--that's our challenge.
Read Rich Karlgaard's
daily blog at http://blogs.forbes.com/digitalrules or
visit his home page at www.karlgaard.com
Forbes.com : http://members.forbes.com/global/2006/1127/016.html
Our Challenge Is Change, Not Globalization
Rich Karlgaard 11.27.06, 12:00 AM ET
America's role in the world--regarding terrorism, foreign wars, immigration and economic globalization--was the alpha issue of the Nov. 7
election. It is certain to be the big issue again in 2008.
Take one aspect, economic globalization. This incendiary topic alone has succeeded in pitting Republican against Republican and
Democrat against Democrat. On the right, antiglobalists are an emergent force in talk radio, a medium dominated by conservatives.
Michael Savage, the number three radio host behind Rush Limbaugh and Sean Hannity, trumpets his "borders, language, culture"
theme to at least 8 million listeners 15 hours a week. Lou Dobbs, who calls himself a Republican, offers nightly rants against global
capitalism on CNN. Another antiglobalist is thoughtful Rod Dreher, the conservative religious writer, who opines for local organic farming
in his book, Crunchy Cons.
Democrats are equally divided. The globalists include Bill Clinton, his former Treasury secretary Robert Rubin and economic adviser Larry
Summers, and most liberal executives and financiers on Wall Street and in Hollywood and Silicon Valley. The antiglobalist camp comprises
popular progressive writers, such as David Sirota and Thomas Frank, left-wing bloggers at the Daily Kos; and heartland populists, such as
Sherrod Brown of Ohio, Byron Dorgan of North Dakota and Jon Tester of Montana.
Antiglobalists are on the rise in both parties. This is bad, if for no other reason than the antiglobalists dangerously mistake symptom for
cause. The cause of America's angst is not globalism. It is change, and rightly so. The pace of economic and business change is
accelerating. Wildly and unstoppably. Here's why.
Declining cost of technology.
Economies run on a digital platform, and the cost of that platform is dropping 30% each year. The 312-megahertz chip in my BlackBerry
8700 costs about $20 when purchased in volume. The chip's performance/cost is 675 times greater than that of the 1989 version of
Intel's 33-megahertz 486 chip, adjusted for inflation. Even more dramatic: The BlackBerry 8700 costs less than $300. The first PC to
use Intel's 486 chip was the Compaq DeskPro 486--it cost $13,999, in 1989 dollars.
Billions can now afford technology. It took more than a century to populate the planet with 1 billion telephones. The second billion
took only five years. By the end of this decade 2 billion people will own not just phones, but phones with Web browsers. That means
2 billion people will shortly have a ticket into the global economy.
Internet search and transparency.
A decade ago, if I wanted to do competitive research on the operating models and economics of any industry and business, I might
have gone to McKinsey & Co. or Goldman Sachs. The research would have cost tens of thousands of dollars. Today I can sit a couple of
bright M.B.A. students in front of computers with access to Google and get the research faster and for free. In China there's a saying:
"One man's margin is another man's opportunity." Now millions can imagine opportunity from your margins and mine.
The mash-up economy.
Despite the proliferation of cheap hardware technology, one barrier to entrepreneurs existed until recently: costly enterprise software.
But during the last two years a startling development has occurred: software that lets you build custom applications on the cheap from
prefab code that you can "mash" together for your own needs. A pioneer of this is Salesforce.com, which competes with giants SAP
and Oracle. Salesforce gives its customers tools to build their own software.
A glut of risk capital.
A few columns ago I speculated that the sum of all venture capital, private equity and LBO funds in the world totaled somewhere
north of $500 billion. Whoops, I was wrong. It's more like $2.1 trillion. This actually makes my point better: There's an ocean of money
sloshing around the planet in search of opportunity. Large publicly traded U.S. companies no longer have a capital advantage over
smaller and nimbler private and foreign companies. The companies with the best prospects will get the money.
Incredible capital efficiency.
Here's an irony. In today's Wild West economy the most disruptive startups are those that need the least capital. They are just too
darn capital efficient. Craigslist, the little San Francisco outfit that matches buyers and sellers of apartment rentals, used cars and
personal services, generates $25 million a year and has only 24 employees. With its vastly lower costs Craigslist is like a terrorist threat to
the $30 billion-a-year U.S. newspaper classified-ad business.
Amazing human-capital efficiency.
Consider that Google's revenue per employee is around $1.3 million, on a forward basis. Shockingly, that's more than twice as high as
the revenue-per-employee figures at Microsoft, Intel and Cisco – powerful companies and talent farms in their own right. This is the
trend we see: Each new generation of tech leaders does more with fewer people. The employees are exceedingly bright and driven.
To recruit them, Google posts math problems on highway billboards. The correct answer leads to a Web site that poses another
question. That answer leads to a request for a résumé, a clever screen for a company bombarded with job applications.
The pace of change is accelerating. Rewards are going to those companies that are exceedingly fast, clever and capital efficient. There
is no mystery here, no conspiracy, no abstract villain. Globalization is not the problem. Change--that's our challenge.
Read Rich Karlgaard's
daily blog at http://blogs.forbes.com/digitalrules or
visit his home page at www.karlgaard.com
Forbes.com : http://members.forbes.com/global/2006/1127/016.html
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