VenChar

The coming DNS challenge

Om links to a Business 2.0 article on the dangers of a over-worked DNS and how that has resulted in the recent outages at Google and Comcast.  The article and the resultant press coverage on this topic highlights the growing problem with current DNS infrastructure. 

(Warning: tooting Globespan and our portfolio company's horn ;-))

We had invested in Nominum in early 2003 on the investment thesis that open source BIND will not scale and its nice to see that atleast once in a while we are right with our investment thesis.  Nonimum has assembled the world's top experts in DNS (Paul Mockapetris, David Conrad, etc.) and they have built the most scalable DNS engines ever.  If you are a carrier, ISP or an enterprise, you would be doing yourself a disservice by not upgrading your DNS architecture.  If they can't find you, they cannot buy from you.

(end tooting)

Update 1: Good comment by Jeff Nolan on the comcast outage:

that comcast outage wasn't due to overworked DNS but rather a move that the company made to consolidate their regional DNS servers into centralized data centers. Comcast screwed up their network through poor planning, and as evidence to prove my point that this wasn't a DNS scaling issue is that comcast users en masse started moving to Verizon's DNS servers (I did) and they handled the load just fine despite having more broadband customers than Comcast has.

I think there is a fair debate to be had about how to scale DNS, especially when we consider exponential scaling for VoIP to the masses and so on, but the other plane that this debate should reside on is distributed vs. centralized.

I don't know what happenned at Comcast and Jeff is usually right on these kind of things so I am sure it was due to poor planning.  What I do know given our active involvement in Nominum is that the DNS infrastructure is being taxed in numerous ways:

• DDOS attacks are dramaticallly impacting DNS availablity and BIND is not set up to handle that
• Pharming attacks are raising issues of what "DNS addresses" to trust and how to know you really are going to the right address
• Network operations are becoming complex and network operators want to move, centralize and manage their IP addresses and the current bubble gum and wire setup (usually a bunch of excel spreadsheets) don't let them do that.

Given all that, I think more and more enterprises and carriers are going to opt for a commercial DNS solution rather than rely on BIND

Tire pressure sensors

The National Highway Traffic Safety Administration (NHTSA) (part of the Department of Transportation) is going to mandate the installation of tire pressure sensors in vehicles starting in model year 2006. If the tire pressure falls below the recommeded level by 25% or more, the car will alert the driver to the fact. The rulemaking is motivated by the fact that underinflated tires are the cause of several accidents: it is estimated that the rule will save 120 lives and prevent 8400 injuries annually.

According to NHTSA, under-inflated tires can adversely affect fuel economy, lead to skidding and loss of control and hydroplaning on wet surfaces. It can also increase stopping distance and the likelihood of tire failures.

It will cost the auto industry on the order of $50-$70 per vehicle and save consumers about $30 due to better fuel efficiency, fewer crashes and longer tire life. According to the NYT, "The government estimates that it will cost the industry between $800 million and $1.1 billion to phase in the technology on all new vehicles from this year through 2007."

Apparently, it all started with an act of Congress in 2000 (prompted by the Firestone recalls) requiring the NHTSA to set guidelines for tire pressure monitoring systems. The agency dragged its feet for a couple of years (apparently due to the lobbying efforts of the auto industry) until safety groups sued multiple times to get the process moving and received court orders directing the NHTSA to act quickly.

For more background see the NTHSA announcement and the rulemaking. Interesting story because it illustrates the dynamics of rule-making (conflicting interests of safety groups, Congress and the auto industry), the time-scales for the passage of rules in this industry (~4 years), the process for mainstreamization of new technology (tire-monitoring systems are already in place in 2-4 MM luxury vehicles today and the adoption of this technology will be accelerated by this ruling) and because it illustrates the reactive nature of such efforts (it took a well-publicized system failure to spur decisive action).

Book Review: America The Vulnerable

Just finished reading Stephen Flynn's excellent 'America the Vulnerable - How our government is failing to protect us from terrorism'. The thrust of the book stems from this diagnosis:

It is a sense of futility, fueled by the lack of vision about what sensible measures are worth pursuing, that lies at the heart of our national inertia on the homeland security issue.

Flynn notes that counter-terrorism measures tend to enacted be reactively rather than proactively. There is a tendency to put countermeasures in place only after a threat has materialized and created extensive damage, rather than anticipating a class of attacks and aiming efforts at preventing them. Linked to this tendency is another:

There is a political price to be paid if politicians are perceived as being negligent or ineffectual in providing security. So when an act of terror takes place, it triggers a powerful political dynamic to leap to decisive protective actions before evaluating the likely costs or consequences. The greater the exploited vulnerability, the more likely the government is to overreach in response.

He goes on to argue that given that our intelligence capabilities are likely to be spotty for some time to come, we cannot expect to uncover specific threats with enough advance warning to protect against them. A better approach is to invest resources in identifying and prioritizing likely terrorist targets and proactively taking measures to protect them and, in addition, create contingency plans to mitigate those risks in the event of a successful attack. Along these lines he lists several critical infrastructure elements and networks that should be targeted for protection including the transportation networks, the food and water supplies, the power grid, etc.

The deterrence strategy he proposes is two-pronged: security measures to decrease the success probability of an attack and contingencies for coping when somethin goes wrong. He makes the useful point that the terrorist will be deterred if either the risk of detection is sufficiently high or if the damage from a successful attack can be well-contained.

He argues for federally mandated security standards in the area of domestic security and critical infrastructure protection since the market will not move to implement the security requirements left to its own devices, especially if the measures require substantial investments. He draws an interesting analogy to safety standards:

Over time Americans have come to view safety not as a government-imposed burden but as a valued necessity. As our society became more urbanized and technically complex, people began to appreciate the benefits of devising and enforcing rules that reduced risk or harm through human error or mechanical failures. Along with the changes in public attitudes, businesses came to realize that there was a market case for making safety investments. Safer factories have higher worker productivity rates and lower insurance costs. Safer products make for happier customers and fewer lawsuits. So while automotive manufacturers, for example, were once bitter opponents of safety mandates, today many try to outdo each other, advertising how their cars beat the safety standards established by the government and exceed the safety record of their competitors.

There is another aspect to this analogy to safety systems, which is a reminder that the focus of security should be managing risk down to acceptable levels, not necessarily eliminating it. His premise is that it is naive to suppose that terrorism can be eliminated but that, on the other hand, the associated risks can certainly be managed and contained. "Automotive safety is about taking steps that allow people to drive while managing the risks that might cause injury or death. If eliminating the risk of automobile fatalities were the goal, we would simply ban people from driving cars."

One of the themes of this book is that many of the most effective tools for combating the terrorist threat often can often provide other useful societal benefits. The challenge is to device security measures that integrate into ways of doing business. For instance, deploying RFID-like tags on shipping containers to track contents can have the added benefit of increased supply chain visibility in addition to the added security and traceability of the contents.

Warren Lieberfarb and the DVD

From a Newsweek profile of Warren Lieberfarb, the father of the DVD, this succinct vision statement:

if movie discs were the size of CDs, were priced right and offered a better picture and sound than video, people would collect movies like books. The key was to make the discs cheaply, based on a universal standard.

Barcode technology adoption

Fortune has an article (subscription required) on barcodes and how they have come to be so pervasive. It is an interesting study on the adoption of new technology and exhibits many familiar features:

* Key enabling technologies need to advance along their trajectories of improvement: Joe Woodland, an engineer, decided to invent a way to automate supermarket checkouts and came up with the idea of barcodes in 1949. “By 1952, Woodland and a partner had patented their system. But ... lasers and computers, which would play integral roles in bar-code systems, didn’t yet exist in cheap form. And so, despite joining IBM in the hopes that it would produce his invention, Woodland watched his idea languish and eventually sold his patent to another company.”

* The importance of standards: “For an automated checkout system to work, supermarkets and packaged goods companies would have to agree on one standard code to translate lines into prices. There would be chaos if different stores implemented incompatible codes. So representatives of supermarkets and their counterparts from consumer-goods companies convened to tackle the problem. After weighing proposals, the committee chose the universal product code, or UPC, an IBM design that built on elements of Woodland’s idea.”

* The challenge of finding the right first application: “Supermarkets liked bar coding because it allowed them to eliminate price stickers, saving labor costs. Industry planners hadn’t considered that shoppers might not cotton to that. Food inflation in the early ’70s was intense. And now the stores were asking customers to buy products with no stickers on them and trust that prices weren’t being changed behind their backs. Consumers were incensed, and the supermarkets’ response didn’t help. A number of them dispensed grease pencils so shoppers could copy prices off the shelves. That didn’t placate shoppers, and state legislatures began passing laws mandating price labels. Faced with potential federal legislation, the supermarkets capitulated and promised to label items.

Initial bar-code adoption was so anemic that in 1976 Business Week published an article headlined ‘The Supermarket Scanner That Failed.’ Experts had predicted 1,000 stores would have scanners by that point, but only 50 had installed the costly equipment. Not until the early 1980s would scanners become pervasive in supermarkets. "What really turned the corner was not the grocery industry, but the mass merchandisers," says Stephen Brown, author of Revolution at the Checkout Counter: The Explosion of the Bar Code. "When the mass merchandisers, most notably Kmart, decided to adopt the system, that built a momentum that never stopped."”

* The scope and scale of the impact of new technology can be hard to foresee: The guy who invented barcodes saw in them a way to automate supermarket checkouts. However the real value in barcodes, not initially foreseen by the inventor, is information. “As often happens with seemingly minor technological changes, bar codes have had a huge and unexpected impact. Cash registers had been mere repositories of money; post-UPC, they became data conduits par excellence. Each time a product is sold, a record of the item is now preserved. And as any student of Wal-Mart can tell you, that altered the balance of power between retailers and manufacturers. Once, manufacturers controlled data about product sales via warehouse inventories. They understood what was selling much better than the retailers. But now the stores had data too—and both sides would learn to mine that information.”

It will be interesting to see how the RFID wars play out and in what unforeseen ways they will change the world of business as well as our lives.

How to avoid commoditization (Part 1)

The Innovator's Solution presents a framework for thinking about what drives commoditization. In the words of the authors, "The process that transforms a profitable, differentiated, proprietary product into a commodity is the process of overshooting and modularization." The idea is as follows:

1. As a new market coalesces, a company develops a proprietary product that, while not good enough, comes closer to satisfying customers' needs than any of its competitors. It does this through a proprietary architecture, and earns attractive profit margins.
2. As the company strives to keep ahead of its direct competitors, it eventually overshoots the functionality and reliability that customers in the lower tiers of the market can utilize.
3. This precipitates a change in the basis of competition in those tiers, which...
4. ... precipitates an evolution toward modular architectures, which ...
5. ... facilitates the dis-integration of the industry, which in turn ...
6. ... makes it very difficult to differentiate the performance or cost of the product versus those of the competitors, who have access to the same components and assemble according to the same standards. This condition begins at the bottom of the market, where functional overshoot occurs first, and then moves up inexorably to affect the higher tiers.

I feel this analysis (which focuses on the dynamics of low-end disruptions to existing industries) overlooks another important source of commoditization: open, widely-accepted standards. While standards can create a great deal of value for the consumer (through interoperability, increased consumer choice and lower prices), they simultaneously drive commoditization in the industry.

I had a recent post on standards and commoditization where I argued that

Standardization can play an important role in speeding up the product lifecycle by tending to remove competition based on features and functionality - as an example, most of the core functionality of a product category such as “WiFi AP” is now standardized and it is very hard for AP vendors to differentiate their offerings. The emergence of a standard also has other visible effects/implications: (1) it signals a broad consensus on specifications, (2) it encourages multi-vendor adoption of the standard, (3) competition between vendors drives down the cost of components, (4) lower costs drive adoption, which leads to even lower costs in a vicious/virtuous cycle, (5) standards significantly lower barriers of entry. When the emergence of the standard is timed well relative to the market, each of these effects reinforces the others. WiFi is a great example of each of these effects.

Standards have the effect of lowering barriers to entry, increasing competition,eroding product differentiation and destroying competitive advantage, exerting downward pricing pressure, and driving commoditization. However, it is possible to avoid the commoditization death-trap and Christensen and Raynor point a way out (in a chapter titled 'How To Avoid Commoditization'):

Whenever commoditization is at work somewhere in a value chain, a reciprocal process of decommoditization is at work somewhere else in the value chain. And whereas commoditization destroys a company's ability to capture profits by undermining differentiability, decommoditization affords opportunities to create and capture enormous wealth. The reciprocality of these processes means that the locus of the ability to differentiate shifts continuously in a value chain as new waves of disruption wash over an industry.

The companies that are positioned at a spot in a value chain where performance is not yet good enough will capture the profit. That is the circumstance where differentiable products, scale-based cost advantages, and high entry barriers can be created.

In other words, one response to commoditization is to alter business models and target and occupy a part of the value chain where the performance is not yet good enough. In a forthcoming post, I will try to apply this analysis to the DVD industry: the emergence of the DVD standard, the opportunities (and challenges) created by wide acceptance/adoption of the standard and the firms that have managed to capture the profit within the industry.

PC vendors in consumer electronics

Wired article that suggests PC vendors have an edge in the consumer electronics space. Points to the success of the iPod, Dell and Gateway's entry into plasma TVs and more, HP's push into digital cameras, etc. The article argues that PC vendors have learnt the lessons of standards and interoperability.

If traditional electronics firms were all about exclusivity, computermakers are all about common standards and commoditized parts. And the PC folks know how to implement software-based systems. They know that if documents, pictures, video, and music are merely streams of 1s and 0s, it makes sense to put software in computers, cameras, and DVD and CD players. And they know how to do it for less money.

In Clayton Christensen's terms, this shift to more modular architectures is facilitated/fueled by the performance of the subsystems passing the point of "good enough". Improvements in processor performance, hard drives, etc. have gotten the industry to a point where the product architecture doesn't need to be as integrated to achieve the desired level of performance. This is one of the drivers. The others are (1) increasing digitilization, (2) emergence and embrace of standards (MP3, DVD, WiFi, etc.), (3) the PC vendors being accustomed to a faster rate of innovation and their technological expertise which will translate into the ability to add new features such as wireless network connectivity, storage, etc. (4) PC vendors' more efficient operations which allow them to offer lower costs and operate at lower profit margins (10-12% compared to 30-40% or so for the CE vendors).

In the computer industry, commodification reduces manufacturing costs (improving razor-thin margins) and guarantees inter-operability. It'll work with consumer electronics, too... What comes next? Device compatibility. The PC industry was built on the under-standing that consumers buy accessories from multiple companies, and, in order to maintain customer loyalty, products will be competition-friendly.

Also see my recent post on this subject.

Book Watch Plus

Book Watch Plus is a cool service that I discovered a while back. It uses the web services APIs of Amazon, Google and weblogs.com to create a powerful new application. It tracks all blogs that have changed in the last several hours, looks for links to Amazon books in the blog postings and creates a running Top Ten lists of books that are getting a lot of buzz in the blogging community. Using the Amazon and Google web services APIs, it pulls down product information, related news, etc.

Weblogs.com publishes a list of weblogs that have been updated in the last three hours - this list is published as XML and is queryable using XML-RPC or SOAP. Amazon's web services API allows for detailed product information to be pulled down using XML/HTTP or SOAP. Google allows searches to be performed using a SOAP API.

Also see the related Book Watch, Media Watch and AllConsuming and read related articles by Erik Benson and Tim O' Reilly.

Standards and commoditization

New York Times article on the changing face of consumer electronics retailing with Best Buy and Circuit City fighting to stay in the game with WalMart. The article puts its finger, in passing, on a few major and broader trends: commoditization is happening sooner in the product lifecycle and this seems to be driven by the two forces acting in concert: standardization and the entry of Chinese ODMs.

Clayton Christensen references a framework for the new product lifecycle based on the evolution of the basis of competition. Early in the lifecycle vendors differentiate their products based on functionality. As the product category matures, the basis of competition shifts, successively, to reliability, then to convenience and finally to price. Once price becomes the basis of competition, the commoditization stage has been reached. "A product becomes a commodity within a specific market segment when the repeated changes in the basis of competition completely play themselves out, i.e., when market needs on each attribute or dimension of performance have been fully satisfied by more than one available product."

The NYT article points out that the progression through these stages to commoditization is happening faster now than ever before:

The rapid succession of digital entertainment devices — the DVD, the digital camera, the MP3 player — should have created a golden age for the stores selling them. But these wonders share a common problem with a previous digital product that had been a hit with consumers: personal computers. Early in each product's life, prices have fallen and models and features have changed quickly, leaving retailers with expensive, out-of-date inventory. Once that happens, the products become a commodity, and profit margins — always tight in the electronics business — became virtually nonexistent.

(click below to keep reading)

Standardization can play an important role in speeding up the product lifecycle by tending to remove competition based on features and functionality - as an example, most of the core functionality of a product category such as "WiFi AP" is now standardized and it is very hard for AP manufacturers to differentiate their offerings. The emergence of a standard also has other visible effects/implications: (1) it signals a broad consensus on specifications, (2) it encourages multi-vendor adoption of the standard, (3) competition between vendors drives down the cost, (4) lower costs drive adoption, which leads to even lower costs in a vicious/virtuous cycle. When the emergence of the standard is timed well relative to the market, each of these effects reinforces the others. WiFi is a great example of each of these effects.

A side effect of standardization is to encourage and ease the entry of Chinese/Taiwanese ODMs with their low-cost products through openness of specifications, multi-vendor support for components, faster adoption, and higher volumes.

The Wal-Mart exec quoted in the article clearly recognizes this dynamic:

"Our customer is getting smarter about technology and wants to buy it sooner," said Gary Severson, Wal-Mart's senior vice president who oversees electronics. Moreover, some digital products, particularly at the low end, are standardized around certain specifications without the subtle variations in features and quality of, say, stereo speakers. As a result, Chinese manufacturing plants now produce millions of computers or DVD players, much as they stamp out Barbie dolls and running shoes.