With my wife grounded by a nasty ankle injury, we took in three movies and I escaped to a rock band reunion. Oddly, they all confirmed the same lesson: nostalgia is a temptress — fun, but wholly unreliable. 

Owen Wilson is the hero of Woody Allen’s new movie, Midnight in Paris. He is a Hollywood screenwriter working on a piece about a nostalgia dealer even as he visits Paris and is transported in style back to the Lost Generation of the 1920s and 30s. The film is complete with a hysterical Hemmingway, a brilliant Stein, and appearances by Dali, Picasso, and both Fitzgeralds. It is a romp – the sort of film that Allen made in the good old days before he married his step-daughter.

Allen understands that mature cities are built on memories — perhaps Paris most of all. Memory is impossible in emerging cities (in Beijing today, the drivers frequently get lost because entire neighborhoods are transformed so thoroughly that they seem foreign). Mature cities are often wealthy enough to be politically liberal but most are culturally conservative, even as they attract the great minds of every age. Inevitably, the Golden Age of any great city is thus built by people who idolize an earlier Golden Age. Into this vortex steps Wilson, a Texan version of the traditional Woody Allen romantic, neurotic schlurb. It all works well, with the obvious exception of Carla Bruni, who should stick to her day job as the first lady of France. (Unable to cut her from the film altogether, Allen simply created a new character, wonderfully played by Lea Seadoux, to take over 90% of the role offered to the hopelessly wooden Bruni). 

We also treated ourselves to a pair of movies I passed on when they first came out but have since been told by many constitute the best romance films ever made: Before Sunrise and Before Sunset. Both films consist almost entirely of conversation between Ethan Hawke and Julie Delpy. Once again, there are ties to Paris and nostalgia, and some of the ties are subtle. For example, the second film opens at Shakespeare and Company, the famous bookstore founded by Sylvia Plath and frequented by Hemmingway, Dos Passos, and other characters out of Midnight in Paris. Plath famously published James Joyce’s Ulysses, which takes place on a single day, June 16, Dublin. Before Sunrise takes place during a single day in Vienna and ends with our two lovers agreeing to reunite in Paris the following summer on, you guessed it, June 16. The second film opens with viewers wondering whether either had shown up. The movies are wonderfully rendered, brilliantly acted, and an ode to the trap of powerful memory, especially powerful romantic memories. Very highly recommended and available for streaming on Netflix.

On the advice of a friend, I caught the Buffalo Springfield reunion concert down the street at Oakland’s the newly restored Fox Theater. The theater is beautiful, but tells a powerful political tale. It was refurbished by Jerry Brown as mayor using redevelopment money, despite the Paramount, a landmark Art Deco theater one block away. The Paramount was empty the night of the Springfield reunion — and Jerry Brown is now proposing, quite rightly, to eliminate California’s wasteful, zero-sum, redevelopment spending.

The Springfield are nothing these days if not nostalgic. The concert opened with On The Way Home: “When the dream came, I held my breath with my eyes closed”, which pretty much described the graying, cannabis-mellow crowd.  

Buffalo Springfield reminded me of the new atomic elements reported in today’s Times. Like all of the heavy particles, it is highly unstable and blows apart after a split second. The three founders still seem deeply incompatible. Stephen Stills is a classic rocker and always has been. He looked pretty good, he has lost some weight, but he can no longer sing. Furay is a pop singer, good at the girl songs, who should have joined the Eagles. He can sing, but his guitar playing is like a guy leading church camp. Which figures, since Furay has been a Christian minister for the past three decades, but apparently needs another 15 minutes of rock star fame. 

Then there is Neil Young (who Stills once wrongly accused of being “a folk singer who wants to play in a rock band”). Young is just more talented, more committed, and all around more bad ass than Stills or Furay. Young played off to one side, but the stage always tipped his way. In the encore, he broke loose and lit up the place with Keep on Rocking in the Free World, which revealed Stills and Furay to be what they always were: Young’s backup band. The idea that these guys in their 20s and on drugs even practiced together, never mind made albums and toured, is hard to imagine. The reunion produced some memorable music, but ultimately no nostalgia can overcome the core incompatibility of the band’s founders, who stayed together less than two years. 

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Three years ago, I wrote a lengthy post describing Ferguson’s entry into filmmaking, a documentary on the Iraq war called No End in Sight. I disclosed that Charles is a friend and once invested in my company (it was not, I should add, a terrific investment for him). 

Charles became known in Silicon Valley as a difficult personality — a reputation sealed when he took up the pen and published a cri de coeur called High Stakes, No Prisoners.  Ferguson often describes himself as “pathologically direct” and the people he interviews on film soon learn first hand what that means (Charles can be heard off camera saying “forgive me, but that is simply not true” or “you cannot possibly believe that”). 

Although I had little sympathy for most of the people that Ferguson interviews, at some level I understand what they were going through. For a brief period of time a decade ago, I lunched weekly with Ferguson (I lunched; he grilled). A successful software entrepreneur, he at various times advised me to replace my entire board, my entire engineering team (“I would not have hired any of them”), and my VP of Engineering (“Marty, would it kill you to hire someone with a Computer Science degree?”). The problem was not that Charles was irritating — it’s that he was frequently right (or substantially right). Since an honest critic is tough to find, I sucked it up and kept meeting. In truth, I learned a lot.

As the title suggests, Ferguson wrote Inside Job as a heist flick. The movie begins calmly with reflections on a benign and happy Iceland. By the time the opening credits roll however, the pace of the whodunit is rocking, angry, and punitive. The laugh out loud interviews are supplemented by a great sound track, Matt Damon’s excellent narration, and crisp photography often shot at dizzying angles from helicopters. By the end you realize that this really is a movie about bank robbers — except that they paid off the cops and sent taxpayers the bill. At last night’s opening in Berkeley not far from Ferguson’s home, this lucid tale of unprosecuted criminality worked the crowd to a fever pitch. By the final credits, it was not just the local Baptists who were yelling back at the screen. 

Ferguson takes on some new ground by exposing the whores of the financial services industry — both those with PhDs in economics and those who offer high priced sex and cocaine to masters of the universe. In classic muckracking fashion, he interviews a Wall St. madame and a psychiatrist who in each their own way minister to Wall Street’s uncontrolled alpha males. He also skewers academic economists who serve on the boards of investment banks and publish “scholarly” research papers justifying their employer’s larcenous tendencies. Fredric Mishkin, a Federal Reserve governor and Columbia finance professor is revealed to be a complete imbecile. (His attempt at a rebuttal here confirms the verdict; Ferguson responds here). Democrats Laura Tyson and Larry Summers are exposed for making millions on Wall Street while advising policymakers. Harvard’s Glen Hubbard panics amidst his richly earned smackdown and tells Ferguson “you have three minutes left. Take your best shot”. Unfortunately for Hubbard, Ferguson does. 

Without ever becoming didactic, Ferguson uses the film to educate. He tells the comparative tale of Iceland and of EU reforms that resemble Obama’s campaign rhetoric more than our own financial reform bill. He tells the history of Wall Street, noting that Morgan Stanley used to be a small, thinly capitalized partnership consisting of moderately paid professionals who were famously conservative because they came to work each day and risked their own capital. He gets a great story out of financial author Charles Morris about a Wall St. trader in the sixties who had to hold down a second job as a train conductor because the pay was so low!

As often happens with films on a mission, Inside Job occasionally overshoots. It conflates the impact of repealing Glass-Stegall with the impact of broad financial deregulation. It paints mortgage securitization and the resulting derivatives with a very broad brush. (Simple derivatives like futures contracts and even collateralized mortgage obligations do exactly what academic economists say they do: reduce costs and risks. Unregulated derivatives built on uncollateralized securities into indecipherable collections of toxic waste that are misrepresented by banks and mislabled by rating agencies are rather a different story). Ferguson excoriates regulators, but generally ignores the government’s role in promoting subprime lending with easy housing credit, tax deductions, and lax monetary policy. And like most progressives, he treats every ill-considered loan as the result of a predatory lender, not a foolish or innumerate borrower. It’s the economic equivalent of blaming consensual sado-machoism on the sadist when in reality, it takes two to tangle. 

On balance however, Inside Job is highly informative, restrained, and entertaining. Its case against both Democratic and Republican regulators is devastating and infuriating. No End in Sight, Ferguson’s amazing debut film won on the war in Iraq him an Oscar nomination. I expect and strongly hope that Inside Job will earn him the statue. 

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Metcalfe’s Law is a lesser known but equally powerful law concerning not hardware but the economics of networks (specifically a telecommunications network, but the Law appears to apply more broadly). It says that the value of a network is proportional to the square of the number of users.  A telephone is an easy example: the first one is useless, the second one can call only one other machine, but the millionth one increases however slightly the utility of each of the other machines (assuming they can connect. You have to count Chinese phones as a separate network if you don’t speak Chinese). Plenty of people debate whether Metcalfe (who invented Ethernet and founded 3Com) got the math right, but the principle seems sound and goes a long way to explaining what economists like to call network effects: businesses in which each participant is better off when a new participant joins. This is a topic for another day, but Microsoft, Google, eBay, iTunes, and a lot of other "can’t live without them" businesses have taken powerful advantage of network effects and Metcalfe’s Law underpins a lot of the economics at work.

Even less well known than Metcalfe’s law is what arrogance and alliteration led me some time back to term Manley’s law, which states that all media wants to be digital, downloadable, and free. Like Moore’s or Metcalfe’s theorems, this is a hypothesis that can be falsified: Moore will be proven wrong the day chip density stops increasing, Metcalfe the day that bigger networks are not more valuable, and me the day that media stops becoming digital or freely exchanged. By now you have noticed that Manley’s law is in  some respects a corollary of the other two – I doubt that it would exist except as a by-product of Moore and Metcalfe.

Manley’s Law is having a good run lately. For simplicity, let’s define media as books, movies, and music — although you could apply it to photographs and several other media types. Music digitized first simply because the files are smaller and people want to listen to the same song more often than they want to read the same book or see the same movie. 

MUSIC

Manley’s law hit the music business so fast and that the New York Times referred this week to “the anarchy sweeping the music industry”.

Music became a digital media on August 17, 1982, when ABBA’s The Visitors became the first CD to roll off an assembly line at a Philips factory in Langenhagen Germany. In 25 years, analog vinyl LP albums have been reduced to an audiophile niche and cassettes and 8-tracks have mercifully disappeared altogether.

Five years ago, iTunes made music commercially downloadable and since then, Tower Records, Musicland, Sam Goody and many smaller retailers have disappeared or been absorbed by chain discounters like Wal-Mart and BestBuy.

This week Apple Computer announced that in January iTunes passed Wal-Mart to become the largest music retailer in the United States. CD sales have declined every year since Apple launched iTunes and in recent years CD sales have fallen in double digits each year. In 2006, 38% of US teens did not by a single CD. In 2007, the number was 48%. 

So music became digital and downloadable – but iTunes does not give
music away for free. The company has sold four billion tracks at a buck each, so what about the last part of Manley’s law – that nice bit about media becoming free?

Apple has sold perhaps 130 million iPods (it passed 100 million a year ago). That works out to an average of 33 iTunes tracks for each device.
But iPods hold somewhere between hundreds and thousands of songs, so even if you account for obsolete devices, you have to ask what
people are putting on their iPods if not paid music (or videos) from iTunes?
Answer: they are loading them with free content.

Some of the free content is ripped CDs — and not all of these were paid for (what, after all, are people buying hundreds of blank CDs for, anyway?).

Some free tracks come from MySpace, which according to a Forester analyst now has more than 8 million artists and
bands (and today announced a deal with several music labels to compete with iTunes). iTunes has the largest music catalog in the world with
6 million tracks — so 8 million bands and artists is a really large number. Some of these tracks have never sold a single
copy – but the experience of most long tail media markets is that there are a lot
fewer of these than you might think. Describing the role of MySpace in music, Forester notes that “Acts including Lily Allen,
Sean Kingston, Arctic Monkeys, and Dane Cook were discovered on the
site by users”. (I don’t know most of these artists, although I saw a fast-rising Lily Allen at South by Southwest last year and was
impressed).

P2P file sharing, denounced by the music industry as illegal downloading, continues to grow by double digits each year. Growth may be slowing, but only BigChampagne knows for sure. BigChampagne is a
smart company that has tracked file downloading for years. They sell information about which demographic
groups download what music in different parts of the country. Record companies pay handsomely for the information (thus admitting that sales of CDs and iTunes tracks are a poor indication of what people actually listen to). Record companies use the information to persuade local radio stations to play what is popular. The result is not necessarily more sales — often it just means that more people download the song for free but it really helps plan lucrative concert tours.

Musicians with recording contracts are starting to make their
music available for free – or accept that it is free anyway. Some use
free music to promote concert tours, merchandise, or albums.
Radiohead famously released its album In the Rainbows for direct download and asked people to pay whatever they wanted. About 1.2 million people downloaded the album and some paid. Nine Inch Nails did something similar.

Estimates vary as to how well the Radiohead experiment worked. The high estimates assume
an average price of $8, meaning the band grossed $10 million. The low
estimates assume an average price of $5 with 60% not paying, so the group took in
$2.4 million. Not a flop – but here is the punch line: even though the album was available for free, more than a half million users downloaded free it on a P2P site anyway. Habits are hard to break and free is a tough price point to beat. It turns out that not even free can always compete with free.

MOVIES

Up next: Hollywood. Movies went digital in the 90’s, when DVDs were adopted by consumers faster than any technology in history – DVDs became a majority of movie rentals within five years of its introduction as a consumer product. Note that in each of these markets digital content is not enough — you need a very easy to use device before digital media takes off.

Movies are now widely streamed and downloaded. In January, nearly 79
million viewers, or a third of all online viewers in the U.S., watched
more than three billion user-posted videos on YouTube, according to comScore’s latest report.

Making movies for YouTube has also become much easier with the advent of low cost video cameras like the Flip, which now accounts for 30% of all video camera sales on Amazon.
The little device is a point and shoot videocam that makes recording and
uploading video chimp simple. I am astonished at
the things one can usefully video when shooting becomes this easy.

Commercial films are already available for download at zero marginal cost. Vongo enables
free downloading of studio movies for subscribers, who pay a $10 monthly fee. BitTorrent hosts and clients distribute thousands of
licensed and unlicensed movies in a manner that is not economically different from P2P sharing of music files, although the underlying technology is improved. With iTunes video and cable pay per view offerings also increasing, will movie rental stores follow music stores into oblivion? Yes, they will – and fairly soon. This is why Blockbuster is trying to figure out an online streaming or download strategy. Your neighborhood DVD rental store is toast.

The film industry hopes that the move to Blu-ray Discs (which has now prevailed in the HD
format wars, much as DVD and VHS did before them) will enable stronger cryptography to prevent free sharing of movies. Blu-ray employ
several layers of digital rights management using a standard developed
by a consortium that includes Disney, Intel, Microsoft, Matsushita
(Panasonic), Warner Bros., IBM, Toshiba and Sony. Nonetheless, since it appeared in
devices in 2006, hackers have successfully broken the lock several times. It may be technically possible to encrypt a movie in a manner
than cannot be hacked, but in a war between movie studio
technologists and thousands of smart 17 year olds with too much time on
their hands, history is on the side of the teenagers.

BOOKS

Books will be the last media to go digital for a couple of reasons. First, consumers like the analog form factor. Books are portable, shareable, resalable, and don’€™t require batteries. They
have an emotional impact that only analog media delivers. Books sit on a shelf like Dumbledore’s Pensieve — evoking memories and old friends. You can browse them in
stores in a way that is still hard to duplicate on line.

That said, eBooks have advantages. They are searchable — which matters to researchers, students,  technicians, and search engines that help users discover content. They can be delivered wirelessly, instantly, and cheaply. They are obviously portable.

More fundamentally, analog books are not a great business. Most books lose money for a set of reasons that are very well known. It starts with economically delusional publishers who pay advances to authors that they do not recover in sales. 

Books turn out to be expensive to print, transport, and store.  Booksellers have an almost unrestricted right to return books to distributors –“ a right given to
no other retailer that I am aware of. As a result, 25% of all books in
the economy are moving backwards to distributors or publishers and away from retailers and customers. (These practices may not continue.  HarperCollins just announced a new imprint that will offer no author advances or return rights to retailers).

Worse, 500 new titles are published each day in the US – double the number of ten years ago. Most lose money for their
publisher — indeed most are read by a very small number of people (the
overwhelming majority of books in university libraries, for example,
never circulate at all). During the past decade, publishers have not
sold more books — they have published more titles and they have raised prices. This is neither healthy nor sustainable, especially in the face of strong evidence that all reading, and the reading of books in particular, is in long term decline in most countries.

The first books to go digital are those expected to sell the fewest copies. Lulu, Author House, Xlibris,
and others have developed business models that enable authors to
digitally publish specialized books (meaning books that almost nobody wants to
read). Lightning Press has persuaded a large number of publishers to
digitize their "€œback list"€ (books more than a year old) and and print them on
demand instead of warehousing and remaindering them. As the print on
demand market develops and as electronic readers like the Amazon Kindle or the Sony
Reader become easier to use and affordable, people will buy obscure books
either digitally (cheapest), used (cheap), or printed on demand (most
expensive). Many books will never be printed at all, as the
price of digital books follows music and movies to zero.

For good reason is Apple’s iTunes closely studied by people in the book industry. Apple is the first company to tightly control and seamlessly integrate five critical media assets:
digital content, metadata, a retail website, distribution economics,
and consumer devices. This is not simple game to execute and Apple does it in movies as well as in music. Steve Jobs has denied any
interest in producing a wireless book reader to compete with Amazon’s
Kindle – so you can bet that a team in Cupertino is hard at work building one (Jobs€™ frequently claimed to have no interest in developing a phone or
videos for iPods. For many people, vehement denials from Steve Jobs are the equivalent of product development announcements).

Digital book content is not especially hard to come by. Amazon has
scanned or acquired digital copies of hundreds of thousands of books, as have Google, Microsoft, and Lightning Press (although not all of
these scans are of commercial quality and most do not contain resale
rights). Amazon has high quality metadata (bibliographic information
about the book) but this most of this data is commercially available to competitors.
Amazon has a retail website, although it is optimized for physical, not
digital goods and Amazon has actually lost share as a music retailer
due to a weak download offering. Amazon set a $10 price point for digital books, which looks to me to be $3 too high, and Amazon’s wireless Kindle, although popular, is klutzy by Apple standards.

So figure that an iBook is on the way –
perhaps a jacket pocket version of the MacAir or a larger iPhone  or
both. Apple is likely to come out with a better device and a more
functional website, but Amazon learns fast, knows ecommerce better than
anyone, has powerful metadata, and knows the publishing community
better than Apple does. An alliance between Lulu or Lightning Press and Apple would surprise nobody –“ especially since Amazon has acquired a print on demand company,
BookSurge, and now requires that all POD books use BookSurge as a
condition of appearing on its retail website. This has produced the predictable uproar among authors (which
must make Steve Jobs laugh. It would never occur to him to sell
a media product on his website that he did not fully control).

Will digital books become free? Many
already are free – specifically books whose copyrights have expired. But
without a reader that is as easy to use as an iPod or a DVD player, a digital copy of a
book is not worth much. Once we have a reader that is easy and fun to use, free books
will proliferate. Unlike CDs and DVDs, books will not vanish any time soon,
even though most small bookstores and large bookstore chains are doomed to the fate of their music brethren. Regional bookstores with scale
will survive –€“ and they tend to be the best bookstores now anyway.

All media wants to be digital, downloadable, and free.
A writer, a musician, or a filmmaker has never been an easy vocation
and will be less so as technology makes it a widely accessible
avocation. Those who are used to selling books, movies, and music are in for a
shock –“ digitization has devalued their products and trying to prevent
or reverse this trend is silly and counterproductive. We can and surely will debate
whether this is creative destruction or just plain old destruction –€“ but media products will be increasingly available for free regardless of one’s view of the trend.

The result will be dozens of new business models. In music, concerts are becoming a huge business -– rapper JayZ (who names these guys?) is reportedly about to sign a $150 million deal with a concert promoter instead of a record label. Ozzfest, the annual heavy metal, hard rock tour and festival founded by Ozzy Osbourne and his wife Sharon makes more money now that the concerts are free because the promoters and the bands do very well from sales of food, merchandise, and yes CDs sold at the concerts.

Behind the new business models will be dozens of new ways to acquire media. As I noted in Gravity Lessons,
when I was a kid, I could consume video content only by watching
commercial television or going to the movie theater.

Today you can still
watch commercial TV or go to the cinema – although it is likely now a
cineplex showing a more movies to smaller audiences. Or you can record TV on your TIVO and skip the ads, you can subscribe
and watch the show ad-free on cable, you can pay-per-view, you can buy
a DVD new, buy one used, you can download a podcast, you can borrow a DVD
from a library, rent it from Blockbuster, download it from
Vongo or a P2P site, subscribe to Netflix, stream it on iTunes, YouTube, or
MySpace, etc. In some cases, you pay for your content – in others (P2P,
libraries, YouTube, Tivo) you do not.

The result is an explosion of choices and a hugely increased chance that you will produce as well as consume media. Consumers today  would never dream of trying to watch every movie available, listen to every song, or read every book. You have to go back to Thomas Jefferson to find a President who could have read every book available in English during
his lifetime. Franklin Roosevelt could have listened to every bit of
music recorded during his lifetime and Jack Kennedy could have watched
every movie. Today a person is almost as likely to create as consume writing, movies, and music during their lifetime. This is only possible because media is increasingly digital, downloadable, and free. 

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Best moment: French actress Marie Cotillard accepting Best Actress for her phenomenal performance as singer Edith Piaf in "La Vie En Rose". (Update: Cotillard is charming, but after the ceremony she asserted here that 9/11 was a conspiracy and that men never really walked on the moon. Must be why the French, who know something about triumphant fools, keep the words "triomphe" and "trompe" so close together).

Cotillard was part of a strong and global field that included Brit Julie Christie, favored for a second Oscar 42 years after she won for "Darling", Aussie Cate
Blanchett for "Elizabeth: The Golden Age", Yank Laura
Linney for "The Savages," and upcoming star Canadian Ellen Page for "Juno.

Cotillard’s heartfelt acceptance was wonderful: "…I — thank you life, thank you love, and it is true, there is some angels in this city. Thank you
so, so much."

Well, Los Angeles is about angles and angels both. Biggest disappointment was seeing the Academy pass up No End in Sight for Best Documentary in favor of Alex Gibney’s torture expose "Taxi to the Dark Side" (yes, I did catch the announcer’s silly mistake when he solemnly declared this to be Gibney’s first nomination. Gibney won best documentary two years ago for "Enron: the Smartest Guys in the Room" and was reportedly a close adviser to Ferguson. 

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"Doing what?"

"I am making a movie. In Baghdad. About the war. I wrote it and I’m directing and producing it."

Investor. Friend. Baghdad. Toxic. War. Pathologically intense. I confess that this did not strike me as a winning combination.

Charles Ferguson is an exceptionally smart, entrepreneurial, and, yes, intense guy. After grad school in political science, he

published provocative articles and books about technology
businesses. In the mid 90s, he started a software company with fellow
MIT grad Randy Forgaard and named it Vermeer Technologies after his favorite Dutch painter.
They released their signature product, FrontPage, in 1996 and were
promptly acquired by Microsoft. The irony of this was not lost on those
who read Charles’ frequent criticisms of Gates & Co. Charles would
have likely sold his Microsoft stock on principle, but the terms of the
deal required that he hold it for three years. During this time, the
stock roughly tripled, so Charles became comfortably rich.

The title of his book about his experiences, High Stakes, No Prisoners: How I Won My David and Goliath Battle in Silicon Valley — a Winner’s Tale of Greed and Glory in the Internet Wars
says it all: the book is a tell-all expose of the foibles of Silicon
Valley’s princes (even though Vermeer was based in Massachusetts, not
California). Written as a trash-talking victory lap, he declares the
Valley a place where "one finds little evidence that the meek shall
inherit the earth", dishes Oracle founder and CEO Larry Ellison "severely warped", and generally gets a load of invective off of his
chest. Amazon compared the book to having lunch with a co-worker where
you suddenly find yourself listening to "a savage stream of
unflattering assessments of bosses, wicked gossip, and
the-emperor-has-no-clothes analysis of your industry".

Ferguson spent the next few years writing and investing (this Tech Review article on Google struck me as brilliant at the time and has stood up very well). Still, it was not necessarily comforting to picture him wandering around a war zone with a camera followed by guys with AK-47s covering his backside. Although he might be safer in Baghdad than parts of Palo Alto, this latest entrepreneurial venture seemed truly high stakes, no prisoners. It seemed likely that it would turn out extraordinarily well or end disastrously.

Ferguson sought help from Alex Gibney, the screenwriter-director of the award-winning "Enron: The Smartest Guys in the Room".

"It was the weirdest experience," says Gibney, who got a call from Ferguson out of the blue in late 2005. "He had never made a film before. He’d invented a Web construction program and sold it for a zillion dollars. He was a political science professor. He knew a lot of people in the foreign-policy arena. He’d done some writing. He wanted to do a film about the occupation of Iraq. He came to New York, and we discussed it. The subject was important. ‘Would you help me?’ I gingerly went forward: ‘Let’s see how it goes.’ "

Charles, whose voice is in the film but who keeps himself behind the camera, describes how he decided to make the film here:

Eventually an email arrives announcing that the film had been finished and had been accepted for showing at the Sundance Film Festival. Remarkable. Several weeks later I glance up at CNN in an airport and see that No End in Sight won best documentary at Sundance and received a Special Jury Prize. Amazing. The movie has been picked up for limited but decent national distribution. It is out and now enjoys a rare "A-" average from both professional reviewers and viewers on Yahoo! Movies. In the critical consensus of American Film Reviewers, major film reviewers around the country rank it #5 out of sixty or so movies currently playing. Having now seen it, I am confident that the film will surely contend for an Oscar.

This is wonderful — and at some level completely extraordinary. So tonight I took the whole family to see it. (After all, if there is no end in sight, the kids may inherit this one).

No End in Sight is a cool-headed, devastating film that succeeds for at least three reasons. First, Ferguson interviews mainly Republicans. This is not Michael Moore playing adolescent poseur with his own camera. It is a lucid, relentlessly factual view of a peacekeeping effort that has been as incompetent as the warmaking effort was brilliant. Charles designed his film to reach across partisan lines — something that few political films even attempt.

Ferguson, like most of humanity, sits comfortably to the right of Michael Moore in any case. He was sympathetic to using force to remove Saddam Hussein and spends little time worrying about the origins of the war. You hardly hear a word about bogus WMDs; his focus is the execution of the occupation. He interviews Bush Administration insiders at length, including Secretary of State Colin Powell’s Deputy Richard L. Armitage and his Chief of Staff, Lawrence Wilkerson. We quickly understand the disastrous consequences of the Bush directive that gave control of post-war Iraq to a Pentagon in the thrall of Ahmed Chalabi. Chalabi was the exiled founder of the Iraqi National Congress whom neocons dubbed "the George Washington of Iraq" even though he was wanted for embezzling nearly $300 million through a bank he had created in Jordan.

Ferguson gets access to senior military leaders who were in Iraq during the critical early months including Col. Paul Hughes, a strategic planner for the Coalition Provisional Authority, Jay Garner, the retired lieutenant general who served as head of the Organization of Recovery and Humanitarian Assistance in Iraq, and Barbara Bodine, ambassador in charge of Baghdad. These military leaders and Bush Administration officials repeatedly describe the disastrous and occasionally comic lack of preparation for the occupation. Teams were frequently assigned only a few weeks before they were expected to arrive in country and perform vital work. Barbara Bodine describes arriving in Baghdad without staff, security, or telephones, noting that "there truly were no plans." Ferguson spends time on the ground spent outside the Green Zone (it is perhaps notable that Charles thanks Falcon Security prominently in the opening credits, not in mousetype at the end).

Charles gives the authors of several books on Iraq a chance to summarize their arguments: Nir Rosen (" In the Belly of the Green Bird"), James Fallows (" Blind Into Baghdad"), Yaroslav Trofimov (" Faith at War"), Samantha Power (" Problem from Hell"), and George Packer (" The Assassins’ Gate"). Packer’s experience in Baghdad reportedly inspired Ferguson to make the film. (Charles inexplicably shoots Packer from below while seated in some kind of stairwell with lighting that deeply shadows his face. This gives the impression that Packer is either an oracle or has enemies as vicious as those chasing Omar Fekeiki, an Iraqi who managed the Washington Post’s Baghdad office who could well need the anonymity his back lighting gives him.)

The second reason the film works is that it is rigorously fact-based and focuses on what many analysts have concluded were the Bush administrations three most catastrophic decisions:

• The decision to neither declare martial law, empower an Iraqi government, nor prevent massive destruction, aka "looting". "Looting" is a completely inadequate term for what took place in Iraq. It suggests poor folks grabbing groceries in the wake of a riot or disaster. In Iraq, looters salted the earth, disassembling entire buildings for their rebar and copper. "Looters" drove forklifts and used industrial cranes. They disassembled not only priceless museums but entire factories. Iraqis trashed their communications systems, information assets of all kinds, computer and teleco infrastructure, office furniture, and books. "The greatest mystery of post-war Iraq involves…. why the U.S. didn’t do anything to control the looting because in a way, everything that’s been a problem since then started in that first month," noted James Fallows.

• The decision to pursue radical "de-Baathification", meaning to prevent any member of Sadaam’s former Baath Party from holding public sector employment. Since the private sector consists roughly of butchers, bakers, and candlestick makers, this step removed anyone with technical, leadership, or teaching skills from the economy. It disenfranchised exactly the people that were most vital to rebuild the country. And these were the country’s thought leaders — meaning that as each was told they had no future in Iraq, they influenced dozens of others.

• The breathtakingly stupid and enormously consequential decision to dissolve the Iraqi military. Without this decision, there is a chance that you could repair the first bad decision and rescind the second. But the decision to humiliate hundreds of thousands of men trained at arms with ready access to Sadaam’s enormous weapon’s caches unleashed the insurgency and turned Iraq over to sectarian militia associated with extremist mullahs.

The film lays these decisions out calmly, but also shows them to be the result of shocking ignorance, willful incompetence, and an impeachable disregard for American interests. If George Bush were working for Iran, it would be hard to come up with a better course of action than the one he and Rumsfeld directed. If your goal was to create a vacuum for Islamic thugs like Muqtada al-Sadr, you would start with these three steps. You would create a huge void, knowing that it would be filled by the last remaining institution in society: Shiite and Sunni militias and mullahs. These three decisions would guarantee anarchy, civil war, and ultimately genocide.

The final reason that No End in Sight works is that Ferguson orchestrates three sets of contrasting voices into a powerful chorus. One group of voices are the authors. The film uses them as background narrative and as teachers who accompany the audience through the film. Packer and Samantha Power of Harvard are especially effective in this role. One wonders if Charles considered using Thomas Rick, the Washington Post military editor and author of Fiasco (reviewed here) — still one of the best books on the failed occupation.

The second part of the chorus is current or former Bush Administration officials, most of whom bemoaned the tendency of the administration to completely ignore the deep knowledge and experience of military, diplomatic and technical professionals in favor of the blind certainty of political loyalists. Ferguson does not limit his interviews to disaffected professionals from State. He all but fillets Walter Slocombe, the incompetent Pentagon official who acquiesced to the firing of the Iraqi army without even visiting the country. He tells us again the stories of Republican Party operatives (including clueless students just out of college) being put in charge of sensitive or complex areas of post-war administration for six months before returning home. And we hear the Deputy Secretary of State detail a decision making process that completely excluded the part of the American government consisting of people with expertise, experience, and language skills relevant to Iraq.

The third voice in the movie comes from soldiers. It starts quietly, but tears you apart by the closing scene. The contrast between warrior and bureaucrat, remorseful or not, is palpable and from the heart. We meet all too briefly First Lieutenant Ann Gildroy, who joined the Marines out of Georgetown Foreign Service School a month before 9/11. We hear from two men nearly killed by IEDs: Hugo Gonzales, an Army Field Artillery Gunner from Puerto Rico and David Yancey, an MP who served in the 155th Combat Team. Both men were and are badly injured; both are trying to find meaning in their sacrifice and that of their comrades.

Most memorably however, we hear from Marine Lieutenant Seth Moulton. They don’t make many guys like this — but the ones they make end up United States Marines. Moulton grew up in the old whaling town of Marblehead, Massachusetts and attended Andover — one of America’s most elite prep schools. Then Harvard, where he was a physics student, crew member, and organ player. His classmates selected him to give the oration at their 2001 commencement (his best line: "When you’re damned if you do and damned if you don’t; always do.") Moulton thought about a career on Wall Street, but decided to join the Marines.

"I have a degree in physics, but I knew I didn’t want to spend my life in a lab, I wanted to do some sort of service… We can talk a lot about what we wish we did in the past and the kind of world we’d like to have for the future, but this is not just a question of what we want for tomorrow. It’s a question of what we’re willing to do today.

Moulton deployed to Kuwait in January 2003 and fought with the First Marine Regiment in the attack on Baghdad. In Hillah, Moulton oversaw Iraq’s largest-circulation newspaper and started a television channel and a radio station with his translator (you can see some clips from the Seth and Mohammed show here). In 2004, Moulton led his platoon into combat with the Mahdi militia of Muqtada al-Sadr in the Sadr City area of Baghdad and in the city of Najaf. (He described his experiences to NPR here and reflects in the NYT on the kinds of soldiers we need here. The combat photos in this post are of Moulton and his platoon during in the assault on Najaf).

Moulton has more formal education than most Marines, but like many front line officers seems focused and incapable of guile. He is the kind of soldier men trust with their lives. Having helped document the treasonous incompetence of the US occupation, Moulton takes the final word of the film and it burns long after you leave the theater.

Looking straight at the camera and speaking calmly, he asks "You’re telling me that this is the best America can do?"

"No way. Don’t tell me that. That makes me angry."

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These days you can find that sheepish expression on the face of media executives who are paying attention. They have run off the cliff and the descent has begun. All the frantic footwork in the world is not going to keep some of these guys from making a large and messy hole in the ground. Whether they publish books, movies, or music, media companies confront an astonishing fact: their content is increasingly available for free.

Many denounce the sharing of copyrighted files as theft – but they are pedaling air. The music industry illustrates the challenge. Only about 10% of digital music is paid for – the rest is exchanged for free. The New York Times reports that "Peer-to-peer networks yielded five billion downloads in 2006, whereas 509 million songs were downloaded from iTunes-style services". Although almost as many households pay for digital music as exchange it online, those who get music for free generally get a lot more of it.

Many people expect that as more songs are made available for purchase without copyright protection that both commerce and P2P file sharing will increase. The response of the music industry in general has been a case study in Roadrunner chasing — they have spent dramatically more money on lawsuits than any of the P2P services have ever taken in revenue. But as the industry has squashed file sharing sites, others have grown to take their place. Napster is now a paid service (and a dying one), Streamcast, Kazaa, and Grokster are a shadow of what they used to be. But BitTorrent, Limewire and Freenet have sprung up to take their place – from offshore locations if necessary. The industry says they want to monitor individual downloading; P2P programmers are now making this more difficult.

The media genie is not going back into the bottle. Even Hillary Rosen, the Dark Princess of the Recording Industry Association that sponsored the lawsuits acknowledges (having now left the Association) "I have always thought that people were just putting their finger in the dam with litigation and other kinds of enforcement." The person who once pedaled "sue your customer" as a business strategy to save the music industry now admits that even favorable Supreme Court decisions have little impact on the file sharing or on the core economics of the music industry.

CD sales have declined for six consecutive years in the US. Traditional music retailers are collapsing rapidly: Tower Records, Musicland, Sam Goody and many smaller retailers have ceased operations or closed stores in part because Wal-Mart and Best Buy took away the hits business by undercutting them on price. Today these megastores account for about 65% of retail sales. Even the hits business isn’t what it used to be: the top sellers have accounted for a smaller share of sales every year for five years until even Best Buy is now devoting less space to music sales. Music labels have lost about a quarter of their market value in the past year alone; most are losing money and laying off staff.

Paradoxically, the music economy appears to be growing, not shrinking. There are more recording artists than ever — and more labels. They may make more money on merchandising and concerts than on album sales, but total dollars spent on music does not appear to be shrinking, even in places like South Korea where almost all music is either exchanged for free or available as a low cost monthly service and traditional CD sales have collapsed.

The DVD and book industries are heading in the same direction – even if most people in these industries don’t know it yet. A huge share of the cost of publishing books is taken up by the cost of printing, store display and merchandising, storage, transportation, and returns. Without these costs, newly published books would cost $5, not $25 and publishers and authors would earn just as much on each unit sold but would, of course, sell a lot more units. Since electronic publishing eliminates these costs, you have to wonder why this doesn’t happen.

The answer is that publishers take one look at the music industry, become paranoid about electronic books, and strangle them in their crib by restricting, encrypting, and overpricing them. This has temporarily kept demand for good electronic readers low and the price of available readers high. But the pressure is building: analog media wants to be digital — and digital media wants to be free.

Indeed, if you look around, you will see that books and movies are increasingly available for free at sites like BitTorrent. Even Google lets you download a .pdf file of any off copyright book here. Programs to unencrypt e-book are easy to find. But for the lack of a Sony style reader, books would trade on P2P networks just like music does. Record labels, publishers and movie studios may be infatuated with encryption schemes (aka DRM, or Digital Rights Management). But DRM doesn’t work. Consumers hate being tied to a platform and 17 year olds make a sport and frequently a business out of picking the locks.

The media economy does not need to shrink — it needs to respond to new technologies with new business models instead of new laws. TV is a good example. Think about how you used to watch TV as a kid. There were a small number of stations and you watched your show with advertisements. How many ways can you watch a TV show today?

• You can still watch it the old way — the content is monetized with ads
• You can record in on your TIVO and skip the ads — the content is not monetized
• You can watch in on cable — the content is monetized with subscription revenues
• You can watch it pay-per-view — the content is monetized with your payment
• You can buy the DVD new — the content is monetized by the purchase of the DVD
• You can buy the DVD used — the content was monetized by the first purchaser but not subsequent ones
• You can borrow the DVD from a library — the content is monetized by the purchase of the DVD, although the content is freely shared. Is this piracy?
• You can borrow the DVD from a club like Netflix that lets you check out DVDs — again the content is monetized by the purchase and shared.
• You can download it and burn it onto a DVD — – the content is monetized by the purchase unless it is a P2P exchange
• You can stream it on YouTube or MySpace — the content is monetized with ads
• You can download it or stream it onto your cell phone — the content is monetized on your phone bill.

Notice that none of these technologies require or benefit from encryption. All tolerate copying (just as Netflix knows that some fraction of its customers copy every DVD they rent. Many customers however, myself included, cannot be bothered to copy movies — except perhaps for This is Spinal Tap).

In short, it is possible but often challenging to monetize digital content. You have to work at it and you have to accept that people who are determined to have your content for free are going to get it.

Which brings me to the B-52 Stratofortress. This bomber is a marvelous piece of gravity-defying technology that has changed little since it was introduced in 1954. It is still in service, but the Air Force was paying close attention to technology shifts and so planned to obsolete the planes over the next few years.

The Air Force noted that the problem with high-altitude bombers is accuracy: it is hard to engage in pinpoint bombing from 35,000 feet. So the Air Force decided to spend $320 billion — real money, even by Pentagon standards — for a bunch of fighters that can fly in low and fast and deliver precision-guided munitions from low altitude. Bombing, the thinking went, would be taken over by jet fighters and bombers would go away. Early in his term Donald Rumsfeld actually mothballed our bomber fleet, including the Darth Vader-compatible B1 and B2 Stealth planes.

Writing in Slate, Greg Easterbrook describes how unforeseen technology change proceeded to leave the Generals in Wile E. Coyote mode:

..unexpected technical breakthroughs resulted in extremely accurate munitions that can be dropped from high altitude by bombers, at less cost and risk than using low-flying fighters. The result has been that during the Afghanistan and second Iraq campaigns, most of the air punch has been delivered by a handful of the remaining bombers. Some 80 percent of the bombs dropped during the U.S. seizure of Afghanistan fell from bombers; the share dropped on Iraq since March 2003 is nearly as high. Though bombers have in this decade turned out to be far more important to U.S. military action than Pentagon strategists expected, the government still plans to invest fantastic amounts of money in fighter planes that would be used mainly to drop bombs.

Bombs not only got cheaper (a cruise missile costs a million bucks, a JDAM about $30k), but bombs became unbelievably accurate. A B52 moving at 600 miles per hour six miles above ground can now hit a Taliban campfire every time. Not near the campfire — in the campfire. B52s now literally fly close air combat support — meaning that they can very reliably hit bad guys who are fighting near good guys.

Nobody saw this coming. In World War II, B52s literally never hit anything more specific than a town. They could not hit railroads or bridges or roads. We firebombed enemy cities since that was about all we could count on hitting. By Vietnam, a B-52 could drop a load of ordinance to within 1,000 feet — enough to target buildings, but useless against tanks or bridges. By Kosovo, we were bombing to within a few feet. Now, unless the technology fails, bombs go exactly where they are told to go and are delivered from an altitude that cannot be reached by ground weapons.

The Air Force is still planning to buy the fighters — just as most of the entertainment and publishing industries are planning to continue business as usual, hoping that digital media will not require fundamentally new approaches. Both will soon run out of road and find themselves pedaling air.

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Radcliffe is upstaging the recent announcement of the final Harry Potter book by preparing to appear on the West End stage in a revival of Peter Shaffer’s controversial play Equus. This is when Radcliffe is not filming the fifth and sixth Harry Potter movies or even, one might presume, finishing high school.

Daniel, his lady friend who is assuredly not Hermione Granger, and his horse each make extended appearance on stage without clothing – and Daniel’s character, Alan Strang, both blinds horses and then rides around having sex while riding them. The move has significantly reduce costume and marketing expenses; advance ticket sales are already over a million British pounds — threatening to dwarf advance sales of Harry Potter and the Deathly Hallows.

Neither Hermione nor her alter ego, author J.K.Rowling, have commented yet, but most Muggles have responded by declaring their outrage and then promptly buying tickets. This is London reports the reaction of some parents:

‘We as parents feel Daniel should not appear nude. Our nine-year-old son looks up to him as a role model. We are very disappointed and will avoid the future movies he makes.’

Another wrote: ‘I am curious as to how and why his parents said this was OK.’

Well, they grow up quickly, don’t they? It seems unlikely that Radcliffe will bring his artistic talents to the United States until he turns eighteen. The penalty for child obscenity and child pornography in the US can run to decades in the slammer. In US vs Knox, the courts famously held that material could be judged pornographic even if the the person under 18 is fully clothed.

Or maybe the whole thing is another one of those Polyjuice Potion tricks…

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He is surely one of the great pitch-men of all time. He quivers with excitement about his products and damn near levitates his adoring audience. For the last decade, he has made better use of graphics than any speaker I’ve seen. No lame PowerPoint here — just a single number that is two-stories high, then fade to black so the spotlight can return to Steve — where everybody wants it to be. Jobs is a spellbinder, a corporate rock star with a hypnotic hold on his faithful.

In some weird way all of us who are technology entrepreneurs wish we were Steve Jobs — and many other people do as well. Having on two occasions seen them together in small groups, I think that even Bill Gates wishes he were Steve Jobs — especially since Jobs’ keynote at MacWorld completely upstaged Gates’ awful speech about "digital lifestyles" at the massive Consumer Electronics Show in Las Vegas.

Once again his Steveness appeared badly shaven in his trademark jeans, black turtleneck, running shoes, and water bottle. He delivered a multi-media masterpiece, mixing film clips, product demos, phone calls, photo montages, music, VIP visits, and voice mails from his board member Al Gore. You can watch a sample below or the whole thing here.

It helped, of course, that Jobs was announcing nothing short of the coolest electronic gadget ever — Apple’s new iPhone. Thousands of middle aged dweeby white guys were trembling with techno-lust by the end of this presentation.

We want our iPhones. Very. Very. Badly. Apple’s stock rose 8% on Tuesday — and Nokia, Motorola, and Blackberry all fell about 8%.

For reason is Steve Jobs referred to as the Babe Ruth of Silicon Valley. The Apple II, Macintosh, iPod, and iPhone are each revolutionary products. Most are radical not because of new features but because the products have strong personalities that create an entirely new experience for technology users. The personality of these products — both their legendary strengths and weaknesses — is a direct expression of the remarkable Steve Jobs.

Beyond Apple, Jobs built NeXT Computing and Pixar — which are also transformational companies. Our great grandchildren will study this guy both for his genius and potentially for his blind spots.

APPLE II: 1976

During the Carter Administration, I was newly married, living in San Jose, and working as a machinist in Sunnyvale. I had heard about a guy in nearby Cupertino who was selling a computer he called an Apple — after the fruit that landed on Sir Isaac Newton’s head. I remember driving to Cupertino to get one and seeing the fabled Apple logo for the first time. The machine had been out for some time, but was still a hobbyists device and not widely used (Apple II sales took off after Dan Bricklin wrote Visicalc for it in 1979). The beige computer was gorgeous — it had 8k of memory, no hard drive, and no floppy disk drive — less power than many pocket calculators. It cost a lot more than the car I drove it home in. My new wife was not impressed.

We wrote our own software or we loaded programs from cassettes using an ordinary tape recorder. (OK, after a few weeks, I was able to write a BASIC program that could count to ten all by itself. Programming is hard).

Soon Apple introduced a floppy disk drive — it held perhaps 200k and cost $400 — a couple of week’s pay for me back then. I bought Visicalc the moment it came out (and used it to build models of young Silicon Valley companies to try to unionize. Apple was always high on the list). Eventually I bought a Z-80 card so that I could run WordStar under an operating system called CPM (an OS that was soon purchased by a geeky kid from Seattle who had scored a contract to write an operating system for IBM’s personal computer).

I loved the Apple II — with its weird green phosphorous screen and coupler to let the machine talk by phone with other computers. It had a personality that came directly from its creator — a working class valley kid with an attitude and a real knack for product design. I also loved that you could buy third party software like Visicalc and products like the Z-80 card that went into slots in the motherboard. The Apple II may look like a toy today, but it was the source of so many "omygod" moments that you knew that this little device and its successors were going to change everything. It proved to be Steve Jobs’ last open architecture product however — and until I bought an iPod two years ago, it was the only Apple product I ever owned.

MACINTOSH: 1984

The first most of us knew about this computer was an advertisement that appeared out during the 1984 Super Bowl that many believe is the best TV commercial of all time. It ran once — and if you saw it, you didn’t forget it. Here it is:

Shortly after he ran the ad, Jobs introduced the Mac. It had gorgeous graphics, beautiful typefaces, and an even stronger personality than the Apple II. It was the product of a process so secret that it was housed in an off-limits building that flew a pirate flag (the product was code named "Macintosh" — and team grew attached to the name). The Mac pioneered the graphic user interface, typefaces, windows, and a mouse (Well, Jobs borrowed all of these ideas from Doug Englebart at Xerox’s Palo Alto Research Center and forgot to return them. Then again, Gates borrowed them from Jobs — and PARC wasn’t doing anything with the ideas anyway — they were sort of lying around).

Watch Jobs roll out the MacIntosh in this brief clip here. He clearly loves this technology — it’s incredibly touching.

By 1984, personal computers had been out for three years. They were clunky machines even then, but they did lots of things and did them pretty well. We had spreadsheets, word processors, databases, and even had basic modems which were slow and stupid, but you could dial up bulletin boards and swap software with a friend if you spent enough time fiddling with the communication protocols.

So why a Macintosh? Why a computer built on proprietary hardware that ran only software built or certified by Apple? Why release a computer that had such a small market share that talented developers wouldn’t code for it if they could? Why release a product that is fully controlled and proprietary when IBM / Intel / Microsoft had built a platform that ran on hardware available from dozens of companies and supported software written by tens of thousands of developers? Was the Mac the product of smart entrepreneurship or an act of brazen egotism? And was IBM/Microsoft or Apple the Orwellian control-freak?

Jobs explained his rationale in a brief interview: "Microsoft has no taste — and I don’t mean that in a small way, I mean it in a big way"

The Mac was revolutionary, but it was a failure. Microsoft copied it well enough to make Macs irrelevant to computer markets during the 80s and 90s.

Like the iPhone announced this week, the Mac was very expensive and like the iPhone and the iPod, the Mac was a closed environment, not an open platform. Relatively few programmers wrote code for it, not simply because it was a smaller market, but because Apple actively restricted its expandability, controlled hardware manufacturing, and discouraged independent software developers. It was slow running some applications and pathetically slow to engage in the chaotic, emerging world of online dial-up bulletin boards. On the other hand, it was elegant, the limited software ran very well, and the beast seldom crashed or got infected.

When Mac sales fell well short of Jobs’ predictions and upgrades promised by Jobs and his team did not release on time, the CEO Jobs had hired to run Apple removed him from the Macintosh group. Jobs appealed to the board, which he chaired, but within a year of the launch of the Mac, the board fired him. Steve Jobs was not yet thirty years old.

Being fired from a company he had founded and led was a massive public humiliation. In commencement speech he gave last year at Stanford, Jobs described the experience as one of the three formative experiences of his life (along with dropping out of college and learning that he had terminal pancreatic cancer). His brief speech has become famous for its deep honesty about what matters in life and what has mattered in Jobs’ life.

I recommend it highly — it’s a great talk and my kids have been forced to read it or hear me talk about it so often they can almost recite it. Watch the address below or read it here.

NeXT COMPUTING: 1985

Jobs did not retreat to the wilderness — instead he started two more companies. The first he dubbed NeXT — a company that produced a brilliant little box that ran an obscure version of UNIX dubbed NextStep. Like Macintoshes, it was aimed at the student market. Like Macs, they were cool — the NeXT cube was a Frog Design creation featuring a stark metallic cube. Like the Mac, they were expensive: $10,000 each. Sun Microsystem CEO Scott McNealy dismissed it as ""the wrong operating system, the wrong processor, and the wrong price" (McNealy later invested in NeXt and incorporated many of its tools in Solaris). Bill Gates was more concise, asserting simply: "I’ll piss on it".

NeXT was the system of choice for a certain geek elite, but sales never came close to the 150,000 units per year that its Fremont factory was designed to produce. Jobs brought out less expensive models and (in a move he repeated with Macs a decade later) shifted from Motorola to Intel processors.

One famous user of the NeXT cube was a Swiss developer named Tim Berners-Lee, who used it to create the first web server and the first web browser: the World Wide Web, or modern Internet, was invented on a NeXT cube. NeXT, which ended up a far more successful software than hardware company, paradoxically wrote WebObjects — one of the first platforms for building large-scale dynamic web applications. It became NeXT’s biggest money maker (it too is expensive — but iTunes, Dell, and BBC News still run on it).

Apple, meanwhile, went into a long nose dive as Microsoft products came to dominate the market. Soon, Apple was looking to replace its aging Mac operating system and realized that a highly secure, stable, graphically-oriented OS was essential to compete with Microsoft. The company that had exactly what they needed was….NeXT Computing. At some level, Jobs had continued to build Apple even after leaving the company.

In one of the most amazing second acts in American business history, Apple bought NeXT, brought back Jobs and he has run the company ever since. The NeXT operating system was retooled as OSX and is now the foundation of every Apple computer.

PIXAR: 1986

Shortly after founding NeXT, Jobs bought the computer graphics group from Lucas Films (of StarWars fame) for $5 million and invested another $5 million in the business. Initially Pixar was a hardware company that sold specialized animation computers. Disney was one of its largest customers, but the systems never sold all that well. To try to boost sales, John Lasseter, a former Disney animator, created Luxo, Jr., a famous animated short. Realizing that the company could produce full length animated movies, Jobs approached Disney for funding, promising the people who invented animated films that he could computerize the process of animation better than they could.

He was right. In November of 1995, Pixar released Toy Story. The film became the highest grossing film of 1995, generating $362 million in worldwide box office receipts. Toy Story‘s director and Pixar’s chief creative officer, John Lasseter, received a Special Achievement Academy Award for his "inspired leadership of the Pixar Toy Story team resulting in the first feature-length computer animated film."

Pixar moved from success to success. A Bug’s Life, Monsters, Inc., Finding Nemo, The Incredibles, Cars, and Toy Story 2, all followed — and all were box office smashes, giving Pixar six of the top grossing animated films of all time.

• Toy Story 2, at the time of release, broke numerous opening weekend records all over the world and won a Golden Globe award for Best Picture, Musical or Comedy in 1999.

• Monster’s, Inc. reached over $100 million at the domestic box office in just 9 days, faster than any animated film in history at the time of its release.

• In 2003, Pixar released Finding Nemo which broke every one of Monsters, Inc.‘s opening weekend box office records that had been set only 18-months earlier. Finding Nemo generated $865 million at the global box office and received the Academy Award® for Best Animated Feature Film.

• The Incredibles, released in 2004, earned more than $620 million worldwide, elevating it to the second highest grossing Pixar film and amongst the 25 highest grossing film of all time and four Academy Award nominations.

Disney was thrilled, but Jobs chafed under the terms of the deals. The contentious relationship culminated in the purchase of Pixar by Disney in January of 2006 — a deal that made Steve Jobs the largest owner of Disney by a wide margin. Walt would be pleased.

iPOD: 2001

By the late nineties, Jobs and many others understood that the business of music recording, distribution, and retailing was profoundly broken. Labels had become risk averse and hit driven, retailers had to cover costs with sales from fewer and fewer groups, and the theft of music on websites like Napster and KaZaa threatened the entire system. The music industry decided that the smartest thing it could do would be to sue its customers for illegal downloading. Hmm.

Steve Jobs saw an opportunity not simply for a better MP3 player or a better music website. He realized that he could profoundly restructure how music was sold and delivered. He had a chance to do in music what he had done with personal computing: transform the industry by using technology to set a new and higher standard.

This meant getting record labels to agree to a scheme of digital rights management of the sort they had long opposed. Jobs could not have done this as CEO of Apple — but he was now a very successful Hollywood movie executive — both the CEO of a major and very wealthy studio and the juice behind both the software and the creative talent that produced a new generation of animated films. He had effortlessly become our new Walt Disney — and he had the access, savvy, and clout to create a new deal for the music industry and a hip, classy, fully integrated offering to his customers.

The launch, which took place a few weeks after the September 11 attacks in 2001, was a watershed event for Apple — the company has grown up and to the right ever since. You can watch Jobs launch of the iPod here.

Once again, Steve Jobs’ personality pervades the product. The iPod is easy to use, stylish, and vaguely hip. It is also entirely closed as a platform. As Randall Stross explains in today’s Times Here is how FairPlay works: When you buy songs at the iTunes Music Store, you can play them on one – and only one – line of portable player, the iPod. And when you buy an iPod, you can play copy-protected songs bought from one – and only one – online music store, the iTunes Music Store.

The only legal way around this built-in limitation is to strip out the copy protection by burning a CD with the tracks, then uploading the music back to the computer. If you’re willing to go to that trouble, you can play the music where and how you choose – the equivalent to rights that would have been granted automatically at the cash register if you had bought the same music on a CD in the first place.

Even if you are ready to pledge a lifetime commitment to the iPod as your only brand of portable music player or to the iPhone as your only cellphone once it is released, you may find that FairPlay copy protection will, sooner or later, cause you grief. You are always going to have to buy Apple stuff. Forever and ever. Because your iTunes will not play on anyone else’s hardware.

Unlike Apple, Microsoft has been willing to license its copy-protection software to third-party hardware vendors. But copy protection is copy protection: a headache only for the law-abiding.

What impact has the iPod had? It has not solved the crisis of the music industry — sales of CDs are falling faster than online sales are rising. On the other hand, the part of the music business that Jobs invented — downloaded digital music — is healthy and iPod/iTunes owns about 60% of it, thanks to consumers who are willing to be locked in to a technology controlled by a single company. Why would consumers do this? Simple: songs are a buck and iPods are reliable, fun, and easy to use.

Increasingly however, music is not a product, it is a service. Stross reports on the views of Dave Goldberg, head of Yahoo! music

Eventually, perhaps in 5 or 10 years, he predicts that all portable players will have wireless broadband capability and will provide direct access, anytime, anywhere, to every song ever released for a low monthly subscription fee.

It’s a prediction that has a high probability of realization because such a system is already found in South Korea, where three million subscribers enjoy direct, wireless access to a virtually limitless music catalog for only $5 a month. He noted, however, that music companies in South Korea did not agree to such a radically different business model until sales of physical CDs had collapsed.

iPHONE

Which brings us to Tuesday. Jobs announced Apple TV, which lets you show stuff from your Mac on a flat panel TV. He announced that Apple Computer changed its name — it is now just Apple, Inc. Because Apple is no longer just a computer company.

Then Jobs unveiled the iPhone. How cool is it? It’s sexy thin, runs OSX, has no keyboard but uses a Multi-Touch screen that figures out what input you need. When you need to type, there is a touchscreen keyboard. For buttons, your finger just pokes. To scroll through songs, voice or email messages, photos or contacts, it lests you flick along the bottom of the screen. You can "pinch" a photo between your fingers to expand or compact the image.

In Jobs’ words: "…multitasking, networking, power management, graphics, security, video, graphics, animation." Like the Blackberry, it has an ambient light sensor. Like the Treo, is has a camera. Unlike either, it has a proximity sensor to shut off the touch screen when you have it against your face. It has an accelerometer to sense whether it is in portrait or landscape mode. You can watch video, listen to music, manage contacts, scroll through contacts, pick which voice mail to answer, get cool album art. Jobs said Apple has filed over 200 patents related to the phone.

Retrieving voice mail is easier because you can touch only the message to want to hear, so you can pick which message you want to listen to first rather than listen to them in order. Jobs said the iPhone’s virtual onscreen keyboard is better for typing than most of the plastic tiny keyboards in most smartphones. It wouldn’t take much, but he poked with his finger instead of typing with his thumbs. Hmm.

Connectivity includes quad-band GSM, EDGE, all three Wi-Fi protocols — 802.11b/g and the forthcoming 802.11n — as well as Bluetooth 2.0 and EDR wireless. Cingular will be Apple’s exclusive partner under a multiyear agreement (Cingular got the exclusive distribution rights by signing a deal two years ago sight unseen.) The 4GB iPhone will run $499 and an 8GB version will be $599. Available in June.

Ominously, my 14 year old was not impressed.

"Look, they didn’t use the 3G network, how lame is that? It’s another closed platform — you won’t get much software for it" (he despises Sony for crippling his PS2 this way). "Your Blackberry lets you open attachments and edit documents or spreadsheets" (well, sort of) — "the iPhone won’t". "Plus the lawsuit with Cisco over the name makes them look stupid".

The kid is right, of course. Jobs is just not a Web 2.0 kind of guy — and never has been.

User generated content? I don’t THINK so! You want an iPhone, it’s just like an iPod or a Mac — you get it Steve’s way. You can enter Steve’s world or you can stay out — but you cannot modify it in any way. In Steve’s world, there is one visionary, a lot of developers, and millions of users.

Not for him any talk of open systems, turning consumers into developers, or platforms for participation. Jobs quotes computer scientist Alan Kay to the effect that "People who are really serious about software should make their own hardware." Well, if you want to run a few programs and have them execute flawlessly, this is hard to argue with. If you want to promote innovation by turning loose tens of thousands of developers, it is a less interesting approach.

Problem today is that software is migrating rapidly from the desktop to the web. The value of an open system that can support thousands of programs is diminished in a world where a browser can support thousands of websites and a small number of tasks need to work in an integrated way. This environment plainly favors Apple — just as the 1980s and 90s favored Microsoft.

 
  Technorati : Apple, Macintosh, Pixar, Steve Jobs, iphone, ipod

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