Running Money, page 11
I think he was talking about the oil slumps.
“I sold ma all cumpny a few years back and fig-erred it was time to do sumptin’ else. So me and my daughter—stand up there, Agnes—we set up one of them family orifices. Hired a bunch of anal-ists to crunch sum numbers and all. Them folk cost a pretty penny, so I say to ma-self, let’s open this thing up to other family orifices. Then anal-ists won’t cost us so much.”
“What the hell is he talking about?” I asked my tablemate, who ignored me, as he was busy taking notes.
“You see, I got me a slot on Tie-guh and Sew-Rose, and you ain’t got one. Them funds are closed, the only way you gunna get your money in them is through me. So, c’mon down and sign up for my fund, and you too can get George Sew-Rose to manage your money.”
“That’s it? He’s got a slot with Tiger Funds and Soros Management. C’mon. They’re hot money funds, but so what?” I asked.
“Shh. I’ve been trying to get in those funds for years.”
“And as far as Tie-guh, I know that Julie Robertsman for lot o’ years, we pretty good friends. Now, that’s a goddamn moneymaker.”
“Isn’t it Julian Robertson?” I asked.
“Forget it, he’s rolling.” I’ve heard that line somewhere before, I think after Bluto accused the Germans of bombing Pearl Harbor in Animal House.
“So talk to me affer-wards, and I’ll git you into dem funds with ma slot. Thank ya very much.”
And sure enough, a crowd grew around the Texan, clamoring for his precious slot in these two fast-money hedge funds. So much for worrying about risk. I guess Tiger and Soros aren’t considered risky anymore.
I left Newport empty-handed. Well, not completely empty-handed—I had a ticket saying I owed $150 to the State of Rhode Island for taking too much risk on their highways.
Part IV
Intellectual Property
The Augmenter
I got back from Newport in a bad mood. I was frustrated that none of these families with substantial assets would invest with us. But worse than that, it might have been my last chance to get some money for the fund. All of a sudden, risk went out of favor.
Wall Street is buzzing because Thailand just blew up. I’m not sure what that even means, but Asian currencies are flying all over the place and mostly sinking like stones. Are Soros and Tiger causing this? Or are they getting killed? Who knows, who cares? All I know is that tech is seriously out of favor and we’ve given up all of our 25% gain by the time 1997 ends.
Damn—there is no use trying to raise money in a market like this.
The fraternal celluloid scene played out in my head.
“We’ve gotta do something.”
“Absolutely.”
“You know what we gotta do?”
My wife, Nancy, and I threw a party.
“Who is that guy?” one of my neighbors, Sharon, asked me.
“Who?” I asked.
“Is his name Doug?”
“Who?”
“That guy.”
“Which guy?” I asked.
“That guy. Oh my god, it is. He invented everything.”
“Who?” I asked again.
“The silver-haired guy. What is he doing at your party?”
“Oh, that guy. Yeah, Doug somebody. He lives next door. Nancy invited him so he wouldn’t complain about the noise from the party.”
“That’s not Doug somebody. That’s Doug Engelbart. I studied all of his stuff. Augmentation and links and UI [User Interface]. He was in all of my books. That’s really him, oh my god.”
Sharon was starting to hyperventilate. I was considering getting a paper bag for her to breathe in, but if she passed out, perhaps she would stop ranting so much.
“All right, take it easy, calm down. I still don’t see what all the fuss is about. He seems like a nice old man who lives next door,” I said.
“No, you don’t understand. He is the reason we are all here. He is the reason this Valley exists. He saw it all first. In the ’60s.”
“Was he hallucinating?”
“What do you mean?”
“Well, that VA hospital half a mile from here, at Willow and 101, is where Ken Kesey wrote One Flew Over the Cuckoo’s Nest. Something may have spilled in the water.”
“Not funny. Especially from you, Mr. Tech Investor.”
“What do you mean?”
“Everything you use today on your PC, Doug Engelbart demo’ed 30 years ago.”
“Like what?”
“Like the mouse.”
“I thought that was Steve Jobs.”
“Nope.”
“OK, I was just kidding. Jobs stole it from Xerox PARC.”
“Wrong again. It was Doug’s.”
“What else?”
“Hypertext.”
“I thought that was that whacky Xanadu guy, Nelson something or other.”
“Wrong again, sport Doug. Oh my god, here he comes!” Sharon exclaimed.
“I just wanted to thank you for inviting me. I’m Doug Engelbart.”
“Well, you are more than welcome. I’ve wanted to meet you because we have four boys over here that create enough noise to simulate a small but effective nuclear device. You probably want to call the police, I know I do, to see if they can quiet my own kids down.”
“Never hear a thing. I love kids.”
“Surely, you…” I said.
“You have a nice group of friends here.”
“Thanks, Doug. I’ve heard a lot of stories about you.”
“Well, they’re probably not true.”
“They’re true,” Sharon gurgled.
“Have you met Sharon?”
“No, hi, I’m Doug Engelbart.”
“You…you…you…I know…I’m…Hi.” Sharon was goo-goo–eyed.
“Doug, she claims to know your work, studied your work.”
“Well, how nice to know my work. I’ve been in a few textbooks.”
“Yaba…” Sharon was trying to say something profound, maybe she even was.
“I think Sharon needs some more wine. Doug, let me get you some too. Anyway, thanks for coming. Enjoy the party.”
Now I was curious. It was time to find out more about my neighbor, who somehow must have gone deaf over the years, if he can’t hear my kids screaming. A quick Web search the next day for Doug Engelbart pulled up a bunch of news stories. There was a picture of him getting some sort of medal from Bill Clinton. Hey, that’s pretty cool. It was for scientific achievement or some such thing. I scanned the article, and it wasn’t until the last paragraph that I read that Doug Engelbart invented the mouse. So, it really wasn’t Steve Jobs.
Almost every other article described a meeting of the American Federation of Information Processing Societies’ Fall Joint Computer Conference held in San Francisco. Sounded like a real rip-roaring conference. I’m sorry I missed it. Except it was held on December 5, 1968.
At the time, Frisco was tripping at Haight and Ashbury, free love, cheap dope, flower children, hippies, war protesters, Jimi Hendrix at the Fillmore. Maybe I would have liked to have been there, but then again, I was only 10 years old. My parents were a little strict about these things. But while the city was getting everything they wanted at Alice’s or anyone else’s restaurant, Doug was cooped up inside the Convention Center with information processors, giving demos. But while all those hippies burned out and faded away, except for all those never-say-die Dead Heads, Doug laid out the next 30 years of computing. No, take that back. He didn’t just lay out the next 30 years, he gave real demonstrations of what it would look like.
Doug led a group of researchers at the Stanford Research Institute and had been working since 1962 on a topic they called “Augmented Human Intellect.” Doug got a slot at the AFIPS conference to present his group’s findings. Ho hum, a real snoozer, right?
But his team had put together a huge surprise. They had microwave links on the roof and phone lines hooked up to connect the Convention Center to their labs in Menlo Park. What Doug showed off was a system called NLS or oN Line System. On a computer screen with both graphics and text were multiple windows, a text editor with cut and paste, and an outline processor. A wooden-looking mouse controlled an on-screen pointer as a cursor. Multiple users could connect remotely. There was hypertext to be able to “link” to information anywhere on the computer or network. If you were stuck, a help system would provide assistance based on the context of what you were looking for. The 1,000-plus attendees were stunned. This was 1968. Water-cooled mainframes in air-conditioned rooms were run by the gods of corporate computing. Doug described a system that he used in his own office every day.
Engelbart’s augmentation ideas took another 15 years to be implemented for the mass market, but he was the first to break the technology into horizontal layers.
Over time, several different companies could take a chip, program it with an operating system, add applications, user interfaces, networking and databases, and create a system that could, well, augment humans. It was the augmentation part that is the value of computers. Ask anyone who worked shuffling certificates or sorting airline tickets.
At the time, computing power cost a fortune. Cost was the main barrier and would remain the barrier for nearly 20 years. But when elasticity kicked in, computers became cheaper than rooms of humans. Augmenting often meant replacing, or helping those who remained.
With Engelbart’s map, an entire industry came along and created highly profitable intellectual property. Bill Gates and Steve Jobs and Michael Dell and Mitch Kapor—these guys are heroes too, but perhaps they are just implementers of someone else’s vision. More power and riches to them, of course, but Doug Engelbart laid out the future of the personal computer, and now it’s history. I was intrigued.
I marched over to Doug’s house a few weeks later to talk about a broken fence, but I was really intent on discovering his secret to scale.
“So, Doug, I study technology and markets, and I look for these hypergrowth stories. But you saw all this in the ’60s. I’ve seen you quoted using the term ‘scale,’” I said, forgetting to mention the fence.
“I did some research in the ’50s and figured out there was a superscaling effect,” Doug said matter-of-factly.
“But what do you mean by scale? What did you see back then?”
“Two things. I did a scaling study in the ’50s that convinced me that components would keep getting cheaper and there was going to be all the bandwidth you could ever use—” Doug answered.
“That was before the integrated circuit,” I interrupted.
“So that every knowledge worker was going to be equipped.” Doug Engelbart rightly ignored me and kept talking. “The other scale was human scale—”
“You mean, computers easy to use,” I interrupted again.
“Well, that’s part of it. Yes, certainly there is scale from getting people to use complex systems, from hiding the complexity from them, so the hurdle is lowered.”
“That’s the human scale.”
“No, the bigger thing I saw was that knowledge scales.” He put his hands out palms down and interlocked his fingers and then raised his hands up.
“You mean from ease of use.”
“I have a hard time explaining it. It’s been hard for 30 years. But the combined knowledge of the human race scales, and if computers can augment people, then that scale is enabled.”
“I’m not sure I follow.”
“I’m sorry, I don’t explain it well. I suppose the only thing I can think of is the alphabet. It’s a hurdle, but once you get over it, you can keep adding people to it, and knowledge and the usefulness of knowledge scales, with almost no bounds.”
“OK, thanks. Now, about that fence…” I was going to have to think about that one. There was no stock I could go out and buy tomorrow morning on that insight, but somehow I think Doug described not only the scale I was hunting for, but scale that was going to last for a very long time.
Maybe the alphabet analogy is a good one, but after thinking about it, I think Doug Engelbart is a modern King James. I know that sounds odd, but so does scaling human knowledge. Think about it—the King James Bible took religion out of the hands of the high priests and put it into the hands of the people. An entire generation became literate just to be able to read the King James version of the Bible. These same people went on to work in manufactories of the Industrial Revolution, where literacy came in handy to speed up training of workers.
Doug Engelbart’s augmentation effort took computers out of the hands of the high priests of the corporate information technology centers. Some call it democratization, but I like to look at it as a literacy move. Since 1969, an entire generation has become computer literate, which eases training for jobs in a knowledge and intellectual property economy. King Doug indeed.
Computers were not just for boring accounting functions (the Cornish mines could have used one). They really could augment the human race and increase efficiency and productivity by replacing costly repetitive human functions. That was real scale, like steam engines scaling labor. Bing-bing-bing. On December 5, 1968, the world changed. Of course, you couldn’t invest quite yet. A few more things needed to be invented, like microprocessors.
Get Busicom
In 1968, there were already 30,000 computers in the world, each with about a megabit of ferrite core memory per computer. Core memory was a tiny electromagnet, a diode wrapped in wire and sold for about 20 cents per bit. It was a big business.
That spelled opportunity. With six transistors, you can create a flip-flop, a memory device that let’s you set it to a 1 or a 0, and it stays that way until someone comes along and changes it. At 1958 prices of $100 per transistor, a bit of memory cost a heck of a lot more than the 20 cents per bit of ferrite cores. But Moore’s Law just requires a little time and a little patience and cost becomes no object. It would take until 1974 before semiconductor memory would cross the price per bit of ferrite cores and send them to the trash heap of history.
Gordon Moore saw this coming. So did Robert Noyce. In 1968, they left Fairchild and started a company of their own to make these semiconductor memories, Intel, which stood for Integrated Electronics. They actually had to buy the name from a motel chain. Hotel, motel, intel, I don’t even want to know! Venture capitalist Art Rock and friends ponied up $2.5 million in two days. Moore and Noyce quickly brought over a young Hungarian from Fairchild, a chemical engineer named Andy Grove.
Intel was getting pretty good at integrating those transistor sisters into chips and not just memory. In 1970, a Japanese calculator company named Busicom showed up and asked Intel to create 12 custom-integrated circuits for a newfangled calculator. Intel assigned engineer Ted Hoff to the task but told him that there was no way Intel could afford the design of 12 chips. Hoff figured he would spend his life designing these one-offs for every Tom, Dick and Harry-san that came along. So he suggested a special-purpose processor, or microprocessor, that he could tweak or reprogram for the next customer. Management liked the idea, mainly because Busicom was willing to pay for the project without asking for ownership of the processor. Dumb move by Busicom!
Hoff and Intel, in effect, busted the computer world wide open. Sure, all they had done was create a computer on a chip—hey, Intel was a chip company, what did you expect them to do? But it was a programmable chip, meaning someone else could add value to the chip just by twiddling with some bits, by changing the list of instructions this computer on a chip executes. By programming it. Little Billy Gates would figure this out by the end of the decade. But this is the first major step in creating a horizontal business, where different companies could be mutually incented to create intellectual property that they could prosper with, together. The chip was worthless without being programmed. The program was just fuzzy 1’s and 0’s without the chip to execute it. Like cotton without a textile mill.
Not quite two years after Doug Engelbart laid out the road map without a master plan for the computer industry, the gears were already spinning. The semiconductor industry, as nascent as it was, subtly went from selling piece parts or basic building blocks to selling designs, real intellectual property. As usual, no one knew it at the time, but this was just what was needed for an intellectual property economy to emerge.
The most obvious metaphor and parallel between the Industrial Revolution and the digital revolution are the steam engine and the microprocessor. Both are worthless as stand-alones, but when attached to some process, each lowered the process’s cost and increased its performance. Steam engines were attached to bellows in iron foundries and to spinning frames and looms in textile mills, replacing horses and water. Eventually, machines and factories were designed knowing that steam engines would power them, as they did the spinning mule.
Microprocessors initially “attached” to calculators but eventually new products, like personal computers, were designed with the microprocessor as its core.
Both steam engines and microprocessors never stopped improving. Watt added sun and planet gearing and double-action pistons. Intel and others continued to integrate more memory and the ability to handle bigger numbers into microprocessors.
Hoff, working with a guy named Federico Faggin, used 2,300 of those integrated transistors to come up with the 4004 microprocessor, which used 4-bit-wide data paths and executed a whopping 60,000 operations per second.
The folks at IBM, if they even bothered studying the 4004, would have surely laughed. IBM was charging millions for 32-bit computers with millions of bits of memory. But what Hoff and Faggin implemented was a computer architecture that was manufactured using a technology that got cheaper by 30% every year. It could eventually intersect the cost and performance of those big honker IBM machines. Not could, would.
