Leapfrog – Page 5 – artdiamondblog.com

Beware of a Snapshot of a Moment in Time

Source of photo: http://www.nytimes.com/2006/07/27/world/middleeast/27mideast.html?pagewanted=2

The photo of Condi Rice touching her forehead ran on the top of the front page of the New York Times on Thurs., July 27, 2006. It ran big: filling over a third of the length of the paper, and over half of the width. It ran right next to the main headline of the front page: "CEASE-FIRE TALKS STALL AS FIGHTING RAGES ON 2 FRONTS."

It appears that Condi Rice is discouraged, or has a headache, or is overcome.

But a great CNN report by Jeanne Moos run on Sat., July 29, shows a dynamic version of the minute during which this snapshot was taken. It shows that this photo is a split-second moment of Condi Rice brushing hair off of her forehead.

Our usual view of competition is to look at how many competitors there are at a moment in time. We look at a snapshot. But to really judge competition we must take Schumpeter seriously and look dynamically at whether there is the possibility of leapfrog competition over time.

In an earlier blog entry, I noted that Ronald Reagan resisted sitting for still photos because he thought that still photos could easily be manipulated to mislead. Ronald Reagan was right.

(Jeanne Moos’s report was entitled "Hairy Talks or Hair in Eyes?" on the CNN web site. I believe it first ran on 7/28/06, though I saw it replayed in the afternoon of 7/29/06.)

Container Ships Revolutionized Shipment of Goods

Source of book image: http://www.pupress.princeton.edu/titles/8131.html

Virginia Postrel’s periodic column in the New York Times over the past six years, was a beacon of optimism, clarity and fresh insights on how the economy works. The excerpt below is from her last column. Presumably she is moving on to other worthy challenges, but her column in the Times will be missed.

”Low transport costs help make it economically sensible for a factory in China to produce Barbie dolls with Japanese hair, Taiwanese plastics and American colorants, and ship them off to eager girls all over the world,” writes Marc Levinson in the new book ”The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger” (Princeton University Press).

For consumers, this results in lower prices and more variety. ”People now just take it for granted that they have access to an enormous selection of goods from all over the world,” Mr. Levinson said in an interview. That selection, he said, ”was made possible by this technological change.”

. . .

The idea of containerization was simple: to move trailer-size loads of goods seamlessly among trucks, trains and ships, without breaking bulk. But turning that idea into real-life business practice required many additional innovations.

New equipment, from dockside cranes to the containers themselves, had to be developed. Carriers and shippers had to settle on standard container sizes. Ports had to strengthen their wharves, create connections to rail lines and highways, build places to store containers and strike new deals with their unions.

Along the way, even the most foresighted people made mistakes and lost millions. Malcom McLean himself bought fast fuel-guzzling ships right before the 1973 oil crisis and slow, economical ships just as fuel prices turned down. ”Almost everybody who was concerned with containerization in any way at some point got the story wrong,” Mr. Levinson said.

It is a classic tale of trial and error, and of creative destruction.

For the full commentary, see:

Virginia Postrel. "ECONOMIC SCENE; The Container That Changed the World." The New York Times (Thursday, March 23, 2006): C3.

The full reference to Levinson’s book is:

Levinson, Marc. The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. Princeton University Press, 2006.

Leapfrog Competition in Video Game Machines

Source of book image: http://www.amazon.com/gp/product/customer-reviews/0385479492/ref=cm_cr_dp_2_1/104-0758544-2447945?%5Fencoding=UTF8&customer-reviews.sort%5Fby=-SubmissionDate&n=283155

Co-opetition is a readable book with some plausible discussion of interesting cases. The central message is that business is not always a zero-sum game (in contrast, say, to competitive sports). One implication is that the firm’s complementary relationships with other firms, may deserve as much attention as its competitive relationships.

One qualitfication: I think the book too much emphasizes game theory as the sine qua non source of the book’s insights. About the only game theory you really need to understand 99% of the book’s analysis is the concept of the "zero-sum game."

In a couple of places, the book discusses "leapfrog" competiton in the video game industry:

(p. 102) By mid-1995 the price of the 3DO machine was down to $400 (with $150 worth of software thrown in). Cumulative sales passed half a million. Progress, surely, but as of early 1996, 3DO’s future remains uncertain. It no longer has the 32-bit game to itself. Sega is shipping its 32-bit Saturn machine at $400. Sony has launched its 32-bit PlayStation at $300. Looking to leapfrog them all is Nintendo, whose 64-bit Ultra machine is due out in April 1996 at a price under $250.

(p. 114) Could a challenger hope to breach Nintendo’s virtuous circle? Not once the circle had got rolling. Forget about alternatives–TV, books, sports. From a kid’s perspective, there were no good alternatives to a video game. The only real threat came from alternative video game systems. Here, software was key, as always. With a huge library of Nintendo titles to choose from, why would anyone buy another machine? Perhaps a challenger could take successful Nintendo games over to its platform and then offer its own library. But the exclusivity clause killed that option. No game could be taken to another platform for a two-year period, by which time the game was passe. A challenger would have had to start from scratch. While large profits and shortages normally invite entry, the virtuous circle made competing in Nintendo’s game hopeless. The only hope was to leapfrog Nintendo with a new technology; that’s what Sega ultimately did, as we’ll see in the Scope chapter.

Source:

Brandenburger, Adam M., and Barry J. Nalebuff. Co-Opetition; a Revolution Mindset That Combines Competition and Cooperation; the Game Theory Strategy That’s Changing the Game of Business, 1st ed. Currency, 1996.

Will Google Leapfrog Microsoft?

Microsoft co-founder Bill Gates and Google CEO Eric Schmidt. Source of photo: online version of NYT article quoted and cited below.

The Microsoft-Google rivalry is shaping up as a titanic corporate clash for the ages.

It may not turn out that way. Markets and corporate fortunes routinely defy prediction. But it sure looks as if the two companies are on a collision course, as the realms of desktop computing and Internet services and software overlap more and more.

Microsoft, of course, is the reigning powerhouse of computing and Google is the muscular Internet challenger. On each side, the battalions are arrayed: executives, engineers, marketers, lawyers and lobbyists. The spending and competition are escalating daily. For each, it seems, the other passes what Andrew S. Grove, a founder and former chairman of Intel, calls the "silver bullet test" of strategic competition. "If you had one bullet, who would you shoot with it?"

How the Microsoft-Google confrontation plays out could shape the future of competition in computing and how people use information technology.

Do the pitched corporate battles of the past shed any light on how this one might turn out?

Business historians and management experts say the experience in two of the defining industries of the 20th century, mass-market retailing and automobiles, may well be instructive. The winners certainly scored higher in the generic virtues of business management: innovation, execution and leadership.

But perhaps even more significant, those who came out on top, judging from history, had two more specific attributes. They were the companies, according to business historians, that proved able to adapt to change instead of being prisoners of past success. And in their glory days, these corporate champions were magnets for the best and brightest people.

For the full story, see:

STEVE LOHR. "And in This Corner . . . Microsoft and Google Grapple for Supremacy as Stakes Escalate." The New York Times (Weds., May 10, 2006): C1 & C14.

Source of graphic: online version of NYT article quoted and cited above.

Charles Koch Participates in Schumpeter’s Process of Creative Destruction

Charles Koch. Source of image: online version of WSJ article cited below.

I heard Charles Koch speak at the April 2005 Orlando meetings of the Association of Private Enterprise Education. Part of his speech involved how he has tried to apply in his own business, Schumpeter’s process of creative destruction. For a long time Koch has been a stalwart defender of the free market in word and deed.

Ideas seem to exhilarate him. This no doubt explains in part why this professorial CEO delivers "dozens and dozens" of lectures around the country to his employees on these very topics. But what does any of this have to do with explaining his company’s prodigious profitability? Well, everything — he believes. Mr. Koch contends that the key insight of his business career was melding these philosophical insights about the way the wealth-creation process works into a business operating system called "Market Based Management." This system, which he has trademarked, enables every division of his business empire to operate as a separate, autonomous, profit-maximizing unit. It is intended to reward employees who think like entrepreneurs.

"Long-term success entails constantly discovering new ways to create value for customers and building new capabilities to capture new opportunities," he instructs. "In this sense, maintaining a business is, in reality, liquidating a business." Mr. Koch likens the cycle to Schumpeter’s "creative destruction" — where the old and inefficient are ruthlessly swept away by the new.

For the full commentary, see:

STEPHEN MOORE. "THE WEEKEND INTERVIEW with Charles Koch; Private Enterprise." The Wall Street Journal (Sat., May 6, 2006): A8.

Benjamin Rogge in 1973 Discussed Leapfrog Competition

Ben Rogge and the members of Wabash College’s John Van Sickle Club in 1973. Source of image: The Wabash 1973 Yearbook, p. 173.

In explaining Schumpeter’s concept of competition within the process of creative destruction, I have long thought the phrase "leapfrog competition" was apt. I have no memory of Schumpter himself using the phrase, but did think I remembered Rogge using the phrase.

Today (4/21/06) I used the Amazon.com "Search within the Book" feature to search for the "leapfrog", "leap-frog", and "frog" in Schumpeter’s Capitalism, Socialism and Democracy. No use of any of the three was found. This provides some support to my belief that Schumpeter himself did not use the phrase.

I also today examined my lecture notes from Benjamin Rogge’s Comparative Economic Systems course at Wabash College. In the midst of a discussion of creative destruction on 1/25/73, I note "leap-frogging analogy" which supports my memory that Rogge made use of the phrase "leapfrog competition" in class.

In terms of in-print uses of the analogy, I have performed the same three searches using Liberty Fund’s HTML version of Rogge’s Can Capitalism Survive? I found one "hit" which appears on p. 22 of the print versions of the book.

The technical description of the market structure, in the language of the textbook model, would be that of “oligopoly”—the rule of the few.

All of this Schumpeter would label as nonsense. Why? Because the investigator would be examining “each year—taken separately” rather than the never-ending game of leapfrog that the data reveal and that represents the true nature of the competitive process.

I will be in the debt of anyone who can show me an earlier use of the word "leapfrog" in the context of a discussion of competiton in Schumpeter’s process of creative destruction.

Google Evolves

Gary Hamel has recently penned some thoughtful observations about what practices of Google have led to its success. An excerpt from that analysis appears below. (Hamel earlier wrote a popular book in which he makes extensive use of Schumpeter’s process of creative destruction.)

Only time will tell whether Google has succeeded in building an evolutionary advantage. But consider: Since it’s founding, it has repeatedly morphed its business model. Google 1.0 was a search engine that crawled the Web but generated little revenue; which led to Google 2.0, a company that sold its search capacity to AOL/Netscape, Yahoo and other major portals; which gave way to Google 3.0, an Internet contrarian that rejected banner ads and instead sold simple text ads linked to search results; which spawned Google 4.0, an increasingly global entity that found a way to insert relevant ads into any and all Web content, dramatically enlarging the online ad business; which mutated into Google 5.0, an innovation factory that produces a torrent of new Web-based services, including Gmail, Google Desktop, and Google Base. More than likely, 6.0 is around the corner.

Of course Google may ultimately fall victim to hubris and imperial overstretch as it takes on Microsoft, Yahoo, eBay, the occasional telecom giant and pretty much everyone else in cyberspace. Or like Microsoft, it may simply become like every other big company as it grows. But that’s not the way I’d bet. Google seems to have grasped the new century’s most important business lesson: The capacity to evolve is the most important advantage of all.

For the full commentary, see:

Hamel, Gary. "Management à la Google." The Wall Street Journal (Weds., April 26, 2006): A16.

And here is the information on Hamel’s most recent book:

Hamel, Gary. Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life. Revised & Updated ed. Harvard Business School Press, 2002.

Source of image: http://www.amazon.com/gp/product/B000EPFVBE/sr=8-1/qid=1146333251/ref=pd_bbs_1/104-5668094-9083929?%5Fencoding=UTF8

Europe’s Antitrust Policies Based on “Pathological Revulsion” to Creative Destruction

One of the EU’s findings is that Microsoft uses its desktop dominance to capture the market for Web server software, and now the EU further charges Microsoft with failing to honor its ruling. So Microsoft’s takeover of serverware proceeds apace? Er, Brussels we have a problem.

At last count, Apache-Linux had 62% of the market, Windows 25%, with various others capturing smaller slices. True, Microsoft saw a nearly five-point increase in market share last quarter thanks to GoDaddy.com shifting its 3.5 million hosted sites from Linux to Windows. Maybe the EU should subpoena GoDaddy on grounds that for Microsoft to compete successfully for a customer is illegal.

The other pillar of Europe’s case is Microsoft’s alleged ability to foreclose the market to rival media-playing software. This week, EU lawyers are trying to swat down the inconvenient fact that, since their ruling, Apple’s iTunes and Macromedia’s Flash Player have carved out big niches for themselves. The Apple example is worth inspecting up close. It demonstrates that people don’t buy computers to run software, but to consume information and entertainment "content." Apple gave them the music they wanted, and its software easily found a home on their computers.

Yet the EU simply rejects the example as irrelevant because it doesn’t fit its mental category about what constitutes a "media player." More than stupid — this suggests a pathological revulsion against the kind of disorder in which an Apple can come along and upend all the procrustean assumptions of the EU’s drearily youthful staff of economists and lawyers. We’re not kidding when we say there’s a connection between the Microsoft case and the European 20-somethings who riot in the streets because they’d rather have no job than take a job from which they might fail and be fired.

For the full commentary, see:

HOLMAN W. JENKINS, JR. "BUSINESS WORLD; The Land (and Antitrust Case) That Time Forgot." The Wall Street Journal (Weds., April 26, 2006): A17.

Becker on Goals of Economics: Understand the World, and Improve It

Gary Becker at April 7, 2006 tribute dinner. Source of image: online press release cited below.

Gary Becker has made enormous contributions to economic theory, most notably in convincing the profession of the importance of human capital and the family. A new center has been established at the University of Chicago in Gary Becker’s honor.

Becker’s brief remarks concluded the evening. Economics will change over time, but one constant—whatever the tools or techniques—is the goal of economics, he said. “It is judged ultimately by how well it helps us understand the world, and how well we can help improve it.”

For the full story, see:

Goddu, Jenn Q. "Gift Names the Becker Center on Chicago Price Theory, Founded by Richard O. Ryan." University of Chicago News Office, 2006.

The Open Road

A strong argument could be made that the automobile is one of the two most liberating inventions of the past century, ranking only behind the microchip. The car allowed even the common working man total freedom of mobility — the means to go anywhere, anytime, for any reason. In many ways, the automobile is the most egalitarian invention in history, dramatically bridging the quality-of-life gap between rich and poor. The car stands for individualism; mass transit for collectivism. Philosopher Waldemar Hanasz, who grew up in communist Poland, noted in his 1999 essay “Engines of Liberty” that Soviet leaders in the 1940s showed the movie “The Grapes of Wrath” all over the country as propaganda against the evils of U.S. capitalism and the oppression of farmers. The scheme backfired because “far from being appalled, the Soviet viewers were envious; in America, it seemed, even the poorest had cars and trucks.”
. . .
The simplistic notion taught to our second-graders, that the car is an environmental doomsday machine, reveals an ignorance of history. When Henry Ford first started rolling his Black Model Ts off the assembly line at the start of the 20th century, the auto was hailed as one of the greatest environmental inventions of all time. That’s because the horse, which it replaced, was a prodigious polluter, dropping 40 pounds of waste a day. Imagine what a city like St. Louis smelled like on a steamy summer afternoon when the streets were congested with horses and piled with manure.
. . .
There’s a perfectly good reason that the roads are crammed with tens of millions of cars and that Americans drive eight billion miles a year while spurning buses, trains, bicycles and subways. Americans are rugged individualists who don’t want to cram aboard buses and subways. We want more open roads and highways, and we want energy policies that will make gas cheaper, not more expensive. We want to travel down the road from serfdom and the car is what will take us there.

For the full commentary, see:
Moore, Stephen. “Supply Side; The War Against the Car.” The Wall Street Journal (Fri., November 11, 2005): A10.

Economic Growth Achieved by Entrepreneurs Taking Prudent Risks

(p. 489) Nor should anyone feel guilty about taking prudent risks.This is a fundamental truth that I learned from Joseph Schumpeter, who believed that without entrepreneurs willing to bring new products and ideas to the market and investors ready to finance them, it would be impossible to achieve real economic growth.The alternative, as we have learned to our sorrow in the twentieth century, is government control of the factors of production with results that can be seen in the devastated landscapes and abandoned factories of Russia and Eastern Europe, and the scarred lives of billions of human beings throughout Asia. South America, and Africa.

Rockefeller, David. Memoirs. New York: Random House, 2002.