Editor's Note:

We can’t think of too many trained biologists who currently make a living analyzing and predicting events in the rapidly changing global technology and telecommunications sectors. Version 1.4 of the Journal of Bionomics is a wide open and engaging interview with Mark Anderson. Mark’s weekly insights on technology and telecommunications found in his digital newsletter are penetrating, to say the least, and his crystal ball is probably as clear as they come. Read on and prosper.

• Mark Anderson's Biography

JOB: Mark, it was great to hear your views at the 1996 Bionomics Conference, "Cultivating the Netconomy." You have a unique and innovative view of information technology, which is partly based on biology. Let’s talk about this.

MRA: Sure. It starts with the understanding that the brain is a biocomputer. Now, the challenge of information technology today is to exchange data between brain and machine at the greatest transmission speed possible. This, of course, is the same set of requirements faced by the brain, nervous system and related senses during the first 3 to 5 million years of evolutionary human development: acquire data at maximal speeds, in order to survive. Because the age of computer design, and computer interface design, is safely under 100, it is a given that both the computer and its interface must take advantage of our existing data input abilities. Television is only exciting because it recreates what we see and hear in nature. The same is true of PCs.

JOB: So where are we heading?

MRA: Well, the technology which best maximizes the connection between the brain and box will win, all else being equal.

JOB: If you go back to Version 1.0 of the Journal of Bionomics, Federico Faggin discusses the idea of semiconductors that learn. I see interesting parallels with what he is working on now and what you are talking about.

MRA: I know there is a lot of work being done in this area. I believe that people who work on brain structure are always wondering whether this isn’t an application that can be taken over into computers. There is a lot of cross fertilization available there. But, if you just ask the question, given the physical limitations of silicon and arsenide, is this really the best way for us to design a computer? Looking out over the next ten or fifteen years, there are some severe limitations between the organic materials of the brain and those processes and the inorganic materials of the chip. It is probably not a good idea to try to mimic totally on a chip what is in the brain.

JOB: Does the brain work in analog or in digital?

MRA: That’s a good question. I think it works in both. Here are two answers. If you look at single nerve axon functions, in general, it either fires or it doesn’t fire. There is a critical threshold above which a firing occurs and below which a firing does not occur. That is a digital situation. However, if you do a meta view of that and look at lots of neurons acting together, you see what is more like an analog wave. That’s because any number of them can contribute to a larger pattern.

JOB: Are chip companies employing cognitive psychologists to explore these issues?

MRA: It is interesting you should ask this. I received a letter recently from Donald Norman at Apple, who is V.P. of R&D. He signed off as Professor Emeritus, Cognitive Science, UCSD. I hadn’t realized he was in the Cognitive Science department at UCSD. To get back to your question, yes, I would think so.

JOB: I asked Federico Faggin if he had been talking with folks who are experts in cognitive science. I thought that would be a normal sort of R&D investment for chip companies.

MRA: Yes. The real question is how long range their R&D projects are. Certainly, you would expect places like Carnegie Mellon and Stanford to be doing work in this area, and Intel to be watching. Has Intel put people like this on their staff yet? Perhaps as advisers. It all depends on how far out in the future these companies are willing to look. Intel has a $2 billion R&D budget, but the company is probably only looking out three or four generations of chips. They probably have only a $2 million R&D budget for the kind of blue sky stuff we are talking about.

JOB: Let’s talk about where you see information technology going in the near future. I was looking at the Business Week index of US production the other day and noticed the total absence of anything directly related to information technology. This is a widely followed index on Wall Street and yet it leaves out the most dynamic and fastest growing parts of the US economy. And the Dow Jones Industrials index leaves out tech bellwethers such as Intel, Microsoft and Cisco. What gives?

MRA: You forgot to mention that GDP doesn’t even account for intellectual property.

JOB: Oh yeah, we could go on for hours, couldn’t we? Bernardo Huberman and I discussed some of these issues in Version 1.3 of the Journal of Bionomics. Having said this, it does appear as though the government and the Federal Reserve are beginning to wake up to the new realities of the information age. You now see all this talk about how terrible the data is and how we are overestimating inflation and underestimating productivity. What do you, a seasoned onlooker of the tech scene, make of all of this?

MRA: I just think we are living in a time of great change.

JOB: What is going to speed up the recognition of the importance of information technology as a driving force of growth in the US economy?

MRA: A really good example is what happened to Jeff Vinik, the former portfolio manager of Fidelity’s Magellan fund. There is a little blood on the floor there. I don’t think they will do that again anytime soon.

JOB: You are referring to Vinik selling his tech stocks and buying government bonds with the proceeds?

MRA: Yes, that is right. As you know, he left Fidelity. And his replacement is busy repairing things, including buying tech stocks. My point is that greater recognition comes when people get financially harmed and realize that this is not another passing fad. Two years ago, Wall Street treated tech stocks as a fad. Basically, tech stocks were viewed as the premier short, a great way to make a quick buck.

JOB: I take it you are referring to the sons and daughters of investors who were selling General Motors and Alcoa in 1940.

MRA: The same guys who were shorting Microsoft two years ago would probably think twice today. I believe there is acceptance on Wall Street today of tech stocks as a driving force of growth and profits.

JOB: Amen. But I would argue that investors still don’t have good valuation yardsticks. You and I discussed this a little at the Bionomics conference. I think we are a long way off from having tried and true valuation techniques for tech stocks. Is that your sense as well?

MRA: Yes, that is right. It is very hard to value tech companies. If you look at the really good venture capitalists, the guys who are way up on the learning curve on this stuff, they were having arguments seven years ago about "ok, let’s have a look at the spreadsheet one more time." Today, when you talk to say, Ann Winblad, she will tell these guys not to even send the spreadsheet. She just wants two pages that includes a business summary and the list of the management team. Ann is very good at investing in software stocks. And so I think what she is saying is that she will make a good estimation of the management team and of the opportunity of the market size, and based on that she will tell you what the market valuation is. Notice you didn’t hear the P/E word in there anywhere. I think even for stocks with earnings, the P/E is a pretty useless valuation tool, especially in the early stage of a new technology.

JOB: That’s not to say that valuation doesn’t matter, because you and I know it does. What you are saying is that our tools are inadequate to deal with these stocks.

MRA: You are absolutely right.

JOB: I remember you telling me at the Bionomics conference that you would never invest in a company, tech or otherwise, if the CEO didn’t have a computer on his or her desk.

MRA: That is true. If I walked into the CEO’s office of a company whose stock I held, and there wasn’t a PC on the desk, I would sell my stock, no matter what the P/E was. The reason for this is that all companies are becoming IT companies. If a CEO isn’t wired or is clueless about information technology, I don’t want to own the stock.

JOB: Percy Barnevik, arguably one of corporate Europe’s best managers and now Chairman of Asea Brown Boveri, remarked not too long ago that all are IT companies.

MRA: He is right.

JOB: I currently co-manage a global technology fund and a global telecommunications fund and I tell our clients that they should view these funds as cousins today. I suspect I will be telling them to view them as siblings in the near future.

MRA: It is interesting to look at the telecom industry today, you know, the boxes and pipes guys. I was asked recently to speculate on which were going to be the leading telecommunications companies in five or ten years. My point of view has pretty much consistently been that there would be five or six big global players, and that the winners will be the ones that best understand software. That view is unveiling right now. You can see strategic advantage shifting away from companies such as AT&T and toward companies like MFS (now WorldCom).

JOB: It really does pay to have a bionomic or biological perspective on this stuff, doesn’t it? I mean, you couldn’t do what you do for a living if you had a machine-age perspective.

MRA: Right. My training as a biologist is a competitive advantage today.

JOB: Why do you think that is?

MRA: The study of biology, and particularly of evolved systems interacting, is a study that allows you to refine your thinking techniques in pattern recognition and in structures and how they work.

JOB: Do you look for patterns when you make predictions about technology?

MRA: Yes.

JOB: How do you observe these patterns?

MRA: The process I use isn’t as scientific as I suppose it will be one day. There is an iterative processes between identifying what is important and then looking for patterns that relate to that.

JOB: Let’s take a concrete example. What would have led one to the view of the coming consolidation in the global telecommunications industry, and in particular, the announced merger of British Telecom and MCI?

MRA: Let me cite patterns that were involved. One is BT itself, and within that, BT in England and England within Europe and where Europe is heading, and BT as the first large privatized company in England in a trend of privatization in Europe. If you look at MCI, they have a lot of experience going head to head with AT&T. And then we can look at Bert Roberts and how he makes decisions. You can see all of the patterns that might lead one to speculate on such a merger.

JOB: You don’t need inside information to get these things right, do you?

MRA: There are a lot of people who think I have a lot of inside information when I make my predictions, and I don’t. I suppose they would be disappointed to know that.

JOB: Well, the world’s greatest investor, Warren Buffett, sits in Nebraska, not on Wall Street. Perhaps we should refer to you as the Warren Buffett of the prediction business!

MRA: Why thank you, sir. I haven’t heard that one before.

JOB: Are there any patterns out there that suggest John Malone and TCI will form some kind of alliance with Bob Allen and AT&T? It seems to me that personalities aside, this is a marriage made in heaven. TCI needs capital desperately to upgrade its pipes, and AT&T has ample excess capital and would benefit from having TCI’s cable network, especially at a time when high bandwidth cable modems are becoming more widely available.

MRA: I have been waiting for an alliance of this nature for a long time. I wrote a story on @Home a while back and put in a pretty strong caveat that this could be the worst thing that ever happened to the cable guys, because it requires a huge amount of capital, which of course, the cable companies don’t have. It’s like sometimes success is your greatest failure. This could easily happen to the whole cable industry. You saw a few weeks ago Malone announcing a scaling back of TCI’s capital expenditures, which all of the analysts on Wall Street loved. He says all of this is due to a brand new compression technology from an upstart in San Francisco. It is all happening right in front of our faces, isn’t it?

JOB: Yes it is. I really enjoy thinking about this stuff and where it is all heading.

MRA: The real issue here is not Bob Allen, it is Pohang Iron and Steel.

JOB: Huh?

MRA: Yeah, it is going to be some Asian wannabe. Or maybe Deutsche Telekom. DT made their first acquisition three days after their offering.

JOB: You mean DT buying TCI?

MRA: It is clear now that the FCC and the American Congress will not get in the way. So it comes down to who in the world wants this market. If someone can go around Bob Allen and buy TCI, what a great idea, right?

JOB: Right. I am intrigued with the idea that a company like DT would entertain the idea of buying into TCI. That would be wild.

MRA: Yes. However, I don’t know if DT is flexible enough to pull it off.

JOB: They have a debt level that currently exceeds the total amount of many small countries. I guess the bankers would have to address DT’s capital structure, because right now it looks a lot like a cable company’s.

MRA: By the way, did you see that AT&T did a deal with Shaklees the other day.

JOB: I did not.

MRA: Shaklees are the vitamin guys, who go door to door. You have to have a sense of humor for this business now.

JOB: So AT&T is buying door to door salespeople? To do what?

MRA: Sell residential, local loop, AT&T stuff.

JOB: Is Amway next?

MRA: I assume. And you get a pink Cadillac... Oh, never mind.

JOB: Do you think cyber commerce is going to evolve into something big in the 21st century?

MRA: Yes, I do.

JOB: Given this, what type of pipe prevails? We have copper and ADSL, copper and cable modems, and digital satellites. Are there any patterns that tells us which technology is going to win? We know from past experience that it isn’t always the best technology that wins.

MRA: It is a tough call because there are capital constraints that keep companies from doing what they should do.

JOB: Where is Mike Milken when you need him?

MRA: Yeah, Milken was right. John Malone could use him today.

JOB: Malone says, if you come, we will build it, whereas Milken would probably say, if we build it, they will come.

MRA: I think Malone is totally wrong. I suspect Bruce Ravenel, President of TCI Internet Ventures, is the right guy to make this stuff happen.

JOB: So we are not sure how technology in the telecom sector is going to evolve?

MRA: Right. If the cable guys can’t get their act together in the next two years, they will be too late.

JOB: Assuming they don’t make it, who is going to step into the fray? We’ve got the satellite guys offering 2 megs of bandwidth down, but they tell me I have to buy another dish if I want their Internet service.

MRA: I think that is a real mistake. It is the first mistake I have seen Hughes make.

JOB: I don’t think too many people will want two satellite dishes attached to their house.

MRA: The sooner they fix that, the better.

JOB: Agreed. Let’s talk about Japan. How do you see Japan evolving in the years ahead?

MRA: Japan is a very worthy competitor and I believe they are underrated right now. Today’s economic performance should not be extrapolated to tomorrow’s performance. I believe they will remain one of the top two or three economic powers in the world as far as you can look out. They are very, very smart and much more well organized than we are. And they are doing things, such as moving production offshore, to get off the radar screens of US policy makers. The real issue for Japan is China. There is such a huge amount of historical tension, current tension, and potential future tension between these two countries. As to the question of who will be the dominant economic player in the sphere of influence in Asia, Japan thinks it will and China thinks it will. It is a big enough problem to lead to a war, and certainly big enough to lead to a trade war. I don’t see how this is easily resolved.

JOB: If you think of technology as being a driving force of future economic growth, what is China doing to ensure its place as Asia’s dominant superpower? What kind of a future does a country that prohibits the Internet have in the 21st century?

MRA: Did you see what they did to Disney recently? They told Disney that if they wanted to continue their year-long discussions about having amusement parks in China, they would have to consider pulling the plug on their movie project about the Dali Lama. They did this even though Disney has no intention of showing the movie in China. That is interesting, isn’t it?

JOB: Very interesting. Let’s assume that the cyber-economy is going to be the next emerging US market, if you will, what kind of future do we have for a country that censors the Internet?

MRA: I hear what you are saying and I agree. I think that Japan has its own structural problems for similar reasons, and China has its own structural problems. The more structural problems you’ve got, the slower you go.

JOB: With respect to China, I guess two things have to happen. Either the Internet is going to evolve, or it isn’t. If you stifle the evolution of the Internet, the country probably experiences another bloody political conflict, and turns inward again.

MRA: Have you been following the APEC conference this week?

JOB: Yes.

MRA: China was one of three out of eighteen countries against a proposal to reduce trade barriers in information technology. You should file that somewhere. China has also said recently that they are not very interested in joining the World Trade Organization, even though if you ask the US State Department, that’s China’s top requirement. If you are in power in China, you get a very disturbing picture of things with everything going the wrong way. The command and control model just doesn’t make sense in the information age.

JOB: I am glad you said that. I remember George Gilder telling me years ago that Gorbachev thought information technology hastened the downfall of the Soviet Union.

MRA: In China, you must have a license to own a fax machine. And policy makers invented the ChinaNet to deal with the threat that the Internet poses to the political system. You have to have a permit to be on the Net. You have to go to a police station to get a permit to go on the Net.

JOB: I think that is a dead end road.

MRA: I do too. It is also illegal to own a satellite receiver. And a lot of people own them.

JOB: Ok, so let’s go back to what we were discussing earlier. In Japan, you don’t need a license to own a fax machine or a permit to use the Internet, and you can buy a satellite receiver at your local electronics store. In China, you can to none of the above. Would that make one more optimistic about Japan’s chances of dominating Asia in the 21st century?

MRA: Think about how many times China has gone through radical change in the last fifty years. Japan hasn’t experienced any radical change. Japan is trying to get back to pre-war days. From this perspective, it is more likely that China will go through another wrenching change.

JOB: But that wrenching change will be led by the Internet, will it not?

MRA: I think the free flow of information is the biggest single threat to the existing regime in China.

JOB: So Tim Berners-Lee, along with US Department of Defense, could effectively be responsible for the opening up, dare we say, the democratization of China?

MRA: You could say that, yes.

JOB: Just another potential example of the unintended effects of technology, with major geopolitical ramifications.

MRA: It is.

JOB: Let’s talk about Europe for a moment. Where is Europe on your radar screen?

MRA: Europe is heading up the rear. I read the other day that 80% of the information technology business is done through the APEC group. I think Europe has to go through radical change in order to prosper in the 21st century. The Maastricht Treaty is really a backward idea. It is a top-down process, imposed by bureaucrats.

JOB: I think the Maastricht criteria should have included a target for start-up technology companies, tech-related employment, and technology as a percent of GDP, instead of the silly deficit and debt targets that will be meaningless in ten years. I would note, incidentally, that the UK is ahead of its European peers. The UK telecommunications market is perhaps the most deregulated in the world. I believe the UK would be taking a step toward devolution by joining EMU.

MRA: I agree. Europe is facing some really big problems with the whole Maastricht process.

JOB: So we can assume that you will not be leaving Friday Harbor for Frankfurt or Paris anytime soon.

MRA: That’s a good assumption.

JOB: What about emerging technologies? What do you make of voice recognition?

MRA: Bill Gates’ first big mistake. You know, Bill doesn’t make mistakes very often. At Comdex last week, he was arguing that you would never buy a NC (Network Computer) because voice recognition would be much better on a PC. But the NC is going to be much better at voice recognition than the PC. The fact is, if you wanted 99.9% voice recognition accuracy, you would use a mainframe.

JOB: What do you make of the NC?

MRA: I don’t believe in the NC. I think the NC is going to take the dumb terminal market by storm! I think the long term trend is toward ever smarter computers with ever greater storage. The problem that has to be addressed by the Wintel business model is how to bring down the maintenance cost of the PC. This is a problem that definitely can be solved.

JOB: So you don’t think the NC is a so-called Strategic Inflection Point for companies like Intel and Microsoft?

MRA: No, I don’t. I believe the trend is toward mobility, where every desk-top PC is a lap-top with a wireless connection, with its own intelligence. I do not want to have my spreadsheet on my lap-top reside on a server.

JOB: Do you think people underestimate the importance of lock-in effects in information technology?

MRA: I think the importance of inter-operability is consistently underestimated. People will go to great lengths not to have to change their PC system once it is working.

JOB: I liked what you said recently, that the ultimate computer is the one which ultimately understands you best.

MRA: That pretty much sums it up.

JOB: Do you think biology is going to become more pervasive in our thinking about technology in the years ahead?

MRA: Yes, I do. It is true that as our day-to-day lives become more affected by information technology, we will gain a greater respect for biological principles. But, above and beyond computers, it is also the case that, to the degree we understand that we are part of a larger system in everything that we do, we will also have a larger respect for biological systems. We are just beginning to understand this as a society.

JOB: Thanks for your time, Mark.

Links:

Strategic News Service