Economic development

The IEEE (Institute of Electronic and Electrical Engineers) has issued a new white paper stating that "U.S. prosperity is at risk" if it does not become a national goal to invest heavily in Gigabit networks. The organization went on to say this:

Failure to act will "relegate the U.S. telecommunications infrastructure to an inferior competitive position" and undermine the future of the U.S. economy.

We've added two new handouts to the Design Nine library. Ten things a community needs to compete summarizes a column from a few months ago about what amenities a community needs to attract businesses to the area.

Community broadband step by step compares community broadband development to the construction of a new building and the development of a new water or sewer system. It's easy to see that broadband development follows exactly the same processes that communities have successfully been using for years on much more expensive projects.

One definition of insanity is doing the same thing over and over again and expecting different results.

I still see many regions continuing to build shell buildings designed for manufacturing. It used to bring jobs to the area, so why not just keep doing it? The problem is that kind of strategy is competing for fewer and fewer jobs (as few as 10% of all new jobs) against more and more regions willing to throw enormous tax incentives at manufacturers. Meanwhile, more and more manufacturing is going to other countries.

One of the big flaws in the whole telecom debate is a chronic focus on the past. The telecom companies and the FCC both tend to rely on looking backward, and by extension, it's a problem at the state level because the incumbent providers have been much better at getting their message to state legislators than purchasers of telecom services.

Here's a concrete example of what I mean. The Times-Picayune has a story today on the fast-growing "iPod Economy," which is the exploding market for iPod accessories. According to one researcher, iPod owners spend half as much as the cost of their iPod on accessories. With most iPods selling for between $200 and $300, that's a lot of money. And iPod sales itself grew 525% last year. By some estimates, iPods account for as much as 80% of the total portable audio player market.

So what's the point? The point is that very few people could have predicted this three years ago. Technology innovation is creating incredible business opportunities. If you browse through the companies selling accessories, none of them are "big name" companies, and many of them are garage start-ups, especially those that make protective sleeves and cases for the iPod.

The telecom discussion tends to be framed by what is called the "triple play," which is voice telephony, video, and (Internet) data. I've seen a lot of business cases that "prove" that communities can't recover their costs using a triple play model. I think the reports are right, but for the wrong reason (which makes them wrong overall).

It's really a quadruple play, with voice, video, data, and what I call "advanced services." Advanced services are anything that will be delivered via the Internet that we have either not thought of yet or just are not including. My favorite example is network backups. Knowledge Economy startups like Data Ensure are growing rapidly by playing in the Advanced Services arena, and Data Ensure, in particular, is creating jobs in a remote part of southwest Virginia. They just happen to be in a vertical business incubator with fiber in the basement--part of a regional fiber project.

The New York Times (registration required) has a very biased article about Philadelphia's plan for citywide wireless broadband. The paper interviewed mainly opponents of the plan, and seemed to go to great lengths to interview those opponents, while trivializing successful community projects. Worth a read just to understand the anti-community sentiment out there.

Run, don't walk, to the nearest store and pick up a copy of USA Today. If you live in a rural community and are involved with economic and community development issues, you need to read the cover story today.

Small towns in the Great Plains are finally starting to give up "elephant hunting" and instead are using an "economic gardening" strategy. This is exactly what I have been saying in our Knowledge Economy Roadshow for the past several years.

This CNet article says that businesses are realizing the value of dark fiber, and are willing to pay for it.

Here is the money quote:

"....Ford [Motor Company] found that it would cost less to lay its own optical fiber lines than to subscribe to a service from the local phone company."

Back on October 31, 2003, I wrote about supercomputers as the economic development infrastructure. I suggested that regions that wanted to have a real marketing edge invest in a modest supercomputer cluster and rent it out to businesses that wanted occasional access to such equipment but could not justify the cost of owning it.

Here is an excerpt from a brochure about a project in Southside Virginia, a rural area that has traditionally relied on tobacco as a primary engine of its economy. Furniture and textile manufacturing were also mainstays for jobs and development, but over the past twenty years, all three have declined sharply.

The low cost of living, combined with the proximity to Greensboro and the North Carolina Research Triangle, may make Southside one of the best places to work in America, once this infrastructure is in place.

Also included as a service will be MSAPs in some locations, which create very high performance community intranets that support next generation multimedia services. The MSAP concept was pioneered by me while I was Director of the Blacksburg Electronic Village. Blacksburg has had an MSAP in operation since 1999, and Danville, Virginia also has an MSAP.

Note the emphasis on leasing capacity to "all interested providers," which includes incumbents, who, if they are smart, will realize they can lower their costs by leasing instead of overbuilding.

The Mid-Atlantic Broadband Cooperative (MBC), a non-profit cooperative with funding from the Economic Development Authority (EDA) and the Virginia Tobacco Commission (VTC), has contracted to deploy an advanced open-access wholesale broadband network in Southside Virginia. The RBI is a 700-mile fiber-optic network with 48 strands of dedicated fiber backbone, Synchronous Optical Network (SONET) architecture, dual rings with 13 OC-192 backbone sites and 65 satellite locations providing low speed & high speed interconnect facilities (OC-3, OC-12, OC-48, STS, VT). In addition to the turn-key implementation of the RBI, MBC has invested in building a new state of the art Network Operations Control Center (NOCC) in South Boston, Virginia.

The RBI network will connect four cities, 20 counties and 56 industrial parks providing access to nearly 700,000 citizens and more than 19,000 businesses throughout Southside Virginia. The goal of this project is to promote economic development opportunities for the region, attracting technologybased business and industry. Network construction begins in January 2005 and will be turned-up in phases. MBC plans to have the entire network fully operational by December 2006. MBC will be selling/leasing fiber and services on a wholesale basis to all interested providers.

Northern Illinois, which is surprisingly rural in nature despite being a relatively easy drive to Chicago, has grabbed hold of the future. Below is a press release announcing an ambitious regional project to get affordable, high capacity broadband throughout that area. In announcing the effort, an official connected with the effort said, "The communication infrastructure we're talking about will be as important as electricity, water."

Northern Illinois Technology Triangle Unlocks New Opportunities for Northern Illinois Communities

Rochelle Municipal Utilities announces plans for a multi-gigabit capacity fiber optic ring to serve local rural communities

Rochelle, IL - Today, Rochelle Mayor Chet Olson unveiled plans for a superior fiber-optic telecommunications network labeled the Northern Illinois Technology Triangle (NITT). The network will provide multi-gigabit capacity to the Northern Illinois region, connecting communities across Northern Illinois and opening new opportunities for growth in education, research and business.

The NITT is a joint venture between Rochelle Municipal Utilities (RMU) and the Illinois Municipal Broadband Communications Association (IMBCA). It will provide a looped broadband fiber network in a triangle along I-88 from Rock Falls to Naperville, with a section north to St. Charles, and from St. Charles along I-90 to Rockford, and then along I-39 from Rockford to Rochelle. The physical infrastructure will be implemented in three parts. IMBCA has already leased existing fiber along I-88 from Naperville west to Rock Falls and is now negotiating leases for existing fiber on I-90. Rochelle Municipal Utilities plans on installing the remaining leg of the triangle, from Rochelle to Rockford, where no fiber exits. The NITT is the first municipal utility fiber optic network consortium in Illinois.

Chet Olson, Rochelle's Mayor, said, "We're pleased to play a part in bringing about the Northern Illinois Technology Triangle. NITT is the beginning of a new era, not only for Rochelle, but for all communities in this region that choose to access this network. For my community, it means an opportunity to expand our economic base from manufacturing and rail service to technology services and support." The network ring is based upon fiber optic cable and will offer 33 (or more) wavelengths, each with the capacity to carry data at a rate up to 40 Gigabits per second. With just one Gigabit connection, a family can download their favorite DVD movie in less than one (1) minute, something which would normally take 13 days to download using a telephone dial-up connection.

In my talks to community leaders, I talk about the ability to sell goods and services that are, literally, weightless, via the Internet. I get a lot of blank stares, as some folks still have trouble understanding the revolution in business.

The latest news comes from Apple, which reports it sells more than one million songs PER DAY from its online music store, or nearly half a billion songs per year.

The 'net is buzzing over an article called What You'll Wish You'd Known by computer scientist and dot-com success Paul Graham. The article is interesting, but I don't think most kids will take the time to read it--by their standards, it's way too long (a topic for another discussion).

But you can always rely on the geeks that inhabit SlashDot to not only read this stuff, but critique it extensively, and one comment jumped right off the page at me:

There was an article in yesterday's Roanoke Times in the Business section about a new firm in Roanoke that is selling late model used cars with a "new car showroom" approach. The owner is trying to overcome the stigma associated with the stereotyped used car salesman by offering only late model cars in excellent condition, and using a high quality presentation.

Jewelry, flowers, clothing, and computer stuff fueled a 25% increase in online buying during the holiday season. This article describes the surge in spending in more detail.

One of the best ways to create new jobs in your region is to make sure the businesses that are already in the community have access to good advice, including advice and guidance on technical matters.

The traditional role of the economic developer in the Manufacturing Economy was to recruit jobs from other parts of the country. But that has not been an effective primary strategy for many years. In a global economy, many traditional manufacturing jobs have moved offshore, and no amount of tax incentives are going to change that.

A diversified economic development strategy would put more time and resources into helping existing businesses grow. And there is plenty of simple and effective things that can be done. For example, I still find many businesses have poorly designed Web sites. Why not use some ED funds to pay for Web site critiques and reviews of business Web sites? This could be done on a 50% match basis to ensure that the businesses are likely to take the advice seriously.

As an example of how bad things could be, I just found a business with this statement on their "Contact Us" page:

To email us, order a free catalog, check on an order, etc., please call 1-800-829-xxxx.

I'm not making this up--to email the company, you have to call them first! Here is a business that has apparently been asleep for the past ten years, and still does not recognize that current and potential customers may want to email the company. I find that the majority of small businesses are still not taking the Web seriously, largely because they simply don't know what to do.

Part of the problem is not their fault. Too many businesses have been burned badly with bad advice. There are basically two ways to get help with a business Web site.

• You can go to a Web design shop. These outfits are often expert at building the Web site, but don't always have in-house expertise to help with marketing and business integration issues. So businesses end up with costly Web sites that don't actually have any impact on the business.

I just bought an inexpensive audio mixer to help with some recording tasks I have. It is sold by a small German firm. I was struck by the User's Manual, which came with instructions in the following languages:

If you hate waiting in line at the Post Office to mail packages, don't. The U.S. Postal Service has online label and postage services that are just terrific. Now that I have an account with my credit card information saved, it takes about a minute to print out a bar coded shipping label complete with postage. If you get it done early enough in the day, put a sticky note on your mailbox and the postman will come right to your door to pick up the packages. Or if you are running late (as I am today with Christmas gifts), you can walk right in the post office, drop them off, and walk out.

The Roanoke region recently competed for a Dell manufacturing facility, and lost out to North Carolina, which offered Dell a whopping $242 million in tax credits. That's an awful lot to pay for just one firm that could easily pick up and leave after a few years. Imagine what a few hundred small businesses with good business plans could do if given ten or fifteen years of tax relief.

The online site Human Events chronicles what it calls a "cynical" backroom deal that Congress made with the IT industry to allow more foreign IT workers in the country on work visas in the coming year.

Not surprisingly, Oracle was apparently one of the industry "leaders" behind this kick in the pants to American workers, and by extension, to American communities where those workers live. I just wrote about Oracle and it's lack of innovation. Instead of retraining perfectly capable American workers, these companies are bringing in workers from overseas, who are happy to work for half to two-thirds less than their American counterparts.

Another part of the problem was also created by the IT industry itself, during the drunken orgy of escalating IT wages during the dot-com bubble. Fueled by venture capital funds, Internet startups, over a period of three years or so, ran IT wages up to ridiculous levels. Many of those overpaid and underqualified workers were eventually laid off, but the damage was done--the average IT wage remains higher than ever.

So the companies and industry that happily inflated its own wage structure now won't take its medicine and restructure wages or find ways to use perfectly capable American workers, of whom there are plenty. Instead, these companies have run to Congress for a handout.

This kind of thinking is going to continue to depress the future of IT innovation in the U.S., and the industry itself will slow atrophy as parallel universe efforts like the Open Source movement simply eliminate the need for whole chunks of the IT industry (Oracle's problem is that it is increasingly irrelevant).

In the Knowledge Economy, you have to be either very big (e.g. Walmart, Fedex, etc.) or as Schumpeter would put it, small and beautiful (e.g. Open Source). And you have to be flexible and innovative.

This CNet article describes what corporate America wants from its workforce. Surprise--it's not necessarily tech-savvy youths with oversize thumbs from playing video games and keying text messages on cellphones the size of chiclets.