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July 22, 2006

Choral Camp Humor

Heard while picking up my teenage daughter Kelsey on her final day of music camp. We were walking past a friend of hers from camp:

Kelsey: Hi Derek.

Derek: Hi Kelsey.

Kelsey: Derek Derek bo berek, banana fana fo berek, fe fi fo ferek, Derek!

Me: A little music camp humor?

Kelsey: Choral camp humor, actually.

Me: That's cool.

Kelsey (without missing a beat): Well, it's better with Tucker, Chuck, and Mitch.

If I had been drinking, I would have done a spit-take right there in the parking lot. That girl of mine is funny and quick on the draw.

July 19, 2006

Tesla, Apple, and Offshore Manufacturing

Autoblog ran a story on the impending public unveiling of the Tesla Roadster -- tomorrow, in fact, is the date. So far, Tesla has said that their Roadster will have two seats, go from 0 to 60 miles per hour in about four seconds, go 250 miles on a charge, and cost about 1 cent per mile to operate. Readers commenting on the story, speculating wildly about Tesla's chances before knowing the details, found Tesla CEO Martin Eberhard joining in (which I regard as a good sign for the company).

One commenter in particular was disappointed by the rumors that Tesla would not build and own its manufacturing capability:

America is totally relying on being a service economy but to this day I still see all great or greatly emerging economies to be doing it through manufacturing but no one cares to preserve this in America. Sure it looks like services have done well for America and they have but it isn't why America is as great (economically) as it is, at one point the U.S. manufactured over 85% of the world's products... Don't get me wrong, it I don't want get rid of the service companies I want America to have both service and manufacturing.

All you Silicon Valley guys seem to understand the concept of not putting all your eggs in one basket but when it comes to jobs putting them all into services seems to be just fine (i.e. in your purchases you don't look for American made is my guess and now with getting into a traditionally manufacturing based thing such as automobiles where it is made doesn't have to be America). Tesla isn't really a manufacturing company it is a service company. Tesla is really selling design (and for now, management). Contracting to buy parts from Asia and everywhere else and to contract to a factory to assemble the vehicle (especially *if* the factory is outside of the states then Tesla probably won't own the factory just contracting out) means the only thing Tesla is doing to add value is the design work (and for now, management).

Tesla isn't a service business any more than, say, Apple is a service business. Why doesn't Apple manufacture its own iPods? Because Apple has learned (like so many other firms have in their respective industries) that it is far more profitable to design, market, and sell iPods than it is to actually assemble them. Why is this? Because it's harder to design, market, and sell consumer electronics devices than it is to assemble them.

Think about it this way: how many firms could realistically compete to manufacture iPods for Apple? I'd guess at least dozens -- some in China, some in Taiwan, the rest in a few other Asian tigers. But how many firms have proven they can compete against Apple and win in the digital media player business? In the US, at least, the number is effectively zero, given that Apple's market share is north of 70 percent.

Or think of it this way: can you name the firms that assemble iPods? I'm betting you can't. But you can name Apple.

Or think of it this way: how much does an iPod assembler make on each unit? Well, given that they have to compete with dozens of other companies that can do the same thing just as well, I'd be surprised (though this is a guess) if they make more than $20/device, even on the highest-end iPods. How much, on the other hand, does Apple make on each iPod? iSuppli estimates gross margins of 50 percent on iPod nanos -- $101 on a nano, with $8 of the cost going to assembly. You can do the math, but it seems reasonable to say it's 10 times more profitable to be the designer-marketer-seller than it is to be the assembler, at least when you're the best at what you do.

Again, Apple isn't a service company. A more accurate way of thinking about them would be as an intellectual property company: they design proprietary hardware, design the user interface for the hardware, create (portions of) the software that drives the user interface, and create the software for the hardware to connect to computers (iTunes) as well as the software to provide back-end services to the hardware (iTunes Music Store). How relevant is the fact that they don't actually assemble their proprietary hardware? It's only relevant to the extent that to do so would actually lower their overall profit margins (given how much less profitable assembly is than design), therefore making their company less valuable. Who would want that? Not any rational Apple shareholder. In any case, since Apple controls the entire product creation cycle, including directing external suppliers and assemblers, though technically they're an intellectual property company, it's easier for us to think and say that Apple makes iPods.

When it comes to tying this back to Tesla, everything is speculative at this point. But assuming they've adopted a standard Silicon Valley design-market-sell model, subcontracting out assembly -- which seems to be the case given the comments made so far -- then I'd say they're doing exactly the right thing, because this model tends to reduce end-prices to consumers and increase profit margins for vendors. And it won't change the fact that Tesla makes cars.

July 09, 2006

Congratulations Italy

So much for my skills of prediction -- I thought it would be England vs. Brazil in the World Cup finals. In fact it was Italy (whom many expected to be there) and France (whom hardly anyone outside of France thought would make it that far). Italy won on penalty kicks, shedding a particular demon of theirs in the process. Well done Azzurri.

Though I have good friends with strong ties to Italy, my ties to France (language, friends, time spent there) are much stronger. Also, I was sentimental about seeing one last hurrah from Zidane and Barthez, winners in 1998. So, naturally, I was cheering for France. It was sad to think that after such a spectacular career, this shot of Zizou headbutting Materazzi -- as I write this, we don't know why -- will be an enduring image of him:

Zizou Headbutts Materazzi
I had a crowd at my house that was split not only between Italy and France, but split between soccer fans and neophytes. Interestingly enough, the soccer neophytes, all of whom were pulling for Italy, thought that Zidane's headbutt was incredibly cool and made them like soccer far more.

July 01, 2006

"USA Ha una Squadra Brava"

My friend and colleague Richard Boyd, who is on vacation in his wife's hometown in Northern Italy, sent this to me a few days ago:

Given their obvious passion for soccer, or, as they call it, calcio, the Italians are surprisingly good sports. When strangers learn we are American they go out of their way to approach my brother and I and extend their heartfelt condolences over the US team's elimination at the hands of Ghana. We search their eyes for signs of insincerity or mockery, but it isn't there. USA ha una squadra brava, they say with an appropriately bereaved look, hoping sincerely to relieve some of the deep anguish which we must surely be feeling. From their expressions you would think that the whole team had gone down in the Alps in a fiery ball of twisted aircraft metal.

The first to extend this courtesy was my wife's Uncle Tino (short for Benedettino which means 'little blessing', which is in turn short for Benedetto, like the Pope). My brother and I received his double hand shake and fervent eyes with confused looks. Then we tried to reassure him. We shrugged and said "Just isn't our sport. Not a problem. No, really." We learned quickly that this was not the appropriate response. To Italians this sounds too much like denial and can, in some cases, be construed as an insult to Italians and soccer fans everywhere. So now we immediately adopt hang dog expressions, shake their hands and thank them for their largesse, their kindness in our hour of need and their empathy with our pain. Then we say Va Italia and they are touched by our selflessness.

"This Was Hypocrisy at Its Worst"

Heard last night on News Hour, during their regular face-off between liberal Mark Shields, conservative David Brooks, and host Jim Lehrer. As you expect, they're usually polar opposites, but last night they pretty much agreed on everything, but this exchange was particularly notable:

Jim Lehrer: The desecration of the flag amendment, the burning of the flag amendment, did not get its one vote it needed, the sixty-seventh vote it needed to become a constitutional amendment as far as the Senate's concerned. How do you read that?

Mark Shields: This one really made me angry.

Jim Lehrer: Made you angry?

Mark Shields: It made me angry because I listened to those speeches. I listened to the people advocating it, and they talk about our fighting men and women. If they really are remotely authentic or sincere about our fighting men and women and honoring them, how about body armor? How about armorning Humvees? How about not cutting veterans' benefits? How about not putting our troops in a position where they're ordered to perform tortuous acts? How about sending enough troops into battle? I mean, I just -- this was hypocrisy at its worst.

David Brooks: Mark and I burn each others' columns. We find that emotionally satisfying. I recommend that to everybody. No, I think it's a stupid idea. I sort of respect the immense popular support it has, and i somehow think people must associate it with something real. Personally, I think you should be allowed to burn the flag, I think that's in the Constitution, so I think that's -- mucking up the Constitution with this amendment is trivializing it to me.