May 2009 - Posts

Market Failure? China, pollution and real GDP
07 May 09 01:22 PM | mrdecav | 1 comment(s)

While doing some reading on Chinese quality of life and pollution last week, I noticed some interesting figures released by the WorldBank.  The estimated cost to GDP of pollution emitted by China is a total of 5.8%. That's rediculously high; every year, China is losing 5.8% of their GDP to damage to their environment.

Whats more startling is what this means for total GDP growth of the county.  In 2009, China's GDP is expected to grow by about 6.5% -- a numer low due to recession, but still considered high by global standards.  Because the cost of pollution is an externality, and to best of my knoledge is not included in the official GDP numbers, this growth does not include environmental pollution.  When you subtract the expected loss of GDP due to pollution from the total GDP of China, you're left with dismal 0.7% annual GDP growth.  Ouch! 89% of their growth is chopped from this single externality.

China is essentially gutting their natural resources and destroying their habitat with enormous amounts of externalities in order to provide us with inexpensive goods.

In most cases, this scenario leads to market failure.  China may be thinking that they can live with temporary loss while they attempt to lift their industry into the modern age - a long term investment using the capital locked in their public land. Certainly the short-term affect of removing the fully-realized costs from their exports and domestic products has been a positive one.  But with steadily increasing pollution and dwindling resources, they cannot keep it up forever.  At some point, these externalities need to be corrected or the market (and mother nature) will correct it for them.  Hopefully she'll keep the fallout off our shores.  Scary stuff! 

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The desktop is dead (really, for real this time)
07 May 09 12:48 PM | mrdecav | 6 comment(s)

Time and time again noise builds around the (re)introduction of thin client computing, the death of the desktop OS and the emergence of a single, large networked computer that we all work on.  A super mainframe that is omnipresent across all devices and networks.

But it has not been since the days of the drab green screens of the main frames that we have seen a significant uptake in thin clients over heavy metal. This is now ripe for change.

The stars are aligning in the cloud computing movement, and this time, it won't be another 3com web computing device. The traditional precursors to the explosion of the web device market have been torn down - bandwidth is ubiquitous, price of technology has come down so dramatically that these devices are now comparatively cheap against their full-blown competitors, and most computing services that people have come to expect have an online incarnation.

But the most important change is cultural.  People are demanding cheap alternatives to desktops.  The tell tale signs are there - the netbook craze, the rich web phone interfaces (iPhone, Android), and even the Kindle are all thin clients that are heavily in demand. People have begun to see the value add for a consumer of not having to maintain a desktop OS - they expect it to work like their TV - managed centrally, and pushed down. Zero maintainence time. With a wide range of people now spending most of their computing time in web browsers, and the need for desktop apps marginalized, the consumer demand has shifted towards less expensive, internet-oriented devices.

Even with the netbook fire sale, the market for these devices still hasn't been properly defined. Current netbooks are essentially small laptops with desktop OSes. While these machines hit the price point consumers expect in thin-clients, some of the real value adds a thin client can provide to consumers have not been realized in netbooks. The OS running on these devices is unnecessarially large, boot times are slow, and features like cloud storage are still not out of the box.  Couple this with the poor form factors and tiny keyboards, and there is still a lot to be done in this market.  Consumers know they don't need full blown desktop machines, but so far have only been exposed to "small laptops".

Despite the demand for netbooks, consumers still don't know what these web devices are - there is still an opportunity for proper market definition. There are very few companies who can really make the idea of web devices sit with consumers; excellent marketing coupled with good software and hardware is critical to open the market up.  With so many people having lost their shirts in the web device game over the past decade, chances are slim this company will emerge as a startup. Apple is clearly an industry favorite for defining new markets like this.  With the marketing engine to hit the concept home with consumers and the technical understanding to make it happen, and recent rumors of a "big iPhone" or "Apple Tablet", it's beginning to look like the market definition will start there.  But there are other players who look like they will be emerging as players.  TechCrunch has the "Crunch Tablet", Kindle is looking more and more like a web device daily, and Nokia has expressed serious interest in expanding into net books.

While heavy metal desktops will never become fully eclipsed by web devices, the desktop OS market looks to be in terminal decline.

Update: ... Or maybe Google will be the one to define the market.

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