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Home > Learning Center > Business Columnist Archive > SOHO: The Future of Small Business
SOHO: The Future of Small Business
By Terri Lonier
SOHO, the small office/home office market of companies with 20 employees or less, is changing the landscape of small business. A mere blip on the economic and social horizons a decade ago, SOHO has now become a super-nova flash of power and influence—and the fastest-growing part of the U.S. economy. There are currently over 40 million SOHO enterprises in the U.S., and more than a million individuals are expected to join the ranks this year.
In preparing for the SOHO Summit, our conference this May for business leaders and companies offering SOHO products and services, we've been reviewing the many contemporary factors creating this movement. Whether you're a business serving SOHO or are an independent worker, look to these trends as the economic and social tea leaves of your future.
Technology Fuels the Engine of Change
Technology is driving the transition from boardroom to basement. Prices continue to drop as capabilities soar. Today, a $2,000 investment enables small companies to not only look big, but also allows them to compete effectively with firms many times their size.
SOHO workers are turning to the Internet to stay in touch with customers, establish brand identity for their companies and communicate with fellow freelance workers to build virtual teams. A growing number of traditional corporations are waking up to the SOHO market, and offering business services to this booming online audience. These include services such as back office support, payroll and order processing. Other corporations are creating online divisions of their brick-and-mortar establishments, serving SOHO with books, office supplies and other physical goods shipped directly to the SOHO doorstep.
Madame President and Mr. Mom
The search for flexibility and better quality of life is leading to some new, less-traditional roles in the work force. Men are starting businesses for many of the same reasons women are—to spend more time with their families, to enjoy increased flexibility and to share childcare responsibilities. In addition, women are finding that when you're a SOHO CEO, there's no glass ceiling to limit your growth.
The rise of two-income households is also contributing to the surge in SOHO ventures. With the psychological and financial stability of a working spouse, more individuals feel comfortable taking the risk of business start-up. In an era of low employment, a strong fallback position remains if the adventure fails—find another job.
Offices with Invisible Walls
New digital infrastructures enable individuals to stay in touch with the office and each other from anywhere. Portability of business tools and equipment has increased as costs have plunged, and many cars and bedrooms are now better outfitted than offices of just a few years ago. Cellular phones, palm-sized computer peripherals, high-speed phone and cable modem lines and video teleconferencing all make instantaneous communication a reality. The office no longer depends on a physical location; it resides wherever the intellectual capital walks, talks and breathes.
Large companies are adopting SOHO's pioneering mobility. Instead of a workstation with a desk, employees receive a portable filing module and a cell phone. The result is better project team interaction, flexibility and creativity.
As these trends illustrate, SOHO workers are influencing the new world of work—both in driving the creation of new products and services, as well as showing larger firms the benefits of flexibility and nimbleness. The momentum of millions of new SOHO business start-ups is creating a powerful economic engine and driving the next generation of American business. The American workplace will never be the same.
Terri Lonier is President of Working Solo, Inc., a strategic consultancy that helps Fortune 500 and high-tech firms reach the SOHO market. It is producing the SOHO Summit, an executive forum for business leaders and companies creating products and services for the small office/home office market, May 23-25 in Carlsbad, CA. For details, visit www.sohosummit.com.
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Current BW Magazine Table of Contents
July 3, 2006 BW Magazine Table of Contents
July 3, 2006 The Future of Tech Table of Contents
COMPANY PROFILES
1 America Movil
2 Hon Hai Precision Ind.
3 High Tech Computer
4 Apple Computer
5 Softbank
6 Telefonica Moviles
7 Telefonica
8 China Mobile
9 Nokia
10 Bharti Airtel
11 Motorola
12 Telekomunikasi Indonesia
13 Google
14 Accenture
15 Dell
16 TPV Technology
17 Inventec
18 Wistron
19 Seagate Technology
20 BT Group
21 China Netcom Group (Hong Kong)
22 TD Ameritrade Holding
23 Amazon.com
24 Novatek Microelectronics
25 Telenor
26 Toshiba
27 Telefonos de Mexico
28 E*Trade Financial
29 Brightpoint
30 NII Holdings
31 Quanta Computer
32 Asustek Computer
33 Hutchison Telecommunications
34 Tata Consultancy Services
35 MediaTek
36 Sprint Nextel
37 Microsoft
38 Western Digital
39 SAP
40 Komag
41 Avaya
42 Infosys Technologies
43 Turkcell Iletisim Hizmetleri
44 Hewlett-Packard
45 Netflix
46 SanDisk
47 Ericsson (LM)
48 Satyam Computer Services
49 VimpelCom
50 Mobile Telesystems
51 Oracle
52 Nikon
53 AT&T
54 Cisco Systems
55 L-3 Communications
56 Yahoo!
57 Wipro
58 Advanced Micro Devices
59 Canon
60 Xyratex
61 Agilent Technologies
62 KDDI
63 Acer
64 LG TeleCom
65 Rogers Communications
66 SK Telecom
67 Hoya
68 Nextel Partners
69 Qualcomm
70 Yahoo! Japan
71 MiTAC International
72 Cap Gemini
73 NVIDIA
74 Texas Instruments
75 Verizon Communications
76 Amkor Technology
77 Tellabs
78 VTech Holdings
79 Lite-On Technology
80 Cosmote Mobile Telecom.
81 Amphenol
82 Jabil Circuit
83 Heartland Payment Systems
84 Cognizant Technology Solutions
85 Corning
86 TDC
87 Broadcom
88 Sega Sammy Holdings
89 Palm
90 Anixter International
91 Logitech International
92 Siliconware Precision Industries
93 Millicom International Cellular
94 Compal Electronics
95 Harris
96 NIDEC
97 Intuit
98 Amdocs
99 Alliance Data Systems
100 National Semiconductor
JULY 3, 2006
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THE FUTURE OF TECH
Inside Nathan Myhrvold's Mysterious New Idea Machine
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Bio: Nathan P. Myhrvold
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THE FUTURE OF TECH
Inside Nathan Myhrvold's Mysterious New Idea Machine
As his cash-rich firm snaps up thousands of patents, fears emerge that it will become a leader in litigation—not innovation
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A rocket scientist, a mathematician, a brain surgeon, and a lawyer walk into a room. It sounds like the beginning of a joke, but at Intellectual Ventures it's something more serious—a business model. IV traffics in a single product: invention. On June 17 it invited 10 of the most blindingly brilliant doctors and scientists in the country to a daylong brainstorming session at its headquarters in a nondescript office building next to a swamp in Bellevue, Wash. Assembling around a conference table, the diverse group, which included physicists from Lawrence Livermore National Laboratories, physicians from several major medical centers, and a Stanford University postdoctoral fellow in bioengineering, spent the day pondering a complex question: How can surgery be improved? The goal wasn't just incremental advances but multibillion-dollar lightning bolts that could change the world and, not incidentally, make all of the participants rich.
As the experts spoke, Intellectual Ventures' patent lawyers, many of them with doctorates in science themselves, monitored the highly technical interchange, taking notes, recording the conversation from two microphones hanging from the ceiling, and snapping pictures of whiteboard drawings. The room was windowless, the furniture standard issue, and the participants casually dressed. They fueled themselves with caffeine, beef jerky, and nuts. Throughout the conversation's many twists and turns, an IV staffer at a computer terminal summoned relevant articles or patent documents and projected them on the wall for all to see. "This is really cool!" enthused IV CEO and co-founder Nathan P. Myhrvold, the moderator of the session, in reaction to one concept tossed out at the meeting. "This is really damn cool!"
Slide Show >>
Is this the future of invention in America? Myhrvold, 47, is betting that it is. Very few others, whether in business, government, or academia, are willing to spend as much money, and wait as long, to nurture fundamental innovation. As intellectual property becomes a bigger part of the economy, figuring out how to invest in it will become a more urgent issue. Though there will undoubtedly be competition, Myhrvold hopes to set the standard. His ambitious goal is to own the next generation of transformative technology in some of the world's fastest-growing industries. Over the past three years, Intellectual Ventures has held about 70 brainstorming sessions. The result: 500 patent applications in areas including optics, biotechnology, robotics, e-commerce, and mobile networking. "We think that if we specialize in invention, we can do it better than people who do it as a sideline," he says.
ON THE PROWL
Myhrvold's bold words might be easily dismissed if they came from somebody else. But you have to take him seriously. The brainy mathematical physicist, who made a fortune during 14 years as a top Microsoft Corp. scientist, exuberantly engages in conversation about almost everything, from cooking (he trained at a French culinary school) to cosmology (he studied curved space-time with Cambridge University's Stephen Hawking) to paleontology (he's a sponsor of dinosaur digs). Myhrvold is perhaps the only person in the world with both the scientific credibility to attract Intellectual Ventures' all-star roster of inventors and the business contacts to lure the company's blue-chip investors, which include Microsoft, Intel, Apple Computer, Sony, and Nokia.
With his pink cheeks, curly blond hair, and jovial manner, he can seem almost cherubic. But not everybody views Myhrvold as an angel—far from it. That's because Intellectual Ventures is not just a think tank where big brains sit around dreaming up ideas. It also has a second business, one that is generating controversy: buying patents. In fact, that's a much larger part of the operation. Maintaining secrecy through shell companies and nondisclosure agreements, often swooping in aggressively to seal deals, it has scooped up thousands of patents and is on the prowl for many more. That has many people in the tech world worried.
What's so frightening about patents? Inscrutable documents with funny schematic drawings, patents reward inventors with an exclusive right to their inventions. They seem so all-American, evoking images of Thomas Edison and Eli Whitney. But lots of small companies, disparagingly called trolls, have gone into business solely to own a handful of patents. They then make money, sometimes lots of it, by going out and suing companies they think have ripped off the inventions. The case that has thrown the most fear into big companies is NTP Inc.'s lawsuit against BlackBerry maker Research in Motion Ltd., which RIM paid $612 million to settle in March.
With its vast hoard of patents, IV could turn out to be the world's biggest patent troll. It could have the power, at least in theory, to sue a vast swath of Corporate America, becoming a force that smothers rather than nurtures innovation. "There's just a lot of questions about all of these patents they have and what they are going to do with them," says Christina Schneider, a spokesperson for Hewlett-Packard Co., echoing concerns heard widely in Silicon Valley.
Myhrvold, not surprisingly, dismisses these fears. He says he's opposed to patent litigation. In response to charges that he is a predator, Myhrvold describes himself as an entrepreneurial financier, somebody who is devising new ways to fund innovation. He likens himself to the first generations of venture capitalists and private-equity investors, who were also widely vilified. Myhrvold believes that there is an emerging trend to treat intellectual property, and patents in particular, as an asset that people and companies will invest in, the same way they do in real estate or stocks. The result, he believes, will be a boon for invention, just as venture capital and private equity have stimulated enormous growth and innovation in the American economy. "I'm one of the first invention capitalists," he says.
Of course, being a trailblazer has its perils, one of which is that the trail may go off a cliff. The business model Myhrvold and his fellow IV executives have dreamed up is ambitious and unproven. It is unclear if it will be able to produce a consistent revenue stream. Six years after opening for business and nearly four after first soliciting funds, IV still appears years away from offering its investors any return.
Brought up in modest circumstances by a single mother in Santa Monica, Calif., Myhrvold describes himself as an almost accidental mogul. Taking a leave from studying cosmology at Cambridge University to help friends with a software project, he found himself in 1984 heading a startup known as Dynamical Systems. Two years later it was acquired by Microsoft, where he ended up as the company's first chief technology officer and a close adviser to Bill Gates. Some in the tech industry dismiss him as an intellectual dandy, a brilliant attention seeker who never managed to produce any important innovations at Microsoft. Yet the barbs have done little to tarnish his star. Now he travels by private jet and hobnobs with Warren Buffett, Michael Bloomberg, Steven Spielberg, and Herb Allen.
SPREADING RISK
Myhrvold's time at Microsoft planted the seeds that would grow into his vision of IV, which he and Edward Jung, who had also been a top scientist at Microsoft, co-founded in 2000. One formative experience was his role in creating Microsoft Research, which now employs more than 700 researchers. A key insight he had in developing the operation, he says, is that predicting which inventions will be successful is enormously risky, and the only way to mitigate that risk is to invent on a very large scale. So just as a stock fund manager spreads his exposure over many positions, IV is aiming for a diversified portfolio of patents.
The invention sessions are part of that strategy. Myhrvold believes they enable IV to come up with breakthrough ideas because they combine the insights of an interdisciplinary group of experts in a way that rarely happens in industry, where expertise tends to be siloed. At the June 17 session, for instance, Lowell L. Wood Jr., a physicist who once designed nuclear weapons; Michael A. Smith, a chest surgeon from the University of Southern California; and Edward S. Boyden III, a biomechanical engineer, are among those at the table who watch as neurosurgeon Dennis J. Rivet gets up and walks over to the whiteboard.
It's midday, the air in the room has grown stuffy, and the coffee has long since run out, but the energy and attention level remain high. Rivet starts to describe a problem he faces with aneurysms. Taking a marker, he draws a picture of a blood vessel with an ominous balloon-shaped bulge.
"This is a common problem?" asks Myhrvold, who has no problem at all following a discussion about the technicalities of endovascular surgery. "It is," replies Rivet. "It's what I think about in my spare time." Myhrvold's eyes light up, and almost instantly the room is crackling with ideas for solutions. The IV patent lawyers type furiously, preparing notes they will later mine for patent ideas.
The payoff from these concepts could take a long time to arrive. It takes at least three years to apply for and win a patent. And then comes the really hard part: finding somebody to commercialize it. Because Intellectual Ventures is only about ideas, Myhrvold has no interest in manufacturing and marketing new products. His plan is to offload all of that work to licensees. Intellectual Ventures needs to attract "patient capital," Myhrvold says. The company tells investors that there's "no guarantee of profit after five years."
As for the inventors themselves, they get a share of the ultimate profits if they are listed on the patent—a matter on which Myhrvold is the ultimate decision maker. IV also pays for their time and expenses. But Rivet says that money is only a small part of the equation. "The appeal is twofold: the opportunity to interact with a diverse group of thinkers purely for the sake of invention, and the efficiency with which IV translates imagination into intellectual capital."
Although IV's own invention efforts are what Myhrvold enjoys talking about most, they are not the most important part of the business. The company, in fact, spends much more money buying ideas generated by others. Armed with its billion-dollar war chest, IV has stockpiled thousands of patents, according to Myhrvold, who will not disclose the precise number.
"TROLL REPELLENT"
When Myhrvold and Jung first began raising money for IV in 2002, the sales pitch was crystal-clear: The company's patent portfolios would provide a way for big tech companies to defend themselves against intellectual property lawsuits. At the time, many people feared an explosion in patent litigation because of the bursting of the dot-com bubble, which had sent many startups into bankruptcy. That, in turn, had forced the defunct companies to put their patents—their last remaining assets, in some cases—on the market at bargain-basement prices. The threat that opportunistic trolls would buy the patents and then file lawsuits alleging infringement worried many executives in Silicon Valley.
So Myhrvold and Jung began making the rounds of major technology companies to drum up investment in what they called the Patent Defense Fund, a name that pretty much translates into "troll repellent." Initially, each company, say several individuals familiar with the sales effort, was asked to pony up $50 million. The plan was that IV would then go out and buy patents that were knocking dangerously around the marketplace, and investors would get a license to the entire portfolio—effectively immunizing them from the danger of intellectual property litigation.
Legal developments, meanwhile, provided some useful marketing support for the concept. In February, 2003, a jury hit Sony Corp. with $25 million in damages for infringing a handful of patents that the plaintiff had purchased for $65,000. (Sony settled for an undisclosed amount and took out a license.) Sony signed on with IV, as eventually did Intel, joining a group that now includes Microsoft, Apple, Nokia, Google, and eBay. Some have paid much more, and some less, than $50 million. IV declines to confirm the identity of its investors, and the other companies declined to comment or did not return calls. IV requires investors to sign a nondisclosure agreement.
Although the ostensible purpose of the Patent Defense Fund was to protect its big investors, some executives saw an implicit threat when IV approached. It was "the greenmail pitch," says Jim Huston, a former patent and licensing executive at Intel, now at Blueprint Ventures, a South San Francisco VC outfit. "If you don't invest, you're our No. 1 target." In other words, the worry was that IV would use the patents it bought to file infringement suits against companies that turned it down. Myhrvold scoffs at this charge, noting that businesses that aren't infringing have nothing to worry about, and that IV has yet to file a single lawsuit.
But it's clear that many of IV's investors are ambivalent about Myhrvold's enterprise. Intel and Apple, for example, happen to be charter members of a group formed last month called Coalition for Patent Fairness. Myhrvold calls the CPF "the infringers' lobby," since it has already begun pushing in Congress for changes that he believes weaken protection for patent holders, such as providing more avenues to attack a patent's validity. The CPF, in turn, was eager to provide information and spokespeople for this article to advance its view that IV is nefarious.
Jason Schultz, a lawyer at the Electronic Frontier Foundation in San Francisco, who spoke on behalf of the CPF, criticizes IV for its secrecy about such things as the identity of its investors. "Having injected themselves into this debate about patent trolls and patent reform, they've sort of placed their credibility on the line," Schultz says. "So transparency is important."
Despite the fact that Myhrvold's backers include some of the biggest companies in technology, he spends a lot of time criticizing them in public. The notion of tech heavyweights "stealing" from inventors is a theme that Myhrvold returned to repeatedly in a series of interviews with BusinessWeek. At many big computer and Internet companies, he says, there has long been a culture of intentionally infringing patents or turning a blind eye to potential infringement. "You have a set of people who are used to getting something for free, and they are some of the wealthiest companies on earth," he says, his voice rising in indignation as he steers his car through traffic on his way to one of his favorite Seattle restaurants. "I was there. I was in the meetings. This is they way this business thinks about it." In Myhrvold's eyes, the fact that so many large companies are blatant intellectual property rights infringers just means that there's more money to be squeezed from his patent portfolio.
For all the controversy surrounding IV, its fund-raising efforts have proceeded apace. It recently completed a second round, part of it from institutional investors. IV stakeholders now include pension funds, VC firms, and wealthy individuals, Myhrvold says. Izhar Armony, a partner at VC firm Charles River Ventures in Waltham, Mass., says: "I think that Nathan is on to something really good and important." Charles River has invested in IV, he says, because "we share a common vision of thinking of [intellectual property] as an emerging asset class."
As its investor base has broadened and its strategic vision evolved, IV has recast the way it packages its product. All references to the Patent Defense Fund are gone. It now offers two types of investment opportunities. Investors can channel money into IV's own invention efforts, where the time frame for any return is quite long, or into the patent acquisition fund, which aims at quicker gains. While Myhrvold declined to comment on the size or structure of IV's funds, he hints that there are multiple vehicles to suit varying investor needs.
How IV finds what it wants to buy is "part of our secret sauce," says Peter Detkin, who coined the term "patent troll" in 2001, when he was an inside attorney at Intel Corp. He joined IV as a managing director in 2002. An in-house acquisition team scours the market for opportunities, but IV also relies on brokers and finders to bring it deals. Universities are another source of inventions, and IV has acquired patent rights from more than 50 of them.
STEALTH MOVES
Intellectual ventures can be very aggressive. After BusinessWeek ran an article in February describing the plans of a firm called Ocean Tomo to hold a public patent auction, IV got in touch with several of the companies identified in the article that said they planned to submit some of their patents for sale, says James E. Malackowski, Ocean Tomo's chief executive. It persuaded BellSouth Corp. to yank its lot from the Ocean Tomo auction and then bought the patents, which covered wireless services and voice messaging. <(IV declined to comment on this.)
Stealth is another of IV's hallmarks, as it is for many companies that don't want to tip off competitors to the type of technology they are buying—or drive up the price if they are seen as having deep pockets. The shell companies IV has used to acquire patents have whimsical names, often leaning toward the literary (Steinbeck Cannery, Dickens Coal, Kipling Sahibs) or the colorful (Sky Blue Interchange, Steel Gray Server, Midnight Blue Remote Access).
IV's acquisitions range widely across many technologies. The aim, Myhrvold says, is to get a "critical mass" in 5 to 10 areas. While IV won't identify them, there is clearly a focus on core technologies such as chip manufacturing and design and telecom. IV's own invention efforts focus on such things as biotech and optics, which could produce some relatively near-term payoffs, and on highly esoteric fields where any bet is highly speculative, such as meta-materials, engineered composites with unusual electromagnetic properties. The materials have potential use in stealth technology for the military.
Ronald S. Laurie, at patent brokerage and consulting firm Inflexion Point Strategy in Palo Alto, Calif., calls IV "the buyer of last resort" for the sellers he represents. "You don't get the best price," Laurie says, "but you get a quick deal." IV got in touch with the inventors of a TV-related patent and offered them less than $50,000 for it. After the inventors retained broker IPotential, they got IV to go up to $150,000, but the inventors held out for more. The final sale price last year, to an Asian electronics company: $1 million. IV says the patent had problems because a lawyer had placed a lien on it, though that was resolved.
STILL BUILDING
The $64,000 question (or $640 million, to approximate how much it cost BlackBerry maker Research in Motion to settle the patent infringement suit filed by NTP) is: How does IV plan to use its patent portfolio to make money for its investors? Is it going to devise cool new products? Or is IV going to launch a barrage of patent lawsuits against every big tech company that is not an investor? The company says it is at least a year from executing what it calls its "go-to-market" strategy. That's largely because it hasn't yet acquired a critical mass of patents. "There's strength in numbers," managing director Detkin says, because patents are more attractive when related technology can be bundled, giving users more freedom to operate.
Brent Frei, IV's executive vice-president, who's managing the go-to-market plans, says there are multiple ways it will extract value from its holdings that do not involve lawsuits. Intellectual Ventures could sell a patent to a company that planned to commercialize it. Or it could enter into a joint venture or a licensing arrangement. Those are all nice things. But the unavoidable fact is that not everybody will want to play ball with Myhrvold & Co. When Myhrvold asks some companies for licensing fees, they'll resist, and then Intellectual Ventures will have no choice but to go to court. Myhrvold adamantly rejects the idea that suing people will become a mainstay of his business operation. "Litigation is a huge failure," he says. It's "a disastrous way of monetizing patents."
What Myhrvold hopes will happen instead is that what he calls the culture of infringement will come to an end and companies will voluntarily pay for rights to technology they use. He draws an analogy to a patron stiffing a restaurant on a check by simply leaving without paying the bill. Most people don't dine and dash, but it's not because they're afraid they would get caught and suffer consequences if they did. It's because most people simply think that paying for their meal is the right thing to do.
Twenty years ago, he notes, software makers—some of whom now flout patents—faced the same predicament with trying to get the market to respect copyrights. Even big corporations, he says, would buy a single copy of a spreadsheet program and copy it. That has largely changed, through education, changes in the law, and some vigorous enforcement. Myhrvold is aware he may have to do some enforcement of his own. A moment after calling litigation "disastrous," he adds: "Sometimes disaster happens, and you have to do it."
Myhrvold has other ambitions that transcend IV's business. "I'd like to be successful enough that a model gets started," he says. That model entails a network of firms that exist to finance invention. Just as venture-capital firms took root in Silicon Valley 30 years ago, Myhrvold envisions an industry devoted to funding the earliest stage of the product-creation cycle. "Today invention is an area that people view as too illiquid, too uncertain, and too risky, so that nobody wants to invest in it," he says. "The world has shown that if you provide capital and expertise to an area that is starved for capital and expertise," then "really good things will happen."
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• Keeping the City Running (Overview)
Mayor Michael Bloomberg recently took on a problem that annoys a growing number of New Yorkers. Many new cell phones take photographs, offer games and play music, but do not make calls -- at least not in numerous places throughout the city. "Cell phone 'dead spots' are frustrating and too common," the mayor announced. The city's solution: When New Yorkers find these dead spot zones, they should dial 311 to report them. And then what? "This program will undoubtedly help the industry improve service and help consumers make more informed purchasing decisions," the mayor said.
And this in a nutshell is the dilemma facing the city. If New York has its most tech-savvy mayor ever -- an entrepreneur who made billions providing technology to businesses and whose pet projects at City Hall include tech innovations such as the 311 telephone number for non-emergencies -- one public official can only do so much. The city has so far been better at identifying local tech problems than in solving them.
But these problems, some say, are more than just an inconvenience; solving them is essential if New York City is to remain a capital of communications and commerce. Will the typical New York City workplace of the 21st century be like the graceful high-tech offices of Steven Spielberg's movie "Minority Report," where Tom Cruise waves his hands in the air and is instantly connected to an information superhighway? Or will it be more like Terry Gilliam's 1985 film "Brazil," where a house fly can plunge the whole makeshift technology and telecommunications system into chaos?
WHAT TODAY'S OFFICES NEED
The August 14, 2003, blackout dramatized many of the flaws in New York's communications systems. The Internet was useless. Cell phone providers could not handle the increased demand for calls and, as the blackout continued, service deteriorated further. Many office phone systems, dependent upon electricity, also failed to function.
But it does not take an extraordinary event like a blackout to point out the problems that businesses face. According to a report by the Center for an Urban Future, New York has become "one of the worst environments for entrepreneurs and growing firms," ranking at the bottom of national lists. One reason for this is its poor telecommunications technology. Meanwhile, advances in technology that enable people to "telecommute" and easily work with people hundreds of miles away make it less essential for many businesses to stay in New York. Experts agree that faced with such challenges, New York will lose businesses, jobs and money if things don't change.
Of course, the office of the future does exist right now in New York. Employees in many offices communicate almost entirely by computer, e-mailing colleagues, customers and contractors around the world, and checking stock prices, political trends and industry data on the Internet. Large businesses host their own Web sites, set up wireless networks in their offices, use voice-over-Internet technologies to cut phone costs and hold online conferences. Orders come in over the Internet, and customers track the status of shipments by computer.
An increasing number of people spend much of their business day away from a traditional office, working on portable devices such as laptops, personal digital assistants and cell phones. A salesperson may visit a client and then e-mail a report on the meeting while sitting in a nearby cafe or park. An electrician at a building site needs to check on the availability of a part; the site has no phone service yet, making him completely dependent on his cell phone. Every day, people need to connect to files, programs, databases and the Internet from their apartments, their local park or even Yankee Stadium.
Such new technologies increase efficiency and cut costs. But many businesses outside midtown and lower Manhattan cannot take advantage of them, because of aging or outmoded wires and cables, or because they simply are not available anywhere but the two major business districts.
HIGH SPEED INTERNET ACCESS
Just about
An image from Steven Spielberg's movie "Minority Report," where Tom Cruise waves his hands in the air and is instantly connected to an information superhighway.
anyone with a telephone and a computer can get access to the Internet. But, as anyone who uses a dial-up system at home knows, access can be painfully slow and tie up telephone lines.
That is why many businesses are looking to "broadband," which is a high-speed connection to the Internet such as a digital subscriber line or DSL (which uses the phone lines), or cable-modem (which sometimes shares the wire used for cable television). Unlike dial-up, broadband is always on, so there is no connecting and disconnecting.
Any business that makes or takes orders for merchandise can benefit from broadband. Conducting such transactions by dial-up Internet or telephone can be slow and frustrating as screens can freeze and information can be lost.
"Broadband is critical for economic development and small business growth across the board, not just in high-tech industries," says Jonathan Bowles, research director at the Center for an Urban Future, who has been interviewing small businesses on the importance of broadband for a report to be released next month.
The problem is that broadband is not widely available in the city outside of midtown and lower Manhattan.
For example, cable DSL and cable modem are extremely difficult to get in Brooklyn, largely because providers consider it a low income area, City Councilmember Gale Brewer, chair of the council's technology committee, told Wireless Review this summer. "A year ago, a senior citizen center with a multimillion-dollar budget wanted to put in broadband, but no one wanted to go there," Brewer said. "I've worked in a lot of low-income areas in New York City, and private companies always think there's no marketplace there. We have to get this to go beyond the central business district."
Experts claim that if broadband were made available in just 50 percent of the city, it could bring in an extra $15 billion to the New York economy over the next 25 years. Providing service to 94 percent of New Yorkers could bring in $80 billion.
The lack of broadband places a heavy burden on many nonprofit groups, says Kayza Kleinman, director of the Nonprofit Helpdesk at the Jewish Community Council of Greater Coney Island. Government regulations require that many social service agencies provide services and information online, something difficult to do without high speed Internet access. As a result, many struggling organizations have felt forced to wire their buildings themselves, at a cost they cannot afford. And those are the ones lucky enough to be in an area where such wiring is possible.
Simply providing high speed Internet access is only the beginning. Even when service is available, some small businesses and nonprofits cannot afford it. While prices for most telecommunication services have been falling, broadband prices have gone up. Many organizations pay at least $400 per month so that a number of computers can be online at the same time.
The relatively high price is due largely to a lack of competition. While there are 18 broadband providers other than Verizon, most of them must lease the wires from Verizon and thus have to pay Verizon for access.
And there are different types of broadband. While all may be high speed, exactly how fast one can send and receive information may vary. Such differences present particular problems for companies that want to host Web sites and e-commerce platforms. "All broadband is not equal," says Joe Plotkin of Bway, a New York-based Internet-service provider that provides symmetrical broadband.
FIBER OPTICS
There are two ways for telephone companies, such as Verizon, to make high-speed Internet more readily available. They can replace the copper wires that currently run under much of New York City, with newer ones that are better able to handle massive amounts of information. Or they can upgrade to fiber optics. These cables -- strands of glass about the size of a human hair that transmit light signals -- allow Internet connections that are four times faster than broadband and could be ten times faster in the future.
But 87 percent of the city's fiber optic cables are in Manhattan business districts below 59th Street. One obstacle to expanding their reach is money. Fiber optics cost as much as $40,000 per mile to install, while wireless costs a tenth as much, according to one study.
HOTSPOTS
It is a truism of work in the 21st century that many people must be accessible around the clock -- in the office or away -- and so rely on being able to use cell phones and laptop computers wherever they might be.
Key to this are "hotspots" that provide a wireless Internet connection people can use with their laptops, personal digital assistants and other devices over the airwaves. Wireless, which is comparatively cheap to set up, can bridge gaps between other services. Currently, there are hundreds of free hot spots in business and residential areas of Manhattan as well as in the outer boroughs. (See map.)
The non-profit group NYCwireless has joined with economic development groups and parks organizations to provide free Internet access in places such as Bryant Park and lower Manhattan. Verizon offers wireless to their paid broadband customers at telephone booths, and T-mobile connects Starbucks customers for a monthly fee.
The city hopes to create schools, libraries and other government buildings as wireless hotspots. But wireless is still on the cutting edge. Many people do not know that wireless sites are available, and most small businesses have not yet begun to explore how wireless can help them. And even though wireless is spreading here, it is still not as popular in New York as it is in places such as Portland, Oregon, and Orange County, California.
PLANNING FOR THE HIGH-TECH FUTURE
While there is widespread agreement on at least some of the technology the city will need for its economy to thrive in the coming decades, less agreement exists on how to achieve it. Much of the controversy involves who should pay for the improvements.
Many believe that upgrading the city's wires and cables is the job of private companies such as Verizon, Con Edison, Time Warner Cable and Cablevision that profit from providing such services. As it stands now, the companies do shoulder most of the cost and make only those improvements they feel are worthwhile for them. For example, to justify the cost of installing new cable, Verizon must believe that it will gain a significant increase in business once the cables are installed.
Others say the need for fiber optics and other improvements is so crucial to the general well being of the city that it cannot be left to the private sector alone.
In May 2003, the City Council published a report, "Network NYC" (in pdf format) which laid out a proposed long-range telecom strategy. Many of the report's recommendations involve increased planning and analysis of the city's telecommunications needs by the Department of Information Technology and Telecommunications.
But the report also called on the city to use its economic clout as a major purchaser of telecommunications services to get improvements in service. New York City spends over $130 million annually on telecommunications, primarily telephone and Internet, more than any other city in the country. At least 75 percent of that goes to Verizon - with no competitive bidding. The report and the city comptroller have questioned whether the city should solicit competing bids to cut costs and perhaps exert influence on Verizon. (The company could not be reached for comment.)
The report also urges the city to make better use of existing technology. For example, it notes, the city manages franchises with a number of fiber optics companies and controls rooftops through New York that could be used for wireless. Yet, despite this, it says, "there has been little public discussion or long term strategic thinking about how the city could better organize this public and private infrastructure to encourage a truly citywide deployment of affordable, high speed networking capacity."
Because laying new fiber optic cable is so expensive, Councilmember Brewer recommends using existing fiber optics - either lines already owned by the city or leased from other owners - and combining them with wireless to create a network linking every borough but Staten Island. Brewer sees such a network helping small companies and non profits that cannot afford $400 to $1,200 a month to get high-speed Internet access from Verizon.
Another possibility involves taking old systems and putting them to new uses. The city explored the possibility of putting telecommunications equipment, including fiber optics, in space occupied by unused water pipes.
Some fiber optic cables -- called dark fiber -- were installed in the ground during the high tech boom of the 1990s. But they were then abandoned as dot.coms went bankrupt. Providing new cable to link to this unused dark fiber could be a lower-cost way of bringing fiber optics to at least some parts of the city.
As appealing as some of these ideas are, any solution is bound to be for the short-term only. In the 21st century, technology often becomes outmoded before many of us ever get to use it. And so fiber optics, broadband and hot spots could all soon be eclipsed by better, cheaper technology that has not been developed yet.
But whatever the actual technology, New York will have to stay on top of it. And that requires a vision, a plan and a way to put it into action.
Other Related Articles:
Job Seekers And Technology (2006-04-26)
A Library Opens In The Bronx (2006-02-22)
Saving Money -- And Saving Patients -- With Technology (2005-10-21)
Tech, Art, Protest and Politics (2004-10-19)
Technology and Government: The Rise of the E-Citizen (2004-05-24)
Unemployed Immigrant Tech Professionals (2004-04-13)
Voting Technology (2004-03-24)
Technology In The Schools (2004-03-12)
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