Brandon Werner

This was a hard decision. I spent two years of my life working with my own planning firm and the Cincinnati re-vitalization CDCs on making Cincinnati a better place to live and work. The entire business plan of the company I started was based on this as it’s goal, and enabling others to do the same. I would sit on the boards and the committees where the statistics of the “brain drain” that Cincinnati was experiencing were laid out; and we all were filled with desire to make Cincinnati a “cool city” again. I lamented when other young professional friends I had left the city. I volunteered with the United Way’s Emerging Leader’s group and tried to get young urban professionals interested in volunteer opportunities with the Red Cross Disaster Services team. Leaving, I always saw, was a sort of giving up. A failure.

However, even though the city has shown progress on re-vitalization downtown and in other areas, I can’t ignore the steady decline in this city of both population and opportunities that it and many mid-west cities are experiencing. I was getting worried back in 2005 when the economic numbers out of the region weren’t doing well, with a 3.5% growth rate and sad .04% job growth rate (while by comparison the rest of the country was growing at 4.0%). On the health front, smog alerts have become the norm and Cincinnati’s air quality was only rated good 48% of the time, while Seattle (while certainly not the highest of the nation) was at 70%. Cancer mortality is also 173.1 per 100,000 households in Seattle, vs. 237.3 in Cincinnati. Cardiac deaths are 165.6 vs. 275.4, respectively.

None of this matters as much as the quality of life and opportunity that Seattle and the West Coast offers, and I am extremely excited to be working for SAFECO doing the same work that I’ve been doing with Midland and others in the past: building the best financial services architecture in the industry. I’m certain we will.

Although I do not like leaving my remaining friends in the area, I have watched for too many years as my friends and colleagues have left for bluer skies and better opportunity. I do believe Cincinnati has some life in it yet, and the mid-west in general, but not enough for me or my family to have the opportunities I want to provide for them.

The bluest skies you’ve ever seen are in Seattle. And the hills the greenest green, in Seattle.

I have always had to defend my love of the vertical markets, especially to the hortizontal dominated business world. However, in The Register’s send-off for the departed Sun Microsystem’s CEO Scott McNealy, the commentator made an economic comment that hit me so square between the eyes it summed up the entire reason for the need of there to be an Apple, Google, and other one-integrator strategies that have recently come back in to vogue.

Wall Street had long waged war against McNealy’s insistence on Sun as a vertically integrated systems company: one that produces a finished widget. Financial markets prefer to see horizontal vendors, exemplified by Wintel and Dell, because they squeeze the costs out of a business. In reality, the costs are simply transferred elsewhere, usually to the customer in the form of integration woes, shorter buying cycles, and lower reliability.

Think of that when you buy a $500.00 Gateway from Best Buy. It is true that the majority of people who read this blog are the technological heavy-weights, and might not believe they feel all the integration cost and reliability issues that come from the Windows (Is it really Wintel anymore?) ecosystem. However, I don’t go a day without someone complaining about some lost productivity do to their Windows XP workstation, and these are some of the smartest people to be had in a workforce. Coming home to (and using at work when possible) Apple technology has always created longing looks when I show the one step .Mac sync or the bluetooth pairing for my HID devices, or even my ability to direct music to any stereo in my house with one touch.

It’s the same thrill a Google user gets when he shows how his multiple calendars can be subscribed to, synced to his mobile and integrated with his mail. Things that Just WorkTM and Just Work because it’s vertical and integrated. Despite your valid concerns about lock down and other nasty things, the fact remains that as these devices become commodities the network becomes more important and the devices themselves have such a low barrier to entry that one moment you can be iPod + iTunes and the next be Creative + Napster. But, the returns diminish when you become Creative to any music service or Napster to 30 devices.

The same theory extends even to other business markets. A year ago Wired ran an article entitled “The Decline of Brands” stating that because of the more price conscious consumer and knock-off discount brands, that the quality that a large company like Proctor & Gamble implied in it’s Vertical brand strategy would diminish. This is true, but it doesn’t mean consumers aren’t more Vertical minded, in fact they are more so, just not to that level of detail. Sure you may find that a household’s Gillette Bodywash and Febreez has been replaced with Target brand labels, but chances are good they will all be from Target.

Even Java uses the Vertical Market strategy, taking Java and extending it to JEE and JME but with the same integration and quality of what is in J2SE. In the end, it’s the Vertical strategy that will win out as people become as fiercely brand loyal as they were during the American car days of the 1900s. Yes, you had to pay more for Chevy engine parts for a Chevy car, but as the dealers knew you could just as easily get a Ford the next year, prices were high but not exuberant. Also, you always knew it would Just WorkTM and get you to work on time, even if you had to pay the Vertical Market premium.

And that’s the point. Participating in Vertical Markets does tend to be more expensive up front, but the cost isn’t non-existent in the Horizontal model, it’s just more hidden. Perhaps to an America where most people live paycheck to paycheck, a cheap Creative player now may mean you can afford to pay the integration cost in the future the next time you get paid (another cable, another music service, customer support calls, syncing issues, rebuilding the library, upgrading to Vista for that “extra” media ability, ect.) but in the end, you’ll still end up paying just as much, especially if you value your time.

Sadly, before most markets move to the costlier but more quality driven Vertical process, there is always the Horizontal market before prices come down enough so that a person can switch brands, not just components. Steve Jobs and Scott McNealy are both people who never gave in to the Horizontal marketplace, never willing to give in to the quality penalty such a move would give their companies and their reputation.

They have had to live deep in to their middle-life to see it come back, but in the world of PSP, iPod and Google where entire industries have had sprung up around these Vertical ecosystems, they can finally say they never gave up on the idea of quality and integration championing the dull and the mass produced.

It appears a year after the presidential elections put outsourcing on the front burner; people’s fear of losing their jobs to offshoring is increasing . However, according to a recent article in the Wall Street Journal (BIALIK, 2005) this fear may not be as founded as previously thought.

According to Bialik, the numbers reported on the rate of engineers that countries such as India and China are graduating versus the United States are often without merit and baseless. To point out this fact, Bailik tried to track down the exact source of the numbers reported in a Fortune article that stated in 2005 China’s graduates will number over 600,000, India’s 350,000 and America’s only about 70,000. Although he couldn’t talk to the author in question after contacting Fortune, it turns out that getting inflated figures of engineering students in other countries is not something new, and no real information exist on the number of engineering graduates. Bailik’s research found numerous references to the 600,000 figure for China’s graduates, but each article referenced each other with no original sources cited to authenticate the figure.

Later in Bailik’s research, he determined that the inflated figures came from a 2002 speech of a now retired CEO of Cadence, a semiconductor company. He could not remember what sources he used by stated he used a variety of sources for the speech. As it turns out, this might be all a CEO’s doing, since according to people Bailik spoke with, CEOs have nothing to lose to inflate China figures.

Dr. Hira, of the Rochester Institute of Technology, when asked why the inflated foreign numbers persist said CEOs have nothing to lose. “There’s only an upside for them. It deflects attention from the fact that they’re offshoring more work. And there’s no cost to them - government is going to foot the bill [by subsidizing engineering schools]. The increase in supply of engineers is going to keep wages down.” (BIALIK, 2005, ?18)

Finally, there appears to be no real way of determining the actual amount of students graduating from university in China or India, as the chief agency responsible for gathering this information, the National Science Foundation, is four years behind in their numbers. The NSF blames red tape and computer upgrade issues as the reasons why their numbers are so old, but Bailik states that since them evidence is that engineering degrees have made a comeback to all time highs in the United States.

The practical implications for this article are important as the debate about outsourcing jobs overseas grows. If CEOs continue to prop up numbers for foreign engineering students to justify their outsourcing of jobs, they will foster the illusion that companies are making this decision based on intellectual ability and not purely on cost benefit for an organization. This will result in tilting the debate towards problems that may not exist in the current American education environment and move debate away from where it should be, executives passing over the large amount of highly trained American engineers for foreign engineers for no other reason than the cost of labor.

References

Bialik, Carl (August 26th, 2005). Outsourcing Fears Help Inflate Some Numbers. [Electronic Edition] The Wall Street Journal.