Jumat, 29 Oktober 2010

Where does hard-headedness end and nastiness begin?

I have been arguing with a friend of mine, someone whose work I admire and whom I like personally, about the election.  In one email, he wrote to me:

All this administration has done, in effect, is additionally regulate banks and businesses (in the middle of a deep recession) and transfer resources from high skill to low skill.  That's what the health care plan and the extension of unemployment benefits has done.
There are a few large presumptions here: that wealth is a function of skill, and that skill is the most important criterion for determining whether one "deserves" resources.   I have no doubt that there is a strong correlation between skill and wealth, but I also have no doubt that a regression where wealth is on the left hand side and skill is on the right would have a large residual.

But even if skill translated perfectly to wealth, I am uncomfortable with the idea that the unskilled are unworthy of having a decent standard of living, particularly in a country as rich as the United States.  I also think that income distribution data from OECD calls into serious question whether rewarding the "highly skilled" leads to better outcomes for the lower income parts of society.  Thus I recoil at the idea that extending unemployment insurance periods in times when there are far more job seekers than jobs is a good idea.

That said, the hard-headed aspects of economics do lead to important insights.  For example, when the country is at full-employment (or something like it), the duration of unemployment insurance should be limited, because we do want people to work.  Similarly, we should always make it better for people to work than to receive government assistance.  I could also go on about the evils of rent control, etc.

This is where I feel conflicted about my discipline on a regular basis.  So much of what we put out there strikes me as being on its face inhumane and arrogant.  Yet I would hate to see what policy would look like in our absence.

Kamis, 28 Oktober 2010

Sampling

If my friends were a representative sample of the US population, there will be 30 million people at the Rally to Restore Sanity. (Putting the subjunctive together with the future tense sure is awkward!).

Rabu, 27 Oktober 2010

The real reason why a foreclosure moratorium would be a bad idea

I was on Marketplace the other day debating Mike Konczal about whether a foreclosure moratorium  would be a good idea.  I took the no position for two reasons:

(1) A moratorium would slow down the eventual resolution of the housing crisis;

(2) A moratorium would add yet another level of uncertainty about the ability to foreclose going forward, which would discourage the private sector from returning to the mortgage market.  If lenders can't take away the houses of people who don't make their payments, they will not advance mortgage money in the first place.

But last night it occurred to me why I have such a visceral reaction to such things as moratoriums: they strip property rights without due process.  If a borrower agrees to repay a mortgage, and everything about the mortgage is legitimate, and the borrower ceases to make payments, the lender has a property right to take the house.

I am at times a card-carrying member of the ACLU, because I think the rule of law and due process should apply to everyone.  Many lenders have behaved badly and appear to still be behaving badly.  That doesn't mean that all of them should lose their well-defined rights--even temporarily.

Senin, 25 Oktober 2010

Why to avoid motorcycle riding in India



Hannah in Bodh Gaya: the most dangerous thing you can do » North by Northwestern

I

saw someone die in the street last night.

During orientation, Robert explained the five Buddhist Precepts to us, and he explained why our experience and that of others would be better if we agreed to follow them during our time here. Then he said that if we broke one, we shouldn’t beat ourselves up, but that we should try not to do it again. When a few students were caught drinking and smoking on the roof, he said at lunch that he’d heard about it, and that if we had any intoxicants in our room we should go get them and flush them down the toilet. He didn’t say to go get them and bring them to him. He understands that he can’t make us do anything.

The only thing that he forbade expressly was riding motorcycles.

“Riding a motorcycle in India is the most dangerous thing you can do,” he said. “There is no trauma ward. If you get into an accident, everyone will stand and watch while you bleed to death in the street.

I saw the crowd before I saw the body. I was walking with a couple of French people I’d met the night before. They saw the crowd and didn’t wish to walk that way. One man told me it was OK for us to pass, so I went because otherwise I would be late to mediation. For just half a second I saw the man lying exactly on his back in a pool of blood with a thick stream of blood draped across his face and body. It could not have been more red. His motorcycle was behind him. I turned my head away and touched the wall next to me, but the image has not left my mind. This body was not like a body prepared for cremation in Varinassi. They were supposed to be dead. This man was still fresh. He should have been alive. At the moment I saw him, maybe he was alive.

I walked back the way I’d come and saw my fellow students coming toward me in rickshaws. I looked at them and said “there’s a dead man in the street.” I expected them to stop or something, but the rickshaws just went past. Only Wanda and Heidi got out. I didn’t want to walk alone, so I had to walk past the same place to catch up with them. The body was being carried up the hill on a woven stretcher, and I had to see the pool of blood mixed in the gravel and rainwater again as I walked past.

When we got to mediation we were having a group photo taken. We had to wear our Zen robes. I thought “I can’t figure out the strings on these robes, I just saw a dead man,” and “I can’t smile for this photo, there was so much blood,” and “I can’t get up for walking mediation, he was lying right on his back like he was in bed,” but I managed to do all those things anyway.

It was our final meditation session in the Japanese temple, so afterward one of the monks spoke to us. He told us that “Arigato” means more than thank you in Japanese. It means, these circumstances were difficult to come by, and we are so happy that you can be here. You are not just thanking the person you are speaking to, but you are thanking every circumstance that lead you to be together. He said we should all call or e-mail our families to say “arigato”. He said that it might confuse them, but he didn’t care. Maybe it’s wrong, but it’s true that seeing death like that makes you understand how rare it is that so many of the people you love are still healthy and fine. Arigato.

Jumat, 22 Oktober 2010

What is Samsung thinking?

This is an interesting time for tablet computing fans, with the HP Slate (link) being announced today and a revised B&N Nook (link) supposedly being announced next week. Meanwhile, I'm still coming to the terms with the pricing Samsung announced this week for its upcoming Galaxy Tab.

I had a very strong negative reaction to the price, but I wanted to wait a couple of days to see how I'd feel after I had time to think about it. So now I've thought about it, and here's my reaction:

$600 for a seven-inch tablet?? Are you freaking kidding me? A whole netbook costs about $400. Why does it cost $200 extra just to remove the keyboard?

I don't understand Samsung's strategy. A $400 device is maybe an impulse buy for a rich person at Christmas. A $600 device is a carefully considered investment for most people, especially when all the most enthusiastic tablet buyers have already been siphoned off by Apple.

I got a chance to play with a Galaxy Tab at CTIA. The interface is very cool, but I kept asking myself what I'd actually use it for. What problems does it solve that you can't solve with a smartphone? Samsung appears to assume that Apple has created a market for generic tablets to do, you know, tablet stuff. But has it? Or has it created a market for iPads that seamlessly handle lots of content and unique applications?

And although the design of the Galaxy Tab looks nice, I think the ergonomics of it are questionable. Despite what Samsung's publicity photos show, the device is a bit too wide to hold comfortably even in my dinnerplate-sized hand. To hold it securely, I needed to put my thumb on the front of it. But the margins around the screen are so narrow, and the back case is so slippery, that I felt like I was going to drop it when I put my thumb alongside the screen. The weight of the device also put uncomfortable pressure on my thumb (it's a lever effect). My grip felt more secure and comfortable if I put my thumb on the screen, but then I would accidentally press icons and interfere with the interface.

Although Samsung likes to talk about itself as a leader, in practice it's usually a fast follower -- give it a device to copy and it'll turn out its version faster than just about anyone else on the planet. If the device sells, great. If it doesn't, Samsung just moves on to the next device. My guess is that's what it'll do with the Galaxy Tab.

I'm hoping for better from other new products, although I'm not encouraged by what I'm hearing about the HP device (for one thing, Friday is a terrible day to announce a product because your news coverage gets cut off by the weekend). But I'd like to get my hands on that one before I make up my mind about it.

(Note: This post was modified on 10/22 to correct the announcement date for the HP Slate.)

Kamis, 21 Oktober 2010

The Fannie-Freddie Problem is not as severe as the headlines would suggest

Page 10 of the FHFA report, gives forward expected losses under three scenarios.  The third is really awful--it assumes a further reduction in house prices by 1/4, which would be a lot.  But under the other two scenarios, the net cost to taxpayers (draws less dividends owed to Treasury) would be $6 to 19 billion.  This is real money, but hardly cataclysmic.  It does suggest that the vast majority of the losses are already behind us.

Ten Slides on California (and the other 49 States)










Rabu, 20 Oktober 2010

Second Annual UCI-UCLA-USC Urban Research Day

2nd Annual UCI-UCLA-USC Urban Research Day
October 22nd, 2010
Ralph & Goldy Lewis Hall 100


8:30 am
Continental Breakfast

Session 1
9:00 am - 11:00 am

Kerry Vandell (University of California, Irvine)
"
Tax Structure and Natural Vacancy Rates in the Commercial Real Estate Market: Can Tax Incentives Cause Overbuilding in a World of Stochastic Prices”

Discussant:
Gary Painter (University of Southern California)

Stuart Gabriel
(University of California, Los Angeles)
"Housing Risk and Return:  Estimates of a Housing Asset Pricing Model"

Discussant:
Xudong An (San Diego State University)


Break   11:00 am – 11:10 am

Session 2
11:10 am – 12:10 pm

Ryan Vaughn (University of California, Los Angeles)
“Strategic Foreclosure:  An Empirical Assessment of
Strategic Behavior by Lenders in the Mortgage Market”

Discussant:
Chris Redfearn (University of Southern California)


Session 3
1:15 pm – 2:15 pm

Richard Green (University of Southern California)
“Surfing for Scores:  School Quality, Housing Prices, and the Changing Cost of Information” with Paul Carrillo and Stephanie R. Cellini

Discussant:
Matthew Kahn (University of California, Los Angeles)

Break   2:15 pm – 2:25 pm

Session 4
2:25 pm – 3:25 pm

Jenny Scheutz (University of Southern California)
“Is the 'Shop Around the Corner' a Luxury or a Nuisance?The relationship between income and neighborhood
retail patterns” with Jed Kolko and Rachel Meltzer

Discussant:
Jan Brueckner (University of California, Irvine)

Break
   3:25 pm – 3:35 pm

3:35 pm – 4:30 pm

Session 5
Marlon Boarnet (University of California, Irvine)
“ Land Use and Vehicle Miles of Travel in the Climate
Change Debate: Getting Smarter than Your Average
Bear”

Discussant:
Lisa Schweitzer (University of Southern California)


Dinner              6:00 pm
Location           Café Pinot



Minutes vs Stress

The Texas Transportation Institute says that the place I live now, Los Angeles, and that I lived just before LA, Washington, have the worst traffic in the country (they actually rank one and two), where worst is defined as average minutes spent in bad traffic per day.  

Today was a bad day in LA--it rained, and people just don't know how to deal with that here.  But for some reason, I found commuting by car in DC to be far more frustrating.  In both cities, the distance between my home and office was about the same.  As it happens, I hated driving in DC so much that I took Metro to work nearly every day, and the total Metro commute was about 50 minutes one way (including walking).  On the other hand, the walk from my house to the Bethesda Metro station and from Dupont Circle to my office in Foggy Bottom was quite pleasant.

But back to the point--somehow driving in LA seems far less stressful to me than driving in Washington.  Maybe it's just that the radio stations are better....

Minggu, 17 Oktober 2010

Read Yves Smith

Yves Smith was ahead of the Times and the Journal (and so far as I can tell, everyone else) on the foreclosure mess.  I learn a lot from her about what is happening with mortgage backed securities, and I teach students about them for a living.

What's really wrong with BlackBerry (and what to do about it)

Just a couple of weeks after Research in Motion turned in a good earnings report, the death watch over the company has resumed, with Business Week magazine running a long article that mocks co-CEO Jim Balsillie (even picking on his duck-emblazoned tie) and saying that RIM needs to learn how to market as well as Apple (link).

Business Week quoted Balsillie at a press briefing:
"There's tremendous turbulence in the ecosystem, of course, in mobility. And that's sort of an obvious thing, but also there is tremendous architectural contention at play. And I'm going to really frame our mobile architectural distinction. We've taken two fundamentally different approaches in their causalness. It's a causal difference, not just nuance. It's not just a causal direction that I'm going to really articulate here -- and feel free to go as deep as you want -- it's really as fundamental as causalness."

OK, he deserves to be mocked for that. But Business Week goes on to conclude that his quote captures the whole dilemma of the company -- technical sophistication coupled with incoherent marketing.

Business Week has joined a large and distinguished group of experts taking jabs at RIM. Morgan Stanley recently downgraded RIM's stock, saying it's going to lose share faster than previously expected (link). Gartner reported that Android had passed BlackBerry to become the most popular smartphone OS in the US (link). And CNET said RIM is about to be kicked out of the enterprise market (link).

I've been getting very tired of the criticisms of RIM, because most of them seem superficial and some are petty. Yes, Android is doing well, but neither RIM nor Apple is giving away its operating system, so it was close to inevitable that Android would eventually get the unit lead. It's the default choice for most smartphone companies, so of course it moves a lot of units in aggregate. But there is room in the market for several mobile platforms to succeed. The companies Android is hurting most are Microsoft, Access, and others that were hoping to sell mobile operating systems.

Yes, RIM's not good at sexy marketing, but it has always been that way. People have been predicting its imminent doom for as long as I can remember (do you recall when Microsoft Exchange was supposed to destroy it?). My guess is that the folks at RIM are shaking their heads at all of the bad press and assuming it will once again blow over in a quarter or two.

I think that would be a serious mistake. In my opinion, RIM is indeed in danger, probably a lot more danger than its executives realize. But I don't agree on the reasons most people are giving for why RIM is in trouble, and I think most of the solutions that are being proposed would make the situation worse, not better.

The fault lies not in our ties, but in our selves. In my opinion, RIM's real problems center around two big issues: its market is saturating, and it seems to have lost the ability to create great products. This is a classic problem that eventually faces most successful computer platforms. The danger is not that RIM is about to collapse, but that it'll drift into in a situation where it can't afford the investments needed to succeed in the future. It's very easy for a company to accidentally cross that line, and very hard to get back across it.

There's a lesson in RIM's situation for every tech company, so it's worthwhile to spend some time understanding what's happening.


How a computing platform dies

To explain RIM's challenges, I have to give you a little tech industry history. When I worked at Apple, I spent a lot of time studying failed computer platforms. I thought that if we understood the failures, we might be able to prevent the same thing from happening to us.

I looked at everything from videogame companies to the early PC pioneers (companies like Commodore and Atari), and I found an interesting pattern in their financial results. The early symptoms of decline in a computing platform were very subtle, and easy for a business executive to rationalize away. By the time the symptoms became obvious, it was usually too late to do anything about them.

The symptoms to watch closely are small declines in two metrics: the rate of growth of sales, and gross profit per unit sold (gross margins). Here's why:

Every computing platform has a natural pool of customers. Some people need or want the platform, and some people don't. Your product spreads through its pool of customers via the traditional "diffusion" process -- early enthusiasts first, late adopters at the end.

It's relatively easy to get good revenue from the early adopters. They seek out innovations like yours, and are willing to pay top dollar for it. As the market for a computer system matures, the early adopters get used up, and the company starts selling to middle adopters who are more price-sensitive. In response to this, the company cuts prices, which results in a big jump in sales. Total revenue goes up, and usually overall profits as well. Everybody in the company feels good.

Time passes, and that middle portion of the market gets consumed. Eventually demand growth starts to drop, and you make another price cut. Sales go up again, sometimes a lot. With revenue rising, you and your investors talk proudly about the benefits of reaching the "mainstream" market.

At Apple, when we hit this point we called our low-cost products the Macintosh Classic and Macintosh LC. At Palm, it was the M100.

What you don't realize at this point is that you're not "reaching the mainstream," you're actually consuming the late adopters. Unfortunately, it's very difficult to tell when you're selling to the late adopters. They don't wear signs. Companies tend to assume that because the adoption curve is drawn as a smooth-sided bell, your demand will tail off at the end as gradually as it built up in the beginning. But that isn't how it works. At the start, you are slowly building up momentum from a base of nothing. That takes years. But by the time you saturate the market you have built up huge sales momentum. You have a strong brand, you have advertising, you have a big distribution channel. You'll gulp through the late adopters really rapidly. The result is that sales continue to grow until they drop suddenly, like a sprinter running off the edge of a cliff.

The chart below illustrates how the process works:



Until you get close to the end, your revenue keeps rising, enabling you to tell yourself that the business is still in good shape. But eventually you reach the dregs of the market, and sales will flatten out, or maybe even start to drop. You cut prices again, but this time they don't increase demand because there are no latent customers left. All the cuts do is reduce further the revenue you get from selling upgrades to your installed base. The combination of price cuts and declining sales produces a surprisingly rapid drop in revenue and profits. If you want to make a profit (which your investors demand), your only choice is to make massive cuts in expenses. Those cuts usually end up eliminating the risky new product ideas that are your only hope of re-igniting demand.

At Apple I called this the platform "death spiral" because once you get into it, the expense cuts and sales declines reinforce each other. It's almost impossible to reverse the process, unless you're Steve Jobs and you get very lucky.

The best way to survive is to stay away from the cliff edge in the first place. But that means you need to be hyper-attentive to small changes in sales growth and gross margins. Which brings us back to RIM's situation.


Dissecting RIM's financials

At the top level, RIM's financials look utterly fantastic:

RIM Revenue and Profit

Fiscal years. Dollars in millions.

Since fiscal 2003 (when it turned profitable), RIM has grown from $500m revenue to over $15 billion. That's 30X growth in eight years. The BlackBerry subscriber base has grown from 500,000 people to about 50 million. Throughout that period, the company's net income has hovered at between 15% and 22% of revenue.

This is one of the most impressive business success stories of the last decade, and most CEOs in any industry would kill to have that sort of results. Considering how much turmoil there is in the smartphone market, RIM's senior managers must feel extremely proud of their success, and more than a bit bewildered that people keep criticizing them.

And that's exactly my point. Looking at the high-level financials can lull you into a false sense of security if you're managing a computing platform. You have to really dig to find the warning signs. That's especially hard to do in RIM's case because the company has several different sources of revenue: device sales, service revenue, and enterprise server revenue. The overall results they report are mashup of all three revenue streams. To understand what's really happening, you have to tease them apart. Here are some key data points.

First, let's look at the total number of BlackBerry subscribers:

Total BlackBerry Subscribers

RIM's fiscal quarters. Units in millions.

Pretty impressive growth. But remember, we're looking for subtle signs of saturation. Let's look at the number of subscribers added per quarter...

Net New Subscribers Per Quarter

RIM's fiscal quarters. Units in millions.

This is where you get the first little twinge of discomfort. Until a year ago, the rate of growth of BlackBerry subscribers was itself increasing every quarter. In other words, RIM added more new subscribers each quarter than it had added in the previous quarter. But for the last four quarters, RIM's subscriber growth has plateaued at around 4.7 million net new subscribers a quarter. The company's still growing, but it looks like the rate of growth may be flattening. That might imply the beginning of saturation.

Next let's look at net new subscribers as a percent of total BlackBerry units sold.

New Subscribers Added Per Unit Sold

RIM's fiscal quarters.

This one's a little disquieting as well. Five years ago, RIM was getting .7 new subscribers for every BlackBerry sold. In other words, most of its sales were to new users. Today, RIM is getting .37 more subscribers per BlackBerry sold, and that figure is at an all-time low. To put it another way, RIM now has to sell more than two and a half devices to get one more subscriber. Either RIM is selling most of its units to its installed base, or it is having to bring in a lot of new customers to replace those who are leaving for other devices. My guess is it's a mix of both.

If you look closely at that chart, you'll notice a curious bump in the line at Q4 of 2009. The percentage of new subscribers went back up all of a sudden. What did RIM do to produce that growth? A look at device gross margins tells you.

Device Gross Margin Percentage

RIM's fiscal quarters.

[Note: RIM does not report separately the gross margins it gets in the devices business, so I had to estimate this number using the company's hardware revenue and the total cost of goods sold across all of its businesses. Most of RIM's total COGS are hardware expenses, but they also include some server costs associated with providing e-mail service. That means my calculation understates RIM's device margins by a bit. But as the company grows, server costs should go down as a percent of overall costs (because you get better economies of scale). So apparent hardware margins should be going up over time. That makes the fact that they're declining all the more ominous.]


RIM increased new subscriptions by substantially cutting the profit it makes per device. What happened is that the BlackBerry Bold, Storm, and Curve all came to market with increased features, replacing older devices that were much cheaper to build. That should have produced only a one-time hit to margins, though -- they should have gone back up as component costs on the new phones declined. Instead, margins have stayed down ever since. Why? Let's look at the what RIM gets paid for each BlackBerry it sells:

RIM's Revenue Per BlackBerry Device Sold

RIM's fiscal quarters. Hardware revenue per unit sold.

This chart shows the average price the carriers pay to RIM per phone, prior to the discount they put on the phone when you sign up for a contract. The line looks pretty flat, and in fact through the middle of fiscal 2009 RIM's price per unit was very stable. Then in Q3, with the introduction of the new devices, RIM gets a temporary spike in revenue per unit. The new phones are selling at a premium. But that goes away in the next two quarters, and then about a year ago, RIM started cutting prices. Today the company gets about $50 less per unit than it usually did in the past.


When you assemble the big picture, it looks like this: To keep growing, RIM has been forced to reduce margins and prices. Despite the cuts, the rate of growth in subscribers appears to have flattened out. And more and more of the sales mix is going to existing users, or user replacement, rather than new users. RIM starts to look like a company that's working harder and harder just to stay in one place.

The picture gets more ominous when you look at some recent surveys of smartphone user satisfaction. In JD Power's 2010 smartphone satisfaction survey, BlackBerry finished near the bottom, with below average ratings in every category except battery life (link). Just three years earlier, as the iPhone was coming to market, BlackBerry had the highest satisfaction ratings in the industry (link). I don't love JD Power's methodology (for reasons that are too long to explain here), but no way should RIM's rating be declining like that.

The low satisfaction is starting to threaten RIM's future sales. In June of this year, Nielsen released some tidbits from a survey of the future purchasing plans of smartphone users (link):

OS Preferences of People Planning to Replace Their Smartphones


The chart shows US smartphone users who were thinking about buying a new device in Q1 of 2010. More than half of the BlackBerry users considering a new smartphone were leaning toward a different OS.

If I were working at RIM, that chart would scare the crap out of me.

The company is by no means dead, but the symptoms of a stalling platform are definitely there. If you work at RIM and are reading this, here's what I want you to understand: Your company's at risk. Your great financials mask that risk, and give you lots of logical-sounding reasons to avoid making the changes that need to be made. RIM is like a 53-year-old man who has high blood pressure and cholesterol but tells himself that he's OK because he can still run a half-marathon. You are indeed fine, right up until you have the heart attack. Then it's too late.

Here's what you need to do:


How to avoid the cliff

To keep a platform viable, you need to focus on two tasks: Keep the customer base loyal, and add adjacent product categories.

Keeping the base loyal. This is transcendently important to a platform company. As your market matures, more and more of your sales will come from replacement devices sold to the installed base. You'll also depend more and more on a base of developers who add value to your products. If you can keep these people happy, you'll have a steady stream of replacement sales that you can build on. It won't be enough to produce the growth that your investors want, but it'll be a great foundation.

On the other hand, if these customers and developers drift away, there's virtually no way you can grow something else fast enough to offset their loss. The trick here is that the supporter base for a computing platform is like a herd of cattle. They move as a group. When the herd is contented, it tends to stay in one place. But if the herd gets restless, even a small disturbance can cause a stampede in which they all run away at once.

For example, this is the factor that HP failed to consider when it bought Palm. The Pre's small base of users and developers was a classic group of restless cattle. When HP bought the company, the first priority should have been to calm those people by promising a renewed commitment to the Pre and follow-on products. Even if HP didn't see smartphones as its long-term future, it should have focused on keeping the developers and users loyal until it had something else for them to buy and develop for. Instead, HP CEO Mark Hurd more or less killed the product line a day after the purchase (link):

HP won't "spend billions of dollars trying to go into the smartphone business; that doesn’t in any way make any sense....We didn’t buy Palm to be in the smartphone business. And I tell people that, but it doesn’t seem to resonate well. We bought it for the IP."

Ooookay, so if you're a Pre customer, do you buy again? Do you tell your friends to buy? If you're a WebOS developer, do you keep writing code while you wait for HP to decide what it'll do with that "IP" it bought?

The answer is, you run for the exit as fast as you can. HP bought a company for a billion dollars and then immediately trashed it.

Back to RIM. Your cattle are restless. If you don't believe me, go look at that Nielsen chart again. Your goal is to keep the cattle content, by feeding them a steady diet of delightful new products that deepen their commitment to the platform. RIM's record in this area is very mixed. There have been a lot of new BlackBerry products announced in the last few years, but most of them seem to be focused on copying things Apple has done rather than finding new ways to delight BlackBerry customers.

Some of the Apple imitation is probably necessary. Apple has turned a lot of features into checkoff items that are now expected from any smartphone -- a better browser, for example. If RIM didn't eventually add those features, the herd would at some point stampede away for sure.

But what I haven't seen from RIM is a vision for deepening the special features that made people bond with BlackBerry in the first place. The personal communication functionality of BlackBerry is about the same now as it was five years ago. Why in God's name was Apple the first North American smartphone company to really push video calling? As the communication beast, RIM should have led that years ago.

Instead, the latest BlackBerry devices feel a bit like an overbuilt ice cream sundae -- the original BlackBerry functionality is at the base more or less unchanged, and a bunch of gooey media toppings have been dumped on top of it. I see sprinkles, fudge, marshmallow, pineapple, whipped cream, a cherry, and a few gummy bears, but no significant improvement to the old, dried-out ice cream at the bottom of the bowl.

Inevitably, RIM can't implement those new media toppings as cleanly and elegantly as Apple did, because its platform wasn't designed for that. So what you get is a BlackBerry that endorses Apple's design direction but fails to fully deliver on it. Maybe that helps keep some BlackBerry users from leaving instantly, but it doesn't give them a positive reason to stay. Rather than playing to win, RIM is playing not to lose, and doing it poorly.

This is especially scary because RIM depends much more than Apple on mobile operators to help drive demand for its products (if you're in the US, ask yourself how many Verizon and AT&T ads you have seen for BlackBerry, versus how many ads you've seen from RIM itself). The operators follow customer interest, they don't create it. If they get the sense that BlackBerry users want to switch, they will be only too happy to facilitate that switch -- especially since they don't have to share service revenue with Android vendors the way they do with RIM.

What RIM should do. RIM need a product vision identifying a few new differentiators for BlackBerry that will resonate well with the busy knowledge workers who are at the core of its installed base. There should be no more than three of these features (because customers can't remember more than three), and they should not be copies of things that Apple is already implementing. RIM should focus on building them deeply into the product, so they are very well integrated with the rest of the device. My nominees are meeting planning, conferencing, and live document sharing.

Other smartphone companies will eventually copy these features, so RIM needs to create a pipeline of development in which it'll bring out another 2-3 new differentiators every 24 months.


Adding adjacent categories. Settling down the installed base is not enough. It's an enormous task, but all it'll do is stabilize the business. It won't produce the growth that investors expect. To get that, RIM needs to eventually add new types of product that expand its market.

Apple is a master at this process. When Steve Jobs came back, Apple had only the Macintosh. It refreshed that product line, securing the customer base. Then it added the iPod, iPhone, and iPad. Each of them targeted Apple's core market of creative, entertainment-loving people, and each of them leveraged Apple's existing software and hardware. This overlap made the new products relatively inexpensive to develop and market -- they could be sold to the same sorts of people, through the same channels, and they reused a lot of technology. Each new product line also tended to drag a few more customers back to the earlier products, so they reinforced each other.

These new products enabled Apple to grow its revenue rapidly without putting pressure on the Macintosh to carry the whole load. Apple could invest enough in the Mac to keep it a stable and very profitable business, while the new products produced the topline growth.

To understand how wickedly efficient Apple's business model is, take a glance at the R&D budgets of RIM and Apple.

Quarterly R&D Spending of Apple and RIM

R&D spending in most recent four quarters. Dollars in millions.

Although Apple has about three times the revenue, RIM's R&D spending is about two-thirds of Apple's. With just a third more money, Apple produces the Macintosh, iPod, iPhone, iPad, Apple TV, iTunes, App Store, custom microprocessors, and a suite of mobile services. RIM is producing a bunch of minute variations on a family of phones, an e-mail server, a new OS, and a suite of mobile services that also has to be individually interfaced to each operator. RIM puts much of its effort into infrastructure that has little or no impact on features that users can see and value.

Now RIM wants to add more product lines. Its first effort will be the PlayBook tablet in 2011. This will be a decisive test of RIM's ability to grow in the future, and so far the signs are worrisome. Unlike Apple's first announcement of the iPhone, the PlayBook announcement didn't show much functionality that looked fundamentally new compared to the competition (in fact, the interface looked to me a lot like a warmed-over version of Palm's WebOS). The pitch was almost all about enabling technology rather than user benefits. When you find yourself talking up the dual-core processor and symmetric multiprocessing in a consumer product, it's a sign of a serious lack of differentiation.

I'd be more hopeful about the prospects for the PlayBook if RIM had done a better job of evolving its BlackBerry products recently. Unfortunately, RIM's latest innovation flagship is the BlackBerry Torch, an overproduced heap of half-integrated features that ranks as one of the most disappointing mobile devices I've seen from a major manufacturer in years.

Yeah, I know there are some people who like the Torch. But there were also people who thought MS-DOS was easy to use.

Burned by the Torch. I recently bought a BlackBerry Torch for my wife, who needed a smartphone to manage work e-mail. We both wanted her to have something simple to use, with a keyboard that made her comfortable. She liked the Torch in the store, so we bought it for her.

The device was a usage nightmare. Even after years of working with touch screen technology, RIM hasn't managed to evolve its user interface to the point where the touch pad and the touch screen work together smoothly. Some functions are easier to perform on touch screen, and others are easier on touch pad, and so the whole interface feels muddled. But by far the more disappointing problem was that the huge number of new applications just added to the phone do not work together properly. I can't even list all of the problems we both had figuring out how to use them, but one vivid example should suffice. My wife entered a lot of contacts directly into the device's contacts app, but didn't bother to include the area code in the phone numbers. The BlackBerry didn't warn her about this.

Then she went to the messaging app and tried to send a text message to our daughter. When she tried to send the message, the app reported that it could not send to a contact without an area code. So she went back to the contacts app and added area codes.

Then she went back to the messaging app and again tried to send a text message. The messaging app reported once again that it could not send a message without an area code. It had apparently made a copy of the data from the contacts app when it was first used, and would not update the copy. So my wife then edited the contact information from within the contacts app (it lets you do that). But when she tried to save the updated contact, the phone responded that it could not accept external changes to the contacts, and deleted the change.

Next, she tried to send a message by typing our daughter's phone number, including area code, directly into the To: portion of a new message. When she tried to send that message, the messaging application did a lookup on its contacts database, changed the phone number back to the version without an area code, and then reported that it could not send the message because the phone number lacked an area code.

Using the BlackBerry Torch is like being trapped in a real-life version of "Waiting for Godot."

I've seen this sort of incoherent design before. It happens when you have several teams working on parts of the device, and you haven't done proper planning up front to make sure the apps will work together well. It is a symptom of an out-of-control development process. The fact that this happened on RIM's flagship product is deeply disturbing. If the same incompetent processes are applied to the PlayBook -- a much more complex product with a lot of new functionality -- it is almost certain to fail.

By the way, we returned the phone.

What RIM should do. To fix this problem, RIM needs to create rigorous up-front planning processes in its software team, with someone who has dictatorial power placed in charge of overall software integration for a device or OS release. Also, the product manager needs to be empowered (actually required) to delay shipment of a product if it's not right. I'm sure someone at RIM knew about the problems in the Torch. The fact that the company went ahead and shipped it is almost as disturbing as the problems themselves.


Rescuing RIM

To sum up, RIM is at risk because its natural market is saturating and many of its customers are considering a switch to other platforms. The company may be able to bumble along in this situation for years before the problem comes to a head, but once a migration away from BlackBerry starts it would be almost impossible to stop. So if the company wants to ensure its survival, it needs to act now. Two steps are needed:

--The BlackBerry line needs to be given a several fundamental, visionary innovations that will give its core customers a reason to stay; and

--The company needs to change its development process to guarantee proper design and integration in all of its products.

Given the time needed to create a new product, these changes will take at least 18 months to bear fruit, probably more like two years. During that time RIM will remain at risk of a platform collapse. What's worse, the company's engineers already have their hands full copying iPhone features, customizing phones for a huge range of operators, and simultaneously creating a new operating system and developing a new version of the current one. The sort of changes I'm suggesting would disrupt that work, forcing the cancellation of some projects and slips in the schedule for others. They would make the problem worse before they make it better. In the meantime, the company would lose serious revenue, and might even miss earnings projections for a quarter or two. The stock's value would be trashed, and there would be calls for firing management.

As the founders of the company, Jim Balsillie and Mike Lazaridis could probably pull this off without losing their jobs. And I know they have the courage to make big changes. But I doubt they can see the need, or especially the urgency. Their current processes and business practices got them to $15 billion in revenue; why should they change now? It's much more prudent to focus on making the numbers for next quarter.

That's probably just what RIM will do. And if it does, that's why the company will probably eventually fail.

==========

[Edit: Since this post is still getting a lot of traffic, I wanted to let you know that I've posted a look at RIM's Q3 FY 2011 financials, with  updated charts and a deeper look at international sales.  I think the situation is both better and worse than I originally believed (link).  And you can see my take on their June 2011 layoff announcement here.]

Senin, 11 Oktober 2010

I wish I could give credit where it is due

I was in Madison a few weeks ago, working on the second edition of my book with Steve Malpezzi.  We took an hour out one afternoon to gossip about Nobels with Don Nichols, Dan Bromley, Werner deBondt and Bob Krainer.  One of these gentlemen forecast Peter Diamond as this year's winner, but I can't remember who.  Such prescience....

Minggu, 10 Oktober 2010

Greg Mankiw forgets about the income effect

Professor Mankiw says he can afford higher taxes.  For that I give him credit.  But he also says that higher income taxes might keep him from writing his New York Times column.   He then implies that higher taxes will generally keep people from working.

This is the substitution effect--because leisure becomes relatively cheaper, people consume more of it.  But higher taxes also reduce after-tax income (obviously), so in order to maintain living standards, one might decide to work more in the face of higher taxes.  This is called the income effect.  I can speak for my household--our after-tax income is more than sufficient for our "needs," but if we were taxed more, we might have to work more to satisfy these "needs."

It is an empirical question as to whether within certain ranges of tax rates, raising taxes increases or reduces effort.  Theory gives us an ambiguous answer.  (h/t Mark Thoma).

Kamis, 07 Oktober 2010

Long live Bruce Lee!

Why in heavens would I decide to write about China when everybody around has been harping on China almost day in and out. Because while everybody around has been simply comparing Chinese growth and India’s growth (and complimenting China to no ends about it), I find no economic commentator exhorting Indian firms to partake of Chinese growth by thinking about setting up companies in China, or by selling their products and services to Chinese consumers! Each day that passes with you as a CEO not thinking about setting up a business in the world’s fastest growing market – and the largest in a few years – is a day lost with criminal intent! The statistics are devastating – if you have even an iota of cash to spare, go the China way... immediately!

Just a few decades back, marketers would have ridiculed the very idea of setting-up shop in China, where per capita income stood at a sheepish 1% of USA’s. Not to say that during those days, the Chinese GDP was one that was consciously ignored during discussions in economic forums, more so due to the defiant communist regime, which was more intent on autocratic uplifting of masses than on blindly promoting capitalism. But China was growing because of that same upliftment of masses.

After having broken through the $100 billion ceiling in 1988, the foreign trade figure of China ran past the $500 billion-mark in 2001 and the trillion dollar mark in 2004. Today, it has touched $2.21 trillion (figure for 2009, as per WTO), and much water has fl own under the Shanghai bridge, bringing in a dramatic macroeconomic improvement. China is now arguably the second-largest economy in the world (having surpassed Japan’s GDP during Q2, 2010, though Japan still leads in terms of total GDP during H1, 2010), and is the world’s second largest trading nation, and its per capita income as a percentage of that of USA’s has increased to 14.2% (quite a rise from a value of $180 in 1990 to $6,567 in 2009; IMF data).

That China is turning into a huge consumption behemoth – one that Indian companies should most selfishly exploit to whatsoever extent – is supported by many economic indicators. The rise in per capita income (a jump of 3,548% over the past 19 years!) becomes an electrifying consumption increase jump when seen in the light of the fact that this growth happened for a gut wrenching 1.4 billion! China is also now the world’s second-largest importer of goods (the value of which stands at a no less handsome $1.01 trillion, as compared to USA’s $1.56 trillion during FY2009).

In support of China’s domestic consumption comes a September 2010 paper by McKinsey Consultants John Horn, Vivien Singer and Jonathan Woetzel, titled, A True Picture of China’s Export Machine, which shuns the age-old method used by the government to calculate the contribution of total exports to GDP growth. As per the paper, “Net exports have contributed to only between 10-20% of China’s annual 10% GDP growth in recent years,” while “domestic value-added exports” (DVAE; which is the net of total exports and those imports used in the production of goods & services exported), contributed to between 19-33% of the total GDP growth. This is much lower than what many agencies have claimed, including the Chinese government (according to them, exports contribute to almost 60% since 2000 till date). To sum up the discussion in favour of the Chinese domestic market, the report which uses the McKinsey Global Institute (MGI) China urbanization model, concludes, “The most common wisdom overestimates the role of exports while underestimating the role of domestic consumption for China’s growth. Any Chinese or MNC that currently manufactures goods in China and primarily exports them to other countries should ask itself whether it needs to scale up its domestic strategy to get a bigger piece of the pie.”

The truth, which the tallest of sceptics concede, is that China is the next powerhouse for the world’s sellers, across industries. Pulitzer Prizewinning Thomas L. Friedman wrote in an NYT column from Tokyo, “Those leaders of Japan, America, Australia, Taiwan, Malaysia, Russia, Thailand, Indonesia, Singapore, the Philippines, or the European Union, who are not going to bed each night saying a prayer for China are not paying attention.” The 2010 China Consumer Survey report by Credit Suisse explains how, “Chinese households are earning more but saving less.” Household income of the bottom 20% has risen by 50% since 2004, while the top 10% has grown 255% to around 34,000 yuan per month. The savings rate has dropped from 26% to 12% during the same period. Credit Suisse expects China’s share of global consumption “to increase from 5.2% at US$1.72 trillion in 2009 to 23.1% at US$15.94 trillion in 2020, overtaking US as the largest consumer market in the world!”

We take a look at specific industries and the lessons that corporations which have paid due respect to the Chinese domestic market have to impart. In 2009, China became the largest auto manufacturing nation in the world, with 13.79 million units rolled out, thereby surpassing Japan as the largest automobile maker in the world. No surprises there as most of these would be exported subsequently, right? Wrong. Of these manufactured cars, only 369,600 units were exported – which accounts for just 2.7% of the volumes produced. In simple mathematics: 97.3% of the cars manufactured in China are sold in China! And if the 100 km long traffic jam that made global headlines in August this year was some indication, China has also become the world’s largest auto market in terms of annual domestic sales, having overtaken US in this respect in 2009. The number of registered vehicles with Chinese number - plates are forecasted to grow from the present 62 million (as per China’s State Statistical Bureau) to 200 million by 2020 (as per China’s Ministry of Industry and Information Technology).

Talking more about cars, here are some interesting facts. In the first half of 2010, GM sold more cars in China (1.21 million units) than even in its largest market so far – US (1.08 million), making it the first time that any overseas market outsold GM’s domestic market in its 102-year-old history. The company plans to touch 3 million in annual sales count in China by 2015. Moving on to its Detroit cousin, Ford, the company also set a new record in half yearly new car sales in China this year (301,524 units, up 53% y-o-y). German Audi is also geared up to set a new annual sales record this year, boosted by deliveries in China, where it presently sells more vehicles than it does in Germany. In fact, as per a Deutsche Bank report, by 2016, China will become the largest export market for German automakers, surpassing France. Going forward, given by the fact that 44.3% of cars sold in China are local brands, including names like BYD, Chery, Geely, Hafei, Jianghuai, Chang’an, Great Wall, Roewe, et al, there lies great opportunity for global auto makers to make the most of their Chinese odyssey.

New research by the McKinsey Global Institute also throws light on the emergence of the Chinese urban middle class, whose consumption power will soon redefine the Chinese market. The report claims that, “These consumers earn more than $12,500 a year and command nearly 10% of urban disposable income – despite accounting for just 1% of the total population. They consume globally branded luxury goods voraciously, allowing many companies to succeed in China without significantly modifying their product offerings or the business systems behind them.” This strong 1% of the population may be just the tip of the iceberg, and that’s the most likely possibility. While describing her confidence on the Chinese consumer at a Leadership dinner held recently in New York, Andrea Jung, CEO & Chairman of Avon Products Inc., said, “We’ve been on the front lines of this market for a little over a decade. We’ve identified it as probably the fastest-growth market. From a consumer point of view, I hope that we have proved, and are still proving, that China’s growth is a domestic story. Our focus has been not so much on the manufacturing side, although we have a wonderful plant there, but on the consumer side.”

There are many other names whose walk in the dragon’s den tell you why China is the next place to bet on and sell. The Fortune 500 #4 and the largest conglomerate in the world, GE’s revenues from emerging economies are set to increase from the current 22% to 30% by 2014. And in its attempt to make China count, the company plans to increase this market’s contribution to its topline from the current 4% to about 25%. P&G, the world’s largest producer of household and personal care products, which is increasingly focusing on the Chinese market, has now got China as the #2 contributor to its sales volumes and #4 in terms of toplines for the company. Today, the company commands 50% of the shampoo market and 40% of the personal hygiene market in China, a market which accounts for 25% of the 4 billion customers that P&G has globally.

The world’s second-largest manufacturer of aircraft, Airbus, which expects 20% of its revenues to come from China during FY2010 (as compared to Boeing’s 4%) also has big plans for China. The European manufacturer, which expects a total of $349.3 billion to be spent by the Chinese airline companies on acquisition of new aircraft over the next 15 years (second highest after US airlines, which is expected to spend $538.1 billion; by 2030, as per its competitor Boeing’s forecasts, China is expected to spend $400 billion in acquisition of 3,770 new planes), is smiling at the moment. Reason: Though Chinese airline companies at present operate 766 Boeing aircraft as compared to 547 Airbus planes, the orders received so far are in favour of Airbus – 418 as compared to Boeing’s 284.

From engines in the air to air waves – Nokia. If you thought that India was all that Nokia had left to hinge its hopes on, rotate your globe a little to the left. The world’s #1 seller of handsets today commands a 35% market share in China (FY2009), a geographical market which contributes to 16% of its annual revenues ($8.6 billion in 2009), even bigger than India’s 7.4%; surely, anything that happens in the Chinese mobile market would trouble the Finn doubly than it would if its Indian elephant ride goes awry! The dozens of steel-making companies to the chipmakers and software producers of the world, from fast-food chains to the biggest of retailers and toy-makers, from far-away America to close neighbours, marketers across companies and continents are fast realising that one big learning of their career remains the Chinese consumer tale, and if they lose out on it, they’ll have little left to survive on later. Two decades back, the Chinese low-cost manufacturing prowess took the world by storm. It’s the Chinese consumers who are on fi re today. Sadly, there are not many Indian case studies to write home about – and that is what I call criminal.

Till the time every Indian firm’s CEO believes passionately in having the vision of tapping the Chinese market, India can in no way think of beating the Chinese bandwagon. Learn to read Chinese, learn to write Chinese, learn to speak Chinese, go on and watch cheesy Bruce Lee movies in Chinese for whatever it’s worth – just do it!

Long live China! Long live Bruce Lee!

Senin, 04 Oktober 2010

A little data exercise on housing affordability

I just had two graduate students here at USC--Sarah Mawhorter and Ray Calnan--find 25th percentile gross rent and 25th percentile income for renters for the 50 largest MSAs in the United States using 2008 American Community Survey Data. If "affordable" means that every household has the opportunity to spend less than 30 percent of gross income on rent, not a single one of the 50 largest MSAs is affordable for renters at the 25th percentile. The least affordable is Miami, where 25th percentile rent-to-25th percentile income is in excess of 50 percent; the most affordable is Kansas City.

Sabtu, 02 Oktober 2010

Favorite Line of the Week (h/t Bob Van Order)

The difference between a theorem and a tautology is how fast you think.

The William Cohan fallacy

William Cohan the other day complained that Elizabeth Warren fallaciously claimed borrowers did not know what they were getting themselves into when they took out exotic loans. Cohan suggests instead that the vast majority of borrowers knew what they were signing up for when they took out exotic mortgages.

This was certainly the case for some borrowers (particularly speculators), but I am not sure "vast majority" is correct. Understanding the intricacies of, say, a pay-option ARM requires a degree of mathematical sophistication that I would guess is beyond the capabilities of many borrowers. My former GW colleague Vanessa Perry has found that many borrowers do not understand anything about credit beyond their next monthly payment. In the case of pay-option ARMS, this payment was often low relative to income and stayed low for some time, so a potential borrower/homebuyer could be "advised" by a mortgage broker lender and/or real estate broker that an expensive house was indeed "affordable."

Should such borrowers have known better? I don't know. I do know that even though I really wanted to dunk a basketball, it was never going to happen, because I am short and can't jump. Similarly, no matter how much they try, there will be potential borrowers with generally good life skills who will never be able to understand an amortization schedule, and who are susceptible to a good sales pitch. To suggest such people are "responsible" for their plight is akin to suggesting that I am "responsible" for never being able to dunk a basketball.

Might Elizabeth Warren's idea of sufficient consumer protection go too far? Sure. But the events of the past eight years or so strongly suggest to me that consumer protection was insufficient.

Lisa Schweitzer on Transportation funding

She bring nuance to an issue that is often argued about with slogans (go to her post for graphs).


One of the common arguments I hear is that transit is underfunded. Now, this is a subjective question. For those who believe that having transit is absolutely vital to cities, no amount would be enough. So that’s not the point.

The other argument that I hear is that we spend too much on highways rather than transit. Again, subjective. There’s no way to suss this question easily enough for a blog post.

But we can take a look at what people seem to believe is a disparity in funding.

This is the graphic you are most likely to see when we discuss differences between highway and transit funding:

Ok, so of the total, highways get about 55 to 60 percent and transit gets 17 percent on average over the time period, but by the end of the time period, transit’s share has risen to about 20 percent and highways has gone to about 54 percent.

So that’s a pretty big difference in funding. But when you factor in the passenger miles served, the calculus changes. In the following graphic, I have assigned 100 percent of the spending on highways to passenger cars–a major overstatement, but it serves the point. It’s an overstatement because highways also serve trucks (a big deal), motorcycles and some transit (less of a big deal.)




My transit advocate friends will patronize me at this point and lecture me about how I’m not factoring in the external costs of the cars–and that’s true.

But I am not sure that external costs are relevant to expenditure fairness. Whether we factor in external costs or not is relevant to tax policy, for sure, but it’s probably not relevant to the budget equity arguments often made. It’s one thing to talk about optimum investment, which would require marginal social cost: it’s another to try to figure out if transit exists is “David” to auto’s “Goliath”.

Here, we’re trying to figure out if transit riders are getting the shaft. Are they getting the shaft (the transit advocate side)? Or are they rolling in dough they don’t need (the Reason foundation argument)?

This is one of the few times I actually might believe the apples and oranges arguments about comparing. Transit is in a building stage, but highways, for the most part, are in the maintenance phase. We could argue ourselves in circles: to reach investment parity, we’d need to double the transit numbers per passenger mile, etc, etc.

I just don’t know what I think. I need to fiddle with the numbers more.

All these data are from BTS, btw.

Hannah Green blogs from an NGO School in India

She writes:


On Tuesday afternoon, we could either take a nap or go to the Pragnya School, a K-10 NGO school in the village. I said that I wouldn’t go and got into bed, only to realize that I was not really committed to napping. My roommate Christina said that she would go but decided that she was too tired. We sat indecisively on the daybed outside our room, and Jesse said, “Come on, we’re going!” and I said “ugh” and we left.

Outside the Vihar gates, eight of us piled into a single autorickshaw. As soon as the rickshaw got going, I was glad that we hadn’t stayed in. The driver saw that we were having fun and put on some Indian pop. We grinned and jerked our heads to the music and felt the breeze coming in through the bars that held the ceiling to the floor. Music isn’t allowed in the Vihar, although we can hear it from the pujas outside all the time (and we’re allowed iPods). Still, we could never listen together like we could in the rickshaw.

When we arrived, we were surprised to find an assembly waiting for us. Girls with plaits in their hair and uniforms filled rows of benches facing a concrete stage with staircases set in three corners, in very Indian style. There were boys in the audience, too, but fewer of them. Sister Shoba, who wore a conservative pink sari and a large crucifix, showed us to a group of folding chairs in the shade.

The first dance was for the Goddess Dergah, which surprised me because of Sister Shoba’s crucifix. There were many dances. The small girls did a dance for the sun god with a lot of dainty marching and raised arms. Their movements were sweet and easy, even when they moved out of step. The boys did wild acrobatic dances which the girls’ clothing and cultural boundaries would not have allowed. In one dance five boys wore camoflage hats to show that they were soldiers in Pakistan. They died dramatically, doing backlfips and jerking along the ground. When they came back to life, one boy bent over backwards and kissed the ground between his feet. In the dance for the goddess Dergah, a teenage boy danced alone wearing only low-rise jeans and a white kerchief around his waist. He danced with two real torches, twisting his body and tracing his torso with the flames. I was a little envious of all the dancing. In America, you don’t learn to move that way. I also felt that it had been too long since I’d danced because dancing isn’t allowed at the Vihar.

When all the organized dancing was over, one girl got up and danced by herself, then the boys got up and danced and tried to take us with them. At first we hesitated. Robert had told us that once some American girls had started dancing in the street during Dergah Puja, and a crowd of five hundred men gathered within five minutes. But we were within the school walls, and that girl had been dancing alone earlier. Someone said, “Come on! If we all do it, it won’t be that bad!” We danced on the stage in the hot sun.

The boys had moves, and we tried to copy them, bouncing our knees, raising our arms and spreading our fingers. I tried to bend back and touch the ground like one of the boys did, but I tripped up, and one boy said “Is good! You try, you try!” Every time we tried to leave the stage, they said “five more minutes!” until finally Sister Shoba lead us back to the chairs. She looked a little embarrassed for us. “If you had not stopped them, it would have gone on all evening,” she said.

She told us that all the performance had been planned for us that day. I wondered what they’d have looked like if they’d had time to practice.

Sister Shoba and the teachers answered our questions about the school and showed us around. The school was founded in 1991 and now has five hundred students. A group of mediation teacher at the Thai temple had wanted to start a school, and they asked our abbot, the abbot of the Burmese Vihar, to run it because he has helped build and run so many monasteries. Most of the students are younger because a lot of them drop out early for marriage or other reasons. All the students attend for free, but admission is somewhat competitive. The poorest students are given preference, but some higher-caste students are accepted so that the classes can mix. Once the students are in school, the teachers to their best to keep caste hidden. All the students wear uniforms, but on the first day many come very dirty. When that happens, all the dirty students are forcefully sent home to take a bath. “Very soon they begin to come very smartly on their own,” Sister Shoba said. The school tries to teach religious acceptance as well. The students say all the different prayers: Hindu, Muslim, Christian and Buddhist. Of the 500 students, most are Hindu or Muslim. The are five Christians and no Buddhists. Sister Shoba told us that she was Catholic.

“‘Tis a very rare thing, for a Catholic nun to run a school like this,” she said.

Inside the school, we saw tiny classrooms painted blue. We saw the three or four computers that all the students use to learn. The ceiling fans had “World Peace” written in Hindi on each blade. From the upper stories and the roof, we got a good view of nearby rice fields and the Chinese and Tibetan temples.

Sister Shoba said that the school’s main problems are financial. Someone asked if they got money from the government.

“No. And we wouldn’t want because then we have to follow government rules.”