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This July 8^th, 2004 Issue:

***SNS*** AN ELEGANTCATASTROPHE

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This July 8^th, 2004 Issue:

***SNS*** An Elegant Catastrophe



IN THIS ISSUE:

Frauds YouCan Love

Who Owns TheNet?

The ElegantAttack

The RussianAngle

AttackStrategies

Patches

   Insites
   Upgrades and Ethermail

Yahoo!Numbers

ColorLaser Printers

KillingCancer With Nano

OperationSNS Clean Net

David Brinon The New Education Century

   How to Subscribe, Including Corporate Volume Licenses
  

The FiRe Box: Updates On The SNS Future In Review 2004Conference

We've just sent out Last Call for all FiRe 2004 attendees to send us theirPredictions and Surveys in return for a free Transcript Book; if you've beenmeaning to do this, but put it off, you have one more week grace time, sinceI'm going to be traveling next week. I'dlike to encourage any remaining folks to take just a bit of time for this; Iknow you'll enjoy the Transcript Book (even if you were listening carefully,you'll find a great deal you didn't catch), and, even better, you'll be part ofour first Predictions Book.

Note: I would like to extend the above note and say thatthere may be no SNS next week, as I'll be at the Fortune BrainstormConference. As usual, I'll try to bringyou back some interesting morsels from this most unusual gathering. -mra

An Elegant Catastrophe

We've reached the time when one feels a certain sense ofnostalgia over the old-fashioned online scams and frauds of yesterday. They seem so simple, if not evensimple-minded, like the foolish AOL employee a few weeks ago who stole hundredsof thousands of usernames and credit card types (not numbers) and sold them with updates, of course to a spammer, now both hopefully headed for roomswithout windows or computers.

Then there's the good old-fashioned Ponzischeme, made all the more potent by bringing tried and true fraud techniques tothe Net. In one apparent examplediscovered last week, two men from Portland are being investigated for raising$11MM online from unwary investors, for a scheme that may have involvedpromises of "e-book marketing" and/or consulting to "emergingbusiness opportunities." The dealseemed clean enough, when you look at it with a cold eye: you give us $5,859(that funny amount shows we are real), and we return up to $1MM a month. How to say no to that, eh?

Dimwits from around the country wired their money in, andthe two as-yet-uncharged (??) entrepreneurs made large-scale withdrawals for,among other things, paying some dimwits apparent returns, buying expensivehouses in Gig Harbor and Florida, and making at least one large transfer to aNassau bank.

Prosecutors in U.S. District Court are seeking to seize theremaining property held by Pacific Achievement International (see, Pacific isBig, Achievement is Good, and International is, well, International), even asthe FBI works to make a case against the alleged perps. In the words of one federal investigator,these fellows "never engaged in income-producing business."

Or how about the recent wave of ATM fraud cases in Britain,which actually led one of England's biggest banks (First Direct, a part ofHSBC) to warn customers to restrict their cash machine withdrawals, since thechances of getting nicked are so large.Take 500 pounds all at once, they suggest, rather than smaller amountsthroughout the week (the police hated that one), or even better get a debitcard and get your cash from shops elsewhere.Just forget using ATMs altogether.

Why the worry? Banksdon't like talking about these things, but a BBC report (online, of course)suggested a wave of crime based on the insertion of "skimmingdevices" into ATMs, which can read your card and PIN details. Even better, some criminals are installing deviceswhich trap the cards inside the machine; you've already typed in your PIN,needless to say, so they have both. Andthen there is the old-fashioned looking-over-your-shoulder technique, but I'mnot buying that one any longer: these others are much too interesting.

They imply, of course, an inside job: someone either settingup their own ATM machines, or having privileged access to the bank'smachines. The banks never really comeout and tell you these things, you have to figure them out for yourself, and it's obvious why: what if we suddenly stopped trusting allATMs, or, worse, all banks?

Right: we'll come back to that nasty concept.

All of these frauds, while effective in a kind of ham-handedway, are really Yesterday's News.They're limited in their imagination, and in the amount of damage theycan cause (and money they can steal), and generally lack in that special,insidious, system-level, global quality that would send a chill down the spineof the most serious hacker.

For the last few weeks, I've been warning you about a newscam that's afoot online. Despite somerecent publicity about browser settings and Windows updates, I don't thinkwe've been getting the full story about what has happened to date, nor aboutwhat could happen at any time in the future.Tomorrow, for example.

So I thought it might be instructive to spend this week'sdiscussion time on what may be going on now on the Net, and what quiteplausibly could happen in the near future.If the banks and software vendors don't want to talk about it, weshould, since we are the ones exposed to the greatest dangers.

Let me scatter a few more data points around as a way ofbeginning this discussion. After yearsof chatter, the international community suddenly got Very Serious last weekabout spam (and, as you will see, this story is a spam story). By serious, I mean that the United Nationsand the International Telecommunications Union have convened a global meetingon wiping out spam, including providing member states with model legislationfor local adoption, as a preface to global prosecution.

I think most people are still living in the spam world ofyesterday, when spam represented unwanted marketing messages for porn, Viagra,Penile Enhancers, and assistance in spending $100MM stuck in Nigerianbanks. (No one has quite figured out howto put these all into one offer, but it will be nearly irresistible to Americanmales when they do it.)

That was before spam became the tool and worms became theweapon. Today, worms generate MUCH morespam than the old-line spammers, by creating waves of infected machines, eachof which sends out more worms, and each of which becomes a Zombie under thecontrol of the original worm author.Spam is often infected now, and the messages you read don't matter. Ever wonder why someone would bother sendingyou spam with gibberish for a title?Obviously, you aren't going to open it.Hell, you couldn't even read it if you did.

Let's talk about the Net for a moment. As with spam, I think most people stillconsider the Net in a benign way: it was built for the good of all, and carriesour mail and commerce for us.

That, too, was yesterday.

Today, CERT (the U.S. Computer Emergency Readiness Team)estimates that as much as 75-85% of all email on the Net is spam, up more than100% from one year ago.

We don't own the Net anymore: they do.

And who are they?We'll dive into this more in a few minutes, but let's say now that theyare criminals.

What is the Net made of?Not just email, obviously. It's servers and PCs linked together, and websites arealmost (but not quite) as important an aspect of its use as email. So, just because the Bad Guys dominate email,doesn't mean they dominate the whole Net, right?

Well, most estimates I have seen suggest that over half themachines connected to the Net today are not protected by up-to-date anti-virussoftware. No one knows how many machinesare Zombies today (and that is a truly frightening fact), but it is at leastpossible that more than half the machines on the Net are infected, or will be. This isn't particularly technicallyimportant, since infecting a much smaller fraction say 1% or less - would beenough to achieve most of the ends we're going to talk about here.

Which leaves websites. Except for those nasty pop-up ads, websites particularly those sites run by large, reputable firms like banks are safe,right?

Wrong.

Now we're up-to-date.

So, to review: until last week, most people probably thoughtof Net fraud as frightening but limited, and of worms and their viruses asannoying but curable with up-to-date software.

Those days are over.

Readers will recall my question at the Future in ReviewConference, to Ray Ozzie and Herve Gallaire about whether we will see acatastrophic event on the Net any time soon.I would like to suggest that we've just had one, and very few peoplehave yet seen the extent of its influence.We've seen the light from the explosion, but, as in cinematicslow-motion, we haven't heard the blast yet, nor seen the awful aftermath.

Based on various comments by CERT, NetSec(a security firm for large corporations and government agencies), F-Secure in Finland,Microsoft, and various news sources, I'd like to quickly put together what weknow of what happened in the last couple of weeks.

NetSec says they began detectingsuspicious traffic on several customer networks on Thursday, June 24^th,morning, according to CTO Brent Houlahan. He quickly found that when his users werevisiting "certain popular Web sites including an online auction, asearch engine and a comparision shopping site theyunwittingly download a piece of malicious Javascriptcode attached to an image or graphics file on the site," according to anInfoworld piece the next day.

This code would in turn connect infected machines to one oftwo IP addresses in North America and Russia,then downloading more malicious code, including but not limited to keylogging software.

This was happening at the same time that we sent out ourfirst alert about a new, larger, and different kind of spam storm on theNet. That storm seemed to be composed ofjust a few named senders, shipping out perhaps 20x spam levels, all of whichwas infected.

Soon thereafter, news reports emerged of avulnerability in Microsoft Internet Explorer that was being exploited bysoftware on up to 50 bank websites, which allowed the author to steal usernamesand passwords. There was, and still is,no true fix for this IE vulnerability, as of this writing.

OK, let's take a breather for a minute. What does all theabove mean?

It means that you could go to your bank website, whichitself would infect you, the result being that your machine would subsequentlysend your username and password (and the website url)to a criminal in North America or Russia.

Now let's expand on this a bit. This means that any site, no matter howsupposedly secure or how large a brand, could have been an unwittingaccomplice. It also means that the smartauthors had found a way to get the most valuable data from the sourcesthemselves, much like getting into the back of a branded bank ATM machine. Because the software was on your machine (ifit was), it means that, from that point on, ANY site you visited, together withANY usernames and passwords you used, would be sent to those two recipients.

Who are those recipients?The current understanding is that the attack was mounted by a Russianvirus group known as Korgo, identified by bothF-Secure and Sophos as the responsible party. The FBI already has an open case on Korgo.

Exactly what was in the malicious code downloaded from thesetwo IP addresses? NetSecwas still working on it, but the SANS Institute's Storm Center announced thatit installs a Trojan Horse on victim machines named"msits.exe." NetSec was reluctant to name websites infected, but saidthey were "big, big sites." NetSec and CERT suggested that it might be cache servers,and not original servers, that were infected, and that avulnerability in Microsoft's Internet Information Server, version 5,could be the point of original attack.

Where does this leave us?

The banks have said that many (if not all) have removed theinfected code from their sites; this is probably true for almost all largesites. Internet Service Providers havebeen instructed to stop relay of all messages to the two IP addressescontrolling these Zombies, although it is impossible to know how many ISPs havedone so. The Russian site now appears tohave been shut down.

Let's just ask a simple question: what if this attackincluded the top auction, search and banking sites in the world, and it worked;i.e., it infected all who came to those sites for a 1- 2-week period, sendingthe criminals usernames, passwords and urls for notonly those sites, but for all other visited sites during that time? What if the North American site remained up,or what if there were fallback instructions should these go down?

Is the horse out of the barn?

Now let's ask: what would the value be of thatinformation? What, exactly, would you dowith it?

We already know that identity theft is the crime of the newcentury, the statistics are legion. Butin both scale and depth, this far exceeds anything the FBI would have called IDtheft yesterday.

To understand what they might do with this information, wemight ask, who are they? Until we findout, let me suggest something made up of whole cloth. While we have no data on the North AmericanIP address, we know several things about Russiatoday, all of which may pertain to this event.Russiahas among the most advanced programmers in the world. Russia'sold pre-Gorbachev black market economy was largely run by the KGB; today, Russiaitself is run by the successor to that group, with Putin at its head.

I just thought I'd add a geopolitical question mark to thisevent.

If you were a stupid, small-time spammer, you would use thestolen data to create new spam storms, maybe hit some sites and sell some datato others. Clear out some big bankaccounts, then run.

But what if you were, say, Russian Mafia since the KGBseeded this group? Ora state-sponsored security service?Al-Quaeda? Or (fill in the blank)?

One is reminded of the lines:

This is the way the world ends
Not with a bang but a whimper.

(-- The Hollow Men, T.S. Eliot)

A smart attack would come in one of two ways. In a Net-centric military attack, you woulddrain all of the accounts in one day (one hour?), shipping a huge fraction ofthe wealth of the country to some list of banks in Nassau(or, more likely, Iranor the Caymans). In fact, you'd be smartenough to cover the trail of wherever this money ended up.

This would create real havoc overnight, draining the bankand commercial accounts of the most active online users in the world.

Or, you could go with Plan B: why should the parasite killthe host? This follows on my favoritebank scam of all time, done in Torontodecades ago, whereby rounding errors on cents were always calculated down andpaid up, the difference going to a bank clerk's account. It worked for many years, as I understand it.

The next time you look at your bank statement,ask yourself if you made every one of those ATM withdrawals of $200 each? You do keep them all logged in a diary, don'tyou?

Symantec's Oliver Friedrich claims that the Russian serverwas shut down on Friday, June 29^th, but notes that thevulnerabilities distributed by the attack remain; there is nothing to keepsomeone else from using this attack as a Zombie platform for other (or related)projects.

I have no doubt that some reaction to this piece will be dismissive,as banks and even security firms, who need you to believe the world is notrisky if you follow their lead, are put into an insecure position. You'll have to realize this bias, and judgefor yourself.

While doing that, I think we should also ask whether it isnot possible for hackers to go after a yet richer target. Instead of using consumer websites as theinfection vectors, and going at the consumer speed of keystrokes, why notinfect machine-machine sites, and take down the security handshakes that willopen up the really big corporate money accounts?

Finally, I should mention that last Sunday the author of the"Bagle" worm, which has the power todownload Trojans and deliver malicious code, decided to pass out the sourcecode plus a couple of variants, on the Net.This has two immediate effects: first, although the source is inassembly and therefore written by a real expert, anyone can change it and makenew variants, and no doubt, many now will; and second, since presence of sourceon a computer would have been evidence of criminal conduct, it now becomes muchharder to determine who the real author is.

What can you personally do about this last, perhaps ongoing,attack? Users of Microsoft InternetExplorer should go to Microsoft.com and check Windows Updates on the leftmargin. There is no patch, but they willreset your browser to a safer setting; MS says a patch is forthcoming. Users of IIS v. 5 should make sure they haveno unusual JavaScript hanging at the end of their code. IE users can disable Java scripting, thoughit affects site performance. CERT wasadvising last week that users not use IE at all, but switch to NetscapeNavigator, Mozilla, Opera, or almost any otherbrowser; all are freely available on the Net. PC owners can check for infectionfiles kk32.dll and surf.dat; instructions are at http://www.microsoft.com/security/incident/Download_Ject.mspx. Everyone should update their anti-virus definitionson an ongoing basis.

This was an elegant, but in some ways simple, attack: afterall, it only fed two hardwired IP addresses the stolen data, thereby providingone way (although not a failsafe way) to blunt, if not block, the attack. But what about next time? (We've had more attacks in the last fourmonths than in the prior year.) Why not have a coded IP target for delivering the stolen goods, oran encrypted one, or one which changes nightly?How about one which changes on command?

It is time for national leaders to get their heads out ofthe sand, and recognize this threat to their (our) national and economicsecurity, cooperating on a global basis to deny access and havens to anyonemounting Net attacks.

Who controls this global Net of Zombies now? Do we?Do the criminals?

In the ways that mean the most, I am afraid the answer isclear: They do.

Your comments are always welcome. 


Sincerely,

Mark R. Anderson

President
Strategic News Service LLC             Tel. 360-378-3431
P.O. Box 1969                                      Fax. 360-378-7041
Friday Harbor, WA  98250  USA       Email: sns@tapsns.com


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New to the Family:

I would like to welcome, among others, these new members tothe SNS Family: Freddie Daniells, CEO, Cogentum, London; Leon Galindo, CEO, NetOrganiX,Cochabamba, Columbia and HoomanBassirian, Content Director, ComputerWeekly,Sutton, Surrey, England (on trial); Charles Fitzgerald, Microsoft, Redmond andSamuel Huegli, Ringier AG, Zurich and John Segrich,J.P. Morgan, London (renewing); Gary Anderson, Vice President Consumer InternetServices, Bell Canada, Toronto; Tim van Delden,Senior Associate, General Atlantic Partners, Dusseldorf; and many others.

Quotes of the Week:

"We're still working on integratingthat [anti-virus] technology. In theantivirus space, we have to work really closely with the antivirus vendorsbecause we don't want to negatively impact their business." -- StevenAdler, European senior security specialist at Microsoft, talking to Silicon.comat the TechEd developerconference last week, noting that the company's antivirus plans are still at anearly stage, including the integration of software from last year's acquisitionof antivirus from GeCad.

"The single object is we want tomake sure every client system by default has an antivirus solution. Whetherthat's Microsoft or a third party, there needs to be that basic level ofprotection," he said.

Aha! Another SNSOperation Clean Net supporter!

"(We have) anepidemic on our hands that we need to learn how to control. International cooperation is the ultimategoal." -- Robert Horton, the acting chief of the Australian communicationsauthority, prior to a UN-sponsored ITU meeting in Geneva this week on makingglobal prosecution of spammers more simple; quoted Tuesday in the WashingtonPost.

"A new Internet virus has surfaced that allowshackers to steal passwords, credit card numbers and other personal informationwhen someone merely visits an infected Web site, government computer securityexperts warned this week. Hundreds of Web sites have been targeted by thevirus, which exploits flaws in Microsoft Corp.'s Windows Internet software, accordingto an alert issued Thursday by the U.S. Computer Emergency Readiness Team, adivision of the Department of Homeland Security. Infected sites were programmed to connect people using the MicrosoftInternet Explorer browser to a Web site that contains code allowing hackers torecord what users type, such as passwords and creditcard and Social Security numbers. The code then e-mails that informationto the anonymous attackers. CERTrecommends that Explorer users consider other browsers that are not affected bythe attack, such as Mozilla,MozillaFirefox, Netscape and Opera. Mac, Linux and other non-Windowsoperating systems are immune from this attack." -- Brian Krebs, Washington Post, quotedon Robin Good's MasterNewMedia site.

"--- we viewthis as a very real threat, with serious significance in terms of the potentialimpact on our customers." -- Stephen Toulouse, a security program managerat Microsoft; quoted in the WP, last week.

"The tricksused in this particular attack method are nothing new. What's significant aboutthis is the fact that it impacts major Web hosting facilities. There's a potential for widespread impactbecause currently the (antivirus) vendors don't have a signature for it."-- Dan Frasnelli, manager of NetSec'stechnical assistance center.

"IPv9 is compatible with IPv4 and IPv6,has been formally adapted and popularised into the civil and commercial sector." the People's Daily, China, July 5^th; quoted on the Register.

"In the absence of any public technicalspecification, this is still in the category of 'sub-vapourware' at themoment." -- Mat Ford, technology adviser to the IPv6 Task Force, on rumorsof a Chinese IPv9 announcement; in CNet, last Thursday.

"Thecapabilities are mind-boggling. For manyyears it used to be about force. Now, it's all about networks - who can seefirst, who can react first." -- Jim Albaugh,head of Boeing's Integrated Defense Systems program, during a declassified90-minute demonstration of Net-Centric Warfare held at its Virginiaoffices this week; Tuesday's Washington Post.

"They willassassinate the prime minister, a minister, an army official or a police official. They don't always succeed and they don'talways have the means to carry out the acts.But we are not lacking extremists." Tsahi Hanegbi, Israelpolice minister, talking to Channel 2 about destroying illegal settlements aslaid out in the "roadmap to peace;" AP, Wednesday.

"We convey aconcept of our $18 strategy as surprising and moving in the ad. The ad basically says, 'Anything canhappen.'" Nori Matsuda, CEO of SourceNext, on the company's current ad for Sun's Starsuite office applications, featuring famous actress Norika Fujiwara giving birth to a live colt in aconvenience store when she hears of the company's offer.

"So far inthis earnings period, 341 technology companies have preannouncedtheir results. Of the group, 112 companies said their earnings were higher thanexpected, 55 companies said they would be in line with Wall Street'sprojections, and 174 issued warnings that they would miss expectations." CNet, today.

UPGRADES

Yahoo! Numbers

It's all about paidads on search, and fee-based services, and as e-Commerce comesroaring back, thanks to increased bandwidth, Yahoo! is coming with it. This report confirms the trends we've beendiscussing this year.

Here are the numbers:

Q2 2004 net income was $112MM, vs. $51MM YTY; on revenues of$832MM, vs. $321MM YTY; or on revenues excluding traffic acquisition costs (thecompany's preferred model) of $609MM, vs. $321MM YTY. The company met Street expectations.

Gross profit for the quarter was $535MM, vs. $274MMYTY. Operating income was $149MM, vs.$63MM YTY; operating income before depreciation and amortization was $234MM vs.$98MM YTY.

Free cash flow for the quarter was $194MM, vs. $71MMYTY.

While "Listings" revenues were almost flat, $39MMvs. $33MM YTY, "Fees" for premium services jumped from $70MM to$104MM, and "Marketing Services" (primarily paid search) rose from$219MM to $690MM. The number of payingfee relationships grew YTY from 3.5MM to 6.4MM as of June.

U.S.revenues grew from $271MM to $624MM YTY, while International grew from $50MM to$208MM.

The Wall St. Journal quoted the company as stating it nowhad audience of a size to compete with TV or other brand advertising, which Ibelieve to be true, and which is probably the most important (missing) line inthe entire earnings report.

As we watch the crumbling of the old-line broadcast networkempires, and creation of customer-driven advertising firms, it is already clearthat at least one of those major categories will be Online Search, a clear competitorto broadcast TV. (We should also expectto see a litany of additional changes in content provision, entertainment, andad support, but we'll discuss those in a later letter.)

CEO Terry Semel has done a fantastic job of sticking to hisknitting, while the press rages on about the Google IPO,and he has again turned in an amazing performance. Very nice work, Terry, in managing a mixedbusiness model that continues to run near the redline.

Color Laser Printers

Sometimes majorshifts in buying patterns are only a matter of money; broadband in the U.S.would be the perfect example.

Here at the Beach Palace Hotel, I run two printers prettymuch all day: an HP laser for duty printing in black and white, and a Canoninkjet for high-quality color printing.The per-copy cost on the HP is a fraction of what it costs on the Canon,and the HP is quite a bit faster, so, after years of only printing on onedevice, I decided to get two. Those ofyou buying inkjet cartridges retail will understand why I have never questionedthat move.

That may be about to change.

We have now entered a time when color laser printing isavailable from a number of major vendors at under -$1k prices, which I considerto be the line between "interesting" and mass-market, at least forthe SOHO/SMB (small office/home office and small and medium sized business)markets.

If this technology takes serious share from inkjettechnology (which I think will happen), this platform will also become the nextwar zone in the battle between Dell and HP.Shifting the profit margins of inkjets to makers of laser cartridgeswill have strategic effects around the world.Printer ink is the most profitable product of size at HP, and printersthemselves come in near the top as well, which is one reason Dell has targetedthat market often with Lexmark's assistance on an OEM basis.

The fact that Lexmark and HP took top honors in a recentCNet shootout just underlines the battle lines that much more clearly. A May review of the market showed Hewlett-Packard,Xerox, Konica Minolta, Brother, and Samsung leading the charge into the sub-$1kmarket, with many others in hot pursuit.

A quick walk around the Dell site shows the company offeringprinters in this range from not only Lexmark, but from Xerox, Okidata, Brother, Samsung and Konica Minolta. Let's call it a full-court blitz.

Without getting into the nitty ofwho loves what, the major challenge seems to be printing speed in b&w vs. quality in color graphics, although there are afew surprises in tests showing strong color and poor b&wperformance. Prices already reach downinto the $499 range, although you can solve that problem fast by asking fornetwork connections or add-ons.

The only aspect of this market that I can see having anydecelerating effect is the popularity, in the same market segments, of themulti-function machines, which are picking up fax, scanner and copying dutiesas well as color inkjet printing.Presuming that this, too, will be fixed, the long-term future of laser(and decline of inkjet) seems ensured.

I would expect this Q4 to be the first really largestep-function increase in what is already a fast-growing category, despite itsnewness.

Summary: ignore all past sales figures (back to 1993) forcolor laser printers, and get ready for this to be one of the fastest-growingproduct lines among major global vendors.

Killing Cancer With Nano

This story doesn'ttake long to tell, but I don't think you'll forget it anytime soon.

Researchers from Rice University published results inCancer Letters this week on a new program to use gold-coated silicon spheres110nm in diameter to attack tumors in mice.These nanoshells, when injected into thebloodstream, selectively "accumulate" in tumor tissue. That's the first act of faith you have to buyinto, and no, I have no idea why this is true except that cancer cellsselectively accumulate everything around them, since they are thefastest-growing cells in the body.

Next trick: by selecting the right size shells and coatingthicknesses (8-10nm), the research team was able to use near-infrared lasers toaim light at the shells which would in turn heat up, creating heat at the shellwithout damaging tissues along the laser path.For this work, researchers used an 808nm beam from a fiber-coupled 800mWdiode laser; the shells are tuned to have maximum absorption between 805 and810nm.

After hitting the shells inside the tumor for 30 secondswith the beam, the temperature in the tumors rose to about 50 degreesCentigrade (about 122 degrees Fahrenheit).The total treatment involved shooting the beam at the tumor for threeminutes. There was no damage toperipheral, healthy tissue.

OK, hold that thought: one three minute treatment,completely painless.

Ten days later, the tumors were gone. Control animal tumors continued rapid growth.

The technology has been licensed by Rice to NanospectraBiosciences, which is doing its best to hasten the first human trials.

Can you imagine?

ETHERMAIL


Re: ***SNS***: The New BroadbandLandscape

Mark: Another vote for Clean Net. 

See:
http://www.masternewmedia.org/news/2004/06/28/internet_explorer_users_warned_cert.htm

ManyOne's Universal Browser and protected email isabout to launch - and could be a part of the Clean Net solution set.

Looking forward!!

Dave Davison
[General Angel and

Silicon Valley investor]

PS I enjoyed your response to Bob Jacobson re your working habits - maybe youshould have Bob ghost write a book for you on the working habits of effectiveleaders.

Dave,

Thanks for the reference; you helped to inspire this week'sissue. I am looking forward to ManyOne's browser, and what may be the next incarnation ofthe Earth II concept.

Mark Anderson

Publisher's Note:This week I have decided to publish a polished, multiple-draft letterput together by David Brin, as the bulk of our Ethermail section. We'll return to the normal Ethermail with thenext issue. mra

A response by author (The Kiln People, The Transparent Society) and physicistDavid Brin to the SNS Special Letter THE NEW EDUCATION CENTURY:

Mark,

THE NEW EDUCATION CENTURY,by Kosmo Kalliarekos, was an interesting, enlightening, and valid call toemphasize education in the coming century.He was right to point out that investment in a knowledgeable populationis crucial to any civilization's chance of success, especially our own. Certainly, history supports that notion. The"GI Bill" of 1945 should rank as one of the most powerfully effectivelaws in human history, generating a burst of creativity and wealth that notonly uplifted several generations of Americans, but stimulated economies allover the world.

Mr. Kalliarekos is right toremind us, urgently, that we cannot simply rest on past success, counting onthis momentum from the past. Eachgeneration must innovate. Our complex21st Century dilemmas will demand subtle analysis and sophisticated compromiseover rapid time scales. Only aknowledgeable and mentally agile citizenry will be able to deliver ondemocracy's promise of correct and accountable decision making, benefiting bothindividuals and communities.

You will find nodisagreement about this core truth from anyone, left to right. Liberals and conservatives agree thateducation is key, differing only as to HOW we should deal with auniversally-perceived "crisis" in a failing school system.

Indeed, as a father of threechildren in California schools, I could join the chorus, griping about aplethora of disappointments. Sciencelabs have vanished, converted into overcrowded classrooms. Science curricula teach only to the test,never to the joyfully critical process of discovery. So-called "gifted programs" havebeen eviscerated during successive budget cuts, under the somewhat validassumption that bright kids can seek enrichment elsewhere. Somewhat valid, thatis, in a neighborhood like mine. Forbright kids living in a poor district, gutting the gifted programs may be themost short-sighted of all betrayals. The list goes on and on.

Nevertheless, having saidall that, I am tempted to add "...yes, but..." As a professional contrarian, I must pointout that rigid assumptions aren't helpful.Indeed, we'll never fix what's wrong with the schools without firstacknowledging what's right.

Why is it, for example, thatmissives pour from education ministries in China, India and Japan, directing schools to run their classes in a more"american" style? Every year, official minions disperse intothe countryside, desperately trying to modify the habits of teachers whoroutinely and reflexively repress classroom discussion, punish disagreement,and squelch creative expression in favor of rote repetition. They are finding it a much more dauntingchallenge to reverse homogenizing cultural imperatives than our uphill struggleto improve U.S. test scores.

Why are educators andofficials around the world trying to make their schools "moreAmerican," at the very time when we bemoan our lagging examinationstandings? Could it be that they seesomething we do not? I, for one, amappalled by habitual reliance on international tests for measuring the'success' of our education system. Inany purported international culture war, those exams might be called a fearfulbludgeon, a poison. Indeed, they may be causing us to deeply injure ourselvesand our kids.

Stop and think, please. What do those tests measure?

They gauge memorizedknowledge. That is what standardizedexaminations are for.

Sure, accumulated knowledgecan be nice. I just helped my son with aquadratic equation that was seared into my own neural pathways more than thirtyyears ago. It's a pleasure answeringquestions about D Day straight out of memory from my own adventures in booklearning. But really -- Is a store of accessible facts the corebasis for a useful mental life? Or isour real desideratum the agile ability of a young mind to perceive thegreat sea of knowledge, to sail its broad horizons and plumb its depths withevery modern tool? -- To seek, sift,analyze, scrutinize, criticize, compare, negotiate, re-appraise andsynthesize?

I would rather my childdeeply understood the quadratic equation, so he could reconstruct itfrom scratch, if memory fails.

Just look at what ourstudents do when they bring home an assignment from school. Take the brightest students, in the bestclasses. Do they pore over their texts,frantically memorizing facts for rote recitation in school the next day? Or do they take general notes and marshalarguments for the inevitable teacher-moderated class discussion? Meanwhile, rote recitation still reigns inmuch of the world, including many of the highest-ranked test-taking countries. (Doesanybody sniff cause-and-effect at work?)

Admit it. Deep within theindividualistic American value-set, memorization is perceived as crude, evencruel and immoral! You'll not hear theM-word, even from the lips of conservatives who promote the "3Rs".

Can you find me aninternational examination that even remotely measures what our brighteststudents actually do with their time - or with their minds - when they study atopic like history or social studies or science in school? The eloquent passion that they devote toin-class discussion may not translate into many memorized facts, but it doesshow up in a prodigious aptitude for argumentation. Care to test this assertion with anexperiment? Gather students from every nation around a conference table. Calibrate or measure their agility atnegotiation, agile reasoning, imaginative synthesis and eitherconsensus-seeking or devastating disputation.Just try it as a thought-experiment, right now! What image comes to mind?

Try Alicia Silverstone, inthe movie CLUELESS, praised by her lawyer dad for having "argued" herway into good grades. Or theditzy-brilliant young lawyer in LEGALLY BLONDE. Envision those American kidsdominating the conference room like Schwarzenegger, with a flame-thrower. You know it's true.

I am not suggesting thatthis approach to raising youth is universally without flaws. American kids would win any argument... oftenbased on zero knowledge. That'skind of frightening. Opinion has beenelevated to something so sacred that facts can seem irrelevant. Among the results - post-modernist relativismis deeply loathesome.

And yet, many of these kidsarrive at university painfully aware THAT they know nothing. They enter college with the most agile mindsin human history, confident, unabashed, lively, utterly unafraid... and ready(at last) to learn. How else could oneexplain the fact that, despite a reputedly horrid elementary and secondaryeducation system, the United States of America has (arguably) ninety of the one-hundred bestuniversities on the planet?

Please, I am no pollyanna. The picture that I have just portrayed is notideal. Deborah Tannencriticized the Argument Culture inher eponymous book. In TheTransparent Society I more optimistically sing the praises of assertivereciprocal accountability, generated by such a culture, while worrying that wemay ruin it all by going overboard with flamboyant exaggerations and theaddictive drug of self-righteous indignation.Certainly it would be nice to see more of our students taking knowledgeseriously, as an important partner to holy Opinion.

Moreover, the benefits ofagile argumentation are less helpful to students in the lower ranks. For those who are not college-bound (forwhatever reason), a good grounding of memorized facts and skills can make ahuge difference in future income. Theculture of agile argumentation was always elitist in certain ways. The brightest (of all races and classes) werebeneficiaries... just as the brightest suffer most in regimes that emphasizememorization.

Did we let half of the kidsgraduate under-educated, just so that the other half could hit college with arunning start, and agile minds? If so,that wasn't fair. The new emphasis on "standards"MIGHT be viewed as an end to generations of betrayal. Standards will help to ensure that no oneleaves school without the basics. Moreover, teacher accountability might helpcull out the worst instructors and reward the best.

On the other hand, I dreadwhat I see "standards" doing in the classrooms my children attend. Teaching to the test is no way to go with ourstrengths. It is a way to underminethem.

---

Kalliarekos raised someother symptoms of failing American education that may bear sideways (orcontrarian) re-examination. For example,take rates of university attendance. Hemourns that the US has slipped into second place behind Norway after towering alone in first place for threegenerations. But long gone are the dayswhen European nations had ANY excuse for failing to send just as many kids tocollege as we do. So why haven't we slipped even farther? After all, we mustdeal with vastly more immigrants than all of them, combined.

I have my own notions aboutthis. For example, their lavishly subsidized, inherently elitist universities-- small in numbers or diversity -- do not excite youths. Rather they excel atfostering over-specialization, rote ideology and conformity. (Go to the University of Paris,for example, and find one student who is not wearing all black. Every day.) Once astudent passes the entrance exam, his or her elite status becomes a sinecure --and ironically encourages homogeneous thought.Rather than opening doors, their test-obsession has been holding themback.

Have we really stoppedmoving forward? During World War II ittook a high school diploma to qualify for Officer Candidate School in the U.S. Military. Later, it took a bachelor's degree. Today, you cannot rise above Captain withoutat least the equivalent of a masters. The senior officer corps is far bettereducated than the profession of school teachers, coming in slightly behindmedical doctors.

When U.S. rates of post-secondary attendance long ago broached50% levels (a utopian dream of educators, back in 1950), is it really fair tobemoan that the rate of increase has slowed down? Must that be a sign offailure? Must we keep accelerating toward the same horizon, till every 22 yearold is required by law to matriculate in graduate school? Or might it be a sign that we have crossedone generation's dreamed-of finish-line?

If so? Well, then, let's help a new generation erect some newgoals.

The question should bereversed. What are we doing so rightthat we can maintain so many wonderful institutions of higher learning, of suchvariety and fecundity, while at the same time absorbing fully HALF of theworld's legal immigrants? (Add in the undocumented and it's even moreastounding.) Shall we writhe in guilt,that the latest (huge) wave of immigrants sometimes must toil a bit in order toget their kids to college? Or shall wenotice that the road is a better, smoother, and faster one today than it wasfor our grandparents?

Countries that haveprotected their national homogeneity may achieve better test scores, but theyhave no campuses with such lively color and vivacity as you will find anywherein the States, especially California. As for language skills, while China struggles to train English-speakers, we getChinese-speaking citizens by the simple measure of letting large numbers comeand become Americans. It may seem lazy,but I don't feel guilty.

Let me finish by reiteratingthat I am no pollyanna. In fact, I agree with Kalliarekos that weface a crisis. But it is not a crisisborn of failure. By almost anymilestone, we have vastly exceeded the fondest hopes of those who designed thepresent systems of education, six or more decades ago. Ironically, it is from that high platform,with deep awareness of new potentialities and crucial needs for an acceleratingcentury, that we can see just how much farther there is to go! These criseswere brought upon us by success. So werethe ambitions we now cherish.

I am willing to discuss allsorts of reforms and initiatives to get our momentum up, to stoke the fires andgenerate new generations who are vastly smarter, more confident, and moreknowing than ours. Asour generation reified the hopes of our parents.

Bring on the ideas!

But it simply is not helpfulto base it all on some impression of dismal failure. That only leads to neglect toward everythingthat's worked. If we're going tosupercharge American education, we must start by admitting that our parentsweren't utter fools. They made andtaught us. And we proceeded to fill a thousand campuses with the most livelyand un-intimidated minds the world has ever known -- our own kids. Go see for yourself.

I refuse to call that bad.

With cordial regards,

David Brin

www.davidbrin.com

David,

Although I've asked Kosmo to respond to this directly, whichwe'll print next issue, I thought I might add just a few thoughts on yourletter.

First, testing itself is not bad per se, but teaching to thetest, done alone, probably is. While onecan argue that standardized testing degrades teacher performance, I happen tobelieve that it represents the only path to improved teacher performance. Until now, we have had no objective way toassess teacher performance. This mightbe great if you are a poor teacher, but not so great if you are a greatteacher, or a principal trying to hire great teachers and improve the overallteaching quality of the school. Onehopes that at some point the testing becomes invisible, as assessments becomepart of the curriculum. This wouldalleviate the negative aspects of the effects you have so well described here.

I am not so infatuated with argument, per se, and the shrineof opinion over fact, as you seem to be.It is relatively easy to suggest that this is one of the aspects of whatis wrong with this country, if you count lawyers per head. We are much better at arguing (and suing)then at reaching agreement. And we twistthe power of argument, a la free speech, to push science aside, in favor ofthings like Creationism, as though all religious thought or argument had anequal place beside science in the classroom.

Without discouraging debate, I would prefer to separateargument as a strength, from knowledge, and fromcreativity and scientific exploration.Do we need a knowledge base to launch rockets? Yes. Doesa culture that inhibits arguments lead to disasters? Also yes.But do you want your surgeon to take standardized tests? Yes.Is there room for meta-learning that is above and beyond all this? Yes,it is the best part of learning.

Even so, rote learning has a pivotal place in life and inwork, and those who cannot do it are pushed to the fringe. Those who can do it easily, and then do more,are core to civilization's success.

Thank you for taking the time to write a mostthought-provoking and typically contrarian - letter.

Mark Anderson

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About the Strategic News Service

SNS is the most accurate predictive letter covering thecomputer and telecom industries. It ispersonally read by the top managers at companies such as Intel, Microsoft,Dell, Compaq, Sun, Netscape, and MCI, as well as by leading financial analystsat the world's top investment banks and venture capital funds, includingGoldman Sachs, Merrill Lynch, Hummer Winblad, Venrock and Warburg Pincus. It is regularly quoted in top industrypublications such as BusinessWeek, Newsweek, Infoworld, Institutional Investor,Wired, the Financial Times, the New York Times, and elsewhere.

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Mark Anderson is president of Technology Alliance Partners,and of the Strategic News Service(tm) LLC. TAP was founded in 1989, andprovides trends and marketing alliance assistance to firms leading theconvergence of telecom and computing.Mark is a Seybold Fellow. He is the founder of two software companiesand of the Washington Software Alliance Investors' Forum, Washington'spremier software investment conference; and has participated in the launch ofmany software startups. A past directorof the WSA, Mark chairs the WSA Presidents' Group. He regularly appears on theWall Street Review/KSDO, CNN, and National Public Radio/KPLU programs. Mark isa member of the Merrill Lynch Technology Advisory Board, and is an advisorand/or investor in Authora, Ontain, Ignition Partners, Mohr Davidow Ventures,and others.

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Disclosure: Mark Anderson is a portfolio manager of a hedgefund. His fund often buys and sellssecurities that are the subject of his columns, both before and after thecolumns are published, and the position that his fund takes may change at anytime. Under no circumstances does theinformation in this newsletter represent a recommendation to buy or sellstocks.

On July 14th - 16th he will be participating in the FortuneBrainstorm 2004 Conference in Aspen. Please look me up if you're there.

In between times, he will be thinking about K Pod, now later in arriving thanin recorded history, and wondering what those orca arethinking about as they search for fish near the Fraser River, far from the loud frenzy andincessant harassment of their historic home hunting grounds.





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