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TechnologyQuarterly

And now, thewar forecastCan the outcomes of military conflictsbe predicted, just like the weather?

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TechnologyQuarterly

And now, thewar forecastCan the outcomes of military conflictsbe predicted, just like the weather?

Sponsored by

Tom StandageTechnology EditorThe Economist

Listen to a discussion with Tom Standage,Technology Editor of The EconomistAn overview of this quarterly and more about war forecasting

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“There are a number of things going on in technology which arereflected in different TQ articles. We have a couple of stories aboutforecasting things you might have thought could not be forecasted,wars and traffic. And some articles look at how new models ofdecentralised, collaborative innovation are made possible by the internet.”

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Consumer electronics: As mobile phones threaten to depose them as the mostpersonal of technological devices, high-tech watches are �ghting back

IT IS a tiny technological wonder thatgoes everywhere with you. Your choice

of brand and model says a great dealabout who you are and how you wish tobe perceived by others. It may have a clas-sic, bare-bones design, or its sleek casingmay conceal a host of extra functions. Tenyears ago, this described your wrist-watch, which epitomised the combina-tion of fashion and technology for over acentury. But today it also describes yourmobile phone, which for many peoplehas already dethroned the wristwatch asthe most personal of technological de-vices. Can watchmakers �ghtback? In recent years there havebeen several attempts to boostthe appeal of watches by add-ing exotic new functions,from telephones andtelevisions to personalorganisers. But so far,none of these super-watches has been a hitwith consumers. Manu-facturers, it seems, havetended to ignore obvious practical limi-tations, and have failed to exploit the unique position of the watch�right thereon your wrist.

Consider, for example, the chequeredhistory of attempts to develop a �DickTracy� watch with a built-in phone, asused by the 1930s comic-strip hero.Swatch, the Swiss pioneer of low-costfashion watches, unveiled a prototypecalled Swatch Talk in 1998, but it has notbeen seen since. A similar fate befell aSamsung device that was previewed in2003. In both cases, production planswere shelved when prototypes failed toimpress users: holding your wrist to yourear during a conversation and keying innumbers with a toothpick simply lookabsurd. The Wristomo, a watch-phonemade by NTT DoCoMo of Japan whichactually made it to market in 2003, pro-vides a partial solution by making thestrap part of the phone. Watch and strapunfold into a normal sized phone, butthis makes for a rather chunky watch,and the Wristomo has been a �op.

Watches, it seems, are simply thewrong shape for mobile telephony. Butwhat about digital music? One snag is theinconvenience of wires from wrist toears. The controls also tend to be rather

�ddly, and because weight and volumeare at a premium in watches, battery lifeis usually not competitive with larger,dedicated devices such as Apple’s iPod.As a result, watch-based MP3 playershave also failed to take o�. Similar draw-backs have scuppered attempts to inte-grate personal organisers, digital camerasand other devices into watches.

Yet still they come: gadget freaks canchoose from a host of exotic models thatwould do James Bond proud. Want awristwatch TV for your daily commute?No problem: NHJ of Japan makes one

with a sharp, 1.5-inch colour screen�but the battery only lasts an hour. Still

looking for those weapons of massdestruction in Iraq and need a ra-diation detector? The Gamma-Master watch has a handybuilt-in Geiger counter. Otherwatches incorporate ultravioletradiation sensors and satellite-positioning systems.

But such watches appealonly to the geek fringe. Mobilephones, however, suggest that

people will adopt new featureson a device that originally just did one

thing. Millions of people now use theirmobile phones to send text messages,take pictures and play games. So perhapswatchmakers need to �nd new featuresthat play to the strengths of watches. Forexample, unlike socially disruptive mobile phones, watches are far more discreet. They are also visible at a glance,without the need to fumble in a pocket orbriefcase. Watchmakers dream of creat-ing an iconic, breakthrough device thatopens up an entirely new category, justas the iPod did.

Hence the launch last year, after manydelays, of �smart� watches powered byMicrosoft’s MSN Directservice. This service,only available in partsof North America, usesan FM radio signal tosend news, sports re-sults, stock prices andother nuggets of in-formation to thewatch’s screen.Many users havetheir favouriteitems, including the 1

The Economist Technology Quarterly September 17th 2005 Monitor 1

Monitor1 Smart watches, website

mash-ups, sailing with kites,mobile medicine, summer campfor coders, a hydrogen-poweredplane, preserving digital �les,driver monitoring via satellite,an �open source� record label,better batteries, avoidingtra�c, and the joy of tagging

Rational consumer10 Video-games consoles

Preparing for the next round

Reports11 And now, the war forecast

Con�ict-modelling software thatforecasts military outcomes

13 The march of the robo-tradersCould software that buys and sellsshares displace human traders?

Case history15 Better by design

The rise and rise of �productlife-cycle management�

Reports18 Death to folders!

Why �le documents on yourcomputer when you can search?

20 Just what the patient orderedA new trend in pharmaceuticals:patient-driven drugmaking

Brain scan22 Biology without borders

Leroy Hood, one of medicine’sgreatest visionaries

Contents

On the coverSoftware can predict theweather, but can it predictthe outcome of a militarycon�ict? The success of onewar-forecasting systemsuggests that it can. But nowthe software must keep upwith the changing nature ofwarfare and the rise of�asymmetrical� con�icts:pages 21-22

time, cycling continuously, which al-lows surreptitious scanning of the lat-est sports results while sitting in ameeting. The watches can also dis-play alerts from Microsoft’s in-stant-messaging service, andcan synchronise calendarswith a PC. Four watchmakersbacked the initiative: Suuntoof Finland, Fossil of Texas,and Tissot and Swatch,both members of the SwatchGroup of Switzerland.

The Swatch Group’s support forsmart watches is signi�cant, since thisconglomerate of Swiss watchmakers ac-counts for some 25% of global watch salesby value. The decision to launch a smartwatch under the Tissot brand is particu-larly revealing, says Pierre Maillard, a vet-eran observer of the Swiss watchindustry and editor of Europa Star, atrade magazine. He notes that Tissot sitsin the highly pro�table mid-market seg-ment which the Swiss have cornered, andis associated with Swiss quality, notcheap gadgetry. The Tissot �High T�smart watch, retailing at over $700, isaimed at status-conscious businessmen,not hip youngsters. Its novel touch-sensi-tive display is reminiscent of the iPod’snifty scroll wheel.

Most smart watches, however, are stillquite chunky, in order to squeeze in thenecessary electronics. The need to pay a$40 annual subscription charge is o�-putting, too. And the technology has hadteething troubles, so its future is unclear.

But whatever becomes of smartwatches, the wristwatch still has poten-tial in other areas. For example, because itis normally strapped to its owner, it isharder to misplace than a �ash drive ormemory stick. This has prompted LAKS,an Austrian �rm, to launch a watch withbuilt-in �ash memory and a standardUSB connector in its strap to enable it tobe plugged into a PC. Previously betterknown for its chic Klimt-inspired watchesthan for high-tech gadgets, LAKS has seenits sales more than double as a result.

Lucas Alexander Karl Scheybal, thehead of the �rm that bears his initials, be-lieves this sort of watch has huge poten-tial in e-commerce. Its latest twist on thememory watch, called SmartTransaction,integrates both the USB connector and asecure smart-card chip, like those used incredit cards, with a contactless interfacedeveloped by Philips, a Dutch electronicsgiant. By plugging the watch into a PC,funds or travel tickets can be downloadedto the chip without the need for a specialsmart-card reader. Being wrist-mounted,a watch is always close at hand, whichmakes it particularly convenient whenoperating contactless readers on public-transport systems (such as those used byLondon’s Oyster system). A contactless

chip inside a watch might alsobe the logical place to store e-

cash, credit cards and personalmedical records. Production of the

new watches starts this month.Swatch also sees great potential for

watches as contactless digital wallets. ItsSwatch Access contactless technology,launched way back in 1996, has sincefound several niche applications, includ-ing use as an electronic ski pass at hun-dreds of resorts. Christoph Winkelmannof Swatch says the Access technology ismaking a big comeback in this year’s pro-duct line, as the company targets newapplications. In July, 64,000 Swatch Ac-cess watches functioned as tickets to theopening events of the new Swiss na-tional football stadium in Bern. So per-haps there is a role for the high-techwatch after all. Time will tell. 7

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2 Monitor The Economist Technology Quarterly September 17th 2005

ARMED with a stack of house-listingprintouts from Craigslist.com, a pop-

ular website, Paul Rademacher was driv-ing around Silicon Valley late last yearlooking for a place to live. It was not untilhe was about to park that he looked upand realised he had already visited thesame house earlier. Surely, he thought,there had to be a better way to evaluateand visualise a list of housing options.

And so there was. In February, Mr Rademacher�who by day was a softwareengineer at DreamWorks Animation�be-gan building a website that combines themapping capabilities of Google’s searchengine with housing listings from Craigs-list. The result, HousingMaps.com,creates maps showing houses or apart-ments in a particular city within a desig-nated price range. The site went live inApril, and is a leading example of one ofthe latest internet trends: the web mash-up. HousingMaps instantly attracted acrowd and has since been visited bymore than 850,000 people.

Mashing the web

Software: Programmers arecombining data from di�erentwebsites to create �mash-up� siteswith entirely new capabilities

The term mash-up is borrowed fromthe world of music, where it refers to theunauthorised combination of the vocalfrom one song with the musical backingof another, usually from a completely dif-ferent genre. Web mash-ups do the samesort of thing, combining websites to pro-duce useful hybrid sites and illustratingthe internet’s underlying philosophy:that open standards allow and promoteunexpected forms of innovation.

�Mash-ups are emblematic of the di-rection of the web,� says Paul Levine, thegeneral manager of Yahoo! Local, a sub-sidiary of one of the web’s most popularsites. �This is about participants in theweb community opening up their sys-tems.� It may also be about good busi-ness. By building their sites using openstandards, and so making it easier for cus-tomers and developers to build othersites that plug into them, companies canboth encourage innovation and boosttheir own popularity. �When you lowerthe barriers to entry, interesting thingshappen,� says Tim O’Reilly, president ofO’Reilly & Associates, a �rm based in Sebastopol, California that publishesprogramming handbooks. �The playerswho �gure this out will wield a great dealof economic power.�

As often happens online, this trend isbeing driven from the bottom up, by us-ers. Most mash-ups happen without thesites that supply the data even knowingabout it. For example, Greg Sadesky, aprogrammer based in Quebec City,grabbed textual data from Yahoo! Tra�cand map data from Google without con-sulting either �rm, to create a mash-up(see tra�c.poly9.com) that produces traf-�c maps. Similarly, Chris Smoak, wholives in Seattle, has mashed together sev-eral tra�c, web-cam, transport-informa-tion and map sites to create Seattle BusMonster, a public-transit site for the Seat-tle area (see www.busmonster.com). Therise of online journals, or blogs, hasspurred the mash-up trend by bringingprogrammers together to discuss newideas and tricks. Mr Sadesky credits theinspiration for his tra�c-map mash-up tothe blog run by John Resig (ejohn.org),which explains how to extract tra�c datafrom Yahoo!’s website.

Mashing is getting easier for theseafter-hours programmers as big websitesstart to cater to their needs. Chicago-Crime.org, a mash-up that lets visitorsview crime data by street, date, type andzip code on a map of Chicago, for exam-ple, said at the end of June that Google’sdecision to release an o�cial method forlinking to its maps had made the site farmore reliable. Yahoo! opened up its mapdata in a similar way in June, and in JulyMicrosoft unveiled a pre-release versionof its mapping site, MSN Virtual Earth. Itincludes a �Community� button to help

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The Economist Technology Quarterly September 17th 2005 Monitor 3

programmers create websites that incor-porate data from Virtual Earth.

Such �rms are happy to see their sitesget mashed. At the Where 2.0 conferencein San Francisco this summer, Brett Tay-lor, the product manager of Google Maps,noted that �everyone is doing it al-ready��so why �ght it? �A mash-up lets acompany like Google tap into the creativ-ity of the world’s programmers,� says Na-than Torkington of O’Reilly Media, whowas the conference chairman.

So will mash-ups march on? Only ifthey lead to revenue, some predict.�Something has to evolve,� says CraigDonato, the founder of Oodle, a site withlocal buying, selling and donation list-ings. If the information being mashed isuseful, he says, it is probably expensivefor the originated sites to put on the webin the �rst place. At the Where 2.0 confer-ence, Mr Taylor of Google said that pro-grammers were free to use Google mapsfor mash-ups that were �free to consum-ers��but added that his �rm reserved theright to deliver maps with advertise-ments on them in future. Dave McClureof Simply Hired, a recruitment site basedin Silicon Valley, says he expects themash-up scene to change, just as the blog-ging scene did when Google’s advertise-ment-placing service, AdSense, �rstappeared and �turned free content into amonetisable data source�.

There are already signs that mash-upshave commercial potential. Simply Hiredand the social-networking site LinkedIn,for example, have already mashed them-selves together. If you are a member ofLinkedIn and go searching for a job onSimply Hired, you can link from a job list-ing to a list of LinkedIn contacts whocould get you an introduction at the com-pany in question. As well as helping us-ers to land a job, this mash-up shouldhelp the two websites to boost their traf-�c. And in August, Salesforce.com, a pio-neering provider of business softwarethat runs inside web browsers, an-nounced Smashforce, an initiative tomake it easier to incorporate its softwareinto mash-ups. A �rm could, for example,combine a list of sales prospects with amap, to help a salesman plan his route.

All told, the urge to mix things upshould keep companies and program-mers busy for the foreseeable future�toobusy, sometimes, even to use their ownmash-ups. Mr Smoak, who created hismash-up during evenings and weekends,says he never gets up early enough to takethe bus to his day job, at Amazon. �I’mnot an early riser,� he says. �But if I stayup late I can do projects like this.� Andwhat of Mr Rademacher’s housingsearch? The popularity of his websitehelped land him a job at Google, but hasalso kept him so busy that he has not hadtime for any more house-hunting. 7

IN THE �rst half of the 19th century,ships began to adopt steam engines,

�rst alongside and then instead of sails.Today, wind propulsion is for sportsmenand romantics, not shipping �rms tryingto make money. But the high price of oiland stricter pollution regulations arestrong forces working to turn back theclock. Wind propulsion is coming back ina new form: kites, not sails. Next year,SkySails, a German �rm based in Ham-burg, will begin out�tting cargo shipswith massive kites designed to tug ves-sels and reduce their diesel consumption.The �rm estimates that these kites will re-duce fuel consumption by about one-third�a big saving, given that fuel ac-counts for about 60% of shipping costs.

The idea of reintroducing sails to mod-ern ships is not new. A Japanese consor-tium tried it in the 1970s, but gotnowhere. In the 1990s, the Danish gov-ernment launched Project WindShip, butit was scuttled in 1998. Other teams metfailure, too. The insurmountable problemin each case proved to be the mast.

In unfavourable winds, large mastscreate a lot of drag. In gales, masts causeships to heel, sometimes dangerously.Masts and their pivoting sails take upvaluable container space on the deck.

Loading and unloading is more expen-sive, since the cranes that lift containersmust work around the masts. Engineersdesigned taller (and more expensive)masts, some exceeding 100 metres inheight, to reduce their number and limitthe loss of storage space. But the PanamaCanal limits masts to 60 metres, and col-lapsible masts would be prohibitively ex-pensive to build, operate and service.

Knud E. Hansen, the naval engineer-ing �rm based in Copenhagen that ledProject WindShip, designed high-tensilesteel masts with foldable carbon-�bresails, known as vertical aerofoils becausethey generate horizontal thrust just asaeroplane wings create lift. The cost ofretro�tting a cargo ship with a row ofmasts, and strengthening its hull anddeck to dissipate the additional stress,was estimated at �10m ($12.5m). So thesails would have taken around 15 years torecoup their costs through fuel savings.

But the SkySails approach does awaywith masts and is much cheaper. The�rm says it can out�t a ship with a kitesystem for between �400,000 and�2.5m, depending on the vessel’s size.Stephan Wrage, the boss of SkySails, saysfuel savings will recoup these costs in justfour or �ve years, assuming oil prices of$50 a barrel. Jesper Kanstrup, a senior na-val architect at Knud E. Hansen, says theidea of pulling a ship with an inexpen-sive kite�attached to the structurallysolid bow like a tugboat�had never oc-curred to him. �It’s a good idea,� he says.

SkySails’ kites are made of a type ofnylon similar to that used in the sails ofmodern windjammers, but they �y be-tween 100 and 300 metres above sealevel, where winds are less turbulent and,on average, more than 50% stronger thanthe winds that sails capture. An autopilot

Sailing shipswith a new twist

Transport: Giant kites that act likesails could bring wind propulsionback to ocean-going ships, reducingemissions and saving on fuel costs

Masts? Who needs them?

2

4 Monitor The Economist Technology Quarterly September 17th 2005

computer adjusts the height and angle ofthe kite, the surface area of which canrange from 760 to 5,000 square metres.When the wind blows too strongly, oneend of the rectangular kite is released sothat the kite �aps like a �ag. A powerfulwinch retrieves the kite when necessary.

Regulators, as well as cost savings,could boost the technology. For whileboth Europe and America have strictregulations on vehicle pollution, shipshave enjoyed something of a free ride.Moving one tonne of goods one kilo-metre by ship, for example, releasesabout 225 times as much sulphur astrucking the goods the same distance, ac-cording to the Secretariat on Acid Rain, aSwedish pressure group. Mario Dogliani,the head of research at RINA, an organisa-tion based in Genoa that inspects and cer-ti�es ships, says European regulators are�really pushing� for tougher emissioncontrols, backed up with sti� �nes, forshipping. �We need to innovate,� he says.

In May, the International MaritimeOrganisation’s new rules on marine pol-lution took e�ect. They require manyships to switch to a low-sulphur fuel thatcosts 50% more than traditional (andhighly polluting) fuel oil. And an increas-ing number of ports now o�er discountsfor ships with approval labels, calledGreen Passports, awarded by environ-mental groups. It all adds up to a favour-able wind for SkySails. 7

GARY KATZ is a repeat o�ender. A fewyears ago, a nutritionist helped him

to reduce his blood-cholesterol level froma troubling 286 to a reasonable 177. Butafter his annual check-up in April, MrKatz found that his cholesterol was onceagain too high. The businessman turnedto the same nutritionist as before, butnow he and his food adviser have a secretweapon: the mobile phone.

Through a new service called My-FoodPhone, Mr Katz uses the camerabuilt into his phone to take a picture of ev-ery meal. This is far easier than writingeverything down in a food log, which the44-year-old New Yorker did the last timehe was �ghting high cholesterol. At theend of each week, his nutritionist e-mailshim a dietary critique. �I was never one

for the whole food-log thing,� says MrKatz, who owns a �oor-covering busi-ness. �Now I’m doing better at keepingtrack of what I eat. I always have myphone with me�it’s like having a con-science hanging on your waist.�

The notion of procuring health carevia phone is not new: when doctors rou-tinely made house calls, medical helpwas just a phone call away. �Most health-care services today are delivered insidemedical premises,� says José Lacal of MotoHealth, the health-telemetry projectrun by Motorola, the world’s second-big-gest mobile-phone manufacturer. �Butwith the mobile phone, you can take theservices with you.� HBS Consulting, aconsultancy based in London, estimatesthat the global �telehealth� market�theuse of telecommunications and informa-tion technology to deliver health care andrelated services�will grow to $7.7 billionin 2006, up from $3.2 billion in 2003.

So far, most mobile telehealth ser-vices, such as MyFoodPhone, simply useordinary mobile phones to collect andtransmit data. The next stage is to add spe-ci�c medical sensors, which can even beincorporated directly into the handset.For example, LG, a South Korean handset-maker, started selling a phone with abuilt-in blood-glucose meter, for use bydiabetics, in its home market last year. Itcan transmit blood-glucose readings to adoctor, parent or desktop computer forfurther analysis. Healthpia America,based in Newark, New Jersey, plans tolaunch the phone in America in January.

Motorola and Partners Telemedicine(a division of Partners HealthCare, agroup of hospitals and health-care pro-viders in Boston) have been testing de-vices that can transmit a patient’s weight,blood pressure and other data. Weighing

scales and blood-pressure monitors com-municate via Bluetooth (a short-range ra-dio technology) with the mobile phone,which then sends the data to the doctor.Clinical trials are under way in Barcelonaand Boston, says Mr Lacal, with potentialcommercialisation as early as next year.

In Britain, a joint-venture between theInstitute of Biomedical Engineering atImperial College London, Toumaz Tech-nology and Oracle, the world’s second-largest software �rm, has devised a �per-vasive monitoring system� that will entertrials in 2006. A small sensor, attachedusing a sticking plaster, monitors the pa-tient’s heartbeat and detects irregular-ities. The resulting electrocardiogramdata is sent wirelessly to a nearby mobilephone, which then transmits it to a moni-toring centre, or directly to a doctor.

Mobile telehealth need not be so elab-orate, however. SIMpill, a South African�rm, makes a small device that clips on toa medication bottle and sends a text mes-sage to a central computer whenever thecap is removed. If no message arrives, thecentral computer sends a text-message re-minder to the patient, or to a family mem-ber or carer. The system is now used bymore than 2,000 people and can dramati-cally improve compliance, says SIMpill’sfounder, David Green. It has just beenlaunched in America.

Many observers expect mobile tele-health to take o� in mobile-loving SouthKorea and Japan, but to lag behind inAmerica, where consumers are morelikely to raise privacy concerns. But Donald Jones, head of mobile health careat Qualcomm, a wireless-technology�rm based in San Diego, notes thatphones’ built-in security features makethem far more secure than PCs.

Besides, the need for tools to improvethe management of chronic health condi-tions cannot be overstated. According toAmerica’s Centres for Disease Controland Prevention, more than 90m Ameri-cans have a chronic illness, and they ac-count for over 75% of the nation’s $1.4trillion annual spending on health care.So the mobile phone could be a usefultool to combat both chronic disease andrunaway medical costs. Joseph Kvedar ofPartners Telemedicine, who is also a pro-fessor at the Harvard Medical School,suggests that insurance companies might,for example, o�er free phone minutes tocustomers who go for a walk every day.Their compliance would be monitoredby a pedometer built into the handset.

Mobile phones’ impact on health carecould be even greater in the developingworld, where mobiles far outnumberPCs. �For most of the world�, says MrJones, �this is the only computer they areever going to own. It’s on the internet.And they carry it everywhere.� Get readyfor the doctor in your pocket. 7

The doctor inyour pocket

Medical technology: Nearly everyonein the developed world carries amobile phone�so why not use it todeliver health care?

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The Economist Technology Quarterly September 17th 2005 Monitor 5

BLAME it on the Hindenburg. Ever sincethe hydrogen-�lled German airship

exploded in 1937, hydrogen and aviationhave not had much to do with each other.But a new aircraft, which made its �rst�ight in May, could change that. GlobalObserver, the world’s �rst liquid-hydro-gen powered, unmanned-aerial vehicle(UAV), is not an airship, but an aeroplanethat uses hydrogen as a fuel. It was builtby AeroVironment, a �rm based in Mon-rovia, California, which announced at aUAV conference in June that Global Ob-server had made its �rst �ight above thedesert sands of Yuma, Arizona.

Having pioneered solar-powered�ight in the 1990s with America’s spaceagency, NASA, AeroVironment has sincerefocused its e�orts towards fuelledUAVs. Solar-powered UAVs promise po-tentially unlimited hours in the sky, butthey have limitations. At latitudes above45°, and during the winter, the sun is tooweak to keep the aircraft �ying. Liquid hy-drogen is an attractive fuel for a high-alti-tude, long-endurance vehicle, since it hasaround three times as much energy perunit of mass as conventional jet fuel. Thedi�culty is keeping it liquid, since hydro-gen boils at -253°C. Global Observer has aspecial insulated storage tank that canhold enough liquid hydrogen to keep theplane aloft for 24 hours. The hydrogen iscombined with oxygen from the air in afuel cell, producing electricity that drivesthe aircraft’s propellers and powers itsonboard systems. The aircraft is a scaled-down version of a much larger aircraft

that would be able to stay aloft for morethan a week.

Such an aircraft would have a numberof uses as a low-cost alternative to satel-lites. Equipped with wireless-broadbandrelays, imaging equipment or monitoringdevices, it could be used for surveillance,weather monitoring and telecommuni-cations. In 2002, AeroVironment demon-strated the use of a solar-powered UAV

as a mobile-phone relay and a TV broad-casting platform, in conjunction withNEC, Toshiba and other Japanese �rms.

Ted Wierzbanowski, AeroVironment’smanaging director, admits that manypeople were sceptical about the switch tohydrogen. �Building the prototype wasthe only way to put the hydrogen bogey-man to bed,� he says. �We think this is abig paradigm shift in the aerospace andspace industry.� The prototype aircrafthas a 15-metre wingspan, but he expectstwo production versions, with 46-metreand 76-metre wingspans. Loitering at alti-tudes of between 18,000 and 21,000 me-tres, they would work in threes: as oneplane started to run out of fuel, anotherwould take o�, to ensure continuousbroadband or TV coverage.

But several challenges remain. One ofthe biggest is reliability, according to JohnDel Frate, the former manager of NASA’sEnvironmental Research Aircraft andSensor Technology project. �Most com-mercial aircraft have to be inspected ev-ery 100 or 200 hours,� he says. �In one�ight of these hydrogen and solar-powered vehicles, we’ll easily exceed that

Held aloft by hydrogen

Aviation: An unmanned aircraft powered by hydrogen has taken to the air forthe �rst time. Such aircraft could have both military and civilian uses

Summer campfor coders

�I’M A total geek all around,� says Angela Byron, a 27-year-old com-

puter programmer who has just gradu-ated from Nova Scotia CommunityCollege. And yet, like many other stu-dents, she �never had the con�dence� toapproach any of the various open-source software communities on the in-ternet�distributed teams of volunteerswho collaborate to build software that isthen made freely available. But thanksto Google, the world’s most popularsearch engine and one of the biggestproponents of open-source software,Ms Byron spent the summer contribut-ing code to Drupal, an open-source pro-ject that automates the management ofwebsites. �It’s awesome,� she says.

Ms Byron is one of 419 students (outof 8,744 who applied) who were ac-cepted for Google’s �summer of code�.While it sounds like a hyper-nerdy sum-mer camp, the students neither went toGoogle’s campus in Mountain View,California, nor to wherever their men-tors at the 41 participating open-sourceprojects happened to be located. In-stead, Google acted as a matchmakerand sponsor. Each of the participatingopen-source projects received $500 forevery student it took on; and each stu-dent received $4,500 ($500 right away,and $4,000 on completion of theirwork). Oh, and a T-shirt.

All of this is the idea of Chris DiBona,Google’s open-source boss, who wasbrainstorming with Larry Page andSergey Brin, Google’s founders, lastyear. They realised that a lot of program-ming talent goes to waste every summerbecause students take summer jobs �ip-ping burgers to make money, and lettheir coding skills degrade. �We want tomake it better for students in the sum-mer,� says Mr DiBona, adding that italso helps the open-source communityand thus, indirectly, Google, which useslots of open-source software behind thescenes. Plus, says Mr DiBona, �it doesbecome an opportunity for recruiting.�

Elliot Cohen, a student at Berkeley,spent his summer writing a �Bayesiannetwork toolbox� for Python, an open-source programming language. �I’m apretty big fan of Google,� he says. Hehas an interview scheduled with Micro-soft, but �Google is the only big com-pany that I would work at,� he says.And if that doesn’t work out, he nowknows people in the open-source com-munity, �and it’s a lot less intimidating.�

1

2

6 Monitor The Economist Technology Quarterly September 17th 2005

amount.� Worse, the aircraft must be ableto withstand ultraviolet radiation, freez-ing temperatures and high winds, saysMr Del Frate, though AeroVironmentclaims to have addressed these problems.

Then there is the small matter of con-vincing potential buyers, such as ColonelPatrick Rhodes, the commander in chargeof America’s Air Force Space Command�Battlelab�, which tests new technologiesfor the military. For the moment, he says,�hydrogen-powered lighter-than-air andheavier-than-air vehicles that will pro-vide signi�cant persistence over an areaare not there yet.� But Major-GeneralDouglas Fraser, director of air and spaceoperations for Air Force Space Com-mand, is optimistic that the new UAVswill eventually prove themselves.

The new aircraft also faces compe-tition from rival technologies, such as the�Stratellite�, a helium-�lled airship beingdeveloped as a communications relay byGlobeTel Communications, a �rm basedin Florida. Mr Wierzbanowski reckonshis approach has lower running costs,but airships can lift larger payloads. Sothere may be room in the stratosphere forboth technologies. 7

WHEN future historians turn their at-tention to the early 21st century, elec-

tronic documents will be vital to theirunderstanding of our times. Old webpages may not turn yellow and brittle likepaper, but the digital documents of today’sculture face a more serious threat: the dis-appearance of computers able to readthem. Even a relatively simple electronicitem, such as a picture, requires software topresent it as a visible image, but 100 yearsfrom now, today’s computers will havelong since become obsolete. More complex

items, like CD-

ROMs or videos,will be unreadableeven sooner.

In 1986, for ex-ample, 900 yearsafter the Domes-day book, the BBC

launched a projectto compile dataabout Britain, in-cluding maps,video and text. The

results were recorded on laserdiscs thatcould only be read by a special systembased around a BBC Micro home com-puter. But since the disks were unread-able on any other system, this pioneeringexample of multimedia was nearly lostfor ever. It took two and a half years ofpatient work with one of the few surviv-ing machines to move the data on to amodern PC (it can be seen online atwww.domesday1986.com).

National libraries are just starting tograpple with this problem as part of theirnew mandate to preserve digital culture.�It is a major problem, but it is remark-able how little known it is,� says Hildevan Wijngaarden, head of digital pres-ervation at the National Library of theNetherlands. �People just accept thatthings no longer work after ten years.�

Keeping working examples of all com-puter hardware is impractical, so themost popular preservation strategy is tocopy �les from one generation of hard-ware to the next. The problem is that to-day’s word processors and webbrowsers, for example, do not always dis-play �les in the same way that older soft-ware did. An accumulation of subtleerrors can eventually make the originalitem unreadable. An alternative ap-proach, called emulation, uses softwareto simulate the old hardware on a mod-ern computer, to allow old software torun. But today’s emulators will need an-other emulator to run on the next genera-tion of hardware, which will needanother emulator for the next generation,and so on. This can also introduce errors.

So the National Library of the Nether-lands is exploring a third option, using asimulated computer that exists only insoftware. It is called the Universal VirtualComputer (UVC) and is being developedby IBM, a computer giant. The research-ers are writing programs to run on thisvirtual computer that decode di�erentdocument formats. Future libraries willhave to write software that emulates thevirtual computer on each new generationof computer systems. But once that isdone, they will be able to view all theirstored documents using the decoderswritten for the virtual computer, whichonly have to be written once. �The de-coder can be tested for correctness today,while the format is still readable,� saysRaymond van Diessen of IBM.

His team has written decoders for twocommon image formats, JPEG and GIF.They plan to move on to Adobe’s PDF for-mat. IBM is also talking to drug �rms,which are required to store data from clin-ical trials for long periods. Ultimately, theaim is to be able to preserve anythingfrom simple web pages to complex datasets. Ominously, some scienti�c datafrom the 1970s has already crumbled intounreadable digital bits. 7

A new way to stopdigital decayComputing: Could a �virtualcomputer�, built from software, helpto save today’s digital documents forhistorians of the future?

FOR years, tra�c police and motoristshave been engaged in an arms race. As

the police have adopted speed guns androadside cameras, drivers have taken toradar detectors and maps showing cam-era locations. But a new system being de-veloped in the United Arab Emirates(UAE) could hand ultimate victory to thetra�c police. The UAE is investing $125min a system that will make it possible todetermine the speed of any of the Gulfstate’s 2m vehicles, no matter where theyare. New devices, now being developedby the UAE’s Centre of Excellence for Ap-plied Research and Training (CERT) inconjunction with IBM, should be readyfor installation in cars within four years.

Once �tted, these devices will useglobal positioning system (GPS) satellitesto determine the car’s location to within afew metres, says Farid Metwaly of IBM.By combining several position and timemeasurements, it is a simple matter to de-termine the car’s speed. This can then becompared with a database of speed lim-its for all roads in the country. If the vehi-cle is breaking the local speed limit, thesystem will issue an audible alert, warn-ing the driver to slow down. �It gives youten seconds to slow down, and if no ac-tion is taken it will issue another warn-ing,� says Mr Metwaly. �If you still don’tslow down, it will record the event.�

What happens next remains to beseen. The system will be able to inform acentral government server of such�events� via the mobile-phone network.But whether that information will beused to issue speeding �nes, or simply re-tained for statistical purposes, is unclear.�It is for the country to decide what to dowith this information,� says Mr Metwaly.There is no doubt about the motivationbehind the new system, however. TheUAE has one of the worst road-safety re-cords in the world: compared with mostEuropean countries or America, there aremore than six times as many deaths perpassenger mile on its roads.

The prospect of having a policemanon the dashboard might seem a little BigBrotherish to some people. But the UAE

project may merely o�er a glimpse ofwhat regulators in other countries arealso planning. Switzerland and Germanyhave already introduced automatic road-

The policeman onyour dashboard

Transport: A new satellite-baseddriver-monitoring scheme couldprovide a glimpse of the BigBrotherish future of motoring

2

The Economist Technology Quarterly September 17th 2005 Monitor 7

IF, AS many people hope, the internetmeans that the major record labels will

gradually become obsolete, what exactlyis going to displace them? Apple’s iTunesis clearly a part of the future, but it is argu-ably just a new distribution channel forthe major labels’ 50-year-old system ofbig stars and massive marketing budgets.A more radical answer is Magnatune, anindependent online record label foundedin 2003 by John Buckman. It has all the in-gredients that could help future artists by-pass traditional labels, earn more moneyand enjoy greater artistic freedom.

From a listener’s point of view, the�rm’s website, www.magnatune.com, isenticing. You can legally listen, free ofcharge and with high sound quality, tofull albums by any of the 200 or so artistswho have signed to the label. (Your corre-spondent was immediately hooked by asong called �Making Me Nervous� by aone-man electro-pop band from Ottawacalled Brad Sucks.) Music streamed is free,but to download it to your computer orburn CDs, you have to pay. Just how

much is a matter of choice�Magnatuneallows you to decide what the music isworth, and to pay as little as $5 for an al-bum or as much as $18. Once paid for, themusic is not locked up using �digital-rights management� software, so you arenot prevented from making copies. In-stead, Magnatune relies on its customers’loyalty to its artists not to pirate their mu-sic indiscriminately.

Mr Buckman likens this community-based, free-wheeling approach to that ofLinux, the open-source operating system,although the analogy is inexact: Magna-tune’s customers do pay for music, youcannot remix and redistribute it, and thecompany does make a pro�t. What ismore Linux-like is Magnatune’s desire tounseat the industry incumbents andchange the rules of the game by givingthe artists a fairer, less restrictive deal.

Magnatune’s slogan, �We are not evil�,owes a debt to Google’s slogan (�Don’t beevil�) and is a sideswipe at the major la-bels. Its contract is non-exclusive, so mu-sicians are allowed to carry on sellingtheir music elsewhere. And the labelgives artists half of the revenues fromwhat they sell online. Major labels typi-cally give 10% or less.

Most of the artists on the site are pro-fessional musicians, and many havebeen signed at some point to the �evil�kind of record label. Some, like TrevorPinnock, a conductor and harpsichordist,are famous, but others are unknownswho sent in a demo. Magnatune has adedicated �artists and repertoire� (A&R)man, and gets about 400 submissionsfrom new artists each month, from whichit signs �ve or ten. It restricts itself toseven main genres�classical, electronica,jazz and blues, metal and punk rock, newage, rock and pop and world. Somegenres are dying out in the world of phys-ical CDs, says Mr Buckman, and Magna-tune will soon be one of the few placesyou can �nd them. He is also a devotee of

early classical music, which has a strongpresence on Magnatune. Around 10,000people visit the site every day, and one in42 visitors buys some music�a far betterratio than the average for e-commerce(where conversion rates are typically be-tween 1 in 400 and 1 in 1,000), and notmuch worse than in bricks-and-mortarmusic stores, where it takes 20 customersto generate a sale.

Magnatune has exceeded Mr Buck-man’s expectations in music licensing,another side of the business that hasplayed a big part in helping it reach pro�t-ability. For non-commercial use, such asa school project, the site allows music tobe used under a �Creative Commons� li-cence, a concept devised by LawrenceLessig, a law professor and crusader forinternet freedom. For commercial use,Magnatune makes licences availablequickly and cheaply online. This busi-ness is growing at 30%, as Magnatune hasbecome popular with independent �lm-makers looking for soundtracks.

Though plenty of commentators haveseized upon Magnatune as the onlinemusic model of the future, Mr Buckmanhas relatively modest aims. �We’re goingto stick to second-tier genres and we’renot going after the majors,� he says. Fornow, that is probably realistic, since likeother internet-music ventures, Magna-tune’s weakness is that it does not havethe resources to propel its artists into themainstream via radio and television. Forthat reason, says Mr Buckman, it tendsnot to get musicians in their 20s sendingin music. �They have an unpleasant atti-tude and still think they’ll get the limoand the drugs,� he says.

So artists considering the 50/50 splitshould remember that Magnatune is, fornow at least, a fairly passive label. In con-trast, says Brad from Brad Sucks, �the ma-jors front all that money and take a lot ofrisk and they do deserve to get somemoney back.� Any artist on Magnatunewho was o�ered a deal with a majorwould jump at the chance, says Costa Pi-lavachi, president of Decca Music Group,a classical label owned by Universal Mu-sic Group, the world’s largest major label.

This month Magnatune is introducinga new marketing strategy: if you buysome music, you are allowed to give it tothree friends�another nod in the direc-tion of the �share and share alike� spiritof the open-source movement. And evenif Magnatune itself turns out not to be theweb-powered destroyer of the major la-bels that everyone is waiting for, other,di�erent models will come later. EvenWarner Music, one of the majors, is saidto be planning to launch an internet-only�e-label� later this year. It will only takeone rock star born on the internet, afterall, for everyone to pronounce the oldmodel completely dead. 7

Hear no evil

Digital media: Can an �open source�approach be applied to the musicbusiness? Magnatune, an innovativerecord label, thinks it can

toll systems for freight vehicles. These arewidely seen as a prelude to extendingsimilar measures to cars. The British gov-ernment has suggested replacing its cur-rent road-tax scheme with asatellite-based �pay as you drive� systemfor all vehicles. The UAE system will alsobe used for road-taxing and for car-insur-ance purposes, says Tayeb Kamali, thechief executive of CERT. But it has not yetbeen decided whether charges and insur-ance premiums will be based on dis-tance, time of travel or route taken.

Nor is it clear how the system will berolled out. �I don’t think you can make itcompulsory,� says Dr Kamali. But whowould volunteer to have such a techno-logical tattle-tale installed? It is all a mat-ter of incentives, says Mr Metwaly:cheaper tax and insurance, perhaps, andthe ability to determine the vehicle’s po-sition in the event of an accident.

Another crucial issue is accuracy. If, asDr Kamali says, the system is to be able totell when a driver runs a red light, thenthe accuracy will have to be good enoughto stand up in court. The UAE project willtest not just new technology, but newbusiness models and regulations too. 7

8 Monitor The Economist Technology Quarterly September 17th 2005

JUST as you can never be too rich or toothin, you can never have a battery thatlasts too long. But as mobile devices ac-

cumulate new power-sapping features,battery technology has been struggling tokeep up. This led Yrjö Neuvo, the chieftechnologist at Nokia, the world’s largesthandset-maker, to warn of an impendingmobile-energy crisis last year. But nowseveral new developments could beabout to come to the rescue.

In February, Altair Nanotechnologies,a small �rm based in Reno, Nevada, an-nounced a new kind of lithium-ion bat-tery, the technology that powers manyportable devices. Its prototype has threetimes the capacity of existing batteriesand can be fully charged in six minutes.

Lithium-ion batteries are so namedbecause during charging and discharg-ing, lithium ions migrate between thebattery’s positive electrode (anode) andnegative electrode (cathode). Altair’s trickwas to coat the anode with lithium-tita-nate nanocrystals, says Roy Graham, thecompany’s development director. Thisenlarges the surface area of the anodefrom around three square metres pergram to 100 square metres, increasing thecapacity of the battery and boosting therate at which ions are able to move to andfrom the anode, which is what deter-mines how long it takes to charge. In June,Altair secured a $477,000 grant fromAmerica’s National Science Foundationto further its design by using nanoparti-cles on both electrodes. This could fur-ther increase power density and reducecharging time, says Mr Graham.

Hard on the heels of Altair’s an-nouncement, Toshiba revealed that it toohas developed a battery using nanotech-nology that is capable of charging to 80%of full capacity in one minute. The com-pany is still working on improving thestability and reliability of the design, butplans to start selling the new batteriesnext year. Hiroko Mochida of Toshibasays the initial uses will be in electric carsand power tools, where high capacityand rapid charging are particularly neces-sary. Toshiba will not go into detail aboutits new design, but, like Altair’s, it seemsto use nanoparticles to increase the sur-face area of the electrodes.

There have also been recent improve-

ments to a completely di�erent kind ofbattery design, known as �beta voltaic�technology. Such batteries use beta parti-cles from a radioactive source to generatea current in semiconductor material, inmuch the same way that photons liberateelectrons to generate a current in photo-voltaic solar cells. Batteries of this typecan run for years, and are used in devicessuch as space probes and pacemakers,where changing the battery is impracti-cal. Beta voltaics are safe and reliable butare limited by very low energy yields,says Philippe Fauchet of the University ofRochester in New York.

Now his team has developed a way toincrease the power output tenfold, by in-creasing the surface area of the exposedsemiconductor. Instead of a �at surface,his design uses a type of porous silicon,the surface of which is riddled with tinypits. The radioactive gas within the pits isthen almost entirely surrounded by thesemiconductor, increasing the chances ofcatching the beta particles.The technol-ogy is now being developed by BetaBattof Houston, Texas, which co-developedthe new design. There is a growing de-mand for long-life batteries in medicalapplications, he says.

It all sounds promising. But no matterhow hard researchers work to cram moreenergy into batteries, they are vastly out-numbered by other researchers dreamingup new ways to consume it. 7

Building a betterbattery

Energy: As portable devices becomeever more elaborate and demandever more power, will batterytechnology be able to keep up?

IS SITTING in tra�c as inevitable asdeath and taxes? Perhaps not. Many

countries now have dedicated tra�c-monitoring centres linked to networks ofcameras and sensors. Throw in tra�c-spotting aircraft, accident reports and theknown positions of buses �tted with sat-ellite-positioning gear, and it is possibleto see exactly what is happening on theroads. Drivers could switch from busy toquiet routes and avoid congestion�ifonly they had access to this information.

And now they do. Systems such as theTra�c Message Channel and the VehicleInformation and Communication Sys-tem (VICS), in Europe and Japan respec-tively, pipe data from tra�c centres intoin-car navigation systems via FM radiosignals. Drivers can see where the tra�c

is and try to avoid it. Honda, a Japanesecarmaker, even combines VICS data withposition data from 150,000 vehicles be-longing to members of its Premium Clubso that they can choose the fastest lane ona congested road, says David Schrier ofABI Research, a consultancy.

Meanwhile ITIS, a British company, isone of several �rms experimenting withmobile-phone signals to monitor tra�con roads that lack sensors or cameras. Itssoftware hooks into a mobile operator’snetwork and uses a statistical approachto deduce tra�c speeds as phones are�handed o�� from one cell tower to an-other. The data must be cleaned up to ex-clude pedestrians and cyclists, but thisidea has great potential, says Mr Schrier.

Another way to dodge tra�c is topredict where and when it will form. InRedmond, Washington, at the headquar-ters of Microsoft, employees have beentesting a tra�c-prediction system calledJamBayes. Users register their route pref-erences and then receive alerts, by e-mailor text message, warning them of im-pending gridlock. JamBayes uses a tech-nique called Bayesian modelling tocombine real-time tra�c data with his-torical trends, weather information and alist of calendar events such as holidays.Eric Horvitz of Microsoft, who developedthe system, says it is accurate 75% of thetime, and 3,000 employees use it daily.

A system called Beat-the-Tra�c, de-veloped by Triangle Software of Camp-bell, California, with funding from theNational Science Foundation, goes fur-ther. It not only warns drivers of impend-ing tra�c but also suggests an alternativeroute via e-mail or text message. AndreGueziec, the �rm’s boss, thinks tra�cforecasts will become as prevalent asweather forecasts. Indeed, in June, KXTV

News 10, a TV station in Sacramento,California, began showing Triangle’s tra�c forecasts for the coming week. 7

No jamtomorrow?

Transport: New techniques are beingdeveloped to spot existing tra�cjams, predict future ones, and helpdrivers avoid both kinds

An all-too-familiar sight

The Economist Technology Quarterly September 17th 2005 Monitor 9

THE images �icker across the screen,one every few seconds: a bed, its ruf-

�ed covers pulled back to reveal a lonelyemptiness; two pairs of lips gently touch-ing, on the verge of a kiss; a lamb play-fully nuzzled beneath its mother’s belly;two little girls whispering secrets to oneanother. The photographs come from acollege student in Oklahoma, a middle-aged man from rural England, and aDutch woman, none of whom has everspoken with or met any of the others.Each photo takes its place among the restsimply because it has been �tagged� by itsphotographer with the word �intimacy�.

The photographs form part of aslideshow on Flickr.com, a website thatallows its users to store, manipulate andshare their digital photos. While suchsites have been around for years, Flickrstands out because it makes it easy for us-ers to categorise, search and share photosthrough �tags��one-word descriptionsthat capture the essence of a photograph.A tag can be a name or a place, an adjec-tive or a verb, concrete or abstract.

More importantly, though, tags allowFlickr and other sites that rely on them toharness the social power of the web.Give users the option to make their con-

tent public, and the ability to search ev-eryone else’s content for a given tag, anda world of possibilities opens up. Asthousands of users tag photographs andweb pages, information begins to perco-late in new ways. Users themselves builda database of what is useful and impor-tant for others to draw upon. For exam-ple, a search for the tag �love� on Flickrbrings up almost 20,000 photos that en-capsulate people’s idea of love.

What Flickr does for photographs,del.icio.us (pronounced �delicious�) doesfor bookmarks, by providing manage-ment of bookmarked web pages. Hun-dreds of thousands of registered usershave so far linked to over 10m web pages.Traditionally, bookmarks are stored with-in a web browser on a computer, and canonly be accessed from that particularcomputer. With del.icio.us, users addbookmarks to their personal del.icio.usweb page simply by entering the addressof a web page and typing in a few wordsto tag it. The bookmarks can then be ac-cessed from any computer. A user cansurf cooking sites and tag �recipes� at theo�ce, for example, and then easily accessthem from home.

For each bookmark, users can also seehow many other users have bookmarkedit and who they are. If another user’s in-terests seem similar, their bookmarks canbe called up to �nd new, unexploredsites. All of the bookmarks collected byall users can also be searched by tag, andthe most popular links at a given timegive a glimpse of the web in motion. WithYahoo! or Google, a mindless software�spider� is sent out to traverse the weblooking for new pages. With del.icio.us,an army of people sitting in their homesand o�ces does the same, tagging web

pages as they go along.Because tags make it easy to share con-

tent, users of Flickr have also begun to in-teract with their photos in new andinteresting ways, as communities haveformed around particular tags. Thesecommunities of convenience are notbased on real world connections or net-working, but rather on bits of content.Consider the tag �memorymaps�, for ex-ample. Memory maps are digital scrap-books that make use of another feature ofFlickr�the ability to annotate photo-graphs with boxes which display pop-upcaptions when the mouse pointer rollsover them. Starting with a satellite imageof a city or town, users attach captions toplaces of particular signi�cance: their oldschool-friends’ houses, for example. Thememory map can then be shared withfriends or added to by others who live inthat city. Users of another tagging site,Tagzania.com, sprinkle maps with restau-rants, bars and other places of interest.

After the London terrorist bombingsin July, a Flickr group quickly formed toshare photos of the aftermath. Since us-ers can upload photos directly to the sitefrom mobile phones and add commentsto photos, an image of a tube ticketbought at King’s Cross station on July 7thbecame a forum for people to share theirthoughts and o�er their condolences.

Other users simply want to have fun.The �in�nite�ickr� tag invites people tocontribute photos of themselves lookingat Flickr photos of people looking atFlickr photos�ad in�nitum. The FlickyAwards group votes for its favouritephotos in di�erent categories (self-por-traits, underwater photography, and soon). A group calling itself �It’s the Crew�uses Flickr to make bizarre online comicbooks. Photos are doctored usingPhotoshop, have captions added, and tella story when viewed as a slideshow.

MAKE, a magazine geared toward hob-byists who like to play with and modifytechnology, has embraced both Flickrand del.icio.us as new ways to interactwith readers. Writers contribute usefullinks and photos of projects as they re-search and write their stories; readersview and add to them as they work onprojects of their own.

Is it all just another internet fad? InMarch, Flickr was acquired by Yahoo!,and in July Yahoo! launched MyWeb 2.0,a del.icio.us-like bookmarking site. Othertagging sites have sprung up that let userscatalogue book recommendations or res-taurant reviews. Technorati.com, whichhas been tracking blog entries using tagssince 2002, now lets users search throughFlickr photos and del.icio.us links as well.Having brought together social software,blogging and search, the idea of socialsearching (and tagging) looks as though itis here to stay. 7

Websites of massdescription

Social software: New �tagging�websites make it easier to sharecontent, �nd items of interest, andform online communities

Flickr fans put themselves in the picture

10 Rational consumer The Economist Technology Quarterly September 17th 2005

ARE you a PlayStation person, an Xboxa�cionado or a Nintendo nut? You

may not play video games at all, ofcourse. But if you do, you will be awarethat each of the three main games con-soles has strengths and weaknesses thatmake it appeal to a particular audience.

Of the current console line-up, Sony’sPlayStation 2 is the most popular mach-ine, with the broadest choice of games. Itssuccess is the result of several factors, in-cluding Sony’s decision to launch thePlayStation 2 earlier than its two rivals,which gave it an insurmountable headstart; its support for older games writtenfor the original PlayStation console; itsability to function as a DVD player; andSony’s close partnerships with gamespublishers, which ensured a stream ofpopular titles. All of this enabled Sony togarner a 70% global market share.

But the two other current consoleshave devoted fans as well. Nintendo’s GameCube has a far narrower range ofgames than Sony’s console, but what itlacks in quantity it makes up for in qual-ity, at least for the family-oriented audi-ence that Nintendo targets. Most of thebest GameCube games, such as the Marioand Zelda franchises, are published byNintendo itself, since third-party publish-ers have not really embraced the Game-Cube. But because Nintendo has veryhigh production standards, the gamesthat are available are impressive. And be-cause most of the money in the games in-dustry is made from software, nothardware, Nintendo makes the most pro-�t among gaming �rms, even though ithas only a 15% market share, notes PaulJackson of Forrester, a consultancy.

Microsoft, in contrast, has yet to turn apro�t from its expensive foray into gam-ing. As the last of the three consoles toreach the market, the Xbox is easily themost powerful, so it appeals to hard-core

gamers. After a slow start it now has animpressive line-up of games, includingthe �Halo� series of sci-� shoot-’em-ups,which are not available on any other con-sole. The Xbox also has by far the best on-line-gaming service, Xbox Live, which isrun by Microsoft itself. All of this hashelped the Xbox to do well in America,though it is still far behind the PlayStation2, and its sales in Japan were dismal.

In short, then, the PlayStation 2 has thebroadest appeal; the GameCube is aimedat younger gamers and families; and thepowerful Xbox has been embraced byhard-core gamers. (Things are not quitethis simple, of course, since many popu-lar games are available on two or three ofthe consoles, and many dedicated gamersown more than one console.) The bigquestion now, as the three �rms prepareto launch their next-generation consoles,is how they will position them to maxi-mise their appeal.

Changing the gameThis time Microsoft is going �rst, with aNovember launch for its new console, theXbox 360. Its aim is to establish an earlylead, just as Sony did with the PlayStation2 last time around. Microsoft has alsomade an enormous e�ort to bring Japa-nese games-publishers on board, to coun-ter the home-�eld advantage enjoyed byits two Japanese rivals; the Xbox 360 willhave 45 Japanese titles by the end of theyear. Microsoft has also made some inno-vative marketing moves. It unveiled theconsole on MTV, rather than at a big in-dustry trade show, in an attempt to reachout to consumers directly and steal�mindshare� from its rivals.

In addition, Microsoft has used atrendy technique called �alternate realitygaming� to leak details of its new mach-ine and create buzz on gaming websites.And it has struck a deal with Samsung, sothat the consoles will be placed next tohigh-de�nition televisions in big stores,where they will be seen by non-gamers.(The next-generation consoles are ex-pected to prompt a �urry of interest inhigh-de�nition televisions, for whichother content is currently lacking.) Over-all, so radical is Microsoft’s change of

positioning compared with the originalXbox, which was aimed at hard-core gam-ers, that the new machine really ought tobe called the Xbox 180, jokes Ross Rubinof NPD Group, a market-research �rm.

For its part, Sony is emphasising theraw power of its new console, the Play-Station 3, which is based around a newchip, called Cell, and a high-capacity Blu-ray optical drive. This will give it substan-tially greater processing power and stor-age capacity than the Xbox 360, but bothtechnologies are new and unproven, andit is not clear that consumers other thanhard-core gamers really care about suchthings. And if technological teething pro-blems delay the PlayStation 3 beyond itsplanned introduction next spring, Sonycould lose a lot of ground to Microsoft.

Nintendo has not been so forthcomingabout its new console, the Revolution,which is also due next year, except to saythat it will have an unusual new kind ofcontroller and�in addition to new titles�will be able to play Nintendo’s entireback-catalogue of games, accessible viathe internet. The idea is that these oldergames will draw in casual gamers whoare put o� by the complexity of moderntitles, says Mr Rubin, though using today’spowerful consoles to play classic games�doesn’t seem to be an e�cient use of re-sources�. Even so, the success of Nin-tendo’s touch-screen handheld console,the DS, suggests that innovative technol-ogy plus relatively simple games is indeeda winning formula.

The next round, then, will pit Micro-soft’s marketing might against Sony’stechnological prowess and Nintendo’squirkiness and innovation. What will ul-timately determine the outcome, how-ever, is the games. �It comes down to thesoftware titles,� says Mr Rubin. Peoplebuy consoles to play particular titles, notbecause they are impressed by their tech-nical speci�cations. Most observers ex-pect Microsoft to reduce but not eliminateSony’s lead, so that Sony captures 45% ofthe market next time around, with Micro-soft on 40% and Nintendo on 15%. �It’sreally Sony’s game to lose,� says Mr Jack-son. But whatever happens, at least gamers should have fun. 7

Gaming’s next level

Consumer electronics: How willthe next-generation gamesconsoles di�er, and how canthey attract new gamers?

The Economist Technology Quarterly September 17th 2005 Reports 11

1

IN DECEMBER 1990, 35 days before theoutbreak of the Gulf war, an unassum-

ing retired colonel appeared before theArmed Services Committee of America’sHouse of Representatives and made astartling prediction. The Pentagon’s casu-alty projections�that 20,000 to 30,000coalition soldiers would be killed in the�rst two weeks of combat against the Iraqiarmy�were, he declared, completelywrong. Casualties would, he said, still beless than 6,000 after a month of hostil-ities. Military o�cials had also projectedthat the war would take at least sixmonths, including several months of�ghting on the ground. That estimate wasalso wide of the mark, said the former col-onel. The con�ict would last less than twomonths, with the ground war taking just10 to 14 days.

Operation Desert Storm began on Jan-uary 17th with an aerial bombardment.President George Bush senior declared victory 43 days later. Fewer than 1,400 coalition troops had been killed orwounded, and the ground-war phase hadlasted �ve days. The forecaster, a militaryhistorian called Trevor Dupuy, had beenstrikingly accurate. How had he managedto outperform the Pentagon itself in pre-dicting the outcome of the con�ict?

His secret weapon was a piece of soft-ware called the Tactical Numerical Deter-ministic Model, or TNDM, designed bythe Dupuy Institute, an unusual militarythink-tank based near Washington, DC. Itwas the result of collaboration betweencomputer programmers, mathema-ticians, weapons experts, military histori-ans, retired generals and combat veterans.But was the result a �uke, or was theTNDM always so accurate?

Bosnia was its next big test. In Novem-

ber 1995, General Wesley Clark asked theDupuy Institute to project casualty sce-narios for NATO’s impending peacekeep-ing mission, Operation Joint Endeavour.The resulting �Bosnia Casualty EstimateStudy�, prepared using results from theTNDM, stated that there was a 50% chancethat no more than 17 peacekeepers wouldbe killed in the �rst year. A year later, sixhad died�and the Dupuy Institute’s repu-tation had been established.

The TNDM’s predictive power is due inlarge part to the mountain of data onwhich it draws, thought to be the largesthistorical combat database in the world.The Dupuy Institute’s researchers combmilitary archives worldwide, painstak-ingly assembling statistics which revealcause-and-e�ect relationships, such asthe in�uence of rainfall on the rate of ri�ebreakdowns during the Battle of the Ar-dennes, or the percentage of Iraqi soldierskilled in a unit before the survivors in thatunit surrendered during the Gulf war.

Analysts then take a real battle or cam-paign and write equations linking causes(say, appropriateness of uniform camou-�age) to e�ects (sniper kill ratios). Theseequations are then tested against the his-torical �gures in the database, making itpossible to identify relationships be-tween the circumstances of an engage-ment and its outcome, says ChrisLawrence, the Dupuy Institute’s directorsince its founder’sdeath in 1995.

All of this isakin to workingout the physicallaws that governthe behaviour of the at-mosphere, which canthen be used in

weather forecasting. But understandingthe general behaviour of weather sys-tems is not enough: weather forecastingalso depends on detailed meteorologicalmeasurements that describe the initialconditions. The same is true of the TNDM.To model a speci�c con�ict, analysts entera vast number of combat factors, includ-ing data on such disparate variables as fo-liage, muzzle velocities, dimensions offordable and unfordable rivers, armourresistance, length and vulnerabilities ofsupply lines, tank positions, reliability ofweapons and density of targets. These ini-tial conditions are then fed into the math-ematical model, and the result is athree-page report containing predictionsof personnel and equipment losses, pris-oner-of-war capture rates, and gains andlosses of terrain.

What is perhaps even more surprisingthan the TNDM’s predictive accuracy isthe fact that it is for sale. The $93,000 pur-chase price includes instruction classes, ayear of technical support and a subscrip-tion to the TNDM newsletter, althoughsubsequent updates to the software costextra. Organisations that have acknowl-edged buying the software include the de-fence ministries of Sweden, South Africa,Finland, Switzerland and South Korea,along with the aerospace giant Boeing.Such customers rarely divulge the uses towhich they put the software. But Niklas

Zetterling, formerly a senior re-searcher at the Swedish National

Defence Research Institute inStockholm and now an aca-

demic at the Swedish WarCollege, says his countryuses the software to im-prove its arsenal. Mr Zet-terling toyed with the

Software: Can software reallypredict the outcome of an armedcon�ict, just as it can predictthe course of the weather?

And now,the warforecast

12 Reports The Economist Technology Quarterly September 17th 2005

2 software’s technical variables �to createhypothetical weapons� that could thenbe proposed to engineers.

Rather than simply buying the TNDM,most clients contract the Dupuy Instituteto produce studies that combine the soft-ware’s predictions with human analysis.American clients have included the JointChiefs of Sta�, the Army Medical Depart-ment, the Department of Defence, theVietnam Veterans of America Foundationand the Sandia National Laboratories (agovernment-owned weapons-researchcentre run by Lockheed Martin). The insti-tute is currently preparing a secret forecastof the duration and intensity of the Iraqiinsurgency for the Centre for Army Analy-sis, a Pentagon agency.

Leader of the packThe TNDM is not the only war-forecastingsystem. Many other systems have beendeveloped, primarily by armed forces,government agencies and defence con-tractors in America, Australia, Britain,France and Germany. Some are glori�edspreadsheets, but many are far more com-plex, including the American Navy’sGCAM software, the OneSAF model usedby the Army and Marine Corps, the AirForce’s BRAWLER system and the Austra-lian Department of Defence’s JICM. Withall these systems, younger o�cers tend tohave more faith in the technology thantheir older counterparts. (According to ajoke among technophiles, old-school mil-itary planners refuse to upgrade fromBOGSAT, or �Bunch of Guys SittingAround a Table�.)

A survey of American war-forecastingsystems by the Dupuy Institute found thatvery few are for sale or hire, and o�cialsin charge of government models are oftenunwilling to share them with rival agen-cies. The simple availability of the TNDM

has favoured its growth, although tech-nology-transfer laws not surprisingly re-strict its sale to certain countries.

Another attraction of the TNDM overrival models is the Dupuy Institute’s inde-pendence: it has no weapons to sell, is notinvolved in internecine competition forbudgetary funding, and has no politicalstake in military outcomes. Software de-veloped primarily for, or by, a contractoror a branch of the armed forces often fa-vours certain hardware or strategies, saysManfred Braitinger, head of forecastingsoftware at IABG, a Munich-based �rmthat is Germany’s leading developer ofwar-forecasting systems. The Air Forceand Army models di�er widely, for exam-

ple, in their estimates of how easy it is toshoot down planes. �If you run bothmodels you will see a remarkable di�er-ence in attrition rates simulating the samescenario,� Mr Braitinger says. Systemswith a wide customer base, like theTNDM, are regarded as more credible,since they do not have such biases.

The TNDM’s reliance on real combatdata, rather than results from war gamesor exercises, also gives it an edge. Anotherforecasting system, TACWAR, was usedby America’s Joint Chiefs of Sta� to planthe overthrow of Saddam Hussein. Likemany models, it was largely developedwith data from war games. As a result,says Richard Anderson, a tank specialistat the Dupuy Institute, TACWAR andother programs based on �laser tag� exer-cises tend to �run hot�, or overestimatecasualties. Real-bullet data is more reli-able, because fear of death makes soldiersmore conservative in actual combat thanthey are in exercises, resulting in fewerlosses. The discipline is only just begin-ning to recognise the �tremendous valueof real-world veri�cation�, says AndreasTolk, an eminent modelling scientist atVirginia’s Old Dominion University.

Yet another factor that distinguishesthe TNDM from other war-forecastingsystems is its unusual ability to take intan-gible factors into account. During NATO’sair campaign above Serbia and Kosovo in1999, for example, the Serbs built decoytanks out of wood and tarpaulins andpainted trompe l’�il bomb-holes on tobridges. Microwave ovens, modi�ed tooperate with their doors open and emitradiation, were used as decoys to attractHARM missiles that home in on the radaremissions of anti-aircraft batteries.

Such cunning is one of the many intan-gible variables that are taken into accountby the TNDM’s number-crunching equations. MrLawrence says incorporatinghuman factors into equa-tions is controversial: mostmodels favour �harder�numbers such as weaponsdata. But Robert Alexander,an expert on war simulationsat SAIC, an American de-fence contractor, says theseare �almost secondary� tohuman factors.

The Concepts EvaluationModel (CEM) developed atthe Pentagon’s Centre forArmy Analysis, provides aninstructive example. While

testing the model, programmers enteredhistorical data from the Battle of theBulge, the German o�ensive in 1944against American forces in Belgium. TheCEM predicted heavy German losses inthe initial attack, yet German casualtieswere in fact light. The probable error? Themodel overlooked the shock value oflaunching a surprise attack. Analysts dulyrecalibrated the CEM�using an early ver-sion of the TNDM.

The Dupuy Institute is renowned forits ability to take into account such non-material factors: the e�ect of air supporton morale, fear engendered by attackwith unexpected weaponry, courageboosted by adequate �eld hospitals. Themother of all intangibles, within theTNDM model, is initiative, or the ability oflower-ranking soldiers to improvise onthe battle�eld. Armies from democraticcountries�where people are empoweredto make decisions�bene�t by giving theirsoldiers some scope to change tactics inthe midst of a �re�ght. Soldiers �ghtingfor authoritarian regimes may not havethe re�exes, or the permission, to seizeopportunities when they arise in battle.

Maintaining the accuracy of theTNDM means feeding it with a constantstream of new information. The DupuyInstitute’s analysts visit past battle�eldsto augment their statistical data, followthe arms industry closely and cultivatecontacts with government defence pro-curers. In countries where access to mili-tary archives is limited, the Institutesurreptitiously pays a handful of clerks toprovide photocopies.

The next challenge will be to expandthe TNDM’s ability to forecast the out-comes of �asymmetric� con�icts, such asthe Iraqi insurgency. To this end, the Dupuy Institute is hoping to get its hands

on the Vietcong archives, asVietnam opens up. Insurgen-cies rarely leave much of a pa-per trail, but the Vietnamesekept detailed records of theirstruggle against the Frenchand Americans. The resultingpapers provide the world’smost extensive documenta-tion of guerrilla �ghting.�That’s where warfare seemsto be heading,� says retiredMajor General NicholasKrawciw, who is the presi-dent of the Dupuy Institute.And wherever warfare leads,war-forecasting systemsmust follow. 7

The Economist Technology Quarterly September 17th 2005 Reports 13

1

IMAGINE the software equivalent of agolden goose: a program that contin-

ually produces money as its output. Itsounds fanciful, but such software exists.Indeed, if you have a pension or endow-ment policy, or have money invested inshare-based funds, the chances are thatsuch a program�variously known as an�autonomous trading agent�, �algorith-mic trading� system or simply as a �robo-trader��has already been used to helpyour investments grow.

Simple software-based traders havebeen around for many years, but they arenow becoming far more sophisticated,and make trades worth tens of billions ofdollars, euros and pounds every day.They are proving so successful that in theequity markets, where they are used tobuy and sell shares, they already appearto be outperforming their human coun-terparts, and it now seems likely that theirsuccess will be repeated in foreign-ex-change markets too. Proponents of robo-traders claim that, as well as making moremoney, they can also help to make mar-kets more stable. And, of course, beingmade of software, they do not demandlunch breaks, holidays or bonuses.

This has prompted an arms race ascompanies compete to develop the bestsets of rules, or algorithms, to govern thebehaviour of their robo-traders. �We live

and die by how well they perform,� saysRichard Balarkas, global head of ad-vanced execution services at Credit SuisseFirst Boston, an investment bank. The bet-ter the technology, the more money itmakes for the client, he says.

At the moment, big strategic decisions,such as deciding which shares to buy andsell, are still made by experienced humantraders, says David Cli�, who is the direc-tor of Deutsche Bank’s Complex RiskGroup in London and a veteran of the�eld. Robo-traders are then given thepower to decide how to buy or sell shares,always with the aim of hiding their cli-ent’s intentions. If you are a pension-fundmanager and have decided to sell a mil-lion shares in some company, merely re-vealing your intention to sell will result inthe market moving against you, even withvery actively traded shares, notes Dr Cli�.So the aim of the game is to try to unloadthe shares in such a way that no one no-tices what you are doing.

Buy! Sell! Exterminate!The simplest algorithmic-trading systemsmight try to drip-feed the market by slic-ing up a big trade into a hundred smallerorders. By introducing these trades slowlyinto the market over some predeterminedperiod of time�a few minutes, or hours,or days�the idea is that the smaller ordersare less noticeable, and so have a less dra-matic e�ect on the market price. But such�salami slicers� would not win any prizesthese days, says Dr Cli�. Today’s more ad-vanced robo-trading programs can covertheir tracks more adeptly, for example, byvarying the amount they sell, and some-times even buying back the very stock

they are trying to get rid of, he says.Some �rms, such as FlexTrade of Great

Neck, New York, now o�er complete al-gorithmic-trading platforms. These allowclients, be they investment banks orhedge funds, to straddle di�erent marketsseamlessly and use built-in but customis-able trading rules to do their buying andselling. The advantage is that the clientsget to use algorithmic trading without allthe hassles that come with it, such as hav-ing to connect to particular exchanges,check data feeds are live or deal with thesending out of orders that have beenplaced; the platform does all of thosethings automatically. But while thesekinds of platforms are likely to increasethe prevalence of algorithmic trading,those in the business regard them asrather primitive when compared withmore sophisticated, proprietary systems.

Robo-traders’ main advantage isspeed, says Marcus Hooper, a specialist inglobal electronic-trading solutions forBear Stearns International in London. Inmany electronic markets the time delay,or latency, associated with making atrade can be quite signi�cant�in somecases several seconds. This is a majorheadache for traders. �By the time their�ngers hit the keyboard, someone elsecould have beaten them to it,� says MrHooper. So any algorithm that can re-spond faster than human traders has a de-�nite edge, he says.

Another advantage stems from the ba-sic limits that exist on how much informa-tion human traders can realisticallyabsorb. Studies have shown that profes-sionals make their trading decisions onlyafter considering three or four variables,

Software: Programs that buyand sell shares are becomingever more sophisticated. Mightthey replace human traders?

The march of the robo-traders

14 Reports The Economist Technology Quarterly September 17th 2005

2 says Mr Balarkas. Computers, on theother hand, can take in hundreds of vari-ables simultaneously, and refer back to awealth of historical data, in the blink of aneye. In 2001 Je�rey Kephart, a researcherat IBM, compared the performance of hu-man commodity traders with autono-mous trading agents. He found that thesoftware agents, which included one de-veloped by Dr Cli� (who at the time was aresearcher for Hewlett-Packard in Bristol),produced 7% higher returns than humans.

So is this the end of human traders? Farfrom it, says Mr Balarkas. Instead, manand machine work best together. �Algo-rithms are not the �nancial-market equiv-alent of an unmanned droid�they need atrader to operate them, just like a Formula1 car needs a driver,� he says. This requiresjudgment, something computers have yetto master. Algorithmic trading is emerg-ing as an important new tool, but humantraders will only use it when appropriate.

For instance, although the latest trad-ing algorithms can be pretty sophisti-cated, a lot of them are based on what arecalled volume-weighted average-pricemodels. These models set buying or sell-ing prices based on what is calculated tobe the average price for a given day�inother words, they use a low-risk, follow-the-herd approach. This has its uses: itcan, for example, be useful to unload alarge number of shares far more quicklythan might be practical manually.

The human touchBut to make the real money, human trad-ers rely upon riskier strategies that enablethem to outdo their competitors. This re-quires more than just experience, marketknowledge and the ability to keep upwith the news. And such �alpha-seeking�strategy is extremely underdeveloped inalgorithmic trading, says Mr Hooper�notbecause of any lack of demand for it, butbecause it is very hard to do. In this regard,human traders still have an edge overheartless robo-trading algorithms. But it isstill early days. Algorithmic trading is stillin its infancy: it has taken o� only in thepast four or �ve years, mainly due to theintroduction of the Financial InformationExchange Protocol, which has done fortrading what the internet’s TCP/IP proto-col did for data networking, by allowingdi�erent proprietary systems to plug intoa common standard.

Some programs do exist that make de-cisions about which shares to buy andsell. These are used for statistical arbi-trage�the practice of monitoring and

comparing share prices to identify pat-terns that can be exploited to make a pro-�t. In the past, software has been used tocarry out this sort of analysis and iden-tify, for example, that the best time to buyaparticular company’s shares is when thespread between its share price and that ofa rival �rm has reached a certain value.Historically, this information would thenbe passed on to a human trader to act on.But these days, statistical arbitrage sys-tems are often plugged straight into themarket, and can place their own trades.

Might that not be rather risky? Someblamed the 1987 stockmarket crash oncomputers instructed with simple deci-sion-making rules. These essentially

amounted to little more than �if-then�rules of thumb: if a share price drops be-low a certain threshold, then sell. When amarket is falling, this can make a bad situ-ation worse, as low prices prompt moretraders to sell, which further depressesprices. Yet despite such worries, the indus-try has continued to embrace the technol-ogy. Indeed, part of the reason forcomputerising exchanges such as the Lon-don Stock Exchange and NASDAQ was tofacilitate algorithmic trading, says DavidBirch, head of research and developmentat the London Stock Exchange.

Some exchanges now regulate the useof algorithmic trading, both to preventtheir systems from being overloaded andto avoid a repeat of the 1987 scenario. OnJuly 7th, for example, the London StockExchange asked for algorithmic trading to

be suspended after the London bomb-ings. Even though it is impossible for anexchange to tell whether a person or an al-gorithm is issuing trades, it is possible tomonitor the rate of trading to tell whetheralgorithmic trading is going on, says MrBirch; human traders cannot issue severaltrades per second. But a greater depen-dence on algorithmic trading could even-tually make it impractical to order suchtrading to be suspended, he says.

Mr Balarkas believes the risks are mini-mal, and that it may not be necessary toswitch o� algorithmic trading. �By de�ni-tion, execution algorithms are stealthyand designed to create as little volatility aspossible,� he says. And the very fact thatthey are designed to reduce the marketimpact of trades should, in fact, have a sta-bilising e�ect. No one wants a repeat of1987, says Dr Cli�, and nobody wouldknowingly implement an algorithm thatthey thought might cause a crash. Thetrouble is, he says, that the secrecy thatsurrounds these algorithms means thatthere is no way to evaluate how varioustrading systems might interact with eachother. It is an intractable problem. �Butwithout hideous levels of regulationthere is no way round it,� says Dr Cli�.

Beyond worries over market stability,might an even greater danger be lying inwait? Mr Hooper proposes a doomsdayscenario. Some day, advances in natural-language processing and statistical analy-sis might lead to robo-traders capable ofanalysing news feeds, deciding whichshares to buy and sell, and devising theirown strategies. Given that companies arevery keen to patent their algorithms, it isquite possible that just one companycould then emerge as the victor in this al-gorithmic arms race, says Mr Hooper. Thisoutcome would create a particularly chal-lenging problem for regulators. �It is a pos-sibility that you could have an unfairadvantage�and there would be nothinggovernments could do about it,� he says.

It is an interesting idea. But it seems un-likely, since there are so many possibletrading strategies, and unlike simpler pro-blems in computing (such as sorting a list)it is doubtful that there will turn out to bea single trading algorithm that outper-forms all others. Yet perhaps such a sug-gestion should not come as a surprise. Forwhenever robots are being discussed�even if they are merely the software-based, share-trading variety�the ideathat humans will lose their jobs and therobots will take over the world alwaysseems to be lurking in the background. 7

�Eventually, robo-traders may be capable ofanalysing news feeds, deciding which shares to buyand sell, and devising their own strategies.�

The Economist Technology Quarterly September 17th 2005 Case history 15

ON DESKTOPS and tables in o�cesand homes around the world, and

on the laps of latte-sippers from Miami toMumbai, you will �nd computers madeby Dell, the world’s biggest PC manufac-turer. For a company that shifts tens ofmillions of boxes each year it is a mam-moth task to keep track of all the di�erentcomponents that go into each of its va-rious models, and to ensure that 400 sup-pliers around the world are keptinformed of changes in design or speci-�cations�even as similarly global teamsof designers are continuously updatingits product line to stay ahead of the com-petition. Like many other large �rms, Delluses clever software to handle all of thesetasks. It is called product life-cycle man-agement (PLM) software, and it is becom-ing integral to the operation, growth andpro�tability of many big companies.

As its name suggests, PLM softwarecan manage the entire �life-cycle� of aproduct, from concept and design to pro-duction, marketing and even recycling.Using PLM software, for example, whenDell’s engineers design a new computer,they can reuse parts of previous designs,and so keep to a minimum the number ofnew parts and suppliers. The softwarealso ensures that old and new compo-nents �t together perfectly. But accordingto PLM devotees, there are many otherbene�ts: lower prototyping costs, re-duced time-to-market for new products,less waste, improved product quality andfaster turnaround of marketing materials.

PLM software, in short, provides theframework within which companies cantake new ideas and implement themquickly in actual products. �PLM is be-coming the enabling tool for innovation,�says Navi Radjou, a PLM guru at Forrester,a consultancy. As a result, PLM is cur-rently the fastest-growing segment of thebusiness-software market, according toAMR Research, another consultancy. Lastyear the PLM market was worth $9.65 bil-lion, and grew by 10%; AMR expects 8%growth this year (see chart on next page).

A brief history of PLMPLM’s sudden growth is largely the resultof its spread beyond the niches where it�rst evolved�in the aerospace and auto-motive industries�into the broader mar-kets of consumer electronics, clothingand packaged goods. In the past, saysWalter Donaldson, IBM’s general man-ager for PLM, he would �nd himself talk-ing to the vice-president of engineering.But these days he is more likely to �ndhimself talking to a company’s chief op-erating o�cer about how to use PLM tobecome more competitive. The latesttrend, says Mr Radjou, is that large retail-ers are starting to invest in PLM to managetheir private-label goods and competebetter with big consumer-goods �rmssuch as Procter & Gamble and Unilever.

Vendors of PLM software, such as Ca-dence, UGS, PTC, SAP, Dassault and Ag-ile, generally sell suites of software thatdo many things, and which have formed

by accretion over many years. PLM’s ori-gins go back to computer-aided design(CAD) software, a range of computer-based design tools which engineers andarchitects began using in the 1980s.

In the 1990s, this evolved into pro-duct-data management (PDM) software,which features CAD design tools com-bined with a database of informationabout components. This makes it possi-ble to work out quickly how much a de-sign change or a new product might cost,among other things.

PDM systems also helpfully centraliseproduct information into a single, author-itative database�sometimes called the�system of record��thereby doing awaywith paper plans and reducing the scopefor error or misunderstanding. And anychanges to a product’s plans are quicklyvisible to the team designing the produc-tion line on which it will be built. Nikon’scamera division, for example, used toproduce around 15,000 design drawingsa year that had to be distributed and ap-proved. Using PDM, it has reduced theamount of paperwork by 80%, and draw-ings can be retrieved �ve times faster.

Such systems have now been ex-tended so that they are not just for design-ers and engineers, but also include toolsfor use by senior managers and market-ing people. According to AMR, CAD stillaccounts for 53% of spending on PLM, butnon-CAD spending is growing twice asfast, or 13% a year. The latest PLM systemsmay include �requirements manage-

Better by designSoftware: �Product life-cycle management� software that helpscompanies design, manufacture and manage their products isbecoming increasingly popular among big �rms

1

16 Case history The Economist Technology Quarterly September 17th 2005

ment� and �portfolio management�tools, so that managers can, for example,look across the range of products in de-velopment to make sure they match thedemands of the market in question. Ifthey do not, then speci�cations can betweaked or products killed o�.

PLM systems also allow packaging tobe mocked up quickly and then dis-played to focus groups via the web, sothat the most e�ective packaging can beidenti�ed. In theory, all of this meansthat the needs of the market can be antici-pated and communicated back along thechain to the research and developmentdepartment. PLM has, then, evolved fromhumble design tools into elaborate sys-tems that help companies develop andmanufacture products that their custom-ers actually want to buy.

The desire for greater competitivenessand faster response are two reasons whyPLM is growing so quickly. But its adop-tion is being driven by other factors, too.One is globalisation. When �rms start todesign, manufacture and sell products inmany di�erent countries, each with theirown requirements and regulations, theyface a huge increase in complexity. Heinzuses PLM software to keep track of the dif-ferent ingredients that go into its ketchupsand other products in various countries,to cater to local tastes. By centralising thisinformation, it has been able to optimiseits recipes and reduce costs.

For companies that rely on outsourc-ing or have multiple design and manufac-turing centres around the world, PLM cansimplify things by allowing people in dif-ferent countries to communicate andcollaborate within a single, secure envi-ronment. Rolls Royce, for example, usedPLM to facilitate around-the-clock de-velopment by engineering teams in Brit-ain, India and America of the Trent 900engine for the Airbus A380.

Another factor driving PLM is that pro-ducts themselves are becoming far morecomplex, which makes it harder to ensurethat all the di�erent parts will �t togetherand work properly. PLM can help to mini-mise such problems for even the mostcomplex products, such as aircraft.

Dassault Aviation claims that its Fal-con 7X corporate jet, launched this sum-mer, is the �rst aircraft ever to bedesigned entirely in a virtual environ-ment. PLM software was used to link Das-sault with 27 subcontractors to create adigital model of the aircraft. Everythingwas meticulously modelled, includingthe robots that build the tools to �t the air-

craft’s parts together and the mainte-nance processes once the aircraft is inservice. This eliminated assembly pro-blems, so that the �rst plane to be con-structed was perfect: there was nophysical prototype. The parts were man-ufactured and put together, and the planetook to the air.

The need to comply with di�erentregulations provides another reason toadopt PLM. New restrictions on the use oflead, cadmium, chromium and other ma-terials in electronic equipment will comeinto force in Europe in 2006. So compa-nies need to be able to track what is goinginto their products. PLM systems can pro-duce a bill of materials for each product,making it easier for a �rm to check that itsproducts comply with local regulations.

Regulation has also prompted the

adoption of PLM in package design.Pharmaceutical companies that fre-quently repackage their products, butmust comply with strict regulations thatvary from country to country, can usePLM to track design changes and makesure that each package conforms with thelocal regulations. Once the software is inplace, people in the legal, medical and de-sign departments can look at the designin parallel and approve it�rather thanwaiting for paper documents to circulate.Chris Farinacci of Agile says that 50-60%of pharmaceutical product-recalls are todo with packaging problems.

A poster child for PLMSome �rms, of course, face many of thesechallenges at the same time. A good ex-ample is General Motors. Speaking at arecent conference in London, Diane Jur-gens, a PLM guru at GM, said the com-pany regards PLM as crucial to itssurvival. Her job title is, rather improba-bly, �director of global product develop-ment process and systems integrationand information systems and services�.But her job is essentially to make theworld’s biggest carmaker more e�cient.

GM employs 325,000 people, has 19design centres around the globe, andbuilds cars in 32 countries. To add to thecomplexity, it has di�erent brands in dif-ferent regions, such as Holden in Austra-lia and Opel in Germany. It must balancethe desire to centralise where possiblewith the need to localise where neces-sary: American buyers expect a �new car

�PLM software provides the framework within whichcompanies can take new ideas and implement themquickly in actual products.�

The Falcon 7X: PLM eliminated assembly problems

Purchasing like madPLM market revenues, $bn

Source: AMR Research

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F O R E C A S T

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smell�, for example, but Asians do not.In 1997, GM was taking an average of

48 months to develop each new vehicle,compared with 36 months at Toyota, oneof its biggest competitors. GM was bigand unwieldy, and had competing teamsof designers, says Ms Jurgens. So in 2000the company decided to sort out themess, and bought a PLM system fromUGS. Today, 10% of GM’s employees useit. Parts and whole subsystems from onevehicle can now be easily reused in an-other. Changes to a vehicle’s design canbe immediately re�ected in the design ofthe dies that stamp out the doors andbody panels. And new models can becrash-tested thousands of times in virtualreality. GM also uses PLM to collaboratewith its suppliers. This makes it possiblefor everyone to see what a part shouldlook like and where it �ts into the overalldesign, to ensure that it �ts perfectly. Butperhaps the best illustration of the suc-cess of GM’s PLM initiative is that the de-velopment time for new vehicles is nowjust 12-18 months.

The trickle-down theoryGM’s experience also highlights some ofthe challenges involved in adopting PLM.By its very nature, it changes the way thatpeople work and interact. Industrial de-signers, for example, may �nd them-selves having to work very closely withengineers�having previously been sepa-rated by incompatible �le formats. The re-search & development department maynot be accustomed to dealing with themarketing department. And old habitsdie hard. Many GM sta� did not ordina-rily share their �les and data, says Ms Jur-gens. And designers, in particular, werereluctant to switch to the new PLM-friendly design software.

Where next for PLM? The next step,says Mr Donaldson of IBM, will be tobroaden access to the technology andbring medium-sized companies, not justengineering and consumer giants, into

O�ce suite.So PLM couldbecome almost asubiquitous as Power-Point presentations orWord documents�but by then it will almost certainly be called somethingother than �product life-cycle manage-ment�. It is the hallmark of a successfultechnology that it becomes almost invisi-ble. And so the �nal, triumphant stage inthe gradual ascent of PLM could be that itdisappears altogether. 7

From its origins in the aerospace and automotive industries, PLM is now moving into consumer goods such as cameras and razors

the world of PLM. It is shaking o�its engineering origins and ismoving, he says, into the main-stream parts of business. IBM iscurrently working to help busi-ness and engineering schoolsbetter understand the technol-ogy. Clearly, if lots of newlyminted business graduates havebeen taught about PLM, they aremore likely to want to use itwhen they get jobs.

Mr Radjou notes that thetrend towards outsourcing is al-ready forcing medium-sized com-panies to adopt PLM in order toservice their larger customers.PLM is a collaborative tool, andthe more that working practicessuch as design and manufactur-ing are broken down into mod-ules, the more scope there isfor even smaller companiesto plug into bigger �rms’PLM networks. �But thevendors are not really pro-viding anything for themyet,� says Mr Radjou, �whichis why Microsoft is getting intothe space.� At the same time,other technology vendors such asIBM and SAP are also starting to incor-porate PLM features into their other busi-ness software.

This is a testament to PLM’s success,but paradoxically could cause it to disap-pear. �I’m not sure PLM will survive as astand-alone category,� says Mr Radjou.Instead, he says, PLM functions will bebroken down and bundled into otherapplications, such as supply-chain man-agement systems and even desktop pro-ductivity software. Oracle, the world’ssecond-largest software company, willprobably buy one of the PLM vendorsand incorporate its software into its gen-eral business suite, Mr Radjou predicts.Microsoft is working to add collaborationand document-sharing features to its

2

The Economist Technology Quarterly September 17th 2005 Case history 17

1

ANYONE who uses a personal com-puter will be familiar with the idea of

a�graphical user interface�, which was in-troduced in the 1980s and became ubiqui-tous in the 1990s. It did away with theneed to type cryptic keyboard commandsto manipulate �les, making it possible tomanipulate them directly instead, using amouse: double-click on a �le’s icon toopen it, drag it to the bin to delete it, anddrop it on a folder to �le it away.

All of this made computers far easierto use. But the once-revolutionary notionof �les, folders, �ling cabinets and otherdesktop icons is now showing its age.What started out as a helpful metaphornow seems rather limiting. Why hobbledigital documents with the limitations ofpaper ones, such as the need to have a sin-gle �xed location? �A lawyer cares aboutthings like dates and cases,� says ThomasRizzo, the head of Microsoft’s next-gen-eration �le system project, known asWinFS. How can a lawyer �le the samedocument by both client and by date? Hecannot, notes Mr Rizzo, without using un-wieldy multiple-location workaroundssuch as aliases and shortcuts.

Another problem, as personal com-puters start to �ll up with thousands ofphotographs, music tracks, saved webpages and other documents, is that the�le-and-folder metaphor requires users todecide upon a logical �ling system, andthen stick to it, if they want to be able to�nd things easily. The only thing worsethan creating such a nested hierarchy offolders, or directories, is not creating it.Folders thus saddle computer users withthe menial task of keeping the �ling sys-tem neat and tidy, notes Philip Schiller,Apple’s senior vice-president of market-ing. �You’re the janitor,� he says. But mostcomputer users could not care less aboutfolders, a way of organising digital �lesthat is a relic from computing history.

To further complicate matters, data onpersonal computers is being Balkanisedas di�erent pieces of software circumventthe creaking �le-and-folder approach andestablish their own structures for organis-ing particular kinds of data. E-mail pro-grams were early examples of this trend:most of them maintain what is, in e�ect, adatabase of e-mail, hidden away in itsown folder and often inaccessible to otherprograms. Contact-management, calen-dar and photo-album programs now dothe same. To �nd all the information relat-ing to a personal contact, you may need tosearch within a contact-management pro-gram, a calendar, an e-mail program andthe computer’s �le system�though �le-names do not always contain enough in-

formation to connect them to a particularperson or project.

Oddly, however, just as it is becomingharder to �nd things on your computer, itis becoming much easier to �nd things onthe web. Search engines such as Googlecan search billions of pages in a fraction ofa second: if you have a broadband con-nection, it is usually quicker to look up thephone number of a restaurant via Googlethan to boot up your address-book soft-ware. The desktop-computing metaphor,and the notion of folders in particular, hasfallen behind. It is time to shed this relic ofthe past. It is time for folders to die withdignity�and to yield to a new, more web-like way of storing and �nding things.

Never deleteThis new approach to organising data isbeing brought into being by the conver-gence of two trends: the plunging cost ofhard-disk storage and the growing reachof search software. Have you emptied therubbish bin on your desktop lately? Prob-ably not�unless you edit a lot of music orvideo, the chances are that you have farmore disk space than you need. A typicalhard disk on even a cheap computer to-day holds 40 to 80 gigabytes of informa-tion, which is enough for millions ofe-mails, tens of thousands of photos, andhours of video. By 2009, a typical PC willhave a 160-gigabyte hard disk, and thebiggest disk drives will have a capacity of1,000 gigabytes, or one terabyte, saysDave Reinsel, director of storage researchat IDC, market-research �rm. Today, hesays, most users’ hard disks are about 30%full. When storage space is so abundant,why throw anything away?

As storage capacity has grown, how-ever, the ability to search such large pilesof data has not kept pace. Until recently,most operating systems, including Micro-soft Windows, Apple’s Mac OS X and thevarious versions of Unix had the samesearch functions they had ten years ago.Only now are they being revamped. Eventoday, Windows and, until this year, MacOS X performed the most primitive formof searching by matching a query against�lenames one at a time. Searching in thisway is akin to looking for a library bookby examining every book on every shelf,one at a time. Libraries, of course, havecatalogues to make it easier to �nd books.And now the same idea is being graftedon to computer �le systems. The �rst im-plementation appeared in Mac OS X, butMicrosoft and Google are close behind.

In theory, speeding up search is easy:

Death to folders!

Computing: Cheap hard disksand fast search software couldchange the way we store and �nddocuments on our computers

18 Reports The Economist Technology Quarterly September 17th 2005

2 all you have to do is build a database, akinto a library catalogue, that has an entry foreach �le, along with information about itscontent. But for this database to be useful,it must be constantly updated. Every timea �le is altered, its corresponding entry inthe database, and the various indexes thatrefer to it, must be updated too. This in-volves meddling with the computer’s op-erating system at a fundamental level,and has historically been di�cult toachieve without a dramatic reduction inthe computer’s performance.

Apple �nally solved this problem thisyear when it released Mac OS X 10.4,known as Tiger. Every time a �le ischanged, it is added to a queue for re-in-dexing by Tiger’s built-in search engine,called Spotlight. The re-indexing then oc-curs when the computer is relatively idle,which ensures that maintaining the �ledatabase does not overpower the system.The result is that documents scatteredacross the hard disk can be summonedwith Google-like speed and simplicity.

Microsoft is doing something similarthrough its even more ambitious (butmuch delayed) WinFS project. The aim isto build an advanced database, using ele-ments of Microsoft’s SQL Server, into theWindows �ling system to enable access to�les with the speed and complexity of adatabase query. �We are fundamentallychanging the way you store your data inside your �le system,� says Mr Rizzo.Project-management software could, forexample, call up all �les relating to a par-ticular project, or a jukebox programcould ask WinFS to retrieve all �les of type�music�. But although WinFS was origi-nally intended to be part of Microsoft’sforthcoming Windows Vista operatingsystem, formerly known as Longhorn, itwas dropped as an integral element whendevelopment fell behind schedule. Vistais expected in late 2006, but WinFS willnot be released until 2007.

In the interim, both Microsoft andGoogle have launched Windows-baseddesktop-search products that lack thedeep and elegant integration of Spotlightor WinFS, but do similar things. WindowsDesktop Search (toolbar.msn.com) andGoogle Desktop (desktop.google.com)are separate, free software packages thatmust be installed on the desktop, thoughMicrosoft’s product will be incorporatedinto Windows Vista next year. Like Spot-light, both have a variety of plug-ins thatlet them index common �le types, such asMicrosoft O�ce documents and mes-sages inside popular e-mail programs.

By doing away with the main draw-back of traditional �le-searching�that itcannot see inside the �les, only theirnames�Apple, Google and Microsoft arehammering nails into the co�n of the old�le-and-folder approach. As the reach andpower of desktop-search software grows,the need to put things in organised foldersdisappears. With Spotlight, �I just searchfor everything now�I spend almost notime browsing through folders,� says Steven Johnson, author of �Interface Cul-ture�, a book about computer interfaces.

Let’s play tagThat said, search engines cannot reach in-side every kind of �le: they cannot yet dis-tinguish photographs of one person fromanother, for example. Many kinds of �le,however, incorporate helpful �tags� thatdescribe their contents. Digital camerasattach tags to photographs to record in-formation about the time, date and expo-sure details; MP3 audio �les generallycontain tags listing the track name, artist,and other information. �We believe thatdata is becoming more and more struc-tured. That’s good for being able to �ndthings and relate things together,� says MrRizzo. Increasingly, users will start to at-tach tags of their own to �les, too.

When saving a document �ve yearsfrom now, rather than naming it anddropping it into a folder, you may well tagit with a few keywords and drop it into adatabase. �You can just tag it instead of �l-ing it, and you can rely on the search sys-tem to quickly �nd all the things with thesame tag,� says Marti Hearst, a computerscientist at the University of California atBerkeley’s School of Information Man-agement & Systems. Her tag-based re-trieval system, called Flamenco, can be

seen online at bailando.sims.berkeley.edu/�amenco.html.

Ironically, the search-based metaphoralso allows folders to be reincarnated in anew and more useful form. Spotlight hasa �Smart Folder� feature that looks like afolder, but is in fact the result of a search.So you could, for example, create a SmartFolder that contains all �les, e-mails andother documents mentioning �sausages�that were modi�ed in the last month: thesearch software then populates the folderwith anything that matches these searchcriteria, and keeps the contents constantlyupdated. (The name implies that if theseare Smart Folders, then existing foldersmust be stupid ones.)

The idea of establishing relationshipsbetween pieces of information, to allowconnections to be made and results to beretrieved, is not new. Vannevar Bush, inhis famously prognostic and in�uentialessay in the Atlantic Monthly in July 1945,described how adding structured codewords to associated micro�lm pages inhis imaginary �Memex� information-re-trieval system would help researchers. �Itis exactly as though the physical itemshad been gathered together from widelyseparated sources and bound together toform a new book. It is more than this, forany item can be joined into numeroustrails,� Bush wrote.

Flamenco, WinFS and Smart Foldersallow items that meet particular criteriato appear many times in the same hierar-chy, and to move around as their contentsor attributes change. Traditional folder hi-erarchies, in contrast, are rigid structuresresistant to updates and multiple views.

Looking further ahead, the combina-tion of databases, tagging and search willmake it possible to navigate large num-bers of documents in all kinds of radicallynew ways. David Gelernter, a computerscientist at Yale University, imaginessearching using time and space axes:imagine picking New Haven, Connecti-cut, on a map and then zooming back to1701 to see information about its found-ing. Ben Shneiderman of the Universityof Maryland has devised a new way todisplay search results in which data ap-pear as concentrations of information in a�tree-map�: the colour, position and sizeof thousands of results can then be takenin at a glance. As folders fade away andsearch software evolves, it seems that wemay, at last, be able to �nd what we’relooking for when we need it. With thedeath of the folder, perhaps we can �nallyget some work done. 7

�As the power of desktop-searchsoftware grows, the need to organisethings in folders disappears.�

The Economist Technology Quarterly September 17th 2005 Reports 19

1

IN THE face of mortal illness, patience isnot necessarily a virtue. When Kathy

Giusti was diagnosed with multiple myeloma, a form of cancer, doctors gaveher just a few years to live. Like many pa-tients, Ms Giusti took to the internet tolearn as much as she could about her ill-ness. But that meant precious little whenit came to treatments for her disease. Atthe time of her diagnosis, in 1996, therewere no exciting new drugs in develop-ment for multiple myeloma; in fact, therewere no new drugs at all. �The medicinesthey recommended for me were the onesthey used on my grandfather, years be-fore,� says Ms Giusti.

With only 50,000 su�erers in America,multiple myeloma is one of thousands of�orphan� diseases that are simply notcommon enough to interest most drug-makers: there are too few su�erers to jus-tify the cost of developing a newtreatment. Although special legislation

exists in Europe and America to encour-age drugmakers to tackle orphan condi-tions, the combination of tax breaks andmarket exclusivity on o�er are simply notenough for many �rms to attract them tothe �eld. So Ms Giusti, a former pharma-ceutical executive, set out to do somethingabout it�and she has succeeded. In 1998,she and her twin sister founded the Multi-ple Myeloma Research Foundation(MMRF) with the aim of raising moneyand awareness to �jumpstart� research-ers’ bright ideas into treatments. Just a fewyears later, MMRF has garnered morethan $50m for research, there are nowroughly 110 drugs in various stages of de-velopment for the disease, and Ms Giustihas proven her doctors’ prognosis wrong.

The idea of charities or patient advo-cacy and support groups funding drug de-velopment is nothing new. In the 1950s,for example, the National Foundation forInfantile Paralysis and its �March ofDimes� bankrolled the development of apolio vaccine. But today’s patients’ groupsare more intimately involved in the nitty-gritty of drug creation, creating their ownclinical-trials networks, establishing tis-sue banks and even setting up their ownbiotech companies.

So why are today’s patients getting

more involved in drug development?Frustration at the slow pace of research isone reason, according to Bob Beall, headof the Cystic Fibrosis Foundation (CFF).When the gene for cystic �brosis was dis-covered, patients expected this knowl-edge to be converted relatively quicklyinto therapies. When commercial interestwas slow to materialise, patients realisedthey would need to play a more activepart, says Mr Beall. This patient powerstems from a general medical trend, par-ticularly noticeable in America, where�health-care consumers� are encouragedto take greater responsibility for their ownwell-being; seven years of direct-to-con-sumer advertising of prescription drugs,bombarding television screens acrossAmerica with commercials for the latest,greatest pills, have also raised both aware-ness and demand.

At the same time, says May Liang, headof the Epilepsy Therapy DevelopmentProject, �venture philanthropists��entre-preneurs who bring the same rigorousthinking and streamlined decision-mak-ing to not-for-pro�t foundations as theyapply in their normal business lives�aretransforming the �eld. Their businesssavvy allows patient groups to speak thesame language as the companies withwhich they need to deal. Ms Liang’s ownfoundation, for example, was created bythree men with backgrounds in businessand banking, whose young children de-veloped epilepsy, and who came togetherto stimulate interest in drug development.

CFF is another prominent player. Since2000, the group has spent almost $240mon research into this fatal inherited dis-ease. As well as �nancing academic scien-tists, the foundation also providesventure capital to biotech �rms that arewilling to take on the tricky task of �ndinga drug to treat the underlying genetic de-fect of the disease, not just treat its symp-toms. The group has venture deals, whichfeature all the regular commercial termsof milestones and royalties, with a num-ber of biotech companies, including Vertex. The �rst drug emerging from thatpartnership could enter clinical trialswithin the next couple of years. This sortof money is particularly welcome tosmall biotech �rms which are �nding ithard to secure early-stage �nancing fromincreasingly wary investors. The idea,says Mr Beall, is to take much of the risk ofdrug discovery and development o� theshoulders of companies, in the hope ofenticing them into the area.

But such foundations are worth more

Just what the patientordered

Medicine: Patient-drivenapproaches to developing drugsfor orphan diseases are turningpill-takers into pillmakers

20 Reports The Economist Technology Quarterly September 17th 2005

The Economist Technology Quarterly September 17th 2005 Reports 21

2 than money alone. MMRF, for example,has managed to instigate and co-ordinatevaluable research collaborations. Suchinitiatives start with information. Thefoundation has compiled a web-accessi-ble database of 110,000 people with aninterest in multiple myeloma, from re-searchers and clinicians to patients andeven �nancial analysts covering the bio-tech industry. MMRF also keeps track ofall clinical trials on multiple myeloma, soit has a clear view of exactly what is hap-pening in the �eld.

The power of informationIt then turns this information into action.MMRF has put together a consortium ofmedical centres in America and Canadawhich can undertake clinical trials, withcommon protocols for everything frompatient recruitment to patent rights. Theconsortium is working with Chiron, a bio-tech �rm, on an early-stage trial of a newanti-cancer drug, with several new cen-tres and compounds expected to enter thenetwork over the coming months.MMRF’s power comes not just from itsdollars but from its constituents. As a patient-based organisation, it can tap directly into one of the scarcest commod-ities in drug development�access to theright patients for clinical trials.

This connection to patients and re-search centres is vital for small biotech�rms, says Julian Adams, chief scienti�co�cer of In�nity Pharmaceuticals, a can-cer company. �We are not like bigpharma. We are not the 800lb gorilla whocan just put money on the table and buyour way into the clinic.� The medical con-sortium is intimately involved with thecompanies that tap into its networks,tracking their progress inmonthly conference calls ando�ering tiny �rms help withpaperwork and other practicalpoints that might otherwisehinder their e�orts.

MMRF also brings togetherrepresentatives from Amer-ica’s drug regulator, the Foodand Drug Administration,with experts from academiaand industry to tackle bottle-necks in drug development. DrAdams is impressed by thegroup’s convening power.When he was working at Mil-lennium Pharmaceuticals andleading the development ofVelcade, a breakthrough drugfor myeloma, he attended a

meeting held by MMRF which assembledthe leading researchers and clinicians inthe �eld. After presenting some early clin-ical data, �instead of the usual rubber-chicken dinner, I asked Kathy Giusti if wecould design the trial,� says Dr Adams.With all the experts in one room, theyworked out exactly how the trial shouldbe run; it began only three months later�lightning speed for the industry.

Other groups are also pitching intodrug discovery and development. Ge-netic Alliance, a network of more than600 support groups representing patientswith inherited disorders, is trying to setup a database of information about thediseases in question for researchers toconsult. Not only does this provide one-stop shopping for scientists, but also pro-vides them with information they mightnot easily �nd elsewhere, such as nega-tive trial results. Like MMRF, the alliancehas also established a biobank so that itsconstituent groups can deposit tissuesamples and clinical data, using standar-dised consent forms, material transferagreements and other paperwork�a po-tential treasure trove for researchers inter-ested in testing drugs for these conditions.

The ALS Therapy Development Foun-dation (ALSTDF) has gone even further,hiring scientists and setting up its ownlaboratory to look at hundreds of existingcompounds for their potential to treatamyotrophic lateral sclerosis, a fatalneurodegenerative disease. The bench-mark for success is straightforward, saysJames Heywood, its director, whosebrother Stephen was diagnosed with ALS

seven years ago: �What piece of informa-tion would convince me to put Stephenon the drug?�

So far, progress has been slow. On abudget of $4m a year, the group hasfunded clinical trials at the University ofCalifornia, San Francisco of two drugs,currently used to treat sickle cell anaemiaand HIV, which showed modest activityagainst ALS. (In a strange twist of fate, theneurologist who designed the trial, RickOlney, has developed ALS and is nowparticipating as one of its patients.)ALSTDF has also spun o� a biotech com-pany, called Alsgen, to develop some ofthe ideas emerging from its earlier work.

�I’ve learned a couple of things that area little disappointing,� admits Mr Hey-wood. �I thought initially that there wereall these good ideas that just needed apush; it turned out that there weren’t a lotof great ideas.� The problem, says Mr Hey-wood, is that much of the pre-clinical evi-dence on which people were willing totake drugs to trial turned out, on furtherinvestigation, to be wrong. The founda-tion now hopes to strengthen these scien-ti�c foundations by trying to establish avalid biomarker�a biochemical or bio-logical feature that correlates with diseaseand can therefore be used as a surrogatemeasure of drug e�cacy or safety�for de-velopers to use in their e�orts on ALS.

For many other patient groups, how-ever, the trouble is not too few drugs onthe horizon, but rather too many. As MsGiusti points out, only 25% of the drugs indevelopment for multiple myeloma areprobably worth pursuing: the key is tochoose the most promising candidates,and focus precious money and man-power�especially scarce patients for clin-ical trials�on them.

Another challenge lies in co-ordinat-ing the patient groups themselves, so that

those working on, say, my-eloma or ALS, are not duplicat-ing, or worse, competing with,each other’s e�orts. Above all,there is the tricky business ofexplaining to patients, whosedonations largely fund the ef-forts of groups such as CFF andMMRF, that most drugmakingwill end in failure. That, afterall, is why the big drug compa-nies are unwilling to invest: thereward does not justify the �nancial risk. Patients’ groups,of course, quantify risks andrewards using an entirely di�erent yardstick. �The biggest risk�, says Mr Beall, �isif we hadn’t made this invest-ment at all.� 7

�Patients are getting involved indrug research and trials, and areeven setting up biotech �rms.�

TEN years from now, you will not haveto spend hours in a doctor’s o�ce to

complete a comprehensive health check-up. Instead, with just a single pin-prick, ananotechnology device will quickly mea-sure and analyse 1,000 proteins in a drop-let of your blood. Based on this�molecular �ngerprint�, your doctor willprescribe drug regimens tailored to yourpersonal state of health that will not onlybe able to reverse many diseases, but willalso prevent their manifestation in the�rst place.

That, at least, is how Leroy Hood, thepresident and co-founder of the Institutefor Systems Biology, a non-pro�t orga-nisation based in Seattle, lays out the fu-ture of medicine. �The Human GenomeProject has given us a parts list,� he ex-plains. The next step is to capture the in-formation from all the elements in abiological system: DNA, proteins, cellsand organs, and then create new math-ematical models that will represent therelationships between them. The ensuingdigitisation of biology, he reckons, willrevolutionise the entire health-care sys-tem and usher in a new era of predictive,preventive and personalised medicine.

Today, it sounds far-fetched. But asmany of his colleagues and friends attest,Dr Hood, an avid outdoorsman, hasnever been shy of climbing a mountainor going out on a limb. Throughout his ca-reer, the 66-year-old has made it a habitto champion ideas that were initially un-popular but later proved correct. For onething, he was one of the early proponentsof the project to sequence the human ge-nome, at a time when many of his con-temporaries had doubts about itsviability. Moreover, the very instrumentthat turned the endeavour into a success,the automated DNA sequencer, origi-nated in his laboratory.

Yet the machine for which he is bestknown is only one of many inventionsDr Hood has successfully commercial-ised. To date, he has co-founded morethan ten companies, including AppliedBiosystems, which went on to becomethe biggest life-science instrument com-pany in the world, and Amgen, the largestbiotechnology �rm in the world. He alsoholds 14 patents, has won numerous

awards, and has co-written four text-books�with a �fth, about systems biol-ogy, now in the works. But, mostimportant, he has become one of medi-cine’s boldest visionaries.

Even at a young age, Leroy Hoodshowed an independent streak. Growingup with his family in rural Montana, hedeveloped an early a�nity for the out-doors and started hiking in the nearbymountains as a young boy. While he ex-celled in the sciences, he was never anerd. He learned to play the piano,among other instruments, joined a suc-cessful debating club and, during highschool, was quarterback in an Americanfootball team that was undefeated formore than three years.

He �nally set his sights on biologywhen his high-school chemistry teacherasked him to help teach a class on thesubject for younger students. He agreedon the condition that he could base hislectures on articles from Scienti�c Ameri-can, a popular science magazine. One ar-ticle from 1956, about the structure ofDNA, made a lasting impression on him.The same chemistry teacher also pushedthe young Hood to apply to the Califor-nia Institute of Technology, where hewould spend much of his student andprofessional life.

Immune responseAs a PhD student at Caltech in themid-1960s, Dr Hood got his �rst taste ofscienti�c controversy, when he becameinvolved in an argument over how thehuman immune system produces such awide diversity of antibodies to fend o�disease. Up until then, the explanationfor antibody diversity had been based onthe theory that one gene provides the recipe for one protein, or polypeptidechain. (An antibody consists of four suchchains, in two identical pairs.) But whenit became apparent that the human genome contained at most 100,000genes, while the body could create hun-dreds of millions and possibly billions ofantibodies, that explanation was throwninto question.

Together with his mentor, WilliamDreyer, Dr Hood proposed a radical newhypothesis. They suggested that antibod-ies were encoded by a relatively smallnumber of genes that can rearrangethemselves to make up new sequences,akin to creating new sentences by break-ing up and reshuing a string of words.

The suggestion that some genes mightnot have a permanent structure, but

Medicine withoutfrontiers

Leroy Hood, one of medicine’sboldest visionaries, has spenthis career marrying biology with technology

1

22 Brain scan The Economist Technology Quarterly September 17th 2005

The Economist Technology Quarterly September 17th 2005 Brain scan 23

could splice and rearrange themselves,seemed outrageous at the time, and it catapulted Dr Hood into the midst of acutting-edge discussion in immunology.As a result of all the hoopla, and despitebeing only a graduate student, he was in-vited to travel and give lectures at promi-nent universities and national meetings(though he also spent hours in the labora-tory sequencing proteins by hand). In theend, it took another ten years until all thetools became available to prove the the-ory right, which led to a 1987 Lasker prizefor Dr Hood, Philip Leder and Susumu Tonegawa (who also received the Nobelprize later that same year).

Frustrated by the limitations of man-ual laboratory work, Dr Hood concludedthat it was essential to invent new toolsthat could drive biological discovery. Sowhen Caltech hired him in 1970 as an assistant professor, he decided to dividehis time between technology and biol-ogy. By the end of the decade, his e�ortshad born fruit�his laboratory created anew protein sequencer that was muchmore sensitive than previous instru-ments. And when a friend suggestedmass-producing the device, Dr Hoodwent knocking on doors.

Finding a sponsor was easier saidthan done. After 19 rejections, Dr Hoodwas somewhat discouraged. Fortunately,a venture capitalist heard about the prototype and o�ered him $2m to start acompany. Dr Hood was elated, but hisdi�culties were still not over. Today, eager universities help professors to �lepatents and commercialise ideas. Butback then it was uncommon for aca-demic institutions to be so co-operative.Caltech’s president at the time, MarvinGoldberger, was reluctant to make com-mercial deals, although he �nally re-lented and gave the go-ahead for thecreation of Applied Biosystems.

The company’s success was based onfour machines, all of which originated inDr Hood’s laboratory during the 1980s.(As a result, Caltech still receives patentroyalties of approximately $10m a year.)Together, they opened up new �elds inbiology. The protein sequencer, for exam-ple, made possible the analysis of smallamounts of protein that had previouslybeen inaccessible. Next, the protein syn-thesiser assembled long chains of aminoacids, making it possible to produce largequantities of proteins. The third machine,the DNA synthesiser, could churn outpieces of genes to aid in DNA mappingand cloning. But the most sophisticated

instrument was the automated DNA se-quencer. It replaced confusing radio-active labels with laser-activated�uorescent dyes, making sequencingfaster and much more precise.

Back in 1985, however, when Dr Hoodparticipated in the �rst meeting to discussthe possibility of sequencing the humangenome, biology was still very much amanual science. People worked with Pe-tri dishes and cultures of goo, explainsMichael Hunkapiller, a former researchfellow in Dr Hood’s lab who went on tobecome president of Applied Biosystems,and is now a venture capitalist. �The mol-ecules that a�ected biology were viewedat that time as too complex to analyseeasily,� he says.

As a result, many biologists were waryof the project. They worried that the tech-nology was not up to the job, that itwould take too much time and cost a for-tune, thus drawing away valuable re-sources from other research. Others wererepelled by the idea of �big science�, fear-ing that the sociology of the �eld mightchange to one that would be dominatedby expensive, large-scale enterprises.

Biology without bordersIn the end, the project�which �nished in2003, ahead of schedule and under bud-get�fundamentally changed how biol-ogy is practised. According to DavidBaltimore, the current president of Cal-tech, it highlighted the need to involvescientists from �elds outside biology,leading many universities to adopt cross-disciplinary approaches to the subject.This approach is, of course, vintage LeroyHood, observes Roger Perlmutter, execu-tive vice-president of research and de-velopment at Amgen, and who alsoheads the board of the Institute for Sys-tems Biology. �Since he joined Caltech asa faculty member, he has been trying tomarry engineering and the physical sci-ences with biology in order to producetools that could revolutionise biomedicalresearch,� he says.

Over the years, as the ambition of DrHood’s plans grew, so did his sta�. Whenhe �rst arrived at Caltech in 1970 he hadfewer than ten people associated with hislab. By 1990, there were more than 100.Dr Hood then became interested in creat-ing an entirely new department, explic-itly dedicated to cross-disciplinary e�ortsand comprised of biologists, chemistsand engineers. But such a grand vision forthe relatively small school did not sit wellwith the rest of the faculty. In the end, the

majority of biologists reacted negativelyto the idea.

In 1992, Dr Hood was invited to chairthe new cross-disciplinary Departmentof Molecular Biotechnology at the Uni-versity of Washington in Seattle. With$12m in start-up funds from Bill Gates, heaccepted. �But the seeds of tragedy weresown for the next thing,� says Dr Hood,even though he achieved a lot over thefollowing years. Among other activities,his department operated two of the 16centres for sequencing the human ge-nome, and one of its members helpedcreate the �eld of proteomics, the cat-aloguing of the proteins for which the ge-nome provides the recipes. But in the endhe was unable to convince the dean ofthe medical school to allocate more spacefor his once-again growing department.

Experiences like this convinced DrHood that it is virtually impossible to de-velop revolutionary new ideas within ex-isting structures. So in 2000, at the age of61, he decided to leave academia behind.Together with two former colleagues, heformed the Institute for Systems Biol-ogy�without a penny of endowment.

Already, the institute has more than170 sta� members and an annual operat-ing budget of $28m, mostly from govern-ment contracts and grants. Moreover, DrHood has been able to attract an amazingcalibre of collaborators, including Mi-chael Phelps, the inventor of positron-emission tomography, who chairsUCLA’s Department of Molecular andMedical Pharmacology, and JamesHeath, a physical chemist at Caltech whobelonged to Richard Smalley’s group thatdiscovered �buckyballs� (soccer-ballshaped carbon molecules). Together theyhave founded the NanoSystems BiologyAlliance, with the aim of developing ananosensor device capable of making�ve measurements from a blood sampleby the end of this year, and 1,000 or morewithin ten years. �These nanotechnologytools will be mass-produced and used byevery scienti�c investigator, even insmall labs,� predicts Dr Hood.

Despite his track record, his new ideashave proved as controversial as ever. Crit-ics point out that systems biology maysimply be too complex for mathematics;others say the timetable for creating theproposed nanotech instruments is tooambitious. But Dr Hood, who has heardsimilar arguments before, is unfazed bythe scepticism. �It doesn’t bother me inthe slightest,� he says. �In the end whatcounts is what you do.� 7

�Critics suggest that systems biologymay simply be too complex formathematics. Dr Hood is unfazed.�

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