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WikiLeaks Fallout is Bullish for Boeing, Airbus and United-Continental

December 15, 2010

By Mark P. Mills

One thing you can take to the bank: There will be more air travel because of Julian Assange. And it won’t be the paparazzi and news media stalking for photos, but all the staff that work in the trenches of getting business done and international diplomacy effected. If you want to negotiate and close a deal, you’ll do it in person – all the more so if there’s anything sensitive to be discussed. The threat of cyber leaks or espionage (industrial, state-sponsored or just malicious) is a powerful accelerant to an established underlying trend. The Internet increases travel.

Time was that the digiterati predicted a world flattened by the power of the Internet and the unleashing of virtual meetings, telecommuting, and soon immersive reality, etc etc, would replace costly and energy-intensive air travel. But the evidence shows otherwise.

From 1990 to date, the two decades of explosive growth since the effective launch of the Internet as we know it, Web traffic grew a staggering one-million-fold from a puny 48 terabytes a year (a few desktops now contain that much data) to an astronomical 60 exabytes. My friend Bret Swanson has great historic and prospective stats and insights on all this. But the key point: the exaflood of information flying through cyberspace did not cut or even flatten air travel. Over the same two decades, global air travel doubled growing to four trillion RPKs (revenue passenger kilometers).

The future? Start with Cisco’s [CSCO] forecast for global internet traffic growth in their fascinating white paper "Approaching the Zettabyte Era" and their expected long-anticipated growth for video conferencing as both bandwidth speed and cheap video screens now permit. (For the prefix challenged, a zeta is a thousand exas.) Boeing [BA] is certainly aware of the Internet, and is one of the early and pre-eminent adopters of the power of real-time global networking to build and service complex hardware supply chains.

Now check out Boeing’s forecast for air travel over the next 20 years (top left); traffic triples. Airbus just announced an upgrade in their 20 year demand forecast. The world has some 19,000 large commercial aircraft today. In 20 years, that doubles – count replacement of older and inefficient units, and some 30,000 commercial jets get built.

That’s a lot of expensive high-end hardware and is certainly bullish for engine builders the likes of Pratt & Whitney [part of UTX], Rolls Royce [RR], and GE [GE]. It is also bullish for the users of all that hardware, from United-Continental [UAL], now the world’s largest air carrier, to Delta [DAL] and all the rest, along with the entire global aviation infrastructure supplying hardware, services and fuel,

Visionary Vinton Cerf, and one of the fathers of the Internet (today a Google VP and Chief Internet Evangelist) was amongst the first and most prominent to observe a decade ago, in a Y2K collection of technology forecasts published by the Institute of Electrical and Electronics Engineers, that "the Internet has the funny effect of increasing the amount of travel – people using it discover places to go and people they want to meet." You could say the Internet is an oil-sucking beast.

Communications technologies of all kinds function as an economic lubricant, reducing friction in the economy and thus accelerating economic growth. From there, we start with more travel with rising wealth, etc. But it is more than that. True interactive networks have enormous amplifying power, quite different from mere electronic connectivity (the telephone). This idea expressed as Metcalfe’s Law (named after Ethernet inventor Robert Metcalfe) posits the value of a telecommunications network is proportional to the square of the number of users. Users are countable in billions of people today, and still rising – soon to be joined by trillions of things. The square of a trillion is a very large number.

When things start to communicate, we expect both more efficiency and economic growth – and the transport of a lot more stuff. Boeing’s global cargo traffic forecast is almost 50 percent greater than the growth rate for passenger traffic. Link the very products, hardware and infrastructure of businesses and you get more not less traffic in things (back to the oil-sucking sub-theme – more oil consumed, not less) German’s ThyssenKrupp is using intelligent automation and networks to integrate steel manufacturing (the physical steel mill’s operations, not the people talking) across three continents. This is a harbinger of manufacturing of the future – and of more traffic on both communications and transportation networks. (The classic on the internet-of-things macro remains the still relevant 2000 publication of MIT’s Neil Gershenfeld’s, When Things Start to Think.)

For investors, these are complimentary trends. One can be bullish on the software bets fallout from WikiLeaks in the already enormous and rapidly growing cyber security software ’niche’. Even before the latest leaked data-dump, and Google’s widely publicized security intrusion in their China operation, software security growth was hot, outpacing basic software growth. There is nothing subtle, valuation-wise, in this past August’s acquisition by Intel of McAfee for almost $8 billion, the biggest buy in Intel’s history. Or HP’s (HPQ) more recent high-value purchase of cybersecurity software company ArcSight (ARST) for $1.5 billion. Count on a buying spree, consolidation, IPOs and new start-ups to continue.

New technologies will emerge to build ever-better Maginot Lines for cyber protection.

Darpa, the Defense Department’s vaunted tech agency (progenitor of the Internet in the first place) has various projects, including their Cyber Insider Threat initiative, to add effectiveness to the toolkits for data-leak prevention and network forensics industries. You know that the DoD takes this stuff seriously when they create a new Command in the normally static military infrastructure; USCYBERCOM, the US Cyber Command, reached "full operational" status on Halloween 2010.

As an aside: The military implications of cyber security have been amply demonstrated in recent years. It was widely reported that Russia crippled Georgia’s key Internet infrastructure just prior to their 2008 land invasion. Israel similarly cyber-suppressed Syrian air defenses prior to the September 2007 bombing of that country’s ’stealth’ nuclear reactor. (Some truth-stranger-than-fiction type technology was used "to invade [Syria’s] communications networks, see what enemy sensors see and even take over as systems administrator so sensors can be manipulated into positions so that approaching aircraft can’t be seen.") Both the U.S. and Israel were unsurprisingly suspect in this years’ cyber attack on Iran’s nuclear weapons development infrastructure via the Stuxnet virus. Stuxnet’s ability to penetrate the electrical infrastructure has a lot of people’s attention. According to a recently released report from Pike Research, to protect against Stuxnet type threats the U.S. utility market alone will spend over $20 billion by 2015. (A good read on all this; the December 9, 2010, Congressional Research Service report The Stuxnet Computer Worm: Harbinger of an Emerging Warfare Capability.)

The geopolitical world was temporarily destabilized by the announcement in the 1970s of the neutron bomb, which could leave buildings standing, but kill all the people. Cyber-bombs take it a step further; leaving people standing, but killing their secrets and intellectual property. Assange dropped a diplomatic cyber-bomb last month. All the multitude of other daily security intrusions in the business domain are the equivalent of the deadly IEDs (improvised explosive devices) so vexing our troops in Iraq and Afghanistan – now the business and diplomatic world has to deal with improvised cyber-explosive devices. According to the Federal Internet Crime Complaint Center, businesses lost $560 million due to cybercrime in 2009, up from $265 million in 2008. So the U.S. Chamber of Commerce released last week "Internet Security Essentials for Business," a guide to help businesses deal with cyberthreats. Helpful. But as it was in the days of the courts of King Henry VIII, executives are going to depend ever more on trusted human agents, dispatched to the far corners of kingdoms to carry sensitive messages, learn sensitive information, negotiate and close deals.

In the end, there’s no way to plug leaks, physical or Wiki. You just build new Maginot Lines, and try to ensure you have trusted deputies and employees. The Wiki-flap reminded me of my first week in the Reagan White House Science Office. To the volubly expressed chagrin of the Science Advisor, a sensitive memo – typewritten mind you, this was well pre-Internet – was leaked and ended in local trade press a mere day after internal circulation. The leaker doubtless used the modern technique of the copy machine and shoe leather.

The Internet pushes more travel not because of Assange-like threats, but because there is something primal about a face-to-face meeting. In both diplomacy and business, there is a profound message sent when you travel to meet a putative partner, or adversary. You are consuming the single most valuable commodity you possess; your time. And there is something deeply fundamental extracted from in-person meetings, gauging the measure of confidence, trust, affection or dislike for someone on finally meeting. None of that is captured in mail, email, phone, video conferencing or even immersive reality. Maybe someday. And maybe never. There may well be some undetected and still un-understood biological sensing and signaling between humans when they meet. (Certainly much has been written about this in the attraction of the sexes.) There is much we don’t understand yet in these eerie biological and psychiatric domains. Perhaps it is a yet-to-be-discovered aspect of human pheromone sensing, which are known to directly and subconsciously impact the brain.

Theory and speculation aside, executives in corporations and State departments will continue to dispatch humans rather than emails to pursue and close deals and protect sensitivities.

Julian Assange is assured a place in the history books not as the first or only person to leak sensitive information. But scale matters, and the scale of the WikiLeaks set a new benchmark, and thus new challenges. WikiLeaks will in hindsight be seen as the paradigmatic pivot around which new two core inter-related trends accelerate; the centrality of cyber security, and centrality of more air travel.

Original Source: http://www.forbes.com/sites/markpmills/2010/12/15/wikileaks-fallout-is-bullish-for-boeing-airbus-and-united-continental/

 

 
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