Can Brian Krzanich’s practicality revive Intel?

Can Brian Krzanich’s practicality revive Intel?

January 24, 2014: 5:00 AM ET

Krzanich may turn out to be a CEO so practical-minded he gets exactly what he wants in the end, even if it means passing serendipity along the way.

By Kevin Kelleher, contributor

FORTUNE — All along Intel’s (INTC) storied history, an investment in the company has essentially been a vote of confidence in Moore’s law — the observation, named after an Intel founder, that the number of transistors on a microchip doubles every two years.

But if Moore’s law is still working well enough, the stock of the company he co-founded has not been advancing quite as steadily. Over the past two years, the stock is largely unchanged from its current $25 a share price — technically, it’s down 4% in that period, against a 52% rise in the Nasdaq Composite. And as Bespoke Investment noted, the stock has gapped down each of the past eight quarters Intel has posted earnings.

Much of Intel’s subpar performance is tied to its longtime dependence on chips for the PC market, which has seen sales dwindle in the era of the tablet. It’s not an issue of the technology of Intel’s chips, it’s the devices they’re going into — tablets and smartphones, in particular. Intel has been struggling to find a way into mobile chips, as well as devices in emerging areas like wearable computers and the Internet of Things.

That has left Brian Krzanich, appointed as Intel’s CEO last May, tasked with pushing Intel into the post-PC era. Krzanich joined Intel after graduating from San Jose State University in 1982, rising through a number of positions in the company’s manufacturing operations. His roots in engineering were welcome inside Intel, but some investors wondered whether he had what it takes to revive the chipmaker.

Following in the footsteps of several high-profile CEOs before him, Krzanich was something of a mystery when he was tapped to lead Intel. He has since emerged as a quietly practical leader with a shrewd, no-nonsense approach that appeals to some on Wall Street. “At a very high level,” BMO Capital analyst Ambrish Srivastava wrote in a report this month, “we see the company more willing to accept and address the challenges that the company faces.”

Some of Krzanich’s grit became evident during Intel’s investor day in November. After Intel Chairman Andy Bryant told the investment crowd he was “personally embarrassed that we seem to have lost our way,” Krzanich stepped forth to diagnose the cultural problem that led Intel to be blindsided by the iPad: “We’d become insular,” he said. “We’d become focused on what was our best product vs. where the market wanted to move.”

In that moment, Krzanich presented himself to investors as the born-and-bred Intel engineer who would find the market’s pulse and reposition the company toward it. As if to show his resolve in breaking with tradition, he vowed to expand the company’s contract manufacturing business, allowing more chipmakers access to a crown jewel, Intel’s advanced process technology.

For Krzanich’s turnaround to work, it will need some time. Last week, when Intel reported earnings for the most recent quarter, its traditional business of PC chips saw revenue decline 4% in a quarter when PC shipments fell 10%. Conversely, revenue from Intel’s data-center group rose 8%, well below the double-digit rate analysts were expecting. Intel blamed that on excess inventory and a slow recovery in corporate IT spending.

In the conference call to discuss earnings, Krzanich discussed the Bay Trail system-on-a-chip platform Intel recently launched for tablets and smartphones. His goal is to sell 40 million tablets with Intel processors by year’s end, having sold 10 million through 2013. Krzanich also toldRe/code how its low-power Quark chips would “find a home in all manner of gear from machines to wearables and more.”

Krzanich is not immune to missteps. At CES this month, he demoed a number of devices in wearable computing, but the gambit backfired when the company admitted some of those devicesused chips from ARM, the rival whose chips power the iPad and other tablets.

But neither is Krzanich averse to bold measures. One of the pet projects of his predecessor, Paul Otellini, was OnCue, Intel’s bid at creating new revenue streams outside of pure chips. OnCue was an Internet-driven set-top box designed by Eric Huggers, who previously created the well-received BBC iPlayer. OnCue delivered an interface that, according to those who saw it, was “beautiful” and “audacious,” something that could finally deliver on the promise of big-screen Internet video and bury for good the medieval experience of navigating pay TV.

This week, Krzanich sold OnCue off to Verizon (VZ) for a reported $200 million, a fifth of Intel’s original asking price. The deal is a good one for Verizon, helping it take on Comcast (CMCSA) and perhaps improve the TV experience for the small audience that has access to its FIOS TV service. Or maybe Verizon just wants to sunset a technology superior to the experience already offered by incumbents.

Why would Intel sell a perfectly good innovation at a steep discount? Most likely because of Krzanich-school practicality. Intel doesn’t have to distract itself with things it poorly understands, like negotiating with the sharks that own video content. And also to win some valuable chits with Verizon, which has the power to tell mobile-phone manufacturers which chip to put into its smartphones and tablets … like the Atom or the Bay Trail, maybe?

“Think of it in a way where you have a new CEO who has a strategy of delivering chips into phones and tablets, and no relationship with those big players,” Barron’s quoted an Intel source as saying. “When you have zero market share in mobile, one could argue there is a need to cement the relationship.” In other words, Intel has fallen from a giant that told other industries how to do business to a company that curries favor with potential allies.

Just like an engineer. Krzanich may turn out to be a CEO like Facebook’s (FB) Mark Zuckerberg — so practical-minded he gets exactly what he wants in the end, even if it means passing serendipity along the way. No matter. Moore’s law progresses. And under Krzanich, Intel will try to as well.

Why Lenovo paid $2.3 billion for IBM’s low-end server unit

Why Lenovo paid $2.3 billion for IBM’s low-end server unit

By Miguel Helft, senior writer January 24, 2014: 11:37 AM ET

Here’s a hint: Apple and Samsung should be nervous.

FORTUNE — In this game of chicken, it looks like IBM blinked.

The Armonk, N.Y.-based technology company (IBM) has wanted to unload its low-end, x86 server business for some time. Early last year, it conducted serious negotiations with the most likely buyer, Lenovo, the Beijing-based company that purchased its personal computer business in 2005. News of an impending deal, presumably leaked by IBM, suggested that the unit would fetchnorth of $4 billion. But it was premature: Lenovo balked at the steep price and walked away.

On Thursday, the companies announced that they finally had a deal. Lenovo will pay $2.3 billion for IBM’s business, which brings in approximately $4.6 billion in revenue annually. Some 7,500 IBM employees will join Lenovo.

The news comes just two days after IBM said during its fourth-quarter earnings report that its hardware business was declining faster than expected. While the decision to seal the deal with Lenovo likely preceded the report, it’s clear that IBM understood that it was holding on to an asset whose value would only decline over time. It wisely took the $2.3 billion, even though it was a much smaller sum than what it had asked a year earlier.

The deal makes plenty of sense for Lenovo, too, as well as its investors, which sent the company’s U.S. shares up by more than 3% on the news. The Chinese company has been killing it in the PC business for years. A little over six months ago, it became No. 1 in the industry, edging out Hewlett-Packard (HPQ). Lenovo is also the only major PC vendor that has managed to hold steady as the PC market experiences its worst declines in history. The company has staked its success on a strategy of diversification (in both product and geography), scale, and wafer-thin margins. Oh, and flawless execution.

As Fortune explained in a feature story last year, Lenovo’s ultimate goal is to leverage its dominant position in PCs to challenge Apple (AAPL) and Samsung in mobile.

So how does this deal further those ambitions? First, it significantly strengthens Lenovo’s position in low-end servers, a business that has a lot of synergies with PCs with regard to development and manufacturing. With IBM’s unit, Lenovo will go from No. 6 to No. 3 in the business of selling servers to corporate data centers. “It grows our business by almost a factor of 10,” Peter Hortensius, a senior vice president at Lenovo, said in a conference call with reporters.

What’s more, while low-end servers were a low-margin business for IBM, they represent a high-margin business for Lenovo, which has often prioritized market share over profits and undercut rivals like Dell and HP on price.

A boost in overall profit margins could give the Chinese company the breathing room it needs to invest more heavily in its mobile business, which is still young but growing quickly. In the third quarter, Lenovo, which entered the smartphone market only a little more than two years ago, became the No. 3 seller worldwide, on the strength of its business in China and other developing markets. While Lenovo’s 5.1% share of the global market remains far behind Apple’s 12.1% share and Samsung’s 32.1% share, the performance is impressive.

“We’re very excited by this acquisition,” Hortensius said. “It’s the logical next step for us.”

The major question now is whether the deal will clear regulatory approval, including a likely national security review. History suggests it will: Unlike many Chinese companies, Lenovo largely operates by Western standards of transparency and openness. It sells tens of thousands of PCs to federal agencies, and it has been cleared to buy American companies or units of American companies on multiple occasions. The most significant of those was Lenovo’s 2005 acquisition of IBM’s PC business, a deal that began the transformation of a successful Chinese company into a global powerhouse. Hortensius, who helped negotiate that deal on behalf of IBM and then joined Lenovo, said he expects the deal to close in six to nine months.

Divisions emerge over effect of digital disruption

Last updated: January 24, 2014 5:42 pm

Divisions emerge over effect of digital disruption

By Andrew Hill in Davos

Sitting alongside his counterparts fromYahoo, AT&T, BT Group and Cisco Systems, Marc Benioff, chief executive ofSalesforce.com, launched the World Economic Forum this week with the bull case for the technology revolution.

“This panel is usually Nobel laureate [economists],” he told the opening session in Davos on Wednesday. “We took their spot this year because technology is really important and there’s never been a more exciting, more fun, more energetic time.”

The economists have struck back, however, pointing out that the many opportunities presented by digital disruption of companies and communities also carry with them complex political, economic and social risks.

Lawrence Summers, the economist and former US Treasury secretary, said on Friday that the advance of technology “was one of the greatest things that will ever happen to humanity”, but it was not an “unalloyed good”. The former economic adviser to President Obama likened the benefits – and the disruption – to those brought by the industrial revolution, but warned that the world lacked the kind of political leaders who helped shape the public policy of the late 19th and early 20th century. “We don’t yet have the Gladstone, the Teddy Roosevelt, or the Bismarck of the technology era,” he said.

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At the heart of these concerns is uncertainty about the impact of technological change on jobs – shared by some technology executives, despite their optimism about the eventual benefits. On Thursday, in another Davos briefing, Eric Schmidt, chairman of Google, warned that automation could wipe out a broad range of jobs describing it as “a race between people and computers [that] people need to win”.

Advances in artificial intelligence could put at risk white-collar jobs in areas such as research that were previously less threatened by automation, with disruption spreading from manufacturing to service industries.

The predictive power of the Davos elite on technology is flawed. As Davos veteran Maurice Lévy, chief executive of Publicis, the advertising agency, has pointed out this week, while everybody at the forum now carries a smartphone, tablet or both, 10 years ago delegates were handed Palm Pilots, while more recently it was the virtual community Second Life, now a niche enthusiasm, which was expected to revolutionise business and society.

It is also possible that many new jobs will be created in technology areas that have not yet developed. Economists have pointed out, too, that recent technological changes do not seem to be feeding through to productivity, which stopped improving in most countries last year. One possible explanation is that innovation is not increasing efficiency in the way technology bulls such as Mr Benioff predict it should.

At the same time, most individuals remain optimistic about the impact of technology on their lives. A survey carried out for Microsoft, and released on Friday, shows a majority of people, particularly in the developing countries, believe personal technology will improve economic wellbeing. Nine out of 10 people in developing countries think such technology is “making the world a better place” according to the survey. In China, Mexico, Russia and India more than 80 per cent believe it helps bridge economic gaps. In developed countries, however, 41 per cent of people saw personal technology as a barrier to economic opportunity. According to the latest Edelman Trust Barometer, released this week, people trust technology companies more than those in any other sector.

Even so, policy makers and analysts gathered in Davos remain concerned about the potentially negative implications for poorer members of the community, if the benefits of technology are not equally spread. They also warn that government is unequipped to step in and protect them. Their fear is that this, in turn, could add to income inequality and provoke a backlash against wealthy technology entrepreneurs.

“We’re innovating in a world that doesn’t have a perfect map, so we’re going to have to do it with empathy and humanity,” said one Nobel Prize-winning economist at a private Davos session this week. A former US presidential economic adviser pointed out at the same session that there was a “constant risk” that the political system would not provide policies to protect poorer citizens against the consequences of digitisation and automation.

Mr Schmidt said this week governments had to encourage the formation of rapidly growing “gazelle” companies and provide incentives for them to scale up and create new jobs. Bill McDermott, co-chief executive of SAP, the enterprise software group, said on Friday that “innovation is key to creating jobs and wealth and opportunity”, while technological tools would help improve transparency and efficiency in the public sector.

Prof Summers himself recommended some combination of policies on education, taxation and social protection to help cushion the effects of the technology revolution – but he conceded that it was far easier to lay out such a prescription than to implement it.

Online stores think local to grow global

January 24, 2014 4:52 pm

Online stores think local to grow global

By Duncan Robinson

When it comes to ecommerce, the world is far from flat.

Although goods can zip across the globe quicker and more cheaply than ever before, international ecommerce hits a stumbling block when it comes to parting customers from their roubles, reals and rupees.

A shopper in São Paulo may prefer to pay in instalments, while many Muscovites would rather feed their roubles into a type of reverse ATM than pay by card for online goods. Consumers in India, meanwhile, will only hand over the cash once an item has been delivered.

Such local payment preferences can make life very difficult for ecommerce groups with global ambitions.

But the added hassle is worth it. Ecommerce in emerging markets is booming. In India, annual ecommerce sales will more than double from $12bn today to $31bn in 2017, according to new figures from eMarketer, a research group.

In Brazil and Russia, ecommerce sales are expected to jump about 45 per cent between now and 2017, according to eMarketer. By comparison, ecommerce in developed markets such as Australia will grow by just a fifth.

But with great potential comes great inconvenience. Offering consumers a seemingly simple change in payment options to accommodate local norms often requires an inordinate amount of work.

Hotels.com – a hotel-booking division of US travel group Expedia – found this out the hard way when it allowed customers to pay for hotels when they check out, as holidaymakers from southern Europe and Russia prefer.

This seemingly minor tweak to please customers in just a handful of markets involved rewriting the contracts Hotels.comhad with 250,000 hotels and a full year of tests to make sure the functionality worked on the new website. “It was the biggest technology project in 2013,” says Matthew Walls, a vice-president at Hotels.com.

The hotel-booking website let its Brazilian customers pay in instalments – or parcelas– from early last year. This involved joining with a Brazilian financial services group, who will take on the credit risk – but for a fee, which weighs on margins. “If you really want the Brazilian customer, this is what you have to do,” says Mr Walls.

Although credit card usage in Brazil grew 63 per cent between 2007 and 2012, according to research group Euromonitor, high interest rates make credit cards unaffordable for many, meaning that instalments are here to stay.

“It’s ingrained in our culture, especially among the new middle classes,” says Ricardo Rocha, a professor of finance at São Paulo’s Insper business school. “It represents a huge challenge for foreign retailers.”

But it is a challenge with potentially large rewards: Brazil’s ecommerce market is set grow from $18bn to $26bn in the next four years, according to eMarketer.

Western retailers expanding into emerging markets have to fall into line with each market’s rules, points out Lord Alli, former chairman of British fast fashion groupAsos. Lord Alli launched Koovs, a fast fashion retailer aimed at Indian women last year.

While increasing numbers of Indians now have internet access, credit and debit card penetration is lagging behind. To get around this, Koovs – which is hoping to float in London later this year – lets customers pay for their goods on delivery, like takeaway food.

“Our job as retailers is to serve our customers,” says Lord Alli. “My job isn’t to tell them how they want to pay, or convert them to credit cards, or beat them over the head because they want it delivered by hand. Our job is to be at their service.”

The added expense of payment on delivery is simply a cost of doing business in a fast-growing market, says Lord Alli. “It is slightly more costly, but every market has its peculiarities. If they want to pay by cash, you have to make it as easy as possible. If you lose margin there, you have to gain somewhere else.”

In Russia, 58 per cent of consumers prefer to pay for an online order with cash, according to a survey by Morgan Stanley. Companies such as Qiwi – a Nasdaq-listed payments group – have sprung up to cater for this demand. Qiwi operates payment terminals that act as reverse ATMs into which Russians feed wads of roubles when they pay for everything from household bills to online orders.

It is expensive and inconvenient – as any Muscovite who has to nip outside in the middle of January to pay their internet bill will tell you.

But it is also ubiquitous. Accordingly, more and more western companies – among them Groupon, Apple and Hotels.com – are signing up with the service.

Every market has its peculiarities. If they want to pay by cash, you have to make it as easy as possible

– Lord Alli

“Each market has its nuance,” says Nick Robertson, chief executive of Asos, which launched a Russian language website last year. “It’s essential if you’re going to operate globally, you have to operate the best payments methods.”

Asos now operates in markets such as China, as well as Europe and North America. But payment in developed markets can still be a headache. In Germany, only 10 per cent of consumers say that they prefer to pay for goods on plastic. By comparison, 70 per cent of Brits do, according to YouGov.

To get around this lack of enthusiasm for credit and debit cards, Asos has teamed with companies such as Klarna – a Swedish start-up that lets consumers pay for goods only once they have been received – to help the retailer part Germans from their euros.

Despite the regional variations, retailers have reason for optimism. The smorgasbord of payment methods shows signs of shrinking. Credit and debit card penetration is increasing in all markets, particularly among young people, says Mr Robertson of Asos. “Demographics are moving in our favour,” he says. “20-somethings use debit and credit cards.”

But until then, retailers with international ambitions have to play by local rules. “Never punish your consumer for the way they pay,” says Lord Alli. “It’s irrelevant how they pay; I want them to buy.”

Facebook ‘will lose 80% of users by 2017’

Facebook ‘will lose 80% of users by 2017’

LONDON— The popularity of Facebook has spread like an infectious disease, but we are slowly becoming immune to its attractions and the platform will be largely abandoned by 2017, researchers at Princeton University have said.

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6 HOURS 39 MIN AGO

LONDON— The popularity of Facebook has spread like an infectious disease, but we are slowly becoming immune to its attractions and the platform will be largely abandoned by 2017, researchers at Princeton University have said.

The forecast of Facebook’s impending doom was made by comparing the growth curve of epidemics to those of online social networks. Scientists argue that, like bubonic plague, Facebook will eventually die out.

The social network, which will celebrate its 10th birthday on Feb 4, has survived longer than rivals such as Myspace and Bebo, but the Princeton forecast says it will lose 80 per cent of its peak user base within the next three years.

Mr John Cannarella and Mr Joshua Spechler from the US university’s mechanical and aerospace engineering department have based their prediction on the number of times Facebook is typed into Google as a search term.

The charts produced by the GoogleTrends service show Facebook searches peaked in December 2012 and have since begun to trail off.

“Ideas, like diseases, have been shown to spread infectiously among people before eventually dying out, and have been successfully described with epidemiological models,” claimed the authors.

“Ideas are spread through communicative contact among different people who share ideas with one another. Idea manifesters ultimately lose interest in the concept and no longer manifest the idea, which can be thought of as the gain of ‘immunity’ to the idea,” they said.

Facebook reported close to 1.2 billion monthly active users last October and is due to update investors on its traffic numbers at the end of the month. While desktop traffic to its websites has indeed been falling, this is at least partly due to the fact that many people now access the network only via their mobile phones.

For their study, the researchers tested various equations against the lifespan of Myspace, before applying them to Facebook.

Myspace was founded in 2003 and reached its peak in 2007 with 300 million registered users, before falling out of use by 2011.

Purchased by Mr Rupert Murdoch’sNews Corp for US$580 million (S$743 million), Myspace signed a US$900 million deal with Google in 2006 to sell its advertising space and was at one point valued at US$12 billion. It was eventually sold by News Corp for only US$35 million.

The 870 million people using Facebook via their smartphones each month could explain the drop in Google searches — those looking to log on to the network are no longer doing so by typing the word Facebook into Google.

But Facebook Chief Financial Officer David Ebersman admitted: “We did see a decrease in daily users (during the last three months), specifically among younger teens.” THE GUARDIAN

‘Mac’ turns 30 in changing computer world

‘Mac’ turns 30 in changing computer world

23JAN2014

San Francisco (AFP)

Decades before changing the world with iPhones and iPads, Apple transformed home computing with the Macintosh.

The friendly desktop machine referred to as the “Mac” and, importantly, the ability to control it by clicking on icons with a “mouse,” opened computing to non-geeks in much the way that touchscreens later allowed almost anyone get instantly comfortable with smartphones or tablets.

The Macintosh computer, introduced 30 years ago Friday, was at the core of a legendary rivalry between late Apple co-founder Steve Jobs and Microsoft mastermind Bill Gates.

Thousands of Apple faithful are expected for a birthday party this weekend in a performing arts center in Silicon Valley, not far from the company’s headquarters in the city of Cupertino.

“The Mac was a quantum leap forward,” early Apple employee Randy Wigginton told AFP.

“We didn’t invent everything, but we did make everything very accessible and smooth,” he continued. “It was the first computer people would play with and say: ‘That’s cool.'”

Prior to the January 24, 1984 unveiling of the Mac with its “graphical user interface,” computers were workplace machines commanded with text typed in what seemed like a foreign language to those were not software programmers.

Credit for inventing the computer mouse in the 1960s went to Stanford Research Institute’s Doug Engelbart, who died last year at 88.

“The Mac’s impact was to bring the graphical user interface to ‘the rest of us,’ as Apple used to say,” Dag Spicer, chief content officer of the Computer History Museum in Silicon Valley, told AFP.

“The Mac GUI was picked up by Microsoft, who named it Windows.”

The man remembered today as a marketing magician was a terrified 27-year-old when he stepped on stage to unveil the Mac, then-chief executive John Sculley said of Jobs in a post at the tech news website CNET.

“He rehearsed over and over every gesture, word, and facial expression,” Sculley said.

“Yet, when he was out there on stage, he made it all look so spontaneous.”

Apple spotlighted the arrival of the Mac with a television commercial portraying a bold blow struck against an Orwellian computer culture.

The “1984” commercial directed by Ridley Scott aired in an expensive time slot during a US Super Bowl football championship in a “huge shot” at IBM, Daniel Kottke of the original Mac team told AFP.

“In the Apple board room, there were strong feelings that it was not appropriate; there was a big battle,” Kottke said.

“Fortunately, Steve Jobs and his reality distortion field won the day and it left a strong memory for everyone who saw it.”

There was a drive to keep the Mac price within reach of consumers in a market where computers costing $10,000 or more were typical.

While clicking an on-screen icon to open a file appeared simple, memory and processing demands were huge for the computing power of that time.

“Every time you move that mouse, you are re-drawing the screen,” Kottke said. “It is almost like video.”

The original vision of launching a Macintosh with 64 kilobytes of RAM and a $1,000 price gave way to introducing one with 128 kilobytes of RAM at $2,500.

“Steve really was crazy about details,” Wigginton said. “He wanted everything to be just right. Compared to the IBM PC of those days, it is just gorgeous.”

Macintosh also arrived with a new feature called “drop-down menus.”

“The Macintosh brought a new level of accessibility for personal computing to a much wider market in the same way the iPad did 25 years later,” Kottke said.

Mac prowess at page layouts and photo editing won the devotion of artistic types.The release of “hypercard” is credited with inspiring fanatical loyalty to Macs.

“It was the idea that you could create a page on your screen and create links to other pages,” Kottke said.

“You could have all your computers networked to share data; it was like a private Internet.”

Macs sold decently out of the gate, but Windows machines hit with a low-price advantage for budget-minded buyers. Microsoft released the first version of Windows in late 1985.

The ensuing rivalry is the stuff of Silicon Valley legend and coffee shop smack talk.

“I think Steve Jobs cultivated a sense of Windows versus Mac,” Kottke said.

“Steve Jobs was always taking swipes at Microsoft, but it really heated up when Microsoft released Windows. He would say they copied us.”

Microsoft took the lead in the home computer market by concentrating on software while partners cranked out Windows-powered machines at prices that undercut the Mac.

“Really, Apple could well have gone out of business in the late 1990s,” Kottke said.

“That would not have surprised people.”

The rivalry between Microsoft and Apple has yielded to the mobile age, with Google and its Android operating system targeted as the new nemesis as lifestyles center on smartphones and tablet computers.

The original boxy Macintosh with a mouth-like slit below the screen for “floppy” data disks has evolved into a line that boasts slim, powerful laptops and a cylindrical Mac Pro desktop model.

“I am thankful to have been a part of it,” Wigginton said.

“Once you go through an experience like that, and it was extremely painful, you look back and every sacrifice is absolutely worth it. It is when Apple leapfrogs in technology that they succeed.”

Davos Stalked by Tech Disruption as Intel to Wal-Mart Challenged

Davos Stalked by Tech Disruption as Intel to Wal-Mart Challenged

As the Internet took off, newspaper publishers, record labels and travel agencies were all walloped by the emergence of free online alternatives.

Today, the range of threats to businesses is widening as companies from Wal-Mart Stores Inc. to Intel Corp. and Siemens AG grapple with similar dilemmas. At this week’s World Economic Forum in Davos, Switzerland, technological disruption — and what companies are doing to prepare for it — is on executives’ minds, and will be the subject of a Bloomberg Television panel today on the slopes of the Alpine resort town.

When meeting with chief executive officers, “what you hear is, technology is moving three to five times faster than management,” said Dominic Barton, the global managing director of consultancy McKinsey & Co., who is in Davos. “I don’t know whether to be excited or paranoid. It means you can do new things, but it also means competitors can come out of nowhere.”

Today’s panel will include Qualcomm Inc. CEO Paul Jacobs and incoming Wal-Mart CEO Doug McMillon, discussing how innovation will affect the global marketplace this year.

The last year saw a run of bad news for blue-chip corporate names even as a recovery in the U.S. and European economies took hold. Wal-Mart in November cut its annual profit forecast for the second time since mid-2013 as Amazon.com Inc. expands its online retail offerings. A Wal-Mart spokesman didn’t immediately return a message seeking comment.

Upstart Competitors

Intel, the world’s largest chipmaker, predicted 2014 sales will be little changed from a year earlier as chips designed by smaller competitors like ARM Holdings Plc dominate the market for semiconductors in tablets and smartphones. And Siemens abandoned a profitability goal and began an overhaul of its structure as performance slumped in its infrastructure and industry units.

“Digitalization and software has an increasing role in what were traditional hardware markets,” said Siemens CEO Josef Kaeser, who is also in Davos. “That means there are opportunities in lots of sectors for others coming into our area.”

For Siemens, those challenges include staying ahead of software-focused firms that are pushing into industries like energy equipment. Google Inc. this month announced a $3.2 billion acquisition of energy-management startup Nest Labs, one of a welter of companies offering tools for “smart grid” electrical systems. Siemens is also competing with companies like Samsung Electronics Co. in the market for medical devices.

Energy Software

Among other measures, Siemens has tried to pre-empt the possibility of seeing its business model disrupted by creating a joint venture with Accenture Plc for energy software and services. It also appointed Jim Hagemann Snabe, who is stepping down as co-CEO of enterprise-software maker SAP AG, to its board in October. Siemens Chairman Gerhard Cromme said Snabe was brought in to improve understanding of new technologies.

Like Google, many companies are turning to takeovers to avoid being disrupted, especially in the telecommunications, media, and technology, or TMT, sectors. They were a rare bright spot for dealmaking last year, with about $561 billion in announced takeovers, up 29 percent from 2012, while overall transactions rose four percent.

The largest deal in those areas, Verizon Communications Inc.’s $130 billion buyout of Vodafone Group Plc’s stake in its wireless unit, reflected the potential of so-called 4G mobile technology. Verizon, the largest U.S. mobile carrier, has said it will use full control to increase investment in 4G service, which can be sold at a premium to users.

Ad Industry

Another major deal, the $30 billion merger of Publicis SA and Omnicom Group Inc. that will create the world’s largest advertising agency, was hatched in part, the companies said, to prevent Silicon Valley firms like Google and Facebook Inc. from displacing the traditional ad industry.

“Tech business models are starting to disrupt a greater portion of the Fortune 500,” said Neil Rimer, a partner at venture capital firm Index Ventures.

Emerging technologies may expand the array of threats to successful companies. 3D printers, which produce complex items using extruded plastic or metal, may reduce demand for some manufactured goods and for deliveries.

United Parcel

Sales in the 3D printing industry will approach $6 billion by 2017, compared with $2.2 billion in 2012, according to consultancy Wohlers Associates, growth that’s prompting United Parcel Service Inc. to offer the service in some of its shops — before customers start buying the printers themselves.

The machines could also threaten suppliers of parts to the automotive and aerospace industries if manufacturers opt to produce the items in-house instead, according to venture capitalists.

The financial industry, too, faces disruption, thanks to new models for payments and lending that cut out traditional providers. For example, China’s Alibaba Group Holding Ltd., the country’s largest e-commerce firm, has begun lending to small and medium-sized businesses, posing a potential future threat to banks. Startups like Britain’s Wonga.com Ltd. are doing the same.

“Innovation is all happening outside of banks,” said Bruce Golden, a partner at Accel Partners. Risk-averse and slow to adopt new technologies, most large financial institutions “don’t have the architectural skills to innovate,” he said.

Money Laundering

Regulation will protect banks’ existing businesses to some extent. China and Denmark have already tightened rules on the Bitcoin virtual currency amid concern over money laundering. In the U.S., politicians including Senators Tom Carper and Tom Coburn have asked regulators to lay out their plans for virtual currencies.

Yet on the whole, vigorous technological competition is making it harder for big firms to innovate, said Reinhard Ploss, CEO of German semiconductor producer Infineon Technologies AG. “When our market was young, it was easy to have an impact with new technologies,” Ploss said. “That’s becoming increasingly difficult.”

The market leader in semiconductors, Intel, is making particular efforts to find a new business model as demand for personal computers shrinks for a third year in a row.

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To stay ahead, Intel assigned a former Apple Inc. executive to head its New Devices division, which is seeking to develop wearable gadgets and peripherals for smartphones and tablets.

Intel spokesman Chuck Mulloy declined to comment.

The risks even to nimble firms will only grow as the so-called Millennial generation, raised on Facebook and YouTube, enters the workplace and demands better, faster technology, said Marcus Weldon, chief technology officer at Alcatel-Lucent SA.

“We’re at five minutes to midnight because of the evolution of the teenage population into the adult population,” Weldon said. “You’ve got a generation that just thinks how we do things is stupid.”

To contact the reporter on this story: Matthew Campbell in Davos, Switzerland at mcampbell39@bloomberg.net

Text, Chat, Profit: Tencent Launches Investing on WeChat

Text, Chat, Profit: Tencent Launches Investing on WeChat

Jan 22, 2014

If imitation is the sincerest form of flattery, just about everyone in China’s Internet industry is kowtowing to Alibaba Group Holding Ltd.
On Wednesday, Tencent Holdings Ltd.TCEHY +2.35% followed Sina Corp.SINA +0.97%and Baidu Inc.BIDU +1.00% in rolling out an online financial-services product similar to Alibaba’s popular Yu’E Bao
. Users of Tencent’s WeChat app can put money directly in the fund, which is run by China’s largest mutual-fund manager, China Asset Management Co.600030.SH -1.24%
The new service is no doubt aimed at competing with Alibaba’s service, which was introduced last year. It’s also likely a ploy by Tencent to entice users to link their bank and WeChat accounts. The fund, called Licaitong, offers an impressive 7.3940% seven-day annualized yield, besting Yu’e Bao’s rate by almost 1%.
China’s financial sector has long been dominated by state-owned banks, but technology companies have begun to enter their turf by using online platforms to push innovations in the sector.
Though Alibaba was first to push into the sector, others have been hot on its heels. It isn’t known how many customers or how much investment Licaitong attracted on its first day, but a promotion giving away cash prizes to promote the new product attracted enough users to crash the system, according to Chinese magazine Caixin. Tencent’s official QQ customer service said the promotion has been postponed.
Tencent and Alibaba didn’t respond to requests for comment.
Even so, Tencent likely has its work cut out for it if it wants Licaitong to rival Alibaba’s Yu’e Bao in popularity. As of Jan. 15, Yu’e Bao had attracted more than 49 million customers with more than $40 billion in investment.
That made Tianhong Asset Management Co., which manages the fund Yu’e Bao is based on, rise from a no name in the industry to the second-largest mutual-fund manager, threatening the throne held by China Asset Management.
Yu’e Bao’s success is due in no small part to Alibaba’s two biggest strengths, its online e-commerce platform Taobao.com and its online-payment system Alipay, which many online shoppers have grown accustomed to depositing money in.
Taobao clients can transfer their Alipay funds to Yu’e Bao, which offers a higher yield than bank deposit or deposit-like wealth-management products. Like current deposits at banks, money invested in Yu’e Bao can be used to shop on Taobao and can be withdrawn at any time, up to 1 million yuan per day (about $165,000).
Though Tencent has more than 272 million users, it doesn’t have a mature e-commerce platform and users aren’t nearly as comfortable transferring funds in and out of WeChat. Even if they do put money into Licaitong, they must do so directly from their bank account, not through an intermediary like Alipay, which facilitates Yu’e Bao’s exchange.
“The yield offered by Tencent is quite appealing, but it’s not as convenient as Yu’e Bao, which can be easily used for online shopping. I will wait and see if Tencent will continue to offer such a high rate or provide better services than Alibaba,” said Song Chen, a Beijing resident who currently has money invested in Yu’e Bao.
Still Tencent seems determined to use investment products to win over users. In the future, the company said it plans to launch three other investment services, based on funds provided by China Universal Asset Management Co., E Fund Management Co., and  Guangfa Fund Management Co.

LifeWatch Shares Rise to 3-Year High on China Telecom Deal to provide medical smartphones and related services

LifeWatch Shares Advance Most Since 2008 on China Telecom Deal

LifeWatch AG (LIFE), a provider of remote cardiac and other patient monitoring systems, rose the most in almost six years after a preliminary agreement to provide China Telecom Corp. (728) with medical smartphones and related services.

LifeWatch shares climbed as much as 29 percent, the biggest advance since April 2008. The stock was up 23 percent at 9.47 Swiss francs as of 11:42 a.m. in Zurich, giving the company a market value of 125.4 million francs ($138 million).

The agreement with China Telecom, the nation’s third-largest wireless company, may generate more than $400 million of sales over five years, LifeWatch said in a statement today. The binding memorandum of understanding provides a minimum purchase volume and China Telecom was granted exclusivity for the China territory, LifeWatch said.

The agreement “is a significant positive for the company and the stock,” Tom Jones and other analysts at Berenberg Bank in London, wrote in a note to clients. “It’s a step toward diversifying away from its core wireless cardiac monitoring business.”

The minimum sale alone of its health-enabled smartphone, called LifeWatch V, and the accompanying services, may lead to turnover rising by a third and a “multiplication” of earnings before interest and taxes this year, LifeWatch said.

“This cooperation is a great achievement and the confirmation of the right product and marketing strategy adopted by our CEO, Yacov Geva,” LifeWatch Chairman Kenneth Melani said in the statement. “We are very proud of our research and development team in Israel.”

LifeWatch Prospects

The final agreement is scheduled to be signed in March, LifeWatch said. The Swiss company said it expects to get the required regulatory approval in April, with sales of the smartphones to begin in the second quarter.

“Given the relative sizes of the two companies, should they be unable to agree on the final terms it would, in our view, be relatively painless for China Telecom to extract itself and far more burdensome for LifeWatch to enforce whatever binding terms the memorandum of understanding includes,” the Berenberg Bank analysts wrote today. “The question for the longer term is whether LifeWatch will become and remain a market leader in this space.”

To contact the reporter on this story: Albertina Torsoli in Geneva at atorsoli@bloomberg.net

US start-up raises $10m for ‘finance Siri’; Investors offered virtual assistant to research global events

Investors turn to virtual ‘Warren’ tool for complex answers

January 22, 2014 4:08 pm

By Arash Massoudi in New York
Forecasting the market impact of a catastrophic US hurricane or an explosion in a Middle Eastern country usually requires serious time and brainpower.
Now a group of trading technology executives has teamed up with former Googleengineers and entrepreneurs to create a “virtual market assistant” – like Apple’s Siri, but for investors – that they claim will answer complex financial questions about global events instantaneously.
Kensho, a Cambridge, Massachusetts start-up, said on Wednesday its venture had secured $10m in seed financing from a group of investors including Google Ventures, Accel Partners, and Devonshire Investments, the private equity arm of asset manager Fidelity Investments.
The company said its assistant – named Warren to evoke the spirit of Warren Buffett – was already being tested by some asset managers and research teams.
The development highlights a growing interest among entrepreneurs and investors in taking technological advances widely adopted in consumer markets, such as the Siri virtual assistant on Apple’s iPhone, and applying them to financial services. Typically, such cutting-edge advantages have largely been the preserve of a small group of investors with large research and development teams.
Kensho said Warren could shorten investment research cycles from days to minutes and that it can currently answer 1m questions. That figure is set to rise to 100m distinct questions, and it will be able to respond to questions posed verbally by the end of the year, according to the company.
Daniel Nadler, Kensho chief executive, said: “A financial professional can watch the news, see a protest in Egypt and ask the system what happens to energy prices when there is civil unrest in the Middle East. Right now, what you would need to do is to go into a data provider, export spreadsheets, normalise them, create a time series and export that into a computer model.” The start-up is the first business run by Mr Nadler, 30, who is also a visiting scholar at the US Federal Reserve.
Warren relies on what Kensho says is one of the largest unstructured geopolitical and weather databases not run by the government. The company said it can answers questions such as: “What happens to Home Depot, home builder stocks, and cement company share prices following Category 4 hurricane landfalls in the continental US?”
Stanley Young, a former chief executive at Bloomberg Enterprise and an advisory board member at Kensho, said: “It is creating insight from data and allowing people to ask intelligent questions of the data.”
Kensho says Warren, which runs on a Nasdaq OMX cloud computing platform, will be rolled out to investors in the coming months at varying prices depending on the kind of investor.
The group has also appointed James Shinn, the former National Intelligence Officer for Asia at the CIA and the former assistant secretary for Asia in the US Department of Defense, to its advisory board.
David Jegen, managing director at Devonshire Investors, said: “Active asset management requires constant innovation to stay ahead, and we are just beginning to see how technology will transform existing approaches.”

Putting a price on your contacts; database used by bankers and lawyers as a way of identifying which employees were best placed to win new business; clients are paying up to $1m a year to use the data

Putting a price on your contacts

January 22, 2014 4:28 pm
By Maija Palmer
When Boardex started mapping the professional relationships between prominent business people, the London-based company was targeting corporate governance watchdogs as clients.
James Daly, chief executive, thought its database would be used to track connections between executives and board members to guard against cronyism in the wake of Enron’s 2001 collapse.
The product eventually took off – but not in the way Boardex intended. Corporate governance watchdogs were interested, “but they didn’t have the budget to spend on it”.
Instead, the database was picked up by bankers and lawyers as a way of identifying which employees were best placed to win new business.
Mr Daly says clients are paying up to $1m a year to use the data. “Two years ago it started to become a trend. Companies started looking at the relationships their employees had and recognised it as a form of capital.”
Technology such as Boardex’s is indeed making it easier to put a value on the adage “it is not what you know, it is who you know”, both for high-level employees and rank-and-file workers.
In recent years, for instance, companies such as Klout, Kred and Peer­Index have emerged, promising to measure the level of influence that an individual has online.
Factors such as how many followers someone has on Twitter and how influential those followers are can be condensed into a single number by Klout. Accenture, the consultant, is among those using it as part of its recruitment process in the US.
Profiles on the LinkedIn networking service are another guide to an individual’s connectedness, publicly listing how many contacts someone has (although it stops counting at 500).
But to what extent should employers track such indicators when they hire, promote and manage staff?
Michael Wright, head of talent acquisition for the Asia Pacific region for Group M, an advertising company, says that, while he would never hire someone solely on the basis of their Klout score or LinkedIn profile, it can be a useful filter for weeding out candidates.
“If someone has just four connections on LinkedIn and they haven’t bothered to upload a photo, it is a warning sign. They would be off our longlist of candidates for a role,” he says.
“If someone is looking to relocate from Europe to Asia and a quick scan through their contacts shows they have no connections in Asia, that would count against them as this is a relationship business,” he adds.
Paul Guely, managing partner at Arma Partners, a corporate finance advisory firm, says technical tools can only be a small part of the process.
He says: “I am a member of a number of social networks and I do get value from them in terms of seeing who knows who. But when I want to understand what “know” means – whether someone trusts this person, how much business they really do together – I have not yet found a substitute for the off-the-record phone call to someone who knows them.”
Russell Reynolds, an executive search firm, is one of the more than 250 companies that use Boardex’s software. Tim Cook, co-leader of its information officers practice, finds the software useful for looking at a candidate’s job history, but says it can never be a complete substitute for a recruiter’s own market insight.
“Knowing who is connected to who is interesting, but knowing who has excelled in their role and how they have done it is the insight on which we act,” he says.
The Boardex database maps relationships between more than 600,000 business people. If a bank wants to pitch to a company for work – to Intel, say – the software can indicate which of its employees are closest to Intel senior management.
The relationships are ranked by strength, “so that having met someone once at a cocktail party does not have the same value as having served on a board with them for 10 years,” Mr Daly says.
The most valuable information is not so much the direct connections, which might be known through other means, but the second-degree ones, which are more difficult to discover.
The system can also show a company areas where it lacks connections, as well as the impact a particular employee’s departure might have.
Mr Daly goes so far as to claim that its algorithms could put an overall financial value on a company’s relationships that would merit being placed on its balance sheet alongside other intangible assets. He believes such a number would be at least as valid as an estimate of goodwill – a notoriously finger-in-the-air asset created in takeovers.
But even as companies are offered new ways to value their employees’ relationships, there is concern in some cases over who owns those networks. Put bluntly: are your business contacts your own or the company’s?
Mr Daly talks of a “healthy tension” between individuals and their employers on this point. This is by no means entirely new. The loss of valuable connections has always been a threat to any relationship-based business, such as investment banking.
The tension is also creeping into the world of social media, however; courts have yet to work out a clear position on who owns what online when an employee leaves (see box).
Donna Ballman, an employment lawyer and author of the book Stand Up For Yourself Without Getting Fired, says that as “relationship capital” becomes more important, employment contracts will need to start including more clauses on ownership of online networks.
“This issue continues to be a hot topic in employment law. The courts frequently look to what the parties agreed in any contracts. I see provisions dealing with social media in employment agreements, confidentiality agreements, intellectual property agreements and non-solicitation agreements,” she says.
Even so, it remains unclear whether such contracts related to social media can be enforced. If any of the contacts are deemed to be in the public domain, for example, ownership clauses would not apply.
So how worried should you be if your own Klout score is less than stellar and you do not have a contact who knows Larry Ellison and can therefore make you stand out on the Board­ex database?
“It is just one tool in a very big toolbox,” says Mr Wright, of Group M. “The final decision on hiring needs human assessment. But it will be used more and more. I have a friend who says you are the product of the people you keep company with and I think there is some truth in that.”
Online poaching by former staff
Companies are used to clashing with former employees that try to poach clients or otherwise exploit professional relationships they had nurtured in their old role.
The rise of social media, however, has created fresh potential for conflict when well-connected employees quit. The question increasingly being raised is: who gets to exploit the departing worker’s online network?
So far, the case law in this area is mixed.
Litigation in the US between PhoneDog, a mobile phone review site, and one of its former employees, Noah Kravitz, was expected to be a test case last year.
Mr Kravitz had created a Twitter account, @PhoneDog_Noah, which he used to promote the company, gaining 17,000 followers in the process.
When he left the company he changed the Twitter handle to @noahkravitz but retained the 17,000 followers.
PhoneDog sued him for $340,000, putting a price of $2.50 on each Twitter follower, per month. However, the case was settled out of court and although Mr Kravitz did keep his followers, it is unclear whether he paid for them.

Some Businesses Go Creative on Prices, Applying Technology

Some Businesses Go Creative on Prices, Applying Technology
By DONNA FENNJAN. 22, 2014
Many business owners struggle with pricing. Should their first concern be covering costs or figuring out what the market will bear? How do they determine what the market will pay without raising prices high enough that some customers flee? And can they offer discounts without damaging their price brand?
There may be no easy or universal answers to these questions, but new thinking and new technology has made it possible for some, like the airline and hotel industries, to use what is known as dynamic pricing to vary prices according to demand and fill seats and rooms more efficiently. Now, more small businesses are finding ways to adapt their strategies.
You can find consultants that charge for results rather than by the hour, restaurants that charge what is essentially a ticket price that varies according to how busy the restaurant is, and even some businesses that ask customers topay what they wish
.
And Uber, a Silicon Valley company founded four years ago, has a mobile app that connects a small army of black cars with people who need rides in 70 cities worldwide and employs “surge pricing.” Uber, which takes 20 percent of all fares, charges more when demand is high and the supply of cars low.
“You get far more cars on the road and they stay out longer when surge pricing is in effect,” said Travis Kalanick, a co-founder.
You also get some cranky customers. In the last few months, the company has received an onslaught of complaints when the cost of a ride rose to as much as seven times the normal rate during a snowstorm and on New Year’s Eve.
“One of the things we’ve learned,” Mr. Kalanick said, “is that the more crisply you deliver the message to the customer and the more you set expectations ahead of time, the more you get to a place where there’s no issue with it.”
Uber’s prices are controlled by an algorithm — technology that is increasingly available to even the smallest enterprises. Craig Clark, for example, sells more than 2,600 items — vintage china, bras, house numbers — on a variety of online marketplaces. Two years ago, he was collecting $2,000 a month in revenue from his sale of house numbers on Amazon.com.
“Six months into it, my sales went down all of the sudden,” he said. “Amazon went out and got a wholesale account and started selling the numbers themselves. So you’re not just competing against other sellers, you’re also competing against Amazon.”
Mr. Clark had been laid off from his job as an analyst for a telecom company outside Philadelphia, so his online retail ventures had become his only source of income. Like many Amazon sellers, he started re-pricing items manually, but found the process wildly time-consuming. And mistakenly pricing a Jenga game at $13.99, instead of $23.99, once cost him $1,200.
Then, he learned of FeedVisor, which makes re-pricing software. “You tell them what the item cost you, the commission you pay to Amazon, and your highest and lowest price,” said Mr. Clark, whose annual revenue is approximately $500,000. “FeedVisor then algorithmically decides the best price within your parameters and what everyone else is selling at.”
The company, one of many that sells re-pricing software, charges 1 percent of sales and provides a dashboard that lets sellers analyze sales and profits. Using FeedVisor last summer, Mr. Clark said his “sales on Coobie bras went up 25 percent almost overnight.”
FeedVisor reduced the price on the bras, which he was selling for between $19 and $23, by $2 or more to make them more competitive. That reduced his profit margin, Mr. Clark said, to 37 percent from 39 percent — but increased his volume. The software also produced sales increases on other items of from 15 to 40 percent, he said, and helped him unload stale inventory, such as a pallet of pots and pans. “I hadn’t sold one in six months,” said Mr. Clark, “and I got rid of them in four days.”
Restaurants, too, are using innovative pricing strategies. In September 2012, Groupon acquired a restaurant reservation engine, Savored, and has since integrated it into a new high-end division called Groupon Reserve. Instead of offering customers, say, $50 off a meal as traditional daily deals do, Savored lets restaurants offer customers a percentage off an entire meal in return for dining at a specified time.
Cacio e Vino, a Sicilian restaurant based in Manhattan, has been using the app for two years, said Christine Ehlert, the manager. “On Sunday, Monday and Tuesday, we offer a certain number of tables for a 40 percent discount,” she said. Wednesday and Thursday diners may get 30 percent off through the app and customers who make reservations for between 5 and 7 p.m. on Friday and Saturday get a 25 percent discount.
Ms. Ehlert said that she initially worried whether the discounting might damage her brand. “But since we only offer a limited amount of discounted tables at certain times,” she said, “I feel that we can explain to people that it’s a way to drive new business to us in off hours.”
Cacio e Vino pays Groupon a flat fee of $2.50 per diner. “The nice thing is that if it seems we’re going to be too busy,” Ms. Ehlert said, “I can call our rep at Savored and close out the deal.”
Before using Savored, she said, the restaurant typically had $800 in sales on Mondays and Tuesdays. “Now, it’s between $1,200 and $1,500,” she said, with a profit margin on the discounted customers that is about half that of the full-price customers. She said slightly fewer than half of the restaurant’s discounted customers come back, typically for another discounted meal.
Frank and Rhonda Duffy run Duffy Realty of Atlanta, one of a growing number of real estate agencies trying new pricing strategies. The Duffys charge an upfront listing fee of $500 and one third of 1 percent when a house sells. According to Zillow, the agency has about 800 active listings and had more than 1,400 sales in the last 12 months. Mr. Duffy said the agency’s 2013 revenue was $5.3 million.
For the reduced fee, the Duffys offer limited service. The firm adds homes to the local Multiple Listing Service, as well as on Zillow and Trulia, supplies sellers with a 60-point, do-it-yourself marketing guide, rents lockboxes for $100, and charges $94 for a home to be professionally photographed. One of the firm’s four listing specialists is likely to come to take your information. Then, a team of specialists, including client services representatives, buyer’s agents and contract negotiators, moves buyers and sellers through the sale process.
To provide an incentive to agents from other firms to bring buyers, the Duffys encourage sellers to offer the buyer’s agents commissions of 3 percent or even 4 percent. Most sellers do it, he said, because they still come out ahead. On the sale of a $300,000 home, for example, a traditional agent might split a 6 percent commission, or $18,000, with a buyer’s agent. A seller listing with Duffy will pay a $1,520 commission ($500 plus one third of 1 percent, or $1,020), plus 3 percent ($9,000) or 4 percent ($12,000) for a buyer’s agent, or a total of between $10,520 and $13,520.
The pricing model does not suit all sellers. “The danger is you’re not getting the advice and guidance,” said Frank S. Alexander, a real estate professor at Emory Law School. “What do you with inspection results, or during the due diligence period, or in a contract negotiation?”
For experienced sellers, or in a particularly hot market, that may not matter.

South Korea Is Building A Wireless Network That Would Be 1000 Times Faster Than 4G

South Korea Is Building A Wireless Network That Would Be 1000 Times Faster Than 4G
NINA ZIPKIN, ENTREPRENEUR
JAN. 22, 2014, 11:55 PM
How much would you pay for instant download ability?
South Korea’s Ministry of Science and Technology announced plans to spend about $1.5 billion to build a national 5G wireless network to be commercially available by 2020. With the new 5G — which would be 1,000 times faster than most 4G LTE networks — users would be able download a full-length, 800-megabyte film in just one second.
Yep, just one second. That’s it.
The country’s science ministry sees this plan as “preemptive,” noting in a statement on Wednesday, “Countries in Europe, China and the US are making aggressive efforts to develop 5G technology…and we believe there will be fierce competition in this market in a few years.”
South Korea is home to tech heavy-hitters like Samsung and LG, and is known for not only being an interconnected nation, but having the fastest internet in the world. The 5G network would not only be a boon for country’s mobile and telecommunications industries. Apparently the faster internet speed would make it possible for travelers on 310 mph bullet trains to get access to their e-mail and preferred social media networks.
When wireless reaches that speed in the U.S., well, watch out.

Internet opportunity map for Southeast Asia

Starting a business in Southeast Asia? Check out this opportunity map
January 22, 2014
by Nitin Mittal

Nitin is a senior manager of business development at SingTel-SoftBank InnoVentures.

I was inspired by Ron Hose’s Philippines startup report and decided to work on a high level Internet opportunity map for Southeast Asia. The countries included in this study are Indonesia, Thailand and Philippines. I hope to add Malaysia and Vietnam in a later update.
Since there has been a lot of discussion about looking at Southeast Asia as a whole, I thought it became necessary to understand the opportunity landscape at the regional level. This map serves as a starting point for early stage entrepreneurs who are trying to figure out what to build. The good news is that most areas are at an infancy to semi-mature stage, offering an immense opportunity for entrepreneurship in Southeast Asia.
I reached out to my business network in the above countries to rate each of the Internet categories on a five-point scale – Saturated, Mature, Semi-mature, Infancy, and Non-existent. The ratings given by venture capital and Internet industry experts were country-specific. The individual country ratings where then combined (weighted average using population and GDP per capita) to get a Southeast Asia level rating.
The scores for each of the countries were based on top of the know-how of the experts and the averaging does not use other relevant influencing variables like internet, credit card, or smartphone penetration. In other words, this categorization is more of a first attempt to develop a general idea of the opportunities.
Entrepreneurs should try to identify the large pain points that customers in their markets need solutions for based on these categories. The categories should also help entrepreneurs figure out where a speedy adaptation of a successful business model and product will happen for this region and what is unlikely to work.

Tokyo Launches Cab-Calling Mobile App

Tokyo Launches Cab-Calling Mobile App

January 23, 2014, 9:54 AM
KANA INAGAKI
The next time you’re in a long lineup waiting for a taxi in Tokyo, you might want to download a new application onto your mobile phone that will connect you with a nearby cab that can pick you up in a few minutes.
Is this the Japanese version of Uber — the hugely popular car-service app in the U.S. that has also spread rapidly to nearly 70 cities around the globe, including New York, London and Singapore? Perhaps not, but it seems like a step in the right direction.
On Tuesday, the Tokyo Hire-Taxi Association introduced a mobile app service that allows users to connect with around 6,500 cabs in central areas of the city. The app works on iPhones and devices using Android and Windows operating systems through Microsoft’sMSFT -0.66%
cloud computing system.
By April, the service is expected to work for about 9,200 taxis. There won’t be any extra charges to use the app, and payments will need to be made to the driver. (With Uber, the fare is automatically charged to your credit card.)
Japan has an incredible number of taxis — over 50,000 in Tokyo alone, nearly four times the number in New York. So getting a cab in the big city is usually fairly easy.
But not always. In the upscale shopping district of Ginza, for instance, there are long lines of waiting taxis everywhere, but you can end up walking in circles looking for the start of the line, the proper place to get a cab.
And despite being one of the most wired cities on the planet, mobile phone apps for calling cabs aren’t widely used.
Some Japanese taxi companies have individually created similar apps, but until now there had been no industry-wide system.
While the Uber app is already available in Tokyo, its service area is limited and its name not widely known. When Uber Technologies co-founder and chief executive Travis Kalanick visited Japan last April, he complained about the “very byzantine and complicated regulations” — from price rules to special operating licenses — that made it difficult for his company to enter the market.
For now, the new Tokyo taxi association app is only available in Japanese. And like most things in Japan, it features a cute mascot, called “Takkun,” a blue car with blinking eyes, arms and yellow wheels. The association says it hopes to expand the app’s coverage area and offer the service in English ahead of the 2020 Summer Olympics.
It might not be Uber, but it might be the closest Tokyo comes to making taxis fast and easy to call before the Olympics come to town.

The end of the $1 million taxi. It is the way Uber threatens to restructure the taxi economy that is its most important contribution

Uber Has Changed My Life And As God Is My Witness I Will Never Take A Taxi Again (Where Available)
JIM EDWARDS
JAN. 22, 2014, 9:25 PM 8,801 13
Last weekend I stepped out of a taxi in front of my house and realized I just don’t have to put up with this garbage anymore:
It started in line at the taxi stand, with the driver trying to get another customer — a total stranger — to share the ride with me. Then the driver expressed his disappointment that I wasn’t going very far (I guess he was hoping for a bigger fare). The interior of the car was filthy; the seats were ripped and worn. The car itself was an ancient Chevy Caprice. In the 10-block ride, the driver carried on a conversation via his headset the entire way, in a foreign language. (Research shows that talking on a phone, even hands free, while driving is as good as driving drunk.) His English was rudimentary at best. That turned out to be a good thing, because I couldn’t understand what he was trying to say when he insulted me for not tipping him enough.
I was too tired to explain to him that nothing he had done warranted encouragement.
No more.
And now I’m done with taxis.
As long as cars are available on my Uber app — which connects limo drivers with customers based on a mapping and pricing algorithm that delivers rides that are often cheaper than metered taxis — I’m taking Uber instead.
Don’t underestimate Uber. What it does is incredibly simple but incredibly clever — and it’s going to fix bad taxis forever.
If you’ve ever taken a taxi in the New York metro area — especially outside Manhattan — “the depressing taxi experience” will be familiar to you. New Yorkers swap awful taxi tales like they’re war stories. We’re almost proud of them.
I’m not saying all taxi drivers are awful. I’ve had some really great taxi drivers. But it is not a generalization to say that really bad taxi experiences are too common to be ignored. If service at Starbucks was as routinely disappointing as service from taxis, Starbucks would have gone out of business long ago.
Yes, taxi drivers should be able to speak English.
Different American cities set different rules for taxis, and that plays out as wildly different levels of service depending on the standards they’re required to meet. Taxis in Las Vegas are great, for instance, and I’ve never had a Vegas driver who wasn’t fluent in English. In Jersey City, N.J., however, it’s unusual to get a driver who can converse beyond the minimum exchange required to get the fare from A to B.
This “speaking English” thing is important. The job requires drivers to be able to communicate in the language of the customers they’re serving. They need to be able to obey instructions from law enforcement. And it would be nice if they could chat politely with their fares, like Vegas drivers do. (In case you’re about to accuse me of being racist, turn the situation on its head: If I was to announce I was moving to France to become a taxi driver but I wasn’t going to bother to learn French, you’d laugh at my stupidity.)
Uber fixes this because it requires drivers to pass an orientation before they can start accepting fares. They can’t get through the orientation unless they can converse in English, a driver told me recently. And, of course, an Uber driver who can’t communicate will get low ratings from customers, and eventually dropped from the system.
Good behavior is rewarded.
Unlike regular taxis, the Uber system punishes bad service.
It works both ways, too, because the drivers get to rate the passengers as well. Be rude, late or drunk once too often and suddenly you’ll find there is never a driver willing to pick you up. The customer-driver mutual rating system creates reciprocal obligations in which both sides are incentivized to be as nice as possible.
English isn’t the only new standard Uber sets. It requires drivers to have a car that is at least as modern as 2007. And it allows customers to choose the type of car they hail. It’s the opposite with regular taxis, where you get what you’re given. That’s why my awful taxi ride home was in a car you couldn’t sell on CraigsList, whereas Uber cars range from merely unremarkable — which is a good thing in taxi — to totally cool.
And then there’s the taxi “call.” How many times has a cab dispatcher told you on the phone the driver is just “five minutes away,” after you’ve been waiting for 20 minutes? The Uber app shows you where the car is and measures its arrival in minutes. You can even text or call the driver to make sure.
This is impossible with regular taxis.
The end of the $1 million taxi.
But it is the way Uber threatens to restructure the taxi economy that is its most important contribution. In many cities like New York, a limited number of “medallions” are sold giving the owners the right to operate taxis. Because they are limited, the price of them can be astronomical. In New York, medallions sell for more than $1 million each.
How is a taxi operator supposed to get that money back? By providing the cheapest possible vehicle with the cheapest possible labor, and running both into the ground. That’s why taxi companies rent their vehicles to drivers. They need the guaranteed income. The taxi system is almost designed to provide the worst service possible, and to pay drivers the least it can.
All Uber requires is a modern car and a clean record. Drivers get a simple cut of each fare. There is no $1 million entry fee that needs to be clawed back. And there is no car rental that needs to be earned before the driver makes any money.
Every Uber driver I’ve asked loves being an Uber driver. A lot of them say they like being able to dip in and out of it when they feel like — simply by switching their app on or off.
What about the hated ‘surge’?
The downside, of course, is that Uber has “surge” pricing which makes rides dramatically more expensive during periods of heavy demand. I’ve noted before that if you know what you’re doing you can actually save money using Uber. And in New Jersey particularly, there’s a nice oversupply of drivers because New York drivers with a New York Taxi & Limousine Commission license can legally drive for Uber in New Jersey, too.
But Uber has a surprise even for people who hate the surge: Uber Taxi. On the street in New York the other day, I hailed an Uber taxi, and a yellow cab picked me up, and charged me the regular rate in cash. It was actually an improvement on a regular yellow cab because instead of standing in the street and waving my arm like an idiot, he drove to me. Uber even makes hailing a cab easier! (During a New York winter this is not a trivial consideration.)
Uber basically provides superior service and superior cars at rates that are either identical, or cheaper, than taxis. Occasionally during a surge the price is more. But that seems like a small price to pay for sweeping away a rotten, broken system full of waste, rudeness and inefficiency.
Now that I’ve been using Uber regularly, I don’t see that I ever have to offer taxi companies encouragement ever again.

Robots will stay in the back seat in the second machine age; A new machine era needs workers with fresh skills

Robots will stay in the back seat in the second machine age

January 21, 2014 12:19 pm
By Andrew McAfee and Erik Brynjolfsson
A new machine era needs workers with fresh skills, say Andrew McAfee and Erik Brynjolfsson
It is easy to be pessimistic about jobs and pay these days. More and more work is being automated away by ever more powerful and capable technologies.
Not only can computers transcribe and translate normal human speech, they can also understand it well enough to carry out simple instructions. Machines now make sense of huge pools of unstructured information, and in many cases detect patterns and draw inferences better than highly trained and experienced humans. Recent advances include autonomous cars and aircraft, androbots
that can work alongside humans in factories, warehouses and the open air.
These innovations are quickly leaving the lab and entering the wider economy, bringing new challenges for workers from tax preparers to burger flippers. Many have concluded that the era of large-scale technological unemployment has finally arrived. For these observers, labour trends visible in many countries – declining real wages and social mobility; rising inequality and polarisation; persistently high unemployment – are only going to accelerate as technology races ahead.
But the world is not ready to give up on human labour. Humanity is entering a second machine age. The first, spurred by the industrial revolution, was mechanical; this one is digital. The first augmented our muscles; the second, our minds.
History may not repeat itself but it certainly does rhyme, and the industrial revolution’s waves of mechanisation contain important insights for our time. The early decades of the 20th century are particularly illustrative. During that time, electric power, the internal combustion engine and other advances transformed industry. To John Maynard Keynes and others, they also seemed likely to lead to technological unemployment.
But instead, these innovations led to demand for very different kinds of workers – those that used their heads in addition to, or instead of, their hands and their backs.
Many societies responded to this demand by investing in education. The US invested especially heavily, and it is no coincidence that it raced ahead in productivity and living standards.
At the same time, entrepreneurs invented whole industries that drew on this new kind of workforce. Educated workers found they could demand high wages, which they spent on a wide array of goods and services, completing a virtuous cycle. Instead of technological unemployment, then, the postwar decades saw the emergence of a large, stable and prosperous middle class.
The lesson is clear: the industrial revolution started a race between technology and education – and, for most of the 20th century, humans won that race.
The second machine age will require workers with different skills. It once made sense to stress the memorisation of facts, and the ability to follow detailed instructions. But computers are already good at all of these, and getting better quickly. We will need to reinvent education and facilitate life-long learning.
Which human skills will still be in demand? We have yet to see a truly creative computer, or an innovative or entrepreneurial one. Nor have we seen a piece of digital gear that could unite people behind a common cause, or comfort a sick child with a gentle caress and knowing smile. And robots are still nowhere near able to repair a bridge or furnace, or care for a frail or injured person.
People will have important roles to play in the second machine age. But the difficulty many companies have in finding the employees they need up and down the skills ladder shows that our education systems are not keeping pace.
Before resigning ourselves to an era of mass unemployment, let us ensure that we are giving our people the skills they need to work alongside the astonishing technologies we are developing. Instead of assuming that human workers are marginalised, or that technology can never destroy jobs, let us instead work to give humans the tools and environment they need to thrive.
The writers are authors of ‘The Second Machine Age’

Payments Startup Stripe Joins the Billion Dollar Club; New $80 Million Funding Round Will Help Company Battle PayPal

Payments Startup Stripe Joins the Billion Dollar Club
New $80 Million Funding Round Will Help Company Battle PayPal
DOUGLAS MACMILLAN
Jan. 22, 2014 7:45 p.m. ET

In the crowded field of online payments, venture capitalists are betting Stripe Inc. is a standout worth more than a billion dollars.
The payments startup has raised about $80 million in new funding this week from venture-capital investors including Khosla Ventures, Sequoia Capital, and Founders Fund, said brothers John and Patrick Collison, the company’s co-founders, in an interview. Stripe, at just over four years old, is now valued at $1.75 billion.
The lofty valuation for such a young company suggests Stripe is growing rapidly in the area of mobile payments—a market that Forrester Research estimates will add up to $90 billion in total U.S. spending in 2017—and posing a threat to eBay Inc. EBAY +0.48% ‘s PayPal, the digital-payments leader for more than a decade.
The San Francisco startup is among several companies trying to simplify how businesses accept payments online and through a mobile device. Stripe provides easy-to-use computer code that any merchant can plug into their website or mobile app to begin accepting credit-card payments. The company takes 2.9% of most transactions in addition to a flat commission of 30 cents per charge—the exact same rate set by PayPal.
“Payments are still startlingly disconnected and fragmented,” said Stripe President John Collison. “Less than 5% of consumer spending happens online today. It’s pretty clearly going to be much larger than that.”
The new funds will help fuel Stripe’s international expansion. Stripe, now accepted in just 12 countries, has plenty of work ahead to catch up to PayPal, which is in more than 190 countries. Entering each new country requires meeting local laws governing payment providers, and sometimes requires Stripe to team up with existing businesses, Mr. Collison said.
While the company doesn’t disclose its revenue or number of merchants, its software is now used in thousands of popular mobile apps, including ride-sharing service Lyft and grocery delivery app Instacart. Its total payment volume has doubled since last September, he said.
Stripe’s transaction total is likely dwarfed by PayPal, which processed $125 billion in purchases last year. But according to Khosla Ventures’ Keith Rabois, an early PayPal executive, Stripe has a competitive advantage because it created a simple new service that is popular with developers.
“PayPal has a lot of legacy technologies cobbled together, whereas Stripe has reinvented everything they are doing from scratch,” Mr. Rabois said. “Stripe has created a brand where all new developers start with the premise that Stripe is the right answer. If you were a developer today and you thought about using a different option, your engineers would think you’re insane.”
Stripe saved costs for Lyft, which began using the service a year ago to let drivers quickly process mobile payments. “Stripe removed the need for us to hire additional internal staff to process payouts to Lyft drivers,” said Lyft co-founder Logan Green in an email.
For its part, PayPal stepped up competition in mobile payments last year, when it paid $800 million for Braintree, widely seen as Stripe’s closest rival. On Wednesday, eBay said that activist investor Carl Icahn wants to split up the company, dividing its PayPal payments unit from its e-commerce site.
A spokesman for PayPal declined to comment.
Stripe has now raised more than $120 million from investors, who include PayPal alumsElon Musk
and Peter Thiel as well as Andreessen Horowitz, Redpoint Ventures and General Catalyst Partners. Stripe was last valued at close to $500 million when it raised funding in July 2012.
An engineer-heavy workforce, Stripe now has about 90 employees.
The company is in talks to power payments for a shopping feature on Twitter Inc.TWTR -0.14% ‘s social network, according to a person familiar with the discussions.

Facebook has launched a trial using its data to help marketers deliver advertisements on other mobile applications, opening the way for it to establish its own mobile advertising network

Facebook data trial paves way for mobile ad network

January 22, 2014 10:29 pm
By Hannah Kuchler in San Francisco
Facebook has launched a trial using its data to help marketers deliver advertisements on other mobile applications, opening the way for it to establish its own mobile advertising network.
The social media company said it was working with a small number of advertisers and publishers to help them reach people who spend time on apps other than Facebook’s.
The trial is a sign the social network is considering following the lead of Twitter, the messaging platform, in the use of its data to generate revenue from other properties across the web.
In a blog on its Facebook for Business site, it said the trial was different from past experiments because, instead of working with an outside ad-serving platform, it behaved more like a mobile advertising network.
“Our aim is to demonstrate even greater reach with the same power of Facebook targeting for advertisers both on and off Facebook,” the company said.
Brian Wieser, an analyst from Pivotal Research, said the move was “significant’, with the potential to threaten advertising networks such as Millennial Media and technology company rivals such as Google’s AdMob and Twitter’s MoPub.
“This is more of a one-stop shop competition and they are taking the opportunity because if you don’t, someone else will,” he said.
Twitter bought MoPub, a mobile advertising exchange
, last year shortly before it became a public company. The MoPub acquisition will allow Twitter to use the information it collects about users’ interests, based on who they follow, to serve ads across a range of other websites.
Facebook’s ad revenues have soared over the past year, helping allay investor concerns that advertisers would not follow users on to mobile devices. In its third-quarter earnings, it reported that almost half of its total advertising revenue came from mobile devices.
The company overtook Yahoo to win the second largest share of the growing US digital advertising market in 2013, following Google, according to data from research firm E-Marketer. Facebook has a 7.4 per cent share of the US digital ad market, up from 5.9 per cent in 2012.
Ad revenue is expected to show continued growth when Facebook reports its fourth-quarter earnings next week, as small businesses flood to the platform and mobile app install ads continue to thrive.
The company is also experimenting with video ads that play automatically as it looks to gain a slice of the global TV advertising market.
Shares in Facebook, which have risen 88 per cent in the last year, fell 2 per cent in afternoon trading on Wednesday.

Netflix: music to my ears; Future of movie site could look a lot like Pandora’s present

January 22, 2014 11:16 pm
Netflix: music to my ears
Future of movie site could look a lot like Pandora’s present

To divine the future of Netflix, think about music rather than video. Netflix is proceeding nicely; it said on Wednesday that it added a better than expected 2.3m subscribers in the US, sending its shares up 17 per cent in late trading.
Recent headlines have been dominated, however, by copycats such as Verizon, Amazon, and Sony which are unveiling rival internet television services. The scrum in TV looks strikingly similar to last year’s tussle in internet radio. Pandora, the pioneer in streaming music, was pronounced dead repeatedly as deep-pocketed rivals including Apple, Google, and Spotify were expected to overwhelm it. But a funny thing happened: Pandora’s market share grew (now at 70 per cent of internet radio) and its stock price has surged more than 250 per cent since the beginning of 2013.
This week, Verizon announced it was buying Intel’s digital TV service, OnCue
. Amazon has been rumouredto be negotiating with cable channels for its own TV service. Sony and Apple also lurk. These services want to offer programming across devices. The challenge for the upstarts is to build an interface that consumers can easily navigate and to acquire the programmes they want to watch.
Pandora’s success is two-pronged. First, its listeners appreciate the algorithm that determines playlists. Second, its 70m users give it unique leverage with carmakers or electronics manufacturers that embed Pandora in cars or TVs. Similarly, Netflix has a large subscriber base (44m worldwide) that often prefers it for its original programming, such as House of Cards.
The question now is how competition will slow, rather than destroy, Netflix and Pandora. Both trade above 85 times 2014 earnings, reflecting how their entrenched positions are expected to translate into eventual earnings growth. For now, investors have agreed that first mover means first place.

Meet the Warby Parker of mattresses; Tuft and Needle is set to do to the mattress business what Warby Parker did for eyewear and TOMS did for footwear: blow it up.

Meet the Warby Parker of mattresses
By Miguel Helft, senior writer January 22, 2014: 10:11 AM ET
Tuft and Needle is set to do to the mattress business what Warby Parker did for eyewear and TOMS did for footwear: blow it up.
FORTUNE — If Warby Parker could disrupt the eyewear business and TOMS the footwear market, why not use technology to try to disrupt mattresses?
That’s what two engineers set out to do some 18 months ago. The result is Tuft and Needle, a startup that began selling foam mattresses mostly through a slick website at the end of 2012. The company remains tiny, having passed the $1 million sales mark after one year in an industry that by some estimates generates $7 billion in revenue annually.
But in its short life, Tuft and Needle has earned something to brag about. Though its mattresses, at $400 for a queen-sized model, are relatively inexpensive, customers seem to love them. The young company began selling through Amazon in the fall, and its mattresses soon reached No. 1, when rated by customer reviews. Its products have earned 154 five-star and 16 four-star ratings. In the only negative review, a customer gave it a single star complaining that the mattress was too firm for his taste.
“It’s pretty cool to see this tiny team become the No. 1-rated mattress team on Amazon,” says Caleb Elston, the co-founder and CEO of Delighted, a startup that helps businesses collect customer feedback and that counts Tuft and Needle among its customers.
Tuft and Needle was co-founded by John-Thomas Marino, 28, and Daehee Park, 25. The two were college buddies at Penn State a few years earlier, where both dabbled in the startup world. After reuniting briefly at a Silicon Valley firm, they left in mid-2012 to launch their own company. “We wanted to take everything we learned tech-wise, in software and business processes, and apply it to something old-fashioned,” says Marino, who goes by JT. They picked mattresses after Marino went through what he describes as a significant amount of pain to buy a $3,200 memory foam mattress. “It was a terrible experience,” he says.
The two set out to research what it would cost to make mattresses. It was not easy going: Several manufacturers wouldn’t even talk to them. What they eventually found out is now summarized on their website and reads a bit like a consumer manifesto.
Most mattresses, they say, typically cost only hundreds of dollars to produce. But the markups to cover overhead, distributor fees, and profits are enormous — as much as 1,000%. “More of your dollars go to pay for the sales commissions, advertising costs, and outrageous profits than the actual ingredients of the product,” they write. In contrast, Tuft and Needle offers “an honestly crafted mattress at a fair price.”
Tuft and Needle’s claims have attracted some detractors. On a blog post on the website Hacker News, where Marino and Park described their approach, one critic described the company’s product as “very low end” and its marketing claims as “half truths.” Another commenter compared the mattresses to futons.
Marino says mass-produced futons are far cheaper to make and not really comparable to his company’s foam mattresses. He also says that manufacturers have been making increasingly thick mattresses just so they can charge consumers more. The company’s 5-inch mattresses are more comfortable than most thicker coil or foam mattresses, he says. “Thickness doesn’t matter,” Marino says. “It’s all spin.” (Many consumers seem to agree.) The company will soon release a 10-inch model that he says will silence its critics.
Tuft and Needle’s mattresses are made in the U.S., from three layers of foam, and are covered in a knitted fabric. They are assembled and shipped from a facility in Los Angeles. Marino and Park say they researched the ideal foam combinations and fabrics to come up with their first product. Like a tech company, they have continued iterating on the product, incorporating suggestions made by their customers. “We make changes to the product monthly,” says Marino.
The two also wrote their own fulfillment software to communicate with suppliers, who before that took orders via e-mail. As a result, the number of errors dropped dramatically. And they use analytics to determine the preferences of their customers and customize their website accordingly. The company is self-funded but has recently attracted the attention of investors, Marino says.
“The growth is consistent, and it’s all based on word of mouth,” he adds.
While it is officially based in Phoenix, the company is largely virtual, with its 10-or-so employees, most of them in customer service, who work from remote locations across the country. When they took the top-reviewed slot in the mattress category on Amazon, they celebrated with a glass of champagne. “We all got on a Skype call and tapped our glasses to the screen,” Marino says

Lucrative Role as Middleman Puts Amazon in Tough Spot; While Business Is Key to Growth, Conflicts Arise Over Counterfeit, Unsafe Products

Lucrative Role as Middleman Puts Amazon in Tough Spot
While Business Is Key to Growth, Conflicts Arise Over Counterfeit, Unsafe Products
SERENA NG and GREG BENSINGER
Updated Jan. 22, 2014 8:25 p.m. ET

Last spring, Amazon.com Inc. AMZN -0.62% moved to end its relationship with one of its biggest third-party sellers, saying that company had offered products that were illegal or otherwise prohibited.
Within months, however, an employee of the e-commerce company unwittingly reached out to that same seller, DAB Unlimited, to coach it on how to increase its volume.
That push and pull, revealed in filings after DAB sought bankruptcy-court protection, illustrates the conflicting priorities in Amazon’s increasingly important business of third-party sales. Amazon said it logged more than two million sellers and a billion products shipped world-wide last year. Some analysts believe third-party sales account for nearly half of all merchandise sold by volume on Amazon.com and eventually will eclipse direct sales of goods by the company.
The strategy has caught on with other retailers as well. Staples Inc., SPLS +1.39% Wal-Mart Stores Inc. WMT -0.65% and Sears Holdings Corp. SHLD -0.69% consider such arrangements a key source of variety and growth.
DAB and other companies use Amazon’s website, warehouses and payment systems to sell their goods over the Web, allowing the retailer to offer a much broader range of products.

But some third-party sellers have sparked customer complaints and friction between Amazon and the makers of branded products. Some manufacturers have said Amazon doesn’t do enough to curb sales of counterfeit goods and expired drugs from such vendors.
Amazon declined to comment for this article. On its website, the company says the sale of counterfeit products “is strictly prohibited.” Sellers are responsible for verifying the authenticity of their products and failure to do so can result in the termination of selling privileges, the site says.
“The risk to Amazon is that they can’t control the whole customer experience,” says Rick Watson, an Internet retailing executive who used to run the third-party sales section of Barnes & Noble Inc.BKS +1.49% ‘s website. He now is chief executive of Merchantry Inc., which helps Amazon and other retailers manage online commerce.
The competing concerns over third-party sales intersected at DAB, which sold more than five million items through Amazon’s website after setting up shop in 2006, says Dan Bellino, one of DAB’s founders. DAB sought bankruptcy protection in 2011 and was forced by Amazon to stop selling on the site last September.
DAB was the brainchild of Mr. Bellino and a friend who started the business in 2006 while in their 20s, in the basement of a Springfield, Mo., home. The name came from Mr. Bellino’s initials.
The founders soon capitalized on a new Amazon program to help set up third-party merchants. Under the program, called Fulfillment by Amazon, DAB arranged to send products to Amazon’s warehouses and paid the Seattle-based company to stock DAB’s goods and ship them to customers.
DAB initially offered around 50 items, mainly vitamins and supplements, then expanded into weight-loss pills, pet-care products and children’s toys. By 2010, the company was listing 30,000 items, enough to stock a chain drugstore. DAB collected more than $200 million in sales over its lifetime, Mr. Bellino says.
The fast growth of companies like DAB helps explain how Amazon revenue has increased at least 25% a year since 2008.
Amazon groups fees from third parties into a category called services, the revenue from which makes up about one-fifth of Amazon’s sales. Services revenue also includes sales from Web services, digital-content subscriptions and cobranded credit cards. The Internet retailer, which reports earnings next week, credited a 45% jump in services revenue for the company’s 23% increase in overall sales for the first nine months of last year.
But DAB shows the risks of working with third-party sellers. Between 2009 and 2012, Amazon received dozens of complaints from people claiming that DAB had sold them counterfeit or mislabeled items, according to internal Amazon documents filed in the bankruptcy case.
Mr. Bellino says that less than 1% of the company’s shipments were flagged for problems.
Maria Reyes, a 31-year-old pharmacy technician in Worthington, Minn., says she bought a bottle of 2 Day Diet capsules from DAB through Amazon.com in 2010.
After taking the pills, she felt dizzy and her heart began “racing very fast,” she says. Ms. Reyes says the capsules she had taken looked different from the actual products she found in online research. She says she tried to contact DAB through Amazon’s website but didn’t hear back.
Amazon investigated a negative review Ms. Reyes wrote in 2010 and sent a warning to DAB, according to the internal Amazon documents. The pills had been recalled by the Food and Drug Administration two years earlier because of the possibility they might be contaminated or contain high doses of ingredients that could put consumers’ health at risk. Ms. Reyes says she currently is in good health.
DAB declined to comment on Ms. Reyes’s purchase.
In November 2010, an Amazon investigator looked into a customer complaint that said DAB was selling fake Gillette Mach3 razor cartridges, according to the Amazon documents. Gillette, a unit of Procter & Gamble Co. PG -0.44% , separately had purchased the blades from the seller and concluded they were counterfeit.
The investigator recommended suspending DAB’s selling privileges. But a supervisor nixed the idea, citing DAB’s high volume with Amazon, according to the documents.
DAB’s Mr. Bellino says his company bought products “from manufacturers and distributors who were well known to be trustworthy and reliable” and didn’t knowingly sell counterfeit or prohibited merchandise.
About 97% of DAB’s customer feedback since its founding in 2006 has been positive or neutral, according to Amazon’s site.
Amazon has policies to prevent unauthorized sellers from listing some branded products, and its investigators comb through listings and customer reviews to identify sellers that may be violating its rules.
Amazon, eBay Inc. EBAY +0.48% and other e-commerce companies also are protected by a 2010 federal appeals-court ruling that put the onus on trademark holders to police the Web for counterfeit or other problematic merchandise.
Some manufacturers have said it can take months for Amazon to respond to requests to curb third parties that are peddling counterfeit, expired or damaged merchandise.
Johnson & Johnson last year suspended sales of scores of consumer products and over-the-counter medications to Amazon because it said the Web retailer wasn’t doing enough to prevent third parties from selling expired or damaged J&J products, people familiar with the matter said. The two companies are working out their conflict, and J&J has resumed shipping some items to Amazon.
SRAM LLC, a maker of high-end bicycle parts, has had problems getting Amazon to stop third parties from selling fake components labeled with its brands, says Maria Santos, a brand-protection manager at the Chicago-based company. Fakes were discovered after some customers complained about the quality of the parts, Ms. Santos says.
In October 2011, DAB filed for protection from creditors in bankruptcy court in Arizona, listing $1.5 million in assets and $9.1 million in liabilities. The company had been hurt by the recession and had overextended by trying to take over responsibility for warehousing and shipping its products from Amazon.
DAB continued to operate, soon turning a profit again, though it remains in bankruptcy court.
Last April, Amazon moved to terminate DAB’s selling privileges, according to bankruptcy filings. Amazon said it had previously suspended DAB and warned it against listing prohibited products, such as prescription-only medical devices and supplements containing a drug that is illegal in the U.S., but that the violations continued after the suspension was lifted.
DAB’s bankruptcy trustee responded to the court that Amazon’s move was unfair and that the Internet company had sold and allowed others to sell the same products.
The bankruptcy-court judge delayed a decision on DAB’s termination because sales through Amazon represented DAB’s primary source of income to pay back creditors.
Meanwhile, an Amazon account manager, apparently unaware of the conflict, contacted DAB’s Mr. Bellino about a new initiative to help third-party sellers improve their sales and ratings on Amazon.
Mr. Bellino wrote a note thanking the account manager, according to a bankruptcy-court filing. Mr. Bellino assigned an employee to oversee the project, naming it “Operation Mothership: ‘Amazon Ferrari.’ ”
In September, though, Amazon won a court ruling to terminate its agreement with DAB and its listings have been removed from the site. The company effectively is liquidating, a lawyer for the bankruptcy trustee said.
DAB’s online storefront remains, however, and customer feedback—mostly positive—continues to trickle in.

In a stunning move, Singapore and Indonesia-based mobile social networking company mig33 is now listed on the Australian Securities Exchange (ASX)

Mig33 is now listed on the Australian Securities Exchange
January 23, 2014
by Willis Wee
In a stunning move, Singapore and Indonesia-based mobile social networking company mig33 is now listed on the Australian Securities Exchange (ASX), the country’s primary stock exchange.
It did so via a reverse takeover, in which a listed company acquires a private company only for the shareholders of the latter to become majority owners of the combined group, a purportedly easier and less rigorous process than listing through the usual way.
In this case, mig33 is actually acquired by Latin Gold, an Australian company that does mineral exploration and project investigation. It now owns 720 million of Latin Gold Limited’s (ASX:LAT) shares. According to Google Finance, Latin Gold was traded at AUD$0.02 per share as of January 23. In other words, mig33 is valued at $12.73 million after the shares acquisition at the current share price. The numbers will obviously change as the share price changes.
The acquisition will see mig33 own 69.5 percent of Latin Gold while Latin Gold shareholders will own approximately 30.5 percent of the merged group. Founder and CEO Steven Goh, together with Andy Zain, Dmitry Levit, and John Lee will be appointed to the Latin Gold board.
Meanwhile, three of the Latin Gold directors will step down, which gives mig33 full authority to drive the Latin Gold business. Latin Gold’s name will be changed to mig33. As of yesterday, the company has halted trading on ASX due to a change of business activities. Goh told Tech in Asia:
We believe in the opportunity to bulk mig33 up to something much more interesting now and being listed allows us to realize that opportunity. [We] looked at Singapore and Australia [and believe that] Australia is a simpler, less risky, and easier path to getting there. Additionally, Australian tech companies are getting recognized valuation-wise and there is a history of billion dollar exits, whereas in Singapore the feedback is mixed.
There’s a precedent of Asian internet companies listing in Australia, with Patrick Grove’s iBuy being a prominent example. It raised $33 million through its IPO.
When we spoke with mig33 after its rebranding and transformation into a mini-blogging platform in October last year, the company was seeing 180,000 daily active users sending four million messages daily. It now has about three million monthly active users.

Google Is Raking In Huge Sums Of Money From A New Type Of Online Shopping That Hurts Amazon

Google Is Raking In Huge Sums Of Money From A New Type Of Online Shopping That Hurts Amazon
JIM EDWARDS
JAN. 22, 2014, 12:52 PM 14,440 9
Late in 2012, Google quietly introduced a new type of search ad. “Product Listing Ads” (PLAs) are those photo boxes that appear at the top of Google’s results pages when you search for stuff that is shopping related, like “Ugg boots” or “iPhone charger.”
Turns out the new format has been a huge success for Google, according to data from Marin Software, which buys PLA campaigns for its clients.
That’s likely bad news for Amazon.
PLAs push Amazon’s organic, non-paid search results farther down the page every time they appear. In search advertising, everyone knows that the top of the page is key. The bottom of the page is shopping Siberia — and that’s where Amazon’s pages are now frequently ranked on Google. Frequently, when you do a search that generates PLAs, the shopping ads will display ads for all Amazon’s competitors on that product line. But not Amazon.
Amazon is known to be highly sensitive regarding Google’s use of PLAs. The company has declined to buy any PLAs from Google to boost its search rankings. They must work, however, because several of Amazon’s subsidiary units —  Zappos, Diapers.com, Wag.com Soap.com, and BeautyBar.com — have upped their PLA budgets during the course of the year, according to Jefferies Research. (Amazon did not immediately respond to a request for comment.)
Those increased budgets from all of Google’s online retailers have swelled the search giant’s coffers in 2013, Marin says.
Analyst Ben Schachter and his team at Macquarie Capital agrees. In a pre-earnings note to GOOG investors yesterday, he wrote, “We expect a strong quarter from Google, and believe that PLAs in particular will drive upside, as PLAs pricing/competition has been better than expected.” Google will deliver its Q4 2013 earnings on Jan. 30.
This chart from Marin shows how spending on PLAs has quadrupled:

Marin Software
The data above are indexed, where 100 is the level in January 2013. Marin’s dataset looks at clients spending more than $100,000 a month on search ads. Nearly a quarter of retail paid search budgets during the Thanksgiving-Christmas season went on PLAs, Marin says.
“By December, retailers were allocating 23% of their paid search budget toward PLAs, a 92% increase over January,” the company said in a blog post:

Marin Software
The cost-per-click to advertisers went up as more advertisers spent money on them:

Marin Software
And the click-through rate was also higher than average:

Marin Software
“The image-based ad format resonates well with users – consumers can see what they’re looking for – and streamlines the shopping the experience. The large images and prominent placement help retailers lure shoppers to websites as well as stores,” said Matt Ackley, CMO of Marin Software. “We expect this percentage [of spending] to grow to 33% in 2014.”

IBM must keep head above the clouds to claim glory

IBM must keep head above the clouds to claim glory

January 22, 2014 7:27 pm
By Richard Waters
It falls to every new IBM chief executive to reinvent one of America’s most venerable corporate icons.
After Lou Gerstner countered a decline in hardware sales with a faster move into software and services in the 1990s, Sam Palmisano spent the next decade contending with the threat of Indian IT companies and open-source software.
Now Ginni Rometty faces her own moment of reinvention. The source of her discomfort: More computing workloads are moving to the cloud – which means that they are being farmed out to utility-type companies that do not want high-priced gear and services from the likes of IBM.
Even when choosing to keep their computing in-house rather than shifting it to companies such as Amazon, IBM’s big customers are copying the methods of the new cloud players. Essentially, that means buying lower-cost, standardised hardware, as well as software that automates processes that once required expensive humans.
One example of this will be on display next week in California at the annual gathering of the Open Compute Project. The brainchild of Facebook, this was set up to promote a basic standard model for server hardware.
Servers suffer the feature creep seen in many technology markets, as suppliers try to differentiate their products. Even the plastic bezels that they use to brand their machines are an unnecessary luxury, impeding airflow and increasing power costs for cooling. In the world as seen by Facebook, all such niceties will be stripped out.
The effect of this sort of thing goes much further than hardware revenues. If IBM’s customers move some of their computing to the cloud, they will no longer be paying for IBM services either. And the huge IT outsourcing market on which much of IBM’s revenues depend is also facing a sea change. If customers have more choices for how to manage their IT, they will no longer be as locked into the monolithic service contracts that have involved handing their entire IT operations over to companies such as IBM.
At least one corner of IBM’s hardware business still looks secure. Thanks to the massive sunk costs some customers have made in their existing systems, its mainframes – once written off as a casualty of the client-server revolution – are still going strong. But the future being forged by the likes of Amazon’s web services looks very different from the past.
This leaves two choices for the traditional IT hardware makers.
One is to become consolidators in a high-volume game. Some 70 per cent of the $53bn server business comprises so-called “volume”, or industry-standard, machines that command low profit margins, according to IDC.
This is not for IBM. Having sold out of the PC business nine years ago, it is in discussions about ditching industry-standard servers as well, according to people familiar with its plans.
Dell and Hewlett-Packard, with high market shares in industry-standard servers and PCs, face a tougher choice. Among the challenges these companies face is a new band of ultra-low cost white-label producers known as ODMs, or Original Design Manufacturers.
The other choice is to shift the discussion with customers away from the price of hardware and on to high-value applications and services that make a real business difference. Specialised hardware that serves a particular purpose sometimes still has an edge over generalised technology.
In IBM’s case, for instance, that looks likely to lead to a stripping back of its Unix business – the more expensive end of its server line that it does not plan to sell – to focus on the massive data handling needs of the analytics market.
This adds to the pressure on Ms Rometty. In her first two years on the job, she displayed the touch of a marketer rather than a technologist, as she sought to recast IBM’s portfolio of businesses in ways that appeal to a broader market.
That may be starting to change. Already this year, that has meant earmarking $1.2bn to build more data centres to compete with Amazon in the public cloud, as well as $1bn to build a business in what has become known as cognitive computing, or machines that answer questions posed of large bodies of data.
It is ironic that IBM has been a poster child of efficient cash management in the tech sector, returning a large slice of its free cash to shareholders in recent years while still maintaining an annual R&D budget of more than $6bn. To judge by the grumbling on Wall Street, it may be time for Ms Rometty to place some bigger bets.

Dabbling in Microsoft Is Enough for Gates

Dabbling in Microsoft Is Enough for Gates

JANUARY 22, 2014, 3:04 PM
By NICK WINGFIELD
Bill Gates, the chairman and former chief executive of Microsoft, is more involved with the company now than he has been in years. But he does not — repeat, not — want to run it.
Since Microsoft began a search for a new chief executive months ago, Mr. Gates and people close to him have said that he will not return to lead the company. For good measure, Mr. Gates said it again on Tuesday, in aninterview
on Bloomberg Television.
Yet Mr. Gates, even as he hobnobs this week with the powerful and wealthy in Davos, Switzerland, is deeply engaged at Microsoft. He is regularly meeting with company executives, offering input on products and weighing in on the search for a chief executive, according to several people who have either spoken to Mr. Gates directly or are aware of his recent comings and goings at the company. Those people would speak only anonymously to protect their relationship with Mr. Gates.
The precise nature of Mr. Gates’s current and future involvement at Microsoft has been a topic of speculation as the company searches for a new chief. That interest has only intensified as the search has dragged on longer than many investors and people inside the company had hoped.
When Alan R. Mulally of Ford, the presumed front-runner for the job at one point, dropped out, many people watching the process from a distance concluded that Mr. Gates’s presence at Microsoft was harming the process. What rational person would lead the company, this line of thinking goes, with Mr. Gates breathing down his neck and second-guessing his every move? (All of the presumed candidates are men.)
The reality of Mr. Gates’s status is a bit more nuanced. One of the people with knowledge of Mr. Gates’s activity at the company, who is also informed about board discussions, said Mr. Gates was willing to dial up or down his involvement with Microsoft based on the wishes of the new chief.
If the new chief executive wants Mr. Gates, a co-founder of Microsoft and one of the founding fathers of the tech industry, to chime in more often on company matters, Mr. Gates will do it, this person said. If the new chief executive wants Mr. Gates doing less around Microsoft, he will respect that, too.
Several people associated with Microsoft and Mr. Gates for years say they believe that he does not want to have to be called in to rescue the company from a perilous situation, which would require day-to-day attention.
The company is still healthy, but it has lost its advantage in several areas. If a new chief executive failed, the company could fall further behind. In interview after interview, most recently the one on Bloomberg Television, Mr. Gates has shown little interest in leaving his full-time work as a globe-trotting philanthropist with the Gates Foundation. Following the example of Michael Dell or Howard Schultz, executives who came back to lead Dell and Starbucks after those companies went astray, does not seem to be his ambition.
Mr. Gates is spending more time on Microsoft now, in other words, to avoid spending more time on it later.
“I think it will be very important for Bill to assure for himself that he has put in place a good steward for the company who can provide the right technical direction for the future, and not someone who just reduces costs for a couple years and leaves the company without the problems having been fixed,” said Rick Sherlund, a veteran Microsoft analyst with Nomura Securities.
A Microsoft spokesman declined to comment, as did a spokesman for Mr. Gates.
The future of Microsoft’s current chief executive, Steven A. Ballmer, is also an intense topic of discussion. Mr. Ballmer does not have a large foundation waiting to occupy him once his successor is found. He is a meaningful shareholder and board member of the company. And he is the architect of many major projects at Microsoft that are still in motion, including a broad reorganization of the company and the acquisition of Nokia’s handset business.
It is those initiatives that could complicate Mr. Ballmer’s dealings with his successor, should the new chief executive decide to change the playbook. For that reason, Matt McIlwain, a venture capitalist in Seattle with Madrona Venture Group, predicts that Mr. Ballmer will leave the company’s board in the next six to 12 months, when the spotlight has shifted to Microsoft’s new leader.
Mr. McIlwain says he also believes that Mr. Gates will end up doing more at Microsoft than in past years. He sees fewer hazards associated with that than with Mr. Ballmer staying involved.
“Bill has a strong personality, but he has more distance and perspective,” Mr. McIlwain said.
So the search for a new Microsoft chief executive continues. Progress on the search has slowed this week because of Microsoft’s earnings announcement on Thursday and Mr. Gates’s trip to Davos, said the person briefed on the process.
With Mr. Mulally and other external candidates fading, Mr. McIlwain and others speculate that Microsoft is leaning toward selecting a current Microsoft executive as its new chief. Many senior executives brought into Microsoft from the outside have not fared well at the company, and that point is widely discussed among employees. Mr. McIlwain said he favored Satya Nadella, who has led the company’s cloud computing efforts and big parts of its corporate software business.
Wherever the person comes from, the company cannot afford to have its body reject its new part. Mr. Gates seems acutely aware of that.

ESPN’s secret web weapon: ESPN3; The sports giant’s online streaming network is growing steadily. It may prove to be a key part of ESPN’s arsenal as its TV franchise faces new competition from Fox

ESPN’s secret web weapon: ESPN3
By Daniel Roberts January 22, 2014: 11:51 AM ET
The sports giant’s online streaming network is growing steadily. It may prove to be a key part of ESPN’s arsenal as its TV franchise faces new competition from Fox.
FORTUNE — With the vast array of digital subscriptions, apps, and streaming services now available to sports fans, it seems likely that soon enough you’ll never have to miss a single game or event. Quietly driving this market, to a large extent, has been ESPN3, ESPN’s somewhat under-the-sonar online outlet for streaming live sports events.
In 2011, the sports giant rolled ESPN3 (which had existed in various forms since 2005, originally as ESPN360, then ESPN3.com) into its WatchESPN online platform, where subscribers with access can watch everything from live sports happening across the globe to ESPN Classic games, all from a number of ESPN’s different channels and services. (For example, you can use WatchESPN to catch the popular radio show Mike & Mike or re-watch SportsCenter if you missed it.)
ESPN3 is where you can see an Australian Open tennis match live when it’s 3:30 a.m. in New York. It’s where you’d go to catch many of the NCAA Men’s Basketball games long before March Madness begins and they start showing up on basic cable. On this particular Wednesday, for instance, you can use ESPN3 to watch obscure French soccer matches like Chasselay vs. Monaco or Paris Saint-Germain vs. Montpellier. Tonight, you can find the X Games live from Aspen.
While ESPN3 does offer access to mainstream sports events like golf’s U.S. Open, many of the events that show up on there are more obscure. These “may not get the ratings,” says Steven Cohn, editor of Media Industry Newsletter, “but they do have niche, enthusiast audiences that advertisers might like. Plus the rights fees are next to nothing.”
And indeed, ESPN’s strategy with its streaming network appears to be working well. “We made a commitment to streaming live sports on ESPN3 over six years ago, and it has proliferated into a viable stand-alone network, now available in more than 85 million households nationwide on computers, smartphones, tablets, Xbox, Apple TV, and Roku,” says Amy Phillips, a spokesperson for ESPN. (The company will not share financial information on ESPN3, so it’s not clear whether or not the service is profitable.) According to ESPN Research & Analytics, viewers spent 711 million minutes with WatchESPN and ESPN3’s live and on-demand programming in 2013 (through November), a number that was up 91% from the year before. The month of November 2013 itself was in fact the service’s best month ever, with 2.2 million unique users (up 77% over the year before) spending 197.3 million minutes (up 170%).
Last summer Goldman Sachs, which had previously labeled the Walt Disney Company (DIS) a “conviction buy,” downgraded the stock to “neutral” due to concerns that the debut of Fox Sports 1 (FOX), which launched in August, would prove stiff competition for ESPN and its properties. The stock fell nearly 4% as a result, the biggest drop it had seen since November 2012. So far, ESPN seems unfazed. Disney stock is up 22% from a year ago.
ESPN3 “bundles” with cable packages from certain providers. For example, if your cable provider is Time Warner (TWC), you can access WatchESPN only if you have ESPN in your TV package. Comcast (CMCSA), meanwhile, includes it with all XFINITY Internet subscriptions. Thus the ability to watch ESPN3 through WatchESPN depends on your cable package, which can be frustrating for web users that don’t get ESPN. (It isn’t hard to find message boards on which people gripe about whether and how they can access ESPN3.)
Apparently, the bundling method is also frustrating to TV folks. Ted Hearn, spokesperson for the American Cable Association, tells Fortune, “ACA takes serious issue with the fact that ESPN3 is an effort to migrate the broken cable TV business model to the Internet.” That controversy has been bubbling for years, as many consumers and groups have argued that viewers should be able to pay for access to a web service like WatchESPN without having to go through TV providers.
For now, the migration has appeared to work well. According to an ESPN “2013 in Review” report on Jan. 7, “ESPN Digital Media wasn’t simply again the category leader, but accounted for nearly a third (31%) of all sports usage across digital platforms … Also, the focus on serving the sports fan on the go continued, with … WatchESPN now available to 55 million people.” College football’s BCS National Championship game, specifically, was a hit, generating 773,000 unique viewers on WatchESPN.
Like HBO with its popular HBO GO app, ESPN is unlikely to offer WatchESPN as a solo subscription product you could pay for without having ESPN on cable. Why should it? The service is continuing to thrive. ESPN is having its TV cake and eating it on the Internet, too.

Davos lacks the Valley’s revolutionary ambitions; The tech set stands out while a familiar crowd returns to the task of making the world nicer

Davos lacks the Valley’s revolutionary ambitions
By John Gapper
The tech set stands out while a familiar crowd returns to the task of making the world nicer
Thousands of chief executives, politicians, leaders of non-governmental organisations and media folk are once again assembled in Davos for their annual debates on how to improve the world. It is a worthy affair, with “stakeholders” discussing how best to combine business with societal good, like an ersatz global parliament.
The World Economic Forum is evolutionary – it usually misses the coming crisis but Klaus Schwab, its founder and impresario, is brilliant at adapting to the last one. It absorbed the 1990s anti-globalisation protests by inviting NGOs and companies to forge a consensus, and tried the same after the 2008 crisis with banks and regulators.
The trouble is, despite the parties and whirl of events, Davos feels old and staid. The excitement is with the revolutionaries – the technology companies that promise to remodel the world, not just to strike a compromise with the existing one. As the late Steve Jobs of Apple said: “It’s more fun to be a pirate than to join the navy.”
It is also more appealing, especially to the squeezed, alienated millenials whose problems will be debated by the baby boomers in Davos, quoting what their children have told them. Silicon Valley has loftier ambitions than hashing out a compromise with politicians in a Swiss valley.
Take Bitcoin, for example. Instead of tackling banks with tortuously negotiated capital and liquidity standards and more rules, why not disrupt global payment systems with a digital currency devised by an unknown hacker and backed by cryptography rather than a central bank? It feels like a lot more bang for the buck.
Compared with this, the multinationals that embody the Davos consensus such as Unilever and PepsiCo – those that carefully involve NGOs in inspecting supply chains, conserve water and make their processed food healthier – are reformers, not revolutionaries.
Technology faces its own credibility problems. Google and others have been targeted by politicians for avoiding taxes and embarrassed by revelations about the National Security Agency’s intelligence activities. The enterprises that promise liberation through technology have became conduits for government surveillance.
Yet a technology billionaire in a hoodie still beats a middle-aged executive in a suit for popular appeal. In an annual global survey conducted by Edelman, the public relations group, 79 per cent of people said they trusted tech companies, compared with 59 per cent for energy groups and 51 per cent for banks.
That helps them to get what they want from governments. Technology companies and venture capitalists mounted a swift campaign to defeat proposed US legislation to curb copyright infringement in 2012. A popular uprising beat film and music companies that backed the law.
Silicon Valley sometimes flirts with breaking off from pesky government altogether. Larry Page, chief executive of Google, proposes setting up experimental camps similar to Burning Man, the Nevada desert festival, with new laws that encourage innovation.Peter Thiel
, the venture capitalist, wants to see offshore floating communities “to peacefully test new ideas for government”.
The danger for businesses that rely on the Davos consensus is that it has a habit of turning against them
It sounds barking mad, but one cannot fault these men for their ambition, or having an overarching vision of the future. There is a clear echo of American immigrants, who moved from Europe to a frontier land where they remade the rules.
No matter how implausible, this sense of possibility has greater romantic appeal than endlessly debating the old order. To millennials linked to each other on Facebook or Snapchat like nodes on a digital network while struggling to find themselves jobs and homes in overburdened, politically paralysed nations, it is a clarion call.
The danger for businesses that rely on the Davos consensus is that it has a habit of turning against them. Companies were more trusted than governments in the Edelman survey, but many people still want tighter regulation of business. Britons want more energy regulation; Germans more financial regulation; and the Chinese more food safety rules.
Popular discontent initially focused on banks after the 2008 crisis but it proved contagious. Ed Miliband, leader of the UK opposition Labour party, is now mounting a rolling campaign against “broken markets” in various industries, accusing big businesses of price-gouging.
It is not obvious why the private sector should be on the defensive. Few industries were bailed out like banks, or enjoy the same safety net. Recession-hit consumers dislike price rises but those pressures will be eased by the return of growth. Public policy bears much of the blame for the economic difficulties of young people.
As the global economy recovers, the future is open. Will businesses follow the path of banks, dragged into regulatory and political disputes, or that of technology – trusted to offer a better life?
One lesson to learn from Silicon Valley is how to tell a story. A lot of apps are trivial compared with, for example, supplying energy, food or medicine. As Bill Gates noted acidly in an FT interview, vaccines and child nutrition matter more than connectivity in poor countries. Internet companies are wonderful advocates for their own importance.
A second is to talk directly to customers rather than simply to politicians or “civil society”. If people think they are doing something valuable, the Davos consensus will follow. It is time to get out more.

The 3-D Printing Market Is Going To Be 357% Bigger Than We Initially Thought

CREDIT SUISSE: The 3-D Printing Market Is Going To Be 357% Bigger Than We Initially Thought
ROB WILE
JAN. 22, 2014, 5:14 PM 3,068 3
If you need more evidence that 3-D printing and additive manufacturing are viable business sectors, try this.
A Credit Suisse research team led by Jonathan Shaffer has revised the firm’s 2016 projection for the market up 357%, to $800 million from $175 million.
The reason: overlooked opportunities among consumers and “pro-sumers,” which Shaffer defines as engineers, architects and educators.
3-D printing and additive manufacturing are basically used interchangeably to describe printing readymade objects and components from your own office or home, short-circuiting the normal, capital-intensive industrial production process.
Shaffer explains how this technology could gain widespread use:
We think eventually there could be near ~100% penetration amongst engineers as it becomes a common element of the engineer’s toolkit…The number of registered architects in the US [now stands at 222,500]. We think this represents another potential growth driver, although we acknowledge the computer design proficiency amongst architects is likely lower than among recent engineering graduates…We think children under 18 will be a primary driver of adoption; they are more likely to have heightened computer proficiency, and technological awareness is high in this age group.
“Pro-sumers” are the key. Shaffer says that professional and dedicated but amateur tinkerers will find great use for on-the-spot printing to help them realize prototypes. “We think eventually there could be near ~100% penetration amongst engineers as it becomes a common element of the engineer’s toolkit,” he says.
This group is also less sensitive to costs than regular consumers. “Reliability, print quality, build size and service are key pro-sumer concerns rather than simply price, and the new generation of printers do more to address these concerns,” he writes. Shaffer says the prices pro-sumers would be willing to pay for a new desktop unit tops out at $7,500 versus $1,500 for consumers.
Shaffer concludes by upgrading Stratasys to “outperform” from “neutral” with a target price $144 from $128, while downgrading 3-D Systems to “neutral” from outperform, holding the price target at $90. That’s because Stratasys bought MakerBot, which is among the leading brands in the market: Shaffer estimates sales doubled in the second half of 2013 alone, and will have more than tripled by 2016. He adds he was impressed by two new MakerBot models at CES he had not accounted for in his models.
The note came out Tuesday and caused the share prices of the companies, which had been trading in tandem, to instantly diverge. 3-D is in red: