Big tech skates, biotech exit gets blocked

 Cross-posted from the Bio Business Blog

A novel antitrust strategy by the Biden Administration’s Federal Trade Commission and the EU is seeking to end an acquisition by Illumina that would accelerate the availability of a cell free cancer screening. More seriously, if widely adopted, it would make it much harder for successful startups to exit — and thus for them to raise money and be formed in the first place.

Ironically, the government agencies are seeking to block Illumina from paying $8 billion to buy back  Grail, its own spinoff company. As the WSJ editorial board concluded Friday:

Government Race Against a Cure

In 2016 Illumina formed Grail with the goal of developing a blood test that could detect DNA from cancer cells before people show symptoms. A year later Illumina spun off Grail. This let Grail raise venture capital to finance large clinical trials while Illumina focused on building its other businesses.

Fast forward four years. Grail’s technology can now reliably detect 50 cancers at early stages with a simple blood draw. While the tests aren’t 100% accurate, the false positive rate is less than 1%, which is lower than for mammograms and PSA prostate tests. Grail’s technology can also detect the 12 most deadly cancers with 60% accuracy and has the potential to reduce false cancer diagnoses and invasive screenings while increasing early detection of aggressive cancers.

Grail was considering an IPO last fall to raise $100 million when Illumina made a more attractive offer. Illumina says its regulatory expertise can accelerate the commercialization of Grail’s technology. Biotech startups often struggle to obtain regulatory approval and insurance reimbursements.

The argument is virtually unprecedented: most mergers (since the Teddy Roosevelt days) have been fought based on horizontal combination in restraint of trade, while Illumina is a strategic supplier to Grail (and also supplies to other firms).

What seems particularly disreputable is that the FTC is seeking to kill the merger without allowing a court to rule on the merits of its arguments. Instead, the FTC is hoping to harass and stall the applicants until the Dec. 20 expiration of the agreement.

The reality is that little companies develop new technologies, but can never scale as quickly as a big company. The June 3 editorial suggests that Grail’s competitors are fighting the merger to slow Grail’s rollout and let them capture more market share.

Meanwhile, the EU is asserting authority over a transaction (between US firms) for which they have no jurisdiction because Grail has no operations there. As the WSJ wrote on May 29:

The change in European policy marks an effort by the commission to adapt its antitrust enforcement to a fast-changing marketplace where companies can expand with great speed, including through the acquisition of pivotal smaller businesses, the commission has said. Its March policy guidance changes nothing in the letter of the law but fundamentally changes how it is interpreted.

Potential red flags for merger review now include almost any deal done by a tech giant; almost any deal in a highly innovative sector, such as pharmaceuticals; a deal that might trigger complaints from third parties; and high-price acquisitions of companies with little revenue.

“It raises a lot of questions and uncertainty,” said Salomé Cisnal de Ugarte, a partner at law firm Hogan Lovells in Brussels. “It can affect every transaction.”

Finally, beyond the policy issues are the sheer scope of transactions on the global economy. Illumina is a $3.4 billion/year company, not even on the Fortune 500 (#687). Meanwhile, Amazon ($420b), Google ($182b) and Facebook ($86b) dominate their respective segments — in a way no oil or car company ever did — and continue to stifle competition at every opportunity. A decade from now, which intervention will make the most difference to society and the vibrancy of the economy?

Facebook lies about spying on us

This morning the Wall Street Journal reported yet more evidence of how Facebook has been misleading (and, at times, outright lying) to the public about how much privacy we have when we are the product that they relentlessly sell to advertisers. Zuckerberg et al claim we have controls to protect ourselves from spying by Facebook and Instagram, but the reality is that we do not.

In a story entitled “Why Facebook Still Seems to Spy on You,” reporter Katherine Bindley wrote:

If we take advantage of all these privacy controls, it shouldn’t still feel as if Facebook is spying on us, right? We shouldn’t see so many ads that seem so closely tied to our activity on our phones, on the internet or in real life.

The reality? I took those steps months ago, from turning off location services to opting out of ads on Facebook and its sibling Instagram tied to off-site behavior. I told my iPhone to “limit ad tracking.” Yet I continue to see eerily relevant ads.

I tested my suspicion by downloading the What to Expect pregnancy app. I didn’t so much as share an email address, yet in less than 12 hours, I got a maternity-wear ad in my Instagram feed. I’m not pregnant, nor otherwise in a target market for maternity-wear. When I tried to retrace the pathway, discussing the issue with the app’s publisher, its data partners, the advertiser and Facebook itself—dozens of emails and phone calls—not one would draw a connection between the two events.
…
The day after I stepped into a San Francisco clothing boutique called Reformation—and didn’t buy anything—Instagram showed me an ad for that store. I confirmed in iPhone settings that location sharing for Instagram was off.
…
I asked Facebook why I was still seeing ads that seemed tied to my browsing history. A spokesman confirmed that the setting only covers data that Facebook itself handles. Facebook can’t guarantee that users won’t see ads influenced by browsing data that comes from a source other than Facebook.…

None of this really explains what happened when I downloaded the What to Expect app and ended up almost immediately being pitched maternity-wear. I’m single, I long ago permanently hid the parenting ad topic and none of my Facebook “interests” relates to children. I don’t get pregnancy ads on Facebook or Instagram.

The What to Expect app was among those The Wall Street Journal found was sharing data with Facebook as recently as November, but the company said it stopped using Facebook’s SDK prior to January.

The Federal Trade Commission his week announced a new task force to monitor anti-competitive activities of “Big Tech,” possibly including breaking up past mergers. Given how Facebook and Instagram data on customers are seamlessly integrated, perhaps the FTC should consider calls to break these two up.

Channelling Bill Shockley

Techstars (an incubator company) and various aerospace companies have announced plans to launch a space incubator in LA. As TechCrunch reported:

Already a major hub for the space and aerospace startup industry, with companies like SpaceX, Relativity Space, Virgin Orbit, Rocket Lab, Phase Four, and others calling Los Angeles home, the new accelerator will provide another booster for LA’s growing startup scene.

The new aerospace program, called the Techstars Starburst Space Accelerator, will be managed by longtime Techstars managing director, Matt Kozlov, who previously helmed Techstars’ efforts at its health-focused accelerator done in partnership with Cedars Sinai.

LA was the country’s major aerospace hub from the 1930s until the end of the Cold War. But with the end of the space race, the downsizing of missile and military aircraft procurement — and the death of Douglas Aircraft and Lockheed’s commercial aircraft division — jobs were cut drastically and others moved to cheaper parts of the country.

The anchor of the new LA space hub is SpaceX, which moved to Hawthorne in 2008. It had been the headquarters of the firm founded by Jack Northrup in 1937, where it built the B-35, F-89 and F-5 military aircraft. (Its B-2 bomber was built at a secret factory in nearby Pico Rivera).

SpaceX is such a tough place to work that it has encouraged its employees to game the Glassdoor employer rating system. Despite this, 1/3 of the 1,109 SpaceX reviews complain about long hours, as with the review that said “There are times I work very long hours including a few times working 60 straight hours”. Last month, SpaceX — celebrating record success in 2018 — rewarded its loyal workforce with a 10% layoff.

Elon Musk has often imagined himself the next Steve Jobs, although Steve Jobs didn’t think so. Musk clearly needs to grow up and at 47 is well past the age when Jobs did so. Jobs was certainly grown up by 1998 (age 43) when his youngest child was born and he took the reins of Apple once again. Jobs also made his money in the commercial marketplace rather than manipulating investors and government procurement.

Instead, I think Musk is the next Bill Shockley. Shockley is known for inventing the field effect and bipolar junction transistors, which won him a share of the Nobel Prize. Late in life, he was known for saying controversial things about political and social issues.

However, (given his Bell Labs colleagues probably would have invented the transistor without him) perhaps his greatest contribution to mankind was creating Silicon Valley. In 1956, he founded Shockley Semiconductor in Mountain View, California.

He was such an asshole as a boss that the next year eight of his leading employees (the “Tratorous Eight”) quit Shockley to form Fairchild Semiconductor — the first of thousands of spinoff companies to be formed in the Bay Area. The eight included Gordon Moore and Robert Noyce — cofounders of Intel — and Eugene Kleiner, cofounder of Kleiner Perkins.

So between his winning personality, stressful working conditions and past/future layoffs, Musk will be making thousands of skilled ex-SpaceX employees available to the LA aerospace labor market. As with Shockley, perhaps Musk’s greatest contribution will be attracting bright engineers to the region, who later take those skills to help get other startup companies off the ground.

Will Elon Musk grow up in time?

On Thursday the SEC sued Elon Musk for tweeting on August 7 that he had financing to take Tesla private at $420/share. It says the number not based on specific conversations with his financiers, but a guess — based on a 20% premium — that was rounded up to a number that is meaningful in stoner culture in hopes of impressing his new 30-year-old girlfriend.

That the claim had serious repercussions is hard to dispute: the shares had dropped to $320 when he abandoned the idea of going private, and closed at $265 Friday, 24 hours after the SEC suit. Musk walked away from a settlement, and now (seems to) assume that his $420 claim is consistent with is vague oral agreement with Saudi financiers — or that juries don’t like to convict celebrities. (Alas, Johnny Cochran is not available for this trial).

By sheer force of will, Musk created three companies in new (or newly disrupted) industries. Unfortunately, none of them have been profitable — Tesla (now parent of SolarCity) continues to lose money, and (the still private) SpaceX still appears to be losing money.

Many have noted that Musk is his own worst enemy (perhaps like our Tweeter-in-Chief). With executives jumping ship at Tesla (WSJ says 50+ at the VP level in past 2 years), he’s driving away the talent he needs to pull the company out of its CFIT. At age 47, it’s long past time for him to grow up.

I’ve never owned or shorted Tesla shares; at the same time, I’ve always been skeptical of Tesla because of its egomaniacal founder who reminded me more of Howard Hughes than Steve Jobs. In response to the SEC, Musk said

Integrity is the most important value in my life and the facts will show I never compromised this in any way.

This is from the man who in 2008 divorced the mother of his five children to marry a 20-something British actress. (She divorced him four years later). Again, he is more like Howard Hughes (with his fondness for starlets) than Steve Jobs, who at his death was attend by his wife of 20 years, the mother of three of his four children.

Some say you can compartmentalize integrity. Some might argue that Donald Trump never reneged on a real estate deal — or Bill Clinton on a political deal. However, no one could claim with a straight face that integrity was either man’s most important value.

The WSJ’s “Heard on the Street” on Friday summarized the veracity-challenged CEO:

There is a fine line between hyperbole and falsehood and Mr. Musk’s ambitious guidance for vehicle production skirted very close to it. To cite just one example, Mr. Musk told investors in May 2016 that he expected Tesla to produce between 100,000 and 200,000 Model 3 sedans in the second half of 2017; Tesla wound up making about 4,000 of the cars that year.

WSJ columnist Holman Jenkins noted

Even with the SEC suing to remove its visionary chief, Tesla is still worth $45 billion in the market. That’s about $204,000 per car it expects to sell in 2018, compared to $4,900 per car for GM and $20,000 per car for BMW, both of which produce cars at a profit.

In other words, Tesla is still valued as if tomorrow’s expected profits won’t be coming from the car business but from some Musk magic yet to be revealed. Blame Mr. Musk’s Wall Street cheerleaders for fostering this illusion, not the SEC if its action this week finally deflates the Musk bubble. 

There is another possible explanation: Musk is not immature or crazy, but desperate. Sometimes, leaders facing long odds realize that everything has to work just right or they will fail. Last night (Friday), my men’s group last night discussed a book on Ernest Shackleton’s third expedition to Antarctica in 1914-1916, when 28 men survived over a year trapped on the polar ice without communication with the outside world.

These sorts of against-the-odds successes usually require both flawless execution and a few lucky breaks. Although they never employed Tom Brady, my former favorite football team had a succession of quarterbacks (Hadl, Fouts, Brees, Rivers) who mount the frantic come-from-behind passing offense; occasionally it even worked.

Musk got a bad break in 2016: the Democrats losing the White House was bad for Tesla and Solar City, even if it might be good for SpaceX. His projected ship dates seem to assume everything will go well, and such assumptions are frequently proven wrong.

 If Musk gets banished, the prospects are grim for his empire, his wealth and his investors. SpaceX has a capable successor in place — president Gwynne Shotwell — but Tesla does not. Unless Musk starts acting like a grown up — and demonstrate a credible succession plan — it will be hard for Tesla to raise money, attract capable talent and management, and keep the stock price up.

So which is the greater longshot: Musk grows up, or he saves Tesla without a personality transplant? Compared to either one, I think LA’s inferior football team has better odds of winning the Super Bowl this season.

Nothing beats a platform monopoly

Since the birth of broadband, net neutrality’s cheerleaders have feared that service providers might begin to act as the internet’s “gatekeepers,” …The real distortions come from massive “platform monopolies” like Google, Facebook and Amazon, whose proprietary algorithms decide what users see online.

The supposed purpose of “net neutrality” is to stop any internet company from getting a leg up over others. But that’s exactly what happens when Google’s search results prioritize its own services—and profits—over competitors’. …If Google’s favoring its own products while pushing potential competitors down its rankings doesn’t create “fast” and “slow” lanes, what on earth does?

Similarly, avowed net-neutrality supporter Amazon was granted a patent in May for “Physical Store Online Shopping Control,” a system to block shoppers in brick-and-mortar stores from using Wi-Fi to view competitors’ prices. Isn’t “no blocking” the heart of net neutrality? Facebook, meanwhile, has virtually abandoned chronology in its News Feed in favor of picking and choosing what users see—and what they don’t—based on what the company has learned about them.

The costs of such abuses from the platform monopolies are obvious and many. Newspapers have nearly been “prioritized” out of existence by Google’s shameless appropriation of their work: Why click through and read a whole article when Google News will pluck out the most important bits and show them to you free—alongside its own ads, of course. … Last year, the FCC chairman tried and failed to force TV companies to make their feeds available on set-top devices made by—wait for it—Google, Apple and Amazon.

The internet giants behind the Day of Action can now track users’ physical location 24 hours a day, learning where they live and work, by logging where their phones are at different times of day or the Wi-Fi networks they pass. If two phones sit side by side overnight, advertisers knows what that means—and appropriately “targeted” pitches are sure to follow.

From Ev Ehrlich, “‘Neutrality’ for Thee, but Not for Google, Facebook and Amazon,” Wall Street Journal, July 21, 2017.

The meaning of Memorial Day

The story of Lt. James Cathey, U.S.M.C. (1980-2005) is told in a photo essay that has been circulating today on Twitter in honor of Memorial Day. Attached to the 2nd Marine Division, he died on August 21, 2005 as the result of an IED explosion in Iraq. The photo essay is part of one that won a Pulitzer Prize for Todd Heisler, then at the Rocky Mountain News and now at the New York Times. 

A haunting image is that of Lt. Cathey’s pregnant widow Katherine, sleeping on an improvised bed next to his casket upon its return to the U.S.. The photo includes one of the local Marines standing vigil, as part of three day guard mounted in honor of their fallen colleague.

Memorial Day was created to honor the war dead of the Civil War. Seeing this photo reminded my of Lincoln’s Gettysburg Address (as read by Henry Fonda in a recording Copland’s “Lincoln Portrait”):

That from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion. That we here highly resolve that these dead shall not have died in vain. That this nation under God shall have a new birth of freedom and that government of the people, by the people, and for the people shall not perish from the earth. 

We need more great founders

Cross posted from the Engineering Entrepreneurship blog.

Successors to successful founders rarely do as well, according to two Bain consultants who’ve studied the topic.

The headline in Monday’s WSJ made it clear:

The Company Founder’s Special Sauce
No one leads a firm as effectively as the person who started it.
By CHRIS ZOOK and JAMES ALLEN
Dec. 18, 2016 5:03 p.m. ET

‘The Founder,” a new film starring Michael Keaton, tells the story of McDonald’s Corporation founder Ray Kroc as he turns a few small restaurants into a ubiquitous international chain. It’s a tale of founder-driven corporate growth—something that has become too rare today. This breed of entrepreneurial spirit makes for a good story, but it’s also crucial for the economy.

Research we published in July finds that of all newly registered businesses in the U.S., only about one in 500 will reach a size of at least $100 million in revenue. A mere one in 17,000 will attain $500 million in revenue and sustain a decade of profitable growth. Despite their rarity, these successful firms are a bedrock of the U.S. economy.

A study out earlier this year from Bain & Company, where we work, shows that over the past 15 years founder-led companies delivered shareholder returns that are three times higher than those of other S&P 500 companies.

Such performance can sometimes continue long after a founder leaves. We analyzed examples of sustained success at 7,500 companies in 43 countries, visiting many in person, to determine what made them stand out. Great founders imbue their companies with three measurable traits that make up what we dubbed “the founder’s mentality.”

Those three traits: insurgency (i.e. disruptive innovation), obsessive focus on customers, and permeating the vision of the founder throughout the entire organization.

I have not had a chance to read their research, but it rings true. I did my dissertation on Apple, once led by Steve Jobs — perhaps the most unique founder of the 20th century; in America, only Henry Ford, Tom Watson Sr., Hewlett & Packard and maybe Howard Hughes come close.

Jobs was driven to make “insanely great” products, to the point of being a tyrant (slightly more human after he had kids). Since his death five years ago, they’ve had mediocre leadership and nothing they have done has come close (something us shareholders must lament).

One caveat: while I lionize great founders — and aspire to be a good founder once again — there is an important confound. Firms have their best people, best ideas, greatest disruption and greatest impact during their initial growth phases; a second round of growth and disruption (as in the Jobs II era, 1997-2011) is virtually unheard of. Big companies don’t grow as much as small ones, nor is the CEO (of any stripe) able to have the same impact. (And unlike Jobs, most tech founders have their greatest impact in this initial period, not running the stable successful mature company).

Still, nothing I’ve seen this year does as good a job summarizing the great debt society owes to those who roll the dice, take great chances and endure years of high-stress intensity to create a new company. The decline in US startups is troubling not only for economic growth, but for the lost opportunities for employees, customers and complementors as well.

Hire great workers, even if you can't keep them

Silicon Valley — like the Big Four accounting firms and big law firms — has a well-deserved reputation for hiring bright young people and working them hard until they move on. While the impermanence of SV employment (6-12 months is not uncommon) may be unique, the idea of hiring good people is not.

In his new book Superbosses: How Exceptional Leaders Master the Flow of Talent, Dartmouth leadership professor Sydney Finkelstein argues that a key trait of the best bosses is that “you’re better off having the best people for a short time than average people forever.”

That philosophy fits well with my own experience as a manager during my 15 years as an “executive” (of 5-15 employees) at my startup company. At my entrepreneurship blog, I summarize the comparison of his comments (from his recent WSJ article) with my own experience.

I have great respect for Finkelstein. In an earlier book, he provided the clearest explanation of why once-great Motorola destroyed itself because (as I saw in my cell phone research) of its inability to come to grips with the disruptive shift from analog to digital mobile phones and base stations.

However, there is one line in the article that would give a chuckle to any veteran Silicon Valley watcher — where he lists Larry Ellison as one of “the world’s greatest bosses”). Yes Ellison is a self-made billionaire worth $40+ billion and one of the world’s 10 richest people. And surprisingly, Oracle has had a great run of growth for the last decade, even if the stock price is below where it was in the summer of 2000.

This is the same Ellison whose ego is (or was) so large that his biographer titled the book The Difference Between God and Larry Ellison: God Doesn’t Think He's Larry Ellison. So while Ellison was successful and had some smart people working for him, I don’t know that I would hold him up as a role model (even in Silicon Valley) of how to best lead people.

Silicon Valley's ambivalence towards growth

Last month, the latest mayor of Palo Alto explained his slow growth philosophy against both economic and housing growth. An interview with Curbed San Francisco began

Curbed SF: Everybody agrees that too many people can’t afford Palo Alto. So why is it like this?

Mayor Patrick Burt: There are a number of factors. First, we’re in a region that’s had extremely high job growth at a rate that is just not sustainable if we’re going to keep [Palo Alto] similar to what it’s been historically. Of course we know that the community is going to evolve. But we don’t want it to be a radical departure. We don’t want to turn into Manhattan.

Curbed: But there’s a pretty big margin between Palo Alto and Manhattan. What are you comfortable changing?

Burt: We're looking to increase the rate of housing growth, but decrease the rate of job growth.

Curbed: You want fewer jobs?

Burt: I know, it’s a strange idea to contend with. But this doesn’t mean we want no job growth. And it doesn’t mean we want reckless job growth. We want metered job growth and metered housing growth, in places where it will have the least impact on things like our transit infrastructure. …

The interview seemed in response to the resignation of a city planning commissioner who resigned two weeks earlier because her family could no longer afford to live in Palo Alto. It’s hard to disagree with part of Park’s argument that economic growth requires housing growth — but Burt (a medical device CEO) seems ambivalent about the latter as well.

In today's Wall Street Journal, former hedge fund manager Andy Kessler notes that the cheapest house in Palo Alto has 959 square feet, backs to the train tracks, and costs $1.35 million. (That's roughly double what a comparable house cost when we looked at moving to Palo Alto in 2002).

Kessler continued:

I wanted to ask Mayor Burt: Is stifling job creation really going to help? Or would that only boost surrounding towns? Palo Alto has already capped the annual growth of office space. It took years to approve a new $5 billion Stanford Hospital extension, which the area desperately needed. Even worse, there is a funny quirk in the zoning laws that limits what’s allowed in so-called Pedestrian and Transit Oriented Development areas (downtown). This includes restrictions on research and development, a catchall for limited manufacturing, “storage or use of hazardous materials,” and “computer software and hardware firms.”

I can tell you outright that the only hazardous materials in an office of software coders are their high-test caffeine concoctions. But the software firms are many. Amazon has its search team in Palo Alto. The big-data firm Palantir has been gobbling up buildings for its engineers. Facebook had several before moving to neighboring Menlo Park. SurveyMonkey has a huge site near the train station.

Even Palo Alto’s residential areas are filled with startups, real-life versions of Erlich Bachman’s house from HBO’s “Silicon Valley.” They’re easy to spot, having more cars parked during the day than at night. These companies offer high-paying and productive jobs that are great for society.

In the 1970s and 1980s, San Francisco was decrying “Manhattanization” but today that is a fait accompli. Meanwhile, most of the Bay Area (particularly the City and the Peninsula) is emulating the trends of excessive living costs that drove large companies and jobs out of New York City during that same period.

The explosion of housing prices in the Bay Area over the past five years is pricing ordinary workers out of the market. Yes, it is possible to commute from New Jersey (which here is called "Contra Costa County"), but such commutes strain highway and mass transit infrastructure (and push suburban and exurban housing prices up too).

Kessler notes that the solution to high housing costs is (surprise!) building more housing. I understand the importance of making available single family homes, and I think it is a strength of both California and the U.S. more broadly. Still, anyone driving along I-280 knows there are large swaths of undeveloped land in the Bay Area — that in LA would be houses but in the Bay Area are called “open space.” According to Wikipedia, the housing density of Palo Alto (2,500 residents/acre) is half that of nearby Cupertino, and less than one-fourth that of Santa Monica — another upscale, highly desirable community. (Burt’s hyperbole is demonstrated by noting that the actual housing density of Manhattan is nearly 30 times that of Palo Alto).

So will Silicon Valley voters (let alone politicians) embrace the full implications of economic growth by developing undeveloped land or increasing housing density? Or will it continue down this path of being available to well-paid tech elites, while ordinary (non VC-funded) entrepreneurs and businesses have to move elsewhere?

Yahoo's last hurrah

Monday began the final act of Yahoo, as it announced the purchase by Verizon of its traditional business for $4.8 billion. The WSJ noted

The sale doesn’t include, among other things, Yahoo’s cash, its shares in Alibaba Group Holding Ltd., its shares in Yahoo Japan, and Yahoo’s noncore patents, called the Excalibur portfolio. These assets will continue to be held by Yahoo, which will change its name at closing and become a registered, publicly traded investment company.

Also excluded was the Excalibur patent portfolio (excluding patents purchased by Verizon) valued at $1 billion.

At the close of business Monday, Yahoo’s market cap was $36.4b, suggesting that these residual assets are worth about $32b — or 6.5x as much as Yahoo’s traditional businesses. (It seems misleading to call 13% of the company’s value “core”). TechCrunch values the Alibaba and Yahoo Japan shares at $31.2b and $8.3b so something doesn’t add up.

The bible of Silicon Valley, the San Jose Merc, says the market cap of Yahoo is about where it was before 2008 market crash. USA Today says that CEO Melissa Mayer had the best outcome (as measured by share price) of the six CEOs of Yahoo’s 20 years as a public company. Her 152% stock price increase made up about half of the stock value lost by (interim) CEO Jerry Yang, who held the reins during the heart of the stock market crash. The 152% increase compares to the 175% rise in the NASDAQ composite index during the same period.

Yang had a chance to sell the company to Microsoft in 2008 but refused to do so; in response, I said “Yahoo is toast.” As with other tech stocks, whether you made money over the past few years depends on whether you bought at the bottom or near the top.

Still, crediting Mayer with the stock price increase over the past four years seems somewhat generous, given that the “traditional” business continued to decline in value. Instead, (as predicted) the increase came from the two strategic investments by Yang in Alibaba and Yahoo Japan.

Under the circumstances, things turned out better than feared. Over the last four years, Yahoo was no Google, Apple or Microsoft — let alone Facebook — but at least it is a positive outcome during a period when other mature tech stocks declined.

Mayer will be moving on, but hopefully (as with Verizon’s acquisition of AOL) many of the Yahoo employees will keep their jobs. The Yahoo company (if not the brand) will be disappearing, but given its waning interest, the backing of America’s most profitable (and second most valuable) firm will provide reasons for potential partners to take it seriously again.

Innovation requires freedom

From the Wall Street Journal, July 22, 2016, p. A13:

The Closing of the American Mind
There are dangerous signs that the U.S. is turning its back on the principles of a free and open society that fostered the nation’s rise.

I was born in the midst of the Great Depression, when no one could imagine the revolutionary technological advances that we now take for granted. Innovations in countless fields have transformed society and radically improved individual well-being, especially for the least fortunate. Every American’s life is now immeasurably better than it was 80 years ago.
…
When I attended the Massachusetts Institute of Technology in the 1950s, I quickly came to appreciate that scientific and technological progress requires the free and open exchange of ideas. The same holds true for moral and social progress. I have spent more than a half-century trying to apply this lesson in business and my personal life.

It was once widely accepted that progress depends on people challenging and testing each other’s hypotheses. This leads to the creation of knowledge that, when shared, inspires others and spurs the innovation that moves society forward and improves lives. … Recall Sir Isaac Newton’s statement that he achieved so much by “standing on the shoulders of giants.”
…
Despite our enormous potential for further progress, a clear majority of Americans see a darker future. Some 56% believe their children’s lives will be worse off than their own … I empathize with this fear. The U.S. is already far down the path to becoming a less open and free society, and the current cultural and political atmosphere threatens to make the situation worse …

Education in America, and particularly higher education, has become increasingly hostile to the free exchange of ideas. On many campuses, a climate of intellectual conformity has replaced open debate and inquiry, stifling discussion on a host of topics ranging from history to science to economics. Dissenters are demonized, ostracized or otherwise treated with scorn and derision. This disrupts the process of discovery and challenge that is at the root of human progress. …

Similarly, in business the proliferation of corporate welfare wastes resources and closes off opportunity for newcomers. It takes many forms—direct subsidies, anticompetitive regulations, mandates, tax credits and carve-outs—all of which tip the scales in favor of established businesses and industries. The losers are invariably the new, disruptive and innovative entrepreneurs who drive progress, along with everyone who stands to benefit from their work. …

Government, which often has strong incentives to stifle the revolutionary advances that could transform lives, may be the most dangerous. The state often claims to keep its citizens safe, when it is actually inhibiting increased individual well-being. See, for example, the FDA’s astronomically expensive and time-consuming drug-approval process, which University of Chicago professor Sam Peltzman argues has caused “more sickness and death than it prevented.” …

Unleashing innovation, no matter what form it takes, is the essential component of truly helping people improve their lives. The material and social transformations in my own days have been nothing short of astonishing, with a marked improvement in well-being for all Americans. If the country can unite around a vision for a tolerant, free and open society, it can achieve even greater advances, and a brighter future for everyone, in the years ahead.

Mr. [Charles] Koch is chairman and CEO of Koch Industries and the author of “Good Profit: How Creating Value for Others Built One of the World’s Most Successful Companies” (Crown Business, 2015).

The future was never what it used to be

Companies like Garner and IDG were seen as essential when I was running a Mac software company in the 80s and 90s: we couldn’t afford their $3000-5000 forecasts, and so eagerly sought out insights when they were excerpted elsewhere. Then, after I became an academic, I researched platform standards wars — first in PCs and then in smartphones — I worked to reconstruct their market share statistics while looking cautiously at their forecasts.

Alas, 2016 showed that (as Yogi Berra famously said) the future ain’t what it use to be. As my Wall Street Journal proclaimed this morning:

CEOs Put Less Stock in Predictions
Executives’ faith in expert forecasts fades as uncertainty grows; Brexit is latest jolt.
By Rachel Emma Silverman, Joann S. Lublin and Rachel Feintzeig
Wall Street Journal, July 13, 2016, p. B6

The forecast for business predictions these days is cloudy.

Chief executives tap consultants, expert prognostications and polls about market and political conditions to help inform business decisions. But from the Brexit surprise to the rise of Donald Trump and the frequently revised U.S. job market numbers, expert analyses have been landing far off the mark—and executives are growing wary.
…
“The so-called experts and global economists are proven as often to be wrong as right these days,” says Scott Wine, chief executive of Polaris Industries Inc., a Medina, Minn., manufacturer of off-road vehicles and motorcycles.
…
Mr. Lamneck [CEO of Insight Enterprises] says he is more closely scrutinizing the research that the company buys from advisory firms like International Data Group and Gartner. “We’ll look at, ‘What’s the real value of these services that we’re paying for?’” he says, adding that the reports are more useful for strategy ideas than for market-growth forecasts
.
A study of about 28,000 expert geopolitical predictions over 20 years [from 1984-2003] found that most were only slightly better than chance, especially when predicting events more than a year off would or wouldn’t happen, according to Philip Tetlock, a professor at University of Pennsylvania’s Wharton School of Business who studies forecasting.
Dr. Tetlock suggests businesses carefully track both internal and external forecasts and keep score on who gets the important calls right—a step that few companies take.
…
[CEO Robert S. Miller] and fellow directors [of International Automotive Components Group] review corporate strategy quarterly, and Brexit’s effect will be on the agenda for their July 27 review. Mr. Miller says the referendum’s result will only add to the complexity his company faces.

Still stung from his experience in 2008 [as CEO of Delphi], the IAC leader says he places little stock in current economic predictions. He is equally skeptical about predictions describing future effects of the Brexit vote.

“You always have to take this stuff with a grain of salt,’’ Mr. Miller suggests.  “You can’t run your business with only one track in mind—which is the direction that forecasters and experts are telling you it will go.’’

Or as physics Nobelist Neils Bohr reportedly said: “It is difficult to predict, especially the future.”

When the Elites become tone deaf

Source: Daily Telegraph

The #Brexit vote will have a major impact on Britain, EU, NATO and the West more broadly. The 52-48 majority voting to leave the EU — like many recent US presidential elections — shows a country deeply divided.

The Telegraph’s map shows how London and a few other city centers voted strongly for the EU, while the rest of England voted decisively against the EU. (As the Guardian notes, Labour voters at the edges of London and Liverpool voted against the city center).

Before the results were in (HT: NY Times), pro-EU columnist John Harris wrote Thursday in the Guardian

The UK is now two nations, staring across a political chasm
Leave voters aren’t lemmings jumping off a cliff, and the left urgently needs to understand their choices.
…
Two nations, in short, are staring at each other across a political chasm.
…
Even those who understand that something seismic is afoot among predominantly working-class voters are still too keen on the idea that they are gullible enough to be led over a cliff by people with whom they would actually disagree, if only they knew the facts. But most people are not really being “led” by anyone. In my experience, Farage, Boris Johnson and Michael Gove et al are viewed by most people with as much cynicism as the people fronting the remain campaign. Moreover, this argument is dangerously redolent of that lousy old Marxist trope of “false consciousness”, whereby people enthusiastically following the supposedly wrong cause are only a speech or poster away from enlightenment, and a sharp left turn.

We need to face up to two things. First, a lot of people want out of the EU because they are worried and angry about the consequences of the free movement of people, and in that sense they have made their choice rationally. Second, even if Farage, Johnson and Gove would doubtless use Brexit as an opportunity to further our journey towards an essentially sink-or-swim society, there are plenty of working-class voters who would probably go along with that.

Meanwhile, pro-Brexit James Bartholomew made a similar point today in the Spectator

Britain’s great divide
The referendum has exposed a huge rift between the metropolitan elite and the rest
…
Every election is divisive, but none has pitted rich against poor like this one. The social divide has been far more dramatic than the divide between the two main political parties. In general elections, the professional and managerial classes favour the Tories by a margin of four to three. The difference is nothing like as marked as the social divide in the referendum vote. As a generalisation, the split has been between the educated ‘haves’ on one side and the working class on the other. The Remainers found ways of making this point — casting themselves as cosmopolitan and ‘open’ against the crude and (presumably) closed-minded Leavers.

I came across quite a bit of scornful self-righteousness among the rich Remainers. In one street of private houses, a woman repeatedly shouted at us: ‘You’re all bonkers! Get out! You are not wanted here!’ A prosperous-looking man at the doorway of his private house informed us that immigration was a good thing and was economically necessary: the implication being that those who seek controlled immigration are both anti-immigrant and ignorant of the economics of the matter. His irritated parting shot was: ‘I hope you lose!’

The divide shows how changes brought about by globalisation and large-scale immigration have affected different classes in contrasting ways. For the ‘haves’, it has been a boon. The Notting Hill crowd now has cheap, highly qualified Polish builders, well-educated Polish cleaners and perhaps a Romanian nanny for their children. They go to Caffè Nero and are served by polite Italians. They feel deliciously international and open-minded while enjoying cheaper, better services than they otherwise would.
…
At the other end of the spectrum was Gladys, who I met at the door of her council house on Monday. She was reluctant at first to say which way she was voting. She got her council house in 1975 after two years waiting for it. But now she worries for her sons and grandchildren. How are they going to afford somewhere to live? The cost of mortgages just goes up and up, she said.
…
Gladys was not xenophobic or racist. What bothers her isn’t immigration, as such, but the government’s inability to respond to immigration and the resulting shortage of housing and school and hospital places. The rich folk across the road could get round these problems. Hector and Harriet could go to a private school if necessary. If there was a two-week wait to see their NHS GP, they could go private. They have already got their own flat or house, which has gone up nicely in value, thank you very much.

Both reminded of whjat Peggy Noonan — a moderate Republican and former Reagan speechwriter — wrote in February:

Trump and the Rise of the Unprotected
Why political professionals are struggling to make sense of the world they created.
…
I keep thinking of how Donald Trump got to be the very likely Republican nominee. There are many answers and reasons, but my thoughts keep revolving around the idea of protection. It is a theme that has been something of a preoccupation in this space over the years, but I think I am seeing it now grow into an overall political dynamic throughout the West.

There are the protected and the unprotected. The protected make public policy. The unprotected live in it. The unprotected are starting to push back, powerfully.
The protected are the accomplished, the secure, the successful—those who have power or access to it. They are protected from much of the roughness of the world. More to the point, they are protected from the world they have created. Again, they make public policy and have for some time.

I want to call them the elite to load the rhetorical dice, but let’s stick with the protected.

They are figures in government, politics and media. They live in nice neighborhoods, safe ones. Their families function, their kids go to good schools, they’ve got some money. All of these things tend to isolate them, or provide buffers. Some of them—in Washington it is important officials in the executive branch or on the Hill; in Brussels, significant figures in the European Union—literally have their own security details.

Because they are protected they feel they can do pretty much anything, impose any reality. They’re insulated from many of the effects of their own decisions.

One issue obviously roiling the U.S. and western Europe is immigration. … It is of course the issue that made Donald Trump. Britain will probably leave the European Union over it.
…
If you are an unprotected American—one with limited resources and negligible access to power—you have absorbed some lessons from the past 20 years’ experience of illegal immigration. You know the Democrats won’t protect you and the Republicans won’t help you. Both parties refused to control the border.
…
Many Americans suffered from illegal immigration—its impact on labor markets, financial costs, crime, the sense that the rule of law was collapsing. But the protected did fine—more workers at lower wages. No effect of illegal immigration was likely to hurt them personally.

It was good for the protected. But the unprotected watched and saw. They realized the protected were not looking out for them, and they inferred that they were not looking out for the country, either.

The unprotected came to think they owed the establishment—another word for the protected—nothing, no particular loyalty, no old allegiance.
…
What marks this political moment, in Europe and the U.S., is the rise of the unprotected. It is the rise of people who don’t have all that much against those who’ve been given many blessings and seem to believe they have them not because they’re fortunate but because they’re better.

You see the dynamic in many spheres. In Hollywood, as we still call it, where they make our rough culture, they are careful to protect their own children from its ill effects. In places with failing schools, they choose not to help them through the school liberation movement— charter schools, choice, etc.—because they fear to go up against the most reactionary professional group in America, the teachers unions. They let the public schools flounder. But their children go to the best private schools.

This is a terrible feature of our age—that we are governed by protected people who don’t seem to care that much about their unprotected fellow citizens.

And a country really can’t continue this way.

In wise governments the top is attentive to the realities of the lives of normal people, and careful about their anxieties. That’s more or less how America used to be. There didn’t seem to be so much distance between the top and the bottom.
Now is seems the attitude of the top half is: You’re on your own. Get with the program, little racist.

My European history isn’t very good, but the French Revolution happened in part because the Elites became tone deaf. (IIRC it was also a factor in the Russian and Chinese revolutions, although both involved a well-organized grab for power by one faction against another). In a democracy, we get to have our elections via ballot box — as long as the system isn’t rigged. In that regard, such a vote is a triumph (and not a failure) of the system of democracy that England pioneered in the 2nd millenium.

Source: Financial Times

Understanding Apple's platform strategy: A little theory can help

Today is the first day of the Worldwide Developer’s Conference (WWDC), Apple’s annual effort to both inform and excite its ecosystem of third-party providers. As with any conference, it’s also a chance to get together with friends, old and new, particularly at parties thrown by companies that want to improve their visibility to the developer attendees.

I remember in 1988 going to my first WWDC in San Jose: our company was so poor that the two cofounders (Neil and I) had to split a single pass to be able to have any presence at all. My last WWDC was in 2003, as my company neared its end, and I went to meet with a former employee who was in town for the conference. The conference is capped at 5,000 developers, but rather than use price to discourage demand (as do most media companies), since 2014 Apple has used a lottery system to allocate seats to registered developers.

Since the early years of the Jobs II era (1997-2011), WWDC has been used to make important product and technology announcements for the broader public. As such, it also gives the business press to take another junket to San Francisco and write their annual (or quarterly) pontifications on the state of Apple, its products, market position, competitive advantage, business model, stock price or anything else.

One article caught my attention on Twitter this morning:

Apple's True Strengths Don't Lie in Innovation
By Christopher Mims
Wall Street Journal, 13 June 2016, p. B.1.
…Apple's normally festive Worldwide Developers Conference begins Monday under something of a pall. The company's first quarterly sales decline in 13 years has many people asking whether it will grow again. They also want to know how Apple, with its healthy supply of cash, could make that happen.

The conventional answer is "create a totally new product line," or its cousin, "unveil something no one has done before." That is, Apple should try to out-innovate its competitors.

That is a terrible idea. It runs counter to Apple's strengths, as well as its growth trajectory.

Here is why: Apple's core strengths are the scale of its ecosystem -- the company says it has more than one billion active devices world-wide -- and the spending power of their owners.

As someone who’s studied the theory of standards wars for two decades — and Apple’s practice of standards wars for three decades, and wrote the most-cited paper on Apple’s iPhone strategy — this seemed somewhere between foolish and idiotic.

But if you dig a little deeper, what the columnist (who seems prone to exaggerating for effect) really is doing is playing a semantic game. The language of "innovation is bad, no innovation is good” would be more accurately summarized as “risky radical innovation is bad, continuous incremental innovation is good.”

The author states

Apple is expert at offering a more polished, more accessible version of products and services that rivals have offered for years. And yet, it reaps over 90% of the smartphone industry's profit, and in 2015 its App Store delivered 75% more revenue to developers than Alphabet Inc.'s Google Play store.

If you look up “innovation” in the Oxford English Dictionary, the very first definition is:

1a. The action of innovating; the introduction of novelties; the alteration of what is established by the introduction of new elements or forms.

In other words, by offering a superior (and unique) version of a now standard product category, Apple is following the dictionary definition of “the introduction of new elements of forms.”

Meanwhile, any MBA who’s had a decent competitive strategy class can tell you that if you have a better product — and consistently superior profits — then you have successfully created some form of sustained competitive advantage that has survived efforts by your rivals to compete away that advantage and those superior margins.

Perhaps this confusion is because the author has an undergraduate neuroscience major but no business degree.

But once we get away from the terminology problems, I did find one paragraph that seemed both factual and prescient:

In any case, I think it will be many years before mobile is toppled as the dominant platform. The PC ruled for nearly 30 years, and we are less than a decade into the age of the iPhone.

I don’t agree with the conclusion that Apple (or Google or Facebook) shouldn’t pursue related diversification. However, I do agree that it must feed and harvest its mobile “cash cow” (as BCG defined it 45 years ago) while continuing to search for new growth opportunities.

As an Apple shareholder, I’m disappointed at the loss in price and market cap over the past year as it lost its growth multiple. But I still think there’s enough of the company’s DNA (even after the loss of its visionary founder) to propel it to new growth as it finds a way to meet needs unmet by its many competitors and imitators.

Who will disrupt Google and Facebook?

Driving home from a breakfast meeting this morning, I got to wondering who is going to disrupt Google — and how soon.

Those of us who teach strategy know how all about examples of new entrants commoditizing and destroying the revenue models and profit sanctuaries of long-stable, long-established businesses. (The term “disruptive innovation” seems most convenient here, despite the recent controversy over the original evidence of same). Here are a few examples.

• Craigslist and various Internet portals (such as Google and Yahoo) destroyed newspapers — aided by the latter’s poor business models, some unfortunately inaccurate assumptions about the supply (and thus price) of Internet advertising and key tactical errors along the way.
• Two entrepreneurs created GrandCentral, a (temporarily) free telephone answering and forwarding service, and in 2007 sold it to Google (where it is now Google Voice). It now has voicemail transcripts and other improvements but is still free. Thousands of small companies and nonprofits (including my own) use it in lieu of an answering service.
• I learned how to use Google Forms from my friend Mako Hill (and his need to run the OUI conference with limited cash and volunteer resources). Now I use it for most things that other people use SurveyMonkey for.

So the question I mulled over was, who will disrupt Google? Facebook would like to take business away from Google, but it’s not through cost reduction or elimination of revenues. Rather, Facebook imagines that its socially embedded ads will be more valuable than Google’s search context-specific ads.

Instead, I find Facebook ads creepy and sometimes invasive of my privacy, particularly when Amazon ads show up for a book that I looked at (but ruled out buying) five minutes earlier. (Apparent Amazon is not alone). I am appalled at what would happen if I had looked at a socially undesirable product on Amazon (sex toys, a book on bombing government buildings) — even though I know that anonymous browsing without cookies would allow me to ask a question (if not make a purchase) without leaving digital breadcrumbs.

Then when I got home, I saw this wonderful article by Andrew Orlowski of The Register (who I mainly know from his insightful analysis of mobile phone platform wars). One passage (emphasis mine) touched on the same theme:

'Dear Daddy...' Max Zuckerberg’s Letter back to her Father
What do you mean, I can't get off Facebook?

2 Dec 2015 at 13:02, As told to Andrew Orlowski

Comment Yesterday Mark Zuckberg accompanied the birth of his first child, a daughter Max, with a long open letter.

Thanks to the miracle of modern technology, we've found what Max might write back, and we're sharing it with you:

Dear Daddy

Thank you for the letter that your PR and public policy team wrote to mark my Birth, and sent to every news outlet in the World. Most Daddies wouldn’t do this. Heck, most Daddies don’t even have PR and public policy team, and those that do wouldn’t use to leverage a private family event!

That’s why you Daddy, are so special.

You write: "We want you to grow up in a world better than ours today."

Well, duh!

If I discovered that my well-educated billionaire parents wanted me to grow up in a world that’s worse than ours today, I’d already have crawled my way to a phone booth and dialled 911 to alert the authorities.

That goes for "a world without suffering from disease” too. Wow. Where do you get this stuff, Daddy? I heard more original ideas when I was a single cell blastula!

You also write:

"Technological progress in every field means your life should be dramatically better than ours today."

I’d like to think so too, Daddy, but there’s this thing that’s bothering me.

It's called Facebook.

And not just Facebook, it’s the way Silicon Valley companies like yours pile up huge wealth by destroying value in every other part of the economy, as if technological progress were a zero sum game. It’s the way you strip-mine individuals so they have no ability to be autonomous economic agents, owning and trading the stuff we make, so all we have to live on is some feudal digital plantation - and we have to be grateful for it. It's the way some Valley firms place themselves above the law and try to block the work of elected officials who want to defend human rights.

Not you of course, Daddy. Just some of your friends.

I mean, come on. There's a lot to teach children in this modern world I've just been born into. But one thing we've got to learn is that just because you can do something, it's not necessarily morally acceptable to do it. Who's going to teach me that in Silicon Valley?

And Daddy. Connecting people all over the world through an internet website is very cool idea indeed. But it's not that cool or original. It’s as if the guy who invented the bottle-opener wrote a plan to become Emperor of the World. Like, "Remind me who you are again?"

I think that’s pretty weird already. And I’m only one day old!

Well if there’s any of the economy left by the time I graduate, perhaps my generation will be a bit less selfish than yours, Daddy, and we can teach you about it.
…
Well, I’m kinda tired writing all that. It’s time for nap. Just remember when you’re burping me, do it over your shoulder, that way I won’t puke all down your front.

Your loving baby daughter,

Max

In the Google (and now Facebook) case, I thought about Microsoft. They were a one trick pony that was handed a monopoly in operating systems (and used that to build another one in business productivity apps) that they exploited to the maximum degree possible. But a) they lacked the ability to create new compelling products and business models and b) everybody distrusted them and thus were wary of providing them new monopolies, no matter how good their technology.

So at some point, the shoe will be on the other foot: what happens when Google and Facebook have their profit sanctuaries destroyed? Google — now Alphabet — appears headed towards becoming a diversified technology conglomerate. It has worked (so far) for Hitachi and Samsung, but not for HP or Sony. Thus far, it appears that Apple and IBM have been the masters of re-invention: will the new kings of Silicon Valley be able to replicate such feats?

Open Social Media is a decade away

Today we wanted to send a video birthday greeting to our eldest, who is far away. We asked our youngest to make it happen (in part because her newer iPhone has 64gb while my two-year-old 16gb is full).

The two of them have in common Snapchat and Instagram; the eldest also has WhatsApp and the youngest has Twitter. Our youngest first considered Snapchat, but that’s temporary and has a 10-second video limit, so instead chose Instagram that has a 15-second limit. They both also have Facebook, but that seems mainly used for relatives and other clueless people to send one-way communications to these teens. They also talk via Skype but (like me) don’t launch it often enough to see text messages.

I use Twitter hourly and Facebook every day or two, while my Instagram and LinkedIn (web page) get launched perhaps once a month. So I went to Facebook to send a birthday greeting to our eldest — as did 11 other people, including my sister — but unlike with my middle-aged friends, did not prompt an ongoing stream of likes and replies.

Clearly there is both a proliferation of competing social media platforms and little or interoperability. Some people do automatic (one-way) feeds using tools like TwitterFeed and Hootsuite, but that doesn’t allow for conversations to take place across social media boundaries.

I am told that at the turn of the (20th) century telephone systems were not fully interoperable, and having a phone in one town meant you couldn’t call another. I wasn’t there and my dad’s gone, so (short of spending an afternoon on Google) I can’t confirm this. But (grabbing The Fall of the Bell System from my bookshelf) it’s clear that by 1913 AT&T had achieved interoperability between its local operating companies and its Long Lines division, allowing transcontinental calls to be made on its system.

From my (aborted) dissertation, I also know that the design points of 1st generation analog cellular systems in the US, Japan and Europe were to be fully interoperable with the PSTN (Public Switched Telephone Network). The US pre-cellular mobile phones of the 1960s required an operator to route calls to the PSTN, but the invention of the microprocessor made it possible for the AT&T’s car phone (and later Motorola handheld phones) to automatically complete calls. When the EU and the CEPT invented GSM —and with it Short Message Service — they made text messaging also interoperable (except with landlines) over the PSTN.

And, of course, fax machines used the PSTN to complete calls, but generally agreed on a series of (ever-improving) transmission standards for the graphical representation of the images sent over those calls. So when the telcos were involved, they grokked interoperability.

A Lesson from E-mail

Perhaps a better — or at least more recent — analogy comes from the proliferation of incompatible e-mail systems prior to the commercial Internet.

Using Google, I found a February 1987 posting I made to the Info-Mac e-mail list. After I quit my job to become a Mac developer but before co-founding Palomar Software, I used this as the signature line

Joel West                            MCI Mail: 282-8879
Western Software Technology, POB 2733, Vista, CA  92083
{cbosgd, ihnp4, pyramid, sdcsvax, ucla-cs} !gould9!joel
joel%gould9.uucp@NOSC.ARPA

In between, I know my various Palomar business cards had e-mail addresses for MCI Mail, AppleLink (later eWorld) and perhaps my AOL account as well. When Apple finally provided full Internet interoperability, it said joelwest@AppleLink.apple.com, while the next business card said joel@palomar.com when we bought our own domain name and locally hosted server.

So there was roughly a 10-15 year period when the proliferation of proprietary e-mail systems meant that two people could have e-mail accounts but not be able to e-mail each other — and (like today’s social media) people might maintain multiple e-mail accounts.

Now, any e-mail user can send to any other. With various MIME and HTML extensions — and dozens of client implementations —  the e-mail may get garbled or unreadable due to mutually incompatible interpretations of the format standards, but that’s a function of commoditized (often free) e-mail clients that don’t reward quality control.

Open Social Media

Will we ever have open social media? That would mean that there was some sort of formal interoperability standard (beyond OpenSocial), that it was implemented by the major platforms and that these implementations include the full functionality of their native platforms — public and private messages, text, images, video, “like” and perhaps even adding friends. (This ignores inherent incompatibilities such as the SnapChat model of disappearing messages).

The business models of these various companies seems to assume (or hope) that we will not, and that they can create stickiness and keep us in their proprietary walled gardens for as many hours/day as possible. This creates winners and losers: I like the idea of LinkedIn for contacts but hate it as a content site, and so only visit it when I’m seriously procrastinating (not Twitter or Facebook or blogging procrastinating) to avoid something I really ought to be doing.

One path forward would be vertical integration, but with one exception that seems a long way off. The exception is Facebook, which owns WhatsApp, and so could make them interoperable at any point.

Microsoft has Skype — but no real social media — but until one of these platforms falters and is available for sale, it will have nothing to integrate. Google still thinks people will someday use Google+ and would probably be blocked anyway by the EU from buying one of the major social media platforms. Apple with iMessage seems to want to add convenient, easy-to-use clients on top of the existing (commodity) addressing and delivery systems like text messaging, rather than build a proprietary communications platform and try to gain share against the Silicon Valley upstarts.

The 10-15 year time horizon could apply here as everyone copies each other’s features and (like email) social media platform become passé and readers move on to something else. Twitter launched in 2006, WhatsApp in 2009, and Snapchat in 2011. So realistically, barring some blockbuster acquisition there’s not much hope for the rest of the 2010s, but the 2020s seem likely to bring improved interoperability in this segment.

Business journalism: Math is hard!

As a buyer, I hate price increases as much as the next consumer. As a business professor for the past 17 years, I have tried to develop (and encourage) economic literacy among future employees, entrepreneurs and voters.

Thus, as a parent about to shell out $200 for Disneyand tickets for two teenagers, last weekend I had decidedly mixed feelings as I read an article in the Washington Post:

How theme parks like Disney World left the middle class behind
By Drew Harwell June 12

When Walt Disney World opened in an Orlando swamp in 1971, with its penny arcade and marching-band parade down Main Street U.S.A., admission for an adult cost $3.50, about as much then as three gallons of milk. Disney has raised the gate price for the Magic Kingdom 41 times since, nearly doubling it over the past decade.

This year, a ticket inside the “most magical place on Earth” rocketed past $100 for the first time in history.

Ballooning costs have not slowed the mouse-eared masses flooding into the world’s busiest theme park. Disney’s main attraction hosted a record 19 million visitors last year, a number nearly as large as the population of New York state.

But looking closer at the article, I found two math errors — both obvious to someone of my generation (but perhaps not a 30-ish graduate of U. Florida’s j-school). The net result was an apples and oranges comparison that undercut the core premise of the breathless 1,730-word exposé.

As a former newspaper reporter, I thought I'd follow procedure — by writing to the ombudsman to request a correction. Here is the letter that I sent:

Subject: Inaccurate statistic in Disney story
Date: Fri, 12 Jun 2015 22:03:06 -0700
From: Joel West
To: readers@washpost.com

Dear Reader Rep,

I am writing to call attention to the inaccurate (or at best misleading) story and graph in the story on Disneyland.

http://www.washingtonpost.com/news/business/wp/2015/06/12/how-theme-parks-like-disney-world-left-the-middle-class-behind/?tid=pm_business_pop_b

The story says:

When Walt Disney World opened in an Orlando swamp in 1971, with its penny arcade and marching-band parade down Main Street U.S.A., admission for an adult cost $3.50, about as much then as three gallons of milk.

This number is highly misleading because today's $99 admission includes unlimited rides, and the 1971 admission included no rides whatsoever. Instead, (when I was a kid) we had books of A- through E-tickets, or just E-tickets -- an additional amount that always totaled more than the amount of admission.

Wikipedia and this local TV station explain it clearly:

https://en.wikipedia.org/wiki/E_ticket
http://www.mynews13.com/content/news/cfnews13/on-the-town/article.html/content/news/articles/cfn/2014/2/27/disney_ticket_price_history.html

In the story's graph, the "price" jumps in 1982 because 1982 was when (according to Wikipedia) admissions included unlimited rides. So the 1982 price is not directly comparable to the 1971-1981 price

This website estimates that the actual net cost in 1971 was $10.25, or almost 3x as much as your newspaper reported:

http://historical.whatitcosts.com/facts-disney-1971.htm

According to this inflation calculator, that would be $59.88 in today's dollars:†

http://www.usinflationcalculator.com

So yes, Disney pushed through a 65% price increase ($59.88 to $99) in an era when the real price of air travel, computing, TVs and other products fell. (California and Northern Virginia real estate probably increased faster than inflation during this period).

Still, the claim the price went from $3.50 to $99 is inaccurate, since today's readers would assume the admission prices would include unlimited rides (as it has for the past 40+ years).

Joel West
…, California
(I have never worked for Disney Co nor has any member of my family)

† With the June CPI update, the website now says the present value is $60.19.

The ombudsman didn't think the criticism was important enough to investigate (let alone publish):

Subject: RE: Inaccurate statistic in Disney story
Date: Mon, 15 Jun 2015 19:43:59 +0000
From: Readers Internet DropBox <readers@washpost.com>
To: 'Joel West'

Hi Mr. West,

Thanks for taking the time to write. I’ve forwarded your feedback along to the author of the piece.

Best,

--
Alison Coglianese
Reader Representative
The Washington Post

As I suspected, when asked to self-police, the reporter neither published a correction (or clarification) or even bothered to reply to my correspondence.

The article overstates the increase in the out-of-pocket price by a factor of three: as someone who went to Disneyland before Disney World opened, I can testify first hand as to how much parents had to feed the mouse to satisfy teens and pre-teens. The 6x increase in the CPI is also not negligible: a gallon of gas that today is $3.50/gallon was 25¢/gallon up until the 1973 Arab Oil Embargo. So the 28x increase is less daunting when there’s an 18x correction needed for a mouse-to-mouse comparison.

Now I get that business skills and journalism skills are a rare combination. When in my 20s as a (small-town) reporter, I had two years of college calculus, one semester of upper division math (tensor calculus) and a degree from a prestigious technical university. Despite that, I didn’t really understand business or economics until I left journalism — starting my own company in 1987 and getting an education from the school of hard knocks. Still, a cable TV station in Orlando (the 19th largest TV market) managed to get it right — in a story written by their “web content editor”.

This is not rocket science, folks. The reality is that the Walt Disney Company charges all the traffic will bear because it can. Knott’s, Six Flags and other amusement park are pale imitations of Uncle Walt’s original. It’s much more than the proprietary IP, as teens really don’t care about mice and princesses — but the imagination and creativity that make the rides more than just spin-until-you-puke physical entertainment. (Universal Studios —with its Wizarding World of Harry Potter — seems to be the only park operator who seems interested in competing in this segment of the market).

Overall, one would think that America’s seventh largest newspaper — one with a historic disproportionate policy influence — would be able to hire more qualified business reporters in what is clearly a buyer’s market. (Or at least one will derive the story from the facts rather than the other way around.) For example, the WSJ is laying off a veteran business reporter who’s knows a lot about pharma and has a bachelor’s in accounting.

That’s why I usually find more insightful and accurate coverage from industry professionals (and part-time columnists) at sites such as Forbes or Seeking Alpha. For example, more than any other news source, I learn the more about the pharma industry from Scott Gottlieb (who brings both FDA and Medicare/Medicaid experience to his MD).

More about the Silicon Valley legend

My friend Shane Greenstein this week wrote a book review of Moore’s Law, a biography of the famous Silicon Valley chemist, entrepreneur, billionaire, philanthropist and visionary. As Shane opened his Wall Street Journal commentary:

Fifty years ago, Gordon Moore formulated his famous “law,” typically summarized as “the number of transistors that can be placed on an integrated circuit will double every two years.” The accumulation of exponential improvements that he foresaw has indeed ushered in perpetual reductions in the cost of computing and the size of computers. And it’s at the core of the information technology revolution.

Even before his famous 1965 paper, Moore was a Silicon Valley pioneer, there when they put the silicon in Silicon Valley. After attending SJSU, Cal and Caltech, in 1956 Moore went to work for (later Nobelist) Bill Shockley, working on the technical challenges of adapting silicon (rather than germanium) to construct reliable semiconductor devices.

The next year, Moore and others of the Traitorous Eight set the pattern for the Valley when they Shockley Semiconductor to found Fairchild Semiconductor — the Valley’s first (unsanctioned) spinoff. In 1968, two of the eight — Moore and Robert Noyce — took Andy Grove to start Intel. (Four years later, fellow Traitor Gene Kleiner joined Tom Perkins to found the Valley’s legendary VC firm)..

Never fired and married to the same woman for 60+ years, Moore was neither a showman nor celebrity like the late Steve Jobs. Arguably, he and his compatriots did more than anyone else to set the pace of Silicon Valley (at least during the five decades when there was still silicon in Silicon Valley).

The authors of this latest biography — “a chemist, a historian and a journalist” — offer the definitive story of the 86-year-old chemist. As Shane concludes:

The authors have material on just about everything in Mr. Moore’s life—his relationships with his wife and children, the Porsche he drove, even his childhood adventures with nitroglycerin. The detail, on occasion, becomes overwhelming.

Yet the book brings an insider’s perspective into the discussion of Moore’s law. What became the law first emerged in 1965, in an article modestly titled “Cramming More Components Onto Integrated Circuits,” published in the journal Electronics. By the authors’ account, nobody paid much attention to it at the time. Why do we know it today? Mr. Moore revisited the idea in 1975, updated it and devoted public speeches to it. Others began to notice its deep foundations at the boundaries of science and production; Carver Mead, a longtime professor at Caltech, was the one who actually coined the term “Moore’s Law.”

Gordon Moore’s forecast was spectacularly right. Yet, as this compelling biography proves, even if he had never hazarded it, he would remain a legend in Silicon Valley.

Alas, it’s hard to deny the passing of this era. Moore is the only one of the Intel founders still alive, and one of only two (with Jay Last) of the Fairchild founders. Despite its continuing microprocessor monopoly, nearly 15 years later Intel stock is still only half its peak level of August 2000. Internet software — not electronics — is where Kleiner Perkins is making its money nowadays.