Wow. 48% of teenagers bought no CDs at all in 2007:
The illegal sharing of music online continued to soar in 2007, but there was one sign of hope that legal downloading was picking up steam. In the last year, Apple Inc.’s iTunes store, which sells only digital downloads, jumped ahead of Best Buy Co. to become the No. 2 U.S. music seller, trailing Wal-Mart Stores Inc.
It will be interesting to see if Amazon’s MP3 store can compete with iTunes.
I recently attended a conference on intellectual property — you know, patents, copyrights, trademarks, and trade secrets — and I learned two things: (1) I know much more about intellectual property than I realized, and (2) you can’t skim a conference. I’ve been spoiled by the blogosphere.
On a less meta level, I did learn a few things — or at least noted a few interesting quips worth repeating.
It’s interesting to note that the U.S. doesn’t simply have fairly mature IP law; IP made its way into our Constitution. Here’s the factoid I did not know: within 13 years, the U.S., with its low patent fees, had more patents than Great Britain, the home of the Industrial Revolution — and a much older country.
Through most of the 19th century, innovation was the work of independent inventors. Bell, for instance, originally outsourced its R&D. It’s only after a number of legal rulings enforced employment agreements that transferred IP to employers that companies like Bell brought their R&D in house and formed groups like Bell Labs.
Today, there is talk about outsourcing innovation again, via markets like Eli Lily’s Innocentive.
At any rate, a lot of patents, especially software patents, are defensive. On the one hand, if you’re Microsoft, you can afford to spend $100 million per year in legal fees over alleged IP infringement. On the other hand, if you’re Microsoft, you have to spend $100 million per year in legal fees over alleged IP infringement — because you’re a big, fat target. The balance of terror depends on both your resources to bring to the legal battle and the resources other people can extract from you.
One recent issue in IP is the appearance of patent trolls — firms that pop up with a dormant patent they’ve bought off the inventor and use to blackmail a big, successful firm that thinks it has been operating in the clear. This sounds awful and evil until you realize that the original inventor didn’t stop the big, successful firm, because the original inventor wasn’t a lawyer; he was an inventor.
Patent trolls give big, successful firms a much bigger incentive to play nicely with the little guys, because the little guys can sell their IP to someone who knows how to use it — either in the marketplace or in a court of law.
Also, it’s easy for a big company to complain about patent trolls when it has brought all its own trolls in house.
Anyway, these “trolls” seem to favor the Eastern District of Texas — where all the asbestos lawyers had great success a couple legal fads ago.
For most large companies then, the focus on IP is on legalities, and IP’s largely seen as a negative right — the right to sue someone and get an injunction against their using that IP. IP assets are “owned” by lawyers, and no one argues with simply holding IP “just in case” it becomes valuable later. The rewards for successfully licensing IP are dwarfed by the painful consequences for… successfully licensing IP. “Why did we license that technology away?”
So, at this point, IP is far from liquid and far from fungible, but a number of folks would like to see IP licenses move toward some kind of standardized but parameterized form, like the better-known financial options. As one fellow pointed out, oil-derivative transaction volume dwarfs gasoline sales. The same could happen with IP. “Wall Street will set you free.”
In Free! Why $0.00 Is the Future of Business, Chris Anderson gives a decent run-down of how and why so many more products are going to be nominally free to consumers — but as editor-in-chief of Wired, I don’t think he had his article edited for content:
Milton Friedman himself reminded us time and time again that “there’s no such thing as a free lunch.“But Friedman was wrong in two ways. First, a free lunch doesn’t necessarily mean the food is being given away or that you’ll pay for it later — it could just mean someone else is picking up the tab. Second, in the digital realm, as we’ve seen, the main feedstocks of the information economy — storage, processing power, and bandwidth — are getting cheaper by the day. Two of the main scarcity functions of traditional economics — the marginal costs of manufacturing and distribution — are rushing headlong to zip. It’s as if the restaurant suddenly didn’t have to pay any food or labor costs for that lunch.
Surely economics has something to say about that?
It does. The word is externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we’ve always known about but have only recently been able to measure properly. The “attention economy” and “reputation economy” are too fuzzy to merit an academic department, but there’s something real at the heart of both. Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.
When Milton Friedman said that there’s no such thing as a free lunch, the whole point was that someone pays; it’s just not obvious who — and how. Obviously you can charge $0.00 for something.
Regarding externalities: “You keep using that word. I do not think it means what you think it means.” Externalities are not non-pecuniary costs or benefits; they are costs or benefits to parties outside a transaction. If your neighbor turns his garage into a nightclub and plays deafening house music all night long, he might be happy, and his paying customers might be happy, but you might be miserable. That’s the externality.
The Brash Programmers at 37signals Will Tell You: Keep It Simple, Stupid — and reap the rewards:
When he released Basecamp in February 2004, Fried expected the monthly subscription fees, which today range from $12 to $149, to generate sales of $5,000 a month by the end of Basecamp’s first year; they reached that target in six weeks. Five months later, Hansson packaged his Ruby shortcuts and released them as Ruby on Rails, which started winning converts almost immediately.
[...]
Rails has continued its run of popularity; over the years, tens of thousands of programmers have used it to create countless online applications, including podcasting service Odeo and microblogging phenomenon Twitter. And Basecamp, 37signals’ Rails-powered, easy-to-use online collaboration software, boasts more than 2 million account holders. Signal vs. Noise, the 37signals blog, pulls in 75,000 readers a day.
Sridhar Vembu is the founder and CEO of AdventNet, the company behind Zoho. Forbes calls him The Smartest Unknown Indian Entrepreneur:
The result? A 100%, bootstrapped, $40-million-a-year revenue business that sends $1 million to the bank every month in profits.Doing what? you might wonder.
Selling network management tools, to be precise. But with a unique twist. Vembu employs 600 people in Chennai, India, and a mere eight in Silicon Valley. Imagine what that does to his cost structure!
That cost advantage isn’t as great as it used to be. Labor arbitrage can only go on so long — which is why Vembu looks for bargains within the Indian labor market:
Not only that, in India Vembu’s operation does not hire engineers with highflying degrees from one of the prestigious India Institutes of Technology, thereby squeezing his cost advantage.“We hire young professionals whom others disregard,” Vembu says. “We don’t look at colleges, degrees or grades. Not everyone in India comes from a socio-economic background to get the opportunity to go to a top-ranking engineering school, but many are really smart regardless.
“We even go to poor high schools, and hire those kids who are bright but are not going to college due to pressure to start making money right away,” Vembu continues. “They need to support their families. We train them, and in nine months, they produce at the level of college grads. Their resumes are not as marketable, but I tell you, these kids can code just as well as the rest. Often, better.”
If you’re not familiar with Zoho, it is a Web 2.0 alternative to Microsoft Office — with an extra piece:
It also has a hosted customer relationship management service that is free for very small companies and only costs $10 per user per month for larger ones. It competes with Salesforce.com, which charges $65 per user per month.Marc Benioff, chief executive of Salesforce.com, has made an offer to buy Zoho for an undisclosed amount. Benioff seems appropriately nervous, since Salesforce.com’s sales and administration costs are high, eating up most of his earnings. Can he afford to compete if Zoho undercuts him at such a dramatic scale?
Vembu has turned Benioff down.
The man behind Abercrombie & Fitch, a 61-year-old “dude” named Mike Jeffries, “is the Willie Wonka of the fashion industry”:
A quirky perfectionist and control freak, he guards his aspirational brands and his utopian chocolate factory with a highly effective zeal. Those who have worked with him tend to use the same words to describe him: driven, demanding, smart, intense, obsessive-compulsive, eccentric, flamboyant and, depending on whom you talk to, either slightly or very odd. “He’s weird and probably insane, but he’s also unbelievably driven and brilliant,” says a former employee at Paul Harris, a Midwestern women’s chain for which Jeffries worked before becoming CEO of Abercrombie & Fitch in 1992.Examples of his strange behavior abound. According to Business Week, at A&F headquarters Jeffries always goes through revolving doors twice, never passes employees on stairwells, parks his Porsche every day at the same angle in the parking lot (keys between the seats, doors unlocked), and has a pair of “lucky shoes” he wears when reading financial reports.
His biggest obsession, though, is realizing his singular vision of idealized all-American youth. He wants desperately to look like his target customer (the casually flawless college kid), and in that pursuit he has aggressively transformed himself from a classically handsome man into a cartoonish physical specimen: dyed hair, perfectly white teeth, golden tan, bulging biceps, wrinkle-free face, and big, Angelina Jolie lips. But while he can’t turn back the clock, he can — and has — done the next best thing, creating a parallel universe of beauty and exclusivity where his attractions and obsessions have made him millions, shaped modern culture’s concepts of gender, masculinity and physical beauty, and made over himself and the world in his image, leaving them both just a little more bizarre than he found them.
Much more than just a brand, Abercrombie & Fitch successfully resuscitated a 1990s version of a 1950s ideal — the white, masculine “beefcake” — during a time of political correctness and rejection of ’50s orthodoxy. But it did so with profound and significant differences. A&F aged the masculine ideal downward, celebrating young men in their teens and early 20s with smooth, gym-toned bodies and perfectly coifed hair. While feigning casualness (many of its clothes look like they’ve spent years in washing machine, then a hamper), Abercrombie actually celebrates the vain, highly constructed male. After all, there is nothing casual about an A&F sweatshirt worn over two A&F polos worn over an A&F T-shirt.
Honestly, I wasn’t sure if Abercrombie & Fitch was an authentic brand with a long history or simply a faux old-school institution:
Founded in 1892, in its heyday it served Presidents Hoover and Eisenhower (they bought their fishing equipment there), Ernest Hemingway (guns), and Cole Porter (evening clothes). During prohibition A&F was where the in crowd went for its hip flasks. But by the 1970s it had become a fashion backwater, holding on for dear life.Leslee O’Neill, A&F’s executive vice president of planning and allocation, remembers what the company was like before Jeffries got there. “We had old clothes that no one liked,” she says. “It was a mess, a total disaster. We had this old library at our headquarters with all these really old books. There were croquet sets lying around. It was very English.”
Is it wrong not to be offended by these?
In the latest episode, last fall a group of high school girls from Allegheny County, Penn., made the rounds of television talk shows to protest the company’s “offensive” T-shirts. Of particular concern were shirts that read “Who Needs a Brain When You Have These?” “Gentlemen Prefer Tig Ol’ Bitties” and “Do I Make You Look Fat?”“Abercrombie has a history of insensitivity,” the group’s well-spoken Emma Blackman-Mathis, 16, told me, “and there is no company with as big an impact on the standards of beauty. There are kids starving themselves so they can be the ‘Abercrombie girl,’ and there are guys who think they aren’t worthy if they don’t look exactly like the guys on the wall.”
The protest (which resulted in A&F pulling “Who Needs a Brain When You Have These?” and “Gentlemen Prefer Tig Ol’ Bitties” but retaining “Do I Make You Look Fat?” and others) began after my visit, so I couldn’t ask Jeffries about it. But I did ask him about other T-shirt dust-ups, including “It’s All Relative in West Virginia” (which West Virginia’s governor didn’t find funny), Bad Girls Chug. Good Girls Drink Quickly (which angered anti-addiction groups), and Wong Brothers Laundry Service — Two Wongs Can Make It White (which triggered protests from Asian groups).
The New York Post tells the sensationalist story of one City Jet-Setter’s Bizarre LSD Trip:
A Harvard-educated Manhattan jet-setter has been pegged as the money-laundering mastermind behind a massive LSD drug ring run out of a Kansas missile silo, The Post has learned.Stefan Wathne, a 39-year-old scion of New York’s socially prominent Wathne apparel family, surrendered to federal agents Jan. 7 as he stepped off a plane at Newark Airport — after three years on the lam.
Wathne is accused in a 2005 federal indictment of laundering as much as $3 million through Russia between 1996 and 2000 for what authorities have described as the most prolific LSD operation in US history.
His arrest marks the latest chapter in a bizarre federal drug case that has unfolded over five years and featured a surreal cast of characters.
In addition to Wathne — an erstwhile financial planner and former American Ballet Theatre trustee — the case has included a prominent Harvard psychiatrist and a deputy director of a UCLA drug-study program.
In another strange twist, singers Sting and Paul Simon helped pay the legal bills for a witness in the case.
The drug ring was cracked in November 2002, when the US Drug Enforcement Agency descended on a decommissioned military silo outside Topeka, which had been converted to a lab capable of churning out massive amounts of LSD.
Can you build a life from $25? Evidently, yes:
Alone on a dark gritty street, Adam Shepard searched for a homeless shelter. He had a gym bag, $25, and little else. A former college athlete with a bachelor’s degree, Mr. Shepard had left a comfortable life with supportive parents in Raleigh, N.C. Now he was an outsider on the wrong side of the tracks in Charleston, S.C.But Shepard’s descent into poverty in the summer of 2006 was no accident. Shortly after graduating from Merrimack College in North Andover, Mass., he intentionally left his parents’ home to test the vivacity of the American Dream. His goal: to have a furnished apartment, a car, and $2,500 in savings within a year.
To make his quest even more challenging, he decided not to use any of his previous contacts or mention his education.
During his first 70 days in Charleston, Shepard lived in a shelter and received food stamps. He also made new friends, finding work as a day laborer, which led to a steady job with a moving company.
Ten months into the experiment, he decided to quit after learning of an illness in his family. But by then he had moved into an apartment, bought a pickup truck, and had saved close to $5,000.
The effort, he says, was inspired after reading Nickel and Dimed, in which author Barbara Ehrenreich takes on a series of low-paying jobs. Unlike Ms. Ehrenreich, who chronicled the difficulty of advancing beyond the ranks of the working poor, Shepard found he was able to successfully climb out of his self-imposed poverty.
He tells his story in Scratch Beginnings: Me, $25, and the Search for the American Dream. The book, he says, is a testament to what ordinary Americans can achieve.
Paul Graham shares his Six Principles for Making New Things:
I like to find (a) simple solutions (b) to overlooked problems (c) that actually need to be solved, and (d) deliver them as informally as possible, (e) starting with a very crude version 1, then (f) iterating rapidly.When I first laid out these principles explicitly, I noticed something striking: this is practically a recipe for generating a contemptuous initial reaction. Though simple solutions are better, they don’t seem as impressive as complex ones. Overlooked problems are by definition problems that most people think don’t matter. Delivering solutions in an informal way means that instead of judging something by the way it’s presented, people have to actually understand it, which is more work. And starting with a crude version 1 means your initial effort is always small and incomplete.
Google iPhone usage shocks search giant:
Google on Wednesday said it has seen 50 times more search requests coming from Apple iPhones than any other mobile handset — a revelation so astonishing that the company originally suspected it had made an error culling its own data.
Witness The Evolution of Tech Companies Logos:
Many of the logo evolutions tell interesting stories. Canon, for instance, was originally named Kwanon, after the Buddhist Bodhisattva of Mercy. What’s not mentioned is that Canon is “spelled” Kyanon, not Kanon, in Japanese.
Shai Agassi, who has spent his entire career in software, and who has no previous experience in either the auto or energy industries, is now facing The Electric Car Acid Test:
Just over a year ago, on Dec. 31, 2006, Shai Agassi settled into a leather couch in the office of Ehud Olmert to meet with the Israeli Prime Minister. Agassi, then a top executive at German software giant SAP, had come to pitch the idea of his native Israel reducing its dependence on oil by replacing gas-powered cars with electric ones. Olmert liked the concept but laid down a steep challenge: He wanted Agassi to raise hundreds of millions in venture capital and get an auto industry CEO on board before he would pledge his support. “You go find the money and find a major automaker who will commit to this, and I’ll give you the policy backing you need,” Olmert said.Within a year, Agassi had pulled off everything Olmert had asked. He raised $200 million in venture capital and, with help from Israeli President Shimon Peres, persuaded Carlos Ghosn, the chief executive of Renault and Nissan, to make a new kind of electric car for the Israeli market. On Jan. 21, Agassi, Olmert, Peres, and Ghosn unveiled the novel project, under which Agassi’s Silicon Valley company, Better Place, will sell electric cars and build a network of locations where drivers can charge and replace batteries. Olmert has done his part, too. Israel just boosted the sales tax on gasoline-powered cars to as much as 60% and pledged to buy up old gas cars to get them off the road.
His idea requires a decent amount of infrastructure, but that’s not such a big barrier in a small, dense country where you have the government’s support:
The trouble with traditional electric cars is that they can go only 50 or 100 miles and then they need to stop for hours to recharge their batteries. Hybrids overcome the mileage limitations, but only by burning gasoline. One of Agassi’s unconventional ideas is to separate the battery from the car. That will allow drivers to pull into a battery-swapping station, a car-wash-like contraption, and wait for 10 minutes while their spent batteries are lowered from the car and fully charged replacements are hoisted into place. Better Place will build the service stations, as well as hundreds of thousands of charging locations, similar to parking meters.
Startup Says It Can Make Ethanol for $1 a Gallon, and Without Corn:
Coskata uses existing gasification technology to convert almost any organic material into synthesis gas, which is a mix of carbon monoxide and hydrogen. Rather than fermenting that gas or using thermo-chemical catalysts to produce ethanol, Coskata pumps it into a reactor containing bacteria that consume the gas and excrete ethanol. Richard Tobey, Coskata’s vice president of engineering, says the process yields 99.7 percent pure ethanol.Gasification and bacterial conversion are common methods of producing ethanol, but biofuel experts said Coskata is the first to combine them. Doing so, they said, merges the feedstock flexibility of gasification with the relatively low cost of bacterial conversion.
Tobey said Coskata’s method generates more ethanol per ton of feedstock than corn-based ethanol and requires far less water, heat and pressure. Those cost savings allow it to turn, say, two bales of hay into five gallons of ethanol for less than $1 a gallon, the company said. Corn-based ethanol costs $1.40 a gallon to produce, according to the Renewable Fuels Association.
The company plans to have its first commercial-scale plant producing up to 100,000 gallons of ethanol a year by 2011. Friedman and Greene said the timeline is realistic.
May Wu, an environmental scientist at Argonne National Laboratory, says Coskata’s ethanol produces 84 percent less greenhouse gas than fossil fuel even after accounting for the energy needed to produce and transport the feedstock. It also generates 7.7 times more energy than is required to produce it. Corn ethanol typically generates 1.3 times more energy than is used producing it.
Making ethanol is one thing, but there’s almost no infrastructure in place for distributing it. But the company’s method solves that problem because ethanol could be made locally from whatever feedstock is available, Tobey said.
“You’re not bound by location,” he said. “If you’re in Orange County, you can use municipal waste. If you’re in the Pacific Northwest, you can use wood waste. Florida has sugar. The Midwest has corn. Each region has been blessed with the ability to grow its own biomass.”
I hadn’t even heard of Five Guys until recently, but they’re clearly doing something right:
Four years ago, before franchising, Five Guys was just a little family burger operation with five locations and a steady, if cultish following, in Northern Virginia. Today the business is by some estimates heading toward $1 billion in value. Five Guys has 87 locations. Most are in the Washington region, but a hundred more will open along the East Coast this year, and another thousand are being phased in. Each store, the company says, pulls in about $1 million a year.
Their franchising strategy:
Thus, you can’t buy one Five Guys franchise. You have to buy at least five — essentially filling up a small territory. The current price for each one is $45,000, plus 6 percent of annual sales. By comparison, a new McDonald’s franchise fee is $45,000.Requiring a large purchase of stores also, the Murrells said, attracts more professional owners. High-tech executives, former Marriott executives, and owners of fine restaurants have signed up. “They see something that’s a good opportunity,” said Moseley, who owns Five Guys franchises and works full time selling them for the company. “There’s a better than even chance to be really successful in something that belongs to you.”
How they make the food:
The Five Guys franchising contract is rather specific, stipulating the number of bacon strips (two) and pickles (four) placed on burgers should those items be requested. The Murrells send in secret customers to make sure, for instance, that the hand-cut French fries are shaken 15 times after seasoning. The Murrells have found through extensive study that this tactic takes off just the right amount of grease.Also, after a burger is placed on the grill, it is to be flattened only once, so as not to squeeze out all the juice. Tyler Murrell was once a customer at a franchise store. He saw the grill man press down more than once on the meat. He leapt over the counter to stop him.
There is also a stipulation that franchises use Mount Olive pickles. “We have tasted every pickle that you could cut and slice and put in a jar,” Matt Murrell said. “We have been using the Mount Olive pickle for the last 10 years. It’s crunchy. If you eat pickles, you know there are sweet pickles, sour pickles, soft pickles, crunchy pickles. There’s all kinds of pickles, but we like the Mount Olive pickles.”
The Murrells, who bake the buns for all the stores, run the operation out of a warehouse in Lorton, with each son overseeing different parts of the business.
VC's New Math: Does Less = More?
Mr. Thiel, the former CEO of online-payment company PayPal, is making waves in Silicon Valley with an investment strategy that differs significantly from the traditional approach. His company invests only modest amounts of money, sometimes just a few hundred thousand dollars, and focuses on entrepreneurs Mr. Thiel and his partners often know personally. He also takes an uncharacteristically hands-off approach to company management.
[...]
Mr. Thiel, who based Founders Fund in San Francisco rather than the traditional VC hotspot of Sand Hill Road in suburban Menlo Park, Calif., is structuring deals differently from how traditional venture capitalists do. Significantly, the fund often buys only a 5% or 10% stake in a company and sets up a special class of stock that start-up founders can sell while they are building their companies — and before venture-capital investors see profits. That way, the thinking goes, the company founders can reap some financial reward and stay motivated to build the company before an IPO or company sale, which can take years.Some traditional investors don’t think founders should make money before backers do, since early paydays might distract them from the task at hand.
All of this is causing traditional VC firms to re-examine the way they invest in tiny tech start-ups. VC concerns including Trinity Ventures, for example, are now letting a few of their entrepreneurs “take money off the table” early on by selling stock.
Many big venture firms have also started looking at much smaller deals. Accel did six deals less than $1 million this year, although the company says that was in response to increasing valuations for larger-sized investments.
About a year ago, Charles River Ventures announced a program to offer $250,000 loans to fledgling Internet start-ups, far smaller than its usual investment size. Charles River is now also making equity investments in companies through its QuickStart program.
Partner George Zachary said his company launched the program because it was encountering many companies that didn’t need a traditional, multimillion-dollar VC investment and the attendant hand-holding.
Just how successful Mr. Thiel’s investing tactics are remains to be seen; Founders Fund hasn’t yet seen any payout from the Facebook stake. However, it recently collected a big return when one of its investments, computer-security and antispam concern IronPort Systems Inc., was sold to Cisco Systems Inc. for $830 million.