Penguin Classics, that more-than-1,500-titles collection of English-language literary classics, has a new free app for iOS devices available on Tuesday.
The paperback publisher, celebrating 65 years of the Classics collection this year, has created a catalog of its titles (which basically includes every author you have heard of, ever) and put it into an easily searchable database.
Not only can readers find book information by title and author, they can discover unknown classics by searching by subject, genre, time period and region. So, for example, if you wanted to find a nature-theme bildungsroman in 18th century America, you would find several books that fit that bill, including Kipling’s “Captains Courageous” and “The Morgesons” by Elizabeth Stoddard.
Of course, not all options combine so productively — try searching for postmodern psychological literary criticism from Haiti and you will come up snake eyes.
Each book page contains a summary, as well as a link to buy the paperback edition from Penguin USA’s online store. Social-media buttons can broadcast your love of “Homer’s Odyssey” or Dickens’s “A Tale of Two Cities” to your friends, and a “More Like This” button will direct you to related titles.
Most enjoyable, however, are the quizzes contained within the app. There are 65 books in the app that have quizzes associated with them so you can test your knowledge of Edith Wharton’s “The Age of Innocence” (“To what animal does Archer compare May and the rest of Old New York?”) or Mark Twain’s “Huckleberry Finn” (“What do Huck and Jim find inside the floating house?”). The app also has quizzes that ask questions across all 65 titles (you can choose a quiz that takes one, five or 10-minutes long) if you want to relive that comp lit class you took freshman year.
http://gadgetwise.blogs.nytimes.com/2011/06/28/a-gateway-to-great-books-on-your-iphone/
Wednesday, June 29, 2011
Tuesday, June 28, 2011
Auditors Sharpen Queries In China
Auditors are learning that, in China, they sometimes must go the extra mile to verify even the most basic things about clients—like how much cash they have.
Hong Kong audit firm BDO Ltd. recently dropped a client after raising questions about the accuracy of information provided by the firm, going so far as to allege the company had directed the auditor to a fake website.
Problems with bank "confirmation"—the process by which an auditor checks with a company's bank to verify its balances—have arisen in about 10 recent disputes between U.S.-traded Chinese firms and their auditors, according to Securities and Exchange Commission filings. (There are hundreds of Chinese firms traded on U.S. exchanges.) The auditors have found irregularities through their confirmation efforts or encountered other difficulties in confirming a client's bank accounts, according to SEC filings.
When BDO tried to verify the online bank accounts of Chinese biotech China-Biotics Inc., for instance, the company's staff directed the auditors to a bank website that BDO said—in a letter to China-Biotics last week in which BDO announced it was dropping the account—was "a suspected fake." China-Biotics filed that letter with the SEC on June 23. BDO said there were errors in a bank document concerning the company's bank interest income; China-Biotics said the errors in the document were clerical mistakes by the bank, and the company supplied BDO with what BDO characterized in its resignation letter as a "corrected" version of the document.
As a result of these and other issues, according to the letter filed with the SEC, BDO wanted to confirm the company's bank balances and transactions with the senior management of the head office of its bank, the Bank of Communications. But China-Biotics never arranged the meeting, despite repeated requests from BDO, the firm said. The company's chief financial officer and its audit-committee chairman have resigned, and trading in China-Biotics shares on the Nasdaq Stock Market has been halted since June 15 in the wake of the auditor's concerns. A BDO representative declined to comment. The Bank of Communications didn't immediately respond to a request for comment. China-Biotics couldn't be reached for comment.
In some cases, auditors may not have done all they should to seek bank confirmations independently, according to U.S. regulators. In other cases, auditors have suggested in SEC filings that officials at some companies' banks may be helping the companies manipulate the process, verifying bad information to mislead auditors into thinking a company's books are OK.
Deloitte Touche Tohmatsu, for instance, said it received confirmations from bank staff about one client, Longtop Financial Technologies Ltd., that "were said to be false" or had "significant differences" in deposit balances and company borrowings compared with previous confirmations. Those descriptions of the problematic information were contained in a letter Deloitte wrote when it resigned from the Longtop account in May. Longtop couldn't be reached for comment. Details on the bank involved weren't available.
Regulators are concerned, too, as accounting questions raised by auditors and investors beset dozens of Chinese companies. James Doty, chairman of the Public Company Accounting Oversight Board, which regulates U.S. audit firms, told a Senate panel in April that the board had found "even simple audit maxims, such as maintaining the auditor's control over bank confirmations, may not hold given the business culture in China."
A spokesman for the China Banking Regulatory Commission, the country's bank overseer, said in a statement that Chinese banking regulation and supervision "have always been stringent." All levels of a bank are required to provide accurate confirmation information, the CBRC said, and false confirmation is "absolutely prohibited." "The CBRC will deal with this matter seriously and welcomes public supervision and any sharing of evidence," the statement said. The China Securities Regulatory Commission didn't reply to requests for comment.
In a bank confirmation, an auditor submits a written request to an official at the company's bank to verify the firm's assertions about deposit and loan balances, often on a standard form developed by the accounting industry. The bank official responds directly to the auditor to confirm the amounts. Except for authorizing the bank to release information, the company can't be involved in the process in any way. The PCAOB oversees and enforces auditing rules for U.S-traded Chinese firms just as it does other U.S.-traded companies.
As accounting problems have emerged, auditors in China have taken greater precautions. Some say they are doing more to maintain control of confirmation paperwork, such as observing as bank officials confirm numbers. In addition, the PCAOB is preparing to tighten rules on the confirmation process for all auditors it oversees. When auditors don't do what they should on confirmation, "the possibility of fraud certainly increases," said Martin F. Baumann, the PCAOB's chief auditor and director of professional standards.
Frauds involving bank confirmation are neither new nor limited to China. At Satyam Computer Services Ltd., U.S. regulators said a failure by PricewaterhouseCoopers affiliates in India to confirm Satyam's accounts enabled the company's fraud to go undetected. PwC agreed to a $7.5 million settlement but didn't admit or deny wrongdoing and said at the time that it had "worked hard to learn the lessons of the Satyam matter." Satyam said when it settled SEC charges in April that it was in the company's "best interests" to resolve the allegations and noted that the misconduct occurred under previous management.
Bank-confirmation problems are "potentially more of an emerging-markets problem," Mr. Baumann said, with "collusion going on between banks and issuers" in countries that don't yet have a tradition of strong corporate governance and independent oversight. In China, he said, "it appears that banks often have a very close relationship with the company."
In Longtop's case, Deloitte resigned as auditor in May after it said it had made follow-up visits to some of the company's banks that uncovered the allegedly false confirmations and discrepancies. When Deloitte attempted a second formal round of confirmations as a result, Longtop officials interfered by seizing Deloitte working papers and telling the banks that Deloitte wasn't really its auditor, the firm said in its resignation letter.
At China MediaExpress Holdings Inc., another client Deloitte dropped, this time in March, there was "a loss of confidence in bank confirmation procedures carried out under circumstances which [Deloitte] believed to be suspicious," according to China MediaExpress filings. Deloitte requested the confirmations be redone at the banks' head office, according to the filings. But Deloitte felt "the Company was not in good faith willing to proceed with the course of action requested," according to the filings. China MediaExpress declined to comment, but in the filings said, "the Company believes that it was working to address these items at the time of [Deloitte's] resignation."
Jeff Willemain, Deloitte Touche Tohmatsu's managing director of quality and regulatory matters, said in a statement that Deloitte's member firms "continue to advocate for improvement" of the confirmation process, including "putting more onus on confirming parties to ensure prompt, accurate and complete responses. Further, there should be consequences for parties who knowingly falsify confirmations."
MaloneBailey LLP, a Houston firm that has a big roster of small Chinese audit clients, has resigned from auditing at least four of them this year, in part because of confirmation problems, according to SEC filings. George Qin, a MaloneBailey partner who runs the firm's China practice, says some bank officials have interfered in the auditor's attempt to confirm its clients' accounts. "I can tell you there are serious problems in China with regard to certain bank employees who collude with companies," Mr. Qin said. "I think that's very troublesome." But he said he didn't think the problems were systemic and said MaloneBailey currently has "about 16" Chinese clients.
The PCAOB's proposed revisions to its confirmation rules are unrelated to the current issues in China. The revisions would require auditors to confirm companies' cash balances—which isn't specifically required under current rules—and a broader range of accounts receivables, or money owed to the company, than is the case now. The revisions also would go into greater detail about what auditors should do to maintain control over the confirmation process, including taking "local customs" into account. A PCAOB representative said, however, that the board's existing rule is "sufficiently robust" to require auditors to do confirmations appropriately in China, and the pace of the changes doesn't need to be accelerated because of the recent problems. The proposals are pending but are expected to be finalized and approved in the coming months.
The effort was begun last year, before the China accounting blowups, but even then, "we thought there would be greater risk in certain environments, and it turns out we were right," Mr. Baumann said. "If you're in an environment where you can't rely as much on an individual's honesty, the auditor has to assess the risk of that."
Even apart from the PCAOB's efforts, some auditing firms say auditors need to toughen their procedures. McGladrey & Pullen LLP, of Bloomington, Minn., which audits one Chinese firm and has other clients with Chinese subsidiaries, said in a newsletter this month that auditors may need to hand-deliver a confirmation request to the bank themselves and wait there while the bank officer completes it. Mr. Qin said MaloneBailey is handling confirmations similarly.
McGladrey also called for "extra diligence" in auditing accounts receivable, because fraud often shows up there first, before it is hidden in exaggerated cash balances.
Robert Dohrer, McGladrey's national director of assurance services, said in an e-mail interview that the alert was intended to remind its people that the auditor "really needs to think through the credibility of audit evidence obtained."
—Dinny McMahon
http://professional.wsj.com/article/SB10001424052702303627104576413842132347276.html
Hong Kong audit firm BDO Ltd. recently dropped a client after raising questions about the accuracy of information provided by the firm, going so far as to allege the company had directed the auditor to a fake website.
Problems with bank "confirmation"—the process by which an auditor checks with a company's bank to verify its balances—have arisen in about 10 recent disputes between U.S.-traded Chinese firms and their auditors, according to Securities and Exchange Commission filings. (There are hundreds of Chinese firms traded on U.S. exchanges.) The auditors have found irregularities through their confirmation efforts or encountered other difficulties in confirming a client's bank accounts, according to SEC filings.
When BDO tried to verify the online bank accounts of Chinese biotech China-Biotics Inc., for instance, the company's staff directed the auditors to a bank website that BDO said—in a letter to China-Biotics last week in which BDO announced it was dropping the account—was "a suspected fake." China-Biotics filed that letter with the SEC on June 23. BDO said there were errors in a bank document concerning the company's bank interest income; China-Biotics said the errors in the document were clerical mistakes by the bank, and the company supplied BDO with what BDO characterized in its resignation letter as a "corrected" version of the document.
As a result of these and other issues, according to the letter filed with the SEC, BDO wanted to confirm the company's bank balances and transactions with the senior management of the head office of its bank, the Bank of Communications. But China-Biotics never arranged the meeting, despite repeated requests from BDO, the firm said. The company's chief financial officer and its audit-committee chairman have resigned, and trading in China-Biotics shares on the Nasdaq Stock Market has been halted since June 15 in the wake of the auditor's concerns. A BDO representative declined to comment. The Bank of Communications didn't immediately respond to a request for comment. China-Biotics couldn't be reached for comment.
In some cases, auditors may not have done all they should to seek bank confirmations independently, according to U.S. regulators. In other cases, auditors have suggested in SEC filings that officials at some companies' banks may be helping the companies manipulate the process, verifying bad information to mislead auditors into thinking a company's books are OK.
Deloitte Touche Tohmatsu, for instance, said it received confirmations from bank staff about one client, Longtop Financial Technologies Ltd., that "were said to be false" or had "significant differences" in deposit balances and company borrowings compared with previous confirmations. Those descriptions of the problematic information were contained in a letter Deloitte wrote when it resigned from the Longtop account in May. Longtop couldn't be reached for comment. Details on the bank involved weren't available.
Regulators are concerned, too, as accounting questions raised by auditors and investors beset dozens of Chinese companies. James Doty, chairman of the Public Company Accounting Oversight Board, which regulates U.S. audit firms, told a Senate panel in April that the board had found "even simple audit maxims, such as maintaining the auditor's control over bank confirmations, may not hold given the business culture in China."
A spokesman for the China Banking Regulatory Commission, the country's bank overseer, said in a statement that Chinese banking regulation and supervision "have always been stringent." All levels of a bank are required to provide accurate confirmation information, the CBRC said, and false confirmation is "absolutely prohibited." "The CBRC will deal with this matter seriously and welcomes public supervision and any sharing of evidence," the statement said. The China Securities Regulatory Commission didn't reply to requests for comment.
In a bank confirmation, an auditor submits a written request to an official at the company's bank to verify the firm's assertions about deposit and loan balances, often on a standard form developed by the accounting industry. The bank official responds directly to the auditor to confirm the amounts. Except for authorizing the bank to release information, the company can't be involved in the process in any way. The PCAOB oversees and enforces auditing rules for U.S-traded Chinese firms just as it does other U.S.-traded companies.
As accounting problems have emerged, auditors in China have taken greater precautions. Some say they are doing more to maintain control of confirmation paperwork, such as observing as bank officials confirm numbers. In addition, the PCAOB is preparing to tighten rules on the confirmation process for all auditors it oversees. When auditors don't do what they should on confirmation, "the possibility of fraud certainly increases," said Martin F. Baumann, the PCAOB's chief auditor and director of professional standards.
Frauds involving bank confirmation are neither new nor limited to China. At Satyam Computer Services Ltd., U.S. regulators said a failure by PricewaterhouseCoopers affiliates in India to confirm Satyam's accounts enabled the company's fraud to go undetected. PwC agreed to a $7.5 million settlement but didn't admit or deny wrongdoing and said at the time that it had "worked hard to learn the lessons of the Satyam matter." Satyam said when it settled SEC charges in April that it was in the company's "best interests" to resolve the allegations and noted that the misconduct occurred under previous management.
Bank-confirmation problems are "potentially more of an emerging-markets problem," Mr. Baumann said, with "collusion going on between banks and issuers" in countries that don't yet have a tradition of strong corporate governance and independent oversight. In China, he said, "it appears that banks often have a very close relationship with the company."
In Longtop's case, Deloitte resigned as auditor in May after it said it had made follow-up visits to some of the company's banks that uncovered the allegedly false confirmations and discrepancies. When Deloitte attempted a second formal round of confirmations as a result, Longtop officials interfered by seizing Deloitte working papers and telling the banks that Deloitte wasn't really its auditor, the firm said in its resignation letter.
At China MediaExpress Holdings Inc., another client Deloitte dropped, this time in March, there was "a loss of confidence in bank confirmation procedures carried out under circumstances which [Deloitte] believed to be suspicious," according to China MediaExpress filings. Deloitte requested the confirmations be redone at the banks' head office, according to the filings. But Deloitte felt "the Company was not in good faith willing to proceed with the course of action requested," according to the filings. China MediaExpress declined to comment, but in the filings said, "the Company believes that it was working to address these items at the time of [Deloitte's] resignation."
Jeff Willemain, Deloitte Touche Tohmatsu's managing director of quality and regulatory matters, said in a statement that Deloitte's member firms "continue to advocate for improvement" of the confirmation process, including "putting more onus on confirming parties to ensure prompt, accurate and complete responses. Further, there should be consequences for parties who knowingly falsify confirmations."
MaloneBailey LLP, a Houston firm that has a big roster of small Chinese audit clients, has resigned from auditing at least four of them this year, in part because of confirmation problems, according to SEC filings. George Qin, a MaloneBailey partner who runs the firm's China practice, says some bank officials have interfered in the auditor's attempt to confirm its clients' accounts. "I can tell you there are serious problems in China with regard to certain bank employees who collude with companies," Mr. Qin said. "I think that's very troublesome." But he said he didn't think the problems were systemic and said MaloneBailey currently has "about 16" Chinese clients.
The PCAOB's proposed revisions to its confirmation rules are unrelated to the current issues in China. The revisions would require auditors to confirm companies' cash balances—which isn't specifically required under current rules—and a broader range of accounts receivables, or money owed to the company, than is the case now. The revisions also would go into greater detail about what auditors should do to maintain control over the confirmation process, including taking "local customs" into account. A PCAOB representative said, however, that the board's existing rule is "sufficiently robust" to require auditors to do confirmations appropriately in China, and the pace of the changes doesn't need to be accelerated because of the recent problems. The proposals are pending but are expected to be finalized and approved in the coming months.
The effort was begun last year, before the China accounting blowups, but even then, "we thought there would be greater risk in certain environments, and it turns out we were right," Mr. Baumann said. "If you're in an environment where you can't rely as much on an individual's honesty, the auditor has to assess the risk of that."
Even apart from the PCAOB's efforts, some auditing firms say auditors need to toughen their procedures. McGladrey & Pullen LLP, of Bloomington, Minn., which audits one Chinese firm and has other clients with Chinese subsidiaries, said in a newsletter this month that auditors may need to hand-deliver a confirmation request to the bank themselves and wait there while the bank officer completes it. Mr. Qin said MaloneBailey is handling confirmations similarly.
McGladrey also called for "extra diligence" in auditing accounts receivable, because fraud often shows up there first, before it is hidden in exaggerated cash balances.
Robert Dohrer, McGladrey's national director of assurance services, said in an e-mail interview that the alert was intended to remind its people that the auditor "really needs to think through the credibility of audit evidence obtained."
—Dinny McMahon
http://professional.wsj.com/article/SB10001424052702303627104576413842132347276.html
Monday, June 27, 2011
Seven Personality Traits of Top Salespeople
If you ask an extremely successful salesperson, "What makes you different from the average sales rep?" you will most likely get a less-than-accurate answer, if any answer at all. Frankly, the person may not even know the real answer because most successful salespeople are simply doing what comes naturally.
Over the past decade, I have had the privilege of interviewing thousands of top business-to-business salespeople who sell for some of the world's leading companies. I've also administered personality tests to 1,000 of them. My goal was to measure their five main personality traits (openness, conscientiousness, extraversion, agreeableness, and negative emotionality) to better understand the characteristics that separate them their peers.
The personality tests were given to high technology and business services salespeople as part of sales strategy workshops I was conducting. In addition, tests were administered at Presidents Club meetings (the incentive trip that top salespeople are awarded by their company for their outstanding performance). The responses were then categorized by percentage of annual quota attainment and classified into top performers, average performers, and below average performers categories.
The test results from top performers were then compared against average and below average performers. The findings indicate that key personality traits directly influence top performers' selling style and ultimately their success. Below, you will find the main key personality attributes of top salespeople and the impact of the trait on their selling style.
1. Modesty. Contrary to conventional stereotypes that successful salespeople are pushy and egotistical, 91 percent of top salespeople had medium to high scores of modesty and humility. Furthermore, the results suggest that ostentatious salespeople who are full of bravado alienate far more customers than they win over.
Selling Style Impact: Team Orientation. As opposed to establishing themselves as the focal point of the purchase decision, top salespeople position the team (presales technical engineers, consulting, and management) that will help them win the account as the centerpiece.
2. Conscientiousness. Eighty-five percent of top salespeople had high levels of conscientiousness, whereby they could be described as having a strong sense of duty and being responsible and reliable. These salespeople take their jobs very seriously and feel deeply responsible for the results.
Selling Style Impact: Account Control. The worst position for salespeople to be in is to have relinquished account control and to be operating at the direction of the customer, or worse yet, a competitor. Conversely, top salespeople take command of the sales cycle process in order to control their own destiny.
3. Achievement Orientation. Eighty-four percent of the top performers tested scored very high in achievement orientation. They are fixated on achieving goals and continuously measure their performance in comparison to their goals.
Selling Style Impact: Political Orientation. During sales cycles, top sales, performers seek to understand the politics of customer decision-making. Their goal orientation instinctively drives them to meet with key decision-makers. Therefore, they strategize about the people they are selling to and how the products they're selling fit into the organization instead of focusing on the functionality of the products themselves.
4. Curiosity. Curiosity can be described as a person's hunger for knowledge and information. Eighty-two percent of top salespeople scored extremely high curiosity levels. Top salespeople are naturally more curious than their lesser performing counterparts.
Selling Style Impact: Inquisitiveness. A high level of inquisitiveness correlates to an active presence during sales calls. An active presence drives the salesperson to ask customers difficult and uncomfortable questions in order to close gaps in information. Top salespeople want to know if they can win the business, and they want to know the truth as soon as possible.
5. Lack of Gregariousness. One of the most surprising differences between top salespeople and those ranking in the bottom one-third of performance is their level of gregariousness (preference for being with people and friendliness). Overall, top performers averaged 30 percent lower gregariousness than below average performers.
Selling Style Impact: Dominance. Dominance is the ability to gain the willing obedience of customers such that the salesperson's recommendations and advice are followed. The results indicate that overly friendly salespeople are too close to their customers and have difficulty establishing dominance.
6. Lack of Discouragement. Less than 10 percent of top salespeople were classified as having high levels of discouragement and being frequently overwhelmed with sadness. Conversely, 90 percent were categorized as experiencing infrequent or only occasional sadness.
Selling Style Impact: Competitiveness. In casual surveys I have conducted throughout the years, I have found that a very high percentage of top performers played organized sports in high school. There seems to be a correlation between sports and sales success as top performers are able to handle emotional disappointments, bounce back from losses, and mentally prepare themselves for the next opportunity to compete.
7. Lack of Self-Consciousness. Self-consciousness is the measurement of how easily someone is embarrassed. The byproduct of a high level of self-consciousness is bashfulness and inhibition. Less than five percent of top performers had high levels of self-consciousness.
Selling Style Impact: Aggressiveness. Top salespeople are comfortable fighting for their cause and are not afraid of rankling customers in the process. They are action-oriented and unafraid to call high in their accounts or courageously cold call new prospects.
Not all salespeople are successful. Given the same sales tools, level of education, and propensity to work, why do some salespeople succeed where others fail? Is one better suited to sell the product because of his or her background? Is one more charming or just luckier? The evidence suggests that the personalities of these truly great salespeople play a critical role in determining their success.
Over the past decade, I have had the privilege of interviewing thousands of top business-to-business salespeople who sell for some of the world's leading companies. I've also administered personality tests to 1,000 of them. My goal was to measure their five main personality traits (openness, conscientiousness, extraversion, agreeableness, and negative emotionality) to better understand the characteristics that separate them their peers.
The personality tests were given to high technology and business services salespeople as part of sales strategy workshops I was conducting. In addition, tests were administered at Presidents Club meetings (the incentive trip that top salespeople are awarded by their company for their outstanding performance). The responses were then categorized by percentage of annual quota attainment and classified into top performers, average performers, and below average performers categories.
The test results from top performers were then compared against average and below average performers. The findings indicate that key personality traits directly influence top performers' selling style and ultimately their success. Below, you will find the main key personality attributes of top salespeople and the impact of the trait on their selling style.
1. Modesty. Contrary to conventional stereotypes that successful salespeople are pushy and egotistical, 91 percent of top salespeople had medium to high scores of modesty and humility. Furthermore, the results suggest that ostentatious salespeople who are full of bravado alienate far more customers than they win over.
Selling Style Impact: Team Orientation. As opposed to establishing themselves as the focal point of the purchase decision, top salespeople position the team (presales technical engineers, consulting, and management) that will help them win the account as the centerpiece.
2. Conscientiousness. Eighty-five percent of top salespeople had high levels of conscientiousness, whereby they could be described as having a strong sense of duty and being responsible and reliable. These salespeople take their jobs very seriously and feel deeply responsible for the results.
Selling Style Impact: Account Control. The worst position for salespeople to be in is to have relinquished account control and to be operating at the direction of the customer, or worse yet, a competitor. Conversely, top salespeople take command of the sales cycle process in order to control their own destiny.
3. Achievement Orientation. Eighty-four percent of the top performers tested scored very high in achievement orientation. They are fixated on achieving goals and continuously measure their performance in comparison to their goals.
Selling Style Impact: Political Orientation. During sales cycles, top sales, performers seek to understand the politics of customer decision-making. Their goal orientation instinctively drives them to meet with key decision-makers. Therefore, they strategize about the people they are selling to and how the products they're selling fit into the organization instead of focusing on the functionality of the products themselves.
4. Curiosity. Curiosity can be described as a person's hunger for knowledge and information. Eighty-two percent of top salespeople scored extremely high curiosity levels. Top salespeople are naturally more curious than their lesser performing counterparts.
Selling Style Impact: Inquisitiveness. A high level of inquisitiveness correlates to an active presence during sales calls. An active presence drives the salesperson to ask customers difficult and uncomfortable questions in order to close gaps in information. Top salespeople want to know if they can win the business, and they want to know the truth as soon as possible.
5. Lack of Gregariousness. One of the most surprising differences between top salespeople and those ranking in the bottom one-third of performance is their level of gregariousness (preference for being with people and friendliness). Overall, top performers averaged 30 percent lower gregariousness than below average performers.
Selling Style Impact: Dominance. Dominance is the ability to gain the willing obedience of customers such that the salesperson's recommendations and advice are followed. The results indicate that overly friendly salespeople are too close to their customers and have difficulty establishing dominance.
6. Lack of Discouragement. Less than 10 percent of top salespeople were classified as having high levels of discouragement and being frequently overwhelmed with sadness. Conversely, 90 percent were categorized as experiencing infrequent or only occasional sadness.
Selling Style Impact: Competitiveness. In casual surveys I have conducted throughout the years, I have found that a very high percentage of top performers played organized sports in high school. There seems to be a correlation between sports and sales success as top performers are able to handle emotional disappointments, bounce back from losses, and mentally prepare themselves for the next opportunity to compete.
7. Lack of Self-Consciousness. Self-consciousness is the measurement of how easily someone is embarrassed. The byproduct of a high level of self-consciousness is bashfulness and inhibition. Less than five percent of top performers had high levels of self-consciousness.
Selling Style Impact: Aggressiveness. Top salespeople are comfortable fighting for their cause and are not afraid of rankling customers in the process. They are action-oriented and unafraid to call high in their accounts or courageously cold call new prospects.
Not all salespeople are successful. Given the same sales tools, level of education, and propensity to work, why do some salespeople succeed where others fail? Is one better suited to sell the product because of his or her background? Is one more charming or just luckier? The evidence suggests that the personalities of these truly great salespeople play a critical role in determining their success.
Why a Great Individual Is Better Than a Good Team
Anytime a CEO, quarterback, engineer or author is paid ridiculous amounts of money, dozens of investors, armchair quarterbacks, and scholars jump in to debate the value of individual contributors versus teams. Bill Taylor wrote the most recent of many interesting pieces, where he argued provocatively that "great people are overrated," in response to Facebook CEO Mark Zuckerberg's comment that a great engineer is worth 100 average engineers.
I have heard plenty of people argue that no one individual is worth the price of many. But interestingly, I have never heard it from a leader.
As a CEO, I have run public companies, private companies, startups, turnarounds, and divestitures — in each and every case, I have never seen a situation where quantity is better than quality when it comes to people. Never. Great people are both hard to find and worth an infinite number of average people.
And as a brain scientist, I know that great individuals are not only more valuable than legions of mediocrity, they are often more valuable than groups that include great individuals. Here's why:
The truth is, our brains work very well individually but tend to break down in groups. This is why we have individual decision makers in business (and why paradoxically we have group decisions in government). Programmers are exponentially faster when coding as individuals; designers do their best work alone; artists rarely collaborate and when they do, it rarely goes well. There are exceptions to every rule, but in general this holds true.
There is clearly not widespread acknowledgment about the benefits of individual contributors — in many ways, it goes against our inclination towards equality. And thank goodness, because that gives those of us who understand the real value of great people a huge competitive advantage! But for anyone interested in making better decisions about their teams, it is worth spending some time understanding the science behind individual greatness.
In many ways, individual people follow an inverse rule relative to networks of people. Consider the two fundamental laws of networks: both Metcalfe's Law and Reed's Law assume that as a network of people grows, the value of the network increases substantially. (In Metcalfe's Law, the value of the network is proportional to the square of the number of people in the network, whereas Reed's Law demonstrates that the value for any individual within a network grows exponentially with every new member.) But with individuals, the opposite is true: The value of a contributor decreases disproportionately with each additional person contributing to a single project, idea, or innovation.
This is true across all areas but only so far as there are discrete pieces of work to be done. To be sure, there is clear value in having a marketing person work with a programmer on a project or a biologist working with a chemist on a problem. Proper team building is a powerful thing. But when an activity can be performed sufficiently by one person with adequate skills, doing the activity as a group should be avoided.
The concept of declining incremental value is essentially a "power function" or, more technically, a scale invariance — where the greatest impact comes from the smallest proportion of the population. There are numerous examples of power functions, including Stevens' law, Keplar's law, the long tail, Zipf's law, and the Pareto principle (or 80/20 rule). And power laws explain plenty of events in nature (i.e., earthquakes), finance (i.e., income distribution), language (word frequency), and even ecommerce (i.e., book sales on Amazon). Virtually all complex systems follow power laws within the system itself.
Here's how power functions relate to the brain. As described in my book Wired for Thought, the brain is a complex network of neurons. There are around 100 billion neurons connected to one another in the brain and they follow a network law — the value of a neuron is exponentially more valuable as the overall neural network grows. But when the brain becomes highly active, it reverts to a power law where a spike in activity is followed by a lull. Informally called neuronal avalanches, these spikes have been linked to knowledge transfer and storage, communication, and computational power — in short, intelligence.
The same is true when it comes to people. Our intelligence is incredibly complex and as a result, a great individual can far exceed the value of many mediocre minds. This is why it is absurd to ask questions like "how many mediocre people would it take to collectively beat Kasparov in a chess match?"
Mediocre minds can also destroy the value or contribution of a great mind. No matter how good Kasparov is at chess, he would not do well playing doubles with a mediocre chess player against Bobby Fisher alone. Or take Michelangelo's David as an example. A second artist cutting into David would cause massive destruction to the sculpture, even if that artist was Picasso. With each successive stroke of the chisel from additional artists, David's value, beauty, and overall impact would diminish. A perfect — albeit destructive — example of a power function.
Leaders need to make tough decisions all the time. One decision is easy: find the best people and empower them to do great things.
I have heard plenty of people argue that no one individual is worth the price of many. But interestingly, I have never heard it from a leader.
As a CEO, I have run public companies, private companies, startups, turnarounds, and divestitures — in each and every case, I have never seen a situation where quantity is better than quality when it comes to people. Never. Great people are both hard to find and worth an infinite number of average people.
And as a brain scientist, I know that great individuals are not only more valuable than legions of mediocrity, they are often more valuable than groups that include great individuals. Here's why:
The truth is, our brains work very well individually but tend to break down in groups. This is why we have individual decision makers in business (and why paradoxically we have group decisions in government). Programmers are exponentially faster when coding as individuals; designers do their best work alone; artists rarely collaborate and when they do, it rarely goes well. There are exceptions to every rule, but in general this holds true.
There is clearly not widespread acknowledgment about the benefits of individual contributors — in many ways, it goes against our inclination towards equality. And thank goodness, because that gives those of us who understand the real value of great people a huge competitive advantage! But for anyone interested in making better decisions about their teams, it is worth spending some time understanding the science behind individual greatness.
In many ways, individual people follow an inverse rule relative to networks of people. Consider the two fundamental laws of networks: both Metcalfe's Law and Reed's Law assume that as a network of people grows, the value of the network increases substantially. (In Metcalfe's Law, the value of the network is proportional to the square of the number of people in the network, whereas Reed's Law demonstrates that the value for any individual within a network grows exponentially with every new member.) But with individuals, the opposite is true: The value of a contributor decreases disproportionately with each additional person contributing to a single project, idea, or innovation.
This is true across all areas but only so far as there are discrete pieces of work to be done. To be sure, there is clear value in having a marketing person work with a programmer on a project or a biologist working with a chemist on a problem. Proper team building is a powerful thing. But when an activity can be performed sufficiently by one person with adequate skills, doing the activity as a group should be avoided.
The concept of declining incremental value is essentially a "power function" or, more technically, a scale invariance — where the greatest impact comes from the smallest proportion of the population. There are numerous examples of power functions, including Stevens' law, Keplar's law, the long tail, Zipf's law, and the Pareto principle (or 80/20 rule). And power laws explain plenty of events in nature (i.e., earthquakes), finance (i.e., income distribution), language (word frequency), and even ecommerce (i.e., book sales on Amazon). Virtually all complex systems follow power laws within the system itself.
Here's how power functions relate to the brain. As described in my book Wired for Thought, the brain is a complex network of neurons. There are around 100 billion neurons connected to one another in the brain and they follow a network law — the value of a neuron is exponentially more valuable as the overall neural network grows. But when the brain becomes highly active, it reverts to a power law where a spike in activity is followed by a lull. Informally called neuronal avalanches, these spikes have been linked to knowledge transfer and storage, communication, and computational power — in short, intelligence.
The same is true when it comes to people. Our intelligence is incredibly complex and as a result, a great individual can far exceed the value of many mediocre minds. This is why it is absurd to ask questions like "how many mediocre people would it take to collectively beat Kasparov in a chess match?"
Mediocre minds can also destroy the value or contribution of a great mind. No matter how good Kasparov is at chess, he would not do well playing doubles with a mediocre chess player against Bobby Fisher alone. Or take Michelangelo's David as an example. A second artist cutting into David would cause massive destruction to the sculpture, even if that artist was Picasso. With each successive stroke of the chisel from additional artists, David's value, beauty, and overall impact would diminish. A perfect — albeit destructive — example of a power function.
Leaders need to make tough decisions all the time. One decision is easy: find the best people and empower them to do great things.
Thursday, June 23, 2011
New Approach to Ads in Games
As the number of people playing videogames on smartphones surges, two new companies are touting a way for advertisers to reach the potential customers—without annoying them.
The start-ups, Kiip Inc. and Tap.Me Inc., are moving beyond the familiar mobile banner ads, letting marketers sponsor rewards or extra tools within the game. The idea is that users will then associate the brand with a positive experience.
When a player on a game that uses Kiip (pronounced "keep") hits a certain milestone, a message pops up saying that the person can also get a real-world reward—like a six-pack of soda free or a coupon for flowers on Mother's Day. The person can redeem the reward then or later, or email it to someone else.
"It's the moment where you feel like you've accomplished something. We match it with something that's branded," said Kiip's 20-year-old founder, Brian Wong.
Kiip uses algorithms to decide when to offer the deals, so weaker players can still get rewards and people won't be conditioned to expect prizes at certain times.
Chicago-based Tap.Me, on the other hand, lets brands sponsor in-game tools and rewards, but only if players choose them. With Tap.Me, advertisers can enter keywords and be matched to suggested tools and games they should sponsor.
For example, a restaurant chain that wants to tout its value menu might sponsor a tool that helps players get coins in the game. Once players choose that tool, the brand can send other rewards, like coupons, to the player's inbox.
Tap.Me signed its first official customer in May with Coinstar Inc.'s Redbox DVD kiosk service. Other brands, including the Wm. Wrigley Jr. Co., are in discussions with the start-up, which is on games with 5.7 million players now, including the popular "Charmed." It expects to reach more than 40 million players by the end of the year. The companies said they were still working out details of what the brands would offer in the games.
Founded about a year ago, Kiip began testing ads on games in April and has handled campaigns from Dr Pepper Snapple Group Inc., beauty product store Sephora USA Inc. and 1-800-Flowers.com Inc., among others. The company, which is based in San Francisco, says it has more than 12 million active players on 15 games.
Kiip is still testing the response to its ads and hasn't yet disclosed the games it is using. Eventually games using the start-up's system will say "Kiip enabled" as a selling point, Mr. Wong said.
Both start-ups are in talks with game makers to get on more games and share a percentage of revenues.
The effort to capture gamers' attention comes as mobile games become a popular pastime. According to measurement firm Nielsen, 74% of people who have Apple Inc.'s iPhone played games on the phone in the past month, and 66% of those with phones running Google Inc.'s Android system had played.
Advertising has long been present in regular videogames, but mostly as "product placement" such as messages that appear on billboards in a driving game. Traditional gamers have balked at seeing any ads at all in expensive console games, but that isn't the case in cheaper mobile apps, said Noah Elkin, a principal analyst at research firm eMarketer.
Also, unlike traditional videogames, mobile games appeal to women as well as men—thus drawing interest from brands that wouldn't have ordinarily advertised in a game. "Casual games are perennially popular especially with women, and you can reach an older audience as well," said Mr. Elkin.
But mobile advertising is still a nascent field. EMarketer estimates that in the U.S., spending on mobile ads will be about $1.1 billion this year, a small number compared with the more than $150 billion expected to be spent on advertising in general.
Mr. Elkin said that the trend on mobile devices is to move beyond banner ads, in an effort to get people to engage more with the advertising. "Most advertisers are still spending the bulk of their display dollars on traditional banners, but if you look at where the steeper growth is, it's at the richer end of the media: video, interactive," he said.
The start-up founders all believe that many people either ignore banner ads or are bothered by them—particularly in games, if they hit an ad by mistake and it takes them to a new screen.
"Something that we discovered very early on was that ads needed to take advantage of the natural game design" and not interrupt the game, said Tap.Me Chief Executive Joshua Hernandez.
"Mobile advertising is growing by leaps and bounds, but the manner in which brands connect to consumers is the real key" when it comes to making mobile advertising successful, said Bob Rupczynski, global director of interactive marketing at Wrigley, which has been in discussions with Tap.Me.
The advertisers evaluating the in-game advertising technology said they hope associating themselves with pleasant parts of the game and offering rewards will provide that connection.
It's still too early to tell whether the strategy will work. Kiip says its tests show that 30% to 50% of people take advantage of the rewards. Likewise, Tap.Me says it's too early to have hard numbers on its effectiveness, although its tests show that users engage with sponsors about 15% of the time.
http://professional.wsj.com/article/SB10001424052702304231204576403403508609600.html
The start-ups, Kiip Inc. and Tap.Me Inc., are moving beyond the familiar mobile banner ads, letting marketers sponsor rewards or extra tools within the game. The idea is that users will then associate the brand with a positive experience.
When a player on a game that uses Kiip (pronounced "keep") hits a certain milestone, a message pops up saying that the person can also get a real-world reward—like a six-pack of soda free or a coupon for flowers on Mother's Day. The person can redeem the reward then or later, or email it to someone else.
"It's the moment where you feel like you've accomplished something. We match it with something that's branded," said Kiip's 20-year-old founder, Brian Wong.
Kiip uses algorithms to decide when to offer the deals, so weaker players can still get rewards and people won't be conditioned to expect prizes at certain times.
Chicago-based Tap.Me, on the other hand, lets brands sponsor in-game tools and rewards, but only if players choose them. With Tap.Me, advertisers can enter keywords and be matched to suggested tools and games they should sponsor.
For example, a restaurant chain that wants to tout its value menu might sponsor a tool that helps players get coins in the game. Once players choose that tool, the brand can send other rewards, like coupons, to the player's inbox.
Tap.Me signed its first official customer in May with Coinstar Inc.'s Redbox DVD kiosk service. Other brands, including the Wm. Wrigley Jr. Co., are in discussions with the start-up, which is on games with 5.7 million players now, including the popular "Charmed." It expects to reach more than 40 million players by the end of the year. The companies said they were still working out details of what the brands would offer in the games.
Founded about a year ago, Kiip began testing ads on games in April and has handled campaigns from Dr Pepper Snapple Group Inc., beauty product store Sephora USA Inc. and 1-800-Flowers.com Inc., among others. The company, which is based in San Francisco, says it has more than 12 million active players on 15 games.
Kiip is still testing the response to its ads and hasn't yet disclosed the games it is using. Eventually games using the start-up's system will say "Kiip enabled" as a selling point, Mr. Wong said.
Both start-ups are in talks with game makers to get on more games and share a percentage of revenues.
The effort to capture gamers' attention comes as mobile games become a popular pastime. According to measurement firm Nielsen, 74% of people who have Apple Inc.'s iPhone played games on the phone in the past month, and 66% of those with phones running Google Inc.'s Android system had played.
Advertising has long been present in regular videogames, but mostly as "product placement" such as messages that appear on billboards in a driving game. Traditional gamers have balked at seeing any ads at all in expensive console games, but that isn't the case in cheaper mobile apps, said Noah Elkin, a principal analyst at research firm eMarketer.
Also, unlike traditional videogames, mobile games appeal to women as well as men—thus drawing interest from brands that wouldn't have ordinarily advertised in a game. "Casual games are perennially popular especially with women, and you can reach an older audience as well," said Mr. Elkin.
But mobile advertising is still a nascent field. EMarketer estimates that in the U.S., spending on mobile ads will be about $1.1 billion this year, a small number compared with the more than $150 billion expected to be spent on advertising in general.
Mr. Elkin said that the trend on mobile devices is to move beyond banner ads, in an effort to get people to engage more with the advertising. "Most advertisers are still spending the bulk of their display dollars on traditional banners, but if you look at where the steeper growth is, it's at the richer end of the media: video, interactive," he said.
The start-up founders all believe that many people either ignore banner ads or are bothered by them—particularly in games, if they hit an ad by mistake and it takes them to a new screen.
"Something that we discovered very early on was that ads needed to take advantage of the natural game design" and not interrupt the game, said Tap.Me Chief Executive Joshua Hernandez.
"Mobile advertising is growing by leaps and bounds, but the manner in which brands connect to consumers is the real key" when it comes to making mobile advertising successful, said Bob Rupczynski, global director of interactive marketing at Wrigley, which has been in discussions with Tap.Me.
The advertisers evaluating the in-game advertising technology said they hope associating themselves with pleasant parts of the game and offering rewards will provide that connection.
It's still too early to tell whether the strategy will work. Kiip says its tests show that 30% to 50% of people take advantage of the rewards. Likewise, Tap.Me says it's too early to have hard numbers on its effectiveness, although its tests show that users engage with sponsors about 15% of the time.
http://professional.wsj.com/article/SB10001424052702304231204576403403508609600.html
Groupon: All About Unredeemed Coupons
An analysis of the Groupon S-1 filed last week for their upcoming IPO highlights some interesting trends. A single table illustrates how the Groupon business model is entirely based upon the concept of float. The payments the company owes to merchants are growing at much faster rates than actual revenue rates. In fact, the balance sheet shows that the company owes more to merchants than total current assets, an unusual situation.
From sales of just $30 million in 2009 to sales of $713 million in 2010, Groupon has shown incredible growth rates.
As if that were not enough, sales in the first quarter of 2011 were $644 million.
Assuming trailing twelve-month revenue of approximately $1.2 billion, this would give Groupon a price/sales ratio of about 160. This is an extremely high valuation metric for a company with revenues of over $1 billion. (The S-1 does not provide quarterly revenue data for 2010, so assumptions must be made; we assumed $550 million for the last three quarters of 2010.)
This type of growth rate is astonishing, frankly, but focusing on only the revenue growth is superficial with Groupon's business model.
Why are merchants willing to sell their services at discounts as much as 50% below the retail cost?
Part of the value offered to the merchant is the potential that coupons will either be unredeemed or not redeemed at all. In the U.S., an unredeemed coupon means that the merchant is effectively paid for nothing.
If the coupon is not redeemed for a long time, the merchant has accrued a future liability, but has increased cash flow. Since many small retail businesses survive on cash flow, rather than accrual-based accounting, any increase in current cash flow is a positive factor.
If the merchant views the unredeemed coupon as cash and views the lower revenue for services from redeemed coupons as marketing costs, the Groupon value proposition can be attractive.
The delay of time between the sale of a coupon and its redemption is where Groupon has built nearly all of its value.
A very interesting picture emerges when the trend of this metric, the accrued merchant payable line, is measured against revenue, gross profit, and current assets trends.
The following table illustrates the trends in revenue, cost-of-goods sold, and gross profit, as given in the Groupon S-1.
Source: Groupon S-1 Filing
When the trend of "accrued merchants payable" is compared to the trends in revenue, gross profit, and current assets, a curious development is seen, as illustrated in the table below.
Source: Groupon S-1 Filing, Briefing.com calculations
It is the accrued merchants payable line that is astonishing, particularly as a percentage of current assets. The accrued merchants payable line simply gets larger and larger as an overall percentage the more Groupon grows.
In fact, the accrued merchants payable line is greater than gross profits, which means that if Groupon had to pay their merchants immediately, the payment would consume all of the gross profit for that quarter.
What this means is that Groupon is essentially staying just one step ahead of having to pay the piper. Instead of having accrued liabilities go down as the company grows, the accrued liabilities expand. Such a model is somewhat equivalent to paying your rent with your credit card, prior to receiving your salary check, but the rent is larger than your salary each and every month.
The revenue trend at Groupon is the first metric that the public has focused on, particularly the media. It is certainly the incredible metric curve that the very high valuation is based upon.
However, if there was any lesson from the internet bubble era of ten years ago, it is that valuations based upon revenue alone are extremely risky. The minute an incredible revenue trend stops, the valuation the market is willing to place upon a stock drops dramatically.
Such a stock is somewhat comparable to the game of hot potato, where the goal is to acquire the stock and then pass it on as quickly as possible before the potato explodes.
We think that such a scenario is likely with Groupon, eventually, although it is difficult to predict when. Nothing keeps growing forever. The ticking time-bomb, however, is the money owed to merchants, and it's an ever increasing trend.
There would be no accrued merchants payable line on the balance sheet, except for the single day when the sheet is generated and issued checks are uncashed.
In such a scenario, the balance sheet would show negative current assets, meaning that there is no buffer of cash with which the company can operate on a daily basis. The situation is roughly equivalent to a company operating without any checking account at all.
What this all means is that the faster Groupon grows, the more of its accumulated cash is owed to the merchants, as a percentage of revenues, profits, and assets. However, Groupon needs the cash from unredeemed coupons to finance its daily operations. It is somewhat similar to a restaurant charging its customers in advance for a meal a week from now, and then using the payment to go out and buy ingredients and hire a chef.
With the Q1 2011 accrued merchant payable line at 45% of total revenue and 78% of cost-of-goods sold, it simply begs the question of why the merchants aren't being paid.
We think the accrued merchant payment line is going to become the critical metric to watch as Groupon grows.
This type of situation is fine as long as the company never stops growing at fantastic rates, and customers take months or years to redeem their coupons.
However, both of these trends are likely to recede at some point as Groupon gets larger.
Merchants that have sold coupons that haven't been redeemed, and therefore, haven't been paid by Groupon, are likely to eventually either demand their share of the cash, or withdraw from using Groupon as a marketing tool. After all, they haven't gained anything in such a situation.
Customers that fail to redeem coupons are not likely to continue buying coupons in the future. The initial thrill of Groupon occurs when services are bought for half the retail price. That thrill fades, however, as time goes on and the coupon is not used.
How many Groupon customers that have yet to redeem their coupon are likely to buy another one? At some point, purchasers of coupons that are unredeemed will change their view of Groupon from one of "a real bargain" to one of "an unnecessary impulsive purchase."
At the moment, the thrill of "getting a deal" is the driver behind the Groupon explosion of revenue. Someday, however, that thrill has to be backed up by the merchants increasing their business and receiving revenue and the customers returning to buy more coupons.
Certainly, they have sold a lot of coupons. But the scale of the unredeemed coupons is immense, and without it, the Groupon financial statements would look horrible, even with the incredible revenue trends.
How large is the market for persons who buy coupons and never redeem them? With a business model so dependent on customers being slow to redeem coupons, combined with delayed payments to merchants, Groupon's long-term investors have to make such an analysis for themselves.
Your guess is as good as ours, but we do think that eventually, people who do not redeem the coupons they purchase are not a long-term viable customer base. At some point, the game collapses upon itself.
In the final analysis, customers need to receive actual value for their payments, not a perceived future value that is never delivered. We think the tone of the S-1 indicates that Groupon itself understands this issue.
You might notice, for instance, that Groupon is not selling any coupons for a 50% discount in their own stock offering.
Comments may be emailed to the author, Robert V. Green, at aheadofthecurve@briefing.com
The Revenue Curve
There is no question that Groupon's revenue curve is amazing.From sales of just $30 million in 2009 to sales of $713 million in 2010, Groupon has shown incredible growth rates.
As if that were not enough, sales in the first quarter of 2011 were $644 million.
Assuming trailing twelve-month revenue of approximately $1.2 billion, this would give Groupon a price/sales ratio of about 160. This is an extremely high valuation metric for a company with revenues of over $1 billion. (The S-1 does not provide quarterly revenue data for 2010, so assumptions must be made; we assumed $550 million for the last three quarters of 2010.)
This type of growth rate is astonishing, frankly, but focusing on only the revenue growth is superficial with Groupon's business model.
Groupon's Business Model
Groupon sells coupons to customers on behalf of merchants who sign an agreement with Groupon. To the merchant, Groupon serves as outsourced marketing, with the hope that Groupon's incentive to customers increases business. The merchant sells their services at a steep discount through a Groupon coupon.Why are merchants willing to sell their services at discounts as much as 50% below the retail cost?
Part of the value offered to the merchant is the potential that coupons will either be unredeemed or not redeemed at all. In the U.S., an unredeemed coupon means that the merchant is effectively paid for nothing.
If the coupon is not redeemed for a long time, the merchant has accrued a future liability, but has increased cash flow. Since many small retail businesses survive on cash flow, rather than accrual-based accounting, any increase in current cash flow is a positive factor.
If the merchant views the unredeemed coupon as cash and views the lower revenue for services from redeemed coupons as marketing costs, the Groupon value proposition can be attractive.
The delay of time between the sale of a coupon and its redemption is where Groupon has built nearly all of its value.
Accrued Merchant Payable
On the balance sheet, amounts that are owed, but as yet unpaid to merchants, is recorded as a current liability called "accrued merchant payable." This metric is in addition to the standard balance sheet lines of "accounts payable" and "accrued expenses."A very interesting picture emerges when the trend of this metric, the accrued merchant payable line, is measured against revenue, gross profit, and current assets trends.
The following table illustrates the trends in revenue, cost-of-goods sold, and gross profit, as given in the Groupon S-1.
| Metric, $K | 2009 | 2010 | Q1 2011 |
|---|---|---|---|
| Revenue | $30,471 | $713,365 | $644,728 |
| Cost of Revenue | $19,542 | $433,411 | $374,728 |
| Gross Profit | $10,929 | $279,954 | $270,000 |
| Total Current Assets | $14,207 | $173,855 | $208,688 |
When the trend of "accrued merchants payable" is compared to the trends in revenue, gross profit, and current assets, a curious development is seen, as illustrated in the table below.
| Accrued Merchants Metric, $K | 2009 | 2010 | Q1 2011 |
|---|---|---|---|
| Accrued Merchants Payable | $4,324 | $162,409 | $290,700 |
| Percentage of revenue | 14.2% | 22.8% | 45.1% |
| Percentage of cost of revenue | 22.1% | 37.5% | 77.6% |
| Percentage of gross profits | 39.6% | 58.0% | 107.7% |
| Percentage of current assets | 30.4% | 93.4% | 139.3% |
It is the accrued merchants payable line that is astonishing, particularly as a percentage of current assets. The accrued merchants payable line simply gets larger and larger as an overall percentage the more Groupon grows.
In fact, the accrued merchants payable line is greater than gross profits, which means that if Groupon had to pay their merchants immediately, the payment would consume all of the gross profit for that quarter.
What this means is that Groupon is essentially staying just one step ahead of having to pay the piper. Instead of having accrued liabilities go down as the company grows, the accrued liabilities expand. Such a model is somewhat equivalent to paying your rent with your credit card, prior to receiving your salary check, but the rent is larger than your salary each and every month.
The revenue trend at Groupon is the first metric that the public has focused on, particularly the media. It is certainly the incredible metric curve that the very high valuation is based upon.
However, if there was any lesson from the internet bubble era of ten years ago, it is that valuations based upon revenue alone are extremely risky. The minute an incredible revenue trend stops, the valuation the market is willing to place upon a stock drops dramatically.
Such a stock is somewhat comparable to the game of hot potato, where the goal is to acquire the stock and then pass it on as quickly as possible before the potato explodes.
We think that such a scenario is likely with Groupon, eventually, although it is difficult to predict when. Nothing keeps growing forever. The ticking time-bomb, however, is the money owed to merchants, and it's an ever increasing trend.
Unredeemed Coupons Are Key to Groupon's Financials
Imagine, for instance, what the balance sheet would look like if Groupon paid all merchants their entire amount due at the time of the sale of a coupon, on a per-coupon basis, instead of waiting until the sale of coupons reaches a pre-arranged, negotiated level.There would be no accrued merchants payable line on the balance sheet, except for the single day when the sheet is generated and issued checks are uncashed.
In such a scenario, the balance sheet would show negative current assets, meaning that there is no buffer of cash with which the company can operate on a daily basis. The situation is roughly equivalent to a company operating without any checking account at all.
What this all means is that the faster Groupon grows, the more of its accumulated cash is owed to the merchants, as a percentage of revenues, profits, and assets. However, Groupon needs the cash from unredeemed coupons to finance its daily operations. It is somewhat similar to a restaurant charging its customers in advance for a meal a week from now, and then using the payment to go out and buy ingredients and hire a chef.
With the Q1 2011 accrued merchant payable line at 45% of total revenue and 78% of cost-of-goods sold, it simply begs the question of why the merchants aren't being paid.
We think the accrued merchant payment line is going to become the critical metric to watch as Groupon grows.
Unredeemed Coupons Are Groupon's Working Capital
Groupon is funding its entire working capital needs with the money that is owed to its merchants.This type of situation is fine as long as the company never stops growing at fantastic rates, and customers take months or years to redeem their coupons.
However, both of these trends are likely to recede at some point as Groupon gets larger.
Merchants that have sold coupons that haven't been redeemed, and therefore, haven't been paid by Groupon, are likely to eventually either demand their share of the cash, or withdraw from using Groupon as a marketing tool. After all, they haven't gained anything in such a situation.
Customers that fail to redeem coupons are not likely to continue buying coupons in the future. The initial thrill of Groupon occurs when services are bought for half the retail price. That thrill fades, however, as time goes on and the coupon is not used.
How many Groupon customers that have yet to redeem their coupon are likely to buy another one? At some point, purchasers of coupons that are unredeemed will change their view of Groupon from one of "a real bargain" to one of "an unnecessary impulsive purchase."
At the moment, the thrill of "getting a deal" is the driver behind the Groupon explosion of revenue. Someday, however, that thrill has to be backed up by the merchants increasing their business and receiving revenue and the customers returning to buy more coupons.
Conclusions
Groupon's entire business model depends on the time frame between the sale of a coupon and the time it is redeemed.Certainly, they have sold a lot of coupons. But the scale of the unredeemed coupons is immense, and without it, the Groupon financial statements would look horrible, even with the incredible revenue trends.
How large is the market for persons who buy coupons and never redeem them? With a business model so dependent on customers being slow to redeem coupons, combined with delayed payments to merchants, Groupon's long-term investors have to make such an analysis for themselves.
Your guess is as good as ours, but we do think that eventually, people who do not redeem the coupons they purchase are not a long-term viable customer base. At some point, the game collapses upon itself.
In the final analysis, customers need to receive actual value for their payments, not a perceived future value that is never delivered. We think the tone of the S-1 indicates that Groupon itself understands this issue.
You might notice, for instance, that Groupon is not selling any coupons for a 50% discount in their own stock offering.
Comments may be emailed to the author, Robert V. Green, at aheadofthecurve@briefing.com
J.K. Rowling Conjures Up Potter E-Books
J.K. Rowling, who ignited a new generation of readers with her series of seven boy-wizard novels, launched the next transformative chapter in how and where books will be distributed by unveiling her own online store that will sell Harry Potter e-books directly to her fans.
In a video address to readers, Ms. Rowling said she created her own Harry Potter universe for fans to visit online. While her publishers and major online book retailers will continue to sell her physical books, Ms. Rowling has reserved for herself the digital editions, the fastest-growing segment in the book world.
The move could inspire other authors, large and small, to pronounce themselves independent agents in hopes of tapping more lucrative paydays. Ms. Rowling refused for years to release her books in electronic format, retaining the digital rights for herself.
While most other authors have already handed over their digital rights to their publishers—most recently, John Grisham—Ms. Rowling's deal could prompt them to self-publish when their deals come up for renewal or demand higher royalty rates than the 25% of net sales that most publishers offer today on digital editions.
Some may even choose to forgo all traditional means of book publishing and set up their own bookstores, reaping 100% of everything they sell.
"Every writer watches with great interest whenever somebody does something new," said best-selling author Jennifer Weiner, whose next book, "Then Came You," goes on sale July 12. "We all pay attention. If this turns out to be a success for her, for an author who had unheard-of success by selling through traditional bookstores with books on paper, then some may decide that they, too, don't need bricks-and-mortar stores, or online booksellers, either."
Ms. Rowling, 45 years old, will launch a test version of her Pottermore website on July 31 and begin selling e-books in October. All seven Harry Potter novels will be available as e-books in multiple languages and will be device agnostic.
Though she says she won't be writing any more Potter books, Ms. Rowling is emptying her extra material into various corners of the site. She has handed over 18,000 words of additional content so far but says she will write more for the site as well.
The British author said Thursday she is lucky to have the resources to go straight to readers—and is happy she can ensure they have an equally magical experience when interacting with the digital Harry Potter. "There was really no other way to do that, for the fans or for me, other than to just do it myself," she said.
Ms. Rowling's declaration of retail independence comes at a time of extreme turmoil in book publishing and retailing around the world. In the year ended April 30, U.S. e-book sales jumped 163% to $313 million, according to the Association of American Publishers, but the sale of adult hard-cover books declined 19% to $300 million. The figures reflect the reporting of 22 companies.
Five years ago, an author such as Ms. Rowling wouldn't have had the tools to sell her own works globally by herself.
The issue of ownership of digital works has emerged as the most explosive in publishing today. Several start-up digital publishers are luring authors and estates by offering twice the royalty compensation on digital works compared with traditional publishers.
Publishers are intent on holding the line on both rates and rights. Most dramatically, they have repeatedly said they won't sign contracts and offer advances to authors without acquiring all digital rights. But as companies such as Amazon.com Inc. increase their own publishing efforts, the traditional publishing world is coming under greater pressure to keep their authors happy.
The risk Ms. Rowling runs—the possible retaliation by retailers toward her next titles—appears limited compared to the potential financial rewards and her ability to control her relationship with her fans the way she wants. The ability to shape all forms of the book-selling and marketing experience has been a lifelong dream for many authors over the ages.
Such a step won't be for all authors, however. Best-selling writer James Patterson, who in 2009 signed a 17-book contract with Lagardère SCA's Hachette Book Group, said that while he has mulled "the notion of having my own book company," he has decided "life is too short."
Mr. Patterson said he thinks a certain number of authors will be eager to try more innovative forms of publishing,whether it be best-selling authors or those trying to build an audience. "Many people are going to be trying to figure out how to break into the game," he said. "But I don't want to do something that might be disruptive to the publishing industry. And I'm protective of independent bookstores."
The news received a mixed response from book retailers. The U.K.'s biggest chain, Waterstone's, issued a statement expressing its "disappointment" at being shut out of the digital launch and noting that it had been a "key factor in the growth of the Harry Potter phenomenon since the first book was published."
But in the U.S., Barnes & Noble, the nation's largest bookstore chain, actively promoted Potter titles on its website on Thursday via a link to Ms. Rowling's video announcement of the Pottermore site and said it would work to make Potter e-books available on its Nook reading device.
A spokeswoman for Amazon said, "We're working closely with Pottermore to make sure Kindle customers will be able to buy and read J.K. Rowling's Harry Potter books." An Apple Inc. spokesman had no comment.
Ms. Rowling has built the Potter franchise into a behemoth since the first of her Harry Potter novels was published in 1997. The series has sold about 450 million books world-wide, and spawned an eight-part film franchise for Time Warner Inc.'s Warner Bros. that concludes in July, around the time of the initial Pottermore launch. In 2010, Forbes magazine estimated Ms. Rowling's net worth at $1 billion.
Bloomsbury Publishing PLC owns the British print rights to Harry Potter, and Scholastic Corp. owns the printrights in the U.S.
Ms. Rowling isn't entirely pushing aside her publishers. Bloomsbury and Scholastic both said in statements Thursday that they would receive a cut of Pottermore's e-book sales. "It is because J.K. Rowling wanted to be in a partnership with her print publishers on this project," a Bloomsbury spokeswoman said. Both Bloomsbury and Scholastic said they would provide marketing and promotional support for the Pottermore site.
The decision to release the Potter books digitally comes at a time when there is increased speculation about which formats—physical or digital—children will embrace in the years ahead. Scholastic, for example, is currently working on an e-reading software application for kids that is designed to bolster digital reading and that will likely be unveiled this fall.
Pottermore is a Harry Potter online world that allows readers to join one of the Hogwarts wizardry school's four houses and travel virtually through the first Harry Potter book. Along the way, members encounter extra material Ms. Rowling has written or unearthed from her notes, giving intense Potter fans much-desired insider explanations of key characters, places and plots. Users receive their own magical wands and home pages—and can do things like post drawings and challenge one another to wizard duels.
Among extra material, Ms. Rowling says she kept the back story of Professor McGonagall—headmistress of Hogwarts—for years expecting to use it, but never found a place for it in any of the books.
"I had half of the new material already written or in note form," Ms. Rowling said Thursday. "I dug some of it out of boxes, literally."
Sony Corp. partnered with Ms. Rowling on developing the site and plans to sell branded Pottermore products, such as e-readers, out of the online store.
Write to Jeffrey A. Trachtenberg at jeffrey.trachtenberg@wsj.com and Paul Sonne at paul.sonne@wsj.com
http://professional.wsj.com/article/SB10001424052702304569504576403291417417796.html
In a video address to readers, Ms. Rowling said she created her own Harry Potter universe for fans to visit online. While her publishers and major online book retailers will continue to sell her physical books, Ms. Rowling has reserved for herself the digital editions, the fastest-growing segment in the book world.
The move could inspire other authors, large and small, to pronounce themselves independent agents in hopes of tapping more lucrative paydays. Ms. Rowling refused for years to release her books in electronic format, retaining the digital rights for herself.
While most other authors have already handed over their digital rights to their publishers—most recently, John Grisham—Ms. Rowling's deal could prompt them to self-publish when their deals come up for renewal or demand higher royalty rates than the 25% of net sales that most publishers offer today on digital editions.
Some may even choose to forgo all traditional means of book publishing and set up their own bookstores, reaping 100% of everything they sell.
"Every writer watches with great interest whenever somebody does something new," said best-selling author Jennifer Weiner, whose next book, "Then Came You," goes on sale July 12. "We all pay attention. If this turns out to be a success for her, for an author who had unheard-of success by selling through traditional bookstores with books on paper, then some may decide that they, too, don't need bricks-and-mortar stores, or online booksellers, either."
Ms. Rowling, 45 years old, will launch a test version of her Pottermore website on July 31 and begin selling e-books in October. All seven Harry Potter novels will be available as e-books in multiple languages and will be device agnostic.
Though she says she won't be writing any more Potter books, Ms. Rowling is emptying her extra material into various corners of the site. She has handed over 18,000 words of additional content so far but says she will write more for the site as well.
The British author said Thursday she is lucky to have the resources to go straight to readers—and is happy she can ensure they have an equally magical experience when interacting with the digital Harry Potter. "There was really no other way to do that, for the fans or for me, other than to just do it myself," she said.
Ms. Rowling's declaration of retail independence comes at a time of extreme turmoil in book publishing and retailing around the world. In the year ended April 30, U.S. e-book sales jumped 163% to $313 million, according to the Association of American Publishers, but the sale of adult hard-cover books declined 19% to $300 million. The figures reflect the reporting of 22 companies.
Five years ago, an author such as Ms. Rowling wouldn't have had the tools to sell her own works globally by herself.
The issue of ownership of digital works has emerged as the most explosive in publishing today. Several start-up digital publishers are luring authors and estates by offering twice the royalty compensation on digital works compared with traditional publishers.
Publishers are intent on holding the line on both rates and rights. Most dramatically, they have repeatedly said they won't sign contracts and offer advances to authors without acquiring all digital rights. But as companies such as Amazon.com Inc. increase their own publishing efforts, the traditional publishing world is coming under greater pressure to keep their authors happy.
The risk Ms. Rowling runs—the possible retaliation by retailers toward her next titles—appears limited compared to the potential financial rewards and her ability to control her relationship with her fans the way she wants. The ability to shape all forms of the book-selling and marketing experience has been a lifelong dream for many authors over the ages.
Such a step won't be for all authors, however. Best-selling writer James Patterson, who in 2009 signed a 17-book contract with Lagardère SCA's Hachette Book Group, said that while he has mulled "the notion of having my own book company," he has decided "life is too short."
Mr. Patterson said he thinks a certain number of authors will be eager to try more innovative forms of publishing,whether it be best-selling authors or those trying to build an audience. "Many people are going to be trying to figure out how to break into the game," he said. "But I don't want to do something that might be disruptive to the publishing industry. And I'm protective of independent bookstores."
The news received a mixed response from book retailers. The U.K.'s biggest chain, Waterstone's, issued a statement expressing its "disappointment" at being shut out of the digital launch and noting that it had been a "key factor in the growth of the Harry Potter phenomenon since the first book was published."
But in the U.S., Barnes & Noble, the nation's largest bookstore chain, actively promoted Potter titles on its website on Thursday via a link to Ms. Rowling's video announcement of the Pottermore site and said it would work to make Potter e-books available on its Nook reading device.
A spokeswoman for Amazon said, "We're working closely with Pottermore to make sure Kindle customers will be able to buy and read J.K. Rowling's Harry Potter books." An Apple Inc. spokesman had no comment.
Ms. Rowling has built the Potter franchise into a behemoth since the first of her Harry Potter novels was published in 1997. The series has sold about 450 million books world-wide, and spawned an eight-part film franchise for Time Warner Inc.'s Warner Bros. that concludes in July, around the time of the initial Pottermore launch. In 2010, Forbes magazine estimated Ms. Rowling's net worth at $1 billion.
Bloomsbury Publishing PLC owns the British print rights to Harry Potter, and Scholastic Corp. owns the printrights in the U.S.
Ms. Rowling isn't entirely pushing aside her publishers. Bloomsbury and Scholastic both said in statements Thursday that they would receive a cut of Pottermore's e-book sales. "It is because J.K. Rowling wanted to be in a partnership with her print publishers on this project," a Bloomsbury spokeswoman said. Both Bloomsbury and Scholastic said they would provide marketing and promotional support for the Pottermore site.
The decision to release the Potter books digitally comes at a time when there is increased speculation about which formats—physical or digital—children will embrace in the years ahead. Scholastic, for example, is currently working on an e-reading software application for kids that is designed to bolster digital reading and that will likely be unveiled this fall.
Pottermore is a Harry Potter online world that allows readers to join one of the Hogwarts wizardry school's four houses and travel virtually through the first Harry Potter book. Along the way, members encounter extra material Ms. Rowling has written or unearthed from her notes, giving intense Potter fans much-desired insider explanations of key characters, places and plots. Users receive their own magical wands and home pages—and can do things like post drawings and challenge one another to wizard duels.
Among extra material, Ms. Rowling says she kept the back story of Professor McGonagall—headmistress of Hogwarts—for years expecting to use it, but never found a place for it in any of the books.
"I had half of the new material already written or in note form," Ms. Rowling said Thursday. "I dug some of it out of boxes, literally."
Sony Corp. partnered with Ms. Rowling on developing the site and plans to sell branded Pottermore products, such as e-readers, out of the online store.
Write to Jeffrey A. Trachtenberg at jeffrey.trachtenberg@wsj.com and Paul Sonne at paul.sonne@wsj.com
http://professional.wsj.com/article/SB10001424052702304569504576403291417417796.html
Mobile Shopping Set to Spike, Says Forrester
The retail industry is itching to sell products on mobile phones; it’s just waiting for consumers to start buying. Already, 25 of the 30 top online retailers have iPhone apps, even though less than 15 percent of online consumers report having used their mobile phones to buy something.
But Forrester Research predicts that a boom will come. Mobile commerce is expected to reach $31 billion by 2016, up from $3 billion in 2010, according to a forecast the firm published Friday. But even with such rapid growth, mobile shopping is expected to make up only about 7 percent of e-commerce by 2016. That amounts to about 1 percent of total retail sales.
Several things are holding people back from using their phones to shop, according to Forrester. At the top on the list are concerns about security. These concerns may fade in the same way that they stopped being a barrier to online shopping. But there are also technical barriers — mobile sites are often slow and unwieldy – and confusion among retailers about how best to pursue their mobile strategies.
Over 90 percent of online retailers have mobile strategies, according to a recent survey conducted by Shop.org for Forrester, but the report characterizes the vision of many retailers as “immature.” For now, companies are using mobile primarily to offer information about the products they sell or to give basic information about their stores. But there are more ambitious plans in the works.
Among those most often cited by retailers are enabling customers to use their phones to pay at check out, share ratings and reviews, and receive notices about sales and other offers.
Putting the focus on consumers may be misguided, said Sucharita Mulpuru, the author of the report. Rather than hope that shoppers will use their phones to buy things, she said retailers should focus on training store employees to use mobile devices in ways that would make them more helpful. Several retailers, like Home Depot and Urban Outfitters, have already indicated that they will do so, but they are a relatively small minority, the report says.
“While the opportunity to arm store associates with instantaneous information and richer payment acceptance capabilities may be the most compelling reason for retailers to invest in mobile, most companies view mobile as a channel that is primarily about completing sales through a mobile site,” Ms. Mulpuru writes.
In an earlier version of this post, a graphic incorrectly stated that it was measuring millions of dollars. It measures billions.
http://bits.blogs.nytimes.com/2011/06/17/mobile-shopping-set-to-spike-says-forrester
Wednesday, June 22, 2011
Facebook Seeks Bigger Role in Software for Mobile Apps
Facebook Inc. is angling to play a bigger role in shaping the way software gets developed for mobile devices.
The social network, which has turned its popular website into a platform for developing games and other add-on programs, so far hasn't wielded the same influence on mobile gadgets like Apple Inc.'s hit iPhone and iPad. But there are signs the company is trying to change that situation.
Facebook executives, among other things, are encouraging developers who write Facebook apps to do so for mobile devices using a relatively new technology standard called HTML5. The company has also been using HTML5 to enhance its own mobile offerings, which are used by more than 250 million people to tap into its services.
Some app developers and analysts believe Facebook's underlying motivation is to position itself as an alternative development platform for programmers that now tailor mobile apps specifically for Apple's iOS operating system or Google Inc.'s Android. Technology blog TechCrunch reported that Facebook is working on a mobile platform dubbed "Project Titan" that was designed to bypass Apple by using the HTML5 technology that works with the iPhone and iPad's mobile browser, Safari.
Bret Taylor, Facebook's chief technology officer, wouldn't discuss forthcoming products. But he did express strong support for HTML5, an update of the Web's fundamental programming technology that is expected to allow apps to be written for use in browsers on different operating systems—including iOS and Android—without needing to be completely rewritten for each.
Mr. Taylor said the technology can help Facebook and app developers reach new users and "close the gap" between existing Web and mobile user experiences. But he doesn't view HTML5 and apps written directly for iOS and other operating systems as an "either-or" decision.
"Facebook and all of our developers will choose both," Mr. Taylor said. "You want to reach as many people in as many places as possible."
Facebook could in the future also play more of a role in helping users discover apps on mobile phones, he said, but declined to specify how it would do so.
HTML5, developed with contributions from many tech companies and organizations, has a growing number of supporters in Silicon Valley. Apple, for example, is backing the technology as an alternative to Adobe Systems Inc.'s Flash technology as a way to add interactivity to Web applications.
Such technologies can address major pain points for mobile-app developers—for one thing, making it possible to create one version of a program that works on multiple devices, rather than devoting scarce resources to making multiple versions of apps. Facebook could use its own popularity and data about the habits of users' friends to help mobile-app developers gain greater visibility, say some developers
Facebook has been courting smaller developers for its HTML5 project, promising those who use it greater promotion of their apps, one developer said.
App companies, in theory, could also more quickly update Web-based apps. One of the limitations of the Apple App Store system is that developers must submit app changes to Apple, which then has to approve the changes before the apps are updated. However, developers that write Web apps using HTML5 could instantly push out changes, one developer said.
An Apple spokesman declined comment.
But app developers say Facebook's effort faces challenges. For one thing, HTML5 applications such as games can look dated compared with apps written for specific mobile devices. Those apps also are better at exploiting a mobile device's camera, location, graphics circuitry and other hardware features than Web-based apps.
Outfit7, which developed a popular app called Talking Tom Cat, said it has been in communication with Facebook in recent months. But it has decided not to support HTML5 for now because the company doesn't see how it could help the user experience.
"Native-like experience doesn't mean the experience is the same," said Andrej Nabergoj, Outfit7's chief executive. He said HTML5 doesn't have the voice and video support necessary for its apps, and that HTML5 presents more performance challenges the more complex an app becomes. "We have to care about what is in the best interest for the user," Mr. Nabergoj said.
Facebook, for the moment, is a long way from being as dominant in mobile as it is on the Web. Currently, its software for mobile phones doesn't allow users to directly access the apps that many users use on Facebook's ordinary website.
The apps are a growing source of revenue for the company, which makes money from displaying ads and taking a 30% cut of virtual goods sales, whose transactions take place in Facebook's own currency called Credits.
Facebook already offers a software-development kit so that iOS apps can incorporate many aspects of Facebook's technology, such as signing into games and services with users' Facebook accounts, Mr. Taylor said.
http://professional.wsj.com/article/SB10001424052702304319804576390243972729286.html
The social network, which has turned its popular website into a platform for developing games and other add-on programs, so far hasn't wielded the same influence on mobile gadgets like Apple Inc.'s hit iPhone and iPad. But there are signs the company is trying to change that situation.
Facebook is angling to play a bigger role in shaping the way software gets developed for mobile devices, Geoffrey Fowler reports.
Some app developers and analysts believe Facebook's underlying motivation is to position itself as an alternative development platform for programmers that now tailor mobile apps specifically for Apple's iOS operating system or Google Inc.'s Android. Technology blog TechCrunch reported that Facebook is working on a mobile platform dubbed "Project Titan" that was designed to bypass Apple by using the HTML5 technology that works with the iPhone and iPad's mobile browser, Safari.
Bret Taylor, Facebook's chief technology officer, wouldn't discuss forthcoming products. But he did express strong support for HTML5, an update of the Web's fundamental programming technology that is expected to allow apps to be written for use in browsers on different operating systems—including iOS and Android—without needing to be completely rewritten for each.
Mr. Taylor said the technology can help Facebook and app developers reach new users and "close the gap" between existing Web and mobile user experiences. But he doesn't view HTML5 and apps written directly for iOS and other operating systems as an "either-or" decision.
"Facebook and all of our developers will choose both," Mr. Taylor said. "You want to reach as many people in as many places as possible."
Facebook could in the future also play more of a role in helping users discover apps on mobile phones, he said, but declined to specify how it would do so.
HTML5, developed with contributions from many tech companies and organizations, has a growing number of supporters in Silicon Valley. Apple, for example, is backing the technology as an alternative to Adobe Systems Inc.'s Flash technology as a way to add interactivity to Web applications.
Such technologies can address major pain points for mobile-app developers—for one thing, making it possible to create one version of a program that works on multiple devices, rather than devoting scarce resources to making multiple versions of apps. Facebook could use its own popularity and data about the habits of users' friends to help mobile-app developers gain greater visibility, say some developers
Facebook has been courting smaller developers for its HTML5 project, promising those who use it greater promotion of their apps, one developer said.
App companies, in theory, could also more quickly update Web-based apps. One of the limitations of the Apple App Store system is that developers must submit app changes to Apple, which then has to approve the changes before the apps are updated. However, developers that write Web apps using HTML5 could instantly push out changes, one developer said.
An Apple spokesman declined comment.
But app developers say Facebook's effort faces challenges. For one thing, HTML5 applications such as games can look dated compared with apps written for specific mobile devices. Those apps also are better at exploiting a mobile device's camera, location, graphics circuitry and other hardware features than Web-based apps.
Outfit7, which developed a popular app called Talking Tom Cat, said it has been in communication with Facebook in recent months. But it has decided not to support HTML5 for now because the company doesn't see how it could help the user experience.
"Native-like experience doesn't mean the experience is the same," said Andrej Nabergoj, Outfit7's chief executive. He said HTML5 doesn't have the voice and video support necessary for its apps, and that HTML5 presents more performance challenges the more complex an app becomes. "We have to care about what is in the best interest for the user," Mr. Nabergoj said.
Facebook, for the moment, is a long way from being as dominant in mobile as it is on the Web. Currently, its software for mobile phones doesn't allow users to directly access the apps that many users use on Facebook's ordinary website.
The apps are a growing source of revenue for the company, which makes money from displaying ads and taking a 30% cut of virtual goods sales, whose transactions take place in Facebook's own currency called Credits.
Facebook already offers a software-development kit so that iOS apps can incorporate many aspects of Facebook's technology, such as signing into games and services with users' Facebook accounts, Mr. Taylor said.
http://professional.wsj.com/article/SB10001424052702304319804576390243972729286.html
Tuesday, June 21, 2011
iPad App Marketing Case Study: Flickpad
Getting your app noticed in the iTunes App Store is a monumental task. With 330,000+ iPhone apps and 60,000+ iPad apps at last count, having a solid marketing plan is a necessity if you want to even have a chance at success. When I launched Flickpad on the day that the iPad was released, I had been so busy coding, that I had given zero thought to any type of marketing plan. Thankfully I quickly recognized the huge oversight. After 8+ months, Flickpad has come a long way and I have tried a plethora of marketing approaches; some successful, some not even close. My hope is that you can learn from this experience, and that it helps you effectively market your iOS app.
The second part of course is Release Early. It is great to constantly be refining and adding features where they make sense, but it tends to work against you in the App Store. This is especially true if you didn’t follow the Release Early guidance above. Prior to getting five ratings on any app update, the App Store displays ratings from all your versions up to that point. You also start over with reviews on each new update. Small things can make a big difference. When a customer sees an app with zero reviews and a rating that doesn’t accurately reflect your latest update, it sure doesn’t help your case. You should therefore try to plan larger releases and only push an incremental release if there is a critical bug that needs to be patched.
This is a little bit of a tangent, but still related. If you are developing an app that relies on any type of 3rd party service (in my case Facebook and Flickr), make sure you include some type of mechanism in your app that can notify your users of problems/outages with these 3rd party services. Otherwise your users won’t differentiate between a problem in your code or one originating with the 3rd party. Remember that you will be getting the 1 Stars, not Facebook. If you explain any outages promptly, most of your users will understand. Facebook in particular caused me huge headaches when they were going through their permission model changes, OAuth authentication, and Graph API transitions. I think server changes broke the Facebook authentication in Flickpad 3 or 4 times. Hello 1 Star… Yes Sir, May I have another?
Unless you can get some type of exclusive with one of the bigger sites, get as many as possible to cover you. If you can organize the reviews so they all come up simultaneously or at least close together, that should give you the biggest benefit.
Oh, and remember all those Facebook server changes that resulted in outages of Facebook access for Flickpad …. yep, they happened right in the middle of us being featured. 1 Star, oh how I love you, let me count the ways. We only just recently surpassed the number of 1 Stars with 5 Stars. Our ratings are crazy, large spikes on each end of the rating scale and a small number in the middle.
I believe the impact of the Daring Fireball sponsorship, while large, was much less than it could have been due to my own mistakes in app pricing. Prior to version 2.0, Flickpad was priced at $4.99 and had seen pretty stable sales numbers. Remember we were still coming off the high of the Apple recommendation as well. $4.99 for a Facebook photo app. Ok, add Flickr and you get two photo apps in one, making it a fast, one stop shop for keeping up on all the latest photos your friends and family are posting. Price: $9.99, seemed logical. What you will come to find is the $4.99 price point or the “What? You want me to pay more for an app than my morning latte. No way!” price seems to be the current inflection point where customers start seeing the app as ‘expensive’ (at least for iOS apps). Had I known then, what I know now, I would have lowered the price to 99¢ for the entire week of Daring Fireball, and blown out a ton of volume. Don’t worry about losing money on short term price changes. There are millions of potential customers, and millions more new ones each week. Instead, focus on getting your app in front of as many people as possible.
I recently had the thought of a new pricing strategy for our next app release. The idea is to decide on your target price for your app, say $3.99. At launch, clearly outline that the app will increase in price periodically until it reaches it’s final price of $3.99. Sell it at 99¢ for a week, then $1.99 for a week, then $2.99 for a week, and then settle at $3.99. The idea is to reward those early adopters, while also quickly seeding the app to generate some word of mouth advertising. I’m curious to know if anyone out there reading this has explored a strategy like this. It is the opposite of what most do, Apple included, where early adopters pay top dollar, but it sure makes a lot more sense to me.
I hope you enjoyed this post and learned something from it that will help you in marketing your own app. If you haven’t tried Flickpad, and you like Flickr or Facebook, please give it a shot at it’s new, limited time, special price of 99¢
. Any help you can provide me in burying those dreaded 1 Stars from early on in Flickpad’s life, would be greatly appreciated.
http://mobileorchard.com/ipad-app-marketing-case-study-flickpad/
Release Early, Release Often? Not on the App Store
As I mentioned above, we released Flickpad on the day the iPad launched. We made the decision to launch early because we wanted to participate in the initial launch of the iPad. The benefit of this decision was minimal, but the long term effects continue to hurt. That first release was not nearly as robust as it should have been, and as a result we got a healthy number of 1 Stars on it. Those 1 Stars, rarely, if EVER, go away. Once a user deletes an app, it is highly unlikely they will ever come back to it. So Release Early, I don’t recommend it.The second part of course is Release Early. It is great to constantly be refining and adding features where they make sense, but it tends to work against you in the App Store. This is especially true if you didn’t follow the Release Early guidance above. Prior to getting five ratings on any app update, the App Store displays ratings from all your versions up to that point. You also start over with reviews on each new update. Small things can make a big difference. When a customer sees an app with zero reviews and a rating that doesn’t accurately reflect your latest update, it sure doesn’t help your case. You should therefore try to plan larger releases and only push an incremental release if there is a critical bug that needs to be patched.
This is a little bit of a tangent, but still related. If you are developing an app that relies on any type of 3rd party service (in my case Facebook and Flickr), make sure you include some type of mechanism in your app that can notify your users of problems/outages with these 3rd party services. Otherwise your users won’t differentiate between a problem in your code or one originating with the 3rd party. Remember that you will be getting the 1 Stars, not Facebook. If you explain any outages promptly, most of your users will understand. Facebook in particular caused me huge headaches when they were going through their permission model changes, OAuth authentication, and Graph API transitions. I think server changes broke the Facebook authentication in Flickpad 3 or 4 times. Hello 1 Star… Yes Sir, May I have another?
Falling on Deaf Ears
The first avenue I explored in app marketing was in trying to get some review site coverage. I tried all the major ones that I could think of – TUAW, MacStories, Macgasm, TiPb, 148Apps, iPhone.AppStorm, AppShopper, theAppleBits, etc. with varying levels of success. Understandably, the smaller the review site, the quicker they get back to you and generally more willing they are to cover your app. However, some of the bigger names are really cool as well. The guys over at MacStories have been amazing since day one and I can’t recommend them enough. Developer friendliness aside, they are probably my current favorite app/news/review site. On the other end of the spectrum, some won’t respond to an email unless you sign over your first born child …. you know who you are, lol. Remember not to take it personally and stay persistent. Your best approach is to network like crazy. You will be amazed how interconnected everyone is, and it carries a lot more weight when an app is recommend by a friend instead of by the app developer.Unless you can get some type of exclusive with one of the bigger sites, get as many as possible to cover you. If you can organize the reviews so they all come up simultaneously or at least close together, that should give you the biggest benefit.
And the Money Started Raining Down from Cupertino
Ah, the Apple recommendation, it is a thing of beauty. More than any other type of press, getting featured by Apple on the App Store opens so many doors (not to mention makes your sales numbers explode). We were fortunate enough to have Flickpad featured by Apple in the ‘New and Noteworthy’ section for almost a full month last summer. Unfortunately, your marketing plan can not just be ‘Get Featured by Apple’. There is not much guidance I can provide here, other than to polish your app as much as possible and market it in all the other ways possible to hopefully get someone’s attention at Apple.Yeah, big spike #1
Curse you, 1 stars!
Professional Screencast – Worth the Money?
It really depends on what your app does as to whether it warrants the cost of a professional screencast. For example, I don’t necessarily think a calculator app warrants a screencast, even though some of those have made hundreds of thousands of dollars. In that case, the app design speaks for itself and people are familiar with the concepts presented by the app. We had great success with having a professional screencast made by the guys over at HiLo Media. In our case, a big part of the allure of Flickpad is the fluid and dynamic manner with which you can interact with photos. The screencast was a great, concise way to expose the user to this. A screencast also boosts your chances of getting picked up for reviews by the app review sites. After reading through a ton of ‘Review my App’ emails, I’m sure reviewers love being able to watch a great screencast to make their decision.Review Site Advertising
Money talks. If you can’t get review sites to pick up your app, and you really feel it has a great shot at hitting, explore advertising on some of the them. You will get exposure to the same users, albeit with a little less but more sustained impact. I have advertised on two different review sites and overall have been really happy with the level of exposure for the cost. Regardless of how long you advertise with a site, it also starts a relationship with the site. Foster that relationship and you may just have an ally next time you are planning an app release.Speaking of Money, Daring Fireball
For the release of Flickpad 2.0 (added support for Flickr), we planned a multi-prong advertising/marketing push. One of those prongs was a week long sponsorship of Daring Fireball. Pretty much how it works is, for a good chunk of money, you get a mention and John’s opinion of your app/product on Daring Fireball at the beginning and end of the week. The level of exposure was great and I definitely think it was worthwhile if it falls within your advertising budget. If it takes up more than 50% of your advertising budget, I would recommend closely looking at whether it is the best option for you.Yeah, big spike #2
Tweet, Tweet
Another prong of the Flickpad 2.0 release was a twitter contest. The idea was simple – give away one Flickr Pro account daily for five days and one iPad as the grand prize. I have mixed feelings on the effectiveness of this effort. It did attract a lot of attention, but I think maybe the iPad was too valuable, and it shifted the target Twitter audience too far away from “iPad owners interested in photo apps” to “Twitter users who just like to participate in giveaway contests”. Regardless, some of the participants, contest types included, have been some of our strongest supporters, and continue to recommend Flickpad to their friends and family on Twitter. It did provide a large Twitter following to help get the word out about new Flickpad updates, so it still continues to pay small dividends today.Too Lite or Not
After Flickpad 2.0, I released a feature-limited free version of Flickpad. The idea was to allow those who only wanted to follow a small number of people to use the app for free. Well that backfired, as people didn’t see enough photos from the limited number of friends, and ended up deleting the app and rating it poorly. I have since tested out an ad supported version of Flickpad and it has seen quite a bit of downloads. The only reason I mention this is that, if you are considering a free version of your app, carefully consider what functionality it will support and make sure it is enough to provide for an enjoyable experience. I find that people who rate free apps tend to be the harshest of all, as there is zero cost to participate. They start off not being sure if they liked the app, but since it was free, they try it. Once it is confirmed they don’t like it, you rarely get anything other than a 1 Star. The only other comment on free versions is that I think they only make sense when your paid version is priced $2.99 or up.Price Changes
No app marketing post would be complete without at least a short section on app pricing. What can I say – I don’t have any answers here. I think it is a little bit of a black art. Flickpad has been priced all the way from $9.99 to 99¢. There are a couple things I can say for sure though. One, keeping your iOS app at $4.99 or under will make life a lot easier. And two, use short term price changes and specials to your advantage. There is rarely if ever any negative feedback from users on running specials, and you get nice bumps from when the price drops are picked up by all the app watchers.I recently had the thought of a new pricing strategy for our next app release. The idea is to decide on your target price for your app, say $3.99. At launch, clearly outline that the app will increase in price periodically until it reaches it’s final price of $3.99. Sell it at 99¢ for a week, then $1.99 for a week, then $2.99 for a week, and then settle at $3.99. The idea is to reward those early adopters, while also quickly seeding the app to generate some word of mouth advertising. I’m curious to know if anyone out there reading this has explored a strategy like this. It is the opposite of what most do, Apple included, where early adopters pay top dollar, but it sure makes a lot more sense to me.
Post Mortem
Looking back, I learned a lot from the different advertising and marketing strategies I tried. Hopefully you have as well. Overall, I am pretty happy with all of the decisions I made. One thing that I would have done differently, however, is to spend a little less on advertising over the long haul and instead put that towards a larger design budget up front. Easier said now though, when I have the resources for a design budget, as opposed to early on when that money didn’t exist.What Next?
Flickpad is at a crossroads and we are trying to decide how and if to move forward with it. I have recently hired a great designer by the name of Dustin Schau to create a new app icon for Flickpad, as well as explore some new Flickpad 3.0 UI ideas. I’m not sure whether it makes the most sense to put the effort into a 3.0 update or to instead focus solely on our next app. Also, in the short term I have lowered the price point to 99¢, as well as pulled the free, ad supported version from the App Store. I will probably just let it ride for a little while and see if we can increase download numbers.I hope you enjoyed this post and learned something from it that will help you in marketing your own app. If you haven’t tried Flickpad, and you like Flickr or Facebook, please give it a shot at it’s new, limited time, special price of 99¢
. Any help you can provide me in burying those dreaded 1 Stars from early on in Flickpad’s life, would be greatly appreciated.http://mobileorchard.com/ipad-app-marketing-case-study-flickpad/
Wednesday, June 15, 2011
After Years Without Change, Cracks Appear in I.P.O. Process
The last few decades have wrought a revolution in finance. One thing, though, remains stubbornly the same. It is the control that investment banks wield over initial public offerings.
The way companies go public looks almost identical to the Ford Motor Company’s I.P.O. more than 55 years ago. A company hires lead underwriters, which serve as the company’s spiritual and logistical advisers, helping the company prepare the necessary regulatory documents and marketing the offering to potential investors. The lead underwriters, and sub-underwriters hired by them, then build a book of investors who buy the shares. Through this process, an I.P.O. price is set and the company’s shares are sold into the public market.
The goal of the underwriting process is to provide a steady channel for companies to go public, and a vetting procedure to determine whether a company is ready to do so.
But today, the I.P.O. market is heated, and there is the specter of a bubble in social media Internet stocks as well as a postbubble hangover in Chinese issuers. During this period, the flaws in the current system become more apparent. Some of these flaws are significant and hurt investors.
The first crack to appear is in the gate-keeping function. Underwriters are set up by the regulatory system to be gatekeepers. Underwriters pass on some companies and certify others that their I.P.O. is worthy for the public. Theoretically underwriters should be doubly incentivized beyond the regulatory requirements to bring good companies to market. Otherwise customers will refuse to buy shares in future I.P.O.’s underwritten by that bank.
The wave of Chinese and social media I.P.O.’s shows that this gate-keeping function can become weak. Companies are being brought to market with uncertain prospects or because they are in a hot space. If a company is characterized as such, its main quality too often seems to be whether it can be sold instead of whether it should be sold. This is a rerun of the technology bubble.
In this type of market, not only is the gate-keeping function diminished, but the banks appear to be captive of the issuers. Take LinkedIn, which had questionable corporate governance in the form of a dual-class stock and a staggered board. But LinkedIn also deliberately stoked its first-day price rise by offering only a small number of its shares at a low price. The lead underwriters for its I.P.O. were Morgan Stanley, Bank of America Merrill Lynch and JPMorgan Chase.
There is a debate over whether this jump in share price was the fault of the underwriters or LinkedIn, but the bottom line is that the underwriters did not appear to do anything to damp the enthusiasm. This raises another problem with the gatekeeper function. Banks appear not only as weak gatekeepers in a hot market, they also dilute any negative impact on their reputation by spreading the wealth.
The Groupon I.P.O. has four lead underwriters, including Morgan Stanley. Groupon just announced the addition of six more banks to help it with its I.P.O.. The world of major underwriters is small, and they share the wealth by ensuring that those not chosen as lead underwriters are included in the sub-underwriting group. In other words, the potential impact on any one investment bank’s reputation is limited since they are all involved.
The second crack in the I.P.O. process is in the sales process. The current system does not benefit retail shareholders. Instead, investment banks sell I.P.O. shares to bigger institutional investors and rich individuals who have a relationship with the investment bank. And the profit from these sales can be large. I.P.O. gains average 10 to 15 percent in normal years, and a hot-market I.P.O., like LinkedIn’s, can have first-day gains greater than 100 percent. These are gains that retail shareholders not only miss but actually subsidize, since they must purchase in the more expensive aftermarket.
These two cracks highlight problems with I.P.O.’s, but perhaps the biggest problem is with the ones we do not see. Under the current system, underwriters have abandoned the small-issuer market. In 1996, according to Dealogic, 309 initial public offerings raised less than $25 million each. This number declined to 13 in 2010. Small companies, those with a market capitalization of $20 million to $250 million, are essentially locked out of the I.P.O. market. And this isn’t a Sarbanes-Oxley phenomenon, as the number of small I.P.O.’s declined to nine in 2001, before the act was passed.
The current underwriting system works, but only if you are a larger issuer or in a hot market. It also fails to serve as a check on an overly bubbly market. Instead, underwriters race to the bottom as they serve the demands of companies. How can any banker pass up being underwriter to an I.P.O. like LinkedIn’s, no matter the terms or quality?
Around the time of the Google I.P.O. in 2004, there was talk of trying to create alternative systems. Google abandoned the underwriting model and adopted an auction style that was more similar to how European I.P.O.’s were conducted before the American investment banks arrived there. The Google I.P.O. worked, but just barely. During the I.P.O. boom, Hambrecht & Quist and some other smaller investment banks also tried to start an auction-style I.P.O. system. None of these alternatives has gained traction.
There are advantages to the auction model. It brings retail investors back into the process because they can freely bid on issues. It also solves a related dilemma, which is that like commissions for real estate brokers, I.P.O. commissions are stubbornly uniform. They have stayed steady at 6 to 7 percent for years despite occasional attempts by issuers to lower them. Still, issuers don’t seem to care about this commission, and are instead willing to pay them to ensure good service at a propitious time in the company’s life.
Another alternative way for a company to get a stock market listing is through a reverse merger.
There are on average over 200 of these a year, according to the Reverse Merger Report. The Securities and Exchange Commission, however, issued a report last week highlighting the special risks inherent in these types of transactions. One reason was the lack of an underwriting vetting process.
So while retail investors would benefit from other models, they could also be hurt more in the long run by investing in unprepared companies that come to the market outside the traditional I.P.O. process.
Despite the criticisms, there does appear to be value in the underwriter model and its certification process. People simply trust these I.P.O.’s more. And with reason: companies that go public through the underwriting process appear to be of better quality.
The real issue thus appears to be how to get banks to serve as better gatekeepers and monitors. There is also a desperate need to encourage more small I.P.O.’s.
In other words, in this I.P.O. boom there is one big issue: how do you get underwriters to actually perform their underwriting function?
http://dealbook.nytimes.com/2011/06/14/after-years-without-change-cracks-appear-in-i-p-o-process/
The way companies go public looks almost identical to the Ford Motor Company’s I.P.O. more than 55 years ago. A company hires lead underwriters, which serve as the company’s spiritual and logistical advisers, helping the company prepare the necessary regulatory documents and marketing the offering to potential investors. The lead underwriters, and sub-underwriters hired by them, then build a book of investors who buy the shares. Through this process, an I.P.O. price is set and the company’s shares are sold into the public market.
The goal of the underwriting process is to provide a steady channel for companies to go public, and a vetting procedure to determine whether a company is ready to do so.
But today, the I.P.O. market is heated, and there is the specter of a bubble in social media Internet stocks as well as a postbubble hangover in Chinese issuers. During this period, the flaws in the current system become more apparent. Some of these flaws are significant and hurt investors.
The first crack to appear is in the gate-keeping function. Underwriters are set up by the regulatory system to be gatekeepers. Underwriters pass on some companies and certify others that their I.P.O. is worthy for the public. Theoretically underwriters should be doubly incentivized beyond the regulatory requirements to bring good companies to market. Otherwise customers will refuse to buy shares in future I.P.O.’s underwritten by that bank.
The wave of Chinese and social media I.P.O.’s shows that this gate-keeping function can become weak. Companies are being brought to market with uncertain prospects or because they are in a hot space. If a company is characterized as such, its main quality too often seems to be whether it can be sold instead of whether it should be sold. This is a rerun of the technology bubble.
In this type of market, not only is the gate-keeping function diminished, but the banks appear to be captive of the issuers. Take LinkedIn, which had questionable corporate governance in the form of a dual-class stock and a staggered board. But LinkedIn also deliberately stoked its first-day price rise by offering only a small number of its shares at a low price. The lead underwriters for its I.P.O. were Morgan Stanley, Bank of America Merrill Lynch and JPMorgan Chase.
There is a debate over whether this jump in share price was the fault of the underwriters or LinkedIn, but the bottom line is that the underwriters did not appear to do anything to damp the enthusiasm. This raises another problem with the gatekeeper function. Banks appear not only as weak gatekeepers in a hot market, they also dilute any negative impact on their reputation by spreading the wealth.
The Groupon I.P.O. has four lead underwriters, including Morgan Stanley. Groupon just announced the addition of six more banks to help it with its I.P.O.. The world of major underwriters is small, and they share the wealth by ensuring that those not chosen as lead underwriters are included in the sub-underwriting group. In other words, the potential impact on any one investment bank’s reputation is limited since they are all involved.
The second crack in the I.P.O. process is in the sales process. The current system does not benefit retail shareholders. Instead, investment banks sell I.P.O. shares to bigger institutional investors and rich individuals who have a relationship with the investment bank. And the profit from these sales can be large. I.P.O. gains average 10 to 15 percent in normal years, and a hot-market I.P.O., like LinkedIn’s, can have first-day gains greater than 100 percent. These are gains that retail shareholders not only miss but actually subsidize, since they must purchase in the more expensive aftermarket.
These two cracks highlight problems with I.P.O.’s, but perhaps the biggest problem is with the ones we do not see. Under the current system, underwriters have abandoned the small-issuer market. In 1996, according to Dealogic, 309 initial public offerings raised less than $25 million each. This number declined to 13 in 2010. Small companies, those with a market capitalization of $20 million to $250 million, are essentially locked out of the I.P.O. market. And this isn’t a Sarbanes-Oxley phenomenon, as the number of small I.P.O.’s declined to nine in 2001, before the act was passed.
The current underwriting system works, but only if you are a larger issuer or in a hot market. It also fails to serve as a check on an overly bubbly market. Instead, underwriters race to the bottom as they serve the demands of companies. How can any banker pass up being underwriter to an I.P.O. like LinkedIn’s, no matter the terms or quality?
Around the time of the Google I.P.O. in 2004, there was talk of trying to create alternative systems. Google abandoned the underwriting model and adopted an auction style that was more similar to how European I.P.O.’s were conducted before the American investment banks arrived there. The Google I.P.O. worked, but just barely. During the I.P.O. boom, Hambrecht & Quist and some other smaller investment banks also tried to start an auction-style I.P.O. system. None of these alternatives has gained traction.
There are advantages to the auction model. It brings retail investors back into the process because they can freely bid on issues. It also solves a related dilemma, which is that like commissions for real estate brokers, I.P.O. commissions are stubbornly uniform. They have stayed steady at 6 to 7 percent for years despite occasional attempts by issuers to lower them. Still, issuers don’t seem to care about this commission, and are instead willing to pay them to ensure good service at a propitious time in the company’s life.
Another alternative way for a company to get a stock market listing is through a reverse merger.
There are on average over 200 of these a year, according to the Reverse Merger Report. The Securities and Exchange Commission, however, issued a report last week highlighting the special risks inherent in these types of transactions. One reason was the lack of an underwriting vetting process.
So while retail investors would benefit from other models, they could also be hurt more in the long run by investing in unprepared companies that come to the market outside the traditional I.P.O. process.
Despite the criticisms, there does appear to be value in the underwriter model and its certification process. People simply trust these I.P.O.’s more. And with reason: companies that go public through the underwriting process appear to be of better quality.
The real issue thus appears to be how to get banks to serve as better gatekeepers and monitors. There is also a desperate need to encourage more small I.P.O.’s.
In other words, in this I.P.O. boom there is one big issue: how do you get underwriters to actually perform their underwriting function?
http://dealbook.nytimes.com/2011/06/14/after-years-without-change-cracks-appear-in-i-p-o-process/
The Three Ps of Online Indulgence
But you can manage the personal and professional risks of online indulgence by remembering the 3 Ps: Principled, Private and Planned. Here's what they entail:
Principled: If you're using the Internet to shield yourself from judgement by friends, family, colleagues or community, make sure you're not also violating your own moral code. Identify the ethical principles or standards you're going to adhere to in your private activities, whether it's the ten commandments, the Golden Rule, or a simple "don't hurt anybody." Be clear about the secret parts of yourself that you want to encourage, and find room for them to grow online, while avoiding sites or people who legitimate behaviors you know are unhealthy or wrong. You can take a principled approach to even the murkiest parts of your online life if you:
Write down your core principles for online behavior (or bookmark someone else's) so you can check in periodically and make sure you're not violating your ethical own bottom line.
Seek out online communities and activities that support parts of you that stay hidden offline but need a voice: gay teens, cancer fighters, aspiring poets and rape survivors are just some of the groups who have found a new source of understanding online.
Talk with your partner about what's okay for you to keep private online, and make sure you are both taking the same precautions to keep your private activities shielded from one another or the world.
Cut off communications if an online pal insists on asking for (or giving you) permission to indulge in behaviors that are unhealthy, hurtful or against your conscience.
Private: If parts of your online life conflict with your offline life and responsibilities, create a private online identity without links to any identifiable information (i.e. don't connect it to your Facebook account, main email address, social security number or credit card). This reduces your risk of exposure, and prevents you from inappropriately exploiting your professional status or privileges. Keeping your private online life private is not a small job, however: it takes real effort, knowledge and skill to achieve a reasonably secure level of anonymity (or pseudonymity) online. Some practices you may want to consider:
Choose a web browser that offers enhanced privacy options, and use it along with a proxy server.
In fact, get used to using an anonymous proxy server to keep the web sites you're visiting from tracking your IP address, and automatically delete your search history, cookies, logins etc. whenever you log out and/or at the end of every day, or erase your tracks manually.
Read up on the basics of Internet privacy by visiting the web sites of Electronic Privacy Information Center and the Electronic Frontier Foundation, and follow their blogs for the latest news on technology or policy changes that could affect your online privacy.
Planned: Don't let a secret life creep up on you. Make sure you're making clear and conscious decisions about why and how you're keeping it on the down low. Remember that there's no such thing at 100% private. Anticipate the possibility of exposure. If you couldn't handle the legal, professional and emotional consequences of revelation, don't do it at all.
Notice the accounts and activities you are taking pains to hide (like the browser window you suddenly close when someone else walks into the room), and make sure you are handling them ethically and responsibly.
Whenever you make mistakes in patrolling the boundaries of your private online life (like accidentally leaving your browser logged into your secret email account), ask yourself if it's a sign that you want to change those boundaries.
If you're a senior decision-maker, think carefully about any private activities that, if exposed, would affect the share price, reputation or capacity of your organization.
If what you are doing privately online would have significant consequences for the people you love, you need their consent.
The point of the 3 Ps is to help manage privacy, not enable sneakiness. There are many legitimate reasons why people keep parts of their life separate or private, whether it's to find support for a stigmatized problem (like mental illness), community for a marginalized identity (like being transgender) or conversation around an embarrassing interest or topic (like your passion for Rod Stewart). The ability to connect anonymously is one of the Internet's great opportunities, and following the 3 Ps is the best way to ensure you don't abuse it. Do not employ these practices for behavior that is hurtful, unethical or illegal, or to avoid the consequences of bad decisions.
Of course, there is a fourth P in this story. But after all the references it's received in the Weinergate coverage, let's allow that P to simply remind us why the other 3 matter.
http://blogs.hbr.org/samuel/2011/06/in-the-juiciest-political-sex.html
Principled: If you're using the Internet to shield yourself from judgement by friends, family, colleagues or community, make sure you're not also violating your own moral code. Identify the ethical principles or standards you're going to adhere to in your private activities, whether it's the ten commandments, the Golden Rule, or a simple "don't hurt anybody." Be clear about the secret parts of yourself that you want to encourage, and find room for them to grow online, while avoiding sites or people who legitimate behaviors you know are unhealthy or wrong. You can take a principled approach to even the murkiest parts of your online life if you:
Write down your core principles for online behavior (or bookmark someone else's) so you can check in periodically and make sure you're not violating your ethical own bottom line.
Seek out online communities and activities that support parts of you that stay hidden offline but need a voice: gay teens, cancer fighters, aspiring poets and rape survivors are just some of the groups who have found a new source of understanding online.
Talk with your partner about what's okay for you to keep private online, and make sure you are both taking the same precautions to keep your private activities shielded from one another or the world.
Cut off communications if an online pal insists on asking for (or giving you) permission to indulge in behaviors that are unhealthy, hurtful or against your conscience.
Private: If parts of your online life conflict with your offline life and responsibilities, create a private online identity without links to any identifiable information (i.e. don't connect it to your Facebook account, main email address, social security number or credit card). This reduces your risk of exposure, and prevents you from inappropriately exploiting your professional status or privileges. Keeping your private online life private is not a small job, however: it takes real effort, knowledge and skill to achieve a reasonably secure level of anonymity (or pseudonymity) online. Some practices you may want to consider:
Choose a web browser that offers enhanced privacy options, and use it along with a proxy server.
In fact, get used to using an anonymous proxy server to keep the web sites you're visiting from tracking your IP address, and automatically delete your search history, cookies, logins etc. whenever you log out and/or at the end of every day, or erase your tracks manually.
Read up on the basics of Internet privacy by visiting the web sites of Electronic Privacy Information Center and the Electronic Frontier Foundation, and follow their blogs for the latest news on technology or policy changes that could affect your online privacy.
Planned: Don't let a secret life creep up on you. Make sure you're making clear and conscious decisions about why and how you're keeping it on the down low. Remember that there's no such thing at 100% private. Anticipate the possibility of exposure. If you couldn't handle the legal, professional and emotional consequences of revelation, don't do it at all.
Notice the accounts and activities you are taking pains to hide (like the browser window you suddenly close when someone else walks into the room), and make sure you are handling them ethically and responsibly.
Whenever you make mistakes in patrolling the boundaries of your private online life (like accidentally leaving your browser logged into your secret email account), ask yourself if it's a sign that you want to change those boundaries.
If you're a senior decision-maker, think carefully about any private activities that, if exposed, would affect the share price, reputation or capacity of your organization.
If what you are doing privately online would have significant consequences for the people you love, you need their consent.
The point of the 3 Ps is to help manage privacy, not enable sneakiness. There are many legitimate reasons why people keep parts of their life separate or private, whether it's to find support for a stigmatized problem (like mental illness), community for a marginalized identity (like being transgender) or conversation around an embarrassing interest or topic (like your passion for Rod Stewart). The ability to connect anonymously is one of the Internet's great opportunities, and following the 3 Ps is the best way to ensure you don't abuse it. Do not employ these practices for behavior that is hurtful, unethical or illegal, or to avoid the consequences of bad decisions.
Of course, there is a fourth P in this story. But after all the references it's received in the Weinergate coverage, let's allow that P to simply remind us why the other 3 matter.
http://blogs.hbr.org/samuel/2011/06/in-the-juiciest-political-sex.html
Monday, June 13, 2011
The end of cheap goods?
Some are predicting the end of the cheap “China price”; others are more sanguine
“IT IS the end of cheap goods,” says Bruce Rockowitz. He is the chief executive of Li & Fung, a company that sources more clothes and common household products from Asia than perhaps any other. In the low-tech areas in which Li & Fung specialises, the firm handles an estimated 4% of China’s exports to America and a sizeable chunk of its exports to Europe, too. It has operations in several East Asian countries, where it diligently searches for cheap, reliable suppliers of everything from handbags to bar stools. So when Mr Rockowitz says the era of low-cost Asian production is drawing to a close, people listen.
He argues that Asian manufacturing has gone through a number of phases, each lasting about 30 years. When China was isolated under Mao Zedong, companies in Hong Kong, Taiwan and South Korea grew expert at making things. When China reopened in the late 1970s, after Mao’s death, these experienced Asian operators converged on southern China. With almost free access to land and labour, plus an efficient port and logistics hub in nearby Hong Kong, they started to make things ever more cheaply and sell them to the whole world.
For the next 30 years manufacturers in China helped to keep global inflation in check. But that era is now over, says Mr Rockowitz. Chinese wages are rising fast. A wave of new demand, especially from China itself, is feeding a surge in commodity prices. Manufacturers can find some relief by moving production to new areas, such as western China, Vietnam, Bangladesh, Malaysia, India and Indonesia. But none of these new places will curb inflation the way southern China once did, he predicts. All rely on the same increasingly expensive pool of commodities. Many have rising wages or poor logistics. None can provide the scale and efficiency that was created when manufacturers converged on southern China.
Nothing can replace the Chinese miracle. “There is no next,” says Mr Rockowitz. Prices will now start to rise by 5% or more each year, with no end in sight. And that may be optimistic. So far this year, Mr Rockowitz says, Li & Fung’s sourcing operation has seen price increases of 15% on average. Other sourcers of Asian toys, clothes and basic household products tell similarly ominous tales.
Yet manufacturers in some other fields see things differently. On May 31st, the day Mr Rockowitz spoke in Hong Kong, the annual Computex fair opened an hour’s flight away in Taipei. Hotels were packed, even at inflated prices. The world’s hottest technology companies, such as Apple and even Taiwan’s HTC, were absent. But nearly 2,000 vendors showed up to hawk cheap and innovative gizmos.
Mainland Chinese firms arrived in force: more than 500 hired booths, up from 200 last year. Many are from the same parts of China that were once noted for cheap textiles and toys. With government encouragement, the belt that stretches from Shenzhen to Guangzhou has been shifting to more sophisticated products, such as electronics.
Some of the more striking offerings at the fair were ultra-cheap versions of global hits. A company named BananaU advertised tablet computers with Google’s Android operating system for $100. Another pushed Windows-based thin computers looking much like MacBooks for under $250. E-Readers were everywhere and available for a song.
Whether these products can be produced or sold in developed markets is unclear. The quality may be “B” for Banana rather than “A” for Apple. The intellectual property embedded in some devices may not, ahem, have been paid for. But still, the booths were packed. Buyers goggled and haggled over motherboards, memory chips, solid-state drives, servers, graphics cards, non-tangling cables, connectors, monitors and so on.
In 2009 the prices of these electronic goods jumped suddenly, as buyers emerged from the financial crisis and started ordering more equipment from manufacturers which had slashed capacity. But data collected in Taiwan suggest that prices are now falling sharply again (see chart). If the vendors at Computex had a common slogan, it would be “more for less”.
Among the products that generated the most heat were those that saved energy. These included alternating- and direct-current converters, and sensors that could moderate the power consumption of streetlamps, fridges and air conditioners. Such devices were initially marketed for their “green potential”, but what buyers liked was their ability to enhance productivity. Japanese firms, which have had to make do with less power since the earthquake, were particularly eager.
Chinese firms were curious about any product that lowered costs or made it easier to automate. When labour was cheap, Chinese firms used it inefficiently. Now they are learning how to get more from fewer hands. Li & Fung may be sounding the closing bell on one era of production, but the Taipei computer fair suggests that another is emerging.
http://www.economist.com/node/18805862?story_id=18805862
“IT IS the end of cheap goods,” says Bruce Rockowitz. He is the chief executive of Li & Fung, a company that sources more clothes and common household products from Asia than perhaps any other. In the low-tech areas in which Li & Fung specialises, the firm handles an estimated 4% of China’s exports to America and a sizeable chunk of its exports to Europe, too. It has operations in several East Asian countries, where it diligently searches for cheap, reliable suppliers of everything from handbags to bar stools. So when Mr Rockowitz says the era of low-cost Asian production is drawing to a close, people listen.
He argues that Asian manufacturing has gone through a number of phases, each lasting about 30 years. When China was isolated under Mao Zedong, companies in Hong Kong, Taiwan and South Korea grew expert at making things. When China reopened in the late 1970s, after Mao’s death, these experienced Asian operators converged on southern China. With almost free access to land and labour, plus an efficient port and logistics hub in nearby Hong Kong, they started to make things ever more cheaply and sell them to the whole world.
For the next 30 years manufacturers in China helped to keep global inflation in check. But that era is now over, says Mr Rockowitz. Chinese wages are rising fast. A wave of new demand, especially from China itself, is feeding a surge in commodity prices. Manufacturers can find some relief by moving production to new areas, such as western China, Vietnam, Bangladesh, Malaysia, India and Indonesia. But none of these new places will curb inflation the way southern China once did, he predicts. All rely on the same increasingly expensive pool of commodities. Many have rising wages or poor logistics. None can provide the scale and efficiency that was created when manufacturers converged on southern China.
Nothing can replace the Chinese miracle. “There is no next,” says Mr Rockowitz. Prices will now start to rise by 5% or more each year, with no end in sight. And that may be optimistic. So far this year, Mr Rockowitz says, Li & Fung’s sourcing operation has seen price increases of 15% on average. Other sourcers of Asian toys, clothes and basic household products tell similarly ominous tales.
Yet manufacturers in some other fields see things differently. On May 31st, the day Mr Rockowitz spoke in Hong Kong, the annual Computex fair opened an hour’s flight away in Taipei. Hotels were packed, even at inflated prices. The world’s hottest technology companies, such as Apple and even Taiwan’s HTC, were absent. But nearly 2,000 vendors showed up to hawk cheap and innovative gizmos.
Mainland Chinese firms arrived in force: more than 500 hired booths, up from 200 last year. Many are from the same parts of China that were once noted for cheap textiles and toys. With government encouragement, the belt that stretches from Shenzhen to Guangzhou has been shifting to more sophisticated products, such as electronics.
Some of the more striking offerings at the fair were ultra-cheap versions of global hits. A company named BananaU advertised tablet computers with Google’s Android operating system for $100. Another pushed Windows-based thin computers looking much like MacBooks for under $250. E-Readers were everywhere and available for a song.
Whether these products can be produced or sold in developed markets is unclear. The quality may be “B” for Banana rather than “A” for Apple. The intellectual property embedded in some devices may not, ahem, have been paid for. But still, the booths were packed. Buyers goggled and haggled over motherboards, memory chips, solid-state drives, servers, graphics cards, non-tangling cables, connectors, monitors and so on.
In 2009 the prices of these electronic goods jumped suddenly, as buyers emerged from the financial crisis and started ordering more equipment from manufacturers which had slashed capacity. But data collected in Taiwan suggest that prices are now falling sharply again (see chart). If the vendors at Computex had a common slogan, it would be “more for less”.
Among the products that generated the most heat were those that saved energy. These included alternating- and direct-current converters, and sensors that could moderate the power consumption of streetlamps, fridges and air conditioners. Such devices were initially marketed for their “green potential”, but what buyers liked was their ability to enhance productivity. Japanese firms, which have had to make do with less power since the earthquake, were particularly eager.
Chinese firms were curious about any product that lowered costs or made it easier to automate. When labour was cheap, Chinese firms used it inefficiently. Now they are learning how to get more from fewer hands. Li & Fung may be sounding the closing bell on one era of production, but the Taipei computer fair suggests that another is emerging.
http://www.economist.com/node/18805862?story_id=18805862
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