Open Innovation’s Champs and Also-Rans
November 30th, 2009 | Posted by innovOpen innovation is a hot topic at almost every company that is serious about innovation. Why? Because the idea of combining internal and external resources to increase innovation productivity and prowess is just too good a value proposition to miss out on.
Nevertheless, I believe that only about 10% of all companies are adept enough at open innovation to get significant benefits. Another 30% have seen the light and are scrambling to make open innovation work and provide results that are worth the bother. I call them contenders. The other 60% are pretenders—companies that don’t really know what open innovation is and why or how it could be relevant for them. Some might figure out how to follow the leaders one day, but today they’re mostly going through the motions.
When it comes to open innovation, Procter & Gamble (PG) is the undisputed champ. Its efforts began in 2000 with what a Web site called Connect & Develop. It’s a two-way street, accessing externally developed intellectual property in its own markets while sharing its internally developed assets and knowhow with others.
Connect & Develop is about much more than just technology transfer. It encompasses everything from trademarks to packaging, marketing models to engineering, and business services to design. This approach has already resulted in more than 1,000 active agreements with external partners.
Here’s an example of open innovation at work. P&G had an idea to print words or images on Pringle chips. It then went outside the company for technology to make this happen. P&G found a small bakery in Bologna, Italy, run by a professor who had invented an ink-jet technique to print pictures on pastries. Within a year, these customized Pringles were on the market, a launch that was much faster than usual and that cost a fraction of doing it in-house.
What makes P&G a champ in my view is that management no longer views open innovation as something new, unique, and different. It is just the way the company innovates. Not many others have reached this level of confidence.
Intuit (INTU) and General Mills (GIS) seem to be champs in the making. The reason I like Intuit is its Entrepreneur Day, held for the first time in October for 40 selected startups. Although I have not yet heard of specific outcomes on this initiative, it’s a great display of setting clear goals, establishing a filter process, and showing strong commitment to creating new partnerships. All are important aspects for open innovation.
At a first glance, the portal for General Mills Worldwide Innovation Network (G-WIN) might be mistaken for the other open innovation portals that are popping up right now, where hosts seek new business-boosting ideas and technologies. But based on an interview with Jeff Bellairs, who directs G-WIN, I picked up on some sharp thinking behind the scenes.
General Mills is making the linkage between outside and inside resources as smooth as possible. One of its tools for this is an “external speed team,” a cross-functional group that meets biweekly to discuss projects, share insights, and make sure the external partners are talking with the right people. In addition, General Mills recently launched an innovation entrepreneur program.
These individuals have a number of responsibilities, including ensuring that outside ideas make their way into the company’s innovation pipeline.
These efforts by General Mills are highly relevant because they position the company to become a preferred partner, which means getting the first peek at new technologies and ideas and, in turn, a competitive edge.
Then there’s Campbell Soup (CPB). The company jumped on open innovation through its Ideas for Innovation portal earlier this year. Unfortunately, this is more like a gimmick than a serious attempt to engage customers and business partners. While I’m singling Campbell out, the truth is that many other companies are just as clueless. Here are my specific problems with Campbell:
• Its intentions are too vague and unfocused. Campbell declares that it wants “ideas for new products, packaging, marketing, and production technologies that will help us meet the needs of our consumers and customers better, faster, and more completely.” Gee, that could be almost anything, couldn’t it?
• The company should be turning us on, not away. Campbell says it will take three to six months to respond to a suggestion, and if it turns down your idea, you won’t receive any explanation. Why not try to make it more inviting?
• The whole thing reads like an ego trip. The Campbell Web site talks only about why open innovation is good for Campbell. If the company wants help, it should at least mention how collaboration can benefit its would-be partners.
In an e-mail, a Campbell spokesman told me that the company considered the site to be only an initial step. He added that management was pleased by receiving nearly 5,000 submissions, but acknowledged that the effort was not perfect and Campbell is working on future enhancements of the site.
To become a champ and not a pretender, here are issues that you need to deal with early in the process.
First of all, you need to ask the why question. Many people believe open innovation is the Holy Grail and race out without asking why it’s relevant. Open innovation works only if it aligns with the overall corporate strategy. Many companies mess up here. They simply do not have an innovation strategy.
The next step is defining what open innovation is. Innovation, and even more so open innovation, can be defined in many different ways. Companies need to know what they’re after, as Procter & Gamble and General Mills have done.
Before moving on to implementation, you must remember your people. A paradigm shift like this requires that employees change their mindset and obtain new skills. The key things here are the ability to view innovation in more holistic terms and to become better networkers.
Open innovation is by no means easy. But as I said at the start, the value proposition is just too good to miss out on.
Gold Volatility to Rise as Phase II of Global Credit Crisis Unfolds
November 30th, 2009 | Posted by goldGold
Gold touched $1,179/oz overnight but has since dropped slightly. Gold is currently trading at $1,171/oz and in euro and sterling terms, gold is trading at €778/oz and £709/oz respectively.
There are concerns that we may be on the verge of the second stage of the global financial crisis. Not to mention concerns that the continuing unprecedented fiscal and monetary policies will lead to inflation and the debasement of currencies. An already creaking financial system, attempting to clear up the toxic balance sheets of banks internationally, is now be faced with the risk posed by the increasingly toxic balance sheets of many sovereign governments.
Volatility is set to remain high and likely to increase in the next phase of the credit crisis in the gold market and in all markets. This means that a passive buy and hold strategy rather than speculative leveraged trading will be increasingly prudent. Gold could see further weakness in the short term as the nervous short term traders book profits. Robust investment demand (hedge funds, pension funds and central banks) mean that the correction will likely be reasonably shallow with very strong support above $1,000/oz. Indeed strong support is likely to be in the mid $1,000/oz which is the price region that the Indian central bank bought 200 metric tonnes (purchases occurred over two weeks prior to October 30th when gold was trading between $1,030 and $1,070/oz). Chinese central bank and investor demand alone has the potential to propel prices to far higher levels. China increased its gold reserves by 76 percent to 1,054 tonnes since 2003 but officials are on record as saying they wish to at least double their gold reserves from current levels.
$1,200 remains a viable price target by year end and calls of for gold to reach $1,500/oz and $2,000/oz in 2010 are increasingly plausible.
Silver
Silver was as high as $18.45/oz overnight. Silver is currently trading at $18.16/oz, €12.07/oz and £11.01/oz.
Platinum Group Metals
Platinum is trading at $1,454/oz and palladium is currently trading at $369/oz, while rhodium is at $2,800/oz.
Disclosure: No positions
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Is Silver Really a Better Investment than Gold?
November 30th, 2009 | Posted by gold
James Altucher has a good article in the NY Post on why silver is a better investment than gold. He argues that silver has better demand fundamentals due to a recovery in industrial demand and inventory restocking. Meanwhile, other than an alternative to fiat currency, gold has no demand fundamentals supporting its current run as jewelry sales have been weak.
Altucher writes:
Here’s what I like about silver as a long-term investment instead of gold: it’s got the one-two punch. Not only is it a precious metal like its big brother, but the bulk of demand for silver actually comes from its industrial uses: batteries, dentistry and as an electricity conductor.
Silver even has anti-bacterial qualities — which is why surgical equipment is often made with silver (and why 2000 years ago whenever a ship went on a long voyage they’d store water and food in silver vessels). It is the health features of silver that probably led to the various myths surrounding the metal (for instance, it takes a silver bullet to kill a vampire).
For each of the past 15 years, demand for silver has outpaced the amount of silver mined that year. To meet the demand, the rest of the supply comes from melting down jewelry or from governments selling on the open market. The US used to be the biggest seller of silver, and that’s how the world would meet its annual hunger for the precious metal. But guess what? The US government ran out in 2004. Oops!
Now they have to buy it if they want to put that tiny silver around the quarter. Eventually, high demand and low supply means one thing: higher prices.
He further argues that silver has a one-two punch, being both an industrial play and an inflation hedge (being a precious metal), while gold is but an inflation hedge that is overexposed through mainstream media:
Silver’s also an inflation hedge because it’s a precious metal and because of its industrial uses. It will go up in this economy as the dollar continues to weaken and the economy comes back in 2010. Inventories, cut to all-time lows by businesses in every sector that were anticipating the end of the world that never arrived, will need to be restocked
His final recommendation?
Historically, the ratio of gold prices divided by silver prices is about 40, but at the moment it’s at 60, meaning either gold must come down or silver must go up to get back to its historical levels.
So hold onto your silverware and sell your gold if you need to raise some cash. Or do what the ancients did and give a silver necklace to your child to ward off evil spirits — that’s the twin evil spirits of inflation and poverty.
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Innovation: Why Failing is O.K.
November 24th, 2009 | Posted by innovColumbus insisted the world was round and then promptly missed America on his first attempt. The Wright Brothers claimed flying was possible and nearly killed themselves trying to make it happen. Steve Jobs launched NEXT computers—a hardware failure that most don’t remember because they now think of him as the guru behind such ground-breaking devices as the iPod and iPhone. And, of course, Albert Einstein, whose very name we use as a short-hand for describing someone as a genius, was a lousy student. (As were many successful CEOs and entrepreneurs.)
Our point: Failure isn’t fatal, in fact, failure is actually required for innovation success.
That is an idea you need to accept, if you are going to do your best work. It is an idea that you definitely have to get across to your team—and indeed your entire company—in order to free it from the innovation-limiting shackles of perfection.
The phrase “Be patient. God isn’t finished with me yet” is a healthy mantra for most of us—and most of our innovation projects.
One reason that’s true is that in order to make a product or service everything it can be it needs to be repeatedly soft-launched with both internal stakeholders and external customers. This means literally sending the idea—be it a product or a service—into a limited part of the marketplace with the full understanding that it will be modified (perhaps extensively) based on how customers and consumers react.
For successful launches to happen, a team must be O.K. with the premise that they are starting with what some may consider a half-baked idea, one that very well may fail as constituted. You need to make this O.K. You need to tell your team that the real failure is fear of launching an idea until it is perfect.
To buttress your case, make the following points:
1. We’re only right when the market tells us so. Right now, we presume to be right, and our thinking is based on as-good-as-we-can-get research, history, and gut feel. The market will help us see and hear what we can do to be more right (and also help us eliminate all the things our customers—and potential customers—don’t like or don’t want.)
2. We can make any changes quickly. We can simulate years of research data in the span of months once we are out in the marketplace. It is the fastest way to learn.
3. It has never been cheaper to test ideas; The Internet allows for instant feedback; empty strip malls allow for in-and-out shopping experiences with risk-free short-term leases; technology has made prototyping doable in days instead of weeks.
4. It is going to be fun. We’re doing this to learn and improve, not to beat up an idea. (So there is no reason for anyone to get defensive.)
5. We will be making our “mistake” on a small scale, i.e. you are not launching the Iridium Phone or Segway only to find no one understands it or only 1,000 people want it. If we find out our idea is completely off-base, we’re about to save the company millions of dollars and perhaps our jobs.
One more point: Be careful of the language that you use when describing your testing process. We often find that words like “prototype” and “beta” come with too much baggage to overcome. When they hear those terms, many people think it means that certain elements of the product (or service) that you are about to test are locked in place. That’s not the message you want to send. Just about everything should be up for grabs. For our people “soft launch” sends the message we expect lots of things about the idea to change. But consider creating your own language that stresses the results you are trying to achieve, e.g., iteration phase 3 or “project optimize”.
If your team still resists the idea of iterative soft launches, just remind them that if this approach was good enough for Columbus, Steve Jobs, and the Wright brothers, it is probably good enough for them.
Reimagining the Science Park in North Carolina
November 23rd, 2009 | Posted by innovThe rolling woods along Interstate 40 in North Carolina between Raleigh and Durham have little in common with a bustling urban streetscape. And that is exactly according to the plan used 50 years ago when Research Triangle Park opened amid the area’s three big universities—Duke, North Carolina State, and the University of North Carolina at Chapel Hill. Today the research park’s 11 square miles remain an oasis of manicured corporate campuses, wide commuter roads, and landscaped parking lots. It’s “Ward Cleaver’s version of the perfect industrial park,” quips Brent Lane, director of the Center for Competitive Economies at UNC-Chapel Hill.
But in a few years, some of this acreage should feel more like a densely packed suburban center. As research parks sprout up inside big cities around the globe, the grandfather of today’s research and development complexes is under pressure to make itself livelier. So it’s adding facilities tailored to startups as well as shops and housing at the park’s edges. The goal, says Rick L. Weddle, CEO of the Research Triangle Foundation of North Carolina, which manages the park, is to make the place “consistently more attractive to the brightest minds in the world.”
The evolution won’t be simple. Because the park is designated as a self-taxing authority and subject to zoning restrictions in two counties, residential housing construction must be limited. Covenants with the park’s board and its roughly 170 corporate residents—owners such as IBM (IBM) and Cisco (CSCO) buy their land from the foundation—require consensus on land-use changes.
As a result, Weddle, who has been in the job for five years, has focused on development around the periphery and is planning a few dense “nodes and niches” within it. Those include a 25-acre retail and housing site near a forthcoming transit hub and potentially a 100-acre site that currently hosts office space, a couple of bank branches, and a vacant shopping center. “Let’s not kill the goose that laid the golden egg,” Weddle says, referring to the park’s model of historically catering to large companies.
Even with its new amenities, Research Triangle Park, as a whole, will never have the walkability of newer urban centers designed to encourage collaboration by funneling researchers and scientists in related industries into shared spaces in offices and outside. Encompassing 20 times as much land as the average 365-acre U.S. science park, the park is just too big.
That has forced Weddle to think beyond land development and consider other ways to make the complex feel vibrant and small. Startups may occupy a former government agency lab that has been converted for incubation space, complete with affordable and flexible lease terms. He has brokered an on-site evening MBA program there through North Carolina State and hopes to repurpose the lab facilities to attract daytime “co-workers,” or freelancers and mom-and-pop firms that don’t want their own space.
To urge park employees to network, he has started “Techie Tuesdays,” an on-site happy hour, and he’s developing a Web site to promote local speeches and “meet-ups” for interest groups. Even a mountain bike trail was built. That’s a big shift for the foundation, which has long focused foremost on the needs of its corporate residents. Now the spotlight is increasingly on employees. “Over time,” says Weddle, “this will tip to where it’s even more about the people.”
Dangerous Days for Video Games
November 19th, 2009 | Posted by innovFor months, video game fans from Topeka to Tokyo had been salivating for Call of Duty: Modern Warfare 2, the sixth installment of Activision Blizzard’s (ATVI) blockbuster shootfest. On Nov. 10, D-Day finally arrived. Thousands lined up outside Best Buy (BBY) and other retailers to grab the game when it went on sale at midnight. In Puerto Rico, the GameStop (GME) chain rented a stadium to handle the overflow.
Given the pent-up demand, Call of Duty likely will be one of the year’s biggest hits. So why are Wal-Mart (WMT) and Amazon (AMZN) dangling $20 discount coupons to lure buyers? Because the game business isn’t what it was. As of October, according to the research firm NPD Group, sales were off 12% in the U.S. At the same time, production and marketing costs are climbing as Activision and other game makers try to compete with a growing array of other entertainment options. “I do think the economy is [hurting game sales],” says NPD analyst Anita Frazier. “But what’s having an even greater impact is the availability of so many free games” on the iPhone and ad-supported Web sites.
Video game makers say their $11 billion industry will bounce back once recent price cuts spur sales of game consoles. But analysts have lowered 2009 sales projections, and there are troubling comparisons to Hollywood’s DVD slowdown. Video game companies are being forced to invest more to chase consumers. Viacom spent at least $10 million to license music for the Beatles version of its Rock Band game, whose recent launch underwhelmed. It needs a big Christmas for Viacom to break even or turn a profit on the franchise, says Chief Financial Officer Thomas E. Dooley.
Call of Duty, in which American soldiers chase terrorists through the mountains of Afghanistan, is an especially pricey bet. CEO Robert A. Kotick says Activision ultimately will spend some $200 million to launch the game (including what it pays hardware makers to put it on their consoles). Call of Duty cost as much as $40 million to develop, figures Wedbush Morgan Securities analyst Michael Pachter, about double what other games cost. That included the services of Oscar-winning composer Hans Zimmer. The team that made the game, which at one point numbered 400 people, used state-of-the-art computer graphics and relied heavily on focus groups.
Then there’s the marketing campaign, which is costing $25 million or so. Activision spent $750,000 for two spots on the NFL’s opening weekend and ran ads last spring during the NBA’s Eastern Championship. As Call of Duty rolls out, Activision is plastering ESPN.com and YouTube (GOOG) with ads. On Nov. 10, Activision staged a premiere in New York’s Union Square, where members of the New York Yankees played regular gamers. “They’ve really blown out the marketing on this,” says Tony D. Bartel, GameStop’s marketing chief, who says Activision let 5,000 of the retailer’s managers play the game at the chain’s annual conference in Las Vegas.
Activision will almost certainly get its money back, and more. Wedbush Morgan’s Pachter figures it will sell more than 12 million copies of the $59.99 game by Christmas, generating over $580 million. Activision also expects to sell premium boxed versions of the game (which come with real night goggles) and online “map packs” that offer new battlefields for the warriors.
Still, the tough environment is forcing even the strongest players to retrench. After reporting a sizable loss on Nov. 9, Electronic Arts, maker of Madden NFL, announced that it was scaling back the number of games on its roster and will focus more on online titles. And while Activision generates some of the best profit margins in the business, it, too, has started playing safe. The company has three releases scheduled before Christmas, including Call of Duty and a Tony Hawk skateboarding game (which is played with a real skateboard). But Activision is delaying its highly anticipated auto racing game, Blur, to give its team more time to fine-tune it.
The question hanging over the industry is whether the game business will rebound once the recession lifts. Activision’s Kotick insists it will when the next generation of game consoles arrives and draws new gamers. All the same, he says, Activision and its rivals will need to make “significant investments in creating compelling” titles. As in a video game, only the strongest may survive.
The Six Entrepreneurs You Meet in China, Part Two
November 18th, 2009 | Posted by innovEditor’s note: This is the second of a two-part Valley Girl series on entrepreneurs in China. The second three of six types of businessmen are featured below.
When I left my post as a reporter covering business software for BusinessWeek, I thought I’d never again have to write about the unsexy subject of supply chain management. Techies know the term well. It refers to the multistep process of bringing together a product’s components and then getting finished goods to their destination. But during a recent trip to China, I was immersed in supply chain management again and encountered startups that are driving innovation in this crucial area. Their founders make my list of the six kinds of entrepreneurs you meet in China.
Kings of Supply Chain Management. China’s massive factories aren’t just for Dell (DELL) computers and Apple (AAPL) iPods anymore. The country is climbing the value chain from electronics assembly to play an increasingly important role in product engineering, design, order fulfillment—even research and development.
While in Beijing I met with the folks at Pharmaron, which handles drug development for huge U.S. drugmakers. Down the road, Pharmaron hopes to handle drug discovery for those same big companies.
Which ones, you ask? Pharmaron won’t let me tell. Western electronics, gadget, and pharmaceutical companies have their brand reputations to protect. They still collect the lion’s share of the revenue generated by their products, and they don’t want to broadcast the names of the Chinese players that help make them.
The Non-Techie. Judging from the way a lot of Silicon Valley venture capitalists invest, you might think the high-growth opportunities in China are all in tech. But they’re the minority. Fortunes are being made in everything from locally produced tomato paste to coal mining.
Entrepreneurs are also taking on just about any consumer industry you can imagine. An example is Xu Xiong, who started Oriental Fashion Driving School. Chinese drivers have to attend driving school before getting licenses. Xu wasn’t happy with the process.
Students would pay thousands of dollars and still be expected to lavish teachers with gifts—even wash their cars—to get passing grades. Xu, a lowly hotel clerk, wondered why a school couldn’t revolve around the students. Roughly 10 years later, he’s training 60,000 students a year at a sprawling campus that boasts cafés, napping areas, convenience stores, its own bus line, and closed training roads. There’s even a petting zoo. The company has been profitable since the beginning, and Xu has been innovative at every turn—be it through kiosks to schedule classes or computer terminals that transmit written tests directly to the government so no one can bribe their way to a passing grade.
The Legend. Many in the West haven’t heard of some of China’s biggest and most impressive Web companies because they prize a low profile. One example is Giant Interactive (GA), a virtual game company that began in smaller Chinese cities but grew quickly, thanks to an army of 3,000 kids who go from one Internet café to another challenging each other to try Giant’s games. In 2007, Giant went public on the New York Stock Exchange and today sports a $1.7 billion valuation. Of course, I know this mostly from what I’ve heard and read in Securities & Exchange Commission filings. Can I get an interview with someone at the company? Nope. Can I even get a callback from the PR person? Nope. (By the way, Giant, I’m not giving up.)
However, there are exceptions to this unspoken rule to remain discreet, in part because successful entrepreneurs feel a responsibility to be a role model for the younger Chinese generation of would-be founders. Hands down the best-known is Jack Ma of Alibaba.com. A former English teacher turned CEO, Ma may be well-known in U.S. tech circles, but in China he’s taken on rock star status. His face is used to advertise products, and he was a co-host of a Chinese reality show à la The Apprentice called Win in China. Would-be entrepreneurs speak his name in hushed, reverent tones.
Kai-Fu Lee, the former president of Google China (GOOG), is another “legend,” though he’s technically not an entrepreneur, having made his name mainly by working for big U.S. companies in China. While I dined with Lee in Beijing, a person walked up to him and asked for an autograph. Still, I mention him because he’s another example of a Chinese legend hoping that public displays of success will have a knock-on cultural effect: giving hope to would-be entrepreneurs—and their worried parents—that they’re not necessarily throwing everything away when they quit a job to take a risk.
The Six Entrepreneurs You Meet in China
November 17th, 2009 | Posted by innovEditor’s note: This is the first of a two-part Valley Girl series on entrepreneurs in China. The first three of six types of businessmen are featured below.
Before my first trip to China earlier this year, a well-known Silicon Valley venture capitalist told me I should go to Japan or Singapore instead. “Chinese people aren’t entrepreneurial,” he said. “They don’t create things. They’re just good at ripping them off.”
I won’t embarrass him by using his name here, but I’m glad I didn’t take his advice. I’ve spent five weeks on two trips to China this year, meeting with entrepreneurs in Shanghai, Beijing, Shenzhen, and Hong Kong. These startup founders are as scrappy and willing to take risks as their peers anywhere, at times even surpassing the people who flocked to Silicon Valley in the late 1990s.
Conditions for new companies in China are hardly ideal. The modernity of the big cities is not yet widespread. Regulation is still a moving target. But there’s still enough progress and wealth created by new businesses to give entrepreneurs hope.
Given China’s size and geographic, demographic, and economic diversity, I can’t possibly give a one-size-fits-all description of the typical Chinese entrepreneur. But for those who believe the country doesn’t do entrepreneurship well, here’s a rundown of the six types of entrepreneurs you’ll meet in China (with apologies, of course, to Mitch Albom, author of the best-selling The Five People You Meet in Heaven).
The Opportunist. And that’s not necessarily a bad thing. Sure, there are plenty of poseur-opportunists who flock to China (from the U.S. primarily, but also from Europe) but know or care little about the place. They may not even have great ideas for a company; they just want in on the action. The good news is that poseurs get weeded out fast. Most Westerners who move to China leave within the first year, I’m told. Locals put the percentage as high as 90%.
But opportunists also take the form of talented, ambitious thrill-seekers who can thrive in China. Take Richard Robinson, the New England-born co-founder of Kooky Panda, a company that taps local developer talent to create social games for cell phones. Robinson is formerly vice-president for sales and marketing at Renren.com, a dot-com-era company that went public on the Hong Kong stock exchange in 2000, only to get acquired at a lower price by a local company in 2001. Robinson also founded a mobile gaming company called MiG that was acquired by Glu Mobile (GLUU) in 2007.
Robinson—who backpacked around the world for years and wound up in China via the Trans-Siberian Railway—is now a lifer. He’s got a Chinese wife and in-laws and two kids who he says are “made in China.” He even wears cufflinks bearing the Chinese flag. Successful as he’s been, Robinson entertains no illusions of creating the next great Web or mobile company that dominates the domestic market. “That’s not the game I’m going to win,” he says. Instead, Kooky Panda uses high-quality, low-cost game design talent in China to build content for much of the Western world.
The Expat Who Wins Big. Yes, “big” is a relative term, but when it comes to the Web, the expat name mentioned most often is that of Fritz Demopoulos. A Los Angeles native, Demopoulos moved to China in the late 1990s as an employee of News Corp. (NWS). He later left the company to start Shawei.com, a sports portal he sold to Tom.com in 2000 for about $20 million. He went on to co-found Qunar.com, an online travel company comparable to Kayak.com in the U.S.
Demopoulos has a down-to-earth demeanor and dresses like he’s in Silicon Valley, with glasses and floppy bangs that never quite stay off his face. But he’s also got a fighting streak. Five-year-old Qunar is locked in a legal tussle with Ctrip, the Chinese equivalent of Expedia.com (EXPE). Ctrip alleges that Qunar unlawfully gathers and posts information from its own pages.
Consultants advising Westerners who hope to do business in China warn of guanxi, the deep-seated relationships that can make it hard for outsiders to break in. But in a display of the same bravado that built Silicon Valley, Demopoulos waves off talk of guanxi, says he doesn’t speak Chinese well, and adopts a build-it-first, ask-questions-later outlook when it comes to getting a company off the ground.
The “Copycat.” The view in Silicon Valley is that some Chinese companies rip off their product ideas. Some even get a seemingly unfair leg up in cases where the government blocks U.S. sites in China. Twitter and Facebook aren’t available in China, a boon for Facebook clone Xioanei and a new Twitter-like service launched by China’s largest portal, Sina.com (SINA). (A lot of homegrown Twitter clones have been blocked, too.)
While they may crib product ideas, Chinese startups are blazing their own business model trail. Think of the contrast between eBay (EBAY) and Alibaba.com’s Taobao. In China, eBay’s stumbles are legendary, and Taobao has come in and owned the online consumer auction market. Nearly 50% of Chinese people online are Taobao customers, according to the company and Chinese Internet statistics. Taobao inked deals with several courier services so bidders without credit cards can pay for goods via cash-on-delivery. That’s helped Taobao penetrate second- and third-tier cities in a way few e-commerce sites have.
Scratch the surface and you see the same innovation with Web 2.0 “rip-offs” of Facebook, Twitter, and even Match.com. And, as many companies have learned during the downturn, business model matters as much as product.
A Rocky Recovery for Home Depot
November 17th, 2009 | Posted by stock11-17-2009 Wall Street is hoping for a strong economic recovery, but again and again investors are disappointed by signs that American consumers remain cautious and careful about opening their wallets. The latest evidence arrived Nov. 17, when Home Depot (HD) reported earnings.
Home Depot’s profits actually beat expectations, but what worried Wall Street was the picture executives painted of their customers’ moods. “There is still a great deal of pressure in the housing and home improvement markets, though there are some positive signs of stabilization,” Frank Blake, Home Depot’s chairman and chief executive said in a statement.
There are at least a few reasons for Home Depot to be upbeat. Many sales measures did improve from the second quarter to the third.
According to comments to analysts by Blake and other executives, Home Depot customers are happy to spend on simple home remodeling projects. Basic maintenance — plumbing repairs, for example — is still being done. Customers are also launching do-it-yourself projects, including boosting the energy efficiency of their homes. Finally, customers are updating the decor with new coats of paint or new carpet, or sprucing up their yards with better gardens.
What Americans aren’t doing, however, is launching major remodeling or expansion projects. Executives said lumber, hardware, electrical and mill work sales all underformed. The average customer’s sales ticket was down, a sign contractors are still spending a lot less at Home Depot, the world’s largest home improvement chain.
The caution from Home Depot on the consumer environment echoed comments from rival Lowe’s (LOW) when it reported earnings on Nov. 16. Lowe’s chairman and chief executive Robert Niblock said in a statement:
The broad-based pressures of the macro environment are clearly evident in our sales as consumers continue to delay large purchases until they feel better about the economic outlook.
Home Depot’s gloomy outlook sent share tumbling more than 3% lower by midday on Nov. 17. Lowe’s shares also slipped.
But focusing on one day’s stock performance might overstate the significance of current pessimism about the U.S. consumer. Home Depot shares are still up 7% in November, while Lowe’s shares have risen almost 10%. Third quarter results may discourage unrealistic investor expectations, but they don’t mean the U.S. consumer is hopeless in 2010 and beyond.
And, analysts praised Home Depot’s ability to cut costs. Morgan Stanley (MS) analyst Matthew McGinley wrote:
To the extent that it is sustainable, this [cost-cutting] reflects the potential to expand margins dramatically in a sales upturn. … [Home Depot] management deserves an award for cost control in 2009, but the stock may pause unless we see confirming evidence that 2010 [sales trends] will be positive.
“While the stock should give back some of its recent gains,” JPMorgan (JPM) analyst Christopher Horvers noted, sales and profit margins should improve. “We believe a longer view is appropriate.”
Robert W. Baird analyst Peter S. Benedict also saw the glass as half full. “Bottom line,” he wrote: “More signs of stabilization here, and we see improved trends going forward.”
The big question for Lowe’s and Home Depot is how long the U.S. consumer continues to put off major home improvement projects. Many Americans may be contemplating major addition to their houses or the construction of a new deck or garage. But they can’t be expected to make such major expenditures until their confidence — in their jobs and in their investments — truly returns.
Cash Just Kept On Piling Up, But It Looks Like The Spending Has Started
November 16th, 2009 | Posted by stockPosted by: Howard Silverblatt on November 16, 2009
Cash and equivalent, an item that is always near and dear to my heart, for the S&P old Industrials, which is the S&P 500 less Financials, Utilities, and Transportation issues, is running 9.8% ahead of the record setting second quarter value of $773 billion. Information Technology, lead by Oracle which increased $7.9 billion in the quarter, Microsoft which added another $3.6 billion, and Google which has $2.6 billion more, as a sector now has over 13% of it’s market value sitting in cash, which can’t be making much money, and the sector account for 35% of all the cash in the Industrials. Health Care, lead by Merck’s additional $5.2 billion, UnitedHealth’s $2.3 billion gain and Amgen’s $2 billion increase, now has over 17% of it’s market value in cash, and accounts for 28% of the cash. Nine of the ten sectors are up, with Energy being flat, which since Exxon has $3.1 billion less in cash this quarter, but trust me I wouldn’t be passing the plate around for them at this point, means that the rest of the Energy sector was up. Overall, 67% of the issues increased their cash position in the third quarter, mostly due to cost cutting, lower dividends and much lower buybacks, although both dividends and buybacks do appear to have hit the bottom, with dividends actually turning the corner. The cash build up has been occurring over the last year, as companies pulled back after the Lehman credit crunch to insure their own ability to finance their business, and ride their way through the recession.
But it appears that Q3 may be the height of that cash mountain, as companies start to spend some of that money. The expenditures won’t be on CapX, unless we get an accelerated depreciation bill from congress, or jobs, especially since we believe we will be testing the Dec,’82 10.8% unemployment high, nor is it on plant expansion. Shock and dismay, its M&A, and its back and alive in the market place, as well as the pockets of investment bankers. Both Pfizer and Merck have closed fourth quarter deals, with their cash component being over $61 billion. That alone should insure that cash levels decline. Hewlett-Packard announced it will buy 3Com for $3 billion, and United Technology is buying a unit from GE for $1.8 billion. As we progress in the recovery we believe M&A will increase, as companies try to buy market share, bottom fish those companies that remain in poor condition, and recapture a returning consumer, who is now significantly more attuned to the cost factor. Let me put it this way, companies now have more cash then they ever made in any one year period. And if you add that cash to the value of treasury shares, it’s 23% of market value, that’s a lot of assets sitting on the side, especially when the risk-reward trade off now appears to be bending more towards risk. So the question is can Monday Morning Merger Mania be fare behind?
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