Ready, Fire, Aim! - Mihail's Public Blog

A look at the Gallup Organization's newest publication on the "emotional economy" titled 'Follow This Path' in this San Francisco Chronicle story:

[Co-author Curt] Coffman said in an interview that although "Follow This Path" focuses on relationships with customers, it explains how much money businesses lose when they fail to get employees emotionally connected to their jobs.

"We now have a vast emotional economy within our organizations that we need to manage," Coffman said. "Employees don't leave an organization because of rational reasons. Employees don't commit to an organization because of rational reasons."

The book is not a bunch of knee-jerk theories. It is based on Gallup's studies of more than 10 million customers, 3 million employees and 200,000 managers.

....Coffman said in the interview that bosses underestimate how crucial emotional connections are. Talented workers in particular may need office friendships and encouragement more than others because they put so much of themselves into the job.

"The very thing that connects them sometimes provides challenges for managers," Coffman said. "Talented people a lot of times look more like Dennis Rodman than like Michael Jordan."

Just 133 Bay Area startups received venture funding in the third quarter, the smallest number since late 1995, nearly seven years ago, according to a new report from VentureOne and Ernst & Young.

The amount of capital invested locally also hit a multiyear low -- $1.47 billion, down from $1.74 billion in the second quarter and $2.17 billion in the comparable period last year. It was the puniest showing in more than four years.

...John Gabbert, vice president of worldwide research at VentureOne, said the crash of the technology bubble is hitting the Bay Area harder than elsewhere because Silicon Valley was the center of venture activity in the late 1990s.

Many VCs remain focused on helping existing portfolio companies rather than making new investments, he said.

"There was optimism that there would be a leveling off through this year and some growth in the latter half," but that is not materializing, Gabbert said.

For example, Dell has been competing with Sun in the low end of the server market for years and is trying to move up to higher-end servers.

Last year, it began selling Dell branded switches to small and medium-size businesses, directly challenging Cisco systems....

"When you're providing products that people want and need, and doing so at a price better than anyone else, you can call us what you want," Dell spokesman Mike Maher said.

..."I wouldn't say a grocery store," said [Bear Stearns analyst] Neff, who owns Dell stock and whose firm does banking business with HP. "I would say Wal-Mart. It is focused on scale, service and brand."

...Dell has kept its overall costs down, and spends only about $500 million in research and development, compared with HP's $4 billion.

Maher argues that there is "no reason for us to spend more money to do things that our partners are already doing."

Dell's rivals counter that the company is nothing more than a reseller of other firms' technologies.

"I have never known a computer company proud about not spending money on technology," said Shahin Khan, Sun's chief competitive officer.

Warren Buffet announcement that he is resigning from the board of Gilette has caused outsiders to speculate whether is something wrong at either Gilette or at Berkshire Hathaway that needs his attention but both parties claim otherwise, according to this New York Times story (registration required):

"Ten years ago he had about 15 C.E.O.'s directly reporting to him," Mr. Miles said. "Today, there are about 50. They still don't have any regularly scheduled meetings with Warren and if they want to communicate with him, they have to initiate the call. There are just more people to deal with, more demands on his time."

In the last five years, Mr. Buffett has bought 21 companies, including Dairy Queen. This year his acquisitions include Fruit of the Loom, which had filed for bankruptcy protection; Garan Inc., the maker of Garanimals children's clothing; and the Northern Natural Gas Company, a pipeline company.

...At Berkshire's headquarters in Omaha, Deborah Bosanek, Mr. Berkshire's assistant, said that while he was not available for an interview, he did want to add one comment. And, as is often the case, he did so with tongue firmly in cheek. "With all these acquisitions," Ms. Bosanek quoted Mr. Buffett as saying, "finally, I've got a full-time job."

According to this earlier Chicago Tribune story about the growing debt and concerns that it is a debt "bubble":

But as Federal Reserve Chairman Alan Greenspan and others point to revived business investment as a key to a sustained recovery, those growing corporate debt levels are receiving increased scrutiny: More money devoted to servicing debt means that much less for investment, and more debt overall means more skittish lenders.

"I've been saying there was a debt bubble for about two years," said Jane D'Arista, director of programs at the Fed-watching Financial Markets Center think tank outside Washington. She said the Fed has made the situation worse by fixating on inflation as debt swelled to unprecedented heights.

...There's no disputing that, in sheer dollar terms, debt has ballooned. Household debt, including mortgages, has more than doubled since 1991, reaching nearly $7.9 trillion at the end of the first quarter, according to the most recent Fed data. Corporate debt has mushroomed almost as fast, topping $4.8 trillion. Add the debt from other businesses and nearly $10 trillion in debt from the financial sector, and the total exceeds $24 trillion.

That, of course, is more than twice the annual gross domestic product of roughly $10.3 trillion, and dwarfs the ever-popular federal debt, which checked in at a paltry $3.4 trillion at the end of the first quarter.

From a Contra Costa Times story:

With Davis on track to spend more than $70 million on his re-election campaign, and Simon set to clear $30 million, California's 2002 race for governor will go down in history as one of the most expensive elections in U.S. history, Jeffe said.

"That is astonishing," Jeffe said. "We're over $100 million. That is a record for California and it may be the all-time (national) record."

Mixed opinion on whether the dropping consumer confidence will affect consumer spending this holiday season, according to this Reuters story in the San Jose Mercury News story:

The University of Michigan's final October consumer sentiment index fell to 80.6 from 86.1 in September, market sources said Friday. That was lower than forecasts for a reading of 81.1 and up only a sliver from the preliminary reading for October of 80.4 released two weeks ago.

Consumer spending, which drives about two-thirds of the U.S. economy, so far has remained healthy, in part due to the lowest interest rates and mortgage rates in more than a generation seen during the month.

But consumer sentiment has fallen for five straight months, raising concerns spending may cool right before the crucial retail holiday season.

Can investors expect the stock market to turn around next year? Yes, if you look at this historic data on the connection between the third year of a president in office and the accompanying rise in the stock market, according to this Wall Street Journal story (subscription required):

Stock-market growth is statistically much stronger during the third year of a president's term than any other year, and bear markets tend to bottom in the second year of the presidential term -- both of which suggest Wall Street can expect a nice turnaround in 2003. The market hasn't had a down year in the third year of a presidential cycle since 1939.

While some write off third-year gains as a mere coincidence with the business cycle, others say stocks perk up as investors bet that new stimulative policies will get passed to help smooth the incumbent president's way in the next election....

"People vote with their pocketbook, so [politicians] try to make voters' pocketbooks feel flush," says Tobias Levkovich, equities strategist at Salomon Smith Barney. "The market anticipates the beneficial impact."

...That trend is even more pronounced in the post-war era. Since 1953, the Dow industrials showed an average gain of 18.3% in the third year of a presidential cycle, compared with 3% in the first year, 6.5% in the second year and 7.6% in the fourth year, according to Mr. Hirsch, who says the Great Depression skewed earlier numbers.

Microsoft, which was fined $50 for one violation of the city's laws, has apologized for its advertising campaign gone wild around the city according to this AP story in the Wall Street Journal (subscription required). The story also includes the details and date of the IBM incident I'd mentioned yesterday where San Francisco fined the company for its "corporate graffiti":

Microsoft vice president Yusuf Mehdi said the company was sorry.

"We made a mistake with the decals, and we take full responsibility for what happened," Mr. Mehdi said in a statement issued by Microsoft's public relations firm, Waggener Edstrom. "We're working with city officials to clean up the decals immediately."

City officials in New York, Chicago and San Francisco have fought back against similar illegal "guerrilla" ad campaigns by International Business Machines Corp., Snapple and Nike Inc.

In April, IBM paid San Francisco $120,000 in fines and cleanup costs for an ad campaign in which sidewalks were spray-painted with ads. Chicago also fined the computer maker for similar corporate graffiti.

Microsoft's online ad campaign for its new MSN 8 has gotten an unexpected boost from the arrests in the Washington DC-area sniper drama. Microsoft claims that he Flash-based ads that take over the web page briefly will reach 90% of Web users.

According to this Wall Street Journal story (subscription required) some of the sites where Microsoft is advertising since Thursday include the Washington Post Co.'s WashingtonPost.com and the New York Times Co.'s NYTimes.com, both of which saw large increases in visitors.

The number of visitors to WashingtonPost.com was up roughly 30% over normal for the past week, according to Don Marshall, a spokesman for the company. On Thursday, the day that the sniper suspects were arrested and the MSN campaign launched, the site had 10.6 million page views. Usually, WashingtonPost.com gets about six million to seven million page views per day, he said.

NYTimes.com also had an influx of readers interested in news about the sniper, said Jason Krebs, vice president for advertising. On Wednesday, the site had about 17 million page views, the second most-trafficked day in its history, after Sept. 11, 2001.

The New York Times deal with MSN guaranteed a certain number of visitors for a flat fee, with no additional charge for extra visitors, Mr. Krebs said. Advertisers win when traffic results are over that minimum -- although sites can use those results to their advantage, too. "It increases the overall value of what you're delivering, so that when the next sales cycle comes along, you have the numbers to show them," Mr. Krebs said.

Venture-capital investments reached their lowest level in four years during the 3rd quarter in the latest VentureOne and Ernst & Young survey according to this Wall Street Journal story (subscription required):

$3.9 billion was invested in 464 financial rounds of investing during the quarter. It was the weakest level of investment since $3.7 billion in the third quarter of 1998.

Despite that, the median amount of capital invested in each deal rose to $6.7 million from $6 million in the second quarter of this year. The average for the third quarter in 2001 was also $6 million.

One bright spot was the software industry. Software companies had a 35% share of acquisitions and venture capital, and investment in software grew 28%, or $1.2 billion, for the third quarter.

Microsoft is the latest corporation to run afoul of local laws with its guerrilla marketing, as IBM did in San Francisco (was it last year?) with its pavement markings related to its Linux products, according to this Wall Street Journal story (subscription required):

"We intend to hold your firm directly responsible for this illegal, irresponsible and dangerous defacing of public property," Cesar Fernandez, the Transportation Department's assistant counsel, said in a letter sent to Microsoft on Thursday.

The decals began appearing Thursday on sidewalks, doorways, traffic signals and stop lights as part of an advertising campaign for the company's MSN 8 Internet service. They could still be see all around town on Friday.

...A spokeswoman for Microsoft said the company had received a permit to place the blue, green, orange and yellow butterflies on city property. She did not, however, identify what agency issued the permits for the decals, which was handled for Microsoft by the McCann-Erickson advertising firm.

As if things weren't bad enough for venture investors, one limited partner has revealed all about the funds it has invested in thus exposing previously-confidential VC performance, according to this Dow Jones story in the Wall Street Journal (subscription required):

The investment arm for Texas's $13.3 billion university endowment jolted the traditionally closed-door venture-capital industry this month with the abrupt disclosure of individual financial returns for nearly 150 private equity funds in which it has invested.

The disclosure -- which prompted intense public scrutiny of what in many cases proved to be horrible-looking returns for newly-created funds -- embarrassed and angered venture capitalists nationwide and also left many afraid of what could come next.

...Utimco's investments in VC funds raised within the last three years are down substantially, in some cases by more than 50%, the disclosure showed. Austin Ventures is a case in point, with Utimco reporting a 73% internal rate of return on its investment in a 1995 Austin Ventures fund, but a negative 54% rate on its investment in a 2001 fund. Crescendo Ventures is another, with Utimco's internal rate of return pegged at 25% for a 1997 Crescendo fund but negative 45% for a 2000 fund.

A Wall Street Journal story (subscription required) that details the changing face of the tobacco industry and cigarette sales:

Rising prices caused more smokers to quit. The number of cigarettes smoked in the U.S. has been declining by 1% to 2% a year for decades. The sharp price increase immediately after the state settlements caused consumption to fall by about 7% in 1999.

The price increases also encouraged more-frugal smokers to switch brands. Some began moving from Basic and other discount cigarettes made by the big companies to even less expensive varieties made by a new group of upstarts.

...By late spring, the most profitable premium brands, which for the most part had held steady since the state settlements, began to stumble. In last year's third quarter, about 73.4% of cigarettes sold in the U.S. were premium brands such as Marlboro and Camel. That dropped to about 71.7% in the third quarter of this year. One percent of the U.S. cigarette market is equivalent to about 200 million packs a year.

More on Amazon's favorable revenue numbers at the close of its last quarter in this Wall Street Journal story (subscription required):

Yet Amazon said it would continue the $25 offer, which it previously described as a test, at least through the holidays. Free shipping is costly for Amazon, which still must pay freight companies to deliver orders: The company said it had a loss of $10 million on shipping in the third quarter, compared with a $2 million loss a year earlier. The severity of the loss was lessened because free shipping gives Amazon new opportunities for cost savings, since customers agree to wait longer to receive their orders, the company said.

Amazon also has a lucrative "marketplace" business through which it allows third parties to sell new and used goods on its Web pages. The commissions it collects from such sales are small relative to the revenue from new products Amazon sells from its warehouses, but the commissions are mostly profit, helping to offset losses elsewhere in its retail business. Amazon said 23% of the units it sold in the North America, including everything from books to electronics, were third party transactions, up from 16% a year ago.

The challenge for Amazon, with a history of steep losses, remains turning discount driven sales into long term profit. But analysts believe the company can reap profits by generating high sales volume, even if its profit margin is slim on most orders. "They're playing the volume game," said Jeetil Patel, an analyst at Deutsche Bank Alex. Brown. "The free shipping initiative worked in their favor."

A New York Times story on how, for $99 to $1,600, print-on-demand (POD) companies offer up to 10 copies of a professionally laid-out book with stock or customized covers and an International Standard Book Number ( ISBN), which is used to identify and list the book by bookstores and libraries. Additional copies are typically 60% of the retail price.

With up to 100,000 new titles published each year, most books fail to achieve significant sales or produce income for their writers, no matter who the publisher is

...The boom in on-demand publishing began, like so many other Internet-related businesses, in the mid-1990s, when the rapidly growing World Wide Web seemed as though it might subsume standard retailing. Traditional publishers wanted a piece of the action. Random House and others invested $15 million in Xlibris, while Barnes & Noble bought a 49 percent stake in a competitor, iUniverse. (Barnes & Noble's stake has since been reduced to 20 percent.) ``We're serving notice that the rules in publishing have changed,'' Richard Tam, the founder of iUniverse, was quoted as saying in 1999.

In fact, the rules did not change. Several major print-on-demand companies are now out of business, while others among the several dozen that remain have scaled back their expectations. ``Our business model is not obvious yet,'' Feldcamp said. ``We don't know if publishing on demand will become an effective outlet for alternative publishing, or just a new variety of a vanity press.''

...Random House has picked up just three to five titles for traditional publishing since it became associated with Xlibris, Feldcamp said. Of iUniverse's 10,000 titles, six are now are available on Barnes & Noble shelves. ``Those titles are meant to showcase iUniverse, not to provide their authors the hope that their work will be distributed in Barnes & Noble bookstores,'' said Steve Riggio, the company's chief executive officer.

Unless authors make extraordinary promotional efforts on their own, most print-on-demand titles typically sell just a few hundred copies. ``A big seller for us is anywhere between 1,000 to 5,000 copies,'' said Kim Hawley, president of iUniverse....

``The POD books that succeed are not the best books,'' Feldcamp said of Xlibris. ``They're the ones that have been pushed most successfully by their authors.''

Stanford University held a kickoff event for its Center for E-Commerce, an academic program under the auspices of Stanford's Law, Science and Technology program, which is also home to the Center for Internet and Society led by Professor Larry Lessig.

According to this San Jose Mercury News story the attendees were not very optimistic about the immediate future in the Valley:

If conference goers were looking for a silver lining from valley leaders, they got little to chew on.

``There is another shoe to drop,'' said Craig W. Johnson, chairman and co-founder of the Venture Law Group, who predicted more valley corporate failures as new capital remains very tight.

...Asked to suggest an area of law new graduates might pursue, Mark Radcliffe, a partner with Gray, Cary Ware & Freidenrich, recommended the bankruptcy field.

The only bright spot was the recent success story of PayPal whose $1.5 billion sale to eBay closed recently:

In a humorous lunchtime recounting of how he built PayPal, founder Peter Thiel, a Stanford law school graduate, described how the company spent hundreds of millions of dollars giving $10 bonuses to new customers.

As incredulous as it now sounds, Thiel said PayPal decided, ``We should just give the money away as the cheapest way to launch the service.''

What is it with this obsession with winning rather than playing the game well?

While I understand that baseball is a business and winning the World Series means much, much more for the winning team's bottom line, don't these guys get the fact that in the long term business will be affected for all teams including the winner. This New York Times story shows the lack of concern:

With the Angels short of players who are top attractions and Bonds the only household name on the Giants roster, the fact the 38-year-old is rarely being allowed to swing at pitches could be tarnishing the appeal of the World Series.

``Our job is to win ball games,'' Angels manger Mike Scioscia told reporters. ``That takes precedence over anything you say that anybody wants to see."...``If it's upsetting some people in the media or fans, I apologize, but our responsibility is for the Angels to win.''

This year's four-game television average is an 11.0 per cent share, below last year's 14.4 and the 12.2 of the Subway Series between the New York Yankees and the New York Mets in 2000, the previous lowest-rated World Series in history.

Finland may be a precursor of what is yet to come in the United States vis a vis cellphone use. According to a New York Times story (registration required):

A newspaper here recently printed a cartoon of a baby with a cellphone, notifying his parents that his diaper needed changing.

Helsinki, home to the cellphone giant Nokia, is one of the most cell-happy cities in the world. An estimated 92 percent of its households have at least one, if not several, cellphones....

"A relatively normal age to get a mobile phone is now 7, when children start to have activities without their parents, like soccer practice and ballet lessons," said Jan Virkki, marketing manager for Makitorppa, Finland's largest cellphone retailer. "Many parents want to have the security of being able to contact their kids."

Even with offers of 0% financing, US carmakers have not been able to stop the defection of owners to Asian cars, according to this New York Times story (registration required):

The domestic carmakers are failing to attract committed import buyers or to keep their own customers from defecting. Only 12 percent of customers who have purchased Detroit's vehicles this year were replacing a Japanese or European vehicle, according to data from AutoPacific Inc., an industry forecasting firm in Tustin, Calif. By contrast, 43 percent of people purchasing Japanese vehicles, and 32 percent of those buying European models, were replacing an American vehicle.

...In all, Detroit carmakers are spending an average of $3,764 a vehicle, or 14 percent of the selling price, on all manner of incentives, according to CNW Marketing Research, a firm in Bandon, Ore. That is twice as rich as the average deal on Japanese and Korean brands. And plenty of imports, including Lexuses and most BMW's, are selling well without any incentives at all.

[In contrast] Toyota, which has offered zero percent financing in some parts of the country, averaged $2,209 a car in incentives last month, while Honda spent $1,577. Yet over the course of the year, Toyota has built its market share three-tenths of a percentage point, to 10.4 percent of United States sales. Honda also has added three-tenths of a percentage point, giving it 7.3 percent of the market.