So far, this recession is nowhere near as bad as 1948’s. That’s according to a nice new graphic from the Minneapolis Fed. It looks at every American recession since World War II, with a tool to let you compare unemployment and output data.
As much as people love Google, Amazon, Facebook and all the other glam companies of the Web, it’s obvious that most of these companies can’t deal with the real world. My issue with Google’s deindexing practices are just one example. Here’s another:
EBay logic does not compute details how someone set up a fake EBay account using a woman’s maiden name. The woman had never been on EBay even once, let alone opened an account on it. But when a collection agency contacted her about money she owed EBay, she was unable to reach anyone at EBay, because, you guessed it, she doesn’t have an EBay account.
Fortunately for her, she’s a newspaper columnist named Julia Spitz, and she wrote about her problem with EBay. One of her readers knew how to get EBay to call her, though it is unclear whether the debt was forgiven.
As Spitz says, “I’m sure the woman who talked to me will probably lose her job for breaking the company’s firm policy of not actually interacting with people.”
Sarcastic, yes, but also telling. Why is it that companies like Google and EBay seem to think they only need to operate in the digital part of the world?
I’ve spent the last year in a kind of “Being and Nothingness” state on the Web. Google de-indexed this site in about March, for reasons I can’t begin to fathom. Friends have tried to help me with my plight, suggesting I look for robot blockers in my site code. Nothing of the sort exists. I’m just not in the index. It’s become clear to me that one of the flaws of Google is how it delists a site. You don’t get a notice from Google warning you that your site is about to be de-indexed, no hints as to what you should change. Nor do you have much recourse once it happens. I have tried both the basic help tool and the Webmaster re-index tool, more than once, with no luck.
A friend tells me I must have written something Google didn’t like, so it got rid of me, offed me from the virtual world. “Google is evil,” she said with conviction. I doubt it. Google is callous, perhaps. I’d say it was terrible at customer service, except I’ve never purchased an ad. And while I almost never search at Google anymore, relying almost exclusively on its competitors, that can’t possibly hurt Google. Indeed, Randall Stross, writing in the New York Times this weekend, noted that Google was, if not already a monopoly, a near-monopoly. Perhaps someone will take it to court for being deindexed without warning. In fact, I’m surprised it hasn’t happened already, given Google’s power over online businesses.
Here’s an example of Google’s power, that happened when my family took a brief trip to New York late last year. We stayed with friends. Their 10-year-old was on Yahoo reading his email, and I asked him to check on a place we were thinking about visiting.
“Okay,” he said, and started to type www.google.com in the URL bar.
“Wait a minute,” I said. “You’re on Yahoo, why not just its search engine?”
He looked at me and said “Yahoo has search?”
I showed him its search bar and we found what we were looking for.
So there it is. Google is terribly inconsiderate to individuals. But when people think you’re the only game in town, apparently you can get away with that.
There are various comments about how investors as a whole often don’t make money on sectors. Bill Frezza, an entrepreneur and venture capitalist, says that wireless investors, for instance, put in more money than they got back.
“The winners made a fortune for other investors while laying the foundation of a huge and profitable industry. This industry employs hundreds of thousands of people, makes our lives better, and generates billions in taxes,” he notes. For him, that’s the way venture capital works — “in the VC industry we privatize losses and socialize gains.”
I’ve heard the same thing said for either electronics or semiconductors, though I can’t find it — something like, if you add up all the money spent since the beginning of the industry, it’s a negative number.
But now we know that it’s true for biotech. Drawing on data from publicly-traded companies, Peter Winter, editor at the biotech merchant bank Burrill & Co., put together a report that found biotech as an industry made money in 2008, about $9.4 billion in net profits.
That might seem like bright sign for biotech, given what a bad year 2008 was for so many industrial sectors. But, as Winter tells us in this podcast, biotech in the black, 2009 could be much worse. After all, only 67 biotech companies were actually profitable in 2008. Worse, almost all the profits, about $8 billion, went to three companies: Genentech, Amgen and Gilead.
Winter says that the 298 companies in biotech lost a combined $6 billion (these are, of course, just the publicly traded firms). He expects a very challenging next 12 to 18 months for the capital-hungry biotech sector. He thinks as many as 200 biotech firms are in trouble, and perhaps one-third of all biotech firms will disappear, through acquisition, merger or just plain death.
“The industry will be totally different 12 months from now,” Winter says.
One promising thing for those starting out now: the Big Three of biotech all got going during tough times — Genentech in 1976, just after the vicious 1973-75 recession, Amgen in 1980, as America dipped in and out of recession, and Gilead in 1987, the year of a major market crash. When Genentech started, almost nobody believed in biotech. If nobody believes in you now, maybe in 40 years you’ll be looking at an entire industry that’s finally making money.
The economist Nouriel Roubini has made his reputation by more or less accurately decrying things he doesn’t like about the economy. In this weekend’s Wall St. Journal, he talks about something he does like: temporary nationalization of troubled U.S. banks.
He tells the Journal: “The idea that government will fork out trillions of dollars to try to rescue financial institutions, and throw more money after bad dollars, is not appealing because then the fiscal cost is much larger. So rather than being seen as something Bolshevik, nationalization is seen as pragmatic. Paradoxically, the proposal is more market-friendly than the alternative of zombie banks.”
Roubini also zings the Bush Administration for taking banks that were too big too fail and making them even bigger (for instance, Countrywide and Merrill Lynch into Bank of America, or Wachovia into Wells Fargo). “You can’t take two zombie banks, put them together, and make a strong bank. It’s like having two drunks trying to keep each other standing.”
Of course, Wells Fargo and Bank of America weren’t supposed to be zombie banks. But Roubini argues that in six months, “almost all” of the major banks will basically be insolvent.
He envisions a Sweden-like situation where the banks are nationalized temporarily and then returned to private hands after they’ve been stabilized. Oddly, Bill Maher invoked Sweden’s banks and the idea of nationalization on his HBO show on Friday night. The audience laughed, but let’s be realistic: Sweden’s banking system is much smaller and was much less messed up than America’s. Also, Wall Street seems to hate the idea. Then again, it doesn’t like much of anything these days. Perhaps that’s why it’s sent stock prices back to 1997, in the early days of the Internet Bubble. Those were indeed better times for the stock market.
Roubini’s interview is by parts fawning and interesting. It’s certainly worth a read, especially since he’s funnier about the economy than Maher is.
My computer’s Valentine’s present to me was to have my Palm stop opening. All it would say “unexpected end of file.” Since this is where I keep my calendar and contact data, even now, this was not much of a present. I found this reference file on Recovering Palm Desktop User Data. It did the trick. I do now have double entries for my calendar, but at least I know what I’m supposed to be doing.
Clay Shirky has an interesting post, Why Small Payments Won’t Save Newspapers, on whether micropayments will save the newspaper industry, sparked by Walter Isaacson’s cover story in Time. He makes Isaacson look silly. But I’m not sure Clay is right. For one thing, while we don’t like being nickel-and-dimed in negotiations over things like salaries, or the extras that come along with large purchases, people love bargains. I just subscribed to Fast Company because I like the magazine, and hey, $5 is such a deal for a one-year subscription! (I in effect am making a microtransaction, offline). What if the NYT or some other paper came up with a way to make people feel like they were getting a bargain by paying for a story? What if they got to pay $1 for a digital week’s worth of the NYT, including the Sunday edition? Such a deal! Or perhaps I chip in a nickel if I want to comment on a story — be part of the conversation — is it worth paying to be part of the NYT’s community? (for more of Clay’s arguments, see this discussion of the problems with micropayments).
Microtransaction models have failed miserably, as he says. In fact, he calls them “a trope for desperation.” What’s wrong with being desperate? Desperation can inspire genius. Apple was desperate when it came up with the revamped model for iTunes that we know and love today. At the time, Apple was in such desperate shape that the music companies were completely unworried about letting their genie out of the bottle. That miscalculation saved Apple and forced the music companies into a future they didn’t want, which in turn has made them desperate.
A desperate news business might find a model that will work.
Clay argues that one model that won’t work is the community-driven virtual goods model. But he focuses on Korea’s CyWorld as if it’s an isolated oddity. In fact, there are scores of virtual sites in Korea and China that have been hugely successful at selling virtual goods of all sorts, all of them able to do this because they have figured out what Google already knows — if you control the server, you control what people can do with content. And then it’s a matter of having content people want. In short, they understand that people are willing to pay a little bit for content, virtual or otherwise, especially if there’s a community built around it that they want to be part of. It puts the lie, finally, to McLuhan’s assertion that what people really want from media is the advertising.
There may be no way for news organizations to control the server — their content has to be read. But the Wall Street Journal seems to have managed a hybrid model, something Clay ignores in this particular post.
Frankly, Clay offers up no better ideas for how to fund newspapers online. He waves his hands about how we are all media, as if that is the answer. I’m sorry, but journalism as a hobby reduces us to getting our news from the neighborhood gossip.
Clay also raises the very good point that we need new models for funding reporting. Right now, writers like me convince media organizations to fund them by hiring them, either full-time or in the short-term. Clay hints that we are asking the wrong organizations to publish us, and the 15,000 journalists who lost their jobs last year probably agree. So, it wasn’t that long ago that Chris Allbritton got Internet users to fund a reporting trip to Iraq. There were plenty of extremely talented correspondents going to Iraq, and yet Allbritton got people to pony up nearly $15,000 so he could go, too. Is Allbritton a one-off? Would a community-funding model possibly scale?
Steve Outing is arguing that it does, and the vehicle is Kachingle. He’s arguing in comments on his blog that this is a different model than internet currencies like Flooz and Beenz. To me, though, it boils down to him saying that content needs to go back to the model that funded Samuel Johnson, Mozart and other creative types of the past: patronage (and that always comes with strings of some sort attached).
I don’t know the answers, but I hope that the industry is getting desperate enough to find a model that is less dependent on advertising and free content. And I wouldn’t be so quick to dismiss the notion that people might actually pay for access to content, or online community, in some form.
I got a solicitation to subscribe to Fast Company for $5. I think that’s the lowest price I have ever seen for a one-year subscription to a monthly, general-interest magazine. I’m somewhat flabbergasted by it; does any advertiser want to pay to be seen by people who paid $5, about the cost of a single issue? On the other hand, hey, it is a recession.
I’d like to gush about “Globality: Competing with Everyone from Everywhere for Everything.” It made some best books 
lists in 2008. The authors, Harold L. Sirkin, James W. Hemerling and Arindam K. Bhattacharya, all of Boston Consulting Group, have a sweeping vision:
We look forward and see a new era emerging. We call it globality, a different kind of environment, in which business flows in every direction. Companies have no centers. The idea of foreignness is foreign. Commerce swirls and market dominance shifts. Western business orthodoxy entwines with eastern business philosophy and creates a whole new mind-set that embraces profit and competition as well as sustainability and collaboration.
They back this up with interesting data and case studies showing that the companies to watch might not be Google and Apple, but Embraer, Bharat Forge, Tata and Goodbaby. In fact, they offer some good evidence for one of the ideas I think will
shape business and society in this century, which is that real innovation will come from
everywhere.
So I’d like to shout out that “Globality” is “The World is Flat” for business.
But
it doesn’t quite get there. Perhaps these authors are too honest –
Thomas Friedman goes 375 pages (out of 469) in “The World is Flat” before he confesses that the world
isn’t really flat and talks about what that means. Sirkin et al know
that we’ll never literally compete everywhere, with everyone, for
everything — even their star conglomerate, Tata, is in a limited
number of businesses, and cooperates through joint ventures in
addition to competing directly. Mostly, though, they must tell Western CEOs how to respond to their vision, which means they end up writing a self-help book, and those are only compelling to people who need the help.
Their audience may not realize how much help it needs. One powerful aspect of “Globality” is the way it breaks down the operating strategies of fast-rising companies in China, India, Brazil and elsewhere.
Still, I find a number of things to recommend about the book. It becomes clear why many of these companies are gaining market share in the West, and even buying iconic Western companies — big firms in the developing world are well-run by ambitious leaders who’ve got effective strategies for global expansion. Translation — they’re set to clean the clocks of Western firms who take it for granted that they are better run than some firm in a backwater like Brazil.
Most executives will also appreciate chapters on how to develop and keep talent in a global environment, how to delve deeply into the business environment in emerging markets, and on ‘pinpointing,’ their method of making the invisible hand visible and strategic. To me, the best stuff comes from insights into how the big companies in the developing world operate, and the disadvantages they face (Chinese firms have no choice but to sometimes do what the government tells them, whether or not it’s good for business) as well as their likely ongoing advantages (they assert that even if wages for typical Chinese workers grow at 8 percent a year and those for U.S. workers by 2.5 percent a year, by 2040, Chinese labor on average will still cost one-quarter what it does in the U.S.A.). And there’s a chapter on some of the genuine, world-beating innovation taking place in emerging markets, a theme of my own reporting that I think is a harbinger of a better future for us all.
The $150 washing machine
There are also good examples of how Western firms can harness the best parts of their existing business and emerging markets. My favorite was the three-page recounting of how Whirlpool developed a $150 washing machine for Brazil, where washing machines are something consumers aspire to own. It was a lovely bit of work on why washing machines are an important status symbol in a large swath of Brazilian society, and how Whirlpool was able to profitably develop and manufacture a low-end product.
This is just one of a number of examples of effective innovation in emerging markets by Western businesses. One thing I like about “Globality” is that it doesn’t think Western firms should panic, or will be inevitably crushed by the wave of innovation brewingn at what they call ‘challenger’ companies in developing markets.
But the book is also tinged by the suggestion that one advantage any firm gains in emerging markets is the ability to operate sweatshops with impunity. Sirkin et al. quote Zhou Susu, a top executive at ZTE, the biggest Chinese maker of wireless networking equipment, as saying “Our local staff usually works twelve to fourteen hours a day. It sounds terrible to our competitors.” It ought to sound terrible to Zhou, especially given that the authors note (much, much later) that “as many as 20 million kids are left at home alone for weeks and months while their parents take jobs in cities or at distant work sites.” Heck, their parents could just be down the street at a ZTE facility. Maybe the kids can live in Ms. Susu’s home. She’s probably not there very much.
Perhaps ZTE pays overtime and adheres to other reasonable labor practices. Sirkin et al. say nothing of the sort. Instead, they cite a piece in the Atlantic in which an anonymous American executive says “There’s none of this ‘I have to go pick up the kids’ nonsense you get in the States.”
The thesis of the book will stand up better than most pre-Crisis books. Yet it would clearly benefit in paperback from a chapter assessing what the credit crisis means to companies in the developing world. Some stars in the book are Cemex, the big Mexican cement firm, which has run into serious problems due to its use of debt to fuel acquisitions, and Tata Motors, which just posted a loss. There are many reasons to expect that the challenger companies of the emerging world will come through the crisis well, but their expansion plans will certainly be delayed, and in some cases perhaps even derailed.