Friday, 22 June 2012
Micha Benoliel's Open Garden
When Micha Benoliel was an MBA student in France in his 20s, he studied abroad in San Francisco for six months. One day he walked into the headquarters of Gap (GPS) to offer his services. He schmoozed a staffer and talked his way into the appointment book of then-Chief Executive Officer Mickey Drexler. “This could only happen in America,” says Benoliel, now 40. “This is the place you can change the world from.”
The meeting never happened—Drexler couldn’t sit down before Benoliel had to return to France—but Benoliel’s appreciation for the can-do attitude stuck. After spending much of his post-MBA career traveling the world, first as a salesman for a sporting goods company and then running his own programmer-for-hire business, he has landed back in the Bay Area as co-founder and CEO of Open Garden.
The startup makes a free app for PCs and Android devices that lets one gadget share its connectivity with any other around it. It’s like a no-fee version of “tethering,” which telecoms either charge extra for or put limits on. If multiple people in an area are using Open Garden, it acts as a traffic controller, sorting downloads according to whichever device has the fastest connection at any given moment.
Open Garden was a runner-up for the top startup award at the TechCrunch Disrupt conference in May. After the winner was announced, one of the judges, venture capitalist Fred Wilson of Union Square Ventures, penned a letter of dissent, calling Open Garden his favorite “by a long shot.” Writing on his blog, he said that “what they are doing is the most worthy of the conference name, Disrupt.” AT&T (T) feels differently: Spokesman Mark Siegel says Open Garden “unfortunately violates” company policies “by enabling unauthorized tethering,” and that the telco has asked Google (GOOG) to make the app unavailable to AT&T customers. Benoliel says “they cannot do anything … what we do is not illegal,” and as of June 20, Open Garden was available for download.
To create the technology, Benoliel joined forces with Greg Hazel and Stanislav Shalunov, programmers who’d worked on peer-to-peer projects such as BitTorrent. “It’s very difficult science,” says Ulevitch of Open Garden’s ability to communicate instantly and securely between devices. “If anybody is going to do it, it’s these guys.” The startup has received investments totaling $800,000 in funding and is raising another round, according to Benoliel.
The Nice native is the business mind at Open Garden, and says he’s always been attracted to technology. He taught himself to code when he was eight, and instead of practicing the piano he wrote a program that pressed keys on a virtual keyboard in time with a Claude Debussy track. He chose to locate Open Garden on Treasure Island, in San Francisco Bay. “We wanted to be in a different place than all the other startups,” Benoliel says. “There is free parking, free electricity, calm. Very little chance to be distracted by anything. Everyone can stay more focused.”
Skipped practicing piano to program, starting at age eight
Hawked sporting goods before becoming an entrepreneur
Millions of devices sharing Internet connections via Open Garden
Comcast 'Invents' Its Own Private Internet
Comcast (CMCSA) went public in 1983. Track its share price, and you’ll see that it tootled gently upward as the company expanded its cable television service around the country. Then, in 1997, the share price spiked. This was the year the company began testing a new product—the cable modem, which offered Internet access at a blazing 1.5 megabytes per second, then 50 times faster than dial-up. Comcast didn’t invent the Web. It didn’t invent the cable modem, either. Like other cable operators, it happened to own the right network at the right time.
That history is helpful to remember as the Department of Justice begins an antitrust probe into whether Comcast, Time Warner (TWC), and other cable providers are now trying to manipulate the way customers use the Internet—specifically, whether imposing caps on the amount of data people can download monthly discourages them from using Netflix (NFLX), Hulu, and other rival online video sites and steers them to the cable companies’ own video-on-demand services, which aren’t subject to the caps.
Comcast spokeswoman Jennifer Khoury declined to comment on the investigation. In a May 15 blog post, executive vice president Tony Werner explained how Comcast is offering video over its own “managed network” via Microsoft’s (MSFT) Xbox: “We provision a separate, additional bandwidth flow into the home for the use of this service—above and beyond, and distinct from, the bandwidth a customer has for his or her regular Internet access service.”
Comcast’s defense of this tiered system rests on a semantic distinction: that there’s a difference between watching a movie through Netflix, which exists on what the cable companies call the “public Internet,” and watching the same movie through a provider’s on-demand service, which they say is a private network. In pushing the phrase “public Internet,” Comcast and other Internet providers want customers to accept that they are the proprietors of separate, special Internets. You can see this in the way they’ve tried to rebrand the Web as a private product. Comcast refers to its Web access as “Xfinity.” AT&T (T) calls it “U-Verse.” Verizon (VZ) doesn’t sell Web access, either. It sells “FiOS.”
Of course, these are just fanciful names for … the Internet. “It’s a very slippery thing,” says Michael Calabrese, senior research fellow with the Open Technology Institute at the New America Foundation, a think tank. “It is one pipe—and they control the pipe.”
There’s a reason it’s not called the Comcasternet. The Internet beat out rival private networks because it grew faster and created more value. Comcast was perfectly free to build the Comcasternet, but it didn’t. That’s not an accident. Every network benefits when all networks interconnect. For cable companies to claim now that they did in fact build a private network and that it shouldn’t be subject to the same rules as the rest of the Internet is a tough sell.
It’s hard to blame them for trying. They’ve had luck with this line of reasoning before. In a 2005 Supreme Court case, Comcast, among other cable companies, maintained that the Federal Communications Commission couldn’t regulate them as “telecommunications services”—Internet access providers—because cable companies bundled their Internet access with what the FCC considered “information services,” such as Web hosting and e-mail addresses. The justices agreed, 6-3. But in a dissent, Antonin Scalia ridiculed the argument with a withering analogy. A pet store “may have a policy of selling puppies only with leashes, but any customer will say that it does offer puppies,” he wrote. “Because a leashed puppy is still a puppy.” Now, as then, the cable companies insist they’re not puppies, and they don’t want to be leashed.
The bottom line: The Department of Justice is investigating whether cable companies’ video-on-demand services cripple Hulu and other competitors.
Thursday, 21 June 2012
Why Leica Is Opening So Many Stores
Selling a $27,000 camera is no snap—especially when that hefty price doesn’t even include the lens. For Leica Camera, the challenge is compounded by the fact that it has lost more than a third of its U.S. dealers, who have fallen victim to competition from the likes of Best Buy (BBY) and Costco Wholesale (COST). So at a time when an increasing number of brands are bolstering their ability to sell online, the German camera maker is rolling out its own stores to woo serious photography buffs.
Leica’s first U.S. outlet opened in Washington, D.C., last month, and the company is rolling out two more stores in Miami and New York this summer. By March 2016, Leica says its current roster of 37 stores will have grown to 200 worldwide. They’ll stock a range of models from the entry-level $700 V-Lux 40 point-and-shoot camera to the top-of-the-line $27,000 S2. “It is a high-risk strategy,” says Walter Loeb, president of retail consulting firm Loeb Associates. “Leica needs to establish itself more directly in the U.S., but it’s a small market for high-priced cameras, and it’s highly competitive.”
Leica is opening stores at a time when U.S. consumers are buying fewer cameras, given the quality and convenience of taking photos with smartphones such as Apple (AAPL)’s iPhone. Last year, Americans spent $6.2 billion on cameras, down 8.3 percent from 2010, the Consumer Electronics Association estimates. The average price per camera was $173. Leica says it has less than 1 percent of the U.S. market, while Canon (CAJ) and Nikon together command 42 percent, says researcher Mintel.
Photograph by SSPL/Getty ImagesThe original Leica, in 1925, was far smaller than the bulky shooters of its time
The retail rollout is the latest step in Chief Executive Officer Alfred Schopf’s turnaround strategy for the Solms (Germany)-based company. In 2004 the company dodged bankruptcy; two years later, French luxury handbag maker Hermes International (RMS)sold its 36 percent stake. Sales have since recovered, as Leica managed to merge its engineering prowess with new digital technology.
Leica’s new stores are luxurious and minimalist, like its cameras. The outlets feature black leather furniture from Germany and gray tiles from Italy. The sole color accent: the red featured in the Leica logo. Stores include a retail space, a studio area to demonstrate products, and a gallery—to exhibit photographs shot with Leica cameras—that can be converted into a lecture room for the company’s Leica Akademie photography courses. “We stand for a certain image of quality, and this is something we wanted to show in this environment,” says Schopf, who wouldn’t say how much Leica is spending on the stores. “We are showing a dedication to the quality of photography.”
Leica’s compact cameras, introduced in 1925, were revolutionary compared with the heavy plate cameras of the day. In 1932, about 90,000 Leicas were in use; by 1961, a million. Leica cameras, popular with photojournalists, went on to capture many an indelible image, from Alberto Korda’s portrait of Che Guevara to Huynh Cong Ut’s “Napalm Girl” to Jim Marshall’s iconic photo of Janis Joplin with a bottle of Southern Comfort.
By the time it introduced its first digital compact in 1998, Leica had lost customers to Canon and Nikon. Sales rallied after it introduced digital versions of its 1950s-era M camera, and today digital models bring more than 90 percent of sales. Revenues last year surged 57 percent, to €248.8 million ($309.7 million), while income leapt tenfold. Managers says the stores will draw more customers. Says Roland Wolff, director of corporate retail for Leica’s U.S. arm: “We want to share what people can do with the product.”
The bottom line: Mimicking luxury clothing designers, pricey camera maker Leica will open 160 of its own stores by 2016 to sell the allure of photography.
Office Upgrade: Half-Standing, Half-Sitting Workstation
What it is: a seat that you lean on, but don’t sit on, and an adjustable-height desk
Cost: seat starts at $650; desk starts at $1,150
A seat for standing may seem like a contradiction, but Jamestown (R.I.)-based Focal Upright Furniture believes an upright, half-standing, half-sitting posture improves circulation and can help office workers stay focused. The new Locus workstation, available in fourth quarter 2012, includes an adjustable stool ($650) that tilts and pivots on a base. The stool distributes some weight to the legs. Focal calls it a cure for “sitting disease.” Just remember not to lean back if you get tired. The desk ($1,150) adjusts height and angle, and comes with an optional LED light.
“There is a place between standing and sitting where our body wants to be. It’s a natural, neutral posture, and it just feels right,” says founder and industrial designer Martin Keen, who also founded Keen Footwear, in a release.
Zoran Popović: Recruiting Gamers to Fight Disease
Proteins are the workhorses of our cells: They turn food into energy and determine our health. Each one is a chain of molecules—sometimes thousands of links long—that folds in a distinctive way. Understanding how they fold can help scientists block diseases, but there are so many variables involved that even powerful computers struggle to do it.
Enter Zoran Popovic. The Serbian computer scientist emigrated to the U.S. in the late 1980s and got a scholarship to Brown University. He knew so little about the school he thought he’d be studying on an island off the coast of Massachusetts called “Rhodes.” In 2000 the University of Washington hired him to teach computer science, and he earned a reputation for pushing the state-of-the-art in gaming graphics.
Three years ago he met David Baker, a biochemistry professor struggling with the problem of protein folding. Together they came up with Foldit. It’s an online game that invites anyone to solve the mysteries of protein-folding in a slick, Tetris-like interface. Proteins fold according to rules of physics: They follow the path of least resistance, opposite charges attract, and the bonds between atoms have limited angles of rotation. In the game, players click and drag parts of a protein and rack up points as they grope toward the most energy-dense, compact way to fold them. Behind the scenes, computers run through biochemistry equations to determine players’ scores. “We ended up using both computers and people in a symbiosis,” Popovic says.
Since Foldit launched in 2008, it has attracted hundreds of thousands of gamers. Most, like Popovic, have little or no training in biochemistry. The first breakthrough came in 2010, when players managed to decipher the structure of a protein crucial to the replication of the AIDS virus. “The very first reaction was disbelief,” says Mariusz Jaskolski, a Polish scientist who worked on that particular protein structure for years and says the Foldit discovery has given him a new target for designing drugs.
Popovic became the head of the Center for Game Science at UW in 2010 and has spent his time since then expanding his game library. Foldit now allows players to design proteins that don’t exist in nature, potentially creating ones that behave in novel ways. In August, Popovic will unveil a game that will teach players to build tiny machines made out of DNA. Popovic says players will be able to create structures that can sniff out and eliminate cancer cells while leaving healthy cells intact. “Turns out DNA structure can do things nature hasn’t thought of yet,” he says. Another game in the works will turn players into investigative journalists.
In all his games, Popovic pays close attention to player feedback. With Foldit, he added a “cookbook” that allows gamers to reuse bits of programming, a commonly requested feature. “We didn’t design a game and it was good,” says Popovic. “We designed a game that wasn’t good, and we continuously improved it.”
Emigrated from Serbia and studied at Brown
Foldit players helped decipher an AIDS-related protein
Using crowdsourced games for investigative journalism
Dean is a Bloomberg Businessweek contributor.Don't Mess With the Lord of the Olympic Rings
In May, Joy Tomkins knit a tiny white T-shirt and shorts for a doll she hoped might fetch a pound at a fundraiser in Downham Market, the town where she lives a couple hours’ drive north of London. “It looked very dour,” says the 81-year-old grandmother. So in honor of her country hosting this summer’s Olympic Games, Tomkins spruced up the outfit by embroidering it with “GB 2012” and the five rings. Then she heard on the radio that shopkeepers who put Olympic symbols in their windows were being asked to take them down. Tomkins called Trading Standards, the government agency that enforces commerce laws, and says she was warned that selling her smartly dressed doll for charity would be against the law. “The young man was fairly sad and sorry,” she remembers.
Photograph by Jon Stanley Austin for Bloomberg BusinessweekJoy Tomkins
With the London Games now six weeks away, Tomkins is one of many in the U.K. discovering how carefully the Olympics’ organizers guard their brand. There’s the florist in Stoke-on-Trent who told the Daily Mail she was asked to remove the tissue paper rings from her shop window along the torch route or risk legal action, and the coffee shop in East London that scrubbed the “O” from its sign to become Cafe Lympic after officials warned the owner he could be sued.
Then there’s Dennis Spurr, a butcher in Dorset, near where the sailing events will be held. Six years ago he put a sign outside his shop depicting the Olympic rings as sausage links. For 18 months, he says, nobody bothered him about it. “And then one day an official come along from the Olympics [and asked], ‘Have you had permission?’” Spurr replied he didn’t know he needed it. “Oh yeah,” he says the man told him. “You’ll get in a lot of trouble unless you take them down.”
Photograph by Jon Stanley Austin for Bloomberg BusinessweekSix years ago, Dennis Spurr put a sign outside his butcher shop in Dorset depicting the Olympic rings as sausage links.
British shop owners excited to show their Olympic spirit shouldn’t feel singled out. Back in 1994 the U.S. Olympic Committee demanded a name change at the 10-table Olympic Restaurant in New York. Restaurants and pizzerias from Sydney to Vancouver suffered the same treatment. The USOC even tried to keep the 149-year-old Olympian newspaper in Olympia, Wash., from trademarking its own name.
To understand why the Olympics goes after businesses so aggressively, you need to go back to the 1988 Games. Before then, hundreds of companies signed Olympic marketing deals in every country where they wanted to advertise. That branding muddle frustrated global companies such as Coca-Cola (KO). So the International Olympic Committee created a worldwide sponsorship program, a one-stop shop for rights to Olympic logos and symbols. (Eleven companies, including Coca-Cola, McDonald’s (MCD), and Visa (V), together shelled out a billion dollars to call themselves global sponsors at the 2010 Games in Vancouver, and in London.)
This exclusive club created a new problem: the unofficial sponsor. American Express (AXP) passed on a chance to become one of the first global sponsors, prompting the IOC to sign up Visa—whose tag line for Seoul and Calgary became “the Olympics don’t take American Express.” Visa’s rival responded by churning out ads that made oblique references to the Games. A campaign for Albertville 1992 encouraged cardholders to “visit the French Alps for all the winter fun and games.”
That tactic became a model for everyone from Schirf Brewing, which declared its brand “The Unofficial Beer, 2002 Winter Games” in Salt Lake City, to Subway, which aired ads with Michael Phelps swimming to “where the action is this winter” during the 2010 events in Vancouver.
To keep the money flowing in from official sponsorships—the IOC’s second-biggest source of revenue behind broadcasting rights —Olympic organizers have to promise to keep competitors from crashing the party. That means getting host countries to play bouncer. “When you bid to host an Olympic Games,” says Simon Chadwick, a professor of sports business at Coventry University in England, “you must, and that’s in capital letters underlined, guarantee to pass legislation outlawing ambush marketing and protecting against any trademark infringement.”
In 2006, the British Parliament passed the London Olympic Games and Paralympic Games Act. The law limits the commercial use of anything that’s “likely to suggest to the public” any official association with the Games. That means the five rings and the phrase “Olympic Games,” which the IOC has long protected. But also the pairing of words such as “medals” and “2012,” “games” and “twenty twelve,” or “bronze” and “Two Thousand and Twelve.” Scofflaws can be fined as much as ?20,000.
Photograph by Jon Stanley Austin for Bloomberg BusinessweekTrademark-infringing doll
Marina Palomba, an attorney for the McCann Worldgroup agency in London, spends a lot of time warning clients that their marketing plans will draw the ire of the Olympics’ lawyers. “It’s the most draconian law so far in advance of an Olympic Games ever,” says Palomba.
The London Organising Committee has also set up “brand exclusion zones” around Olympic sites where non-sponsors won’t be able to advertise or give away freebies, and it will deploy 100 trained “brand protection” volunteers to help the 20-person legal staff monitor the zones. Chadwick, who has catalogued more than 600 cases of ambush marketing during past sporting events, says London police asked to see his database so they’d know what to watch for. (He declined to share.) Palomba says news media who gain access to Olympic venues must agree to turn their cameras away from marketing stunts: “If someone tries to fly over the event in a hot air balloon, the media have been told not to cover it.”
The Committee says in a statement that it prefers “to educate rather than litigate,” but that it has to be vigilant: “In order to stage the Games we had to raise at least ?700 million [$1.1 billion] in sponsorship, and we cannot do that if we do not offer our partners protection.”
For Spurr and his compatriots, outfoxing the Games’ brand police has become something of its own Olympic event. In 2007, in front of BBC TV cameras, the butcher put up a new sausage sign, this time with squares instead of rings and “2013” in place of “2012”—only to hear from Olympic officials again. So he took that display down as well. Two weeks ago, after getting a letter warning him off more stunts, Spurr gave it one more shot. “We’ve got five frying pans up there with smiley faces.”
The bottom line: To mollify official sponsors who put up $1.1 billion, London organizers are coming down on small businesses that display the five rings.
Office Upgrade: Privacy Booth
What it is: a table covered by a sound-absorbent hood
Cost: N/A
Let’s hope this booth offers more privacy than the Cone Of Silence from the TV series Get Smart. Named “Confession” by Stockholm-based Scottish designer Nick Ross, the standing booth has an oak tabletop and a sound-absorbent, compressed, felt hood. Designed to provide some seclusion in open offices, “it enables the creation of a space for a quick meeting, to hear a personal story, a quiet place to read the paper with a coffee, or even somewhere to indulge in office gossip,” states the description. The booth is designed to accommodate casual, standing conversations, not seated meetings, Ross says. He designed the prototype in April in collaboration with furniture maker Bla Station while he was studying interior architecture and furniture design at Konstfack University College. Ross is looking for a production partner now.
A Content Cubbyhole for Avid Web Surfers
Nate Weiner, 28, has always had varied interests: photography, animation, programming, criminal detective work. While browsing the Web, he’d often e-mail himself articles and videos about his favorite topics with plans to catch up later. The links inevitably got lost in his overflowing in-box. Frustrated one night in 2007, he built Read It Later, a smartphone app for storing and viewing all the content that gets shunted aside during the course of a busy day. “When I get a bug for something, I have to get it done,” he says.
Since being relaunched in April under the new name Pocket, the app—which is available on iOS, Android, and Kindle devices—has had 2 million downloads, bringing its total to more than 5 million registered users. To save an article or video, users install a button or a bookmark in their Web browser and click it whenever they come across something they want to ingest later. Pocket has also integrated with more than 300 mobile apps, so fans of news readers such as Flipboard or Pulse can send an article to Pocket directly. Weiner’s app displays saved content in a layout with adjustable fonts and colors and stores them offline, enabling users to read clips even when they have no cell reception. Users save about 1 million items a day.
While other apps offer similar features, Pocket can save a wider variety of media, will soon be available on many mobile platforms, and costs nothing. Weiner and his team of seven are also developing new features, such as ways to easily categorize clippings and for users to directly send content to each other’s Pockets.
Weiner’s company is still experimenting with business models, including a monthly subscription. Last summer the startup raised $2.5 million from investors including Foundation Capital. “Nate is just one of those very unusual and very special entrepreneurs,” says Steve Vassallo, a general partner at the venture capital firm. “He has a very deep and intuitive sense for the product and the market opportunity. He feels it in his bones.”
Weiner and his twin brother, Max (who joined Pocket in 2010), taught themselves to program at 16. Their stepfather, a real estate agent, helped them get jobs building websites for condo developers in their hometown of Milwaukee. “Max was the right brain, and I was the left brain,” says Weiner, who prefers coding to design. “We worked really well as a team.” During his two years at University of Wisconsin-Eau Claire, Nate studied marketing and criminal justice before dropping out after his sophomore year.
He built the initial version of Pocket in August 2007 while working as a Web developer in Minneapolis. In 2010 he relocated to San Francisco. Weiner says he’s fielded several acquisition offers over the last year and turned them all down. “Nobody cared about this stuff as much as I did, or didn’t have the vision,” he says.
Studied marketing and criminal justice before dropping out
Pocket is available on iOS, Android, and soon, Windows Phone
None yet. His company is considering a subscription model
Office Upgrade: The Post-It Desk
Have you ever played connect-the-dots, doodled, or dragged a dulled crayon through a simplistic maze on a family-friendly restaurant’s paper place mat and thought to yourself, “I wish I could do this at work?” Lisbon-based designer Miguel Mestre’s My Desk invites your childish antics to the office by turning the entire work surface into a notepad. The 3.5-foot by 2.3-foot desk (priced upon request) comes fitted with paper of the same size. The desk doesn’t have any drawers—who needs those when all the paper you’ll ever need is right there on your desk?
Mestre isn’t the first designer to turn work spaces into a coloring book. Italian design firm Soup Studio also offers the Post-Itable, a lacquered wooden desk topped with a 500-sheet pad of sticky yellow paper. The €1,000 ($1,270) desk is touted as “an immediate support for the thoughts that pass through the designer’s head,” according to a translation of Soup Studio’s Italian-language website. “We’re going to enter into negotiations with Post-it to provide the paper,” says associate designer Carlo Tartaglia.
Mestre and Soup Studio recommend their tables as the perfect surfaces for creative types who work in the fields of art and design. But limiting them to specific industries would deprive the rest of us of their best function: the ability to write obnoxious messages on giant Post-it notes and paste them on a co-worker’s computer screen.
Keeping America's Best Ideas Under Wraps
Any inventor who applies for a patent runs the risk—admittedly small—that the federal government will snatch the idea away and lock it up in a vault, never to be seen again. That’s what happens when the Department of Defense declares an application to be a matter of national security. It’s rare for a random patent application to be flagged. Usually, national security secrecy is applied to the inventions of defense contractors working with the Pentagon on weapons systems, which the U.S. wants to keep foreign governments from copying.
Now, Congress is considering whether to extend similar secrecy to inventions that don’t have anything to do with defense. Virginia Republican Representative Frank Wolf tucked a provision into a November spending bill that calls on the U.S. Patent and Trademark Office to study the feasibility of locking away certain commercial patent applications in the name of “economic security.” The notion is that some product ideas are so good they should be hidden from countries such as China that have a history of ignoring U.S. patents and flooding overseas markets with cheap copycat products.
It takes, on average, 16 months to complete a patent application after it’s made public, often longer for chips and electronics. Wolf is concerned foreign companies could use that gap to get information or steal the idea, putting the U.S. at an economic disadvantage. “It may be some cutting-edge technology, game-changing technology, and we’re exposing it?…?with no protections,” says Thomas Culligan, Wolf’s legislative director.
Patent office officials, who are collecting public comment on Wolf’s proposal through this month, haven’t yet taken a position on its merits. Former agency employees have shown no such reluctance. “It’s ridiculous. Absurd,” says Robert Stoll, who ran the agency’s patent applications office before retiring in January to practice law. Opponents of the plan argue that shielding patents from public view would undermine the bargain, established in the U.S. Constitution, that gives inventors a limited monopoly on their ideas in exchange for revealing them to the world so others can build on them. And inventors whose applications are declared secret wouldn’t be able to patent the idea in other countries—including China—a common way of protecting against copying from abroad.
Most manufacturers won’t want to give up foreign patents even if they are tipping off rivals or counterfeiters, says Stoll. “Commercial espionage is rampant, and everyone’s trying to get a leg up on the leaders in the market. But secret patent applications are fraught with peril and would harm the United States in the long run.”
Each year the patent office is flooded with about half a million applications. The agency would have to figure out which of those to pluck out for secret status. Companies spend millions trying to divine which products will be hits and which will flop—it’s hard to imagine the government’s crystal ball would be any better. “No one knows if what’s in a published patent application is going to be a blockbuster,” says Don Pelto, a patent lawyer with Sheppard, Mullin, Richter & Hampton in Washington. “Nearly every patent applicant is hoping their invention becomes economically significant.”
Even if the government does find a way to pick which patent applications to keep in a black box, it’s unlikely to do much to protect U.S. markets from foreign companies intent on lifting ideas, says Willy Shih, a professor of management practice at Harvard Business School. Patents, he says, are a trailing indicator of economic value. Would-be infringers want to snap up the biggest ideas—especially software and other technology—early in their development, long before they’re ready to be revealed to the world. “The much more interesting stuff, the really good stuff, is probably not patented yet,” Shih says.
If commercial secret patents work the same way as national security patents, many companies will rebel, says Pelto, whose firm represents defense companies. “No applicant is very happy about having their application placed under a secrecy order.” There were 5,241 such orders in effect in 2011, most established by the Department of Defense. Some inventions can remain secret for decades. One application for a radar system developed by the Navy in 1948 didn’t become a patent for 45 years. “There’s no way for the applicant to have that secrecy order lifted,” Pelto says. “You’re stuck. If the same stuck-ness applies to this potential new rule, applicants are in a heap of trouble.”
The bottom line: To thwart Chinese theft of U.S. ideas, the patent office is studying whether to declare some inventions “economic security” secrets.
Decker is a reporter for Bloomberg News in Washington. Engleman is a reporter for Bloomberg Government in Washington.Green-Car Credits: Automakers' New Way to Cash In
As the market for electric cars heats up—in 2011, about 18,000 electric vehicles were sold in the U.S., up from just under 500 in 2010—a new opportunity is emerging for carmakers: selling “credits” required to meet clean-air rules. This year, California begins stepping up the number of zero-emission vehicles, such as electric and hydrogen-powered cars, automakers must sell in the state. Companies that can’t meet their quotas can buy credits from rivals that exceed their targets. “We are in a fortunate position of having positive credit, so [selling them] is obviously something we are able to look at,” says Andy Palmer, an executive vice president at Nissan, which has earned surplus credits from sales of its Leaf, the top-selling all-electric car in the U.S.
Tesla Motors (TSLA) has revealed in corporate filings that it’s sold $13 million worth of credits to Honda (HMC) and at least one other automaker it hasn’t identified, though the company declines to say how many it sold or the price paid.
The number of credits per vehicle depends on its range and how fast it recharges. A model with a 100-mile range and standard charging, such as a Leaf or electric Ford (F) Focus, would generate three credits, while a long-range, fast-charging Tesla Model S is worth seven. Under California’s air-quality rules, automakers that fail to earn (or buy) enough credits face fines or even a ban on selling cars in the state.
Each credit can help an automaker avoid thousands of dollars in fines. While deals are made privately and companies don’t like to reveal prices, credits sell for $5,000 to $10,000 each, according to two people in the auto industry who declined to be identified talking about private negotiations. So in addition to the $70,000 sticker price of each top-line Model S it sells, Tesla could bank another $35,000-plus in credit sales to other manufacturers. “We think there’ll be growing demand for the vehicles, and it’s a framework to get them to customers,” says Dave Clegern of the California Air Resources Board, which runs the ZEV program.
From 2012 to 2014, California will require that about 2 percent of cars sold by automakers with annual sales of at least 60,000 vehicles in the state be zero-emission. That share will rise over time, reaching 15 percent in 2025. In 2018 the rules will be extended to apply to companies that sell more than 20,000 vehicles in the state, about a dozen automakers. Smaller manufacturers like Tesla that aren’t subject to the regulations can still bank and sell credits.
The rules affect auto sales in 11 other states—including New York, New Jersey, and Massachusetts—that follow California’s lead. Regulators expect the six largest carmakers to sell a combined 60,000 zero-emission autos in those 12 states through 2014, and a cumulative total of 1.4 million by 2025. The burden is heaviest for Toyota Motor (TM), which has the largest market share in California, followed by Honda, Ford, and General Motors (GM).
Honda’s line-up ranks among the most fuel-efficient in the U.S., yet the company faced a credit shortfall in California because it sold fewer FCX Clarity fuel-cell sedans than it planned. While Honda bought Tesla credits from 2008 to 2010, the company says it’s not planning any further purchases because this year it expects to introduce an all-electric version of its Fit compact and a plug-in Accord sedan.
Companies with credits to spare may be eager to sell them soon because any earned from 2009 through 2011 begin to lose value after three years. Those issued from 2012 onward don’t expire, encouraging carmakers to try to sell more clean models than required. The question, says James Lyons, an analyst at Sierra Research and a former California state air-quality engineer, is whether drivers actually want zero-emission vehicles. Though sales are picking up, he says, they’re “still a far cry from the levels the regulations will require.”
The bottom line: Some automakers are paying $5,000-plus to buy credits earned by rivals for selling cars that meet California clean-air standards.
Ohnsman is a reporter for Bloomberg News in Los Angeles. Trudell is a reporter for Bloomberg News in Detroit.European Clothiers Cash In on U.S. College Ties
F&M: From the school (left) and the clothier
Franklin & Marshall College may not have the cachet of Yale University in the eyes of many Americans, but for trendy European teens the Pennsylvania liberal arts school easily trumps the Ivy League icon. The school’s moniker is emblazoned on sweatshirts and other garb sold by an Italian company of the same name that Europe’s youth can’t seem to get enough of. While few of those wearing the clothes know about the school, “I don’t think they care,” says Entheo Leung, a salesman at London’s Selfridges department store, which sells the clothing line in a display with decades-old pictures of F&M athletic teams. “They just know it’s a brand everyone is wearing, and they want it.”
Italian designers Giuseppe Albarelli and Andrea Pensiero started the Franklin & Marshall clothing line after finding an old sweatshirt from the school at a New York flea market in the 1990s. Without getting approval from the school, located in the old mill town of Lancaster, they began selling $43 T-shirts, $265 tracksuits, and other garments, using the school’s name to stand out among preppy clothiers such as Abercrombie & Fitch (ANF) and Ralph Lauren (RL).
Companies have long used imagined school logos such as “State University” or “Ivy Rugby Club” on their clothing. Now, Franklin & Marshall and other European brands eager to lure fickle 18- to 24-year-olds are forging business ties to real U.S. colleges. “This is a move by brands to reinforce some authenticity around what they do,” says Lorna Hall, retail editor at fashion forecaster WGSN in London. “The U.S. preppy college look translates well to Southern Europe. The Italians in particular love the formality and detail of it.”
British retailer Jack Wills, which calls itself the “University Outfitters,” sponsors club polo teams at Yale and Harvard (and has formal licensing deals with the Oxford and Cambridge rugby and polo teams in England). Gant, founded in New Haven in 1949 but now Swedish-owned, has a deal with Yale to sell $115 button-down shirts bearing the school’s name. This year, Gant took the collection to the U.K., Europe, and Japan and is putting as much as 25 percent of its marketing budget behind the Yale shirts, says Chief Executive Officer Dirk-Jan Stoppelenburg. “For us it was about rediscovering who we originally are,” Stoppelenburg says.
Franklin & Marshall (the company, which didn’t respond to requests for comment) signed a licensing deal with F&M (the school) in 2003 after using its name without permission for several years. The brand’s popularity has spread north from Italy and taken hold in Britain. In 2011 the company opened a store-within-a-store at Selfridges. “It’s selling really well,” says Leung, the department store clerk. “Christmas time was crazy. The higher prices actually attract [young people], and their parents are usually buying anyway.”
The college benefits not only from the additional revenue but also from greater visibility abroad, says Cass Cliatt, who helps oversee the school’s licensing deals. “We are fortunate to work with a European company that promotes F&M around the world,” she says. In 2010, the company also donated €100,000 ($125,000) to fund a four-year scholarship for one student, and this spring executives met with the college president for the first time, Cliatt says.
Apparel licensing deals are negotiated country by country and typically cost the licensee about 10 percent of the wholesale price of each garment, says Chris Evans of Oxford Limited, which manages licensing for the University of Oxford. Cliatt declined to discuss the terms of her school’s agreement with the Italian company.
One group of frequent collegiate consumers might not be shelling out to emulate the academic look any time soon: alumni, normally one of the target markets for such apparel. “It’s fantastic for the school that this company is marketing F&M as a high-end brand,” says Adam Marcus, a grad now working at a Boston venture capital firm. “But it’s unfathomable that I would pay $265 for a sweat suit that I got for free in college as a soccer player.”
The bottom line: European brands seeking to cash in on the preppy look are using more logos of American universities on their clothing.
Will Facebook Friend Preteens?
When Mary Kay Hoal started a social networking website for kids in 2007, the mother of five wanted to create a wholesome service her young family could enjoy. She quickly realized that catering to children on the Internet requires paying a steep toll. Hoal says she burned through hundreds of thousands of dollars just so her site, Yoursphere.com, could comply with the Children’s Online Privacy Protection Act (COPPA), a 1998 law that sets strict rules for sites targeting preteens. Its main requirement: that sites get parental consent before collecting personal information about children or allowing them to open accounts.
Hoal, a Davis (Calif.) entrepreneur, tried working with a number of third parties—phone banks, credit-card companies, identity verification services—before settling on an e-mail notification to parents when their kids try to sign up. Parents must respond before the account becomes active. “It’s a headache for a website publisher,” she says.
The law that blew Hoal’s budget will take on new importance now that Facebook (FB), the world’s largest social network, is exploring whether to open its site to kids, according to Bloomberg News. Doing so could help the company tap a new population of potential members. Facebook needs the help: It already has reached almost 1 billion members, and a recent report by ComScore (SCOR) says the social network’s growth has slowed dramatically—a warning sign for some investors. Allowing preteens to create profiles would introduce a valuable new demographic for advertisers to reach.
And yet the idea of opening Facebook to youngsters makes some uncomfortable: “What’s next? Facebook for toddlers?” says James Steyer, chief executive officer of Common Sense Media, a child advocacy organization. “Facebook should not target children under 13. Period.” The problems of keeping children safe online became horrifyingly apparent on June 12 when Skout, a mobile social network popular with teens, partially suspended its service after three adult members allegedly raped minors.
Currently, preteens are not permitted to create a profile on Facebook. But many lie: A Consumer Reports survey last year claimed that Facebook has 7.5 million users younger than 13. Eric Goldman, an associate professor at Santa Clara University School of Law, says “having Facebook comply with COPPA might be better than the current situation, where Facebook basically treats underage users like adults.”
Facebook says it’s difficult to enforce age restrictions on the Internet, in part because parents help kids access online services. “We are in continuous dialogue with stakeholders, regulators, and other policymakers about how best to help parents keep their kids safe in an evolving online environment,” says company spokesman Andrew Noyes. Facebook declined to comment on whether it plans to lower its age limit.
The social network, which raised $16 billion in its recent initial public offering, could easily afford to implement a parental verification system—and given Facebook’s history of privacy-related public-relations blowups, it may want something that goes beyond what COPPA requires. Last year, when Vincent Cannistraro created WhatsWhat.me, a social site for kids, he was careful to follow COPPA by setting up ways for parents to e-mail or fax permission slips, or provide a credit-card number. (The free site charges the card a penny only to make sure it’s active.) In addition, the Waltham (Mass.) startup requires that every new member take a Webcam photo, which is reviewed by an employee to make sure the person in the photo is a child. Each time members log in, they take another Webcam photo. Facial recognition software checks to ensure the photos match. Cannistraro says adults try to register or log in under existing accounts “all the time,” but the added security blocks them.
To comply with COPPA, Facebook would also have to offer parents the option to not have their children’s online activities tracked. That could be problematic because Facebook makes the majority of its revenue by mining user data and serving targeted ads. If large numbers of parents opt not to let Facebook track their children, then advertising to them could become a challenge since online advertisers have come to expect a certain level of detail about who their ads are reaching. Chad Perry, founder of an Orem (Utah) social network for kids called ScuttlePad, says sponsorship negotiations with a publishing company fell through when he refused to link users directly to the company’s site. Perry says he forbade the practice because he can’t control content on a third-party site.
“I’m open to advertising but it has to be right for us—it has to be safe and not promote ideas that are going to affect kids in a negative way,” says Perry. “However, the only way to stay free in the long run is through advertising. And that’s our challenge every day.”
The bottom line: Facebook has the money to set up a system for obtaining parental approval, but courting preteens could affect its ad-centric business model.
Tuesday, 5 June 2012
Saturday, 2 June 2012
Office Upgrade: Variér Ergonomic Saddle Chair
What it is: A chair specially designed to give your legs more freedom to move.
Cost: Starting at $1,095, depending on fabric and gas lift.
Norwegian chair maker Varier’s new Active chair, launched in January, features a unique, saddle-shaped seat. Designed by Olav Eldoy and Atle Tveit, it is intended for workers who like to bend and stretch their legs.
“With the saddle seat, you can have a bigger angle in your hip” and “there is no pressure on the back of the thigh” to improve blood flow, says Eline Strom-Gundersen, a spokesperson for Varier. Also, “it forces you to sit more upright. When you do that, and you’re not slouching forward, it helps you use your whole lung capacity so you breathe better and you stay sharper for a longer period of time,” she adds.
The Active chair is available in a range of wool textiles and leather.
Friday, 1 June 2012
Office Upgrade: The 37-Year LED Desk Lamp
What it is: an LED lamp that extends bulbs’ life to 37 years
Cost: $899
Personal desk lamps are a great way to customize your workspace and give your eyes a rest—when they work. But once those taken-for-granted bulbs go out, workers are left temporarily squinting in the dull haze of overhead fluorescents.
Designer Jake Dyson, son of famed industrial designer James Dyson, has a solution: a superlamp. These $899 CSYS lamps redirect damaging heat away from the LED bulbs so they last 160,000 hours, or about 37 years if used 12 hours per day, he says. (We sadly don’t have time to put this claim to the test.) The arm glides up and down along the neck, as well as back and forth, and can also spin around. It stays in position when released. The light is dimmable, and moving it up and down adjusts the spread of the light.
“CSYS technology was designed to address these problems in existing LEDs—poor heat management, weak light distribution, color erosion, and the lack of a comfortable shade of warm white,” Dyson says in a press release.
The CSYS desk lamp is available on jakedyson.com, lumens.com, luminaire.com, and DDC in New York. A floor lamp model will be introduced later this year.
Karl Kempf, Intel's Money-Saving Mathematician
Intel (INTC) is the largest chip company that still designs and manufactures its own products. Semiconductor plants cost about $5 billion each, and some of the equipment has to be ordered three years in advance. Guessing wrong about future demand is very expensive: Being overly optimistic can lead to hundreds of millions of dollars in idle machinery, while underestimating means billions in lost revenue. The chipmaker’s in-house mathematician, Karl Kempf, realized that trying to improve predictive models was no use. Forecasting is “the hardest problem in math,” he says.
So Kempf started writing equations. He designed a financial contract giving Intel the option to buy a specific piece of machinery at a specific time. The company pays its suppliers a modest amount of money upfront for the contract. If it ends up not needing the machine, the chipmaker loses the money or the supplier can find another buyer. But the contract ensures Intel has access to the equipment it needs when it’s needed.
Options contracts are nothing new—they’re used to buy and sell oil, wheat, and other commodities all the time—but high-tech chipmaking equipment is not a liquid market, so there’s no easy way to figure out a fair price for the contracts. Kempf partnered with fellow mathematicians at Stanford University to build a computer model of an Intel production line. It simulated 142 different pieces of equipment; by varying the prices and delivery times for each machine and factoring in how much delays would cost, Intel and its suppliers figured out fair contract prices. Kempf says the resulting options have saved Intel an estimated $125 million since 2008, when the program began in earnest. The options allow Intel to “minimize their obligation and maximizes the available equipment supply,” says Gus Richard, an analyst at Piper Jaffray (PJC).
For Kempf, getting the most out of Intel’s $12.5 billion annual plant and equipment budget is just the latest way of applying advanced mathematics to unusual problems. After earning his Ph.D. in applied math at the University of Akron, he worked on robotic assembly lines in Scotland. In the 1970s, Kempf paired up with Ferrari’s Formula 1 team and helped pioneer the use of computer chips in race cars. His algorithms calculated the position of the wheels relative to the road and adjusted the suspension up to 60 times a second, letting the racers go faster by hugging curves tighter.
Kempf was a consultant for Pinewood Studios in England when Christopher Reeve arrived to film the first Superman in 1978. To give the actor the appearance of flight in the pre-computer graphics era, Kempf wrote computer models that precisely adjusted Reeve’s position while he was strapped into a full-body rig 30 feet off the ground.
Kempf says his varied career shows that knowing advanced math can help improve just about any product or process. “That’s true whether it’s a Formula 1 car or a movie special effect, a space station or an Intel factory,” he says.
Wrote programs to help Christopher Reeve fly as Superman
Modeling chip plants saved Intel $125 million
Applied math can improve just about any product or process
Office Upgrade: The Magnetic Wall Organizer
What it is: a set of rearrangable magnetic plates and pods for the wall
Cost: $175 for six pods and six plates
The personal workspace has been getting smaller and smaller, especially in urban markets. Doors have disappeared, walls have fallen, and even cubicles are a luxury. To address the clutter that is finding itself confined to an ever more restricted area, Oakland (Calif.)-based Enlisted Design developed Urbio, a stylish brand of metal plates and magnetic pods in various shapes and sizes for keeping things tidy. The vessels can be reconfigured based on the user’s changing needs. They can be used, for example, to sort mail or business cards. The magnetic vessels will cling to other surfaces too, such as metal poles or railings. Urbio co-founder Jared Aller says the company plans to introduce magnetic office supplies such as staplers, pencil sharpeners, and white boards that will work with the plates.
Urbio’s not just for sorting desk detritus either—the vessels can also be used for plants, a nice addition to any office.
“Urbio can be large or small, allowing offices to make a statement piece in a lobby for everyone to share, or to break it up and have a single wall plate with a pot or two in every cubicle,” says Aller. “The magnetic system allows each user to configure Urbio how they want, so employees can personalize their space.”
The powder-coated steel plates and the polypropylene vessels are available on myurbio.com. Both are recyclable.
Target's City Ambitions
In a landmark building in Chicago’s downtown Loop, Target (TGT) is putting the final touches on what’s arguably its most radical experiment since bringing designer goods to the masses 15 years ago. In late July a new kind of Target—prosaically named City—will open on South State Street, just down the block from a Macy’s (M) and across the street from a Forever 21. City stores, which are two-thirds the size of typical Target big boxes and may shrink further, will also open this year in Los Angeles, Seattle, and San Francisco.
The downsized outlets may be the key to unlocking the full value of Target’s cheap-chic playbook. Urban sophisticates who lust after a Michael Graves teapot or a Jason Wu skirt have mostly had to traipse to the burbs to get their fix. “It’s like we’ve been dating long distance,” says Target Executive Vice President John Griffith, while conducting a guided tour of the unfinished Chicago store. “Now we’re going to be right in their backyard.”
A rendering of Target's future City store in Los Angeles
While about 10 percent of Target’s 1,760 stores are in what it calls urban areas, the chain has traditionally shied away from central business and shopping districts. Target, even more than other big-box retailers, relied on America’s suburban sprawl to drive revenue growth—a strategy that eventually petered out. Before the recession hit, the company was opening a new location every four days on average; in the first quarter of 2012 it added one. Were it not for its popular credit card, which offers 5 percent off purchases, and robust grocery sales, Target’s 2011 revenue growth of 3.7 percent would have been much lower.
That’s why the Minneapolis-based retailer is moving deeper into cities and next year will embark on its first international expansion, opening Target stores in Canada. With these forays, the company aims to boost revenue 40 percent, to $100 billion, by 2017.
The City store’s appearance in Chicago coincides with the reversal of a nationwide trend: the urban exodus that began in the 1960s. For the first time in 20 years, cities are growing faster than suburbs and exurbs. The Loop, whose population has tripled, to 20,000, over the past decade, typifies the boom. One avenue away from the City store is a gleaming residential tower called The Legacy. One-bedroom condos in the 72-story building, which was completed in 2009, are selling for as much as $600,000. The neighborhood’s 300,000 workers spend more than $1 billion a year at local stores, according to the Chicago Loop Alliance.
While Wal-Mart Stores (WMT), Walgreen (WAG), and CVS Caremark (CVS) are also focusing on cities, none hold the same appeal for the downtown crowd as Target, says Leon Nicholas, an analyst for Kantar Retail. To appeal specifically to urban customers, the Chicago store was completely reorganized. At a typical Target, women’s apparel is at the entrance. In Chicago, shoppers instead will find a line of Champion athletic clothes, which Griffith considers a better fit for business travelers who forgot to pack shorts for the hotel gym. Paper towels come in packs of four instead of 24, and lawn furniture will make way for air mattresses aimed at apartment dwellers with out-of-town guests.
After years of using stylized TV commercials and low prices to lure shoppers to nondescript boxes adorned with the famous bull’s-eye logo, Target will now have to become practiced in the art of window displays. With the new City locations, the trick will be defining what Target means in an undefined space. “If we get too department store-y, we are going to send a message that you can’t get that great value,” says Griffith. “And we don’t want to do that.” So while the windows will feature mannequins—another Target first—the decorations will be minimal so as not to block the view into the store. It’s vital that passersby see that “this is a Target store, and a really cool Target store,” Griffith says.
The economics of downsizing stores can be challenging. Wal-Mart has struggled with its Neighborhood Markets locations, closing some before announcing an expansion plan this year. Target will raise some prices to offset higher commercial rents. The City stores will also feature a fresh foods section with produce and prepared meals, a bid to get shoppers to visit more frequently. Yet more foot traffic means high-volume items such as toilet paper will sell out faster, and replenishing shelves hasn’t been a Target competency, says Nicholas. Its “strength is in marketing, and its weak spot has always been operations.”
Target will have fewer than 10 City locations by next year and says it will wait until it has figured out how to make them profitable before possibly opening hundreds more. Anticipation is already building in Chicago. “I’m so excited,” says Kathleen Castillo-Clark, a 28-year-old stay-at-home mom who was recently pushing her stroller down State Street. “This is where I shop anyway, so it will be easier. I’ll probably come more often, too.”
The bottom line: Target is experimenting with smaller stores in city centers as part of its bid to boost revenue to $100 billion by 2017.