Jam Side Down

Solar Power

2009-11-06T00:26:08-08:00

There is a natural and healthy tension between politics and markets. The tension is the difference between socially oriented citizens who are often unfamiliar with business and in any case favor the strong, visible hand of government protection and their commercially-oriented brethren who prefer the invisible hand of market competition and generally view government as a cost to be minimized.

The trade offs between these views are the leitmotif of this blog. Jam Side Down refers to the tendency of partisans of both schools to inhale too deeply their own exhaust, underestimate perverse consequences, and end up with a sticky mess on the floor.

LET THE SUN SHINE IN

Interestingly, one type of regulation is generally favored by both camps. These are Sunshine Laws, named after the famous observation by Supreme Court Justice Louis Brandeis that "Sunshine is the best disinfectant". Sunshine laws mandate transparency in government and have been passed by the federal government and all fifty states. They generally require that public business be, well, public. The case for transparency increasing government accountability and reducing corruption poses problems in practice (Guantanamo comes to mind) but is by now so widely accepted as to be unworthy of debate.

If Sunshine laws work so well in the public sector, why are they are so little used in the private sector? There are two general excuses. First, government is a monopoly, so accountability is frequently a function of transparency whereas the private companies are held accountable by market competition, which requires secrets. This is not entirely silly. Second and less convincing to me, private business is private. There is, after all, money involved. Norway publishes the annual income and net worth of every citizen and, although there is an interesting case to be made for it, we don't do that here and are not likely to start.

Companies prefer the shade. They avoid sunshine, especially if it can lead to public embarrassment. As a duly sworn federal regulator, I noticed that even in the very early days of the internet a company whose dangerous working conditions had killed an employee thought nothing of paying a fine and conducting business as usual. But propose to publish the details of their transgressions on a public web site and suddenly you had their full and undivided attention.

In short, Brandeis was right and we should apply his insight more often to the private sector (and in fairness, publicly trade companies are for good reason subject to high standards of disclosure).

SILLY CON VALLEY

We have seen an amazing example of the power of sunshine in Silicon Valley this week. Our arguments here tend to involve slightly obscure technologies, but bear with me -- it's a great story.

Background: Social networks like Facebook and MySpace are huge. Facebook alone accounted for a quarter of all page views in the United states in the past 90 days.

What, exactly, is everybody doing on Facebook? They are playing games. Games sell virtual goods (seeds for your garden or a shotgun to dust an opponent) and they are fertile grounds for advertisers.

Some of these ads are sleazy, or in the current vernacular, they are "scammy". Some of the scammiest ads sell cell phone subscriptions (example: ad copy says" Where is Your Girlfriend? Find out her exact location now." See the add here but watch where you click). This particular site sells a useless $10/month subscription onto your cell phone. The worst scams always seem to cost $9.95/month (take an IQ test, then "enter your phone number to see the results". Congratulations, you just subscribed). The carrier gets half, Facebook gets a couple bucks and the publisher and the ad service get the rest. It is extremely lucrative for everyone except the consumer, who has a very difficult time getting these subscriptions taken off of a phone bill. Consumers learn the hard way that if their 11 year old enters a cell phone number to get some free seeds in Farmville, an innocent farming game on Facebook, they need to change their cell phone number in order to stop the bills.

This is not small time stuff. Farmville, for example, has 61 million active users, a population slightly larger than Great Britain. Companies like Slide, RockYou, Zynga, Playdom, and Playfish author games for social sites. The last three of these companies serve ads and make hundreds of millions of dollars in revenue -- a huge amount of it fraudulently (meaning that people subscribe without realizing they are subscribing, or subscribe to a service that has little or no value).

Other companies like TrialPay, Offerpal and SuperRewards are in the business of generating sales leads. Sign up for a Netflix account or a cell phone or a credit card and they get paid. So they offer game credits to get you to enroll. And plenty of people get massively hooked into online games, usually starting with a free version.

To some extent, lead gen scams self-regulate, since the as quality of the leads degenerate, Netflix and others quickly reduce prices or rescind their offers. In other cases however, scams generate both revenue and leads and consumers have very little recourse.

These scams are perverse because in the ecosystem of social networks, social gaming sites, lead generators, and phone carriers, each player is powerfully disadvantaged if they hold themselves to higher standards (Slide and RockYou refused to run scam ads and are dramatically smaller, less valuable businesses as a direct result).

We have, in short, a classic case of a new technology industry that needs adult supervision. Ideally, a regulator like the FCC would assert jurisdiction and intervene quickly. Often their authority in these areas is not clear however, especially if the companies are based outside the U.S. Alternatively, Congress may notice the problem, hold hearings, draft legislation, get lobbied, and eventually pass a bill that gets signed into law.

Neither the regulatory nor the legislative process are perfect and neither are quick. Enforcement is often slow and technically inept, so that the smartest of the bad guys move to new scams anyway. Lather, rinse, repeat.

SOLAR DISINFECTANT

Which is why it is amazing that in less than ten days, the scam game problem has been addressed, significantly improved, and potentially solved thanks mainly to the application of strategic sunshine by the blogosphere.

The story began on October 26, when TechCrunch founder and Valley provocateur Michael Arrington ran a story entitled "Social Games: How the Big Three Make Millions"that mentioned in passing the scams prevalent in social gaming. In writing about Zynga, Playfish, and Playdom, Arrington noted:

The goal of all of these games is to get to a higher level, and generally have more fun growing things or killing things faster than your friends. Get addicted to the free version, then start spending to move things along more quickly. Once people are committed, it’s easy to get them to pay...

All three companies are willing to give game currency in exchange for offers. Sign up for Netflix. Buy a ringtone subscription. Or energy drinks. Sign up for a credit card. Get car insurance. Take an IQ survey that requires a $9.99/month mobile subscription to see the results. We even found one for arthritis medication... One executive we spoke with says that 70% of total revenue from these applications may come in from lead generation, not direct payments. Netflix alone will pay $30-$40 for a free trial (requires credit card).

The result of this mild rebuke was several emails to Arrington from insiders who detailed exactly how these scams operate. Five days later he published a Halloween treat for the industry with "Scamville: the Social Gaming Ecosystem from Hell" where he summarized the competitive dilemma facing social gamers as "The games that scam the most, win".

Here’s the really insidious part: game developers who monetize the best (and that’s Zynga) make the most money and can spend the most on advertising. Those that won’t touch this stuff (Slide and others) fall further and further behind. Other game developers have to either get in on the monetization or fall behind as well. Companies like Playdom and Playfish seem to be struggling with their conscience and are constantly shifting their policies on lead gen.

Arrington also revealed a public conversation he had held with the CEO of one of the greatest offenders.

Yesterday I attended the Virtual Goods Summit in San Francisco. In the Q&A session of one panel I asked Offerpal CEO Anu Shukla to explain the ethics of her business, and outlined my ecosystem of hell argument above. Shukla went on a tirade, calling my points “shit, doubleshit, and bullshit”

(Arrington knows how to seize a good PR moment, so he had the conversation videotaped. See it here). Shukla is now Exhibit A in the course "How a CEO should not respond to a journalist".

Events then unfolded quickly. Arrington published a series of daily updates, many worth reading.

The following day, two CEOs described the cost of saying No To Social Media Scams, followed by a detailed piece by Dennis Yu entitled How To Spam Facebook Like A Pro: An Insider’s Confession that spelled out precisely how advertisers deliberately scam Facebook users out of hundreds of millions of dollars.

The following day, the co-founder of Zynga, the smarmiest of the gamers, acknowledges that 1/3 Of Revenue Comes From Lead Gen And Other Offers, meaning that almost the entire profitability of the business was the result of scams. Later that day Zynga announced specific, dramatic steps to To Remove Scams From Games including a confession from their CEO that

"(Arrington) raises good points about ‘scammy’ advertisers and the bad user experience they create. I agree with him and others that some of these offers misrepresent and hurt our industry.....In fact, the worst offender, tatto media, referenced in the techcrunch article, had already been taken down and permanently banned prior to the post. Nevertheless, we need to be more aggressive and have revised our service level agreements with these providers requiring them to filter and police offers prior to posting on their networks. We have also removed all mobile ads until we see any that offer clear user value."

Later that day, ad network RockYou joined the party, promising to clean up all ads hosted on Facebook. RockYou is the largest display network on the Facebook platform.

The next day was November 3, and MySpace announced a major change in its terms of use to prevent app scams, reported by Arrington as MySpace Says Zero Tolerance For App Scams, Changes Terms Of Use.

Later that day, Arrington paid tribute to TrialPay, an ad network that had refused to run scam ads.

During our research we spoke to dozens of scam artists, game developers, advertisers and legitimate and illegitimate middlemen. One company was consistently mentioned as being the most above board with their approach to the market – TrialPay. So we’ve asked TrialPay CEO Alex Rampell to write a guest post on how he sees the market, and how it can move forward in a healthy way. Rampell published Tragedy Of The Social Gaming Commons: A Blueprint For Change which offered specific guidelines for companies and specific examples of how TrialPay had applied them.

On November 4, Offerpal announced that they had fired CEO Anu Shukla and replaced her with industry veteran George Garrick. Apparently a company planning an IPO did not like the prospect of explaining to the SEC that “shit, doubleshit, and bullshit” actually meant "well, yes, we do steal a lot of money from unsuspecting customers". It seems likely that Shukla's outburst ten days earlier did little to advance her career but that the board had decided that the company needed a grown up in charge some time earlier. Arrington, a complete stranger to modesty, pronounced that Shukla, Queen Of Scams, Is Out.

This morning, Facebook itself came around and TechCrunch announced that Facebook To Increase Enforcement Of Anti-Scam Rule. Facebook's about face was the most important but the least convincing. Arrington:

In my talks with Facebook earlier this week they took the position that they’ve been aggresively protecting users, and they’re taking the same tone in this blog post. They say that with so many ads and so many apps its impossible to monitor the entire platform effectively. My answer was that it took me about 10 seconds to find really scammy ads on FarmVille, the most popular social game on Facebook with 63+ million monthly users. If they just start with the big guys, a lot of the problem will go away.

In our original post we showed a financial connection between these ads and Facebook. Apps take the money from the ads and then aggressively buy ads on Facebook, effectively giving them a cut. So slow enforcement against even the top apps when they are so blatantly violating the rules is both unacceptable and suspicious.

This afternoon, Garrick, the new Offerpal CEO confessed in public and promised a new day of scam monitoring. ScamVille: New Offerpal CEO Admits Mistakes, Makes Bold Promises. Not a word of his statement offered any defense of his predecessor.

Ten days -- whew. Arrington, who is drawn more to heat than to light, gets a lot of credit. A lawyer by temperament and training, he marshaled his facts and arguments, presented them cogently, and goaded the industry into responding. That they responded responsibly and quickly is not only gratifying, it is astonishing.

I am quite familiar with the liberal response to these sorts of developments: these companies are simply trying to avoid being properly regulated and we can't trust them to behave.

Congress will have no objection from me if they wish to jump in and make some sausage. But Congress is designed to work slowly. They are unlikely to have nearly as much impact as the strong dose of public humiliation caused by some warm California sun has had this week.

The Hamilton Mixtape: "Cause I'm the damned genius that shot him"

2009-11-04T15:35:19-08:00

One of the cool things about being President is that talented people of all sorts are happy to drop by and perform for you. Last May, the White House sponsored "Poetry, Music, and Spoken Word", an opportunity to let people most of us have never heard of get their 15 minutes.

In the Heights author Lin-Manuel Miranda performed a preview of his newest project: a hop hop album on the life of Alexander Hamilton, at least some of it told from the point of view of Aaron Burr, the guy who met Hamilton for a duel in Jersey and killed him.

I am not a huge fan of hip-hop. But after watching this, I'd be happy to learn. Check it out (hat tip to James Fallows for the pointer).

Did Susan B. Anthony and Abraham Lincoln elect Barack Obama?

2009-11-02T11:07:52-08:00

In the earliest days of the United States, only white protestant men with property were eligible to vote, Since that time however, the US has steadily, if unevenly, advanced the cause of suffrage. Has it mattered?

To find out, ask how the 2008 presidential election would have turned out if only white men had voted. Paul Rosenberg at Open Left worked out the answer and drew the picture, which is fascinating.

Had only white men voted for President, Obama would have carried only eight states and lost in a landslide.

Now suppose that white men were excluded from the vote. Suppose, in other words, that only voters enfranchised since the Civil War could have voted in 2008. The results are remarkable:

Obama carries 36 states instead of 28 and does better in every state.

Now what?

US suffrage, Rosenberg concludes, expanded in three steps: first, more people became citizens, then more citizens got voting rights, and finally voting rights were strengthened to make voting easier.

We continue to debate these matters today.

Who becomes a citizen is the essence of our current national debate on immigration reform.

Which citizens can vote is a more settled topic, but questions of voting rights for citizens of Washington DC or or federal territories like Guam are far from resolved. And many have advocated lowering the voting age (perhaps a youth ballot worth a half vote starting at age 16) and even of restoring voting rights for felons.

Strengthening voting rights is an ongoing struggle, whether DOJ enforcement of the Voting Rights Act, debates about same day or DMV ("motor voter") registration, voting security, and a national voting holiday.

And what the pictures tell you is that how we answer these questions will determine what kind of country we will be. Leaving it to the white guys was never a great idea. The fight to enfranchise voters has been worthwhile and has made a huge difference.

The Apple Squeeze

2009-11-01T22:33:49-08:00

Have your noticed that Apple is getting squeezed? Consider these recent developments:

1. With Windows 7, Microsoft has substantially closed the performance gap with the Mac OS, thus quietly removing the major reason to switch to a Mac.

Both professional reviews and personal experience confirm that with Windows 7, Microsoft got it right. In a recent head-to-head poll with technically obsessed users, Windows 7 held its own against Snow Leopard -- Apple's outstanding UNIX-based OS. I have put Win7 on two machines, one Vista, one XP and it is a major improvement.

Mac Books are still very cool notebooks. But there is nothing about them that cannot be or won't be copied and improved. What is proprietary about a Mac is its software -- especially its OS. And that advantage is a lot smaller than it was a month ago. The nerd commercials were hysterical in an XP/Vista world. They don't resonate as well with Windows 7.

The silver lining for Apple? Operating systems don't matter as much as they used to and mobile platforms matter more. And Windows Mobile is dead, thanks less to the iPhone than to Google's Android.

2. Google, not Apple, is driving the mobile internet.

Mobile computing is exploding. Mary Meeker of Morgan Stanley argued at Web 2.0 last week that we may see 10X more mobile devices than desktops, just as we saw 10X more desktops than minicomputers, and 10X more minicomputers than mainframes (devices not dollars). It is a very high stakes game and Apple has played it brilliantly. Meeker reported that the Iphone is the fastest selling consumer tech item in history, outpacing the Nintendo Wii and DS in units shipped in its first ten quarters. (You can download highlights of Meeker's excellent presentation here.)

The key to the mobile internet is location based services. When your device knows where you are, it can help you shop, find friends, navigate, check reviews of places within 100 yards and a million other things that we are only starting to imagine. When you marry location based services to search and telephony you have an extraordinarily powerful platform for useful services.

Google, not Apple, is driving the most valuable mobile applications. This has become clear during the past few weeks. Google Voice transforms your phone by letting you control all of your numbers much more easily. Apple has blocked it from the iPhone. They know that Google already controls iPhone search (the voice-controlled search app on the iPhone is just plain eerie: say "Singapore Airlines flight 225" and it gives you the updated arrival or departure time. Say "kinetic defibrillating fuzzbuster" or the oddest name you know, and it frequently gets the words right).

Apple knows this and they are not happy about it. So they blocked Google Voice (and worse, blamed ATT, then lied about both to the FCC). Google CEO Eric Schmidt left the Apple board and the anti-Microsoft coalition came apart. The market, with good reason, continues to love Apple, which this week pulled even with Google in market value.

3. This week, Google responded by smacking Apple upside the head. Last week, Motorola announced the launch of the Droid, the first phone to run under Android 2.0, Google's operating system for mobile phones. In launching the Droid, Motorola previewed Google's new navigation system. The application is stunning. It incorporates search at a remarkable level. (Say "Greek Restaurant" and it finds all those near you and gives you directions with verbal turn by turn instructions to the one you choose, just like a dedicated GPS device. It checks traffic and calls up street view photos to help you navigate).

Oh one other thing. It's free. Google imagines that there are some Greek restaurants that might want to run ads and offer you free dolmas if they know you are in the neighborhood. Restaurants bidding for your patronage to fill empty tables will happen sooner than you think.

Garmin and the company that makes Tom-Tom GPS devices and software lost billions in market value within hours of Motorola demonstrating this software. The lovely profits in the GPS business are about to disappear and investors immediately adjusted their expectations.

The launch of Google Navigator on the Droid not the iPhone was Google raising a middle finger to Apple. Even a year ago this would have been unthinkable. Google and Apple were joined by their love of the iPhone and their hatred of Microsoft. Android was seen as a threat to Windows Mobile (now dead), Simbian (owned by Nokia and not healthy), and Palm (the mobile OS that refuses to either live or to die).

But Apple's behavior towards Google means that the iPhone is no longer the platform of choice for Google's best apps. Apple has single-handedly given itself a serious rival. New Android phones will now launch every week (every carrier is planning to have them) and the Android app store will rival the iPhone's within a few months (it will not be as big, but the difference between the two stores will not be a deciding factor for consumers once 10,000 applicaiions are available for Android).

A year from now, Android phones may run specialized Google Wave clients which could undermine Apple's native email and SMS offerings (Wave already runs on the iPhone browser but there is, so far as I know, no native app). Google and Apple may not hate each other now, but the romance is over, the yelling and the tears have begun, and a lot of doors are getting slammed in Cupertino these days.

Update: within the past hour, Google has launched its Music Onebox search. To see it, go to Google and search Norah Jones (Only a handful of artists are available yet. Jones sang at the last Applefest in San Francisco and will definitely not sing at the next one). Up comes Five tracks from Norah, and you can listen to the entire song. Google surfaces links to Rhapsody, Pandora, iMeem, and Lala, where you can buy the song. Play the song, and a big myspace box opens up with a big Buy MP3 button.
But where is the link to iTunes the world's largest music retailer? Nowhere, that's where.
Smack. Smack. Smack. Bad Apple. Squeezed Apple. Apple sauce. Needs sugar...

Although much of the Apple squeeze is self-inflicted, at some level it was not avoidable. Mobile is going to be a huge business and Google was not going to restrict its search offering to iPhones. But Apple's genetic control needs and deep preference for proprietary solutions, which they held in temporary abeyance with the App Store, resurfaced with a vengeance once Google's iPhone applications started making Apple look boring. Apple could have celebrated the new functionality that Google brought (or wanted to bring) to the iPhone, but chose instead to penalize its customers by blocking Google's programs.

This was incredibly dumb. Now that Google has responded, Apple will start to feel the squeeze.

"Dream bicycles that change and grow"

2009-10-29T02:10:39-07:00

One of my favorite cycling blogs, Eco Velo, ran this photo some time back. I am slightly obsessed with bicycles and business, so I noticed not just four sweet rides, but a nice illustration about how competition and business innovation are changing even the bike business.

THE ROMANCE OF BICYCLES

Most bikes sold in most stores have a racing heritage. These don't -- they are designed to be incredibly practical. They each let you ride comfortably upright, with your bars at least as high as your saddle. Nobody on these bikes will be confused with Lance Armstrong and they are likely to enjoy their ride a lot more as a result. When John Kennedy said that "Nothing compares to the simple pleasure of a bike ride" he was not fantasizing about clipless pedals, carbon fiber frames, and aero bars.

These are deeply romantic bikes -- the sort that caused novelist and poet Christopher Morley to declare bikes "the vehicles of novelists and poets" and H. G. Wells to declare bikes a cure for Melancholy. "When I see an adult on a bicycle", he later claimed "I do not despair for the future of the human race."

These are what what we used to call "touring" bikes and what many Europeans think of as normal: a steel frame, a long wheel base, a leather saddle, racks, fenders, comfortable tires, and bags. The prettiest one even has lugs (artistic steel joints) where the tubes come together. They are the profoundly useful bikes meant to cover long distances in comfort -- the sort of bike that caused writer Iris Murdoch to observe that while "other forms of transportation grow daily more nightmarish, only the bicycle remains pure in heart". Grant Peterson, a local hero who founded Rivendell Bicycle Works, makers of the orange bike, got it right when he called them "rideable art that can just about save the world".

These bikes can shape your dreams. You come to understand what Wells meant when he claimed that "After your first day of cycling, one dream is inevitable...You ride ... on wonderful dream bicycles that change and grow."

GLOBAL ECONOMICS

These four bikes are produced in a global supply chain by companies that target well-defined markets. All were designed in the US (two in Minnesota, a region that now plays a surprising role in the US bicycle industry.) Three of the four frames are manufactured in Taiwan, home to several high quality frame makers.

Frames make the bike and quality frames have migrated from the US to Japan to Taiwan.They are now heading for China. Walmart sells a highly credible Chinese made commuter bike for $185 and they sell a lot of them. Chinese bicycle factories are not the Dickensian nightmares of yore and the Chinese themselves no longer ride Flying Pigeons seemingly welded together out of scrap plumbing supplies. At least one high volume frame plant I visited in southern China is modern, clean, well-lit, and staffed by people who have learned from their Taiwanese customers how to steadily improve quality and productivity. Just as "Japanese" went from being a brand liability to an asset, "Made in China" will soon be one or two models down from premium, which will be made in Taiwan.

In contrast, all four bikes use leather English saddles made by Brooks, a 20 person company in Birmingham, England that has hand made the same product for more than a century. Brooks was recently purchased out of bankruptcy by Selle Italia, an Italian saddle maker famous for sexy racing saddles. They have introduced some terrific new products, including an expanded line of women's saddles.

Which posed a thorny marketing problem: how do fashionista Italians shake up an effete British product with small, loyal, conservative following? Click here to see the advertisement that sold a lot of saddles and told the world that Brooks was no longer standing still. (Test: if you ogled the interrupteur levers, cantilever brakes, and mixte frame in that photo, you are as sick as I am).

Likewise, the excellent bags on the orange bike are made by a small shop in the US out of fabric from a family-owned mill in Scotland. Nearly everything else on these bikes is Japanese or German, unless it hasn't changed much, in which case it is moving to Taiwan. When you see customized bars or racks polished like jewelry, they come from Nitto. The stylish hammered fenders are Honjo, the shifters, cranks, hubs, and deraillers are likely Shimano or Sugino, who are starting to produce in Taiwan. Components that benefit from technical innovation (brakes and shifters) have stayed in Japan, whereas mature parts (bottom brackets, cranks, most rims) are moving to Taiwan.

Tires are continually improving, so the best ones are Japanese or German. These days, flat tires are optional. Big Panracers, Contis, or Schwalbes are tough as nails (actually slightly tougher). In the 70s, I flatted every 3 or 4 rides. Now anybody who stays away from skinny tires can go months between flats (although glass on Berkeley streets gave me two in one day not so long ago).

The competitive dilemma facing US bike makers is best illustrated by Rivendell, which makes the orange Sam Hilborne bike in the photo. Rivendell has a brilliant brand that emphasizes beauty, practicality, and traditional materials. They sell three kinds of frames: American ($3,000), Japanese ($2,000), and Taiwanese ($1,000). All use the same steel, are well-designed, wonderful to ride, and beautiful to behold. Rivendell founder Grant Peterson launched his business with hand-built beauties, but he knew that not many folks spend $4-5,000 on their bicycles (there are many worse uses for $5,000 -- but still). Two decades ago he discovered Toyo and they have turned out beautiful bikes for Rivendell ever since.

But Toyo frames that used to cost $800 now cost $2,000, forcing Peterson to learn from that great cyclist Albert Einstein: "Life is like riding a bicycle - in order to keep your balance, you must keep moving." Rivendell is moving steadily to Taiwan and so, as it turns out, is Toyo. Rivendell hopes to not see its quality suffer -- and it is not likely to. Of course the Taiwanese producers are moving steadily to the mainland, so the story is far from over.

CYCLING INNOVATION

Each of these bikes is the product of a different kind of innovation and entrepreneurship. Each, believe it or not, is aimed at a slightly different market (notice that each bike has a different handlebar. This is not an accident).

The second bike from the top is a Steel Independence from Independent Fabs in Somerville, outside of Boston. The team there first came to cycling fame as Fat Chance cycles, makers of premium mountain bikes. I lived in Somerville in their early years and visited the shop -- it was as chaotic and energetic as any Silicon Valley startup. Today, Independent faces a tough challenge. They do not have the low overhead of artisanal frame makers nor the efficiencies and distribution available to larger companies. As a result, the Steel Independent frame costs twice as much as the other bikes in this picture. In fact, if you disguised the frames, most riders under most conditions would have a hard time noticing the difference between a bike built on this lovely $2,000 frame and a bike built on one costing half as much.

This problem keeps Grant Peterson of Rivendell Bicycle Works awake at night. I am passionate about Rivendell bikes and have owned several. The bikes are testimony to Peterson's engineering, aesthetics, and unyielding, point of view.

Richard Schwinn, grandson of the founder, once termed Rivendell "a religion masquerading as a bike company". He had a point. Peterson has been a proselytizer for practical bikes since the 1980s, when he designed bikes for Bridgestone that are still highly sought after. He favors lugged steel, wool clothing, leather saddles, beeswax, fenders, polished Nitto stems and racks, and bags of his own design. (He loves bags and is brilliant at designing and marketing them. Once he created a line of three bike bags and named them Adam, Hoss, and Little Joe after the Cartright brothers on Bonanza. I owned one of each and when I finally sold them on eBay a year or so after they had been discontinued, they fetched far more than I had originally paid, so powerful has been the lure and the logic of the Rivendell brand).

Grant is a also a champion of good handlebars and personally designed the fantastic "mustache" and "Albatross" bars on the bottom two of our four bikes. He dislikes Lycra, clip-on pedals, undersized frames, and the influence of racers on his industry. He works with a team in a crowded warehouse behind a car rental office in Walnut Creek and they build outstanding bicycles. Literally everything they sell is well thought out.

But great design and branding includes a cost structure designed to hit a target price point. Rivendell has built its business on frames by Toyo. Years ago, Peterson got them to make a wonderful frame called the Atlantis (Grant's is pictured above). The Atlantis is an all-round bike that is heir to the legendary Bridgestone X0-1, an earlier Peterson design that is now a cult bike. The Atlantis is Rivendell's best seller and I ride mine with a passion.

But a built up Atlantis now costs more than some school teachers take home in a month. Worse, I cannot risk locking it up outside of a store in Oakland. So I am selling the Atlantis, and replacing it with a used Surly Long Haul Trucker with scraped off decals.(The herd will not be without a Rivendell however. The Toyo-made Rambouillet stays because it's a road bike that I rarely lock anywhere).

So what exactly is a Surly Long Haul Trucker? That would be the bottom bike in the photo. And you wouldn't know to look at it, but it is a cousin of the bike on top, the Civia Highland. Surly has been extremely successful and the Civia, which just launched, will be as well (I rode my first one yesterday in Palo Alto).

Civia and Surly are both from Minnesota because both are owned by a bike company that even bicycle fanatics don't know much about: Quality Bike Products. QBP is as a parts distributor that figured out that in the bike business, shipping parts to retailers, and retailing itself isn't terribly profitable because it doesn't add a lot of value. Value in the bicycle business is captured by companies with really smart brand and product development skills. This requires three things that do not often go together: passion, discipline, and focus.

QBP seems to have all three. Few cyclists realize it, but they have built several of the finest brands in cycling by noticing niches, designing great products and brands, and using their distribution advantages to quickly grow profitable companies.

QBP saw prices rising on Japanese bikes and quality rising on Taiwanese parts and created Surly to make sturdy, no-frills steel road, mountain, and cross bikes. They saw the (frankly imbecilic) tendency for tattooed urban GenXers to ride fixed gear track bikes ("fixies") and they created All-City. (Hey, whatever gets you on your bike....). They have long owned Salsa Cycles, which make premium bikes, mainly carbon fiber or aluminum. They spotted a surge in cycling related to environmentalism and commuting and aimed the Civia, at the high end of this market. (They are right about the energy efficiency of a bicycle. A famous Scientific American Article by S.S. Wilson in March, 1973 showed that a human on bike gets more miles per calorie of energy than any animal or any known machine. Others have calculated that cyclist get the equivalent of three thousand miles per gallon).

QBP creates these separate companies like a bicycling venture incubator in the middle of Minnesota. They have assembled the expertise and distribution to identify markets, design products, and deliver them very quickly and in a very focused way. Not all of these companies will or should succeed, but it's a fantastic business model and, in its own way, as exciting as Rivendell.

US Newspapers in a Free Fall

2009-10-26T23:00:32-07:00

Today the Audit Bureau of Circulations released weekday circulation numbers for the top 25 daily newspapers in the U.S. The graph below shows changes in circulation during the past six months.

These numbers are not simply awful -- they represent the total collapse of the newspaper business. Only the Wall St. Journal added any subscribers at all during the past six months. They just became the biggest paper in the country not because they grew, but because USA Today managed to shrink a shocking 17% in two quarters! The San Francisco Chronicle, to nobody's surprise, lost a quarter of its readers. Splat.

Newspapers are dying not because we don't need news, but because we don't need paper. And because Google ate the business model. And because the Internet gives us news that is not only free, it delivers it while it is still new. Jon Stewart may have been unfair in his questioning of New York Times Editor Bill Keller this summer, but when he said, "Everything in today's newspaper happened yesterday. Why would I pay to read about something that happened yesterday?", you had to smile.

Industrial Triage

Let's triage the disaster scene by separating newspapers into those needing care, the hopelessly dead, and those that will be OK without much help. In the first group are a small number of large papers with a national franchise and a base of at least a half million paid subscribers: the Wall St. Journal, the New York Times, and the Washington Post. The first is preeminent in business and financial reporting, the second has a powerful if tarnished franchise in urban culture and world affairs, and the WaPo is unsurpassed in domestic politics. (USA Today has a national franchise and may survive by stuffing McNewspapers under hotel doors, but let's hope not).

These papers have substantial online operations. The New York Times derives about a quarter of its revenue online and the Wall St. Journal has long appeared to run a profitable online operation.This chart shows scale of these national publications based on today's circulation figures. This group needs care but can probably survive and perhaps thrive as online media businesses, although the changes will continue to be wrenching.

Group two, major city newspapers, are road kill on the information highway. There is no way for these papers to recover from circulation losses of this magnitude. These are high fixed cost businesses, so cutting operating costs won't help once subscribers drop below a critical threshold. They cannot raise prices for subscriptions or advertising because consumers and advertisers have better options online and are defecting at current prices. They cannot build online operations that can compete with the national brands for ad dollars nor do they have the resources, access to capital, or time to try. Game over.

Finally there are small town papers. They are too small to be in the chart above and often fly below the radar of industry discussions. There are hundreds of them and surprisingly, many are in fine shape. Their secret, which the big boys cannot copy, is to always print a lot of names of local residents. These papers often look like high school newspapers or specialized blogs: they glue small communities together. They don't work under tight deadlines, often publishing once or twice a week. They depend on ads for local products and services instead of subscriptions. And they usually have a dramatically lower and more flexible cost structure than a metropolitan newspaper. They will outlast most of their urban brethren, even if they cannot grow, attract capital or have a much impact outside of town. Some may migrate online, perhaps as a collection of local blogs that share revenue from local advertising, but as of now most are under little pressure to do so.(This would change quickly, by the way, if search engines could produce results at the neighborhood or community level, which is difficult but certainly possible).

Whither Journalism?

Does the collapse of major newspapers spell the end of journalism? Not likely. Witness Tim Armstrong's shocking announcement to the Web 2.0 Summit this week. Speaking at the sixth annual Davos for digerati in San Francisco, AOL's new CEO mentioned an astonishing fact: since he left Google to take over AOL six months ago, he has increased the number of journalists from 500 to 3,000 and "plans to keep hiring".

What is up with that? AOL is hiring a hundred journalists a week! Armstrong is making a very interesting and risky bet. He ran sales for Google, so he knows how to monetize high quality content online. But how, precisely, does AOL plans to do this at scale? Traditionally, subscription models have not worked and ad models have tended to be more attractive for search engines than for publishers. But a week ago, who would have believed that AOL may soon employ more journalists than the largest newspapers? Damn.

Tonight as my 13 year old recycled our newspapers, we imagined that his kids will find it odd that "paper boys" once got up early to deliver information to our doorstep every morning. He finds it odd that when I was his age, milk men got up early to deliver glass bottles of milk to my doorstep. I get along fine without the milkman (although I miss the glass bottles) and I doubt that anyone will pine for newspapers, especially in a world of Apple tablets, netbooks, and Kindles.

What will we read? Newspapers used to be about news. We paid for reliable information about current events: baseball scores, movie show times, or major developments from around the world. As a result, journalism was preeminently about facts. We relegated opinions to the back pages, where they could be safely segregated and labeled. But news is now a commodity. Facts may be stubborn things, hard to absorb, or unpleasant -- but they are ubiquitous and cheap.

Insights on the other hand, remain rare and valuable given the exploding velocity and quantity of information. Columnists, essayists, journalists, scientists, poets, or experts who can combine facts, values, and judgment to give meaning to "news" are more important than ever. High quality interpretation that helps people make sense of events needs to populate home pages, not back pages. Journalism is not dead, but in the age of Twitter, plain vanilla reporting is not especially healthy.

The business of news is changing because technology has shredded distribution costs, reshaped advertising, and made information free. In a world where facts are abundant, free, and real-time, insight and meaning become more valuable than ever.

The Future of Twitter

2009-09-27T14:41:55-07:00

Twitter just raised $100 million on a $1 billion valuation, making Twitter about as valuable as say, Barnes and Noble, which has 720 bookstores and about $5 billion in revenue.

Twitter revenues? Well, none. But someday we can serve ads to all those eyeballs, right?

Right. But the competitors are circling. And I don't mean Facebook trying to out-tweet Twitter or LinkedIn trying to become Facebook. I mean real, scary competition. I mean Flutter.

Check it out.

Grading College Admissions Essay Questions.

2009-08-24T22:23:40-07:00

The Jam Kid is applying to college. He will do fine, but his applications have exposed me once again to the college admissions racket. College applications are now standardized and online, which means that to apply to lots of colleges, a kid clicks a bit and send along a few more $50 dollar bills. He or she also write a few more essays, about which more in a moment.

Is this good for colleges? Well, they think so. It makes them all more "selective". Being selective is a wonderful thing for a school. Colleges imagine that they are getting better students, better faculty, and above all, a better feeling about themselves, since they have obviously moved up in the world. So every student applies to more schools, so every school is suddenly more selective. Instead of saying "we only take one applicant in five", colleges can now brag that "we only take one applicant in ten".

This lunacy fuels a false impression of underlying demand and helps colleges justify price increases. From 1990-2006, the average price tag for a year at a private college rose from $10,348 to $19,312, an increase of 86%. Costs for a year at a public college rose 85%, from $2,035 to $3,774. During this time, tuition costs rose more than three times faster than inflation.

There are other factors driving up the number of schools kids apply to. Information is free, so every American high school kid can find out about every college. Travel is cheaper. And both of these factors have led to a huge number of overseas applicants. A recent New York Times piece (citation anyone?) noted that top universities now admit 20-30% their incoming classes from overseas. Next to these factors, age demographics (cited continuously by college counselors) are a trivial factor.

The downside to a college of taking more applications? They have to do more work to select an incoming class. They use grades and test scores to screen some applications, but when admissions committees face a large pool of kids who could all do the work, they turn to essays. Here is where applicants are told that they can really differentiate themselves. College essays have become the new rite of passage in middle class America.

So who decides the essay topics? Indeed, who evaluates colleges for the essays they require? Not only can essays differentiate applicants, they are a great way for colleges to differentiate themselves. Good colleges should ask smarter or at least more provocative questions. Kids notice -- and so do parents.

Do colleges ask students for thoughtful essays? Generally they do not. Many schools require little more than the common application essays. I have just reviewed the 2009 supplemental essay questions for about 75 colleges that ask for extra essays. Most of them are dumb as a stick -- variations on "why do you want to come here?" and "how will you contribute to our campus?" -- questions that the average 16 year old or anyone else cannot do much with.

Most college admission essay questions would limp home with a gentleman's C or less if submitted for a course. So in the spirit of public service, here are the best and worst college essay questions, presented alphabetically by college. (I have mercifully edited some of the questions for brevity.)

Worst

Brown University: The Donald Rumsfeld Epistemology Award for

"What don't you know?". Please limit your essay to 500 words.

Kenyon College: The George Bush Non Sequitur Award for

"Neuroscientists have recently discovered the part of the brain most active in decision-making. What human trait would you most want to understand and what makes it significant to you?"

Lewis and Clark: The Calvin and Hobbes Unfortunate Verb Award for

"Describe how Lewis and Clark will help you explore your academic and personal goals."

Princeton: The Golden Gate Bridge Jumper Award for

"Using the statement below as a jumping off point, tell us about...

"Using the quotation below as a jumping off point, tell us about...

"Using a favorite quotation from an essay or book as a jumping off point, tell us about...

Stanford: The Aleksei Grigorievich Stakhanov Award for Piling on Essays to Limit Applications for

In separate essays:

Name your favorite books, authors, films, and/or musical artists
What newspapers, magazines, and/or websites do you enjoy?
What is the most significant challenge that society faces today?
How did you spend your last two summers?
What were your favorite events (e.g., performances, exhibits, sporting events, etc.) this past year?
What historical moment or event do you wish you could have witnessed?
What five words best describe you?
Tell us about an idea or an experience you have had that you find intellectually engaging.
What would you want your future roommate to know about you? Tell us something about you that will help your future roommate -- and us -- know you better.
Tell us what makes Stanford a good place for you.

Best

Gonzaga University: The Love Minus Zero Award for

"..Success lies just the other side of failure. What has been your most significant failing and what did you learn from the experience?"

Harvard University: The "Keep at this long enough and you'll eventually get it right" Award for

"Write whatever you want us to read. Possible topics include unusual circumstances in your life, travel or living experiences in other countries, books that have affected you the most, an academic experience (course, project, paper, or research topic) that has meant the most to you, or a list of the books you have read during the past twelve months."

NYU: The Urban Chic Brand Consistency Award for

"Please tell us how you spent your most recent summer vacation."

"If you had the opportunity to spend one day in New York City with a famous New Yorker, who would it be and what would you do?"

"In the year 2050, a movie is being made of your life. Please tell us the name of your movie and briefly summarize the story line."

Tufts: The "Way Outside the Box" Essay Questions Award for

"Do you surf or tinker? Are you a vegetarian poet who loves Ayn Rand? Do you prefer YouTube or test tubes? Are you preppie or Goth? Use the richness of your life to give us insight: what voice will you add to the Class of 2014"

Pick one:

... Imagine history without the United States as we know it.

Kermit the Frog famously lamented it's not easy being green. Do you agree?

Texting, cell phones, blogs, and tweets are redefining the way we communicate. Facebook is the new playground while print newspapers are dying. As thumbs replace tongues, does this shift in human expression enhance or limit social interaction and dialogue? Why?

Use an 8.5 x 11 inch sheet of paper to create something. You can blueprint your future home, create a new product, draw a cartoon strip, design a costume or a theatrical set, compose a score, or do something entirely different. Let your imagination wander.

Share a one-minute video that says something about you. Upload it to YouTube or another easily accessible Web site, and give us the URL. What you do or say is totally up to you. (Unfortunately, we are unable to watch videos that come in any form other than a URL link.)

People face challenges every day. Some make decisions that force them beyond their comfort levels. Maybe you have a political, social, or cultural viewpoint that is not shared by the rest of your school, family, or community. Did you find the courage to create a better opportunity for yourself or others? Were you able to find the voice to stand up for something you passionately supported? How did you persevere when the odds were against you?

and finally....the coveted award for Best Questions on a College Application to.....

The University of Chicago for

"Would you please tell us about a few of your favorite books, poems, authors, films, plays, pieces of music, musicians, performers, paintings, artists, magazines, or newspapers? Feel free to touch on one, some, or all of the categories listed, or add a category of your own."

"How did you get caught? (Or not caught, as the case may be)."

"...George Lichtenberg wrote, "Just as we outgrow a pair of trousers, we outgrow acquaintances, libraries, principles, etc. . . . at times before they're worn out and at times - and this is worst of all - before we have new ones." Write an essay about something you have outgrown, perhaps before you had a replacement - a friend, a political philosophy, a favorite author, or anything that has had an influence on you. What, if anything, has taken its place? "

"From game theory to Ultimate Frisbee to the great Chicago Scavenger Hunt, we at the University of Chicago take games seriously. We bet you do, too. Even if "just a game," sport, play, and other kinds of games seem to share at the very least an insistence that we take seriously a set of rules entirely peculiar to the circumstance of the game. You might say, in order to play a game we must take it seriously. Think playfully - or play thoughtfully - about games: how they distract us or draw us into the world, create community and competition, tease us and test us with stakes both set apart from and meaningful to everyday life. Don't tell us about The Big Game; rather, tell us about players and games."

"In the spirit of adventurous inquiry, pose a question of your own. If your prompt is original and thoughtful, then you should have little trouble writing a great essay. Draw on your best qualities as a writer, thinker, visionary, social critic, sage, citizen of the world, or future citizen of the University of Chicago; take a little risk and have fun."

Note that Chicago did something that very few schools do: they took the admissions essay questions seriously enough to ask current students and alumni for suggestions. Nearly all of these questions were inspired by the results.

Colleges should take their application essays much more seriously if they expect their applicants to do the same. College is a valuable luxury and can be a very helpful one. At a minimum, you are likely to learn that good questions are even more valuable than good answers.