Does drinking help your career? Maybe, if you're a man

5:38pm Wednesday, Oct 25 |

By Peter Hoy, Inc.com

- While many were quick to dismiss the findings of a recent study showing that drinkers make more on average than those that abstain from alcohol, a number of CEOs cite a direct connection between socializing and career advancement.

Regular drinkers make 10% to 14% more money than those who do not drink, according to the study, conducted by the Journal of Labor Research, published quarterly by the Department of Economics at George Mason University, and the Reason Foundation, a Los Angeles-based think tank.

The study also concluded that men who drink socially -- defined as visiting a bar at least once a month -- earn an additional 7% more than those who do not. The same correlation was not found for women, however.

Simply wishful thinking? Perhaps not. CEOs, particularly those running smaller, fast-growing companies, say that social and professional networking is an essential business tool. And while Johnnie Walker and Grey Goose may not actually be career wonder-tonics, the reality is that a significant amount of this networking takes place at company happy hours and other social events involving alcohol.

Edward Stringham, co-author of the study and professor of economics at San Jose State University, concluded that drinking is a productive activity because it increases social capital -- an economist's way of saying that going out for a beer after work and schmoozing will form useful relationships, both social and professional, that can turn into job opportunities.

CEOs say they see merit in the theory. "I would definitely agree with that," said Paal Gisholt, CEO of SmartPak, a 125-employee pet-supply company based in Plymouth, Mass. "The days of command-and-control management are over. Nowadays, influence has everything to do with developing relationships.

At SmartPak, managers are encouraged to take their employees horseback riding, bowling, or out for the occasional happy hour. The company hosts Halloween parties and a monthly barbeque -- even renting a mechanical bull for one event.

"Socializing underlies strong selling skills, and in a company like ours, success is tied to your ability to sell," Gisholt said. "Alcohol can induce confidence, and that helps with people skills.
But there are, of course, drawbacks of emphasizing drinking as a part of company culture.

"It has the potential to be unfair for those who don't drink," Gisholt acknowledged, noting that he saw both positive and negative effects of social drinking at a consulting firm where he worked before founding SmartPak in 1999.

It also doesn't help your career to show up for work with a hangover, not to mention the long-term health risks that alcohol carries. The National Institutes of Health, based in Bethesda, Md., has numerous studies showing the detrimental effects of alcohol on physical and mental health, including correlations between alcohol use and birth defects, neurological disorders, violence, stress, liver disease, and brain disease.

A spokesman at the National Institute on Alcohol Abuse and Alcoholism, which is part of the NIH, said that although the group had not yet reviewed the study, it remained dubious of its claims.

Mary Naylor, CEO of VIPdesk, a corporate concierge service, agreed that social networking within her company is vital. "In terms of a sense of belonging and value, it is especially important as your small company grows larger," said Naylor, whose Alexandria, Va.-based firm now has 200 employees.

Naylor maintained, however, that "alcohol has not been a core component of company events," and insisted that positive relationships can be achieved just as easily without it.

"I'm sure there are many people who will disagree with my hypothesis," Stringham conceded. "But decisions about alcohol are choices individuals have to make, and my study points out some beneficial effects -- economic effects -- that have been largely ignored by other researchers."

US faces skills gap, may become "the massage capital of the world", with more students graduating in sports sciences than electrical engineering

5:55pm Wednesday, Oct 25 |

US faces 'bigger skills gap' than India
By Francesco Guerrera in New York, Richard Waters in San Francisco and Rebecca Knight in Boston
Wednesday Oct 25 2006 17:15

Azim Premji, chairman of Wipro (NYSE:WIT) , the Indian outsourcing group, has warned that the US faces a more acute skills shortage in information technology than India, blaming failings in America's education system and restrictive immigration policies.

The comments will bolster arguments by US companies such as Microsoft, General Electric (NYSE:GE) , Google (NASDAQ:GOOG) and Intel (NASDAQ:INTC) , which have urged Washington to act to reverse the steady erosion in the stock of domestic IT talent.

"There is a scarcity of IT professionals in the US," Mr Premji told the Financial Times. "Engineering is not growing talent, and that is a cause of concern."

He said Indian groups would confound expectations of a looming skills shortage in the country and continue to draw on lower-cost, highly trained graduates to retain their technological edge.

However, he said Wipro would also continue to expand outside India to serve non-English speaking countries and could open a base in Russia within 18 months.

Mr Premji, a Stanford University graduate, said the US education system was not doing enough to attract mathematics and science teachers or to steer students towards those subjects.

"Math is not considered as important, and students are not getting a premium when they graduate as engineers," he said. The US produces about 70,000 engineering graduates a year, a fraction of India's 400,000, though that number is boosted by holders of three-year diplomas.

Willard Daggett, president of the International Center for Leadership in Education, said: "The problem is not that our schools aren't what they used to be; the problem is that our schools are what they used to be."

Mr Premji said US skill shortages have been made more acute by visa rules that have cut the number of science students and professionals allowed into the US. He said the curbs made it difficult for outsourcing companies to serve US-based customers and warned that the powerful Indian IT industry could lobby the Indian government to impose retaliatory measures on the US.

Bill Gates, Microsoft's founder, has been warning about the evaporation of interest in computer science at US universities for more than two years.

Jeffrey Immelt, GE's chief, told a Washington audience in January that the US was on its way to becoming "the massage capital of the world", with more students graduating in sports sciences than electrical engineering.

Prosper's Peer-To-Peer Lending Promises An eBay For Money

5:47pm Wednesday, Nov 1 |

Prosper's Peer-To-Peer Lending Promises An eBay For Money

Online borrowing platform Prosper lets people bid to provide loans at different rates.

By Thomas Claburn
InformationWeek

May 22, 2006 12:00 AM

Peer-to-peer finance sounds like a concept born to be ridiculed. It involves groups of people coming together online to lend up to $25,000 to someone they don't know, eliminating the bank middleman. Call it social finance or a utopian dream. Just don't call it LoanShark.com.

In February, Prosper opened what it describes as "America's first people-to-people lending marketplace." And a company called Zopa this summer will bring its British brand of peer-to-peer finance to California residents. Zopa began operating in the United Kingdom in March and has more than 60,000 members.

Both companies are flush with venture capital. Prosper has about $20 million from Accel Partners, Benchmark Capital, Fidelity Ventures, and Omidyar Network. Zopa has $23 million from Benchmark Capital, Bessemer Venture Partners, and Wellington Partners.

Prosper is like eBay for money--except that instead of auctioning products, it lists loans people want and lets lenders bid on them, alone or in groups. On Zopa, instead of bidding, lenders' money is spread across batches of 50 borrowers to lower risk.

The model goes back to the way things used to be when one neighbor supported the business of another, says Chris Larsen, Prosper's CEO and co-founder. "There was a really strong sense of obligation and accountability and reputation within a small community," he says, "which actually made repayment of debts more reliable and less risky."

Before anyone compares this to the neighborhood loan shark, though, Prosper limits how high interest rates can go. Lenders can pursue deadbeats through conventional channels.

Prosper's rates range from 7.32% (low risk, low amount) to 24.04% (high risk, high amount). Zopa claims an average gross return of 7%. The sites make money on fees and attract a mix of ardent capitalists and wild-eyed dreamers. "I'm fascinated by the concept and hate big corporate banks," writes one user on Zopa's online forum.

Most intriguing are both companies' plans to introduce APIs so programmers can integrate social finance with social networking. Members of Yahoo Groups and MySpace would be able to participate in peer-to-peer finance through groups already established at other services. Groups could even be set up to view financial data and perform administrative functions from sites other than Prosper or Zopa.

This social aspect could be the key to whether this model expands beyond a niche--though chatty MySpace relationships could be strained if collection letters start to arrive.
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Peer-To-Peer Lending: A Prototype For The Future Of Mortgage Lending
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Newsweek Magazine's Tip Sheet section last week featured two Web sites that have nothing to do with real estate or mortgage financing but may illustrate the future of the mortgage lending game.

Prosper.com is based in San Francisco and Zopa.com is British based. They operate on the principal that people needing to borrow money and those wanting to lend it are better off dealing directly (a relative term) with each other rather than using banks or other middle-men. Each, for a fee of course, are trying to facilitate this person-to-person lending while providing safeguards and services to both sides of the transaction. Each site, however, approaches the task in a slightly different way.


Zopa.com, is not yet available, or at least widely available in the U.S. They have received substantial venture capitol to start up in California "within the year," but that announcement was undated. It is the more straightforward of the two sites but the business plans don't deviate all that much.

Borrowers in need of money post their specs - $3,000 to consolidate credit card debt or $9,000 for a piece of equipment to expand a small company - and lenders bid for the business. It is all done anonymously and borrowers are not inundated with emails and telephone calls as are borrowers registering with traditional on-line lending companies. Loans are limited to three years and $25,000 on Prosper.com and up to 60 months on Zopa although we saw no ceiling loan amount. Both companies vet potential borrowers by checking credit and identity and both provide collection services.

Lenders through Prosper can choose to bid on financing an entire loan request or to take a piece of the debt thus spreading the risk of an individual loan among a number of lenders. The lowest rate offered wins but one would assume that a borrower could end up with a blended rate with one lender offering to take half of a $2000 loan at 7 percent with the remainder spread among ten lenders each offering to finance $100 at 8 percent. Zopa.com spreads all of its loans across lenders so that a number of investors own a piece of each loan. A $500 investment would be spread across a minimum of 50 loans.

The two services appear very different on line but both share an attribute of being limited in the information they provide; Zopa because it has a small site and Prosper because its site drowns the visitor in details. After a lot of searching it seems that an investor can transfer as little as $25 or as much as $100,000 into its lending account and that the minimum one can lend on Zopa is £10 but I remain confused about how the two major embellishments by Prosper actually work.

Prosper encourages its borrowers to join borrowing groups. The theory is that people will be more likely to repay their obligations if the reputation of their group is at stake. Anyone (who qualifies with a verifiable name, bank account and Social Security number) can start a group or join an existing group that matches their interests or philosophy. If group members display a high degree of responsibility managing their individual debts then the group will qualify for more advantageous rates in the future. The group leader also becomes a first line enforcer in the collections process. In addition, the group leader receives cash rewards for every loan that is funded and for every timely payment. The leader can choose to keep the rewards or to share them on a sliding scale from 25 percent to 100 percent with group members in the form of lower loan payments. The kicker, of course, is that groups where the rewards are shared are going to attract more members.

Groups are categorized as "arts and cultural," "religious and spiritual," "hobbies and clubs," "military" and a dozen other designations. A total of 2,461 groups are listed across the various categories but there is a good deal of overlap with some groups listing themselves several different ways and a few appearing in every category. Membership in the various groups such as "Foolish Loans" made up of subscribers to the Motley Fool investment site, Christian Stewards, Homeschoolers, Government employers, and so forth, ranged from one person (the lonely group organizer) up to nearly two thousand.

At the group level was where Prosper got very confusing. It appears that many of the borrowers groups are also lenders. Every one we looked at had money available for lending but a number of groups had exactly the same amount available - to the penny. We visited every link (and there are dozens) trying to get an explanation of this without success. Reading between the lines it would appear that many of the groups were formed by traditional lending/finance companies. Before deciding to borrow or lend it would be good to get this relationship examined.

The interest rates are nothing to write home about either. Prosper lists historical interest rates for AA credit borrowers at 7.73 percent to 12.61 percent depending on loan amount. Different borrowers groups quote different rates but at least one advises that, for planning purposes the borrower should add an additional 3 to 4 percent to the estimate.

If, in spite of their warts, these websites work for relatively small, unsecured, and primarily personal loans it is easy to see other entrepreneurs entering the market and eventually starting up services for homeowners to finance purchases or refinances. Such sites could ultimately supplant Fannie Mae or Freddie Mac or perhaps the two corporations will be quick enough on their feet to start such a service themselves, opening up particularly the lending end of the mortgage business to small investors who could profit from the relative safety of a type of secured investing which is usually not available to them. The format offers both an opportunity and a real threat for mortgage companies which currently qualify and package loans.

It is not such a stretch to see a prospective homebuyer logging on to (example) Helpmebuy.com or some such with a request for the $250,000 he figures he needs to buy a home and the rate he is willing to pay and be pre-approved by a single lender or 1,000 of them in a matter of hours. This would truly be "lenders bidding for your business," and would give both borrowers and lenders more control while not upsetting the current well-established availability of home purchase funds or the mechanisms for servicing the funded loan.

Peer to peer lending, it's a brave new world.
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Company Overview

Prosper, America's first people-to-people lending marketplace, was created to make consumer lending more financially and socially rewarding for everyone.

The way Prosper works is intuitive to people who have used eBay. Instead of listing and bidding on items, people list and bid on loans using Prosper's online auction platform.

People who want to lend set the minimum interest rate they are willing to earn and bid in increments of $50 to $25,000 on loan listings they select. People who lend can easily diversify using "standing orders", which automatically make many small loans to different borrowers.

In addition to criteria commonly used by institutional lenders, such as credit scores, people who lend can consider borrowers' group affiliations. Groups on Prosper are critical to bringing people together for the common goal of borrowing at better rates. Groups earn reputations according to their members' repayment records. Groups with successful repayment histories should attract more lenders offering lower rates.

Borrowers create loan listings for up to $25,000 and set the maximum rate they are willing to pay a lender. Then the auction begins as people who lend bid down the interest rate. Once the auction ends, Prosper takes the bids with the lowest rates and combines them into one simple loan. Prosper handles all on-going loan administration tasks including loan repayment and collections on behalf of the matched borrower and lenders.

Prosper's rigid privacy policy reflects co-founder and Chief Executive Officer Chris Larsen’s longstanding history as an advocate of stringent consumer financial privacy protection laws and practices. Prosper does not sell, rent, or share members' personal information with third party marketers. Prosper members are in control of how much personal information—if any—is revealed on the website and with other members. Prosper's security and identity verification systems are state of the art, and consistent with those used by banks, brokerages and institutional creditors.

Prosper generates revenue by collecting a one-time 1% fee on funded loans from borrowers, and assessing a 0.5% annual loan servicing fee to lenders. Backed by Accel Partners, Benchmark Capital, Fidelity Ventures, and Omidyar Network, Prosper has raised approximately $20 million. Prosper's marketplace platform is patent pending.

Innovations at Amazon.com

3:09pm Saturday, Nov 4 |

BusinessWeek Online
Jeff Bezos' Risky Bet
Friday November 3, 4:00 pm ET
By Robert D. Hof

It was one of the Web's typical flash frenzies, a gaggle of geeks seeking the new, new thing. At 2 a.m. on Aug. 24, a new venture called Elastic Compute Cloud quietly launched in test mode. Its service: cheap, raw computing power that could be tapped on demand over the Internet just like electricity. In less than five hours, hundreds of programmers, hoping to use the service to power their MySpace (NYSE:NWS - News) and Google (NASDAQ:GOOG - News) wannabes, snapped up all the test slots. One desperate latecomer instant-messaged a $10,000 offer for a slot to a lucky winner, who declined to give it up. "It's really cool," enthuses entrepreneur Luke Matkins, who will run his soon-to-launch music site on the service. The creator of this tres cool service: Amazon.com Inc. (NASDAQ:AMZN - News)

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Yes, Amazon founder and Chief Executive Jeffrey P. Bezos, the onetime Internet poster boy who quickly became a post-dot-com pinata, is back with yet another new idea. Many people continue to wonder if the world's largest online store will ever fulfill its original promise to revolutionize retailing. But now Bezos is plotting another new direction for his 12-year-old company, which he will lay out on Nov. 8 at San Francisco's Web 2.0 Conference, the annual gathering of the digerati creme. Judging from an advance look he gave BusinessWeek on one recent gray day at Amazon's Seattle headquarters, it's so far from Amazon's retail core that you may well wonder if he has finally slipped off the deep end.

Bezos wants Amazon to run your business, at least the messy technical and logistical parts of it, using those same technologies and operations that power his $10 billion online store. In the process, Bezos aims to transform Amazon into a kind of 21st century digital utility. It's as if Wal-Mart Stores Inc. (NYSE:WMT - News) had decided to turn itself inside out, offering its industry-leading supply chain and logistics systems to any and all outsiders, even rival retailers. Except Amazon is starting to rent out just about everything it uses to run its own business, from rack space in its 10 million square feet of warehouses worldwide to spare computing capacity on its thousands of servers, data storage on its disk drives, and even some of the millions of lines of software code it has written to coordinate all that.

Another big idea from Jeff Bezos? Go ahead and groan. It's fine with him. Even after all these years spent battling back claims that his company would be "Amazon.toast," he's still bounding up and down stairs two at a time to exhort his band of nerds on to the Next Big Thing. And now, more than ever, he's determined to keep going for the big score, even if people think he's crazy. In fact, Bezos, 42, sounds downright eager to confound a new generation of skeptics. "We're very comfortable being misunderstood," he says, letting loose one of his famously thunderous laughs. "We've had lots of practice."

But if techies are wowed by Bezos' grand plan, it's not likely to win many converts on Wall Street. To many observers, it conjures up the ghost of Amazon past. During the dot-com boom, Bezos spent hundreds of millions of dollars to build distribution centers and computer systems in the promise that they eventually would pay off with outsize returns. That helped set the stage for the world's biggest Web retail operation, with expected sales of $10.5 billion this year.

What it didn't translate into was the consistent profit growth many investors had expected by now. Lately profits have fallen, dragged down by spending on new technology projects and on free-shipping offers that Amazon considers marketing in place of TV ads. Analysts expect full-year net income this year to come in at about $180 million, or half of last year's total. Most worrisome to investors is Amazon's three-year-plus binge on new technologies. So far this year its spending on technology and content, including hiring hundreds of engineers and programmers to produce all these new services and buy more servers to run them, is up 52%, to $485 million. As a result, operating margins, at 4.1% for the past four quarters, now come in at less than Wal-Mart's 5.9%. Even Barnes & Noble Inc. (NYSE:BKS - News), that doughty bricks-and-mortar book chain that many expected to get remaindered by the Web, has higher margins, at 5.4%. "I have yet to see how these investments are produci ng any profit," gripes Piper Jaffray & Co. analyst Safa Rashtchy. "They're probably more of a distraction than anything else."

All that has investors restless and many analysts throwing up their hands wondering if Bezos is merely flailing around for an alternative to his retail operation. Eleven of 27 analysts who follow the company have underperform or sell ratings on the stock--a stunning vote of no confidence. That number of sell recommendations is matched among large companies only by Qwest Communications International Inc. (NYSE:Q - News), according to investment consultant StarMine Corp. It's more than even the eight sell opinions on struggling Ford Motor Co. (NYSE:F - News)

Neither analysts nor investors think Amazon's business is in danger of collapse. It's just that they're slowly losing confidence in Bezos' promises. The company's 2007 price-to-earnings ratio of 54 is much higher than its peers', even than high-flying Google Inc. (NASDAQ:GOOG - News) at 35. But Amazon's stock is down 20% since the start of the year. A 12% one-day jump on Oct. 24 reflected slightly better-than-expected third-quarter results, but also investor relief that Bezos plans to slow the growth of new tech spending.

What's more, at the same time Bezos is thinking big thoughts, Amazon's retail business faces new threats. Its 25% sales growth tracks a little above the pace of overall e-commerce expansion and nearly double its own pace way back in 2001. But other sites are fast becoming preferred first stops on the Web. Google, for one, has replaced retail sites such as Amazon as the place where many people start their shopping. And more personalized and social upstarts such as News Corp.'s (NYSE:NWS - News) MySpace and YouTube, which Google is buying, have become the prime places for many people to gather online--and eventually shop. It's a trend Amazon could have trouble catching up to. Says consultant Andreas Weigend, Amazon's chief scientist until 2004: "The world has shifted from e-business to me-business."

With all those problems, some might view Bezos' latest tech toys as an attempt to take their eye off the ball. But spend some time with Bezos, and it becomes clear there may well be a method to his madness. Amazon has spent 12 years and $2 billion perfecting many of the pieces behind its online store. By most accounts, those operations are now among the biggest and most reliable in the world. "All the kinds of things you need to build great Web-scale applications are already in the guts of Amazon," says Bezos. "The only difference is, we're now exposing the guts, making (them) available to others."

And, he hopes, making money. With its Simple Storage Service, or S3, Amazon charges 15 cents per gigabyte per month for businesses to store data and programs on Amazon's vast array of disk drives. It's also charging other merchants about 45 cents a square foot per month for real space in its warehouses. Through its Elastic Compute Cloud service, or EC2, it's renting out computing power, starting at 10 cents an hour for the equivalent of a basic server computer. And it has set up a semi-automated global marketplace for online piecework, such as transcribing snippets of podcasts, called Amazon Mechanical Turk. Amazon takes a 10% commission on those jobs.

Bezos is initially aiming these services at startups and other small companies with a little tech savvy. But it's clear that businesses of all kinds are the ultimate target market. Already, Amazon has attracted some high-powered customers. Microsoft Corp. (NASDAQ:MSFT - News) is using the storage service to help speed software downloads, for instance, and the service is helping Linden Lab handle the crush of software downloads for its fast-growing Second Life online virtual world. Highly anticipated search upstart Powerset Inc. plans to use the Amazon computing service, even though it's still in test mode, to supplement its own computers when it launches its service sometime next year. And the search engine marketing firm Efficient Frontier uses Mechanical Turk to determine the most effective keywords that drive traffic to Web sites.

By all accounts, Amazon's new businesses bring in a minuscule amount of revenue. Although its direct cost of providing them appears relatively low because the hardware and software are in place, Stifel Nicolaus & Co. (NYSE:SF - News) analyst Scott W. Devitt notes: "There's not going to be any economic return from any of these projects for the foreseeable future." Bezos himself admits as much. But with several years of heavy spending already, he's making this a priority for the long haul. "We think it's going to be a very meaningful business for us one day," he says. "What we've historically seen is that the seeds we plant can take anywhere from three, five, seven years."

A Dark Horse In A High-Stakes Race
Sooner than that, those initiatives may provide a boost for Amazon's retail side. For one, they potentially make a profit center out of idle computing capacity needed for that retail operation. Like most computer networks, Amazon's uses as little as 10% of its capacity at any one time just to leave room for occasional spikes. It's the same story in the company's distribution centers. Keeping them humming at higher capacity means they operate more efficiently, besides giving customers a much broader selection of products. And the more stuff Amazon ships, both its own inventory or others', the better deals it can cut with shippers.

But there's much more at stake for Bezos than making a few extra bucks selling services that his online store is already providing for itself. This is nothing less than a bid to lead the next wave of the Internet. A dozen years in the making, the economy that has grown up with the Internet by most accounts remains in its infancy. And leadership of that burgeoning economy remains up for grabs.

Google and Microsoft, in particular, are each angling to be the Net's kingpins: Just as Microsoft ruled the PC world (and its profits) with Windows software, so Google and Microsoft want to build what techies call the "platform" for the Web--the powerful layer of basic services on top of which everyone else builds their Web sites. "Amazon's a pretty serious dark horse" in that race, says Internet visionary Tim O'Reilly, CEO of tech publisher O'Reilly Media Inc. "Jeff really understands that if he doesn't become a platform player, he's at the mercy of those who do."

Bezos believes he has identified a unique Amazonian edge: Like no other Internet or computer company today, the e-retailer is in a position to apply the efficiencies of the Net to tangible and corporeal assets like products and people. Bezos envisions embedding the tasks of product distribution and knowledge work right into the flow of more automated business processes such as order taking and payment processing. For instance, a new service called Fulfillment by Amazon lets small and midsize businesses send their inventory to Amazon warehouses. Then when a customer places an order, Amazon gets an automated signal to ship it out--no muss, no fuss, no servers or software or garages full of stuff. "Amazon's in the business of managing complexity," says Amazon director John Doerr of the venture firm Kleiner Perkins Caufield & Byers. "There's no other e-commerce player that does that."

Mundane as these business-focused services may sound, the implications for the economy at large are startling. Google, MySpace, and YouTube cracked open for the masses the means to produce media and the advertising that sustains it, creating tens of billions of dollars in market value and billions more in new revenues. Now, by sharing Amazon's infrastructure on the cheap, Bezos is taking that same idea into the realm of physical goods and human talent, potentially empowering a whole new swath of businesses beyond the Internet itself.

The upshot: While Wall Street yawns, Bezos' pioneering dot-com is actually starting to look almost hip again, at least to the all-important Web 2.0 geek gods who set the Net agenda today. More importantly, some venture capitalists have noticed, and they're encouraging their startups to consider using Amazon services to save money and get to market faster. "Amazon is becoming a very interesting company," says Crosslink Capital general partner Peter Rip. "They're taking their store in the sky and unbundling it."

In any case, this looks like Bezos' biggest bet since he and his wife, MacKenzie, drove west in 1994 to seek fame and fortune on the Net. Since then he has survived the dot-com boom and bust with his ambitions intact. Now with three sons, and a daughter recently adopted from China, Bezos still has managed to find time to start a rocket company, Blue Origin. The venture is building a test facility in West Texas not far from his grandfather's ranch, where he once spent summers branding cattle. A longtime space nut, he made a valedictorian speech in 1982 at Miami Palmetto Senior High School about the need to colonize space.

Amazon, however, commands his full attention, especially now that the groundwork is laid for the company's latest transformation. He began not long after the dot-com bust in 2001 with--big surprise--a huge project to modernize Amazon's massive collection of data centers and the software running on them. The result was that Amazon made it much faster and easier to add new Web site features. Small, fast-moving groups of five to eight Amazon employees now could go hog wild with new ideas, such as customer discussion boards on each product page and software to play music and videos on the site. Since then these "two-pizza teams," which Bezos calls them because each team can be fed with two large pies, have become Amazon's prime innovation engines. "There's a huge value in this small, nimble team approach," says tech consultant and author John Hagel III. "But you can't do that without this kind of computer architecture."

Next came an epiphany: If the new computer setup allowed folks inside to be more creative and independent, why not open it up to outsiders, too? So in 2002, Amazon began offering outside software and Web site developers access to selected Amazon data such as pricing trends, gradually adding more and more until this year. Now it's basically getting free help from more than 200,000 outside Web developers, up 60% from a year ago. They're building new services on top of Amazon technology, further feeding back into Amazon's core retail business. One service, Scanbuy, lets people check Amazon prices on their cell phones to see if they're better than prices in a retail store.

Starting a few months ago, Amazon upped the ante. It began offering not just data but computing power, storage, and more, all intended to turn even more of its internal operations into salable services. One of the most interesting is Amazon Mechanical Turk. A couple of years ago, Amazon needed to make sure photos it took of thousands of businesses for the online Yellow Pages on its A9 search site actually matched the right business. Computers are bad at recognizing and sorting images, but people can do so very quickly. So Amazon set up a Web site where it could farm out the sorting to people for a penny or two per photo, clearly more for fun than for big pay. Last November, it launched the site, naming it after an 18th century chess-playing machine that actually had a real chess master hidden inside it.

New Spark Plugs For Startups
Since its debut, the service has attracted thousands of "Turkers" working for dozens of companies. They're doing jobs that Mechanical Turk Director Peter Cohen says "couldn't be done at all before," because there was no economical way to gather people for these tiny, often ephemeral tasks. Efficient Frontier has used the service to analyze tens of thousands of search keywords to see which best attract potential shoppers to particular Web sites. "There have not been any other services like Mechanical Turk that can do this so efficiently," says software engineer Zachary Mason.

Forget for a moment whether this will eventually turn us all into low-paid piece workers. The important thing is that the service is nurturing startups. CastingWords co-founder Nathan McFarland uses Turkers--who he says are largely the "bored and nothing-on-TV" set who treat the tasks like crossword puzzles--not only to transcribe 10-minute podcast segments but also to assemble them into full transcriptions and to check the quality. Eighteen-year-old Eric Cranston, a onetime Turker living with his parents in Visalia, Calif., plans to use the service for a company he's starting that will retouch photos for Web sites. Essentially, Bezos sees the thousands of people from all over the world working inside Mechanical Turk's online marketplace as a big "human computer."

Amazon's other new services are getting even more serious attention. Last March, Amazon introduced its Simple Storage Service, which offers cheap space on its disk drives for any programmer or business to use to store data. Right away, Amazon approached an online photo-sharing startup called SmugMug Inc. Ironic choice: President and co-founder Chris MacAskill had fiercely battled Amazon in an earlier startup, an online bookstore called Fatbrain, later bought by Barnesand- Noble.com (NYSE:BKS - News). But his son Don, SmugMug's co-founder and CEO, says that when he heard how easily and cheaply SmugMug could back up its photos on S3, "my eyes got all big." Now, by zapping customers' photos to Amazon to store on its servers, he's avoiding the need to buy more storage devices of his own--and saving $500,000 a year. "Everything we can get Amazon to do, we will get Amazon to do," says Chris MacAskill. "You're going to see all kinds of startups get a much better and faster start" by u sing Amazon's services.

They already are. Consider Powerset, the secretive search startup backed by A-list angel investors, including PayPal Inc. (NASDAQ:EBAY - News) co-founder Peter Thiel and veteran tech analyst Esther Dyson. Co-founder and CEO Barney Pell harbors ambitions of out-Googling Google with technology that he says would let people use more natural language than terse keywords to do their searches. By analyzing the underlying meaning of search queries and documents on the Web, Powerset aims to produce much more relevant results than the current search king's.

Problem is, Powerset's technology eats computing power like a child munches Halloween candy. The little 22-person company would have to spend more than $1 million on computer hardware, two-thirds of that just to handle occasional spikes in visitor traffic, plus a bunch of people to staff a massive data center and write software to run it. That's when Pell heard about Elastic Compute Cloud. He was sold. Based on tests so far, using the Amazon site for part of the company's computing power could cut its first-year capital costs alone by more than half.

Not least, Amazon is now opening its vast network of more than 20 distribution centers worldwide to all comers. For years it has handled distribution and even Web site operations for the likes of Target Stores Corp. (NYSE:TGT - News) and Borders Group (NYSE:BGP - News). Recently it has started providing customized handling, packing, and customer service people for upscale retailers and manufacturers such as fashion boutique Bebe. And with Fulfillment By Amazon, it's opening all that up to small and midsize businesses.

With all these initiatives, Amazon empowers new startups, which are hungry to knock off Internet leaders that happen to be...Amazon competitors. Has Bezos thought about how he may be creating an army of allies to fight his rivals? His answer: "Absolutely!"

It's hard to dismiss another possibility, though: Amazon is biting off more than it can chew. Some of the new tech projects have come out with a thud. Compared with Google's, Amazon's A9.com search site never got traction, and its features were recently downsized. The new Amazon Unbox Video downloading service struck many early reviewers as clunky and slow.

Mostly, it's unclear whether Bezos can escape his and Amazon's linoleum-floor image. Amazon's mission to be the place where "customers can find and discover anything they might want to buy online" doesn't especially mesh with the goal to be the prime source of services needed to run an Internet Age business. By contrast, nearly all of Google's services are clearly aimed at building the dominant digital utility. Likewise, IBM (NYSE:IBM - News)is much better known as a provider not only of technology services but also of expertise in automating a wider range of business processes, from inventory management to sales tracking. Can Bezos manage a company that simultaneously sells the most routine stuff to consumers and the most demanding business services to entrepreneurs and corporations?

So it is that Jeff Bezos faces a managerial moment of truth. Having saved Amazon from oblivion years ago, he still must prove his latest big bet can help transform the company into something truly enduring. Not only does he make no apologies for such wagers, he revels in them. Every year in his annual letter to shareholders he resurrects his 1997 letter, which reads in part: "We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages."

Today, it's just the same. "We are willing to go down a bunch of dark passageways," he says, "and occasionally we find something that really works." As always, investing in Bezos and his company will require faith that there's light at the end of his newest tunnel--not just a money pit.

The Next Disruptors

From the October 1, 2006 issue of Business 2.0

"We're in a historically fertile time for the creation of technological game changers. Here are 11 innovations that could reorder entire industries - and spawn vast new entrepreneurial opportunities."

Business 2.0 Magazine
By Erick Schonfeld and Jeanette Borzo, Business 2.0 Magazine
November 9 2006: 9:50 AM EST

"What use could this company make of an electrical toy?"

With those words, William Orton, the president of Western Union, dismissed the newfangled gadget offered to him for $100,000 in 1876. Other leading lights echoed his skepticism. "An interesting novelty," financier J. Pierpont Morgan huffed. "But the telephone has no commercial application."

The telephone, as it turned out, did have a commercial application or two. It was one of the great disruptive technologies in history, changing forever the method of human communication, creating whole new industries, destroying others, and savaging those who failed to grasp its implications - including Orton's Western Union, which saw its telegraph-based networks come under fierce attack by the rapid spread of Alexander Graham Bell's electrical toy.

That's the way it is with disruptive technologies: Almost no one fully comprehends what a shock to the existing order they represent until well after the rattling has begun. You think those guys in the cave knew what they were really onto when they clacked some rocks together and got fire? In our era, as recently as 15 years ago few could have imagined that this curiosity called the Internet would utterly change the way we work, play, and challenge incumbent senators in Connecticut.

Thus it was with some humility that we set out to answer a question: What technologies, bubbling below the surface today, are likely to erupt with such seismic force that they'll reshape our world? We were heartened by the sense that, thanks to the Web and the sheer speed of technological innovation, there has rarely been a better time for the creation of disruptors. "Disruptors," marvels Harvard business professor Clayton Christensen, who coined the term "disruptive technologies," "are everywhere."

We've identified 11 businesses with the potential to become tomorrow's disruptors. They include a company working on a radically new way to power electric cars. An engineer who wants to fight the multibillion-dollar scourge of traffic congestion. And even would-be repeat disruptors like Marc Benioff, whose Salesforce.com (Charts) is about to unleash a new assault - here reported for the first time - on the enterprise software market it has already transformed by pioneering the sale of apps over the Web. Of course, not all will succeed. But the ones that do will also create huge demand for ancillary services and new products. It's a great time, then, for entrepreneurs who figure out how to navigate the unsettled territory ahead - and not such a great time to be an incumbent, in business as well as politics.

THE DISRUPTOR: NETVIBES

THE INNOVATION: Highly customizable Web start pages

THE DISRUPTED: My Yahoo and other leading personalized portal pages

Tariq Krim is a natural-born disruptor. He was 12 when he hacked into France's Minitel state-run computer system in 1984 to build a messaging app, and he's founded two successful startups. His latest game-changing idea: Netvibes, a customizable start page now attracting millions of users from more than 100 countries - and rattling portal powers like My Yahoo, MSN, and Google (Charts). "The Web has become increasingly bureaucratic," Krim says. "We are trying to break all the traditional rules."

Netvibes currently doesn't accept typical Web ads - the kind Krim denounces as "Advertising 1.0, in your face." Prizing customer loyalty as a means to growth, Netvibes is instead working with partners that offer sponsored services. A mobile-phone company, for example, can offer free SMS in order to get a branding buzz.

Krim also is taking full advantage of the move to user-generated content, and devoted Netvibers are at the heart of the site's growth and development. Before Krim could even write himself a note to follow up on an idea he had for a Netvibes module to track World Cup results this summer, for example, a French user created and posted it. Users in other countries rushed to translate the module into seven languages. "It was done by the users, without even checking with us," Krim says. Netvibers are also to thank for the fact that the site is available not only in English and French, but also in Chinese, Croatian, German, Hindi, Portuguese, Russian, and Spanish.

The real threat to established portals, however, comes from the impressive speed and unprecedented drag-and-drop simplicity of the site's customization tools. With Netvibes, users can rapidly change the look of their start page, select content, add RSS feeds, and custom-build features from other Netvibes users. Any e-mail feed can be put on Netvibes; My Yahoo users can choose only Yahoo's e-mail option. "Netvibes makes it brain-dead easy," says Charlene Li, a principal analyst at Forrester Research who has been using Netvibes.com as her start page for months.

Dethroning My Yahoo won't be easy. It has more than 60 million users. But Krim thinks Netvibes's ease of use will make it disruptive. "The simpler it is, the more people will use it," he says. "If it's easy and fun, you'll use it again."

And Krim is on a roll: Netvibes launched in September 2005 and lately has been adding a new user about every three seconds. He expects to have more than 15 million users by year's end, and he just got $15 million in fresh funding. Krim won't disclose specifics but says he has a steady stream of revenue from sponsorships and partnered services, of which he's currently developing 100.

THE DISRUPTOR: EESTOR

THE INNOVATION: A ceramic power source for electric cars that could blow away the combustion engine

THE DISRUPTED: Oil companies and carmakers that don't climb aboard

Forget hybrids and hydrogen-powered vehicles. EEStor, a stealth company in Cedar Park, Texas, is working on an "energy storage" device that could finally give the internal combustion engine a run for its money - and begin saving us from our oil addiction. "To call it a battery discredits it," says Ian Clifford, the CEO of Toronto-based electric car company Feel Good Cars, which plans to incorporate EEStor's technology in vehicles by 2008.

EEStor's device is not technically a battery because no chemicals are involved. In fact, it contains no hazardous materials whatsoever. Yet it acts like a battery in that it stores electricity. If it works as it's supposed to, it will charge up in five minutes and provide enough energy to drive 500 miles on about $9 worth of electricity. At today's gas prices, covering that distance can cost $60 or more; the EEStor device would power a car for the equivalent of about 45 cents a gallon.

And we mean power a car. "A four-passenger sedan will drive like a Ferrari," Clifford predicts. In contrast, his first electric car, the Zenn, which debuted in August and is powered by a more conventional battery, can't go much faster than a moped and takes hours to charge.

The cost of the engine itself depends on how much energy it can store; an EEStor-powered engine with a range roughly equivalent to that of a gasoline-powered car would cost about $5,200. That's a slight premium over the cost of the gas engine and the other parts the device would replace - the gas tank, exhaust system, and drivetrain. But getting rid of the need to buy gas should more than make up for the extra cost of an EEStor-powered car.

EEStor is tight-lipped about its device and how it manages to pack such a punch. According to a patent issued in April, the device is made of a ceramic powder coated with aluminum oxide and glass. A bank of these ceramic batteries could be used at "electrical energy stations" where people on the road could charge up.

EEStor is backed by VC firm Kleiner Perkins Caufield & Byers, and the company's founders are engineers Richard Weir and Carl Nelson. CEO Weir, a former IBM-er, won't comment, but his son, Tom, an EEStor VP, acknowledges, "That is pretty much why we are here today, to compete with the internal combustion engine." He also hints that his engine technology is not just for the small passenger vehicles that Clifford is aiming at, but could easily replace the 300-horsepower brutes in today's SUVs. That would make it appealing to automakers like GM and Ford, who are seeing sales of their gas-guzzling SUVs and pickup trucks begin to tank because of exorbitant fuel prices.

THE DISRUPTOR: COGHEAD

THE INNOVATION: Easy-to-use tools for building customized business applications

THE DISRUPTED: Initially, custom-software developers, but potentially almost all software-tool makers

What if the next time you longed for a piece of software to help you do your job, you didn't have to grovel before IT or shell out big bucks to outside consultants? What if you could simply create the software yourself, in a few easy steps? That's the promise of Coghead, an online tool due out this month that promises a hassle-free world of roll-your-own apps.

Using Coghead requires only basic computer literacy. The company says anyone who can code a simple Excel macro should have little trouble using Coghead to create even sophisticated enterprise apps like logistics trackers, CRM programs, or project management systems. A user logs on to Coghead's website and drags and drops a few buttons and labels onto a form, indicates relationships between the form's drop-down menus and text boxes, groups appropriate elements by drawing boxes around them - and then launches the apps. "From my experience so far, the product is incredibly easy to use," says Liz Amaral, product management vice president at InsideTrack, a San Francisco firm that offers coaching services to college students and has been beta-testing Coghead.

Coghead boasts an impressive entrepreneurial pedigree. Chief executive Paul McNamara is a former exec at computer graphics pioneer SGI and at open-source software leader Red Hat (Charts); CTO Greg Olsen co-founded Extricity, a business-integration software firm that Peregrine Systems bought for $227 million in 2001. They believe that they'll initially take business from software consultants and outsourcing firms that specialize in small, customized-software projects. But ultimately, Coghead could undermine much bigger markets and much bigger names, including the likes of Microsoft (Charts) and Sun (Charts). "Any big software player is a potential target for their disruption," says VC Charles Beeler, whose firm, El Dorado Ventures, last year invested $3.2 million in Coghead.

More fundamentally, Coghead could completely upend the balance of power in the software game - putting users, and not coders, in ascendancy. "Today, highly trained programmers are the gatekeepers for custom apps," McNamara says. "Coghead will enable nonprogrammers to rapidly create their own custom business software, allowing the people closest to the need to create the solution."

THE DISRUPTOR: NEXTMEDIUM

THE INNOVATION: Automated product placement in movies and TV shows through an online exchange

THE DISRUPTED: The 30-second spot, producers of TV commercials, and advertising agencies

In a story in our last issue ("The 20 Smartest Companies to Start Now," September), we noted that VCs would line up to fund anyone who could create an online marketplace that automates the sale of product placement for Hollywood studios. We were onto something: NextMedium is just such a startup, and it's turning heads in Silicon Valley and Tinseltown alike.

Founded by former North Carolina venture capitalist Hamett Watt, NextMedium arose in response to a problem bedeviling entertainment companies. The value of the mainstay 30-second TV spot is eroding. The roughly $50 billion spent last year on TV ads is at risk because of the advent of commercial-skipping digital video recorders, as well as the lure of the Internet and videogames. David Cowan of Bessemer Venture Partners wants to take advantage of all this turmoil. "We see technology playing a role to enable new business models to displace the market that previously existed for the 30-second spot," says Cowan, who has invested in NextMedium.

NextMedium automates and standardizes the process of product placement in TV shows, movies, and videogames. Estimated at $2 billion, product placement today is a relatively small, ad hoc segment of advertising. Too often it relies on Hollywood agents cutting back-lot deals to sneak their clients' products into a shot. But on the NextMedium website, movie studios, TV networks, and videogame producers can upload excerpts of scripts or specific product placement requests - say, a black SUV for Jack Bauer in an episode of 24. Advertisers can search through the requests to evaluate and bid on the available placement opportunities. Before a deal is done, NextMedium's site also allows for the director or other creative professional to approve and sign off on each placement. Then, in collaboration with Nielsen Media Research, NextMedium will measure the exposure of that placement by determining how many people saw it and how a brand's total exposure compares with that of competitors.

The beauty of product placement, a.k.a. brand integration, is that viewers can't TiVo past it because it's part of the show, and it lives on in any reruns or DVDs. "The reason that brand integration has been such voodoo," Cowan says, "is that brand marketers couldn't predict what the exposure would be like or do it multiple times." With NextMedium, marketers can, say, make a dozen placements for every hour of television. "Product placement," Watt says, "can erupt as the most powerful medium in the world."

THE DISRUPTOR: APPLIED LOCATION

THE INNOVATION: A satellite-based system for toll collection, traffic congestion management, and pay-as-you-drive insurance

THE DISRUPTED: Traffic congestion, toll collectors, parking meters, and RFID-based systems like E-ZPass

Traffic congestion sucks an estimated $63 billion a year out of the U.S. economy in the form of wasted fuel and time stuck in traffic. Anyone who's ever zoomed through a tollbooth thanks to an E-ZPass knows there's a better way.

But what if instead of a wireless radio-frequency ID tag attached to your windshield, the device was based on global navigation satellite systems like GPS and Galileo? Bern Grush, the founder of Toronto-based Applied Location, thinks it would open up all sorts of new possibilities - from congestion management and meterless parking to pay-as-you-drive insurance. "It changes the game for drivers and insurance companies, and it creates a new market," suggests Michael Urlocker, a consultant who writes a blog called On Disruption.

Grush calls his system Skymeter. He says he's created an algorithm that corrects for the noise and missed signals to which GPS is prone, especially in urban canyons, so Skymeter can reliably pinpoint a car's location to within 1.5 meters. Once that becomes possible, cities can start to manage traffic better by charging more for driving during peak times. (London already does this, but with an expensive system of cameras.) "The problem is congestion," Grush says. "We need to send pricing signals to motorists to drive at alternate times."

Skymeter is disruptive more for the new economic models it might spur than for what it might displace. For instance, in addition to congestion tolls, it could be used to charge for parking anywhere in a city, even where there are no meters. Or the technology could enable insurance companies to offer better rates to safer drivers, since it records speed, time of day, and driving route.

Grush is still almost a year away from a finished product, but he has $250,000 in seed money from family and a government grant, and traffic directors from Toronto to London have expressed interest in testing Skymeter as soon as it's ready. Grush thinks his product could ultimately help to supplement or even replace the fuel tax now used to pay for the upkeep of our roads. "The need to fix road financing and congestion is so acute," he argues, "that a dramatic shift will necessarily occur."

THE DISRUPTOR: SALESFORCE.COM

THE INNOVATION: AppExchange 2.0 fills the gap between Web-based and traditional enterprise apps

THE DISRUPTED: Microsoft, Oracle, SAP, and other enterprise software incumbents

Marc Benioff, CEO of Salesforce.com, is now proclaiming that he's going to demolish the $15 billion traditional database market.

So what, you ask? It's true that Benioff is known throughout the tech business for his bombast, and he's always predicting that Salesforce is about to do something amazing. But he's not all talk: Benioff has already built Salesforce.com into the world's most successful Web-based customer-relationship management software, which currently boasts 25,000 customers and more than half a million individual subscribers. His approach, selling industrial-strength corporate apps as a service over the Web, helped to drive his biggest rival, Siebel Systems, to sell itself to Oracle (Charts) last year. To top that, Benioff launched a service called App Exchange as a way to attract software developers to build their own Web-based enterprise applications atop Salesforce.com's infrastructure.

But that's not enough disruption for Benioff. The types of applications that can be built and fully hosted on AppExchange today are still no match for traditional enterprise software built on an Oracle or Microsoft database. "Our database is not intelligent," Benioff says. He means that AppExchange cannot apply logic or rules to the data sent to it; powerful Microsoft and Oracle databases can.

With AppExchange 2.0, which Benioff plans to unveil this month, Salesforce.com will begin to close that gap. The details are mind-numbing, but Benioff's engineers have come up with a way to enable AppExchange to host both the data and the logic. "We are going to show you why you don't need to buy a database," Benioff vows. AppExchange, he explains, will be the database and the tools all rolled into one; it also, he says, will go a long way toward becoming a fully formed Web operating system, a holy grail for software mavens almost since the Internet arose.

To maximize AppExchange's power, Benioff needs more apps. In a creative twist, he is leasing a former Siebel facility in San Mateo, Calif., visible from Highway 101, Silicon Valley's main artery, which he plans to turn into a kind of incubator for apps development. He'll lease cubicles for $20,000 a year to startups that want to build their businesses on top of his Web operating system. Salesforce.com will provide onsite programmers to help with coding questions, expose the startups to potential customers, and help them market their services. "The future of technology is all lower cost and easier usage," Benioff says. "We will destroy Oracle and SAP because they won't be able to respond to the innovation we are about to unleash."

THE DISRUPTOR: BLUELITHIUM

THE INNOVATION: Serving highly targeted ads on the Web by monitoring everyone's clickstreams

THE DISRUPTED: Google and plain-vanilla CPM ad networks like ValueClick and 24/7 Real Media

It's not often that you find a startup CEO openly mocking Google. But Gurbaksh Chahal, founder of BlueLithium, thinks Google is a one-trick pony when it comes to Web ads. "They've miserably failed in the last year with display ads," he notes, "because they look at the world through text advertising." It's big talk - and you'd be tempted to dismiss Chahal entirely were it not for his claim that BlueLithium has been profitable since its third month of operation and is on track to hit $100 million in revenue by the end of next year.

Google's better-performing text ads created a huge shift of marketing budgets away from other online ads, as well as from print, radio, and TV. But Chahal thinks the pendulum is about to swing again. He says he's carving out a new space for online advertising, helping to bring back the banner ad by making it the vehicle through which marketers can, in effect, watch the audience.

BlueLithium was founded in 2004 and already serves up 8 billion ad impressions a month to 100 million users of the Web's top sites. Each of those ads drops a cookie on your browser, and when you show up on another site that serves BlueLithium ads or on one of its advertisers' websites, it adds that history of clicks to its database. Using this "clickstream" data, it determines within 10 milliseconds which ad to serve up the next time you come to any of the 1,000 handpicked sites where it buys ad inventory.

By building a picture of your clickstream, BlueLithium can target you individually. "The more we see you, the more we know about you," Chahal says. He might not know your name or address, but he knows what sites you've visited, what ads you've clicked on, and what ads other people with similar clickstreams have clicked on. Most display ads on the Web are random because they're targeted to the site, not to the viewer. But if you visit T-Mobile's website to check out pricing plans and then click off to a news site, BlueLithium might show you a T-Mobile ad even though you're now reading about Iraq. Chahal is also using BlueLithium's 100 million clickstream histories to direct behaviorally targeted video ads.

Couldn't Google do the same kind of thing? "They might be coming out with the next microwave too," Chahal quips, "at the rate they're going." Chahal knows that Google was a classic disruptor. But in his view, this time around Google is the incumbent - and Chahal has the disruptor's advantage.

THE DISRUPTOR: CLEARWIRE

THE INNOVATION: National Wi-Max broadband wireless service

THE DISRUPTED: Telecom and cable companies

It's almost a given these days that Clearwire, the Wi-Max wireless network founded by cellular pioneer Craig McCaw, will shake up the wireless broadband sector. "If anyone is going to do it, it's going to be Clearwire," says Joe Laszlo, a senior broadband analyst at Jupiter Research in New York. "They've got the best technology, great financing, and a lock on nationwide spectrum." The only real question seems to be how deep into the telecom establishment the shock waves from McCaw's latest bit of disruption will penetrate.

Clearwire's initial goal is to create a nationwide broadband wireless network based on Wi-Max, a more powerful relative of Wi-Fi technology. Because Wi-Max infrastructure is much cheaper to build and maintain than traditional networks, some analysts think Clearwire will be able to seriously undercut the broadband prices of Comcast (Charts), Verizon (Charts), and their ilk. But the threat posed by McCaw's strategy could be much greater than just price pressure. Clearwire's approach could put in jeopardy the billions of dollars that telecoms and cable operators are pouring into upgrading their existing broadband networks. And in theory at least, Clearwire could eventually offer the cutting-edge services that telecoms and cable companies are angling for - Web-based TV, movies on phones, VOIP calls, and the like. Clearwire is already offering VOIP phone service to 13 markets, and some expect the startup to partner with mobile-phone, IPTV, or satellite-TV companies to further expand its range of services. (Full disclosure: AOL, owned by the parent company of Business 2.0, is a reseller of Clearwire Wi-Max service.) "Filling a need that others aren't addressing has always been a focus of the McCaw companies," says McCaw's co-chief executive officer, Ben Wolff. "We are creating a brand-new category."

Certainly, the press-shy McCaw knows a thing or two about shaping disruptive networks. He began building the country's first national cellular network in the early 1980s, eventually selling it to AT&T for $11.5 billion. With Clearwire, McCaw has moved on to Wi-Max. Wi-Max has big technical advantages over other fast pipes, particularly Wi-Fi. Unlike Wi-Fi, it operates on a licensed spectrum, making the service far more reliable. The range of Wi-Fi signals is measured in hundreds of feet; Wi-Max's range is measured in miles.

Clearwire already offers basic Wi-Max broadband service in Brussels, Dublin, and 27 U.S. metropolitan markets covering more than 200 cities and towns. Its network had 100,000 subscribers at the end of March. (The company won't say how many new subscribers it has added since then or disclose financial details.) Clearwire also has made the installation process, often a painful hassle for Wi-Fi users, consumer-friendly with Wi-Max. A customer plugs a paperback-size modem into a power source and into a computer (via Ethernet) and the network is good to go. "It's a very simple process for a consumer to get up and running," says Jupiter's Laszlo.

Clearwire has challengers, notably Sprint, which expects to spend as much as $3 billion in the next two years building a rival Wi-Max network and currently owns more spectrum than Clearwire. But Clearwire has powerful backers: In July, Intel and Motorola pumped $900 million into the company, a measure of their faith in McCaw's approach - and of their hunger to sell chips and other gear that make Wi-Max work if it becomes a mainstream service. Perhaps most important, Clearwire has McCaw. "Disruptive," says Rich Begert, CEO of Wireless Services and a former McCaw executive, "is the best way to describe Craig."

THE DISRUPTOR: ZOPA

THE INNOVATION: Peer-to-peer lending

THE DISRUPTED: Traditional banks

Any industry making a huge profit margin off its customers is a good candidate for disruption. Banking is a classic case - just think of the 19 percent interest you pay on credit cards and the 2 percent you earn on your savings account.

Zopa is closing that gap by using the Web to allow personal lending on a massive scale. The startup was the first company to introduce peer-to-peer lending in the United Kingdom 18 months ago and is about to launch in America. "What Skype did to telecoms, this could do to banks," says David Cowan of Bessemer Venture Partners, which contributed some of the $31 million in funding the startup has attracted to date.

Scott Anthony, a managing director of Clayton Christensen's consulting firm, Innosight, is intrigued by the disruptive potential of peer-to-peer lending. "Are there ways to loan amounts that banks won't lend because they're too small," he asks, "or to serve customers who would otherwise never be served?"

The idea is simple. People join Zopa online as either borrowers or lenders. The lenders proffer money not to individuals but to a pool of people grouped together because of similar creditworthiness. Zopa assesses the credit risk of the borrowers, pools the capital, and matches consumers who need money with consumers who want to lend it. Since Zopa is not technically a bank and doesn't lend money itself, the capital requirements to run the business are relatively small.

The average interest rate on a Zopa loan is 7 percent. For the lenders, that's much better than even a CD, and for the borrowers, it sure beats a credit card or most bank loans. Zopa takes a 1 percent fee, split between the borrower and the lender. So far, about 90,000 people have signed up, and more than $100,000 is lent every day (totaling more than $10 million so far). And only 0.05 percent of Zopa's loans have turned into uncollectible debts.

"We are moving from a consumer society of mass production to a society where we are defined more as individuals," says Zopa CEO Richard Duvall. Yet in banking, Duvall points out, "there are still enormous corporations controlling our money." Duvall believes that a nimble Zopa can trounce banks in assessing credit by gauging things that banks typically don't review, such as a person's eBay ratings. And he's injecting a social aspect into lending. Just as in a social network, lenders can read the online profiles of the people borrowing their money. "If I borrow from real people," Duvall says, "I'm more likely to pay back than if I borrow from a faceless bank."

THE DISRUPTOR: JAJAH

THE INNOVATION: Free phone calls over the Web with no downloads, headsets, or adapters

THE DISRUPTED: Telecoms and existing VOIP services such as Skype

So you thought VOIP was disruptive? How about making free calls from your desk or mobile phone - with no downloads, headsets, or even broadband? Building on the existing disruptive force of VOIP technology, Jajah has hit the market with a new level of simplicity likely to encourage mass adoption of VOIP, disrupting revenue models for telecoms and VOIP startups alike.

"We see Jajah as Voice 2.0, the next generation of VOIP," says co-founder Roman Scharf, a Viennese entrepreneur who sold his last company in a deal he values at roughly $100 million.

He and partner Daniel Mattes, the startup's technical brains, formed Jajah late in 2004. Based on an early version of its service that debuted in July 2005, Jajah got $3 million in funding from Sequoia Capital. Relaunched in February, Jajah now has nearly a million paying customers, according to Venky Ganesan, a managing director at Globespan Capital Partners, another investor. He says Jajah's paying-customer numbers already rival those of Web telephony pioneer Skype. (Skype does not disclose paying-customer numbers.) "Jajah removes all the drawbacks from the existing VOIP solutions," Ganesan says. "Its growth rate is phenomenal."

Here's how Jajah works: Let's say Jane is about to leave work in San Francisco and wants to call Philippe in Paris. She enters nothing more than her mobile number and Philippe's home number at Jajah.com and clicks the "Call" button. Her mobile rings, and a voice explains that Jajah is connecting the call. Then Philippe's phone rings in his Left Bank flat. He picks up, and the two can speak for free.

Economically, there are two tricks to making this work. First, the Mountain View, Calif., firm does charge for some calls - to European mobile phones, for example - and for services such as conference calls. On average, Scharf says, Jajah is making $10 monthly from each paying customer. These fees subsidize the free calls.

Jajah has cut deals with many telecoms for access to cheap local "last-mile" connections; only the long-distance part of the call goes over the Web. That's a huge advantage, since calls received over regular phones are generally of high quality. Users of Skype and similar services typically receive calls over a computer or require cumbersome phone adapters or software downloads, and computer-based call quality can be shoddy.

VOIP companies that route voice calls from end to end over the Web could mimic Jajah's approach. But they would have to completely change their business and technical models. Jajah's method also avoids the firewall troubles that many other VOIP systems encounter as their calls come in solely over the Web. Ultimately, Jajah expects to take the computer completely out of the call equation; increasingly, people can access the Web by phone, so Jajah customers won't even need a computer to input the initial call.

THE DISRUPTOR: NANOLIFE SCIENCES

THE INNOVATION: More precise cancer treatment that's less destructive to healthy tissue

THE DISRUPTED: Conventional cancer treatments such as radiation and chemotherapy

For many cancer patients, the treatment feels worse than the disease. Radiation and chemotherapy can have debilitating side effects and often destroy healthy tissue as well as tumors.

Thus the strong allure of a potentially revolutionary cancer treatment under development by NanoLife, a startup based in Newport Beach, Calif. NanoLife's approach builds on the cutting edge technology of using protons rather than X-rays to attack cancerous masses, but takes it many steps further. If NanoLife's science pans out, it could transform what is now a five-week course of radiation therapy into a few afternoons' work.

Unlike X-rays, protons have weight and mass. This means that a proton beam generated by a proton accelerator can stop inside a tumor and deliver its lethal force without destroying healthy tissue by exiting the body, as X-ray beams do. Protons have been gaining importance in cancer treatment for years, and NanoLife currently plans to open proton treatment centers around the world. The first may open by 2010.

But the truly disruptive potential of NanoLife lies in its plans to go beyond proton therapy, and instead use antiprotons to treat cancer. The idea is to create a device that can deliver a stream of antiprotons into a tumor. The laws of physics decree that the antiprotons will attract the protons within the tumor; when they collide, they annihilate one another, destroying the tumor in the bargain. Wild as it may sound, lab and animal tissue testing have shown promise.

Antiproton therapy is at least seven years off and would be expensive - a single particle accelerator required to produce antiprotons could cost hundreds of millions of dollars. But the approach already has some cancer fighters buzzing. "The theory and physics behind it justify wanting to do it," says David Bush, vice chairman of the radiation medicine department at California's Loma Linda Medical Center, a top proton therapy center. "The concept is valid."

NanoLife president Ray Winn, a veteran of the nuclear and semiconductor industries, envisions someday converting his company's proton treatment centers into antiproton centers and treating thousands of patients throughout the world. It's a big dream, but if anything like it ever comes to pass, think of the implications: antiprotons disrupting death itself. Now that's one bit of disruption even William Orton and J.P. Morgan could've instantly grasped.

ELECTRIC COMPANY

EEStor's potentially revolutionary ultra-capacitor could be so cheap to operate that it gives electric cars a dominant economic edge over the internal combustion engine.

[*] Electricity cost converted to gasoline equivalent.

Erick Schonfeld (eschonfeld@business2.com)

is an editor-at-large at Business 2.0. Jeanette Borzo is a frequent contributor.

For more features on your mobile device, go to | CNNMoney.mobi

UNSTOPPING TRAFFIC

Applied Location's Skymeter system uses GPS and wireless technologies to fight traffic mayhem.

1 By tracking location and time of day, cities using Skymeter could charge drivers higher tolls to enter and leave jammed areas at rush hour as an incentive to get them to travel more at off-peak times, when they would be charged less.

2 To encourage drivers to free up scarce parking spots, cities could use Skymeter to charge cheap rates that escalate over a period of time - say, 2 cents a minute for the first hour, 5 cents a minute for a second hour, and 20 cents a minute after that.

3 Insurance companies could use Skymeter to closely track driving patterns and adjust prices accordingly. Drive 90 mph down crowded thoroughfares with high accident rates and your monthly bill could be $450; drive more slowly on safer side streets and the bill might be $100.

CREDIT WHERE IT'S DUE

Zopa's online system for matching lenders and borrowers could revolutionize banking.

1 An entrepreneur named Jerry has an extra $25,000 that he wants to put to work. He transfers it to his Zopa account and agrees to lend it to borrowers with top credit ratings at 7 percent for one year.

2 To reduce risk further, Zopa slices Jerry's cash into 50 chunks of $500 each and funds 50 different loans to a pool of qualified borrowers.

3 In a twist copied from social networks, Jerry can read profiles of prospective borrowers and what they intend to use the money for, and borrowers can learn about Jerry through his Zopa profile. This fosters a personal connection between borrower and lender that may contribute to low default rates (only 0.05% in the United Kingdom to date).

4 Zopa processes payments and sends Jerry a single monthly check.

WEAPONS OF MASS DESTRUCTION

NanoLife antiproton therapy could kill cancerous tumors with almost none of the nasty side effects that accompany radiation treatments.

1 A precisely targeted beam of antiprotons is fired into a tumor.

2 The antiprotons collide with the protons in the tumor; their resulting mutual annihilation destroys the mass.

3 The process could deliver the cancer-killing power of weeks of conventional X-ray therapy in just a few days.

Worse is better: Innovation Revisited

"Microsoft won by putting out junk with a core good idea—and usually not their own idea—and then improved and improved, never putting out something too innovative, too hard to swallow, too risky."

"My thesis is simple: Invention, radical innovation, and great leaps forward do not produce revenue commensurate with the required effort in the software
industry, and invention usually doesn’t work in any industry."
--

In 1990 I proposed a theory, called Worse Is Better, of why software would be more likely to succeed if it was developed with minimal invention
(Gabriel 1990)
.
Here are the characteristics of a worse-is-better software design for a new system, listed in order of importance:
•
Simplicity
: The design is simple in implementation. The interface should be simple, but anything adequate will do. Implementation simplicity is the most
important consideration in a design.
•
Completeness:
The design covers only necessary situations. Completeness can be sacrificed in favor of any other quality. In fact, completeness must be sacrificed whenever implementation simplicity is jeopardized.
•
Correctness:
The design is correct in all observable aspects.
•
Consistency:
The design is consistent as far as it goes. Consistency is less of a problem because you always choose the smallest scope for the first implementation.
Implementation characteristics are foremost:
•
The implementation should be fast.
•
It should be small.
•
It should interoperate with the programs and tools that the expected users are
already using.
•
It should be bug-free, and if that requires implementing fewer features, do it.
•
It should use parsimonious abstractions as long as they don’t get in the way.
Abstraction gets in the way when it makes implementation too hard, too slow, or hides information that shouldn’t be hidden. (I once heard an interesting comment—sort of a motto—at a scientific computing conference:
Abstractions = page-faults.)
It is far better to have an underfeatured product that is rock solid, fast, and small than one that covers what an expert would consider the complete requirements.
These are the benefits of a software system designed and implemented this way:
•
It takes less development time, so it is out early and can be adopted as the de facto standard in a new market area.
•
It is implementationally and functionally simple, so it can run on the smallest computers. Maybe it can be easily ported as well—if it uses a simple portability model. At any given time the mainstream computer users—whether individuals or corporations—are running hardware at least two generations old.
•
If it has some value, it will be ported or adopted and will tend to spread like a virus.
•
If it has value and becomes popular, there will be pressure to improve it, and over time it will acquire the quality and feature-richness of systems designed another way, but with the added advantage that the features will be those the customers or users want, not those that the developers think they should want.
The path of acceptance is that the worse-is-better system is placed in a position in which it can act like a virus, spreading from one user to another, by providing a
tangible value to the user with minimal acceptance cost. There is little question it can run everywhere, so there are no artificial barriers. The system can be improved
by the end users because it is open or openly modifiable, and its implementation is simple and habitable enough that users can do this.
This simple implementation provides a means for the originators to improve the system over time in a way consistent with how it’s being used, thereby increasing
the magnitude of the most important evaluation factors. Over time, the system will become what lucky developers using a more traditional methodology would achieve.
This may seem counterintuitive—many people believe that being competitive requires doing the absolute best development you can. The following is a characterization
of the contrasting design philosophy, which I call
The Right Thing
:
•
Simplicity:
The design is simple, both in implementation and interface. Simplicity of implementation is irrelevant.
•
Completeness:
The design covers as many important situations as possible. All reasonably expected cases must be covered.
•
Correctness:
The design is correct in all observable aspects. Incorrectness is simply not allowed.
•
Consistency:
The design is thoroughly consistent. A design is allowed to be slightly less simple and less complete in order to avoid inconsistency. Consistency is as important as correctness.
There really is only one implementation requirement:
•
It should use hard abstraction throughout. Elements must be properly encapsulated in order to achieve information hiding.

The acceptance path for a right-thing system is that it is the right thing off the bat, and even though it came late to the marketplace, it is so wonderful that it is quickly accepted. Of course, it has to be on every necessary platform either right away or quickly. This scenario can happen, it is simply unlikely.

One of the more familiar examples of a right-thing system is the Macintosh and the Macintosh operating system. When the Mac was introduced in 1984 it was arguably the product of largely right-thing design though worse-is-better implementation. It used ideas and technology only 10 years old or so, and it was
considerably ahead of its competition. One might say that Apple tried to run up the score on the competition by producing a product so far in advance as to be almost not in the same competitive milieu.
Although one could argue that the Macintosh today—some 10 years later—is a success, it enjoys only about 10% to 15% of the total PC market. It is not used in the mainstream; rather, its strongholds are primarily in desktop publishing, graphic design, and marketing organizations, whereas Microsoft platforms are used throughout the corporation. There are many good reasons for this failure to capture more of the market in addition to the problems of the right-thing philosophy,
which we’ll look at further. MS-DOS was licensed to all the PC clone manufacturers, so that consumers had a choice of a variety of price and performance characteristics. Of course, IBM, having strong influence among MIS departments, helped seed the PC in mainstream settings.
The popularity of the PC and DOS created the opportunity for a market of software on this platform: A company wishing to write and sell a software product always looked to the PC and DOS first because it had a larger market share to start with because IBM shipped DOS, other manufacturers did too, and they all shipped the same platform.
----
The Macintosh was clearly superior, yet it lost. Among the reasons for losing was that Apple didn’t license its technology until 1995 so that a clone market didn’t appear earlier (and one could say that waiting 11 years to do it was a suboptimal strategy).
There are other problems stemming from the difference between the two philosophies.
One is that MS-DOS provided a simpler, more malleable base so that the aftermarket could more easily mold MS-DOS into what it needed. Once those characteristics of improvement were known, MS-DOS evolved.

http://dreamsongs.com/Files/Innovation.pdf

insights on Web 2.0

Internet pioneer Ram Shriram, founding member of Google, Inc., interviewed by Safa Rashtchy sharing his insights on Web 2.0 and ingredients for creating successful internet companies.

Ken Fisher: The Only Three Questions That Count in Investing

I. Investing by Knowing What Others Don't.

1. What do I believe that's false?

Majority of beliefs related to investing are wrong and in many cases the opposite of the belief is true.

2. What can I fathom other's find unfathomable?


3. What is my brain doing right now to blindside me?

Our brains are hard wired in ways that trick us: behavioural finance, evolutionary psychology.

The point of the Three Questions is constant innovation.

listen to interview here:
http://www.financialsense.com/Experts/2006/Fisher.html

Ken Fisher is the founder, Chairman, and CEO of Fisher Investments, a multi-product money management firm with over $30 billion under management. He writes the prestigious "Portfolio Strategy" column in Forbes magazine, where his 22-year tenure of high-profile calls makes him the fifth-longest-running columnist in Forbes' 89-year history. He also writes a regular column for Bloomberg Money in England.

Information Technology and Insurance

Yale economist Robert Shiller discusses future possibilities in risk and insurance and the role of information technology in allowing new and wide-spread insurance which would allow greater risk-taking and thus greater innovation and vibrancy in the economy.

The California Economy -- Housing Boom or Bubble?

Christopher Thornberg, senior economist at UCLA's Anderson School of Management, offers his perspective on whether the recent cooling trend in residential real estate indicates an imminent bubble burst or just a lull in California's otherwise booming housing market in this edition of the Economics Roundtable at the University of California, San Diego.

Todd Harrison on the state of the market

Lindsay sits down with “top gun” trader Todd Harrison to talk about the state of the market and Todd’s new venture Minyanville.

Gates on the Past, the Future, and Google

Excerpts From: http://www.eweek.com/article2/0,1895,2060022,00.asp

Here are some observations from Gates in response to questions from Rose:
# On whether there's another idea today that is as powerful as the idea of the personal computer in the 1970s: "If I knew medicine like I do computers, I would like to be able to control the [human] immune system, to fight against the onset of disease on a world level ... but I think the idea of the PC still would have topped that."

# On Microsoft's increasing competition with Google: "I've been told that Google is the company most like ours. That may be true. Well, we overlap in a lot of areas. We're both software companies, so we're competing on a lot of levels. They hire a lot of smart people, we hire a lot of smart people. Google Earth is fantastic; what they do is free and a huge benefit to all. They're very good at knowing how to use high traffic at their sites and turning it into profit.

"We're going to compete in search. We think our Live.com will be a better search in a lot of ways. Competition between our two companies will be good for the whole industry."

# On what changes IT will make in society over the next 10 years: "Changes are now coming faster than ever. We'll be seeing more and more students using tablets instead of stacks of books in schools and in online learning. We'll have computers that can see and learn like people ... we'll continue to see major breakthroughs in software development, in things like voice recognition, gaming [and] video. We're on to new and important advances in IT, just as we were at the advent of the PC.

"In gaming, [the] TV, high-definition video [and] PC are all coming together now in the Xbox. Voice recognition will get better ... software and services with improved interfaces wrapped around them will be coming soon. Our new Zune [media player] has built-in Wi-Fi, so you can send your friends music and photos and messages ... we'll continue to see this kind of innovation building on top of what we have today. We're moving toward more connected entertainment everywhere.

"We're on to another wave of innovation; we just need to make sure the United States continues to stay right up there in relation to the rest of the world."

# On entrepreneur Buffett's announcement that he is donating upwards of $31 billion to the care of the Bill and Melinda Gates Foundation over the next few years ($1.6 billion has already been transferred): "It's mind-blowing what Warren's done. To leave the bulk of his estate to a foundation like ours in order to deepen its use for good around the world -- it is truly amazing and humbling at the same time. We'll just do out best [in using the money]; I get to make sure it goes back to society in important ways -- that's kind of daunting.

"We want to move quickly as possible on diseases like malaria and AIDS, to find vaccines; we're convinced we'll have a vaccine for malaria relatively soon. It's tough when you realize that 1 million kids die every year from malaria, and 500,000 each year from rodovirus (a gastrointestinal virus that mostly attacks children). I get a little upset with the media, which will cover a plane crash in India that killed 100 people, but it won't cover the fact that 1,000 times that many died in Africa today from malnutrition or disease."

# On the United States keeping up with India, Japan, China, Germany and other countries with getting students involved in math and science and keeping them in the field: "The U.S. has been lucky for a long time to remain in the leadership position we are in. Our leadership has been so out of line with our 5 percent of the world population. We are very special for being in leadership for so long.

"As new brains come into the new economy, we will all benefit, thanks to technology. But the [population] numbers are overwhelming -- we're going to have to get used to the world catching up to us [in innovation]."

# On the early days of Microsoft: "When I moved to Albuquerque (in the mid-1970s) to start the company, we knew that we were at the beginning of something big. I mean, we hired like nine people, and they had to move themselves and their families there; it was risky and serious business.

"We always thought we could do a small slice of software business ... up until then, companies always did both hardware and software. Turns out we did more than a small slice."
# On the off-chance he'll return to Harvard to finish his studies some day: "I like to think I'm 'on leave' from Harvard. My parents really wanted me to finish. But the likelihood of me returning is not very high."