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New entrants are not beholden to old ways of doing business. (Apple, Clearwire, Whole Foods)

Apple (AAPL) will break (and transform) the cellular-phone carrier industry the same way it did with the record industry. It remains to be seen whether it will be able to do the same with the cable TV industry, but I wouldn't bet against it.

The iPhone will eventually be available without the carriers. You will be able to use wireless internet access. This will allow innovation and lower costs. This will be good news for Clearwire (CLWR), which provides wireless internet access.

The reason why this will happen is because of the convergence of the technology necessary, the power and vision of Apple, but also because Apple doesn't make money from cell-phone contracts so it has no problem with reducing profit in an industry that won't let go of it's monopoly in mobile phone access without force.

Similarly, Whole Foods (WFMI), the leading organic food retailer regardless of whether it is able to buy Wild Oats or not, will continue to beat the me-too grocers that have non-organic and now some organic as well. They can't market organic and natural foods and better environmental practices as well because they are selling the other stuff too.

Skype (EBAY) and other VoIP companies are another example of this. They are forcing change in the land phone industry.

It is hard for people to give up on the ways of doing business that give them power and profits in favor of innovation, competition, which would be destabilizing to them. New entrants are necessary to challenge the status quo.

The virtualization of the American corporation

Commentary: It's harder to figure out what businesses are actually doing

By John C. Dvorak

Last Update: 2:48 PM ET Jun 1, 2007

BERKELEY, Calif. (MarketWatch) -- The trigger for this column was this week's announcement that Dell Inc. was going to slash 8,800 jobs. Its earnings were relatively flat, and that gave the company the excuse to make cuts, but were these people necessary in the first place?

I bet they were.

I suspect that they will be replaced, as Dell may be exiting the conventional ways of doing business and heading toward becoming a virtual company.

I've been fascinated by the concept of a virtual company for years, and was particularly intrigued by a friend of mine starting a virtual computer-laptop business.

He is setting up shop with almost nobody working for him directly. Via a Web site, customers will order machines online; the orders will be sent directly to a factory in China, where the laptops would be shipped from there to the buyers.

A lot of machines from big vendors are sent directly from China to U.S. customers nowadays. Apparently, there is enough margin, once you set up shop in China, to send gear through Federal Express or other carriers and still make money.

There are all sorts of potholes in this sort of scheme. Shutting down the air-transport system for two or three days could break a company, for example.

But in a global economy, this sort of virtual-company concept is very appealing and explains a lot of today's business orientation. If you knew all the necessary systems that made up a business within an industry, there is no reason today that you could not "virtualize" it by outsourcing everything -- from order taking, Web-site development and manufacturing to delivery and customer service.

To fully understand how this concept is taking over modern business thinking, you need to look into the science of business-ontology development. Google it.

A cutback may not actually be a cutback anymore.

There is a lot of academic work being done in this field, and once you get into it you begin to understand how the market and the system is adjusting to the idea.

Let me explain business ontology. The whole science of this is to break down each and every aspect of a company, and its operations, so thoroughly that you could take an ontological schema and use it to simulate the business with a computer program -- as if the entire company was a microprocessor being tested before going into production. It's like a complete formula for the inner workings of a business.

Once the model works, you could then hand it over to an offshoring company in India, which specializes in back-room work, to plug into the specific back-room mechanism of the company as defined by the schema. Each element of the ontologically defined virtual company could be outsourced here and there, the way Boeing Co. now outsources manufacturing of various jet parts.

Anyway, once the ontology and schema of a company's operations is developed, it becomes extremely valuable, since it can be duplicated by anyone who gets hold of the breakdown.

To protect this, the patent office has allowed these virtual mechanisms to be patented, and this explains the emergence of business-process patents.

I suspect the Dell layoffs have to do with the fact that a well-defined mechanism within the company, defined by a carefully constructed ontological schema -- with 8,800 people in it -- will be turned over to some company that can do it cheaper.

Let's face it: The functions demanded of the 8,800 still need to be fulfilled somehow.

I'd advise investors to look into these fundamental changes in the structure of business and the whole business-ontology culture, only so that they better understand these cutbacks in today's world.

In other words, a cutback may not actually be a cutback anymore. As companies become virtual, it becomes harder to figure out what they are actually doing.

How to make it cult, not fad: Toyota's Scion

Proprietary edge and sustainable high margins

by Jim Jubak

Look for a company with sustainable high margins. In the technology markets of the 1990s, a company could ride a sustainable proprietary edge -- and a willingness to use that temporary advantage over the competition as if the devil were at its heels -- to years and years of outsized profit margins.

or else:

There's so much capital in the world now that a high profit margin becomes a red flag that draws a horde of well-funded competitors from around the world -- and at least a few of those are willing to run at a loss for years because the government that has arranged the financing has goals besides profitability.

link

The Rise of Crowdsourcing

Remember outsourcing? Sending jobs to India and China is so 2003. The new pool of cheap labor: everyday people using their spare cycles to create content, solve problems, even do corporate R & D.

By Jeff Howe

3. The Tinkerer

The future of corporate R&D can be found above Kelly’s Auto Body on Shanty Bay Road in Barrie, Ontario. This is where Ed Melcarek, 57, keeps his “weekend crash pad,” a one-bedroom apartment littered with amplifiers, a guitar, electrical transducers, two desktop computers, a trumpet, half of a pontoon boat, and enough electric gizmos to stock a RadioShack. On most Saturdays, Melcarek comes in, pours himself a St. Remy, lights a Player cigarette, and attacks problems that have stumped some of the best corporate scientists at Fortune 100 companies.

Not everyone in the crowd wants to make silly videos. Some have the kind of scientific talent and expertise that corporate America is now finding a way to tap. In the process, forward-thinking companies are changing the face of R&D. Exit the white lab coats; enter Melcarek – one of over 90,000 “solvers” who make up the network of scientists on InnoCentive, the research world’s version of iStockphoto.

Pharmaceutical maker Eli Lilly funded InnoCentive’s launch in 2001 as a way to connect with brainpower outside the company – people who could help develop drugs and speed them to market. From the outset, InnoCentive threw open the doors to other firms eager to access the network’s trove of ad hoc experts. Companies like Boeing, DuPont, and Procter & Gamble now post their most ornery scientific problems on InnoCentive’s Web site; anyone on InnoCentive’s network can take a shot at cracking them.

The companies – or seekers, in InnoCentive parlance – pay solvers anywhere from $10,000 to $100,000 per solution. (They also pay InnoCentive a fee to participate.) Jill Panetta, InnoCentive’s chief scientific officer, says more than 30 percent of the problems posted on the site have been cracked, “which is 30 percent more than would have been solved using a traditional, in-house approach.”

The solvers are not who you might expect. Many are hobbyists working from their proverbial garage, like the University of Dallas undergrad who came up with a chemical to use inart restoration, or the Cary, North Carolina, patent lawyer who devised a novel way to mix large batches of chemical compounds.

This shouldn’t be surprising, notes Karim Lakhani, a lecturer in technology and innovation at MIT, who has studied InnoCentive. “The strength of a network like InnoCentive’s is exactly the diversity of intellectual background,” he says. Lakhani and his three coauthors surveyed 166 problems posted to InnoCentive from 26 different firms. “We actually found the odds of a solver’s success increased in fields in which they had no formal expertise,” Lakhani says. He has put his finger on a central tenet of network theory, what pioneering sociologist Mark Granovetter describes as “the strength of weak ties.” The most efficient networks are those that link to the broadest range of information, knowledge, and experience.

Which helps explain how Melcarek solved a problem that stumped the in-house researchers at Colgate-Palmolive. The giant packaged goods company needed a way to inject fluoride powder into a toothpaste tube without it dispersing into the surrounding air. Melcarek knew he had a solution by the time he’d finished reading the challenge: Impart an electric charge to the powder while grounding the tube. The positively charged fluoride particles would be attracted to the tube without any significant dispersion.

“It was really a very simple solution,” says Melcarek. Why hadn’t Colgate thought of it? “They’re probably test tube guys without any training in physics.” Melcarek earned $25,000 for his efforts. Paying Colgate-Palmolive’s R&D staff to produce the same solution could have cost several times that amount – if they even solved it at all. Melcarek says he was elated to win. “These are rocket-science challenges,” he says. “It really reinforced my confidence in what I can do.”

Melcarek, who favors thick sweaters and a floppy fishing hat, has charted an unconventional course through the sciences. He spent four years earning his master’s degree at the world-class particle accelerator in Vancouver, British Columbia, but decided against pursuing a PhD. “I had an offer from the private sector,” he says, then pauses. “I really needed the money.” A succession of “unsatisfying” engineering jobs followed, none of which fully exploited Melcarek’s scientific training or his need to tinker. “I’m not at my best in a 9-to-5 environment,” he says. Working sporadically, he has designed products like heating vents and industrial spray-painting robots. Not every quick and curious intellect can land a plum research post at a university or privately funded lab. Some must make HVAC systems.

For Melcarek, InnoCentive has been a ticket out of this scientific backwater. For the past three years, he has logged onto the network’s Web site a few times a week to look at new problems, called challenges. They are categorized as either chemistry or biology problems. Melcarek has formal training in neither discipline, but he quickly realized this didn’t hinder him when it came to chemistry. “I saw that a lot of the chemistry challenges could be solved using electromechanical processes I was familiar with from particle physics,” he says. “If I don’t know what to do after 30 minutes of brainstorming, I give up.” Besides the fluoride injection challenge, Melcarek also successfully came up with a method for purifying silicone-based solvents. That challenge paid $10,000. Other Melcarek solutions have been close runners-up, and he currently has two more up for consideration. “Not bad for a few weeks’ work,” he says with a chuckle.

It’s also not a bad deal for the companies that can turn to the crowd to help curb the rising cost of corporate research. “Everyone I talk to is facing a similar issue in regards to R&D,” says Larry Huston, Procter & Gamble’s vice president of innovation and knowledge. “Every year research budgets increase at a faster rate than sales. The current R&D model is broken.”

Huston has presided over a remarkable about-face at P&G, a company whose corporate culture was once so insular it became known as “the Kremlin on the Ohio.” By 2000, the company’s research costs were climbing, while sales remained flat. The stock price fell by more than half, and Huston led an effort to reinvent the way the company came up with new products. Rather than cut P&G’s sizable in-house R&D department (which currently employs 9,000 people), he decided to change the way they worked.

Seeing that the company’s most successful products were a result of collaboration between different divisions, Huston figured that even more cross-pollination would be a good thing. Meanwhile, P&G had set a goal of increasing the number of innovations acquired from outside its walls from 15 percent to 50 percent. Six years later, critical components of more than 35 percent of the company’s initiatives were generated outside P&G. As a result, Huston says, R&D productivity is up 60 percent, and the stock has returned to five-year highs. “It has changed how we define the organ-ization,” he says. “We have 9,000 people on our R&D staff and up to 1.5 million researchers working through our external networks. The line between the two is hard to draw.”

P&G is one of InnoCentive’s earliest and best customers, but the company works with other crowdsourcing networks as well. YourEncore, for example, allows companies to find and hire retired scientists for one-off assignments. NineSigma is an online marketplace for innovations, matching seeker companies with solvers in a marketplace similar to InnoCentive. “People mistake this for outsourcing, which it most definitely is not,” Huston says. “Outsourcing is when I hire someone to perform a service and they do it and that’s the end of the relationship. That’s not much different from the way employment has worked throughout the ages. We’re talking about bringing people in from outside and involving them in this broadly creative, collaborative process. That’s a whole new paradigm.”

4. The Masses

In the late 1760s, a Hungarian nobleman named Wolfgang von Kempelen built the first machine capable of beating a human at chess. Called the Turk, von Kempelen’s automaton consisted of a small wooden cabinet, a chessboard, and the torso of a turbaned mannequin. The Turk toured Europe to great acclaim, even besting such luminaries as Benjamin Franklin and Napoleon. It was, of course, a hoax. The cabinet hid a flesh-and-blood chess master. The Turk was a fancy-looking piece of technology that was really powered by human intelligence. Which explains why Amazon.com has named its new crowdsourcing engine after von Kempelen’s contraption. Amazon Mechanical Turk is a Web-based marketplace that helps companies find people to perform tasks computers are generally lousy at – identifying items in a photograph, skimming real estate documents to find identifying information, writing short product descriptions, transcribing podcasts. Amazon calls the tasks HITs (human intelligence tasks); they’re designed to require very little time, and consequently they offer very little compensation – most from a few cents to a few dollars.

InnoCentive and iStockphoto are labor markets for specialized talents, but just about anyone possessing basic literacy can find something to do on Mechanical Turk. It’s crowdsourcing for the masses. So far, the program has a mixed track record: After an initial burst of activity, the amount of work available from requesters – companies offering work on the site – has dropped significantly. “It’s gotten a little gimpy,” says Alan Hatcher, founder of Turker Nation, a community forum. “No one’s come up with the killer app yet.” And not all of the Turkers are human: Some would-be workers use software as a shortcut to complete the tasks, but the quality suffers. “I think half of the people signed up are trying to pull a scam,” says one requester who asked not to be identified. “There really needs to be a way to kick people off the island.”

Peter Cohen, the program’s director, acknowledges that Mechanical Turk, launched in beta in November, is a work in progress. (Amazon refuses to give a date for its official launch.) “This is a very new idea, and it’s going to take some time for people to wrap their heads around it,” Cohen says. “We’re at the tippy-top of the iceberg.”

A few companies, however, are already taking full advantage of the Turkers. Sunny Gupta runs a software company called iConclude just outside Seattle. The firm creates programs that streamline tech support tasks for large companies, like Alaska Airlines. The basic unit of iConclude’s product is the repair flow, a set of steps a tech support worker should take to resolve a problem.

Most problems that iConclude’s software addresses aren’t complicated or time-consuming, Gupta explains. But only people with experience in Java and Microsoft systems have the knowledge required to write these repair flows. Finding and hiring them is a big and expensive challenge. “We had been outsourcing the writing of our repair flows to a firm in Boise, Idaho,” he says from a small office overlooking a Tully’s Coffee. “We were paying $2,000 for each one.”

As soon as Gupta heard about Mechanical Turk, he suspected he could use it to find people with the sort of tech support background he needed. After a couple of test runs, iConclude was able to identify about 80 qualified Turkers, all of whom were eager to work on iConclude’s HITs. “Two of them had quit their jobs to raise their kids,” Gupta says. “They might have been making six figures in their previous lives, but now they were happy just to put their skills to some use.”

Gupta turns his laptop around to show me a flowchart on his screen. “This is what we were paying $2,000 for. But this one,” he says, “was authored by one of our Turkers.” I ask how much he paid. His answer: “Five dollars.”

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Math + Programming is Transforming Business

"The world is moving into a new age of numbers," says BusinessWeek. "Partnerships between mathematicians and computer scientists are bulling into whole new domains of business and imposing the efficiencies of math." Quants are "changing the nature of research in newsrooms and in biology labs ... more of the economy falls into the realm of numbers ... Now they're mapping out ad campaigns and building new businesses with mountains of data."

Here are several examples of how "math transforms industries" in your future:

• Advertising sector. Mathematical targeting replaces hunches. "The clearest example of math's disruptive power is in advertising. There Google and other search companies use math to transform an industry that grew on ideas, hunches and personal relationships into a series of calculations." Startup Efficient Frontier optimizes online ad campaigns based on response time and ROI. E-Loan spent $15 million this way.
• Food/beverage sector. Enologix helps "vintners mimic the chemistry of wines." Math algorithms cull through 70,000 wines, later matched to customer data for marketing.
• Consulting sector. IBM builds the "perfect teams" using "math profiles of 50,000 consultants," then tracks progress in "virtual assembly lines!" One IBMer added: "Credit cards, bank accounts. Everything is being analyzed 24/7 whether you like it or not. You would be amazed how much data is available." IBM is also using "math-based blueprints to upgrade steel mills in China and revamp operations at the U.S. Postal Service."
• Media sector. Inform Technologies, a Goldman startup, "combs through thousands of press articles and blog posts in English." It uses math algorithms, not keywords or the alphabet, analyzing, then creating customized news feeds for users. BusinessWeek says these "automatic systems threaten to replace editors."
• Marketing sector. Startup Umbria analyzes blog product pick and pans: "Using vector graphics, it confirmed that raunchy Burger King online turned off nearly everyone, except the target audience." Harrah's Casino built profiles of millions of customers. Payoff: Harrah averaged 22% annual growth over five years as its stock nearly tripled.
• Intelligence sector. Think massive: NSA spying online and on phone traffic, using math algorithms searching for patterns on potential attacks. And intelligence of a commercial stripe, where "consumers will be armed with ever more data, from predictive models of real estate markets to patient mortality charts for comparing different oncologists."

http://www.marketwatch.com/news/story/future-coming-investors-warp-speed/story.aspx?guid=%7B482AC284%2D6D46%2D43E1%2DA675%2D42DB86290C45%7D&dist=TNMostRead

The Fundamentals

The Fundamentals
How To Run A Beauty Salon: Role Model
Mary Crane, 04.20.07, 6:00 PM ET

Every new business owner needs to know the fundamentals. Forbes.com is breaking down those building blocks by answering eight core questions related to a given industry. Taken together, the information will give budding entrepreneurs a head start on making those first critical steps.

Which big company is the ideal role model?

It may be comparing organic apples to oranges, but Frank Rizzieri, head of the Rizzieri Corp.'s two salons in New Jersey, says he looks to Whole Foods Market (nasdaq: WFMI - news - people ), the natural foods supermarket, for management inspiration.

In the salon world, the most precious resources are stylists, so keeping them around and happy is critical. Whole Foods "is great from a staff-retention point of view," says Rizzieri. "The interpersonal relationship [customers have] with their service provider means the customer leaves with the service provider."

Rizzieri admits it is harder for smaller companies like beauty salons to offer the same kind of perks that Whole Foods does. For example, Whole Foods' full-time employees who have worked more than 800 hours get medical coverage at no cost.

Still, there are some Whole Foods tactics that salon owners can offer to attract talent while not going broke in the process. For example, all employees 18 years old or older can sign up for the company's 401(k) retirement savings plan and everyone--part-timers and full-timers--gets paid time off based on the number of hours worked.

Whole Foods trains like mad, too. Each store has a budget for sending employees to classes and trade shows and for buying books and magazine subscriptions. The company also runs online classes via its "Whole Foods Market University" to reinforce the company culture and improve employees' skills.

Finally, salons might try adopting the supermarket's view on community involvement. Whole Foods administers two nonprofit foundations--the Whole Food Planet Foundation and the Animal Compassion Foundation--which give employees a way to interact outside of work and meet other people within the company. Salon owners, take note: Investing in local communities is not only a good way to raise employee morale, it's also great PR.

As for Rizzieri, he says he spends one-half of 1% of gross income on training and offers health benefits and paid vacation time to full-time employees. He also hand-picks and trains his own stylists. "We build our own culture that way," he says.

http://www.forbes.com/2007/04/20/whole-foods-training-ent-hr-cx_mc_0420fundsalonrolemodel.html?partner=yahootix

The appeal--and risks--of authenticity.

Who Do You Love?

The appeal--and risks--of authenticity.

From: Issue 115 | May 2007 | Page 82 | By: Bill Breen | Photographs By: David Arky

There were compelling reasons to send Juan Valdez off to the old folks home for advertising's ex-celebs. The fictional coffee-growing icon had been featured in ads for decades, helping establish "100% Colombian coffee" as a global brand. But Juan wasn't aging well. Recent TV spots showed him surfing with his faithful mule, Conchita, and popping up in kitchen pantries. While humorous, the ads reinforced the notion that Juan had become a bit of a joke.

Yet at the eleventh hour, the National Federation of Coffee Growers of Colombia decided that introducing a new, younger "Juan in a million" would be better than retiring him. A brand consultancy in Portland, Oregon, called Character advised that Juan's appeal--humble but uncompromising, dedicated to the hard work of raising coffee by hand--could still be valuable. "Juan Valdez taps into a fundamental human truth," contends Jim Hardison, Character's creative director, "that the things we savor the most are the hardest earned." People emotionally connect with Juan because he seems authentic, Hardison reminded the federation, and authenticity is a priceless commodity.

In an increasingly shiny, fabricated world of spun messages and concocted experiences--where nearly everything we encounter is created for consumption--elevating a brand above the fray requires an uncommon mix of creativity and discipline. And nowhere do you see the challenge more starkly illustrated than in the quest for authenticity. "Authenticity is the benchmark against which all brands are now judged," notes John Grant in The New Marketing Manifesto. Or as Seth Godin quips in Permission Marketing: "If you can fake authenticity, the rest will take care of itself."

Overloaded by sales pitches, consumers are gravitating toward brands that they sense are true and genuine. Hunger for the authentic is all around us. You can see it in the way millions are drawn to mission-driven products like organic foods. It's there in the sex-without-guilt way people respond to the footloose joy of BMW's Mini. You see it in the tribes of "i-centered" buyers who value individuality and independence--and whom Apple (NASDAQ:AAPL) has so cleverly cultivated through its iMacs and iPods.

Yet our sense of what's "real" in this post-postmodern world takes on all kinds of strangely distorted shapes and guises, as if it's reflected back at us from a swirl of fun-house mirrors. A fictional coffee grower, it turns out, has lasting resonance. The Daily Show With Jon Stewart, with its hoaxy newscasts, comes across as authentic in large part because it self-consciously declares itself to be fake. A coffeehouse chain like Starbucks (NASDAQ:SBUX) can rise to prominence by creating an imitation of Milan's espresso bars--and then be pilloried (by its own chairman, among others) for not staying true to that fabricated experience. What's authentic is not always real, and what's real is not always what it seems.

Playing the authenticity game in a sophisticated way has become a requirement for every marketer, because the opposite of real isn't fake--it's cynicism. When a brand asserts authenticity in a clumsy way, it quickly breeds distrust or, at the very least, disinterest. Just remember Coca-Cola's (NYSE:KO) attempt to muck with the Real Thing's original formula--and the calamitous launch of New Coke. Or consider the plight of Levi's, at one time the very epitome of an authentic American brand, which became increasingly out-of-date to new lovers of denim.

Both the promise and the peril of "getting real" are, indeed, very real. "Authentic" is derived from the Greek authentikós, which means "original." And unfortunately, there's no recipe for originality. Each brand must build its own primary source code for the authentic. Still, there are some larger lessons (and pitfalls) that anyone charged with overseeing a brand would be wise to consider. What follows is a series of questions that every brand, at some point in its evolution, will have to wrestle with if it hopes to be, in the immortal words of Smokey Robinson, "really, really real."

What does it take to be authentic?

Authenticity constantly requires reinforcement, and it can come from a number of sources: craftsmanship, timeliness, relevance. But it is a brand's values--the emotional connection it makes--that truly define its realism. And there are four primary strands that draw out that connection.

• A sense of place. "Authenticity comes from a place we can connect with," says Steve McCallion, creative director of Ziba, a Portland, Oregon--based design consultancy. "A place with a story." The Champagne region of France, for instance, helps give Veuve Clicquot (OTC:LVMUY) special cachet. And yet, our notion of place does not need to be literal. On the contrary, it can sometimes prove considerably elastic. Häagen-Dazs, the Nordic-sounding ice cream, originated in that quaint Scandinavian village known as the Bronx, New York. The brand's name, concocted from two nonsensical words, is a perfect fake--so well chosen, and so evocative, that it resonates as real to folks who love the product.
• A strong point of view. Authenticity also emerges from "people with a deep passion for what they are doing," says McCallion. So Martha Stewart is perceived to be authentic in large part because her ambitious recipes for Perfect White Cake and Chocolate-Strawberry Heart-Shaped Ice-Cream Sandwiches stand in the face of a world where food is mass-produced and preparation for the average dinner is measured by the number of minutes it takes to microwave the thing.
• Serving a larger purpose. Consumers quite rightly believe, until they're shown otherwise, that every brand is governed by an ulterior motive: to sell something. But if a brand can convincingly argue that its profit-making is only a by-product of a larger purpose, authenticity sets in. "Just as there are purpose-driven lives," says Character's Hardison, "there are purpose-driven brands." (Think Whole Foods (NASDAQ:WFMI) here, or even, in a way, Google (NASDAQ:GOOG).) The counterpart is also true: "When a brand changes its story to better capture its customers' dollars, it's basically a poser," Hardison says, "and people sense that right away."
• Integrity. Authenticity comes to a brand that is what it says it is. In other words, "the story that the brand tells through its actions aligns with the story it tells through its communications," Hardison says. "Only then will customers sense that the brand's story is true." When McDonald's (NYSE:MCD) launched its "We love to see you smile" campaign in 2000, commentators like Advertising Age's Bob Garfield hooted in derision, arguing that filthy restrooms and grumpy counter clerks rendered the ads "preposterously false." A year later, published reports revealed that rude employees were costing Mickey D's millions of dollars in lost sales. And when bloggers exposed a flog (read: "fake blog") that masqueraded as a travel journal written by a couple who were compensated for their gushing posts about Wal-Mart (NYSE:WMT), the deception elicited a torrent of rebuke.

How do you stay authentic even as you get big?

Imagine you lived in Atlanta, and one day in the mid-1990s, you came across a tiny sandwich café tucked into Sandy Springs, a nearby suburb. Seduced by the eatery's yeasty charms, you fell for its French baguettes and Italian pesto focaccia, freshly baked every morning, right on site. The Atlanta Bread Co., as it was called, became your discovery--your place--and you began stopping there at least once a week.

But some time later, on a business trip to Detroit, you were walking across Pointe Plaza, when suddenly, there it was--an almost exact duplicate of your café. Atlanta Bread had been franchised (it currently counts 150 locations in 27 states), and while the baguettes were as fresh as ever, the experience of shopping there just wasn't the same. A replica Atlanta Bread somehow felt a little less special than the original.

Ubiquity might not be toxic to authenticity, but it certainly dilutes it. When a brand spreads far beyond its home turf, its branches almost invariably (though not inevitably) weaken. Ben & Jerry's ice cream and Tom's of Maine toothpaste lose a bit of their authentic luster when they're snapped up by the likes of Unilever (NYSE:UL) and Colgate-Palmolive (NYSE:CL) --global behemoths trying to act local.

No business has confronted this challenge more urgently than Starbucks (NASDAQ:SBUX). As chairman Howard Schultz lamented to upper management in a bluntly worded missive on Valentine's Day, the company's rapid growth has "led to the watering down of the Starbucks experience," and the company's stores "no longer have the soul of the past." The Seattle-based coffee juggernaut gained its authentic mien as the quintessential "third place" (after home and the workplace), where people could linger for hours over "grandes" of java. Yet today, stores are overrun with a clutter of CDs, coffeemakers, puzzles, bagged beans, and more. The outposts have become as much retail space as meeting place.

"It will be another decade before Starbucks becomes as meaningless as Chock Full o'Nuts," jokes Patrick Hanlon, CEO of the brand consultancy Thinktopia. Despite Schultz's impassioned outburst, Starbucks has not retreated from its previously stated aim to eventually establish 40,000 retail outlets around the world. "As it lurches slowly toward ubiquity," Hanlon notes, "it moves further and further away from authenticity."

Yet it doesn't have to be that way for all big brands. Another colossus from the Pacific Northwest, Nike (NYSE:NKE), has demonstrated that growth and authenticity are not wholly incompatible. A framed black-and-white photograph that hangs in CEO Mark Parker's corner office in Beaverton, Oregon, reveals one of the secrets to how Nike keeps it real even as it has grown to more than 28,000 employees and a portfolio of 13,000 products. The portrait is of Bill Bowerman, the legendary University of Oregon track coach and Nike cofounder, who died in 1999. "If you talk to a lot of designers around here, they'll say they've got Bill sitting on their shoulder, speaking up for the athlete," Parker says.

By taking "deep dives" into various sports tribes and using the resulting insights to become more relevant--and therefore more authentic--Nike has maintained a renegade edge. As Parker tells it, not so long ago the company believed it was "too big, too corporate" to be accepted by the skateboarding culture. But as the market grew to 15 million skaters who generate $3 billion in annual sales, Nike plunged in. Parker assembled a Nike Skateboarding team that lived and breathed skate. It worked with hard-core skaters to develop a shoe, dubbed the Dunk, customized for skateboarding. It signed hot young skaters to represent the new Nike SB division. And it brought in maverick graphic artists to tell their stories on the canvas of Dunk shoes. To some die-hard skaters, Nike may still be a wannabe, but it has managed to pick off a sizable chunk of customers. The antidote to size and ubiquity--for Nike, at least--has been to go vertical. "As we get bigger," Parker says, "we get deeper."

Can you be authentic when you're trying to be authentic?

The first time you hear a quartet of Cold Stone Creamery's ice-cream slingers, in response to a tip, warble a verse of "Sprinkle, sprinkle candy bar, this is what our mix-ins are," it feels both silly and endearing. But when the same bit of showmanship is replayed on repeat visits, it comes off as shtick. It turns out that Cold Stone, the No. 3 ice-cream chain in the United States with more than 1,300 stores, auditions prospective scoopers to see who can carry a tune that will amuse the kids and ultimately move more mint chocolate. Although dishing up a little dazzle with its sundaes might help Cold Stone achieve its goal of toppling Dairy Queen and becoming the nation's big cherry by 2010, mandated singing feels phony.

The crooning Cold Stoners share the same plight as Wal-Mart's (NYSE:WMT) smiley greeters. Coerced by corporate fiat, their "warmth" can wear out its welcome and feel contrived. That's one reason why we so often distrust the big-box retailers and chain stores: Their take on what's authentic springs straight from the company manual. Authenticity is necessary, but it cannot be compelled.

And therein lies an authentic paradox: A brand doesn't feel real when it overtly tries to make itself real. To the hypertargeted consumer, baldly billboarding a brand's message smacks of insincerity. General Motors' (NYSE:GM) "Our Country, Our Truck" campaign for Chevrolet's Silverado offers a striking example. Silverado's TV commercials, which this past fall were in heavy rotation on NFL games, featured clichéd images of he-man Americana--rugged factory workers, proud firefighters, and the truck itself, lumbering through a golden field of grain--backed by John Mellencamp's song "Our Country," an ode to America's can-do spirit. Media critics assailed the ads, in part because the original spots flashed iconic images of Martin Luther King Jr. and Rosa Parks, all in the service of selling trucks.

But GM also has trouble walking the talk of Silverado's gauzy message. We know that, while GM is celebrating the workin' man, its recent history includes layoffs that have put tens of thousands on the street. And, as Slate has pointed out, we know that while Mellencamp indulges in a bit of jingoism with his declaration that "this is our country," he once sang a remarkably similar line, "ain't that America," with a caustic edge. "Our Country, Our Truck" has all of the trappings but none of the rich truths that make for a truly authentic story.

Can you be cool and still be authentic?

Chris Bangle, BMW's design director, contends there's a universal explanation for why successful brands stumble: They fail to evolve. Bangle calls them "fortress brands." Deeply rooted in their heritage and values, they are inflexible, unmovable, and ultimately stuck in time. "That's the problem with a dogmatic, static brand," he says. "The competition will outflank it, and the world will pass it by."

Levi's, for one, is a brand that appears to have slipped into the fortress category. The king of denim, whose founder stitched and riveted the world's first pair of jeans in 1873, has lately missed out on the fast-changing trends of an industry that it created. When the craze for $200-a-pair, ripped and jewel-studded denim exploded in the late 1990s, Levi's persisted in distributing boxy jeans for men through cut-rate retailers. According to a January report in The New York Times, Levi's is now the apparel industry's most litigious company--a sure sign of a reactionary brand that attacks by retreating.

To maintain its integrity, a brand must remain true to its values. And yet, to be relevant--or cool--a brand must be as dynamic as change itself. An authentic brand reconciles those two conflicting impulses, finding ways to be original within the context of its history. Look at Abercrombie & Fitch (NYSE:ANF). Its flagship store on New York's Fifth Avenue twines the company's legacy as a purveyor of outdoor paraphernalia with its role as modern-day hangout for teens buying jeans and T-shirts. The store combines the visual iconography of its origins--a moosehead mounted over the cashier's counter, wooden canoes, and racks of ancient shotguns--with the dark lighting and amped-to-the-max soundtrack of an after-hours dance club. "This place mixes the old and new in a really delightful way," Thinktopia's Hanlon shouted above the din, when we visited on a recent Monday afternoon. "It's an inspiration that proudly declares you can have more than 900 stores scattered in shopping malls throughout the U.S. and still have soul."

Sometimes even the most homogenized of places can evoke a flicker of authenticity. The morning after last fall's congressional elections, the newly elected senator from New Jersey, Robert Menendez, breakfasted at his usual spot, the International House of Pancakes (NYSE:IHP) in Union City. Menendez, formerly mayor of Union City, sat in his regular booth, ordered the same breakfast he always orders, and spent an hour catching up with longtime friends.

Few restaurants are more prefab than IHOP, yet there Menendez was, paying homage to a staff that knew his breakfast by heart and to patrons who've watched his kids grow up. On the surface, the Union City franchise is hardly authentic--it's similar to the IHOP in, say, Muncie, Indiana. But the friendships that Menendez has made there are certainly genuine. It's not that Starbucks, Cold Stone Creamery, BMW, Nike, or any other brand is really, really real. What's real are the experiences and the connections that the brands allow us to make--if they give us an honest chance.

Feedback: breen@fastcompany.com

http://www.fastcompany.com/magazine/115/features-who-do-you-love.html?partner=yahoofeed

Cultivating An Innovative Culture

http://www.businessweek.com/bwdaily/dnflash/aug2004/nf20040819_7348_db_81.htm

Q: Recently, you've been emphasizing the importance of invention at Amazon, and you're hiring more engineers and computer scientists than ever. Why now?
A: If you look at our corporate culture, we've always had a customer obsession, and we've always been pioneering. We've always been focused on customers rather than competitors. There are very successful companies that pursue close-following strategies, and that can be a great strategy because you get to save all the money of not going down blind alleys. Innovation is part and parcel with going down blind alleys. You can't have one without the other.

But every once in a while, you go down an alley and it opens up into this huge, broad avenue. And that's so satisfying and, from a shareholder's point of view, so successful, that it makes all the blind alleys worthwhile.

Q: So you draw a distinction between a competitive culture and a pioneering culture?
A: I believe that the pioneering cultures tend to be more heads-down focused on customers. If you're watching your competitors, you're unlikely to invent a bunch of stuff on your own. There's nothing wrong with being a close follower. I don't think it's as satisfying. I actually think that in a fast-moving industry, it's also not as successful for shareholders.

Q: How do you try to ensure that Amazon continually innovates even as it grows into a large corporation?
A: I think if you want to have an innovative organization, you need to do at least a couple of things. One is it's a lot about selection of people. Some people love a rapid rate of change. They love going down alleys, many of which turn out to be dead ends. They like inventing. And other people like a more stable environment where you know more what tomorrow's going to be like. Those people, of course, flee Amazon.com in hordes.

It's just the way we started. Corporate cultures tend to be very stable over time. If you have a very competitive-focused culture, then people who like that kind of culture are attracted to that organization and they thrive there.

Future customer trends, consumers, marketing, products and services for Siemens - by Futurist Dr Patrick Dixon

Patrick Dixon has been ranked one of the 20 most influential business thinkers alive today (Thinkers 50 2005). How customer behavior will ... all » change. Why the future is about emotion. Why market research can give us wrong answers. Customers in emerging markets. Lifestyle / consumer trends. How to connect with passion. Impact of wild cards. Customer relationship management - winners and losers. Client event for Siemens.

The First Internet Marketing Conference, San Francisco, 1994

In November 1994, Internet commercialization pioneer Ken McCarthy organized the first conference ever held that focused exclusively on the commercial potential of the web. This rare footage, which documents the very earliest days of the web industry, is an important artifact in the history of technology. After introductory remarks by Ken, Marc Andreessen, the 23 year old co-founder of Netscape, describes how the first web browser came into being and shares his vision of the future of the network which was destined to change the world forever.

Marc Faber must be listened to

January 2007 interview ... insights on global investing, gold, oil, fed policy, liquidity

investor advocate Larry Sucharow

Lindsay sits down with the nicest guy in a power-suit: investor advocate Larry Sucharow, Managing Partner of Labaton Sucharow & Rudoff LLP.

How to Profit from India

take a gigantic leap in terms of a foreign investor's understanding of where India stands financially and what its market represents in terms of an opportunity for them.

Aaron Chaze has 15 years of research and analytical experience in India and Canada

http://www.financialsense.com/Experts/2007/Chaze.html

Steer Clear of Bad Job-Hunting Advice

by Penelope Trunk
http://finance.yahoo.com/expert/article/careerist/19128
Posted on Wednesday, January 3, 2007, 3:00AM

Among the most common types of career advice that people toss around are tips for job hunting. But be careful who you take advice from, because the workplace is changing very fast right now. As the new generation makes its voice heard at work, a lot of the old rules no longer apply.

Here are eight job-hunting rules that will hold you back if you're not careful:

Bad Rule No. 1: Draw a clear picture of yourself

A résumé is not an autobiography, it's a marketing document. So the goal is not to tell every single thing about yourself, but rather to get an interview. And the best way to land an interview is to make the employer want to find out more about you.

This is why a résumé should be a tease, not treatise. (This is a great example of why that old rule about keeping your résumé to one page is still a very good one.)

Bad Rule No. 2: Don't be too narrow

If you're not narrow, then what are you selling? Think about cars. Is a BMW the car that meets every need for every person? Is a Saturn the car for high-end and low-end markets? You're no different from a car. You can't be everything to everyone.

If you want to stand out, you have to stand for something. This is your unique selling proposition, and once you have one, you'll naturally focus your résumé a little more sharply than, say, a generalist who, in trying to get every job, isn't a fit for any job.

Sure, this means you have to decrease the pool of jobs you'll take. But when it comes to getting flexibility from employers, it's the specialists, not the generalists, who get what they want. That's because the specialists are the hardest to replace.

Bad Rule No. 3: Don't job-hop

The Bureau of Labor reports that people under 30 switch jobs every 18 months. Most people who cite these statistics are aghast at the lack of loyalty in the workforce. But I say, who cares about loyalty? You know what it got the baby boomers? Layoffs.

Job-hoppers are generally happier in their work. They have more passion for their career because their work changes before it gets boring, and they have better vacations because they can really relax between jobs.

Bad Rule No. 4: Don't have gaps in your résumé

This is a good piece of advice if you're going to make work the only thing in your life. Because if you have nothing else in your life, a gap in your résumé means you're staring off into space.

But if work is a means to do other fun things, a gap is a way to grow, and you can say that in an interview.

When someone asks me about the gap in my résumé, I explain how I lived on a French farm and learned a lot about business and life while I plucked the chickens I ate for dinner.

Bad Rule No. 5: Don't have typos in your résumé

I'm not recommending that you misspell words on purpose, but I am recommending that you chill out about the typos. How can you possibly send out perfect résumés every time? Especially if you're customizing each résumé for each job, which is what you should be doing.

Look, if proofreading were such an easy job then publishing companies wouldn't have to hire proofreaders. So don't make yourself crazy about the typos, because while 10 typos is a sign of incompetence, one typo might be a sign that you have a moderate and healthy standard of perfectionism.

Bad Rule No. 6: Honesty is most important

Résumés are marketing documents, so write yours that way. Give an employer exactly what they want without saying something false.

If you're marketing Pop-Tarts, do you start by saying they have a lot of sugar? Not if you want parents to buy them. You say Pop-Tarts have fiber, maybe. Of course, they don't have a lot. But saying it has some fiber isn't false.

My own résumé says, "Boston University, graduate program in English, wrote master's thesis about hypertext." I never graduated from my program (because I got an amazing job offer based on that thesis). But I did write my master's thesis. It's not a lie. Anyway, it would be insane to say, "English graduate program, cut out early."

The bottom line about honesty: Don't be more forthcoming in your own marketing materials than the marketing manager for Pop-Tarts would be in hers.

Bad Rule No. 7: Clean up your online identity

Stop stressing about the stupid stuff you posted when you were drunk (or worse, not drunk). It's out of your control.

Instead, build a more current online identity that will pop up highest when an employer or recruiter does an online background check (which about 70 percent do). One way to get your new identity to the top of the search engines is to use Naymz, a service that helps control what people find out about you online.

Another way to control what people see about you is to blog. A blog can represent you effectively to the online world, and a good blog will show up higher in searches than almost any kind of page that could damage you.

Bad Rule No. 8: Treat a job hunt like a project and be a project manager

That's great advice if you look for a job four times in your whole life. But today, job hunting is so frequent that often there's no downtime -- not even while you start a new job.

Also, job hunting is continuous today because it's mostly about networking, and you can't build your network if you're taking breaks, because being good at networking means being a good friend. And who takes breaks from that?

So treat your job hunt like a personal development project. And question all the advice people give you. Ask yourself, is this the advice someone was giving 20 years ago? Because if the answer is yes, then you probably need some new advice for today.

Web 2.0 ... The Machine is Us/ing Us

The Platform Company Model

"That’s a key part of your argument in “Our
Brave New World.�? Perhaps you’d best explain.
Louis: Basically, the emergence of the platform company
model has allowed U.S. companies to outsource
manufacturing, the most volatile part of the production
cycle, to the developing world. So if underlying
economic activity comes in weaker than forecast, the
platform companies in the West don’t have to slash
labor and inventories. It is their suppliers that have
to lay off workers etc., while the designers and marketing
people and other service workers in the West
find their services still in demand. Of course, the loss
of industrial jobs in the West is very bad news for
hard hats—and for politicians dependent on organized
labor. But it has actually tended to tame economic
volatility in the West. Put another way, with
services gaining an ever-more-important piece of the
economic pie, the variable of adjustment for Western
economies is no longer employment or profits. It is
imports. Which decreases the volatility in our economy, and has very important consequences. If people
are more secure in their jobs, they feel more confident
taking on big mortgages and basically leveraging
their futures.
I’m not sure that really applies beyond a very
Wall Street-centric segment of U.S. society.
Louis: I disagree. In the U.S. over the past 15 years,
we have moved from something like 22% of people
working in industry, what you would call fairly cyclical
jobs, to only 12%—and that 12% is probably a
pretty sticky number. But that is a great development
because we know that industrial jobs are not as
secure as service jobs. It is just the nature of the
game. Industry is just a far more cyclical game. So
we have written a lot on this new business model,
the platform company, which is a lot less volatile.
Take IKEA as an example. Let’s imagine their sales
slow down in the U.S. this winter because gas bills
are high and interest rates are high or whatever, and
that IKEA somehow failed to forecast the slowdown.
What are they going to? They are not going to fire
the furniture designer in Sweden or the salesman in
New Jersey. They are going to call the guy in Poland
or the guy in Mexico who makes the stuff and say,
“Last month we ordered 50,000 cupboards and this
month we only need 20,000.�? The adjustment will
be taken in Poland or Mexico, not in either Sweden
or the U.S. That leads me to this third point— I am
touching a lot of themes here—which is that as the
IKEAs and Apples and Dells, all the Western platform
companies, basically move out of manufacturing,
their need for capital is a lot less.
It is?
Louis: Let’s again take IKEA as an example. IKEA
never went to the equities market. It never went to
the bond market. Yet its stores are pretty much in
every big city in the world. This is because when you
have 20 designers in a warehouse in Stockholm and
you are basically producing on your suppliers’ balance
sheets, you don’t need much capital. That
brings me back to all the excess liquidity in our system.
What we have now are financial markets organized
to take money from the rich Western saver
and bring it to the rich Western companies. But
increasingly the Western companies say, “Hey,
thank you very much. But I don’t need it. I can
finance myself from my own cash flows or I finance
myself from my producers’ balance sheets.
Companies like Wal-Mart, like Dell, don’t need the
market’s capital. Frankly, the only reason these
companies are listed is to give options to the managements.
So now we have the West’s pool of capital
looking for a home. It goes into housing, it goes into
bonds, it goes into junk bonds, it goes into emerging
markets. It goes wherever it can, to try to find a
yield. That’s why liquidity is everywhere, and given
the reality of this brave new world in which we live,
it’s not going away anytime soon. But I don’t think it
is anything we can bemoan.

welling@weeden DECEMBER 15, 2005 PAGE 13

The Starbucks Story

"I tried to build an environment and a place that could provide our customers with an oasis, a
'Third place' away from home or work, that would exceed their expectations."

Planet Starbucks (B): Caffeinating the World

Ten years ago, we had 125 stores and 2000 employees. [Today,] we have 60,000 people working
in 28 markets outside North America, serving approximately 20 million customers a week. Our
core customer is coming in about 18 times a month. With the majority of adults around the
world drinking two cups of coffee a day and with Starbucks having less than 7% share of total
coffee consumption in the U.S. and less than 1% worldwide, these are the early days for the
growth and development of the company. We’ve got a model that has been well tested from
market to market.
Q&A With Starbucks’ Howard Schultz
BusinessWeek Online, September 9, 2002

http://globalgateway.thunderbird.edu/wwwfiles/pdf/about_thunderbird/case_series/a07030013.pdf#search=%22Planet%20Starbucks%20(B)%3A%20Caffeinating%20the%20World%22
[Easier to read at above link]

Peter Maslen, President of Starbucks International, had just returned from Greece where the company
had opened its first café in downtown Athens. He had logged thousands of miles over the past few years
shuttling from country to country extending the boundaries of the Starbucks empire. In anticipation of
stagnating growth in North America, the company had embarked on a global expansion strategy with
the objective of becoming “a great, enduring company with the most recognized and respected brand in the
world.�?
Starting with Japan in 1995, the company had blazed through several key markets in Asia and
Europe. The company looked to move into more of the emerging world, including Latin America.
While much of the developed world had been conquered—or at least attacked—new growth potential
had shifted to the less-developed regions. Although the company had already established beachheads in
several emerging markets, many believed that the infrastructure and disposable income in these regions
would present forbidding obstacles for Starbucks’ expansion strategies. As Peter Maslen sipped his cup
of steaming espresso, his mind wandered to the challenges his company faced in global markets. Did it
make sense for Starbucks to continue expanding globally at such a breakneck pace? Would the firm be
able to meet the market’s insatiable appetite for earnings growth with its ventures into European and
emerging markets?
History
Starbucks was founded in Seattle by Gerald Baldwin, Gordon Bowker and Ziev Siegl in 1971 as a
gourmet coffee bean roaster and distributor. In 1982 Howard Schultz joined the company as a member
of their marketing team. After a visit to Italy for a trade show, Schultz urged the partners to consider
opening espresso bars in conjunction with their coffee sales. In 1984 Starbucks opened its first espresso
bar in a small corner of the company’s downtown Seattle Starbucks store, to rave reviews. Although
Schultz urged the company to expand the espresso bar line, the controlling partners, now Baldwin and
Bowker, were unwilling to enter what they considered the fast food business, wishing to focus on the
coffee roasting niche market.
2 A07-03-0013
Howard Schultz then left Starbucks, and with the financial backing of his former partners, opened
Il Giornale in 1985, an espresso bar that sold coffee and assorted coffee beverages made exclusively with
Starbucks’ beans. Two years later, Schultz bought the former Seattle Starbucks company, six stores and
roasting plant, for $3.8 million from Baldwin (who wished to focus on managing Peet’s Coffee) and
Bowker (who wished to cash out of the business). Schultz now was in control of Starbucks, and with
new investors, began building a global business which reached sales of $3.28 billion by 2002 and was
acclaimed one of the top 100 growing global brands.
The Starbucks Experience
Howard Schultz’s dream was to take the concept of the Milan espresso bar to every corner of every city
block in the world. Captivated by the sense of community and neighborliness that he had seen in the
cafes in Milan, Schultz wanted to transplant a similar ambience into each Starbucks store. This desire
originated in the very first coffee experience that Schultz had in Milan. While attending a housewares
show in the city of over a thousand cafes, Schultz was quite impressed by the way in which the baristas
(coffee brewers) prepared a cup of espresso. It was pure theater to see a barista move effortlessly as he
ground the beans, pulled the espresso, and steamed the milk, seemingly at the same time and all the
while carrying on a conversation with the customer. It was precisely this experience that Schultz wanted
to bring to each of the Starbucks cafes. He envisioned each café as a gathering place for neighbors and
friends or a place of quiet contemplation and perhaps even a neighborhood office for the work a day
customer who might stop by to catch up on work and a steaming espresso at the same time. The
Starbucks café was indeed a destination. The Starbucks Experience had been designed to be pleasant,
uplifting and diverse.1 Experience and ambience were central to the Starbucks strategy. As Schultz
observed,
We certainly don’t ignore the product, but it is something we always knew we had and a lot of
others didn’t. But we built the business through experience, not through the product.
“Schultz’ Caffeinated Crusade,�? Brandweek, July 5, 1999
I tried to build an environment and a place that could provide our customers with an oasis, a
“Third place�? away from home or work, that would exceed their expectations.
M. Pendergrast, “The Starbucks Experience Going Global,�?
Tea and Coffee Trade Journal, Vol. 174, Issue 2, Feb. 20, 2002
The cafés exuded a sense of chic and featured comfortable seating, sometimes even sofas, a selection
of leading newspapers and magazines including Starbucks’ own in-house weekly, and the strong
aroma of rich coffee wafting through. In addition to a broad selection of coffee and Italian style espressos,
the cafes offered several blends of special teas, localized pastries, and coffee brewing equipment. The
stores themselves were designed to be bold and striking in their color palettes, often using primary
colors. The ambience of the cafes was accentuated by piping selected music to complement the atmosphere
of warmth and comfort. Employees were trained to not only provide advice on coffee selection
and appropriateness to potential customer needs, but to engage the customer.
Location, Location, Location
The company displayed remarkable business savvy in choosing its locations. It focused on spots that
provided ready access to consumer foot traffic, typically in densely populated neighborhoods. Stores
were located in such a way to blanket a neighborhood and often several stores competed for patronage
on the very same street. Starbucks had however been both admired and criticized for these marketswarming
expansion techniques that were used to proliferate within defined market locales. This approach
to first-mover advantage in a market space gave Starbucks sufficient time to establish itself while
holding competitors at bay. The downside however was the cannibalization of revenues across stores
1 “Schultz’ Caffeinated Crusade,�? Brandweek, July 5, 1999.
A07-03-0013 3
located in close proximity to one another. Between 1995 and 1998 Starbucks had averaged $0.69
million per store per year. Beginning in 1999, this revenue per store value had continuously declined,
falling to $0.56 million per store in 2002.

What Drives Silicon Valley

http://en.wikipedia.org/wiki/Silicon_Valley#History

The San Francisco Bay Area had long been a major site of U.S. Navy work, as well as the site of the Navy's large research airfield at Moffett Field. A number of technology firms had set up shop in the area around Moffett to serve the Navy. When the Navy moved most of its West Coast operations to San Diego, NASA took over portions of Moffett for aeronautics research. Many of the original companies stayed, while new ones moved in. The immediate area was soon filled with aerospace firms.

However, there was almost no civilian "high-tech" industry in the area. Although there were a number of excellent schools in the area, graduating students almost always moved east or south (that is, to Los Angeles County) to find work. This was particularly annoying to Frederick Terman, a professor at Stanford University. He decided that a vast area of unused Stanford land was perfect for real estate development, and set up a program to encourage students to stay in the area by enabling them to easily find venture capital. One of the major success stories of the program was that it convinced two students to stay in the area, William Hewlett and David Packard. In 1939, they founded Hewlett-Packard, which would go on to be one of the first "high tech" firms in the area that was not directly related to NASA or the U.S. Navy.

In 1951 the program was again expanded with the creation of the Stanford Industrial Park (later Stanford Research Park), a series of small industrial buildings that were rented out at very low costs to technical companies. Its first tenant was Varian Associates, founded by alumni in the 1930s to build military radar components. Today this sort of office space is commonplace and referred to as a technology incubator, but at the time it was practically unknown. In 1954, the Honors Cooperative Program, today known as the co-op, was established to allow full-time employees of the companies to pursue graduate degrees from the University on a part-time basis. The initial companies signed five-year agreements in which they would pay double the tuition for each student in order to cover the costs. By the mid-1950s the infrastructure for what would later allow the creation of "The Valley" was in a nascent stage due to Terman's efforts.

It was in this atmosphere that a former Californian decided to move to the area. William Shockley had quit Bell Labs in 1953 in a disagreement over the way the transistor had been presented to the public which, due to patent concerns, led to his name being sidelined in favor of his co-inventors, John Bardeen and Walter Houser Brattain. After divorcing his wife, he returned to the California Institute of Technology where he had received his Bachelor of Science degree, but in 1956 moved to Mountain View, California to create the Shockley Semiconductor Laboratory as part of Beckman Instruments and to live closer to his aging mother.

There he intended to supersede the transistor with a new three-element design (today known as the Shockley diode) that he felt would take over the market, but the design was considerably more difficult to build than the "simple" transistor. As the project encountered unexpected difficulties, Shockley became increasingly paranoid. He demanded lie detector tests on the staff, posted their salaries publicly, and generally annoyed everyone. The straw that broke the camel's back occurred when he flew into a rage when a secretary cut her finger, an event he claimed was an intended attack on himself. When it was later demonstrated the cut was from a broken thumbtack the damage was already done, and in 1957 eight of the talented engineers he had brought to the West Coast left and formed Fairchild Semiconductor.

Over the next few years this pattern would repeat itself several times, as engineers lost control of their own startups to outside management, and then left to form new companies. AMD, Signetics, National Semiconductor, and Intel all started as offshoots from Fairchild, or alternatively as offshoots of other offshoots.

By the early 1970s there were many semiconductor companies in the area, computer firms using their devices, and programming and service companies serving both. Industrial space was plentiful and housing was still inexpensive. The growth was fueled by the emergence of the venture capital industry on Sand Hill Road, beginning with Kleiner Perkins in 1972; the availability of venture capital exploded after the successful $1.3 billion IPO of Apple Computer in December 1980.

The Valley also significantly influenced computer operating systems, software, and user interfaces. Using money from NASA and the U.S. Air Force, Doug Engelbart invented the mouse and the graphical user interface in the mid-1960s while at Stanford Research Institute (now SRI International). When Engelbart's Augmentation Research Center went into decline due to personal conflicts and the loss of government funding, Xerox picked up many of Engelbart's best researchers. In turn, in the 1970s and 1980s, Xerox's Palo Alto Research Center (PARC) played a pivotal role in object-oriented programming, graphical user interfaces (GUIs), Ethernet, PostScript, and laser printers. Hewlett-Packard is credited with inventing the ink jet printer, while Ampex (in Redwood City) is credited with inventing the video cassette recorder.

The diaspora of Xerox inventions led directly to 3Com and Adobe Systems, and indirectly to Cisco, Apple Computer and Microsoft. Apple's Macintosh GUI was largely a result of Steve Jobs' visit to PARC and the subsequent hiring of key personnel. Microsoft's Windows GUI is also based on PARC's work, if less directly. Cisco's impetus stemmed from the need to route a variety of protocols over Stanford's campus Ethernet. While Xerox itself had marketed equipment using these technologies yet seemed incapable of more fully capitalizing on them, they were too important to not flourish elsewhere.

There are contradictions in the Valley's successes as well. As David Naguib Pellow and Lisa Sun-Hee Park claim in one of their recent works about the area:

"While typically lauded as the engine of the high-tech global economy and a generator of wealth for millions, Silicon Valley is also home to some of the most toxic industries in the nation, and perhaps the world. Next to the nuclear industry, the production of electronics and computer components contaminates the air, land, water, and human bodies with a nearly unrivaled intensity.



"The Valley is also a site of extreme social inequality. It is home to more millionaires per capita than anywhere else in the United States, yet the area has also experienced some of the greatest declines in wages for working-class residents of any city in the nation. Homes are bought and sold for millions of dollars each day, yet thousands of fully employed residents live in homeless shelters in San Jose, the self-proclaimed 'Capital of Silicon Valley.' Silicon Valley also leads the nation in the numbers of temporary workers per capita and in workforce gender inequities. Moreover, the region has an entirely non-unionized workforce and is as racially segregated as the most big urban centers."



Although semiconductors are still a major component of the area's economy, Silicon Valley has been most famous in recent years for innovations in software and Internet services. The Valley is generally considered to have been the center of the dot-com bubble which started in the mid-1990s and collapsed after the NASDAQ stock market began to decline dramatically in April of 2000. During the bubble era, real estate prices reached unprecedented levels (for a brief time, Sand Hill Road had the most expensive commercial real estate in the world) and the booming economy resulted in severe traffic congestion.

Even after the dot-com crash, Silicon Valley continues to maintain its status as one of the top research and development centers in the world. A 2006 Wall Street Journal story found that 13 of the 20 most inventive towns in America were in California, and 10 of those were in Silicon Valley.[2] San Jose led the list with 3,867 utility patents filed in 2005, and number two was Sunnyvale, at 1,881 utility patents.

Digital 2.0: Powering a Creative Economy

New technology designs are enabling a wide range of consumer and business products while creating the foundation for tomorrow's "disruptive" forces.

1) What can we expect to see in the next phase of the technology revolution? 2) What are the next generation technologies that will drive the global economy? 3) Will new companies or today's multinationals be best placed to capitalize on these new opportunities?

How to market - Seth Godin speaks at Google

Seth Godin is the author of six bestsellers, including Permission Marketing, an Amazon Top 100 bestseller for a year and a Fortune Best Business Book. His newest book, All Marketers are Liars , has already made the Amazon Top 100 and has inspired its own blog. Seth is also a renowned speaker, and was recently chosen as one of "21 Speakers for the Next Century" by Successful Meetings Magazine and is consistently rated among the best speakers by the audiences he addresses. Seth was founder and CEO of Yoyodyne, an interactive direct marketing company, which Yahoo! acquired in late 1998. He holds an MBA from Stanford, is a contributing editor to Fast Company magazine, and was called "the Ultimate Entrepreneur for the Information Age" by Business Week.

This video is part of the Authors@Google series.