A cult figure among day traders issues a rare "buy" recommendation
Zaky
FORTUNE -- With Apple (AAPL) in an extraordinarily oversold position, trading just over $530 a share -- under 13 times last year's earnings and 10.56 times his estimated October earnings -- Bullish Cross' Andy Zaky on Thursday told his readers to buy:
"Those who have been waiting for a correction in Apple to buy the stock now have that opportunity to do so. On a technical basis, Apple is the second most oversold it has been since the lows of the financial crisis. Only on June 20, 2011 — when Apple bottomed at $310.50 a share ahead of a 30% July rally — did we see more oversold conditions on Apple. Even the flash crash didn't result in more oversold conditions." (link)
For those of you who've never heard of Zaky, he was one of the first independent Apple analysts to challenge Wall Street, issuing estimates quarter after quarter that were considerably more accurate than the professionals'. (See, for example, here.)
Through his articles on Fortune.com, Apple Insider and Seeking Alpha, Zaky became something of a cult figure among Internet-oriented day traders. In 2011 he started a hedge fund -- Bullish Cross Asset Management -- that was quickly oversubscribed. At the 2012 Apple Investors Summit in Los Angeles, he was mobbed by his young admirers.
Between July 2006 and and July 2011 Zaky issued four "buy" recommendations on Apple, and his timing has been -- as he would be the first to tell you -- "impeccable." Each was made at or near a bottom, and the stock not yet failed to reach his price targets. See here.
He was warning subscribers to expect a correction long before April 9's all-time intraday high of $644, which he felt was unsupported.
Thursday's call to buy Apple was Zaky's fifth:
"Today we feel that Apple is a strong buy anywhere between $500 and $530 a share and a buy between $530 and $550 a share. We expect Apple to test $750 a share sometime before the end of this coming January. That is roughly 50% higher than where the stock is trading today."
Facebook's wild, nascent summer of 2004 was loosely chronicled in the blockbuster The Social Network. This is what it was really like.
Editor's Note: When I was still in college and dreaming of getting paid to write, my friends started a magazine. I wanted to contribute. At the first ideas meeting I mentioned a social network that was quickly taking over all the Ivies and would soon, we all knew, arrive at our campus. The site's creators had dropped out of Harvard to work on their project full time. They were in Palo Alto, and I'd be home in California for the summer. Maybe I could make the six-hour drive to visit them? So I did. I drove up and visited and met Zuck and attempted, in a somewhat naïve but earnest way, to make sense of what Thefacebook was and what it might eventually become.
On the way up, I got a speeding ticket, so arrived later than planned. I walked in through a wide-open front door; I saw the burnt out Tiki torches and the aftermath of generally minor, college-ish debauchery; I met Zuck, who was standoffish but generous with his time and driven and careful in a way that seemed well beyond his, or my, years. And he told a funny "your mom" joke.
Below is the article I wrote about Thefacebook as it ran in The Passenger magazine in 2005. Of course it feels dated, and, to me, the writing feels young. (Also, I ripped off the conceit of the first paragraph from a Charles P. Pierce essay. At least it was in good taste.) Perhaps most embarrassing of all, for everything I saw, I didn't see the money. In some way, though, not seeing all the riches that lay ahead for Zuck and Co. allowed me some clarity. There is, it turns out, something even bigger, even cooler, than $100 billion. And it's this thing, I think, that drove Zuck then -- that drives him still.
By Ryan Bradley, senior editor
Mark Zuckerberg with Dustin Moskovitz, circa 2004.
FORTUNE -- We should have seen it coming.
We should have known better and barred the doors, battened the hatches, hid the children and said a prayer. But no. We invited it into our homes. Let it stay. Gave it space, a desk or even a room. Gave it our time, our money, our phone lines. Provided for it. Ogled it and praised it. Loved it for its size, its immeasurable size. Loved it with that American love for open spaces, the same love that led our great grandparents to cross plains, deserts and mountains-new territories and the unknown.
We should have seen it coming. We kick ourselves and wince. We fed it everything, this insatiable beast: credit card numbers, social security numbers, names of first pets and mother's maiden names. Christ, some of us learned sex from it, had sex on it, watched people having sex in ways we still do not understand. But we kept one thing forever hidden from it, until everything we'd given wasn't enough-and the internet took our face.
It was a gradual taking. Sites like Hotornot.com and UglyPeople.com allowed the especially cruel and invested among us to judge strangers, wondering all the while why they had volunteered for such abuse. We found pretty faces, ugly faces, photoshopped faces. Faces not of people with exotic names and bodies, but faces from our state, our county, city, school, dorm, class; low-resolution faces full of braces and pimples. Slowly, the sites began masquerading in purpose beyond procrastination. The middle-aged could find former classmates at the yearbook picture database Classmates.com. The lonely could find a date at AmericanSingles.com or LoveCompass.com or Lavalife.com or PlentyofFish.com or Datingpearl.com or, well, just about anywhere in the limitless cyber-universe full of faces and possibility. Low-resolution faces connected with low-resolution faces and somewhere along the way our bastions of education decided they'd have a go. MIT and Columbia tried their own inter-campus, face-based networking programs, and then Harvard tried the same.
Problem was, all initial attempts at networking came from administrators, squares, rubes that had lost touch with the student body long ago. The suits scratched their heads and slumped their academic shoulders and questioned the sanity of youth while a streaker ran past their window. These face-sites didn't have what we wanted, didn't have the searching capabilities, didn't let us say what we wanted to say or find other people who were interested in cheese, Russian literature and Fela Kuti.
But Zuck! Zuck could do it. Zuck was our guy. Zuck was one of us and knew what we wanted. And Zuck could do it faster, better, sooner than the squares. And Mark Zuckerberg did. He created Thefacebook.
"Harvard [administrators] were working on their own inter-campus networking program, but Zuck approached them and he said he'd do it in a week and he'd do it better--and he did," says Zuckerberg's friend and Thefacebook compatriot Dustin Moskovitz.
The audacity! Saying you'll do something better and faster and then doing it. Zuck had a knack for knowing what students would want, and he knew how to program the necessary features. He knew that college students want options--the option of self-expression, the option of listing our sexual leanings, the option of finding classmates, the option of making ourselves look more attractive and interesting than we actually are. Zuck and company gave us all of these things, and more--because Zuck knew that what we abhor above all is stagnation, and as long as Thefacebook kept growing and changing, we would be drawn to it.
And Thefacebook grew and grew, taking over the Harvard campus, the Ivy League, the private schools, the state schools, the East Coast, the West Coast, the Midwest, the South, the country.
And now the beast dwells in a small bungalow at the end of a cul-de-sac in Palo Alto, cared for by five kids not from the West but westerners nonetheless. Five kids busily staring into glowing screens, eyes red, wrangling bandwidth. I walked in the front door on an unseasonably warm September evening. The door was open and ignored. Half-finished chip bags, pizza boxes, bottles of Corona and Pacifica and empty bags of In-N-Out covered every bit of counter space around Zuck's Sony laptop. There was an electronic hum, barely audible, and the faint sound of crickets from the backyard. All five sat at tables, five different tables, each surface covered with its own unique assortment of excessive litter surrounding a computer. Zuckerburg, the founder, creator, and leader of the outfit, looked up for a moment, then returned to his laptop and the programming jargon that flashed across the screen. Dustin Moskovitz, also supposed to be a junior at Harvard, also stopping out for a year, also 20, acknowledged me with a quick smile. Moskovitz had told me on the phone, a few hours earlier, to "keep an open mind" when I came to visit.
Moskovitz and I had been corresponding over email for months. They were a dodgy lot, these five kids slumped over keyboards and staring into glowing screens. I was happy to finally pin them down.
Wed Jun 23: Hi Ryan, I guess just give us a call when you're around. We're not planning to take any vacations during the summer, so you'll be able to meet with us for an hour or so. We are pretty busy though, so just make sure to contact us the day before.
Wed Jul7: Yeah, sure. Well, maybe Friday wouldn't be best for us as we're planning on throwing a party. I guess you could go if you wanted, but we tend to run around getting stuff when we do that. Are you planning on staying around a few days?
Sun Aug 8: Hi Ryan, We're actually extremely busy this late in August. We've sort of entered crunch time. However, I think our normal press guy should be returning state-side relatively soon. You may have better luck trying to get in contact with him again (press@thefacebook.com) and arranging an interview that way. I apologize for the inconvenience, Dustin
Wed Aug 11: Hi Ryan, I talked it over with Mark. I guess if you came the last week of August or early September (we stopped out, so not going back to Harvard...), you could chill for a while.
Fri Sep 3: Man, you're killing me Ryan. Can you make it to a party on Saturday? (during the day). Maybe Wed. or Thur. but next week will probably be the most intense week of thefacebook' s existence (i know a reporters dream) so it may not be possible. I'll have to let you know sooner to the date.
It was the most intense week of Thefacebook's existence. The crew was busy releasing Thefacebook on college campuses, crunching in hours to make sure the release date corresponded to the beginning of the school year in early September. In the past week Thefacebook had opened on 41 new campuses, and had been wildly popular (in varying degrees of wild popularity) on each. Drawn on a whiteboard was a tournament-style bracket system that pitted the schools against each other in terms of Thefacebook popularity--Uconn vs. Rutgers, Irvine vs. Brandeis, UT vs. Vassar. At the time of my visit, Thefacebook had opened on more than 120 college campuses. Three months later, that number had grown to more than 200. At each of the 203 campuses--from American to Yale--the popularity is phenomenal, always over 60 percent. At Harvard, student-members make up well over 90 percent of the student body.
"It's always kind of a surprise which schools Thefacebook really takes off on," Moskovitz says.
He takes me through several new features, some recently released, some still being tested. He tells me how important it is, for them, to keep Thefacebook "built by college students, for college students." How it's a networking tool, a study tool; how, with a new calendar feature, Thefacebook makes our lives more organized and easier.
He pauses, again flashing a smile, "But most guys still just use it to look for chicks."
And will It ever stop? We search ourselves, our photos, others' photos--searching for reinvention, an opportunity to appear better, more interesting, more social, more than we really are. We question our friendships, our social networks. Hidden in our rooms, we secretly scan pages looking for more attractive, more interesting, more exotic faces. And can we help it?
Best-laid plans.
One of the more fascinating new features Thefacebook offers is the creation of "groups." The groups feature allows a user to invite other users into his or her group, through which online message board discussion ensues. But it's also just a group. Which is to say that Thefacebook has, brilliantly, recreated the real life social scene online--complete with cliques and gossip, playing into all of our insecurities. Now we can be more attractive, have more friends, be in more groups then we ever were in high school. And isn't college about reinvention?
There is a pool in Zuck's backyard, but the lights have burnt out from too many pool parties. There are tiki torches, burnt out for the same reason. I look at the empty bag of In-N-Out next to the Cape Cod salt and vinegar chips next to the Corona next to the pizza box next to cases of blockbuster movies (Zoolander, Happy Gilmore) next to Zuckerburg's laptop next to Zuck and contemplate the lifestyle we have enabled them to lead. Our overwhelming desires, our collective insecurities, our wanting Thefacebook to be the all-encompassing collegiate phenomenon that it has become landed in between piles of chips and beer in a Palo Alto bungalow.
We could have seen it coming. Zuck had been on the techno-radar since high school, turning little programming projects into multi-million dollar ideas. There was the software he and a Phillips Exeter friend, Adam D'Angelo, came up with that tracked the listening habits of users on Winamp, an MP3 player program. D'Angelo, now a student at CalTech, works with Zuck and Moskovitz in Palo Alto. He and Zuck had offers in the millions for their program from the likes of Microsoft and America Online, but they sat on it and by the time they were ready to sell the offers had been dropped.
And then there was Facemash. A short-lived, much controversial site in the vein of Hotornot.com that pitted two Harvard faces against each other and allowed users to vote on which was the more attractive. The site was taken down, amidst public outcry, in less than a week. There was its predecessor, Coursemash, a program that allowed students to network with people enrolled in the same classes.
Zuck himself was an indication of things to come. A kid who, friends say, gets so absorbed in his little ideas that he forgets to eat or sleep and rarely leaves his slouched, edge-of-seat position in front of his laptop until his little idea is manifested or dropped. Most are dropped, or passed around through his group of friends and never released to the public.
A kid who, in an interview with the Harvard Crimson, said of his little facebook idea: "I do stuff like this all the time. Thefacebook literally took me a week to make."
A kid who's too low-key to appear arrogant and arrogant enough to appear genius.
Zuck was quiet, almost nervous in my presence. He joked about how every college publication does at least one story on Thefacebook. How I'm not with Time, but hey, it's press. How, um guys, do you want to take this picture? How he doesn't really have time to talk now, or tomorrow, or in the next few days or weeks. How they do get paid a marginal amount, like all software engineers, but couldn't disclose how much and wouldn't let me photograph his newest scheme, scribbled on a large whiteboard, standing on end near his table of trash and his laptop. Everything in the bungalow is near a table and trash and a laptop.
I asked them why. What makes them work seven-, eight-hour days for a little cash from the ads on the site? Why don't they just cash out? Buy an island or something?
"I don't know," Moskovitz says, "what kept us going through all this Zuck?"
"Your mom."
"No, she wasn't a part of this yet."
But, really, the bungalow could be filled with bottles of Cristal, not Corona. These kids could be living like rockstars, not hunched and red-eyed and weary. Forget the pay, forget the pool and the cul-de-sac and the mild climate. Why are they still there, working to bring Thefacebook to every damn college kid in the nation?
"I think ... well, I mean, everyone on Harvard's campus knows Zuck by name. I think he's kind of into that," Moskovitz says.
Milan Kundera, in his novel Immortality, speaks not of a religious immortality of the soul, but of a different, earthly immortality. A kind everyone can achieve in his or her own life. "Greater immortality," Kundera writes, "means the memory of a person in the minds of people who never knew him personally."
And there it is, plainly spelled out on the bottom of our screens--thousands of screens, everyone's screen—
And when the empty boxes of chicken nuggets, the half-eaten candy bars and the squalor of a pool without lights fades away, what we will remember in 10, 20, 30 years is Thefacebook. And wasn't that a funny part of college? Wasn't it silly how much time we spent on it? Wasn't it strange that I name dropped and networked and cared so much about something so intangible? And maybe, just maybe, we'll remember Zuck. Not so much the name, really, but the idea of Zuck. A kid, like us, whose little idea took off and took over. And maybe, just maybe, we'll tell our kids about It.
I left soon after snapping some photos and trying in vain to pry more team members away from their glowing computer screens. Zuck, nervous still, asked that I take a picture that didn't show any of the beer bottles, as he and Moskovitz are underage. They quickly jumped on the couch and joked around--posing for a mock embrace. When I was finished the pair returned to their computers. Business as usual. I checked my watch. 10:53 p.m. Still unseasonably warm. Thefacebook guys showed no signs of stopping.
As I got up to leave, Zuck and Moskovitz gave nods of acknowledgement--Moskovitz threw up an arm. Not stopping, not looking away from the glowing screens. Each carving out their own piece of immortality.
A record of the Android phones and tablets that downloaded a single app over 6 months
FORTUNE -- Suddenly you can see the advantage -- both for developers and users -- of Apple's (AAPL) approach of limiting the number of iOS devices on sale at any time to a handful of iPads, iPhones and iPod touches.
Google (GOOG) executive chairman Eric Schmidt downplays the challenge of knowing ahead of time which Android apps will run on which devices. Developers complain about "fragmentation" of the Android ecosystem. He suggests that they think of it, instead, as "differentiation."
You can see a live, mouseable version of the chart at OpenSignalMaps' website here. The products represented range from the popular Samsung Galaxy SII (61,389 downloads) to more than 1,300 single downloads from relatively obscure devices such as the Concorde Tab (a 10.1-inch Hungarian tablet), the Lemon P1 (a dual SIM Indian phone), the Energy Tablet i724 (a Spanish tablet aimed at home entertainment).
A gathering of hedge fund managers in Manhattan sends the share price on a wild ride.
Jeffrey Gundlach. Reuters
FORTUNE -- See on the chart at right where Apple's (AAPL) share price dropped to just over $540 shortly after 3 p.m. Wednesday?
That corresponds roughly to when the fund manager pictured above left, DoubleLine Capital's Jeffrey Gundlach, told a room packed with investment managers that he was shorting Apple. "I just wonder how many people will queue up around the block for an iPad 87," he said.
David Einhorn
See where the share price popped back up just before the closing bell? That happened after the next speaker, David Einhorn of Greenlight Capital, a hedge fund famous for taking very large short positions, said Grundlach was flat wrong. Apple won't lose its appeal if it stops making a new hit product every year. That "assumes that Apple is a hardware company. It's not," he said, according to the Wall Street Journal's account of the meeting. "Apple is a software company. Its value comes from iOS, the App Store, iTunes and iCloud."
According to Einhorn, hedge funds own only 5% of Apple's 935 million shares, as if to suggest that weren't enough to make a dent in the stock price.
But those funds are managed by guys who know a thing or two about leverage.
So if you are wondering who could have brought Apple's share price down more than $100 from its all-time high of $644 on April 9 to its low for the day of $541.04 -- carving $96 billion out of the company's market cap in the process -- you might start with the men who gathered Wednesday in Lincoln Center's Avery Fisher Hall for the Ira Sohn Conference to talk about the market and raise money for pediatric cancer research
Here's the list of the day's speakers, courtesy of ValueWalk:
Bill Ackman, Pershing Square Capital
Dwight Anderson, MP of Ospraie Management
Dan Ariely, Professor, and expert in Behavioral finance
David Einhorn, CEO of Greenlight Capital
Jeffrey Gundlach, CEO of Doubleline, Bond Guru
Jonathan Kolatch, CEO of Redwood Capital
Philippe Laffont, PM of Coatue Management
John Lykouretzos, PM of Hoplite
Steve Mandel, CEO of Lone Pine Capital
John Paulson, PM of Paulson & Co
Larry Robbins,  CEO of Glenview Capital Management
Kenneth Rogoff, Professor, Co-Author of Eight Centuries of Financial Folly
Three Silicon Valley insiders created an investment fund to solve the ultimate tech-boom problem: owning too much startup stock.
137 Ventures founders (from left) Justin Fishner-Wolfson, Kathy Chan, and Alex Jacobson in San Francisco
FORTUNE -- In 2010, after three years as a communications manager at Facebook, Kathy Chan left. The 28-year-old's Facebook shares were the equivalent of a winning lottery ticket -- the company's valuation in private markets had already soared to $23 billion, but it was still a few years from its IPO. To keep her stock options when she quit, Chan would have had to pay a tax that could have totaled more than 30% of their value. So she sold a portion of her stock -- which is likely to be about 300% more valuable at the time of Facebook's imminent IPO -- to cover her taxes. The vexing nature of Chan's problem provided the impetus for her next business.
She teamed with Justin Fishner-Wolfson and Alex Jacobson -- both alumni of the venture capital firm Founders Fund -- to start a San Francisco-based investment group, 137 Ventures. (The prime number comes from Fishner-Wolfson's grandfather, who for decades worked at the New York Stock Exchange; 137 was his annunciator code.) The trio has raised $50 million so far, landing shares at some of the hottest companies in the Valley while helping early employees gain liquidity without having to sell their stock.
Similar investment vehicles have been created before, but they are extremely rare because the tax structure can be complex. And not everyone qualifies for a 137 Ventures loan -- most people don't, in fact. Fishner-Wolfson, 29, and Jacobson, 40, are looking for late-stage companies likely to have outsize returns. The stock acts as collateral for the loan. Loan recipients negotiate interest rates (usually from 5% to 8%) and offer 137 Ventures the opportunity to exercise a small percentage of their options. The fund has made five loans, between $500,000 and $5 million each, to the likes of Joe Lonsdale, who helped found the analytics company Palantir Technologies in 2004. He calls 137 Ventures a "creative way of hacking the system," adding that it works in part because investors know and trust these Silicon Valley aficionados.
There's another reason people haven't had much success with this business model in the past. Employee stock options were designed in part to make it difficult for people to leave before an initial public offering. After all, if anyone could cash in early, everyone would be doing so. Still, many venture-backed tech companies were never intended to be private for so long, and their anticipated values have rarely been so large. In a way, 137 Ventures speaks to these heady times in the Valley -- both to the problem it solves and the fact that the outfit exists at all.
This story is from the May 21, 2012 issue of Fortune.
Despite its wild success, Facebook isn't especially good at making money — particularly in comparison to, say, Google. To change that, it'll have to double down in three crucial areas.
By Miguel Helft & Jessi Hempel
FORTUNE -- In Facebook's video IPO roadshow, Sheryl Sandberg, the company's chief operating officer, delivers a powerful line intended to impress potential investors: "In the United States, every day on Facebook is like the season-finale of American Idol -- the most popular show on television -- times two." It's an impactful boast, but as it turns out, Sandberg is playing it pretty safe. Every day, 188 million people log into Facebook in the U.S. and Canada. That's actually four to five times the number who tuned in to the season finale of American Idol. Wow, indeed.
And yet, Sandberg's boast also highlights a problem. American Idol's season finale brought in more than $40 million in advertising, according to industry estimates. On a typical day last year, Facebook (FB) took in just $5.6 million or so in the U.S. So conservatively, each set of eyeballs trained on the mewling of contestants on Fox is worth at least 30 times more than those checking in with friends and family on Facebook. And it's not just television that Facebook lags behind. Every one of its 900 million users generates a little more than $4 in revenue for Facebook in a year. By comparison, Google (GOOG) grosses at least 7 times more from each one of its users. In other words, Facebook makes gobs of money because of its massive reach, not because it is a particularly effective advertising medium.
As Facebook seeks to justify and sustain a mammoth valuation that seems certain to top $100 billion, it faces enormous challenges. First and foremost, the social networking service must find a way to accelerate the growth of its advertising business, which slowed to 45% in the most recent quarter from nearly twice that rate the year before. And it must do so in the face of headwinds from the rapid shift of users from the Web to mobile devices, where Facebook's monetization efforts are still nascent. In short, for all its promise and its potential to revolutionize entire industries, Facebook must prove to advertisers and investors that it can build a global ad business to match the power of a social networking product that has become a habit for nearly one of every seven people on the planet.
To be sure, the fact that Facebook's advertising prowess lags behind its preeminence as a social hub is by design. Zuckerberg has always made the Facebook product his top priority, sometimes at the expense of the company's ad business. But now that Facebook will be a public company, his team will be under enormous pressure to deliver financial results that keep investors happy. Here are three things he should focus on to achieve that.
No. 1 Advertising Facebook ads have become table stakes for any online display advertising campaign, but as these ads move from experimental purchases to the cornerstone of many advertising strategies, Facebook must show to advertisers that these spots deliver significant returns.
In the past year, Facebook's approach to advertising has changed. Now, rather than simply sending salespeople out to sell its ad inventory, Facebook has begun to hire MBA-carrying "relationship managers" with experience in the industries from which the advertisers hale. These folks call their clients "partners" instead of "advertisers" and encourage large bands like Procter & Gamble (PG) to stop chasing "Likes" and, instead, look at what people are actually saying and doing on Facebook that relates to them -- engagement. Facebook believes that if brands can jumpstart these conversations on fan pages and within apps they'll naturally buy more ads.
Facebook attempted to coin new language for this when it launched its latest advertising strategy last February. Advertisers can pay Facebook to highlight "sponsored stories" in users' Newsfeeds. The idea is that users will only see these sponsored stories when they are posted by a friend or a business with which they've already chosen to connect. It sounds great, but the effectiveness of sponsored stories is far from proven. In fact, some brands are questioning the value of advertising on Facebook altogether. GM (GM), which last year spent $10 million with Facebook, decided to stop advertising on the platform because the company's marketing executives weren't seeing the impact they desired. Unlike Google, which stumbled on a magic formula with search marketing, Facebook has yet to find its silver bullet.
No. 2 Mobile Facebook's users are decamping to mobile devices faster than the social network can keep up. American Facebookers who use the service on both their desktops and on mobile apps are spending more time on their smartphones and tablets -- about 7.4 hours each month, according to Comscore (SCOR) -- than on the website itself -- about 6.5 hours each month.
This poses two significant challenges for the company. First, mobile screens are small so Facebook users see fewer ads. This unsettling trend is disproportionately impacting some of Facebook's most important advertising markets. In recent regulatory filings, Facebook said the shift is happening fastest in places like the United States, Brazil and India.
Second, even if Facebook can figure out how to serve up more and better mobile ads, the company lags behind its rivals on mobile strategy. Apple (AAPL) and Google make the operating software for the most popular smartphones on the market. It's possible that over time, Google could integrate its Facebook competitor, Google+, into its Android phones and tablets more seamlessly than Facebook, giving it an advantage with consumers. In the last couple years, Zuckerberg has attempted to forge closer ties with Apple. The companies have held multiple rounds of discussions, according to people with knowledge of the talks. But they have yet to find a compelling way to collaborate, and in the meantime, Apple has chosen to integrate Twitter, rather than Facebook, into its mobile software.
To combat its rivals, Facebook has moved aggressively to acquire mobile assets. Most notably, Facebook recently agreed to purchase the photo-sharing app Instagram for $1 billion. The company will get a fast-growing product with tons of users and -- perhaps more importantly -- a pool of talented programmers experienced in designing for handheld devices. The sale isn't expected to close, according to recent regulatory filings, until later this year.
No. 3 China Call it Facebook's black hole: The world's biggest social network, as of now, has no presence in China. With some 500 million people online, China is the world's largest Internet market by number of users. About half of those users are active on locally grown social networks. It's a vast and potentially lucrative market for Facebook, but for the time being it's likely to remain elusive.
Zuckerberg's interest in China is no secret. He has been learning Mandarin and has visited the country on various occasions, most recently in March, when he traveled to Shanghai with his Chinese-American girlfriend, Priscilla Chan. Inside Facebook, Zuckerberg's has led intense discussions among senior management on the risks and rewards of going into the Chinese market, according to people familiar with the situation. And he has held discussions with various Chinese Internet companies, including search giant Baidu, to explore potential joint ventures, which would almost certainly be required for Facebook to be allowed to operate in the country.
Zuckerberg is also said to be eyeing China as a source of talented engineers. In recent months, however, the internal and external discussions about China have died down as the attention of Facebook's senior brass has been focused on the I.P.O., the people familiar with the discussions said. In its I.P.O. prospectus, Facebook acknowledged the obvious, saying the Chinese market "has substantial legal and regulatory complexities," but that the company will "continue to evaluate entering China."
For now, Facebook is likely to focus its international expansion efforts in countries like Japan and South Korea, where it is struggling to compete with local rivals, and emerging markets like India and Brazil, where Facebook has made significant inroads but has lots of room to grow. Down the line, Zuckerberg and Co. will no doubt try to formulate a China strategy. Whether it will ever pay off is an open question. After all, it's the Chinese government, not Facebook, that will have final say on whether Facebook can enter the market there. That leaves investors thinking of China as potential bonus whose value may never be realized. "I'm not paying anything for China," says Lou Kerner, founder of the Social Internet Fund, which invests in private shares of social and mobile companies.
Even if it turns out that Comcast's Xfinity for Xbox video-on-demand service isn't running afoul of the FCC's rules for treating Internet traffic equally, the result is the same for consumers and competitors: Comcast's service has the edge.
FORTUNE -- It's up to the FCC to decide whether Comcast (CMSCA) is violating the letter of net-neutrality rules in the way it handles its video-on-demand traffic through its Xbox app, be there seems to be little doubt that the country's biggest cable-TV provider is violating the spirit of those rules.
Until Tuesday, Comcast had stayed mum as complaints started to pile up, most notably one from Netflix (NFLX) CEO Reed Hastings a month ago. He noted in a Facebook post that he watched movies through his Xbox 360 using four different apps: Netflix, HBO Go (TWX), Xfinity and Hulu. Only in the case of Comcast's Xfinity, he said, was the stream not counted against his Comcast data cap. On Tuesday, Bryan Berg posted a description of what he says was an experiment demonstrating that Comcast is prioritizing its own traffic for the service. Berg, founder and chief technical officer of Mixed Media Labs, is described as an "infrastructure expert" by The Verge. If Berg's analysis is accurate, writes the The Verge's T.C. Sottek, it would mark "a bold deviation from the spirit of the FCC's net neutrality principles."
Comcast says it isn't true. Finally weighing in on the controversy, the firm posted an explanation on Tuesday noting that it runs its Xfinity for Xbox service on its own, private Internet protocol network. That traffic doesn't count against bandwidth caps, it says, because its network is "above and beyond and distinct from" the bandwidth available to customers via their regular Internet connection. In other words, it's like Comcast's cable-TV service, but it uses Internet technology to distribute video, but not over the Internet itself."It's still our traditional cable service," and so it doesn't fall under the FCC's Open Internet rules, Comcast says, noting that its Internet-based Xfinity services, such as its Ipad app and Web-video services do count toward the company's 250-gigabyte bandwidth cap. Comcast, apparently alluding to Berg's post, also said it doesn't prioritize traffic.
This amounts to a "non-denial denial," writes Ryan Lawler of TechCrunch. Comcast's response will "provide little solace to online video publishers and distributors who are streamed over the broader Internet and do actually count against Comcast's caps," Lawler writes.
After all, the rules (and, as Lawler notes, the provisions of the federal government's approval of the Comcast-NBC Universal merger) are meant to prevent Internet service providers from favoring traffic. Even if Comcast is in technical compliance (which is far from clear), the result for consumers is that some video-watching will count against their bandwidth caps and other video-watching won't.
Taking a more philosophical view of the situation, commenter Jeff Durso wrote under the TechCrunch item: "If you're hitting the 250gb cap, you may want to turn off the Xbox and spend some time outside."
The rise of social media is altering how people shop for everything from movies to food. But is that a social good?
By Jill Allyn Peterson, contributor
FORTUNE -- Collaborative consumption is a concept that can seemingly describe anything from Netflix to New York City's Park Slope Food Co-op. It has been called a "revolution" by "creative entrepreneurs who want to change the world" and while its promoters claim it is a cure for "hyperconsumption" based on sharing and peer-to-peer networks, some of the ideas it is beginning to spawn and the claims made on its behalf look more like a reduced-guilt version of the same old capitalism than a revolutionary economic model. Sharing is caring? Or sharing is monetizing? What exactly is "collaborative consumption"?
The first time I heard about collaborative consumption was through a TEDtalk from 2010 by Rachel Botsman, who coined the term to describe a reorganization of mass consumption that could potentially be less wasteful, more communal, more affordable, and seemingly more sensible. In Botsman's talk, examples such as Zipcar, Netflix (NFLX), and Swaptree were used to demonstrate how a new approach to consumption -- one where network services enable items like cars or DVDs to be jointly used or redistributed amongst members -- could make the culture of ownership a thing of the past. "Why buy a drill when what you need is the hole?" Botsman asks, claiming that the average drill gets used 12 to 13 minutes in its lifetime. She suggested that renting a drill from a neighbor, or even renting out your own drill, could begin to solve the issues brought on by our current mode of "hyperconsumption" and mitigate the wasted money and material when individuals commit to owning things they really only need to use once or twice. I thought it sounded pretty reasonable, but as I continued to explore this new economic proposition, I began to have doubts.
The second time I heard about Collaborative Consumption was at the SHARENYConference last fall. An event put on by Parsons and ShareableMagazine, it was a veritable feast of collaborative concepts, featuring speakers whose expertise ranged from communal living without private ownership, cooperative food buying and skill sharing to more profit-oriented approaches such as SnapGoods, Loosecubes and General Assembly. There was an interesting tension between the "sharing-for-sharing's-sake" concepts and the "sharing-for-fun-and-profit" ones, which made me wonder, are all these concepts along the same continuum? Or do they represent two different schools of thought -- one based on participation in a communal project and the other more of a rental service that eliminates the hassle of ownership and as a side benefit, potentially reduces waste and promotes community participation?
My skepticism grew sharper in February when I attended CommonPitch, an event which invited entrepreneurs with collaborative consumption-oriented start-ups to pitch their ideas to a celebrity panel of experts. Besides the fact that the time limits were too short for any real examination of the concepts (much less their implications for waste reduction and community building), there was a noticeable trend among the pitches. Rather than identifying ways to reconsider consumption to reduce waste, some entrepreneurs seemed to be identifying areas where the real waste was a missed opportunity for profit -- profit that a start-up might claim if only they could find the right way to create or insert themselves into an existing peer-to-peer relationship.
Two such examples at Common Pitch stood out: a start-up based on the notion that "collecting money at a party is so awkward, why not let us handle the transaction?" and another along the lines of "why let your bike just sit there when you could rent it out for money?" It was an odd combination of creative class concerns (parties and bike rides) with a financial class approach (monetize it!). I wondered, is this really what Rachel Botsman was celebrating when she introduced collaborative consumption to the world? I went back and re-watched the TED talk.
Upon second viewing, several contradictions stood out, the most obvious being the title of the movement and its union of opposites in "collaborate" (joint effort of creation) and "consume" (to ingest or destroy). Also, Botsman's description of people who trade DVDs of "Sex in the City" for "24" through Swaptree as "highly enabled collaborators" using technology that "enables trust between strangers," struck a strange note. Isn't the definition of trust not needing to rely on a third party's insurance, such as a system that ensures your fellow registered swapper will be subject to poor ratings should she misbehave?
Most confusing were the assertions that sharing is natural because "we're monkeys, born and bred to share," but that "technology makes sharing frictionless and fun," because ultimately, collaborative consumption is not about playing "nicely in the sandbox." So, is sharing an innate human tendency, or do we inherently reject it and need "fun" systems to help us do what's right? Is technology "enabling trust," as it is so lovingly put, or really just enforcing accountability?
While I'm a fan of these services in a general sense (Netflix is incredibly convenient, Airbnb offers new ways to travel, Skillshare brings teachers and students together in non-traditional ways), I wonder if collaborative consumption isn't fundamentally changing how we consume, just how we might see ourselves as consumers. As many have noted, our identities have long been shapedbyourconsumptionhabits, and increasingly, the display of that identity is possibly more important the original act of consumption itself. At a time when personal purchasing power is on the decline for many of us, is collaborative consumption, like the "good" form of organic/sustainable consumption before it, a way to define ourselves not only by what we buy but how we buy? If that "buy" becomes more like "share" do we feel better about it? Additionally, given the deficit of jobs to match the expectations of a vast class of liberal arts degree holders, does the prospect of renting out our extra stuff become a realistic, even "creative" solution to underemployment?
Deals, convenience, efficiency, waste-reduction - there seem to be new possibilities for these wonderful things with collaborative consumption. Creativity, togetherness, sharing, and trust in each other, however, come from us -- human beings -- not primarily from systems or styles of consumption (apointmadeonShareable). There's nothing wrong with making a buck off your neighbor for use of your drill (however awkward that might actually be), or lowering your transportation costs by signing up for Zipcar, or trading DVDs through the mail; let's just not pretend we're saving the world, being better people, or truly sharing (in the caring sense) as a result.
Apple's CEO left the master of dysfunctional relationships a lot of material to work with
From Sorkin's The Social Network
FORTUNE -- Viewers who have followed Aaron Sorkin's TV and film work over the years were delighted to learn Tuesday that one of Hollywood's most gifted screenwriters has officially signed on to adapt Walter Isaacson's biography of Steve Jobs for Sony Pictures' (SNE) film.
Sorkin is the master of romantic relationships that are painfully, hilariously dysfunctional. The opening scene of The Social Network, in which Mark Zuckerberg (Jesse Eisenberg) is dumped by his college girlfriend (Rooney Mara), is the most famous example, but Sorkin's ouvre is littered with the casualties of misdirected love.
There's Casey McCall (Peter Krause) and Dana Whitaker (Felicity Huffman) in Sports Night. Josh Lyman (Bradley Whitford) and Amy Gardner (Mary Louise Parker) in The West Wing. Danny Trip (Whitford) and Jordan McDeere (Amanda Peet) in Studio 60 on the Sunset Strip.
Although Steve Jobs eventually settled down in what Isascson describes as a happy, supportive marriage, Apple's (AAPL) co-founder gave Sorkin plenty of material to work with.
Here are three scenes from the biopic we're dying to see:
Life with a narcissist. Perhaps the closest thing to a classic Sorkin love affair was Jobs' tumultuous five-year relationship with the ethereal Tina Redse, who says that when she found the description of Narcissistic Personality Disorder in a psychiatric manual she finally realized what she'd been putting up with. At one point she scrawled on the hallway to their bedroom: "Neglect is a form of abuse."
Jobs and Powell. SFGate
Joan Baez's red dress. In this scene, Jobs tells the folksinger early in their relationship that there's a red dress at Ralph Lauren's Polo Shop that she'd look beautiful in. He drives her to the Stanford Mall, shows her the dress, and tells her she ought to buy it. She says she can't afford it. He buys himself a couple of shirts and, to her enduring puzzlement, they leave without the dress. She still doesn't understand what that was about.
The marriage proposal. Jobs proposed to Laurene Powell on Jan. 1, 1990, and she accepted. Then he said nothing more about it for many months. Furious, she finally left him. Even after they reconciled and she had gotten pregnant, he had very public second thoughts, asking a wide variety of friends and acquaintances whom they thought was prettier, Tina or Laurene.
There's lots more where that came from. Sorkin should have a blast.
How does the social media giant really work? Read this story before you buy the stock.
By Miguel Helft & Jessi Hempel
Editor's note: This article originally appeared in the March 19, 2012 issue of Fortune magazine. A shorter version appeared on Fortune.com on March 1, 2012.
FORTUNE -- On a Friday morning not long ago, Mark Zuckerberg gathered his troops for a much-anticipated all-hands meeting at Facebook's brand-new headquarters. It was billed as a not-to-be-missed event. Employees who were traveling were encouraged to return to the mother ship, and those in New York, Dublin, Hyderabad, and other satellite offices were told to watch via live stream. In Menlo Park, Calif., some 2,000 employees marched into a large white tent that was set up for big gatherings on a lawn across from the parking lot. The mood was effervescent, or as one employee described it, "part religious revival." The pre-meeting buzz had people betting that Zuckerberg was finally ready to discuss the momentous event that would transform the eight-year-old company from hot startup into card-carrying member of the business establishment: Facebook's IPO.
Zuckerberg had other plans. He mentioned the IPO only in passing. This was a gathering to discuss priorities for 2012, according to employees. In a sense, the purpose of the meeting was to remind everyone to stay on course even as Facebook prepared to undergo its biggest change yet. No matter what happens on the outside, Zuckerberg told employees, keep your heads down. "Stay focused," he urged. "Keep shipping." Twelve days after the January staff meeting, Facebook announced its plans to go public.
The 27-year-old co-founder and CEO has always displayed an almost preternatural ability to forge ahead with his lofty ambitions -- to make the world a more open and connected place -- even amid major distractions such as, oh, the release of an unflattering, Oscar-winning biopic. That sense of mission, coupled with a hard-charging, engineering-driven culture with Zuck himself at the center of it all, has propelled the company's torrid growth: Today nearly one in every eight people on the planet uses Facebook. The site is transforming giant sectors of the economy, such as entertainment, media, and retail. What began eight years ago as a half-dozen overcaffeinated coders has morphed into a giant with 3,200 employees worldwide; its new campus alone will be able to eventually house nearly 10,000 workers.
Ever since he hatched the social network in his Harvard dorm room in 2004, Zuckerberg has fought to preserve the so-called hacker ethos that is at the root of how Facebook really operates. He's largely succeeded: Facebook remains a place where engineers stay up all night to mock up new features. It's a place where managers will scrap the site's most sacred elements, like the traditional profile page, if there's a potential for something better. It's a place where the best ideas become products whether they were dreamed up by a lowly intern or Zuck himself. It's a place where everyone takes to heart the dictates written on posters plastered all over campus: DONE IS BETTER THAN PERFECT and MOVE FAST. BREAK THINGS.
No one has written a management playbook for a company that is redefining the web while growing at warp speed. This story offers a rare glimpse inside Facebook, a company that has designed a set of rules for how to cultivate its own brand of chaos. Facebook declined to make top officials available, but conversations with several senior managers and dozens of additional interviews with current and former employees and executives paint a rich picture of a truly unconventional workplace. You'll read how Facebook holds bootcamps to teach engineers to "think like Zuck," forces people to change projects midstream, and even mandates all-nighters. And how this unusual approach has led to some of Facebook's most important product developments, such as Timeline and Chat. It is also the canon that Facebook is trying hardest to impose on its more traditional businesses and marketing operations.
CEO Zuckerberg hatched Facebook in his Harvard dorm room in 2004.
Facebook's forthcoming IPO will cement Zuckerberg's status as one of Silicon Valley's iconic entrepreneurs alongside the likes of Bill Hewlett and David Packard, Larry Page and Sergey Brin, and even Steve Jobs. It will propel Facebook into the top echelons of corporate America, make multimillionaires out of hundreds of its employees, and give the company the financial might to go toe-to-toe with giants like Google (GOOG), Amazon (AMZN), or Apple (AAPL). But becoming a publicly traded company may be the biggest threat to the culture of reinvention that has made Facebook a success thus far. Countless other startups were so transformed by their IPOs, through the pressures of quarterly earnings, the sudden employee wealth, and the sheer size, that they lost their edge.
What's more, Facebook itself has already faced cultural challenges. Most notably, this is a company that operates as two symbiotic halves. One, Zuckerberg's world, is a meritocratic, coder-led organization that develops the Facebook site; the other, which is charged with making money out of it, is subordinate. It is more hierarchical and corporate and is the domain of Zuckerberg's handpicked deputy, Sheryl Sandberg. The arrival of Sandberg, a former Google executive, in 2008 was widely seen as a sign that Facebook was growing up, and hiring her by all accounts was a smart and much-needed move. Yet as the importance of the business side grows once Facebook goes public, the inherent tension between the two is certain to be magnified under the glare of Wall Street. It all amounts to the paradox that on the eve of its IPO, Facebook is a powerhouse, yet it feels a bit fragile.
And so, inside Facebook, executives are consciously working to codify its winning formula -- essentially institutionalizing a sort of anarchic mentality -- even as the company is about to be handed a very thick rule book from the SEC. They are creating training programs and communications tools (using Facebook, of course) that keep the company as lean and as fearless as a startup. After all, Facebook's growth depends on the company's adding new services and wooing new users without losing the attention of its existing 843 million users. So there's no doubt an IPO will change Facebook. The question is, Will insane growth, market demands, and internal tensions hitting the company all at once chip away at its essence and spirit? Or will Zuck and his team navigate the turbulence successfully and emerge with a strengthened Facebook Way?
Mark Zuckerberg was distracted. It was December 2010, and a handful of his star engineers came to see him for what they expected would be something of a lovefest. Just days earlier the group had released a set of changes to the Facebook profile pages that had been months in the making, and early signs suggested the effort was a success. Millions of Facebook users had already opted in to the changes, and their feedback was overwhelmingly positive. Yet as the team delivered the good news to Zuckerberg, there were no high-fives and no pats on the back. Zuckerberg seemed aloof, his mind clearly elsewhere. Taken aback, one of the engineers asked him pointblank whether he was pleased. Showing little emotion, Zuckerberg said that of course he was pleased. But he was also worried. Facebook, he said, was about four weeks behind on its next, and more sweeping, profile redesign. "This is four days after having launched," exclaims Andrew Bosworth, a director of engineering and one of Zuckerberg's longtime confidants. Zuckerberg was not critical. He didn't skewer anyone à la Steve Jobs. He was simply matter-of-fact about the shortcomings of the new profile pages and about what had to be done next. If there was some wounded pride among the engineers, they got over it quickly. "Of course by the time you finish a product, you should reconsider whether it was the right thing," Bosworth says.
That, in essence, sums up the "hacker way" -- the set of cherished principles that Zuckerberg and Facebook's old-timers are trying to hold on to more than anything else as the company grows up. The word "hack" is plastered all around Facebook's offices. While the main roadway around Apple's campus is famously known as Infinite Loop, Facebook's is called (what else?) Hacker Way. And in his letter to investors, Zuckerberg spent more time describing this approach than any other aspect of Facebook -- including its mission and business. "The Hacker Way is an approach to building that involves continuous improvement and iteration," Zuckerberg wrote. If the hacker way has one enemy, it's the status quo.
In some respects, what Zuckerberg has sought to formalize in the hacker way is not unique. Web services -- unlike computers, mobile devices, or even packaged software -- lend themselves to tinkering and constant improvement. Companies like Google and Zynga (ZNGA) also roll out unfinished products and then fine-tune them on a nearly continuous basis. Yet at Facebook the allegiance to the hacker way goes well beyond the company's approach to innovation, spreading to how it is organized, how its engineering ranks are managed, and how its employees are trained. At Facebook, the Hacker Way is capitalized.
Andrew Bosworth designed Facebook's bootcamp for engineers.
Few at Facebook speak about this approach with more passion and devotion than Bosworth, an old-timer who is affectionately known as Boz. He joined in 2006, when the company had just 15 engineers, and helped build some of Facebook's marquee features like its Newsfeed. Bosworth was among Zuckerberg's teaching assistants at Harvard, making him one of a select few Facebookers that, in some sense, have been there essentially since the beginning. So it is not surprising that he has been entrusted to be one of the primary guardians of the hacker way -- a task he takes as seriously as any other. "God forbid we spend a single day not trying to prepare for tomorrow's Facebook," Bosworth says. "You've seen company after company that rose to greatness struggle with scale, struggle with culture."
It first dawned on Bosworth that Facebook could see its culture fizzle nearly four years ago. When he joined Facebook, everyone knew one another. Then one day in the summer of 2008, while in line at Facebook's cafeteria, he met an engineer he had never seen before, so Bosworth asked him how long he had been at the company. The answer stunned him: a year. What's more, Bosworth wasn't even aware of the project that the engineer was working on. Something felt amiss. "We're Facebook. If we can't scale a communications network beyond 150, we're in real trouble," he says.
So Facebook began its first deliberate effort to nurture its values. It started with Bootcamp, a six-week program for new engineering recruits that Bosworth devised. After a quick orientation (where Bosworth and other veterans also speak about Facebook's culture), bootcampers are given a computer and a desk. When they open their laptop the first time, they'll often find six e-mails. One welcomes them to the company; the other five describe tasks they're supposed to perform, including fixing bugs on the Facebook site. The goals are manifold. One is to get new employees comfortable with the idea that they have the power to push changes directly onto the Facebook site. "It is terrifying to ship code to Facebook and to think there are a billion people out there using this service," says Jocelyn Goldfein, an engineering director. Another is to foster independence and creativity. At Facebook there isn't one way to solve problems; there are many -- and everyone is encouraged to come up with his own approach.
For Facebook to carry its hacker ethos from adolescence to companywide credo as new engineers have flooded in, Zuckerberg has had to train a cadre of leaders able to rise to the unique challenges of middle management in an organization that aspires to be flat. They are more coaches than bosses, more facilitators than gatekeepers. Their main role is to spot and encourage new ideas that everyone -- anyone -- can then show to Zuckerberg. Here, too, Bosworth's Bootcamp helped kick-start the process. Bootcampers are paired up with mentors who help them navigate those first few weeks. The mentors, in turn, gain leadership experience, and those who opt or are chosen for a leadership or management track get to develop their skills through a series of brown-bag lunches with other managers. In groups ranging in size from five to nine, they discuss various management challenges with their peers and superiors. This process for grooming managers is particularly important because Facebook had largely been built by engineers in their twenties who had never worked anywhere else and who, while great at building the site, had paid no heed to building a sustainable corporate culture.
But even as it develops new leaders, Facebook is doggedly trying to avoid becoming too hierarchical or set in its ways. It has kept the organization nimble. Every year or 18 months, engineers are required to leave their teams to work on something different for at least a month. The swaps can be uncomfortable for many who have developed expertise in a particular area. But ultimately, more than a third of engineers end up transferring to a new team at the end of their month-long gig. This process constantly brings new blood and ideas to engineering teams, and it prevents managers from establishing fiefdoms.
To keep this always-changing organization from choking on itself, the company uses a tool to keep everyone informed and in sync: Facebook. Engineers communicate with their teammates, stay abreast of the work of other groups, and track bugs in the system not through e-mail but rather through Facebook Groups and Messages.
All this has helped with Zuckerberg's goal of keeping Facebook's product development as unmanaged as possible. Zuckerberg himself is not fond of staff meetings with his direct reports, a feature of most corporate organizations. He prefers to interact directly with the people who are working on products, drilling down on details no matter how small. He frequently walks around the engineering offices, often in the evenings, to see what various groups are up to. And he holds office hours. Feross Aboukhadijeh remembers popping into Zuckerberg's office during a recent internship to show off a feature he'd mocked up in his spare time. "If you believe something is good, then show it to everybody else," says Aboukhadijeh, a Stanford senior. "If it's really that good, everybody will see it and agree with you."
Development teams are kept as small as possible -- sometimes ridiculously small -- in the service of speed. It's an austere approach to product management taken directly from the Apple playbook that is perhaps best illustrated by the launch of the ubiquitous "Like" button, one of the most recognizable and important features of Facebook. It was developed by a team of just three people: a product manager, a designer, and a part-time engineer who also taught at Stanford. About once a week the team met with Zuckerberg to go over intricate details: the look and feel of the button, the beveling of the corners of the icon, and what actually happened when you clicked on it. "We went through probably like dozens of iterations of that until we found something we were really happy with," says Mike Vernal, an engineering director who oversaw the project. Make no mistake, when Vernal says the team was happy with the product, he means Zuckerberg had signed off.
In a company that is driven first and foremost by its product, Zuckerberg is the ultimate arbiter of matters big and small. He is the person who came up with the original idea of building a "social utility," as he spelled out in an exclusive interview in 2005. He is the person who pushed that idea forward by turning his website into a platform for third-party applications. And he's the person who will not only weigh in on minute details but also get his hands dirty to get them just right. That's just fine with the legions of engineers because around Facebook, the cult of Zuck is downright Jobsian in its intensity. Engineers are romanced by the size and scope of his vision; for many, winning his approval is its own reward. He is less a dictator than a guru for these coders, and of course his opinion is final. Says Boz: "The reason Mark has final word is because he is fucking brilliant."
Employees' scrawl- F ings at Facebook's headquarters exhort peers to stay focused on building products.
The cornerstone of Facebook's ethos is the hackathon, an all-night workfest that happens at Facebook every few months. It's the ultimate test of mettle for Facebook's engineers, a chance to try out that otherwise crazy idea. As one engineer describes: "Your body's like, 'I'm hungry; I'm tired; I want to go home.' Your brain's like, 'No, no, no, this can become something real.' " The basic rule of a hackathon is simple: No one is allowed to work on what he normally does. The goal is to dream up potential new products and show them to Zuckerberg and other top managers who will decide which ones go forward.
This somewhat chaotic process hatched Facebook's most important recent new product: Timeline, which transforms users' profiles into a visually rich chronology. Zuckerberg had long had the idea to expand Facebook's profile pages so they would tell a more complete story of a person's life. He tapped Sam Lessin, a buddy of his from their Harvard days who had recently joined the company, to rethink them entirely. Separately, a couple of engineers came up with a product called Memories during a hackathon. It allowed people to see all the photos they had posted in a given year. Employees inside Facebook, where the company often tests out experimental features, loved it, and many turned it on and started to play with it. As the project grew, an engineer from the Newsfeed team mocked up a prototype for ticker, a feature that publishes friends' actions in real time. Zuckerberg noticed themes emerging, and helped these efforts converge into what would become Timeline, Facebook's completely redesigned homepage. "Timeline was like this wave that over a couple of months swept the entire company with it," says Serkan Piantino, an engineering manager.
Healthy dissent -- including dissent with the boss -- is encouraged at Facebook, and mock-ups are favored over conversations. Time and again engineers hacked prototypes for a service that would allow Facebook users to chat with one another. Time and again Zuckerberg and other top managers shot down the idea. Eventually, the prototype proved so compelling that the higher-ups were forced to reconsider. Facebook chat has been a runaway success. It's an example of a phrase that's often repeated inside Facebook: Code wins arguments. The company prizes people who, despite being told by Zuckerberg their idea isn't very good, "still believe in it enough to go build a prototype of it to prove him wrong," Bosworth says. Thing is, Bosworth says about Zuckerberg, "he's happy to be proven wrong."
There's a term spoken quietly around Facebook to describe a cadre of elites who have assumed powerful positions under the leadership of Zuckerberg's chief operating officer: They're FOSS, or friends of Sheryl Sandberg. Many have followed her there after studying with her at the Harvard Business School or working with her at the U.S. Treasury Department or Google. Several middle and senior executives who have left the company say that Sandberg has put friends in powerful positions, sometimes even when they were less qualified than other Facebook employees, and once there they enjoy special status. "You can't really cross a FOSS," says one former senior manager.
The point isn't that people grumble -- what corporate organization doesn't have grumblers? -- but that the business side of this company runs by somewhat different norms. It's where the chaotic and meritocratic hacker way yields to a more traditional corporate culture. It wasn't always this way. Early on, Zuckerberg presided over both sides of the business to poor effect. Sandberg arrived amid a fractured management culture that had suffered from high turnover. One president, two CFOs, one COO -- folks like Gideon Yu and Owen Van Natta -- and all three of Zuckerberg's co-founders had either chosen to leave or been pushed out. And over the years a handful of vice presidents and senior executives also left. (Contrast that with Google, which lost virtually none of its senior staff until months after its IPO.) By instituting more corporate processes and hiring a slew of new, more seasoned managers, Sandberg brought stability and the discipline needed to turn Facebook into a business with global reach. And along with clear chains of command have come the accompanying egos and politics anyone might expect.
Sandberg's management style is very professionalized; she pairs empathy with high expectations and regular direct feedback, and she values entrepreneurial problem-solving above all else. When former Dell technologist Frank Frankovsky was interviewing for his current job as director of technical operations, his most nerve-racking conversation was with Sandberg, even though he was applying for a position in a part of the company she doesn't oversee. He recalls that upon learning what he was being hired to do, she asked him point-blank, "Why should we even do that?" He was caught off guard. He had chatted amicably during his interview with Zuckerberg on the seemingly esoteric topic of thermodynamics, after all. But Frankovsky collected himself and explained how he could help Facebook think more broadly about infrastructure. The conversation then took off. "I think she was testing to see if I was open-minded," he says.
COO Sandberg oversees Facebook's less quirky business side.
Sandberg and others have also worked hard to integrate the two halves of Facebook. It helps that she and Zuckerberg share a similar staffing philosophy: Both hire smart people independent of available job openings and then help them identify their top talents in what HR head Lori Goler characterizes as a "strengths-based organization." With Sandberg's enthusiastic backing, Goler began requiring that every Facebooker complete a computerized test licensed from Clifton StrengthsFinder (created by Donald Clifton, the inventor of strengths-based psychology) to identify hidden talents. Many employees worked with their managers to redefine their jobs based on the results. Now every "nube" takes the test.
To bridge the cultural gap between the makers and the sellers, Facebook has attempted to bring its hackathons to every division. Yet its efforts can feel forced. When David Ebersman, the CFO, early in his tenure conducted a hackathon to draft a multiyear budget, he described the project as a "nice tie-in with the culture" rather than a serious effort at financial planning.
Just as Facebook asks users to reveal more and more about themselves, the company aspires to full transparency and communication across its business and product sides. Every Friday afternoon Zuckerberg chats with employees during an hourlong Q&A, as Sandberg and others stand at the ready to answer questions. Beer is served, and at the end Zuckerberg asks Facebookers to share their own stories about things they've seen. And at a high level, Zuckerberg and Sandberg communicate a lot too. By design, Sandberg is embedded far from her charges, among the engineers, where her desk abuts that of her boss. They meet to review their priorities first thing on Monday morning and last thing on Friday afternoon. And it appears they have a pretty good rapport: Zuckerberg pulled a prank on his COO last fall by mounting the bulbous taxidermied head of the bison he'd hunted himself (nickname: Billy) on her orange conference room wall. (Billy is now in storage.)
As essential as Facebook's business side has become, the entire operation has had to shift direction on the whims of a founder who isn't prioritizing most of what it holds important -- be it designing to appease privacy watchdogs or creating more opportunities for revenue. Consider the launch of Facebook's ticker, the list of real-time interactions that now appears next to the Newsfeed. The ads were among the last considerations, even though the new design meant that users would see two ads instead of three on their main feeds. "Mark decides what to do with the product, and everyone has to figure out how it will affect them," says a Facebook veteran. "It's not a discussion. It has a whiplash effect on everyone -- and it's part of the genius."
And though Sandberg has been able to manage that whiplash with grace, it's increasingly clear that her long-term ambitions may extend beyond Facebook. No one believes Sandberg plans to leave Facebook anytime soon, but she is not one to occupy shadows. In recent years she has used high-profile forums to cement her role as spokeswoman for a new generation of women in the workplace. Days before the IPO filing, she was in Davos, Switzerland, as co-chair of the World Economic Forum. To be sure, a big part of her job is to be the face of Facebook with advertisers and partners, and the attention she's gotten from world leaders has been an asset. It has also helped with recruiting. But some former employees complain that her extracurricular activities are so encompassing, they distract her from the business. And those people say that she is inconsistent; internally, she encourages others to keep a low profile, but she embraces the spotlight, which "made some people unhappy and some jealous," says a former executive.
Now that Facebook has filed to go public, it is officially in the limbo between its early life as a startup and the beginning of its adulthood. It's a transition that Zuckerberg has sought to delay as long as possible, both because he worried about losing control of his baby and because he fretted that the hacker culture that has been at the root of Facebook's success until now risked being diluted in the aftermath of an IPO.
Zuckerberg has taken care of his first concern rather effectively. As he offers a piece of Facebook to the public, he will retain ownership of about 22% of the company's equity and 57% of its voting shares. It may not be a shareholder democracy, but it's an arrangement that should allow Zuckerberg to stay true to the unconventional priorities he outlined in his letter to investors: "We don't build services to make money; we make money to build better services."
Zuckerberg is mindful that, public or not, Facebook's ability to stay nimble erodes as it grows and ages: Nearly every fast-moving, innovative company in the world of tech reached a point where it struggled with bloat and bureaucracy. It happened to IBM (IBM) and Intel (INTC). It happened to Microsoft (MSFT) in the late 1990s, as hundreds of its newly minted millionaires lost their hunger. At Google, CEO Larry Page recently has had to restructure the company along a handful of product lines to streamline it and make executives more accountable. In December, Zuckerberg followed suit, restructuring Facebook along five product areas to streamline decisions and create clear lines of accountability, though Facebook is a 10th Google's size. The move suggests that the company was already seeing the first signs of innovation-slowing bureaucracy -- and that's a problem even Zuckerberg won't easily be able to hack his way out of.
The company has been notoriously lagging in software-as-a-service. Enter one energetic and eccentric executive, Lars Dalgaard.
FORTUNE -- SAP's Lars Dalgaard has been called irrepressible, energetic and eccentric (and, according to at least one analyst, a "lunatic"). But he may be just what the stodgy company needs to give it a shot in the cloud.
As nimbler players like Salesforce (CRM) and soon-to-be-public Workday have expanded their cloud offerings and customer base, SAP (SAP) has been notoriously behind in software-as-a-service. Enter Dalgaard. Earlier this week the 44-year-old head of SAP's cloud division took the stage at the company's annual user conference in Orlando, Florida to unveil a new strategy. The plan is to release a "loosely coupled suite" of cloud-based business applications like payroll software and a financial product called Financials OnDemand. There's also a new, unified platform-as-a-service offering, which runs on top of SAP's HANA in-memory database. To jumpstart these new products, SAP says it now has over 5,000 people dedicated to "designing, building and delivering beautiful cloud solutions."
But all eyes are on one person in particular -- Dalgaard. There was a lot of skepticism when SAP paid a hefty $3.4 billion for SuccessFactors, the cloud-based human capital management provider Dalgaard still oversees, in addition to his new duties across all of SAP's cloud efforts. But, shortly after the acquisition was announced, co-CEO Bill McDermott told Fortune that the purchase was as much about getting Dalgaard as it was about getting SuccessFactors' customer base or cloud "DNA." And Sanjay Poonen, president of SAP's global solutions, had said that Dalgaard's personality -- a.k.a. an exec with enough chutzpah to challenge the likes of Salesforce.com's Marc Benioff -- was needed in this space.
Indeed, no one -- except maybe Benioff -- quite matches the enthusiasm and passion Dalgaard brings to any conversation about the cloud. He's an emotional leader, for one. While addressing his employees last December to talk about the upcoming acquisition by SAP, Dalgaard wept. (I was there, and seriously, the guy shed a few tears).
It's too early to tell whether SAP's new cloud products will fare better than the company's earlier attempts, but at big part of the company's success in this space hinges on Dalgaard's ability to sell his vision both internally and externally. He's made it clear he believes all software -- including core enterprise resourcing planning tools -- will someday soon reside in the cloud. And, at least on the surface, it appears management now agrees with him. Dalgaard was recently made a member of SAP's executive board, and co-CEO Jim Hagemann Snabe said he also believes "everything will be in the cloud" within five years.
Dalgaard may have a bright future at SAP. He is emblematic of the type of change and innovative ethos SAP needs. But first, he needs to successfully pull off an ambitious cloud strategy for a company that's still very much focused on milking cash out of on-premise customers. And he needs to stick around in a huge, bureaucratic firm long enough to reap the benefits of what he's trying to start.
Just last year, SAP and SuccessFactors were up against each other, competing for an account with the Royal Bank of Canada. SuccessFactors won because SAP's solution wasn't as good. Today, the two are trying to take on other cloud competitors together. On stage at SAP's annual conference, Dalgaard didn't disappoint. Much like a TV preacher, he paced around the room and emphasized just the right words -- including, not surprisingly, "cloud."
The iPhone's "buzz" got a bump after Apple started using celebrities in its Siri ads
Click to enlarge. Source: YouGov
Deschanel with iPhone
FORTUNE -- Some purists used the fact that Apple (AAPL) had replaced the always appealing but generally anonymous faces in its TV ads with a couple of Hollywood celebrities -- Zooey Deschanel and Samuel L. Jackson -- as evidence that the company had gone to hell without Steve Jobs at the helm. (See Siri takes a star turn.)
But a new YouGov BrandIndex survey suggests that Apple marketing may still know how to do its job.
According to a report issued Tuesday, the Siri ads featuring Deschanel and Jackson coincided with a boost for the iPhone brand among the all-important demographic of 18–34 year old Americans:
"Just as the new Siri campaign premiered on April 19th, iPhone's buzz score in the 18 – 34 demo was 16, several points below Android's 26 score. Five days later, iPhone's buzz score passed Android, 30 vs. 29... The iPhone's buzz score peaked on May 4th with a 51 score, while Android moved a couple of points down to 27."
Both men and women responded positively to the ads, according to YouGov, but men registered the strongest push.
YouGov BrandIndex's Buzz score was determined, as usual, by asking respondents: "If you've heard anything about the brand in the last two weeks, through advertising, news or word of mouth, was it positive or negative?"
Brands tested included Apple, Google's (GOOG) Android, BlackBerry (RIMM), Motorola (MOT), Nokia (NOK), HTCÂ and Samsung.
Two models held for inspection after a December patent ruling in Apple's favor
Stopped at Customs: The HTC One X. Engadget photo.
FORTUNE -- In what is believed to be the first tangible effect of the two-year-old proxy war Apple (AAPL) has waged against Google (GOOG) though the makers of Android phones, U.S. Customs officials have delayed shipment of two of HTC newest models pending inspection.
The delay is indefinite, but may turn out to be brief.
In December Apple won a narrow victory over the Taiwanese manufacturer of smartphones and tablets when the International Trade Commission found that some earlier HTC phones had violated a single Apple patent provision covering the way smartphones make sense of unstructured data, such as e-mails. (See: Apple wins limited ruling in important Android patent case.)
The ITC delayed its mandatory exclusion order until May 19 to give HTC time to devise a workaround. In a statement issued Tuesday, HTC said it believed the new phones -- the HTC One X and HTC EVO 4G LTE -- are in compliance with the ruling, and that it is working with U.S. Customs officials to secure their release.
Nonetheless, HTC shares fell more than 6% in the Asian markets on the news.
HTC, you may recall, was the first maker of Android phones that Apple took to court. The suit was filed on March 2, 2010, and in an oft-quoted statement, Steve Jobs threw down the gauntlet:
"We can sit by and watch competitors steal our patented inventions, or we can do something about it. We've decided to do something about it. We think competition is healthy, but competitors should create their own original technology, not steal ours."
FORTUNE --The photo was posted on the Speaker of the House's website with no details beyond the date. Until we find out what he and the CEO of Apple (AAPL) discussed, we'll leave it to our readers write their own captions.
FORTUNE -- More than a decade since Brad Garlinghouse helmed a start-up, the ex-AOL president is in, a way, coming full circle. Only this time, he's joining the file-sending and sharing company YouSendIt as CEO.
Though some had speculated he might go the investor route after his departure from AOL (AOL) last December -- Garlinghouse has invested in several startups over the years and served a brief stint as senior advisor at Silver Lake Partners -- he attributes his new role to the company's quiet growth.
The Campbell, California-based YouSendIt, which has raised over $48 million venture capital funding since being founded in 2003, is expected to surpass $60 million in revenue this year, a 61% increase over 2011. The company reports 30 million-plus registered users, nearly 600,000 of which pay. Some 30,000 new users sign up daily. And given that Garlinghouse has spent nearly 8 years at two big struggling tech companies -- AOL and Yahoo (YHOO) -- it's not a huge surprise he wants a clean slate to work with.
"I didn't want to be the salmon swimming upstream, and I think AOL was an experience with a lot of upstream swimming," Garlinghouse told Fortune. (He doesn't rule out the possibility that a struggling AOL may still turn itself around.) "But do I think I can create a billion dollars of value with YouSendIt or AOL? No question. There's no contest." Garlinghouse would not discuss specifics of his strategy for the company other than to say he's actively recruiting to add to the startup's team of 210 or so employees.
To this day, Garlinghouse may best be remembered in some circles as the former Yahoo senior vice president who sent out the Jerry Maguire-esque "Peanut Butter Manifesto" in 2006, an office-wide memo that chastised Yahoo for lacking vision, accountability and decisiveness, comparing the company's resource spending to spreading peanut butter (thinly) on a slice of bread. In 2009, he was recruited by Tim Armstrong to head AOL's products-driven offices in Palo Alto.
What if the chaos that is shaking the company could make it stronger?
By Kevin Kelleher, contributor
FORTUNE – The train wreck is over. The damage has been done. Yahoo's perennially troubled board failed to vet the resume of a once-promising CEO. All the company can do now is pick up the pieces and move on. But what exactly does that mean? How does Yahoo move on from here?
Certainly, there is no shortage of wreckage to move on from: Yahoo's (YHOO) CEO suite has been a revolving door of leaders. Each enters hopeful and exits defeated. The stock has lost 64% of its value since its January 2006 peak. Facebook and Google (GOOG) have been eating Yahoo's ad-revenue lunch. And the whole time, Yahoo's board has floundered in complacency, making the easy decisions that only made things worse.
Yahoo began 2012 with hope that its brand-new CEO Scott Thompson had what it took to push the company into the future. Thompson's success leading eBay's (EBAY) PayPal unit inspired him to steer the company away from online ads and toward e-commerce and data analysis. It was a strategy bold and unorthodox enough that it just might work. Then activist investor Third Point uncovered a falsehood in a Thomson bio included in a Yahoo proxy statement filed with the SEC. Third Point used it as a thug would wield a cudgel. Within a week, Thompson was gone.
That has plunged Yahoo into its darkest hour since Microsoft (MSFT) withdrew its $31-a-share takeover bid -- perhaps even the bleakest moment of its 18-year history. And yet, those old comforting chestnuts like "it's always darkest before the dawn" may have some truth in them for Yahoo. It could easily get even darker for the one-time web giant, but let's not think about that right now. What if the chaos that is shaking the company could -- if the right decisions are made -- make it stronger?
It would take some hard decisions, big risks and a good deal of cunning.
The first step would be giving Third Point much of what it wants. That seems all but inevitable, now that Yahoo's board seats three of Third Point's recommended directors, including the firm's own Daniel Loeb -- until now Yahoo's gadfly-in-chief. Loeb outlined his "solutions" for Yahoo in nine tidy bullet points. But except for a few significant changes -- clearly, his true agenda -- Loeb's plan is as specific as an architect's blueprint drawn on a cocktail napkin.
ThirdPoint was most specific when it clamored for Yahoo to cash out of its Asian assets like Alibaba and Yahoo Japan. While the value of these assets could increase if Yahoo holds onto them, it's time for Yahoo to give them up and use that money to invest in select investments of talented web startups that could provide the foundation for the second act of the Yahoo brand.
But Yahoo should also use whatever leverage it has to insist on some cross-ownership of shares in both Alibaba and Yahoo Japan, cementing already long-standing relationships that could help it establish a presence in two of Asia's largest web markets.
Third Point's vague bullet points notwithstanding, the firm wouldn't be worthy of being called an activist investor if it didn't immediately insist on returning much, if not all, of that lucre into a shareholder payout. But here's where Yahoo's old-school board has a chance to develop a spine: Put most of that money not into shareholder pockets, but into rebuilding Yahoo.
Several pieces of Yahoo's empire still emit some of the shine of its old brand -- sports, news and finance are ones most frequently mentioned. And there have emerged a number of apps and sites that are innovating in these areas. Vox Media, owner of rising-star The Verge and the 321 sports blogs on SB Nation, could be a big expense well worth the price. Apps like Flipboard and Twitter-based services like News.me would give Yahoo a strong foothold in the emerging world of news delivery.
There are other neighborhoods of the web that Yahoo could buy its way into if it would only open up its (potentially) fat wallet. Vimeo, for years YouTube's potentially talented little brother, could be snatched from IAC/Interactive (IACI) After all, Barry Diller loves nothing more than being involved in a good deal. A music-streaming service like Rhapsody, independent from its long-time parent RealNetworks (RNWK) since 2010, could be the music service Yahoo Music always wanted to be.
Finally, there are valuable assets hidden inside Yahoo's culture of suffocation. Flickr was once a brilliant acquisition that, despite Yahoo's intention to leave it to its own devices, was smothered in bureaucratic styrofoam. Why didn't Yahoo build its social strategy around Flickr, instead of swallowing it into its own ham-fisted social vision? And why did Yahoo never turn Flickr into an app with Instagram-like potential?
Ah well, we're here to look at Yahoo's potential future, not its past missteps. If Yahoo is going to buy up innovative startups to build its future on, it will have to let their ideas guide the company forward -- and not engulf them into a dying and stultifying culture that still believes it knows best. Because if anything is clear now, it's that Yahoo doesn't know what is best for itself. Facebook paid a steep price for Instagram to learn -- and follow -- what Instagram knew about the mobile web, not to suck its blood dry.
Finally, Yahoo's recovery is over if it keeps stooping to the vile level of the patent troll. It will drive away the engineers and independent developers vital to its future success. On the web, nothing taints a brand faster than suing a company that is smart enough to capitalize on ideas you had but didn't know what to do with. Don't sue them, work with them to learn from them.
So there's the road to a Yahoo recovery, as I see it: Sell the Asian assets; don't give the cash to shareholders but invest it, shrewdly, in smart startups; learn from those startups how to thrive on the web in 2012; and use patents as a defense, not an offense.
If Yahoo can do that, it only has a fighting chance - but perhaps its best fighting chance in five years. If it can't do that, then it's better off liquidating everything it's built for the past 18 years and handing the cash over to shareholders. It's your call, Yahoo.
An eye-opening comparison of Android's income statement with Apple's
Source: Asymco.com
FORTUNE -- As part of an extended look at what he calls Google's (GOOG) "Android economics," Asymco's Horace Dediu on Monday published what may be the first independent estimate of the company's Android income statement.
As the chart at right shows, Android generates revenue for Google through three kinds of ad sales (Google's Search, AdSense and AdMob). After costs and revenue sharing are taken out, there is some profit left over for Google: roughly $2.75 per Android device per year, according to Dediu.
Is that a lot? To put his numbers in perspective, Dediu on Tuesday posted a chart comparing Apple's (AAPL) iPhone income for the first three months of 2011 with Google's estimated Android income for the full year.
Because the Android chart is dwarfed to near invisibility by Apple's, Dediu posted the scaled up version copied below. To understand what's going on, you'll probably have to see the Asmyco charts at their proper scale. Click here.
As Dediu writes:
"As various members of the Android ecosystem are rewarded from the 40% revenue share of Android, it would be important to consider the scales involved in these illustrations when considering the influence Google exerts. It could be argued that Google's spreading of wealth from search creates strong incentives for participation in its ecosystem.
"However, there is little wealth created. 40% of a little is a lot less."
The 4 X scale charts below. If you look closely, you can see the Android chart we showed above at the center of the image below, near the bottom.
Telegraphing an alleged price-fixing conspiracy 2 years before the DOJ caught up to it
Jobs talking price-fixing at the iPad launch. Source: AllThingsD
FORTUNE -- Paid Content's Laura Hazard Owen, combing through documents newly unredacted in the states' (as opposed to the U.S. Department of Justice's) antitrust complaint against Apple (AAPL) and five book publishers, uncovered a gem: a blunt Steve Jobs e-mail that basically hands the attorneys general their price-fixing case.
In a note to a publishing executive nervous about sticking it to Amazon (AMZN), Jobs wrote:
As I see it, [Conspiring Publisher] has the following choices:
1. Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99.
2. Keep going with Amazon at $9.99. You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99. They have shareholders too.
3. Hold back your books from Amazon. Without a way for customers to buy your ebooks, they will steal them. This will be the start of piracy and once started, there will be no stopping it. Trust me, I've seen this happen with my own eyes.
Maybe I'm missing something, but I don't see any other alternatives. Do you?
Good stuff. But as several readers have pointed out, Jobs telegraphed all this in a brief on-camera exchange with the Wall Street Journal's Walt Mossberg at the launch of the original iPad in January 2010, more than two years before the government's antitrust lawyers caught up to the alleged conspiracy.
It's in the AllThingsD video here. You can skip Kara Swisher's irritating preamble and go straight to the Steve Jobs part, which starts at the 1:40 mark. Mossberg asks Jobs why customers would pay $14.99 for an iBook when they could get the same title from Amazon for $9.99.
"The prices will be the same," Jobs assures him. "The publishers are actually going to withhold their books from Amazon."
Which they did. Amazon was forced to abandon the $9.99 model and for two years -- until the DOJ filed its suit -- e-book prices were the same on the iPad, the Nook and the Kindle.
Amazon has now gone back to offering New York Times bestsellers for $9.99.
As we've suggested before (see here, here and here), it seems wrong that the government would give a pass to Amazon -- an e-book monopolist selling titles below cost -- and instead sue five publishers gasping for air in a shrinking market.
Adding insult to injury, Amazon has since started signing up authors for its own imprints, threatening to cut publishers off at the source. For a view of how the whole business looks from Publisher's Row, see Brad Stone's excellent "Amazon's Hit Man," Â in Bloomberg Businessweek.
True Office aims to turn compliance testing into a videogame-like experience. Will firms pay for their employees to play?
By Alex Konrad, reporter
FORTUNE -- Adam Sodwick wants to make corporate compliance training, er, sexy -- or at least make it more exciting than it is today. That may sound like an uphill battle, but the True Office CEO thinks he has a way to engage employees and make HR folks breathe easier.
Sodowick got his start in the corporate training business a decade ago peddling video lessons, so he knows that these tired techniques still are commonplace. But now that tablets offer a more interactive medium for testing, Sodowick's new company has developed a compliance app that runs as a fast-paced game (usually a painless 20 minutes). The employee is immersed in a sleek interactive story and then takes a 10-minute quiz to confirm his understanding of the material.
True Office is riding the popular "gamification" trend, which brings videogame storytelling and interactivity to mundane tasks such as job applications and, yes, training. Many of the games encourage performance with rewards and points. True Office's only prize for employees is a less miserable compliance experience.
But the real payoff comes in the advanced analytics its program provides employers. Companies using True Office's game will know exactly when and for how long their staff read the policies built into it, helping protect them against liability suits.
The company is finishing trials and plans to launch this month, but early users say they can already see trends (if employees consistently fail to flag a policy violation, for example) that suggest areas requiring additional training. Harvard's test of the program, for example, revealed that users recognize flagrant infractions but need more training on subtle ones. "The feedback from people was that they thought it was fun," says Gary Cormier, a director of HR consulting for Harvard, "but the analytics are most important to me."
Sodowick is realistic about his product: Employees will never love training, but he thinks they'll grumble less about True Office. HR executives are another matter. "We're going against PowerPoint and three-ring binders here," he notes. The data and tools True Office provides are sure to set a few hearts in compliance racing.
This story is from the May 21, 2012 issue of Fortune.
Pouring cold water on one of Silicon Valley's hottest rumors
FORTUNE -- Although there is no shortage of iTV speculation -- thanks to rumor sites like Taipei-based DigiTimes -- and plenty of Apple (AAPL) analysts ready to calculate to the penny how much an Apple-branded TV set would add to the company's bottom line, some experts have started to back away from what was once seen as an inevitablity.
In December, Richard Gardner, formerly of Citigroup, warned that "Apple has not even defined specs yet." In February, Barclays' Ben Reitzes suggested that Apple was focused more on lining up TV content partnerships than on the production of a TV set.
Now Pacific Crest's Andy Hargreaves has poured what may be the coldest water yet on the idea. In a note to clients issued Monday, he makes two points: (I quote)
Investment in Apple television makes little sense without a unique TV content offering. An Apple television could drive substantial profitability if it helped Apple capture service provider profits. However, we do not expect U.S. broadcast or cable networks to provide Apple content if it risks cannibalizing existing revenue, which makes a unique Apple service and an Apple television unlikely.
An Apple television would be a terrible use of retail space relative to iPhone, iPad or the Apple TV set-top box. A 46" Apple television would likely generate less than 1/200th the gross profit per cubic foot as an iPhone at retail, and less than 1/50th the gross profit per cubic foot of an iPad. We believe this is critical given the limited inventory space at many Apple and partner stores.
As it happens, I agree with Hargreaves (see here), although he goes on to say that Apple is more likely to be building an iPad mini. That one I'll believe when I see it.
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