Competitive Intelligence

Wither The New York Times?: Life in the Era of News as Product or Credibility as Service

In the wake of the Jayson Blair scandal and the firing of Howell Raines, BusinessWeek took a look at the Suzberger family’s guidance of The New York Times through its latest series of challenges:

Since 1896, four generations of the Ochs-Sulzberger family have guided The New York Times through wars, recessions, strikes, and innumerable family crises. In 2003, though, Arthur Ochs Sulzberger Jr., the current proprietor, faced what seemed to be a publisher's ultimate test after a loosely supervised young reporter named Jayson Blair was found to have fabricated dozens of stories. The revelations sparked a newsroom rebellion that humiliated Sulzberger into firing Executive Editor Howell Raines. "My heart is breaking," Sulzberger admitted to his staff on the day he showed Raines the door.

It turns out, though, that fate was not finished with Arthur Sulzberger, who also is chairman of the newspaper's corporate parent, New York Times Co. The strife that convulsed The New York Times's newsroom under the tyrannical Raines has faded under the measured leadership of his successor, Bill Keller, but now its financial performance is lagging. NYT Co.'s stock is trading at about 40, down 25% from its high of 53.80 in mid-2002 and has trailed the shares of many other newspaper companies for a good year and a half. "Their numbers in this recovery are bordering on the abysmal," says Douglas Arthur, Morgan Stanley's (MWD.) senior publishing analyst.

Meanwhile, the once-Olympian authority of the Times is being eroded not only by its own journalistic screw-ups -- from the Blair scandal to erroneous reports of weapons of mass destruction in Iraq -- but also by profound changes in communications technology and in the U.S. political climate. There are those who contend that the paper has been permanently diminished, along with the rest of what now is dismissively known in some circles as "MSM," mainstream media. "The Roman Empire that was mass media is breaking up, and we are entering an almost-feudal period where there will be many more centers of power and influence," says Orville Schell, dean of the University of California at Berkeley's journalism school. "It's a kind of disaggregation of the molecular structure of the media."

Can the Times adapt? It appears to be working on doing just that:

New York Times Digital (which includes Boston.com as well as NYTimes.com) netted an enviable $17.3 million on revenues of $53.1 million during the first half of 2004, the last period for which its financials have been disclosed. All indications are that the digital unit is continuing to grow at 30% to 40% a year, making it NYT Co.'s fastest-revving growth engine.

Advertising accounts for almost all of the digital operation's revenues, but disagreement rages within the company over whether NYTimes.com should emulate The Wall Street Journal and begin charging a subscription fee. Undoubtedly, many of the site's 18 million unique monthly visitors would flee if hit with a $39.95 or even a $9.95 monthly charge. One camp within the NYT Co. argues that such a massive loss of Web traffic would cost the Times dearly in the long run, both by shrinking the audience for its journalism and by depriving it of untold millions in ad revenue. The counterargument is that the Times would more than make up for lost ad dollars by boosting circulation revenue -- both from online fees and new print subscriptions paid for by people who now read for free on the Web.

Sulzberger declines to take a side in this debate, but sounds as if he is leaning toward a pay site. "It gets to the issue of how comfortable are we training a generation of readers to get quality information for free," he says. "That is troubling."

What's a platform agnostic to do? The New York Times, like all print publications, faces a quandary. A majority of the paper's readership now views the paper online, but the company still derives 90% of its revenues from newspapering. "The business model that seems to justify the expense of producing quality journalism is the one that isn't growing, and the one that is growing -- the Internet -- isn't producing enough revenue to produce journalism of the same quality," says John Battelle, a co-founder of Wired and other magazines and Web sites.

Today, Sulzberger faces an even bigger challenge than when he took charge of the Times in the mid-1990s. Can he find a way to rekindle growth while preserving the primacy of the Times's journalism? The answer will go a long way toward determining not only the fate of America's most important newspaper but also whether traditional, reporting-intensive journalism has a central place in the Digital Age.

So, we’ll see if the Gray Lady can bring the ship about and adapt. After all, NYT isn’t really selling the news – its real product is credibility.

- Arik

Taser vs. Stinger: Troubled Stun-Gun Maker Defends Against Competitor Amid Insider Selling Rumors

Days before Christmas, Taser International filed a lawsuit against fellow stun gun maker Stinger Systems, alleging that the company engaged in false advertising and unlawful patent marketing. Taser, whose 50,000-volt stun guns are used by more than 6,000 police departments and prisons worldwide, also disputed Stinger claims that its product is more effective than the Taser gun, saying that the Stinger product has not even reached prototype stage and called it a "fictitious" device in a press release. I have to say, the Stinger is certainly cooler-looking and, since they just had a demonstration of the product, calls into question, Taser’s competitive intelligence.

Then again, Taser has had a rough time of things recently. Amnesty International estimated in a November 30 report that Tasers contributed to the deaths of more than 70 people. Some medical experts say Taser shocks might trigger heart failure in cases where people are agitated, under the influence of drugs or have health problems. Taser says its guns are not lethal.

Taser said Stinger makes claims about being certified by the Bureau of Alcohol, Tobacco and Firearms, as well as claims that its device was the first ATF-certified weapon. Taser said the ATF does not certify less-lethal weapons, it regulates them, and also said it now owns a product that has been regulated by the ATF since the 1970's. Stinger's Robert Gruder, said his company believes Taser's claims serve to give Stinger more legitimacy in the marketplace. "We think these allegations are not only fictitious, but ridiculous," Gruder said. Taser also alleges that Stinger made false claims about being listed on a Nasdaq market, about its patent, its corporate history, as well as other aspects of its products' performance.

My favorite barb was, Gruder’s line "If he thinks we have a fictitious gun, I'd be happy to challenge him to a duel with our fictitious gun at 30 feet," referring to the superior range of his product versus the Taser product. "This just proves that Taser's management considers Stinger Systems a competitive threat. I would be happy to publicly demonstrate our weapon against the Taser at any time. We stand by our claims. Taser is just trying to impede competition." Here’s more from Stinger’s hometown media:

Stun-gun producer Stinger Systems Inc. is countering legal claims by Taser International Inc., which has accused the Charlotte company of making misleading statements about Stinger products.

"We intend to aggressively and vigorously defend our weapon and our company in the media, the trade press and in the courts from Taser's allegations, which are clearly aimed at silencing and stifling a competitive marketplace," says Robert Gruder, Stinger chief executive.

Toward that end, video footage of the company's flagship product, the Stinger, was broadcast Tuesday night in a news report by WSOC-TV, the ABC affiliate in Charlotte.

That report "unequivocally proves both the existence and operation of our weapon, contrary to allegations issued by Taser's management," Gruder says.

Taser recently filed a lawsuit against Stinger in U.S. District Court, contending the local company is using false advertising and unlawful patent marking in violation of federal statutes.

Among its allegations, Scottsdale, Ariz.-based Taser says Stinger is falsely claiming its products are certified by the Bureau of Alcohol, Tobacco and Firearms and its facilities are ISO 9001 certified.

Both companies make stun guns and other nonlethal weapon systems for use by law-enforcement agencies and other customers.

Stinger's ads use false information to claim its products are better - and less expensive - than Taser's, the complaint contends.

In a press release, Gruder maintains Stinger's products are viable and says Taser's claims are off target.

"We look forward to providing the law-enforcement community a choice in projectile stun technology and believe, in the end, the better product will win," he says. "I believe that product will be the Stinger."

And, Stinger has certainly been going full-frontal in their assault on the market leader. Their Taser Trade-In program and other differentia make a compelling competitor into a real threat to Taser’s long-term business prospects. Stinger's single cartridge weapon is almost half the price of Taser's X26 and yet it shoots farther and is supposedly more accurate – according to the trade-in program, any organization using either the M or X series from Taser, will get a discount on the Stinger single cartridge gun of $100 and two cartridge model $150 if they make the switch to Stinger.

That is, if Taser survives that long - a story out on Friday mentions the SEC will begin looking into insider trading at the company, as the stock tumbled toward the end of an otherwise bubble-like year in 2004. My theory is, the execs bailed out, when Stinger competition looked like it'd hurt the stock and sold shares on privileged information to try and lock in some of their gains before the company tanked.

Shocking... I'm stunned. (Sorry, I just couldn't resist.)

- Arik

Blacklisted: The Struggle Over Retail Return Abuse

Even as stores rung up a decent holiday sales season, they’re working hard to stop “thieves” that buy merchandise and then return it for apparently no good reason. In fact, it’s possible to see patterns in such people, both within store chains, as well as across the retail landscape and retailers have a new weapon in the fight against return-abuse:

The tactics vary, from “free customer rentals”—where someone purchases an outfit, wears it to an event, and then returns it the next day—to those who purchase two items that look similar but are priced very differently and then switch the boxes so they return the cheaper item and get the refunded money from the higher-priced item.

The issue is anything but trivial for retailers. A Harris Poll released this week found that 91 percent of consumers interviewed considered return policies and processes as important to their decision about where to make a purchase. It also found that almost one-fifth of U.S. adults have held onto unwanted merchandise four or more months, before trying to return it to the retailer, according to the survey sponsored by Newgistics.

“It’s an issue that a lot of consumers care about,” said Blake Zeff, communications director for U.S. Sen. Charles Schumer (D-NY), who “wants retailers to cut down on these (return) policies, these excessive policies.”

A California-based company called The Return Exchange looked at the situation and saw an opportunity to use a standard Windows-based SQL Server database approach to apply customized rules to identify customers whose buying patterns made them look like return abusers.

Here’s how it’s supposed to work: A customer walks in and attempts to return a product. The clerk asks for identification and enters that into the system so that all of that customer’s purchases can be linked.

The identification information and the return data is automatically sent (either using dial-up, a broadband VPN or a direct T1 connection) to a database that The Return Exchange has set up exclusively for that particular retail chain. That database can be accessed—on The Return Exchange’s server—by anyone in that company’s IT department.

When that database (called Verify-1) sees what it considers to be a return abusive pattern, it will reject that return, in the same way that a POS would reject a stolen credit card. The clerk then would give the customer an 800 number to The Return Exchange, which would then investigate the case.

Retailers are reporting billions of dollars of annual losses from return abuses and The Return Exchange sees this as a way to combat such fraud.

But U.S. Senator Schumer sees it differently. He held a news conference this week in front of an East Side Sports Authority store and identified them and a handful of other retailers—including Express, KayBee Toys, The Sports Authority and Guess—as essentially blacklisting customers who return a bit too much.

“There’s a familiar saying this time of year ‘many happy returns’ but sadly, in some stores, that just isn’t the policy,” Schumer said. “We all know the disappointment of buying a friend or family member a gift only to find out they already have one or don’t want it. But some of us aren’t being extended the right to return any more gifts – and the least the stores can do is tell us why.”

That “tell us why” part is the essence of the controversy. Schumer plans on introducing legislation in the Senate next month that will require retailers to prominently disclose their precise return prohibition formula before customers can make purchases.

Mark Hammond, the chairman and CEO of The Return Exchange, said his clients include about one-dozen of the nation’s 100 largest retail chains.

Schumer said those chains “have adopted secret store blacklists that were never announced and have unpublished rules, yet nonetheless stop people who make so-called excessive returns from returning extra goods. These unwritten policies could unknowingly prevent shoppers from returning gifts, wreaking havoc on the Christmas gift giving season.”

Beyond trying to pass a law forcing the disclosures, Schumer has asked the Federal Trade Commission to investigate “this blacklisting practice.”

At least now we know a few places where NOT to shop, if we don't want to end up on the blacklist. But, just like when Target banned the Salvation Army, Wal-Mart's going to figure a way to make hay from this.

- Arik

Apple vs. Think Secret: Trade Secret Disclosure Steals Macworld Thunder

Apple decided it’s had enough of fan sites blowing the cover on its product development initiatives and decided to sue one of them to get them to stop disclosing trade secrets:

Apple Computer Inc. filed another lawsuit in the Superior Court of Santa Clara County on Tuesday against a Web site alleged to have posted proprietary information or trade secrets.

This follows a filing in December by Apple, of Cupertino, Calif., which asked the court to subpoena sites in order to reveal the identities of individuals who allegedly placed such information on message boards related to similar sites.

This later suit differs from the December one in that it is not seeking to reveal the identity of anonymous or pseudonymous posters, but rather is claiming damages from articles filed and published by the owners of the site ThinkSecret.com.

In Apple's claim, it says recent Think Secret articles contained trade secrets.

In the past week, Think Secret has published articles claiming to reveal an upcoming Apple productivity suite, named iWork, as well as a sub-$500 Macintosh desktop computer.

Apple's action was based on the Uniform Trade Secrets Act as defined in California Civil Code 3426.1. This states that if a company takes reasonable measures to protect its information and the information derives value from being kept secret, California courts should rule that such information, even if it is commonplace, should be afforded protection as a trade secret. Common examples of such data are corporate minutes and customer lists.

Under this statute, misappropriation, which is defined as the acquisition of information via improper means or the use or disclosure of trade secrets, is prosecutable.

"Trade secret cases are fairly common," said Kurt Opsahl, a staff attorney for the Electronic Frontier Foundation, a nonprofit group interested in protecting digital rights.

Opsahl noted that there might be a jurisdictional issue in the case as Apple filed under the California Uniform Trade Secrets Act (most states have their own version of the statute), while the company that owns the ThinkSecret Web site is based in New York. However, Opsahl said, this is a minor issue and one Apple says is moot.

He said he thought Apple's suit was ill-advised since it is essential that a news organization be able to maintain confidentiality of sources.

"[ThinkSecret] may not have the same physical characteristics as a newspaper, but there is no way to make a strong distinction between these and online sites," Opsahl said. "To deny a site like that the status of a news operation is inappropriate."

In the December suit, Apple asked for subpoenas against Think Secret in order to discover the true identity of a poster on the AppleNova message boards.

However, despite a link to the latter on the former's front page, there is no business or editorial connection between the two.

In past years, Apple has sent cease-and-desist letters to many Web sites that have purported to have inside information on upcoming Apple products.

Such rumors have traditionally ramped up as the company's annual trade show Macworld approached. Many Mac watchers have noted that such furor, even when fueled by threatened legal actions by Apple, has only served to increase the marketing buzz around the company and its products.

The next such conference is scheduled to begin Jan. 10 in San Francisco. Parts of the city have already been covered with posters for the company's popular iPod MP3 player.

Whether Apple can stop the rumor-mongering or not, the disadvantage of having rabid fans as customers means they're so starved for news, it creates demand for the sort of secret-swapping Think Secret is all about.

- Arik

Newspapers Struggle to Compete with Craigslist

When EBay bought 25 percent of Craigslist in mid-2004, founded years earlier by social activist, Craig Newmark, it represented the creation of a more well-funded threat by a largely free, nimble competitor to traditional classified media in the newspaper business. Now, a new report says Craigslist is costing Bay Area newspapers between $50 million and $65 million in classified revenue a year:

Online classifieds site Craigslist costs the Bay Area's traditional newspapers, and their online divisions, between $50 and $65 million annually in revenues from employment ads alone, according to a report by Bob Cauthorn, former digital media VP at SFGate.com, the site for the San Francisco Chronicle.

Cauthorn put together the report, part of a package called "Competing with Craig," for research group Classified Intelligence. While Cauthorn didn't reveal the details of his methodology, he said he estimates the average recruitment ad in a metro daily would be worth $700. Craigslist charges $75.

"Craig is pulling out of this market alone somewhere north of $7 million to $8 million dollars, and probably closer to $10," said Cauthorn. "That's for recruitment alone."

In the report, Cauthorn says Bay Area newspaper executives can only blame themselves for losing their leadership position, "because they took no action and listened instead to the arguments inspired by fear, lack of vision, and short-sighted greed."

According to the study, Craigslist had 12,200 active job listings on its San Francisco site the week of November 21, 2004. In contrast, the San Francisco Chronicle had 1,500; the Oakland Tribune had 734; the San Jose Mercury News had an estimated 1,700; and the Contra Costa Times had around 1,000.

Cauthorn suggests that to compete with Craigslist, newspapers should begin offering free online classifieds, and promote the offer in their print publications. They should also offer easy, self-service tools to let users post ads online, and include anonymous Craigslist-style e-mail aliases.

One advantage newspapers have, the study says, is businesses find it easier to work with them than with Craigslist. Cauthorn also points to Craigslist's customer support structure as an area of weakness.

"It's not a fatal flaw, and Craigslist will certainly work it out," Cauthorn writes. "But this problem, and Craigslist's weakness in dealing with institutional customers, provide enough of a gap for other smart publishers to flood the gap while Craigslist sorts itself out."

In another section of the package, 23-year-old Craigslist user Avi Zollman also offers suggestions for traditional newspapers' online divisions: provide RSS feeds of listings, post ads immediately, and let users have all the space they need, including for photos.

"Obviously they have to reach a younger audience, whether it's going to be in the newspaper or in RSS feeds sent to wireless devices with new forms of classified ads," said Peter Zollman, founding principal of Classified Intelligence and father of Craigslist user Avi. "The short answer is that it's going to have to be all of those if they want to stay in the business."

So, the message to the newspapers is, adapt or die. Craig Newmark is bringing his list to your town and he's gonna steal your lunch money.

- Arik

Gartner Buys META: Consolidating Analysts Search for Security

Gartner bought-out META Group at the end of the year and, having failed to blog it right away, just couldn't let it go past withough a few thoughts. The primary implications, in my view, boil down to significantly less choice for IT leaders looking for analytical research and consulting. The $162 million cash acquisition leaves just two big research firms in Gartner and Forrester, with IDC as a lagging third choice, but the real story is that, the squeeze on IT budgets over the past several years, along with the growth of the Internet as an information resource, has led to decreasing revenue for information service companies across the board.

This is primarily an opportunity for Gartner to buy into faster growth, cut operations and admin costs to increase profitability, having reported $638 million in revenue through the first nine months of 2004, up 4% from 2003, but with net income declining 30% to a measily $12 million. But, since IT managers often come to rely on the particular analysts covering a technology sector or business issue important to them, the combined firms' clients will be most concerned about what happens to that person after the acquisition. An exodus of those analysts could scuttle the point of buy-out, if cultures don't mesh, but Gartner says the addition of META's sales team will enhance Gartner's ability to increase revenue in coming years, while also driving operational efficiency given the complementary nature of the two companies. Gartner CEO Gene Hall weighed in with his own (brief) opinion of the deal:

I am delighted to share with you the news that Gartner, Inc. has reached an agreement to acquire META Group. Upon completion of the transaction, the combined company's professional staff of research analysts and consultants will be able to provide an even greater scope of independent, objective counsel to help senior IT and business executives leverage information technology to meet their strategic objectives.

META Group represents an outstanding strategic fit with Gartner. The acquisition of META Group allows us to expand our ability to deliver the broadest, deepest, most timely advice and consulting on information technology.

We expect the transaction, which is subject to customary closing conditions, including regulatory approvals, and approval by META Group's stockholders, to close in the second quarter 2005. We will keep you informed of developments as they occur. As Gartner moves forward, I want to thank you for allowing us to be your partner. We look forward to continuing and growing our relationship with you in the future.

Since both firms are based in Stamford Connecticut, at least there won't be many office changes, but a continued the lack of differentiation - plus the relatively low $162 million selling price (in my opinion) reflects that lack of value many IT constituents find in the advice of such firms, in an age when strategic advice is rather easier to come by.

The Red Herring commented that, $162 million would have gone a lot farther invested in a place like India, shipping those high-priced analyst jobs off-shore, rather than consolidating with a competitor at home. One thing's for sure - if differentiation remains this hard to establish, Indian competitors will continue their march on North American shores, and already rapid price commoditization will certainly accelerate.

Is there any upside? At least the two analyst teams might be able to sync up on growth forecasts - I always found it puzzling the 5-year CAGR on any given component or technology could easily be off by 100 percent, making the reliability with which a client entrusted the analysts to predict the future a bit less certain than they'd hoped.

- Arik

Virgin Galactic: Branson’s Final Frontier

Richard Branson, Virgin Group’s founder and chairman, announced earlier this fall he’d be licensing the SpaceShipOne technology from Paul Allen’s Mojave Aerospace Ventures to launch Virgin Galactic Airlines over the next several years to offer suborbital spaceflights to passengers willing to pay $200,000 for the experience. BBC had a good story on SpaceShipTwo – the next generation design of the vehicle that’ll actually go into production for the venture. Plus, in case you missed it, this is as good a recap of the news and implications from the earlier announcement:

The dream of opening space to the general public was given a tremendous boost in 2004 with SpaceShipOne’s prize-winning suborbital jaunt and congressional legislation to help establish a space travel industry in the United States. But even the biggest champions of commercial spaceflight acknowledge that a vital space tourism market is still years from becoming reality.

On June 21, Mike Melvill made aviation history as the first person to pilot a privately financed vehicle into space. Sitting at the controls of SpaceShipOne, the 62-year-old civilian test pilot jockeyed the air-launched vehicle to an altitude of 100 kilometers, climbing above the Earth’s atmosphere for a few moments before gliding to a runway landing in the Mojave desert.

The record-setting flight put Burt Rutan and Paul Allen’s SpaceShipOne in the lead to win the Ansari X Prize, a $10 million purse offered to the first team to launch a spacecraft to 100 kilometers with a pilot and the weight equivalent of two passengers on board, return safely to Earth and repeat the feat in the same vehicle within two weeks.

Three months later, Melvill flew again, this time carrying the required passenger ballast to 102.9 kilometers. Five days after that, on Oct. 4, pilot Brian Binnie took the controls of SpaceShipOne and flew the craft to 112 kilometers. More than eight years after the St. Louis-based X Prize Foundation first announced the $10 million purse, a winner finally emerged from the field of 27 contenders. And not a moment too soon. To fund the purse, X Prize founder Peter Diamandis took out an insurance policy that was set to expire on Jan. 1, 2005. Had no one won the prize, the $10 million purse would have disappeared and the insurer would have pocketed the premium paid for the policy.

Now that the details are worked out, January's Wired magazine had the best run-down of how the cash-flow will develop:

The upshot is Virgin Galactic, the world's first off-the-planet private airline. Under a deal still being negotiated with SpaceShipOne's owners - Microsoft cofounder Paul Allen and legendary Mojave airplane designer Burt Rutan - Virgin will pay up to $21.5 million for an exclusive license to SpaceShipOne's core design and technologies. Another $50 million will go to Rutan's company Scaled Composites to build five tricked-out passenger spaceships. An equal amount will be invested in operations, including a posh Virgin Earth Base somewhere in the California desert. Total outlay: $121.5 million. Business plan: 50 passengers a month, paying $200,000 each. Core product: a two-hour flight to an apex beyond Earth's atmosphere, wrapped in a three-day astronaut experience. Lift off: T-minus three years.

Of course, Virgin Galactic is a tiny bit riskier than the typical Branson venture. For starters, the first passenger-carrying Virgin spaceship - already dubbed VSS Enterprise - is still just a glow on Rutan's computer screen. No one knows how big the market for seats into space might be. And what happens to the business model when a ship full of amateur astronauts fails to make it back to Mojave in one piece?

But look at the upside. The total price tag is half the cost of a single Airbus A340-600 - and Virgin Atlantic ordered 26 of those last summer. In return, Branson gets bragging rights to one of the cooler breakthroughs of the early 21st century, with rocket-powered marketing opportunities that could fuel excitement - and sales - in his entire 200-company holding group.

For the happy-go-lucky tycoon, though, there's something else at stake: Virgin Galactic is his chance to climb off that 747's wing and into the history books with the first airline - make that the first brand - on the final frontier. "Affordable private space travel opens a new era in human history," he tells reporters at a mini press event for the reality show in LA. "We'll go into orbit; we'll go to the moon. This is a business that has no limits."

Virgin Galactic isn't just about seizing first-mover advantage in space - it's about opening space to a wave of other entrepreneurs who will follow if Branson succeeds. Commercial spaceships will lead the way for private investment in what has been a government-funded vacuum, bringing a new physics of market forces to outer space. If Branson and his Virginauts can attract even a quarter of the customers they believe are out there, they'll rally today's alt.space backwater of wild dreamers, cranky engineers, and rich geeks to launch an era of glittery, out-of-this-world-class new businesses. "If we can make space fun," Branson says, "the rest will follow."

While I don’t have $200K to drop on a few minutes of weightlessness, I’m sure, like all things cutting edge, that price will come down a bit. Whether in the future, or even during my lifetime, space tourism will become commonplace remains to be seen. In the meantime, Branson is getting as much great PR out of the deal as anything for his current businesses in the present. If the stewardesses are anything like the one’s on Branson’s airliners, he probably won’t have much trouble eventually filling the seats.

- Arik