The 10 best results on the London art market in 2010

Every fortnight Artprice provides you with a new or updated ranking in its Alternate-Friday Top Series. The theme of today’s TOP article is the 10 best auction results in London this year.

The 2010 results at the top end of the art market show a very substantial recovery vs. 2009 due mainly to the presentation of a number of exceptionally rare works.
The work at the root of this recovery is undoubtedly Alberto GIACOMETTI’s L’homme qui marche I which fetched £58m ($92.5m) in February versus a pre-sale estimate of £12 - 18m. Since then, new records have been frequent and the two auction majors have posted substantial increases in revenue (+46% for Christie’s and + 116% for Sotheby’s). However, in spite of the apparent prosperity of the London sales, particularly in June, there have also been a number of disappointments…

Top 10: London sales 2010
Rank Artist Hammer Price Artwork Sale
1 Alberto GIACOMETTI $92 521 600 L’homme qui marche I 02/03/2010 (Sotheby’s London)
2 Pablo PICASSO $45 814 900 Portrait d’Angel Fernandez de Soto 06/23/2010 (Christie’s London)
3 William TURNER $40 211 100 Modern Rome-Campo Vaccino 07/07/2010 (Sotheby’s London)
4 Gustav KLIMT $38 284 800 Church in Casson-Landscape with… 02/03/2010 (Sotheby’s London)
5 Édouard MANET $29 674 000 Portrait de Manet par lui-même, en buste 06/22/2010 (Sotheby’s London)
6 Gustav KLIMT $24 754 825 Frauenbildnis (Portrait of Ria Munk III) 06/23/2010 (Christie’s London)
7 André DERAIN $21 513 650 Arbres à Collioure 06/22/2010 (Sotheby’s London)
8 Paul CÉZANNE $16 749 600 Pichet et fruits sur une table 02/03/2010 (Sotheby’s London)
9 Pablo PICASSO $15 961 320 Le baiser (1969) 06/23/2010 (Christie’s London)
10 Henri MATISSE $15 578 850 Odalisque jouant aux dames (1928) 06/22/2010 (Sotheby’s London)

Modern art, a safe investment
Giacometti’s l’Homme qui marche I appears to have triggered a new phase in the art market after a year and a half of crisis.
In fact, at the same sale on 3 February, Sotheby’s also sold Gustav KLIMT’s Church in Casson - Landscape with Cypresses for twice its low pre-sale estimate. At £24m, the work generated a new record for a landscape by the artist. The Sotheby’s sale continued in the same vein with Paul CÉZANNE’s still life Pichet et fruits sur une table. Having failed to sell in 2001 against a pre-sale estimate of $14-20m, it fetched £10.5m (est. £10-15m) taking 8th place in this ranking.

Sotheby’s posted more historic sales at its Impressionist & Modern Art sale in June, notably for 3 star lots also present in our top 10: an extremely rare Édouard MANET self-portrait, Portrait de Manet par lui-même, en buste (only 2 self-portraits by the artist are known to exist) which fetched its low estimate of £20m ($29.6m). Although the hammer price for this masterpiece was a new auction record for Manet and represented 20% of the sale’s total revenue on 22 June 2010 (£98.87m), Sotheby’s had hoped to fetch as much as £30m …
André DERAIN’s Fauvist work, Arbres à Collioure, also inspired bidders with its complex and eventful background (originally owned by the art collector Ambroise Vollard, it spent four decades in a bank safe) and fetched £14.5m, adding £7m to the artist’s previous record. Henri MATISSE’s 1928 painting l’Odalisque jouant aux dames (1928), only just reached its low estimate of £10m ($15.5m), a price which nevertheless takes 10th place in this top 10.

To keep up with its rival, Christie’s needed good results on 23 June and indeed the sale was relatively successful with three hammer prices taking 2nd, 6th and 9th place in this ranking.
But the best of these, Pablo PICASSO’s formidable blue period absinthe drinker, Portrait d’Angel Fernandez de Soto, only just got past its low estimate at £31m ($45.8m), despite its declared high estimate of £40m and hopes for a substantially higher result… On the same day, Christie’s sold Gustav Klimt’s Portrait of Ria Munk III for £16.7m within its pre-sale range (£14-18m). Returned to the owner’s heirs in 2009, the work is one of the three portraits ordered by Aranka Munk, the model’s mother.
The third, Picasso’s Le Baiser, was acquired in 2003 for £2.5m and sold this time for £10.8m (against an estimate of £8-12m).

Sotheby’s Old English Masters sale in London on 7 July 2010 proposed Joseph Mallord William TURNER’s Modern Rome – Campo Vaccino. Offered by the family of Archibald Rosebery, the work demolished its previous record fetching £26.5m (estimated £12-18m). This result clearly reflected the prestige attention given to the artist by a major exhibition devoted to the British artist: Turner and the masters at the Tate Britain (Sept.09 – Jan.10) and at the Grand-Palais in Paris (Feb.– May 10) and acted as a formidable stimulant for the market.

© Artprice

Art

Startaround (noun): An established company that must think and operate like a startup as it undergoes a turnaround.

Though the term “startaround” is not in any digital-age lexicon, it might soon be. That’s the word Brad Garlinghouse, president of AOL consumer applications, used to describe his company during the recent Supernova conference in Philadelphia. The ailing Internet services firm celebrates its 25th anniversary this year, and Garlinghouse, along with the rest of AOL’s management, has been charged with turning the company around by focusing on its next “big bet” — that is, “reinventing how content is created and monetized.”

Of all the Internet stars of the 1990s dot-com boom, AOL’s rise and fall was perhaps the most dramatic. And so far, the company’s attempts to stop its backward slide have been far from smooth. Like many other established Internet firms, AOL knows that its business model needs to undergo a radical transformation or it will be supplanted by a new generation of sharper online startups. After riding high in the 1990s as a fast-growing company, AOL’s business began rapidly unraveling following the bursting of the dot-com bubble and the company’s ill-fated $350 billion merger with media conglomerate Time Warner in 2000. Despite working relentlessly to grow advertising revenue to offset its declining dial-up Internet access unit, AOL is still a shadow of its former self.

The company’s attempt at transformation — or what Garlinghouse referred to as its “second act” — jettisons old expansion plans to focus on premium revenue generation. The process has required massive budget cuts, staff reductions and controversial divestments — in some ways, a return to the company’s lean startup days. Nonetheless, Garlinghouse said he is a big believer in second acts on the Internet — and perhaps even third and fourth acts. “There’s no question there will be second acts in the Internet space,” he noted. “Amazon has [had] second and third acts with the Kindle and Amazon Web Services.” What’s important, he added, is that, just like a startup, “innovation needs to be everywhere” for a company like AOL to cope with the digital age’s constant state of flux.

Finding new ways to regain the appeal that older or fading Internet companies once had with consumers is by no means easy, Wharton experts say. Companies like AOL, Yahoo and even Microsoft “have lost their ‘mojo,’” suggests Kevin Werbach, a Wharton legal studies and business ethics professor. “They are kind of stuck.”

Spoon-Feeding the Masses

According to David Hsu, a management professor at Wharton, the strategies of firms like AOL, Yahoo and Microsoft worked well in the late 1990s and early 2000s. They set up portals designed to spoon-feed content to the masses and positioned those sites as a guide to what was then a new and often daunting communications environment. “The appeal of the portal approach was that people were uneducated about navigating the web. Yahoo, AOL and Microsoft with MSN stepped in and said, ‘We’ll make it simple for you,’” Hsu points out.

It’s unclear how well that approach works today. The arrival of Facebook and other social networking sites has helped spawn a new generation of Internet-savvy users who are far more proactive about tailoring the content they access online than they once were. “There’s something that many consumers appreciate about the disconnected web. Consumers would rather be interconnected with their circle of friends” than use a more anonymous portal, such as AOL or Yahoo, notes Wharton legal studies and business ethics professor Andrea Matwyshyn, adding that this focus on social connections means Facebook is often the new starting page for web users.

But while AOL, Yahoo and Microsoft may be viewed as has-beens that can’t compete with the new generation of Internet startups, they have something many others don’t — a massive audience. According to the latest monthly research results from ComScore, Google had 179 million unique users in the U.S. alone in June, but Yahoo wasn’t too far behind, with 167 million. Microsoft was in third place with 160 million unique users, while AOL had 112 million. “The continued viability of these dinosaurs shows that there’s something to be said for aggregating an audience,” says Peter Fader, a Wharton marketing professor and co-director of the Wharton Interactive Media Initiative.

Yet as companies like these now try to change their business models to include a wider or different array of online services, one danger they face is that they might lose their big audiences. “Maybe these portals don’t have to do too much [to change],” Fader suggests. “They could just recruit more passive viewers like the TV industry. The risk is that they try and do too much and destroy whatever success they’re having.” Hsu agrees. “The risk is that you spread resources too thinly and you lose sight of what you do well. What are the costs of reinvention for AOL, Yahoo and Microsoft?”

The costs are undoubtedly high. According to Matwyshyn, that could be one of the reasons large companies like AOL, Microsoft and Yahoo struggle to be innovative. “It may be that the more established they become, the less willing they are to risk existing market share and capital on unproven projects.”

One Step Forward?

But when it comes to being an Internet “startaround,” companies like AOL often have little choice but to take those risks. In a break with its past, CEO Tim Armstrong and his new team have begun pursuing higher-end advertisers. The transition has been partly blamed for the company’s year-on-year 27% drop in second quarter 2010 advertising revenue, to $297 million. Overall revenue fell 26%, to $584 million from $791.5 million in 2009.

Another reason for the decline is the company is retrenching, as it returns to leaner operating budgets and staff numbers. Starting in January, AOL has been closing offices across Europe, shedding nearly 2,500 jobs along the way. During AOL’s second quarter earnings conference call on August 4, Armstrong said that, despite losses of $1 billion, the company is “getting healthier…. It’s really about taking a company that was very sick and making it healthy.”

Today, as Garlinghouse told the Supernova conference audience, “the best thing AOL has going for it” — as with a promising startup — “is that it hired a lot of people with a track record of winning” after a spinoff in 2009 let the company break free from Time Warner. Armstrong was hired from Google, while other executives are from Apple, Yahoo and Digg. Garlinghouse was previously with Yahoo, where he oversaw, among other business lines, Yahoo Mail and its Flickr photo-sharing service.

Along with fresh management teams, deal-making has also been critical. “The Internet generates a shorter product cycle [than other sectors],” Matwyshyn notes. “These companies have to continually reinvent themselves and come up with new products, but much of that innovation is through acquisitions, not internal development.” Internet companies can be drawn to what are often disastrous deals because of the sector’s pressure to roll out new products quickly, something that’s not always easy to do organically, she adds.

AOL knows first-hand how tricky M&A can be in such a fast-changing sector. Two years after buying social networking company Bebo in 2008 for $850 million, AOL recently said it “was not prepared to invest the capital necessary to turn the service around in light of its declining user base and ad revenue.” Earlier this year, AOL sold Bebofor an undisclosed sum to Criterion Capital Partners, a private equity fund in Los Angeles. Technology blog TechCrunch estimated the sale price to be no more than $10 million.

Despite the risks, M&A and partnerships now feature heavily in Yahoo’s reinvention, which wasn’t always the case. Of the Internet mavericks, Werbach points out, “Yahoo was one of the most successful,” and beat back rivals like Excite and AltaVista in the portal and search wars of the late 1990s. But its spurning of Microsoft’s 2008 takeover offer led to a strategy and management shakeup at the top, including the appointment of Carol Bartz — like Armstrong, another Silicon Valley veteran — to replace CEO Jerry Yang, one of the company’s co-founders.

Since taking the helm in 2009, Bartz has set up a partnership with Microsoft’s Bing search and advertising platform and plans to expand Yahoo News and other key sites like Yahoo Mail, Sports and Finance to help increase the time visitors spend on a property. She has also divested companies recently acquired by Yahoo, such as Zimbra, a corporate e-mail service, and HotJobs, a job-search site, which no longer fit with the company’s portfolio of businesses. Meanwhile, Yahoo bought Associated Content, an online network with 380,000 freelance contributors generating content for its site. According to Bartz, Yahoo’s strength is “preparing editorial expertise with a huge treasure trove of data on Yahoo about users, their interests and their intent, [and] delivering content that we know they want and will respond to.”

Yahoo is also joining forces with Facebook, rather than trying to build a competing product. “Users who are on both Yahoo and Facebook can link their accounts to view and share updates with friends across both networks,” Bartz told an analyst conference in July. “We call this new level of social integration ‘Yahoo Pulse.’ It’s still in early innings, but so far we’re encouraged by what we’re seeing. ”

The search engine’s financial results have also waned over the years, but not as dramatically as AOL’s. Though Yahoo didn’t see Google coming in the search arena and failed to fully capitalize on search advertising, it has fared reasonably well. Revenue growth tailed off in 2009 to $6.5 billion from $7.2 billion the previous year. However, net income for 2009 was $598 billion, up from $419 billion.

The way Hsu sees it, partnerships and acquisitions are indeed the way to grow, especially since “it’s unlikely any company will dominate the consumer web.” In particular, Hsu says he is a fan of Yahoo’s deal with Facebook, because a partnership makes more sense than trying to beat the social networking leader. Microsoft’s search partnership with Yahoo may also be a good move, he adds.

Experts at Wharton also point out that AOL, Yahoo and Microsoft have an advantage over rivals — deeper pockets to compete with the likes of Google, Facebook and Twitter, which gives them more room to maneuver than they had in their early years. “Think about Yahoo. The margin for error is greater now because it has a stronger foundation than when it was a startup,” says Werbach.

Then there’s Microsoft. In the 1990s, Microsoft formed its MSN Internet access service to compete with AOL, and offered e-mail, photo and storage services online while also forging ahead with its formidable Windows and Office software products. But like Yahoo, Microsoft didn’t see Google coming. Now, it wants to build an ad network that can compete with Google.

Much of Microsoft’s current Internet focus revolves around Bing. Unveiled last year in a $100 million campaign, the new advertising and search platform replaces its Live Search with new features designed to cut through the clutter on the Internet. During the company’s financial analyst meeting in late July, CEO Steve Ballmer said it’s “quite stunning to think we just launched Bing 13 months ago…. I was flattered to see that our visual differentiation has been a source of concern to Google, to see them emulating us in some ways.”

But such ventures haven’t helped bottom-line growth much at the Seattle-based company, whose group operating income increased 15%, to $24 billion, in the last fiscal year, thanks largely to software sales. The last time Microsoft’s online services unit turned a profit — $5 million — was in 2006. For the year ending June 30, 2010, Microsoft’s online unit had an operating loss of $2.3 billion on revenue of $2.2 billion, compared with an operating loss of $1.65 billion on revenue of $2.1 billion the previous year.

Wharton experts agree that markets will largely measure Microsoft’s Internet success on how well it provides search for Yahoo and takes market share from Google. And as with AOL and Yahoo, “there are challenges [related to] staying current and in touch with the user base,” notes Matwyshyn.

Other Wharton experts suggest that all three of the Internet companies are still a work in progress. With the success of “second acts” uncertain, “these companies have to be careful not to fight the last war,” says Werbach. “They shouldn’t try and beat Google and Facebook.” Indeed, they should play to their strengths. “Portals aren’t dead. These sites have a lot of eyeballs and work as well as they [ever] have, but it’s unclear whether you need a ‘home’ on the Internet anymore. They could use some clarity, like General Electric, which wants to be number one or number two in every market.”

Published: August 18, 2010 Wharton

Uncategorized aol, fcebook, Internet Firms, microsoft, Start-ups, yahoo

Which countries’ government is the richest (having most money that is, in US$)

If you are expecting North American and European nations, you might be disappointed.

While the countries look rich, wealthy European nations can’t withstand a prolonged major financial crisis, just like Greece.

The USA might have the biggest economy, but the American government is not at all rich; in fact, it can’t even take out $150bn if asked to now without resorting to borrowing.

To date the US government has borrowed $14 trillion!

The UK, likewise, while the country/people are rich, the government isn’t.

The UK government’s debt stands at $9 trillion now.

World’s Richest Government

Richest governments after 2008-2009 financial crisis:

1. China
National reserves: $2,454,300,000,000

2. Japan
National reserves: $1,019,000,000,000

3. Russia
National reserves: $458,020,000,000

4. Saudi Arabia
National reserves: $395,467,000,000

5. Taiwan
National reserves: $362,380,000,000

6. India
National reserves: $279,422,000,000

7. South Korea
National reserves: $274,220,000,000

8. Switzerland
National reserves: $262,000,000,000

9. Hong Kong, China
National reserves: $256,000,000,000

10. Brazil
National reserves: $255,000,000,000

Here are the rest, in million US$:

11 Singapore / 203,436
12 Germany / 189,100
13 Thailand / 150,000
14 Algeria / 149,000
15 France / 140,848
16 Italy / 133,104
17 United States / 124,176
18 Mexico / 100,096
19 Iran / 96,560
20 Malaysia / 96,100
21 Poland / 85,232
22 Libya / 79,000
23 Denmark / 76,315
24 Turkey / 71,859
25 Indonesia / 69,730
26 United Kingdom / 69,091
27 Israel / 62,490
28 Canada / 57,392
29 Norway / 49,223
30 Iraq / 48,779
31 Argentina / 48,778
32 Philippines / 47,650
33 Sweden / 46,631
34 United Arab Emirates / 45,000
35 Hungary / 44,591
36 Romania / 44,056
37 Nigeria / 40,480
38 Czech Republic / 40,151
39 Australia / 39,454
40 Lebanon / 38,600
41 Netherlands / 38,372
42 South Africa / 38,283
43 Peru / 37,108
44 Egypt / 35,223
45 Venezuela / 31,925
46 Ukraine / 28,837
47 Spain / 28,195
48 Colombia / 25,141
49 Chile / 24,921
50 Belgium / 24,130
51 Brunei / 22,000
52 Morocco / 21,873
53 Vietnam / 17,500
54 Macau / 18,730
55 Kazakhstan / 27,549
56 Kuwait / 19,420
57 Angola / 19,400
58 Austria / 18,079
59 Serbia / 17,357
60 Pakistan / 16,770
61 New Zealand / 16,570
62 Bulgaria / 16,497
63 Ireland / 16,229
63 Portugal / 16,254
64 Croatia / 13,720
65 Jordan / 12,180
66 Finland / 11,085
67 Bangladesh / 10,550
68 Botswana / 10,000
69 Tunisia / 9,709
70 Azerbaijan / 9,316
71 Bolivia / 8,585
72 Trinidad and Tobago / 8,100
73 Yemen / 7,400
74 Uruguay / 8,104
75 Oman / 7,004
76 Latvia / 6,820
77 Lithuania / 6,438
78 Qatar / 6,368
79 Cyprus / 6,176
80 Belarus / 6,074
81 Syria / 6,039
82 Uzbekistan / 5,600
83 Luxembourg / 5,337
84 Guatemala / 5,496
85 Greece / 5,207
86 Bosnia and Herzegovina / 5,151
87 Cuba / 4,247
88 Costa Rica / 4,113
89 Equatorial Guinea / 3,928
90 Ecuador / 3,913
91 Iceland / 3,823
92 Paraguay / 3,731
93 Turkmenistan / 3,644
94 Estonia / 3,583
95 Malta / 3,522
96 Myanmar / 3,500
97 Bahrain / 3,474
98 Kenya / 3,260
99 Ghana / 2,837
100 El Salvador / 2,845
101 Sri Lanka / 2,600
102 Cambodia / 2,522
103 Côte d’Ivoire / 2,500
104 Tanzania / 2,441
105 Cameroon / 2,341
106 Macedonia / 2,243
107 Dominican Republic / 2,223
108 Papua New Guinea / 2,193
109 Honduras / 2,083
110 Armenia / 1,848
111 Slovakia / 1,809
112 Mauritius / 1,772
113 Albania / 1,615
114 Kyrgyzstan / 1,559
115 Jamaica / 1,490
116 Mozambique / 1,470
117 Gabon / 1,459
118 Senegal / 1,350
119 Georgia / 1,300
120 Panama / 1,260
121 Sudan / 1,245
122 Zimbabwe / 1,222
123 Slovenia / 1,105
124 Moldova / 1,102
125 Zambia / 1,100
126 Nicaragua / 1,496
127 Mongolia / 1,000
128 Chad / 997
129 Burkina Faso / 897
130 Lesotho / 889
131 Ethiopia / 840
132 Benin / 825
133 Namibia / 750
134 Madagascar / 745
135 Barbados / 620
136 Laos / 514
137 Rwanda / 511
138 Swaziland / 395
139 Togo / 363
140 Cape Verde / 344
141 Tajikistan / 301
142 Guyana / 292
143 Haiti / 221
144 Belize / 150
145 Vanuatu / 149
146 Malawi / 140
147 Gambia / 120
148 Guinea / 119
149 Burundi / 118
150 Seychelles / 118
151 Samoa / 70
152 Tonga / 55
153 Liberia / 49
154 Congo / 36
155 São Tomé and Príncipe / 36
156 Eritrea / 22

Big national reserves doesn’t guarantee prosperity however, for instance, the yearly expenses for China’s government is $1.11 trillion, their government must always think of economic growth and making more money.

China’s gov’t overspent $110bn last year, much on it towards modernizing their military, if it goes on like this their reserves can only last for 22 yrs.

The Malaysian gov’t overspent $13bn last year, if it goes on like this their reserves can only last for 7 yrs.

The Singaporean government overspent $3bn last year, much of it rescuing their banks from financial crisis, if it goes on like this their reserves can last 68 yrs.

The Swiss gov’t overspent $1bn last year, if it goes on like this their reserves can last 262 yrs.

A country normally can borrow up to 100% its GDP, a very strong industrial country or very financial stable nation can borrow up to perhaps 200% its GDP, debts over 250% GDP the country is bankrupted.

Greece’s Debts Is 113.40% GDP, In Danger As It Is Not Considered A Strong Industrial Or Financial Country.

Iceland Is 107.60%, Also In Crisis As It Is Not So Strong Industrial Or Financially.

Singapore Debts Is 113.10%, Not In Hot Water Due To Its Global Financial Hub Status, And Also Its Financial Strength. It’s Only Dangerous For Singapore When It Reaches 200%

Japan Debts Is 189.30%, Still Under Radar As A Powerful Industrial Nation. It Needs To Panic Only At Around 200%

US Has The World Largest Debts, But It Is Only 62% Its GDP, It Is Not In Any Immediate Danger Of Bankruptcy.

Zimbabwe Debts Is 282.60% GDP, It Is A Bankrupted Nation.

Malaysia Debts Is Currently At 53.70% GDP.

Hong Kong And Taiwan Is Doing Pretty Good With Debts At 32-37% GDP

South Korea Is Even Better With Debts At 23.5% GDP

China Is Very Stable With Debts At 16.90% GDP

Russia Is Like A Big Mountain With Debts Only At 6.30% GDP

There Are Only 5 Countries With No Debt (I.E. 0%) –

Brunei, Liechtenstein, Palau, Nieu, And Macau Of China.

Politics Politics

http://link.brightcove.com/services/player/bcpid50062332001?bctid=85579948001

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If your hair stylist gave you $10 every time you sent one of your friends her way, you might be more tempted to tell all of your buddies what a fabulous stylist she was — or you might even try to make new friends to refer.

This clever method of customer acquisition is a form of word-of-mouth (WOM) marketing known as a referral program. While such programs have been used for decades by not-for-profit organizations like PBS, similar customer referral programs have also become increasingly popular with companies in a wide range of industries, from financial services and automobiles to newspapers and hotels. Christophe Van den Bulte, a professor of marketing at Wharton, describes customer referral programs as an effective way to attract higher quality customers. “They are an old idea that’s getting more traction these days,” he notes, “and we now have solid evidence of their financial benefits.”

According to a new study titled, “Referral Programs and Customer Value” (to be published in the January 2011 issue of the American Marketing Association’s Journal of Marketing), customer referral programs are indeed a financially attractive way for firms to acquire new customers. The study — authored by Van den Bulte, Bernd Skiera and Philipp Schmitt, a professor and doctoral student, respectively, at Goethe-University in Frankfurt, Germany — was conducted over a period of three years and followed the customer referral program of a leading German bank (which remained anonymous) that paid customers 25 euro for bringing in a new customer.

Van den Bulte says it is no coincidence that the study was conducted with colleagues based in Frankfurt, a city considered the eurozone’s financial capital, and the home not only of the European Central Bank, the Bundesbank and the Eurex, but also of the headquarters for several large banks, including Deutsche Bank, Commerzbank and KfW.

The objective of the study was two-fold, Van den Bulte states. “There’s a lot of talk about word-of-mouth-marketing, and about making money out of social connections. Our first objective was to see if customer referral programs can indeed turn social capital into economic capital. Second, we wanted to come up with a methodology to assess the effectiveness of customer referral programs that was easy to implement with data and tools available to many managers.”

Using information from a database of 10,000 customers acquired by the bank in 2006 — about half of them through the institution’s referral program and the other half through traditional marketing efforts such as direct mail and advertising — the study tackled three questions:

* Do referred customers have higher margins than other customers?
* Do referred customers stay longer with the firm than other customers?
* Do referred customers have a higher customer lifetime value (CLV), the net present value of all the profits a customer generates over his or her entire association with the firm?

The answers, according to the study, are all positive.

An analysis of customer activity from January 2006 until September 2008, a total of 33 months, showed that referred customers indeed generated higher margins than other customers. This difference was quite sizable at first, but eroded over time and came down to zero after about 1,000 days.

This pattern, Van den Bulte notes, is consistent with what is known as the “better-matching mechanism”, which has been documented in studies by economic sociologists at MIT on employee referral programs. The practice involves employees getting paid for bringing in new hires and is especially popular in high-tech industries.

“As a customer, I know my bank better than non-customers do. I also know my friends better than my bank does,” Van den Bulte points out. “I have a better idea than my bank about which of my friends would be a good match for the bank, and vice versa. This is the better-matching argument: The existing customer knows both the bank and the prospect, and so has superior information to assess to what extent there is a good fit between the two. Using that information, I only refer prospects who I feel will match well with my bank.”

This “superior match” phenomenon explains why the margins documented at the beginning of the study were higher for the referred customer than for the customer acquired through traditional marketing efforts. Well-matched customers simply generate more revenue at a lower cost to the firm.

As the bank worked with the new customers, however, the two parties learned about each other from their own interactions and no longer needed to rely on having a third party in common (the customer who made the referral). The initial information advantage from superior matching eroded as the relationships between the bank and new customers developed, and so did the margin advantage. Thus, the better-matching effect also explains why the difference in margin eroded over time.

Sharing a Bond

The second key finding was about customer retention. Referred customers were about 18% more likely to stay with the bank than other customers, and that gap did not fade over time. This pattern, Van den Bulte suggests, is consistent with another mechanism documented in previous studies on employee referral programs. People tend to have a stronger attachment to an organization if their friends or acquaintances share a bond to the same establishment.

The researchers also concluded that the difference in margin combined with the difference in customer retention amounted to a disparity in long-term customer value of 16% to 25%. “That’s not only a sizable chunk of money,” Van den Bulte says, “it also amounts to a 60% ROI over six years on the 25 euro that the bank paid for every referral.”

Many practitioners, including managers of the bank who made the data available, fear that referral programs suffer from “moral hazard,” where opportunistic customers bring in “deadbeats and other unprofitable new customers just to earn a referral fee,” Van den Bulte states. However, the study shows that the benefits of a customer referral program can outweigh such negatives, making the programs pay off financially.

According to Van den Bulte, this is the first study ever published on the financial evaluation of customer referral programs. “We actually have hard financial numbers, not vague feel-good stories or abstract statistical coefficients. Our findings and methodology are something that financial managers can actually understand and apply immediately,” he says.

It helps that the techniques used to conduct the study were simple and straightforward, he adds. “You can basically [calculate the value using] Excel. You don’t need a master’s degree in statistics; a smart intern or decent marketing consultant can do it. We hope our study will actually motivate and help companies to assess how effective their referral programs are.” The margin, customer retention and customer value numbers, he notes, will vary across industries and customer segments, but the procedures used in the study can be put into practice at any company with customer profitability data.

Van den Bulte says that referral programs featuring a financial pay-out are likely to remain a B2C practice, “because paying referral fees to B2B customers’ employees could be conceived as a bribe. Pharmaceutical and medical companies sometimes get in hot water with the FDA for remunerating opinion leaders to educate fellow physicians about the benefits of new products, so I expect that paying someone money just to bring in a new B2B customer or lead will be frowned upon. Of course, the absence of financial pay-outs does not mean that customer referrals are any less important in B2B markets. Companies just have to be more creative in finding proper incentives enabling them to capitalize on their existing customers’ networks.”

Why does a study on the financial benefits of customer referral programs make sense now? The recent trend toward viral, or social, marketing is one reason, but Van den Bulte notes that there is also a general belief that the ROI on traditional marketing has been decreasing. Consequently, companies feel that something must be done to “get a bigger bang for our marketing dollars.” This in turn has put marketers under pressure to quantify the return on their expenditures. “Marketing accountability is a major trend nowadays. One of the appeals of using a customer referral program is that you know exactly how much you put into it and, as our study shows, you can also calculate how much you’re getting out of it.”

Although the study compared the financial value of customers acquired through referral programs versus traditional channels, Van den Bulte and his colleagues now plan to compare the behavior of pairs of referring and referred customers, asking such questions as, “If one stops being a customer of the bank, does the other have a higher chance of leaving as well?” and “Do high-value referrers tend to bring in high-value referrals?” The answers, Van den Bulte says, are important to identify the best customers toward which referral programs should be targeted. The team has already begun analyzing the data and hopes to have new insights ready within a year.

Wharton July 2010

Social Marketing

The bursting of the Internet bubble, several years of unfriendly public markets, and changes in Wall Street and financial regulations have been hard on venture capital over the past decade. But not all the pressures facing the industry are external, especially in Silicon Valley. The venture community there is showing signs of middle age — moving more slowly and cautiously than before, and hitting fewer home runs than it did in younger, leaner days. As a result, experts say, the sector is having trouble producing the robust performance long associated with it. This means investors need to look at venture capital, and its impact on their portfolios, in a new way.

For context, consider that back in 1995, Fortune magazine published a story questioning whether venture capital was getting too big and institutionalized to do what it did best: Generate big returns for investors by finding an entrepreneur in a garage with a good idea, and giving him the money and support needed to grow. One sign of this unhealthy bigness, according to the article, was that the industry had raised an unprecedented $5 billion in 1994. By comparison, VC firms raised $7.5 billion in the first half of 2010, according to Dow Jones LP Source.

To observers, the 2010 number represents both a comeback (firms raised nearly $1 billion less in the same period last year) and a rightsizing (the companies raised more than $14 billion in the first half of 2008, which is startling given the downward slide on Wall Street and in the economy as a whole later that year.)

But the criticisms in the Fortune article — that increasingly fat funds and accompanying fees were changing the venture firms’ business model, and that the more money VCs raise, the harder it is to find companies that can generate big enough returns — still hang over Sandhill Road (the Menlo Park, Calif., street where a number of firms are located). In 1995, $250 million constituted a “mega-fund”; today, it’s not unusual for a single firm to have more than $1 billion under management (via overlapping funds) or for a single fund to be $500 million or more.

This time around, the VC community is also faced with a potent cocktail of high purchase valuations, long holding periods and cheaper exits, which are knocking the firms for a loop. But those problems would go away, or become smaller, if fund sizes shrank. “The capital overhang has fluctuated a bit, but for the most part there is still a huge amount of money out there,” says Bo Brustkern, a former venture capitalist who now runs Denver-based valuation firm Arcstone Partners. “It’s a problem because it means that there’s always money flowing through. Institutional investors look at the top 25 firms and can’t get in. They look at the next 25, and they’re closed [too], so you go to the next 25 and on downward until you find a firm to put your money into.”

All of those firms — the excellent, the good and the so-so — compete to place their cash into companies that need large venture investments, and that have the potential to multiply them several times over. The trouble, of course, is that “there are not a lot of places to put $30 million,” notes Chris Sacca, one of a handful of an emerging group of “super angels” who are raising small funds (anywhere from a few million dollars up to about $100 million) and investing in startups that need thousands of dollars, rather than millions, to get where they need to go.

The competition to buy is keeping valuations inflated, according to experts. And the need to invest in six-figure chunks often means coming on board later in a startup’s life cycle, when there’s less risk and more ability to put large amounts of money to work. But at that point, it’s also harder to attain the multiples the firm’s investors, or limited partners, have grown used to.

Moreover, the bigger the funds get, the less the general partners’ financial interests are aligned with those of their investors. This is because firms get the same 1% or 2% annual management fee and 20% of returns (the “carry”) that they did when their funds were much smaller. The carry was supposed to be how they made money, while the annual fee was meant to cover operating expenses during the years the money was being invested. But those expenses aren’t likely to be three or five or seven times bigger just because a firm’s latest fund is. So management fees have become an important source of profits for VC firms, especially those that have posted weak and negative returns to their investors in the post-2000 years. “Fund size is down, but not dramatically; they’re still oversized because of that fee addiction,” notes Sacca.

Long-term Trends

This is not to say that the venture industry’s days are numbered or that bushy-tailed entrepreneurs aren’t finding the capital they need; far from it. But “the flow of new funds to VCs is constricting and the industry is consolidating,” says Wharton professor of entrepreneurship Raffi Amit. In 2009, there were still more VC firms than there were in 1999, according to the National Venture Capital Association, but there were 10% fewer venture professionals and 15% fewer funds. This signals that “the dead wood is working itself out of the industry finally,” Brustkern suggests. “You have all these firms that are victims of the delayed or never-happening exit. They invested in their companies years ago, and aren’t getting fees anymore and haven’t raised a new fund, but have a fiduciary responsibility to keep their doors open until the fund winds down. They’re the walking dead.”

Yet the industry is seeing plenty of the long-term trends and disruptive technologies that create opportunities.

The life science sectors in the United States are still robust, and cleantech — including clean energy, and environmental and green products and services — is providing an entirely new and promising channel for venture money. Moreover, these companies seem well suited to receive money from today’s bigger VC funds, notes David Wessels, an adjunct professor of finance at Wharton. Taking a new drug, medical device, or wind or solar technology from conception to market requires time and sizable sums of money. But the payoff on a breakthrough biotech therapy can be sizable. And cleantech companies have been able to do the nearly impossible lately: generate excitement in a depressed IPO market, as evidenced by Tesla’s recent first-day run-up. “Tesla is a bellwether that people are interested in these alternative energy technologies,” says Robin Vasan, a managing director at Mayfield, a Menlo Park, Calif.-based VC firm that has three energy technology companies in its portfolio.

Meanwhile, Anthony Hoberman, who advises investors on venture investments at Glenrock Capital Advisors in New York, points out that several technology trends — including the rise of wireless communication, social media platforms like Facebook, and cloud computing services for businesses and consumers — are creating “an environment where venture capitalists tend to do well.” The firms “invest in small companies that use their agility to overtake bigger, well-funded companies,” he adds. “That agility is the advantage the VCs exploit, and it’s no good during periods of slow, predictable change.”

Vasan, whose focus is software investments, concurs. The growth of social media, smartphones and tablet applications, and web-based software products for consumers and businesses are “probably five to ten year trends,” he says. “Bets have been placed over the past year and more bets will be placed over the next year or two.”

Adjusting Expectations

But finding companies that are interesting and viable, and that will earn a good return for their founders, is not the same as identifying companies that will provide the multiples that venture investors are seeking.

Conventional wisdom says that a VC firm has to expect about half of the companies in its portfolio to fail, a few to earn decent returns and one or two to hit home runs big enough to make the numbers work. Without a robust IPO market, however, those out-of-the-park homeruns are few and far between. The majority of VC-backed companies have been acquired in the past few years. Unlike with an IPO, where the sky is the limit if a company can generate enough buzz, there is a cap on how much an M&A deal is likely to net. With so many science and technology companies looking for acquirers, flusher buyers like Google, Amazon, Yahoo!, Microsoft and Johnson & Johnson can hold prices down.

All in all, the exits VCs are managing to secure, even via the public markets, don’t put them ahead of their losses and fees by big enough margins. “You can’t have six failures if your successes are going to have a cap on them,” Wessels points out.

Look at the recent numbers: Venture-backed companies that went public in this year’s second quarter took a median of 9.4 years to achieve liquidity, according to Dow Jones VentureSource. The $70 million median amount of venture capital these companies raised prior to liquidity was 65% higher than even a year ago.

Meanwhile, in that same 2010 quarter, 15 IPOs by venture-backed companies raised $899 million, according to Dow Jones VentureSource. Seventy-nine M&A deals raised $4.3 billion in the same quarter. The IPOs had an average value of just under $60 million, while the M&A deals averaged only slightly less at $54 million. If one doesn’t count Tesla, which raised large sums even by today’s standards and accounted for $202 million of that IPO money, the 14 remaining deals only averaged $50 million apiece, trailing the M&A deals — hardly the grand slams the sector needs to get its numbers up.

The dot-com bubble “is becoming a distant event, and falling off the horizon for return calculations,” Amit notes. Indeed, 2009 is the first post-bubble year to exclude 1999 from 10-year returns. Returns fell last year to a 1% loss, from a 35% gain as of the end of 2008. Five-year returns managed to outpace the public market indexes but still barely topped 4%. These are average numbers, but, Amit says, “most funds today are showing negative returns to their limited partners.”

For returns to pick up, “valuations have to come down, exit values have to go up or holding periods have to get shorter,” Hoberman suggests. None of these events is likely to happen quickly, which means investors need to adjust their expectations. Reaping 30% returns is “unrealistic for any unleveraged investment,” says Wessels, who believes funds can easily keep pace with the public markets, but didn’t offer a prediction as to whether they could consistently beat them in the foreseeable future.

“Go back to 1990s and venture capital was about starting a company, making it large enough to have an impact on its own and taking it public so it would be Wal-Mart or Procter & Gamble in 20 years,” he says. “Lately, it’s becoming a surrogate for internal R&D. Start-ups set out to build a product from scratch, prove it has legs with a small market and get swallowed by a larger company.” So why invest in these illiquid, high-risk funds? “For diversification,” he notes. “You’re betting on stable returns and the opportunity to already be in the game in case something develops that will be the next big thing.”

Wharton July 2010

Uncategorized LP Funds, private equity, VC, venture capital

It was a tweet like many others from Starbucks, promising free refills to customers who brought in reusable tumblers on Earth Day.

But the message came to users in a different way — it appeared at the top of Twitter search results pages, even for those who weren’t among the coffee giant’s followers. And there was a tiny tag in the corner of the update, outlined in yellow and reading “Promoted by Starbucks Coffee.”

The ubiquitous Seattle-based chain is one of the first guinea pigs in an effort by Twitter to generate revenue from the micro-blogging service. The new ad system was unveiled last month with five participating companies, including Best Buy electronics stores, the Red Bull soft drink company, Sony Pictures, Starbucks, airline Virgin America and the Bravo TV network. Twitter Chief Operating Officer Dick Costolo recently told Reuters that the San Francisco-based company hopes to add hundreds of new “Promoted Tweet” partners into the mix by the fourth quarter of 2010.

“We’re going to live in a world where we need to be generating hundreds of millions of dollars in revenue,” Costolo told Reuters. “We’re thinking about big, big numbers.”

Twitter’s user ranks include high profile names that run the gamut from Paula Abdul to Lance Armstrong. The company’s value was put at $1 billion last year. But Twitter has yet to generate a profit. Wharton experts and others — some of whom tweet and others of whom don’t — say finding a successful model for the Promoted Tweet is only one of the challenges the company must overcome to avoid the fate of former “next big things” like Netscape, Excite or Pets.com.

The company’s set of business conundrums are intertwined. How can it help businesses create a level of engagement with consumers that turns the service — which allows users to communicate in bites of 140 characters or fewer — into a useful tool for marketing and customer service? And how can Twitter then parlay those efforts into a viable, income-producing strategy?

Twitter has had plenty of success at gaining public exposure. According to an Edison Research/Arbitron study conducted in February, 87% of Americans 12 and older know what Twitter is — about the same number as those who were aware of Facebook. But while 41% of that group actively used Facebook, only 7% were actually sending updates to Twitter.

“Seventeen million people [use Twitter], which is nothing to sneeze at,” says Tom Webster, Edison Research’s vice president of strategy and marketing, who oversaw the survey. “Businesses are certainly using it as part of an overall marketing strategy, at least for now. It is a question of whether Twitter will, in the long run, be something mainstream America deems necessary, which will determine its business value.”

Twitter began as part of a brainstorming session at the small San Francisco podcasting company Odeo, in March 2006. The company’s principals saw that the podcast business was being usurped by bigger companies like Apple and wanted to find a new product on which to concentrate. The idea that came to the fore was a way for someone to send short messages to tell small groups of friends or contacts what he or she was doing at a given time. Twitter limited itself to 140 Short Message Service (SMS) characters and initially was used for communication among Odeo employees and friends before launching to the public in July 2006.

Twitter made its biggest initial splash at the South by Southwest music and interactive media festival in March 2007, when it placed plasma screens in the hallways of the conference venues to display the tweets attendees were sending about their activities. Conference speakers mentioned it, bloggers enthused over it, and the service ultimately won the festival’s Web award. Twitter then began to grow more quickly, with the company reporting 500,000 tweets per quarter in 2007 and then 100 million per quarter the next year. For the first quarter of 2010, the company reported that more than four billion tweets were sent using the service.

“The real challenge, though, is how Twitter is going to monetize this. It is not obvious at the moment,” says Eric Bradlow, a Wharton marketing professor and co-director of Wharton Interactive Media Initiative (WIMI), noting that the trick for Internet businesses has been implementing money-making modifications without alienating, and losing, users. “Maybe they can start charging for longer tweets or start putting in a two-tier pricing model for businesses. Maybe they can have some charge after a certain number of tweets or they can have advertising somewhere on the Twitter page or in tweets themselves.”

Turning Tweets into Dollar Signs

The Promoted Tweet is just that — an advertising message that appears on the top of the results screen in response to a user’s search. In Starbucks’ case, for example, anyone looking for updates containing the word “coffee” might see Promoted Tweets from the company. Companies pay Twitter to run the ads, which look and function like any other tweet (for example, users can send reply comments) except for a “promoted by” tag in one corner.

Twitter executives have been careful to say the Promoted Tweets model is only in the experimental phase. Earlier this week, however, the company announced that it was banning third-party advertisements from the site, a move observers think is part of an effort to gain control over monetization of the service. Opinion is mixed among experts about whether Promoted Tweets — or, to be sure, anything else — will be the way to transform Twitter into a profitable business. “I think Promoted Tweets are a bad idea,” says Wharton marketing professor and WIMI co-director Peter Fader. “It’s one thing to have a relatively unobtrusive display ad above or next to a set of search results on a monitor, but this will really ruin the user experience on Twitter.”

Fader thinks Twitter ought to start looking for a different route to financial success: “The right business model for Twitter is to be bought by another company and have the user experience folded into a broader array of media services. I see little advantage to Twitter as a stand-alone entity.”

But Kartik Hosanagar, Wharton professor of operations and information management, believes patience is the best policy for those dismissing Twitter right now. “Promoted Tweets are the first major monetization initiative Twitter has announced,” Hosanagar notes. “Just as Google is successful with search ads because it is exceedingly good at matching results with user intentions, Twitter will need to be effective at providing Promoted Tweets that users find useful. They need and intend to do much more than just match keywords.”

Twitter has other monetization possibilities, Hosanagar says, but “the challenge is that it is still growing and it does not want to lock itself into … a strategy that might interfere with that growth…. For example, Twitter made several million dollars with deals to allow major search engines like Google and Bing to index [the site's] data flows in real time,” he adds. “I have no doubt that Twitter can generate more revenue. The question is just how big an opportunity it has.”

Still, Fader warns that Twitter suffers from the very frivolity that generates a lot of the service’s publicity. The biggest buzz from the site comes from the mini-scandals and sound bites that arise from its use by celebrities — and that might make it more difficult for businesses and consumers to take the service seriously as an entrepreneurial tool.

“That people were tuning into CNN to see how many followers Ashton Kutcher got, [garnered] Twitter a whole lot of publicity, but in the long run probably didn’t do it any good,” Fader says. “More serious people might say, ‘I won’t be using that.’ … It is a shame that it is saddled with this cutesy name and a bird for a logo and the race between Aston and Britney Spears for millions of followers. It would almost be better to split off the entertainment aspect into a different service [because Twitter] really does have an opportunity to have real business and consumer uses.”

But Vivek Wahdwa, the director of research at Duke University’s Center for Entrepreneurship and Research Commercialization, says the more light-hearted aspects of Twitter don’t count it out of the business realm, especially in the area of Promoted Tweets. “I found there are two types of Twitter users: those who tweet every time they go to the bathroom, and those who have intelligent things to say,” notes Wahdwa, who was originally a Twitter skeptic, but now uses it for professional communications and thinks it is useful when employed in tandem with other social media services. “You can judge by the tweets of both groups what their general interests are — like Google does with web searches — and target messages to them. I can see [Promoted Tweets] as an opportunity for Twitter [the way that] search ads are for Google.”

And Twitter has put some effort into showing businesses how the site can work for them. The company created a page on its website to offer suggestions for “tweet-based” marketing and customer service campaigns. For example, an employee of the New York-based ice cream chain Tasti D-Lite uses the company’s Twitter feed to answer customer questions and take suggestions. In another example, the Dell computer store posts coupons and special offers for electronics that are exclusive to Twitter.

But “by no means does [Twitter] have a monopoly,” on companies’ social media strategies, warns Fader. “LinkedIn and Facebook are trying things. Someone will figure it out. To have microblogs with other features out there seems an inevitable way for businesses to market. It is the Wild West out there right now with all these methods of communication.”

Engaging the ‘Lurkers’

Dell and Tasti D-Lite are examples of businesses that found a way to engage customers using Twitter. But experts question if companies will ever be able to reach broader audiences that way — and if the answer is no, how can Twitter keep itself on the “must” list for investment in social media and Internet marketing?

The Edison Research/Arbitron survey found that the majority of Twitter users are “lurkers,” or those who follow various people, but don’t take part in conversations on the service or contribute a significant amount of original tweets. “Twitter appears to be functioning as more of a broadcast medium [as] compared to Facebook and many other social networking sites and services,” according to the report. Because of that, Twitter users might be more susceptible to sales pitches: “The percentage of Twitter users who follow brands is more than three times higher than similar behavior expressed by social networking users in general. Significant percentages of regular Twitter users report using the service not only to seek opinions about companies, products and services, but to provide those opinions as well.”

Ultimately, then, says Wharton legal studies and business ethics professor Andrea M. Matwyshyn, Twitter’s penetration and success in its business applications will be whether those “lurkers” become really interested customers for the businesses who seek them. “Some uses of social networks, like Twitter, can be merely a time-killing mechanism if you are trapped in a waiting room,” she says. “Now with BlackBerries and other mobile devices, there is no time or space barrier to communications. But that doesn’t mean it’s a necessity for the customer either. Do I really want to know about the new Coke product at any moment? It isn’t certain yet, so we’ll just have to wait to see how it shakes out.”

Knowledge@Wharton queried several Wharton faculty members to see what kind of foothold Twitter had among that group. The sampling brought a wide range of responses.

Kevin Werbach, a professor of legal studies and business ethics, says he knows Twitter CEO Evan Williams and was able to try the service soon after it opened to the public. “For me, Twitter was the next step after blogging. Just as blogs dramatically lowered the barriers to personal publishing, Twitter lowered them still further,” notes Werbach, who has sent about 2,400 tweets since signing up. He has 3,300 followers and is following about 700 fellow users. “Tweeting is a wildly simple way to express my thoughts or share notes with friends and those with common interests…. I’m constantly pulling links out of tweets and into my browser,” he adds. “I follow a wide variety of users. Some are friends, some are people with smart perspectives on issues I care about [and] some are publications or organizations.”

Marketing professor David R. Bell started an account to follow news organizations and other sources, especially during the swine flu epidemic in 2009. But he hasn’t sent a tweet in months. “I didn’t build up a habit of use. I don’t see a specific benefit from tweeting,” Bell says. “I need to re-evaluate the cost-benefit ratio. My guess is that it’s most useful for celebrities with large followings…. Some people really care about what Jay Z eats for breakfast. It’s probably also useful for certain brands.”

But other professors feel the service doesn’t provide enough benefit to be worth the time required to keep up with posts from various individual users and organizations. Legal studies and business ethics professor Nien-he Hsieh says he hasn’t tried it because “I suppose I feel that I already have too much communication to track and that the 140-character limit constrains the content too much.” Marketing professor Christophe Van den Bulte is more blunt: “I am not an attention-seeking narcissist,” he wrote in an email. “I am not interested in being kept up to date about the actions or opinions of attention-seeking narcissists, and I am not interested in being swamped by waves of too-short-to-be-thoughtful messages.”

Other professors use Twitter in limited doses. Marketing professor Leonard Lodish uses the service only to communicate with people about his annual ALS charity bicycle race. Hosanagar does not have a personal Twitter account, but has one for one of the courses he teaches, called Enabling Technologies. “[The account] is a way to ensure that former students, current students and anyone else with an interest in high tech and new media can follow the course,” Hosanagar says. “This use of Twitter makes perfect sense for our course, which is ultimately a course on new media.”

Fader and Bradlow, who advocate businesses’ use of Twitter, are limited in their personal use of the service. Bradlow says he tweets, but not often, and typically during a conference or a talk. “As co-director of the Wharton Interactive Media Initiative, what I tweet about is what I do for a living.” Bradlow notes. “It is another form of me being able to share knowledge and information. I follow a few individuals in start-ups who are my friends, but that is about it. I’m not following Lady Gaga or Justin Timberlake. If I want to know about them, I will look in People magazine like the next person.”

Fader reads tweets from ESPN and The New York Times on his passions — baseball and technology — and sends out a periodic tweet about his research to his followers, who tend to be students or colleagues. “But it does beg the question that, if I have a Twitter follower list, why don’t I just have an e-mail list where I can write something longer if I have to?” Fader asks. “What was it about Twitter that made me do it that way? It may just have been because it was new at the time.”

He believes that his personal habits sum up why companies have to be conscious of Twitter and its efforts to expand and become profitable. “They have created a market in this. I don’t think we thought we were in need of a microblogging service [prior to Twitter's launch], but now here it is. If you take Skype, for instance, we had been waiting for video phone services since they were shown on The Jetsons,” he says. “So it is prudent for businesses to see how they can capitalize on this. They have to be conscious of every form of communication in one way or another. It only makes sense to explore it.”

Wharton May 2010

Uncategorized facebook, social networking software, twitter, venture capital

Social networking tools such as Twitter and the emerging Google Wave web application are taking individuals and organizations to the frontiers of real-time communication and collaboration. The technology has the potential to make it easier to discover and share information, interact with others, and decide what to buy or do. But the key word is “potential”: Social networking’s evolution is still in its early stages. What makes the current crop of services more promising than those that came before? What are the obstacles to further progress?

An expert panel debated these questions at the annual Supernova technology strategy conference, produced in partnership with Wharton and held last winter in San Francisco. The 2010 Supernova forum will be held this month in Philadelphia.

The panel at the San Francisco event was chaired by David Weinberger, a fellow at Harvard Law School’s Berkman Center for Internet and Society and co-author of The Cluetrain Manifesto. Appearing on the panel were: Anna-Christina Douglas, product marketing manager at Google; Laura Fitton, principal of Pistachio Consulting and co-author of Twitter for Dummies; Paul Lippe, founder and CEO of Legal OnRamp; Jason Shellen, founder and CEO of Thing Labs, and Deborah Schultz, a partner with the Altimeter Group. In addition, Google engineers were in the room demonstrating Google Wave by allowing the audience to post to the social networking service during the session; their comments appeared in real time on projection screens near the panelists.

Weinberger began the session by asking panelists what made the introduction of social networking tools different from previous technological endeavors to improve communication and collaboration. One significant issue discussed was how social networking compared with knowledge management (KM). KM systems first appeared on the scene about 20 years ago and once represented the frontier, embodying companies’ most innovative ideas for integrating internal access to disparate information in order to improve communication, collaboration and business processes.

KM systems were implemented through technologies such as web portals, e-mail networks, content management systems and business intelligence infrastructure. Web portals, which were probably the most successful type of KM system, allow users to access a range of information — including reports, diagrams, catalogs and maintenance records — through one interface, rather than many. The portals also include external information supplied by business partners, government agencies and news sources. The technology automatically pulls information from the sources on demand so that users do not have to search for it manually.

Organizations employ KM systems to increase the value of their “intellectual capital.” However, the technology that supports KM systems has traditionally been difficult to develop and deploy. And the systems have not been universally successful at fostering real time collaboration between employees.

According to Shellen — who was part of the development teams for Google’s blogging program and Reader aggregator service — before social networking tools enabled quick and casual communication, many bloggers in corporate organizations had “some KM tool where you captured the knowledge in the tool’s silo and assigned all sorts of tags, folders and so on to it. You would then pass the blog to your manager for him or her to [learn from] what you were writing.” Shellen now heads Thing Labs, a San Francisco-based company that builds web-based software for sharing content. Social networking is easing some of the frustration users in many organizations have encountered with traditional KM systems. Through use of Twitter and other tools, more of the intellectual capital that KM systems once guarded is flowing freely, in real time, inside and outside organizations. If an employee needs to find expertise or share information, he or she doesn’t have to work within the rigid confines of a KM system, or even the confines of his or her organization. Instead, the employee can use social media to collaborate with others and to find answers more quickly and put relevant advice into practice.

While there are virtues to being able to communicate faster and more easily with social networking tools, panelists agreed that many organizations are struggling to adjust to the spontaneity and loss of control over information that comes with these tools. Concerned that organizations will eventually clamp down, Weinberger asked, “Will all the fun be stripped out of it? Will people become afraid to Tweet about things that are not strictly business-related?” Fitton, whose consulting firm focuses on helping companies to use micro-blogging in a business environment, suggested that companies may find the “messy and random serendipity” of Twitter and other social networks to be more efficient than lumbering KM systems and processes. “It brings an infusion of humanity to business,” she noted, who adding that, in her experiences at Pistachio Consulting, she has observed social networking having an impact on organizations by leveling management hierarchies, accelerating team-building across geographical locations, and improving mentoring. She stated that, in some cases, research to find human expertise that used to take many hours can happen much faster when queries are “flung out into the commons” to catch the attention of people who can provide answers more quickly.

Breadth vs. Depth

One of the advantages social networking tools have over KM systems, experts say, is that they simplify the process of obtaining information that would be useful to a business or employee. Tools such as Twitter provide a sort of “KM in the cloud,” allowing users to collaborate with each other and send messages to locate expertise without a company having to build and maintain a complex and expensive system to provide these capabilities internally. Social networking tools provide access to a broad population and employ simple, standardized, techniques to link users to information. But while social networking offers “an enormous amount of horizontal power,” Lippe said, “most of the hard collaboration problems are [solved] in vertical domains.” His firm, Legal OnRamp, is a collaboration platform for lawyers that allows information to be collected and shared virtually. Membership is by invitation only.

Lippe noted that, in the legal field, “there’s already a structure of knowledge, and most knowledge repositories and structures of the collaborative web have existed for multiple generations. So, the question is, how do you tap into them?” One core structure is attorney-client privilege, which Lippe said “has long preceded the information confidentiality and security regime that we all have now. It creates the structure of what you can and cannot share.” In the legal universe, he added, the messy serendipity of “horizontal” social networking cannot solve the hardest problems. “Lawyers have some questions they will answer for free, and others that they will figure out a way to get paid to answer.”

But the legal field’s communication sensitivities are “a very specific case,” Shellen pointed out. He noted that companies have built private social networks that feature protected blogs and search engines, and that these tools have proven effective in achieving new forms of collaboration while keeping information secure. Organizations are now incorporating use of Twitter, Facebook, Flickr and other social media into their daily routines, although they are in need of systems that can integrate and update the information being posted across all of the platforms. Shellen’s Thing Labs produces a reader called “Brizzly” that can be used to provide that service.

Lippe agreed that, despite the concerns he noted, large legal firms have an opportunity to use social networking to reestablish an intimacy with clients that they may have lost as the businesses grew larger and adjusted to structural changes in the industry. Lippe wrote recently on his Legal OnRamp blog that social networking tools can be used to save attorneys from “e-mail and attachment overload” and to “share existing knowledge or collaborate on new work [including] high volume work like commercial contracts and high complexity work like major case litigation.”

Office culture plays a significant role in what platform is used to share information, according to Schultz, a partner with the San Mateo, Calif.-based Altimeter Group, a technology strategy consulting firm. She noted that media companies, for example, may be a better fit for the horizontal nature of social networking. Schultz has been active in social media and networking for many years and has advised organizations ranging from startups to Fortune 50 companies, including Citibank and Procter & Gamble. At P&G, she built the P&G Social Media Lab, a program that enables the company to study the new dynamics of customer relationships in the age of social networking, and to use social media to break the mold of standard marketing measures and approaches that were geared toward older types of media. By encouraging brand managers to pay close attention to what customers were saying on community sites and other social networking places, Schultz said the Lab has helped P&G redefine how it engages, communicates with and uses marketing to influence consumers. “I see the tools making the roles we have more porous,” she stated. “As the consumer-driven nature of social networking moves into organizations, the collaboration potential of their use becomes more interesting.”

The use of tools like Twitter and Google Wave “definitely make a cultural statement,” said Douglas. The Google product marketing manager described how Google Wave has the capabilities for real-time, rolling conversation and collaboration among users that can include messages, links and attachments. Douglas noted that each conversation or “wave” can be modified with different editing and replying privileges so that enterprises can “exercise controls for how people want to lock down content.” The Google engineers demonstrated the application on the big screen behind the panelists; they showed how users can comment with links embedded in their messages and also load attachments.

Google Wave could be used effectively for private communication inside the firewall, as well as for working with a diverse community outside an organization, panelists said. Previous KM systems did not easily integrate communication with content management, making it difficult to use existing tools to access and manage information during real time conversations. Google Wave and other social networking tools offer the potential of a much tighter integration between communication and content, meaning conversations can include richer information sharing and easier references to content available across the organization.

To Shellen, the most interesting aspect to how social networking and collaboration tools are used is users’ ability to join ongoing conversations. He said his firm is currently building a “data set on top of that engagement, where we ask people to explain trending topics on Twitter.” The combination of immediate updates plus access to more in-depth information can enhance knowledge. “Tools like Twitter make me much smarter about you,” Schultz noted. “And the ‘you’ could be an entity or an individual.” She said that with the right kind of filtering, people can collaborate and make more effective use of the information available on social networks. “Companies can collaborate in real time with customers on products and even pricing.”

But does the 140-character limit for posts to Twitter enable engagement, or is it “a sign of triviality?” asked Weinberger. “Constraints breed invention,” replied Shellen. Douglas added that communities using Twitter, Google Wave and other tools are creating their own etiquette. Panelists agreed that both the creation of etiquette for particular conversations and the sheer ability to engage in several discussions at once would be difficult using blogs and older forms of web content sharing programs.

An Open and Vibrant World

Weinberger asked the panelists whether progress toward the real-time collaboration frontier is being driven by new technology or human needs. Speaking to the human needs, Fitton observed that social networking tools such as Twitter “help us overcome human isolation in a way that is not brand new but is happening on a different scale.” She said that the collaboration possible on the site is a question of “not just; ‘What are you doing?’ but, ‘What do we have in common?’” Fulfilling that need is what fascinates her about the phenomenon. Shellen added: “There’s accountability behind it; we now have modes of identity tied to short bursts of communication that are very much ‘you.’”

Schultz suggested that businesses could have achieved some of the same communications with earlier technology, “but not in real time, and not with the ability to participate using a device [such as a smartphone] we can take along with us in our pocket.” The ubiquity of smartphones and Internet access is changing the opportunities available to people. “Interactivity used to be about clicking on a website, but it turns out that was pretty passive,” she said. “We are now living up to what we said could be done.” That includes the potential for much richer customer communication that can offer links and embedded content as part of real-time conversations. “Active” dialogue between consumers and companies using social media, she added, break through the limits of traditional marketing, which relies on one-way communication and canned messaging.

To Douglas, what’s important is that the technology is allowing communication, collaboration and content sharing to become one and the same. “These tools bring human delight by breaking down barriers.” Lippe cautioned that the notion of someone Tweeting to get an answer in a legal setting is “fairly mind-boggling.” However, he agreed with the panelists that, even in the most vertically oriented industries, “the incredibly open and vibrant world represented by the social networking community” will be a catalyst for dynamic changes in the years to come.

July 2010 Wharten

Uncategorized facebook, pringo, social networking platform, social networking software

WASHINGTON — The U.S. government is handing out nearly $2 billion for new solar plants that President Barack Obama says will create thousands of jobs and increase the use of renewable energy sources.

Obama announced the initiative in his weekly radio and online address Saturday, saying the money is part of his plan to bring new industries to the U.S.

“We’re going to keep competing aggressively to make sure the jobs and industries of the future are taking root right here in America,” Obama said.

The two companies that will receive the money from the president’s $862 billion economic stimulus are Abengoa Solar, which will build one of the world’s largest solar plants in Arizona, creating 1,600 construction jobs; and Abound Solar Manufacturing, which is building plants in Colorado and Indiana. The Obama administration says those projects will create more than 2,000 construction jobs and 1,500 permanent jobs.

Obama’s announcement came a day after the Labor Department reported that employers slashed payrolls last month for the first time in six months, driven by the expected end of 225,000 temporary census jobs. Meanwhile, private-sector hiring rose by 83,000 workers.

The unemployment rate dropped to 9.5 percent.

Obama said that while it may take years to bring back all the jobs lost during the recession, the economy is moving in a positive direction. He placed some of the blame for the slow pace of recovery on Republicans, saying their lawmakers, “are playing the same old Washington games and using their power to hold this relief hostage.”

by JULIE PACE Associated Press
updated 7/3/2010

Uncategorized green solar farms, green solar plants

The future of private equity is in China, said the leader of one of the world’s largest private equity firms. Robust economic growth, abundant opportunities, little competition, and a positive government attitude make China one of the most appealing countries in the world today for private equity investors, David Rubenstein, co-founder and managing director of The Carlyle Group, said at a recent Wharton forum. China is also setting the pace for global private equity by investing large amounts of capital outside of its borders, he added.

“I think for those reasons, China will probably be the trend setter, and really the epicenter of private equity in the next five to 10 years,” Rubenstein told the audience at the Seventh Annual Wharton China Business Forum 2010, “Recovering from the Crisis: A Look into China’s Future.”

China has roughly 20% of the world’s population and is now the third-largest economy, said Rubenstein, who served as deputy domestic policy advisor to President Jimmy Carter before starting The Carlyle Group in 1987. Depending on how it is measured, some say China is already the world’s second-largest economy, and soon, China will pull into first place, he predicted. “China was the largest economy in the world for 15 of the last 18 centuries, until the 1700s when Europe came along and replaced it,” Rubenstein said. “The United States has been the largest economy in the world since the 1870s. We will lose that title in roughly 2035 or 2040, depending on how you measure growth. And then China, for the rest of this century, will be the largest economy in the world.”

The numbers are dramatic, although some observers are uncomfortable with the economic statistics that come out of China, Rubenstein said. Actually, there are two schools of thought: One school says that China underplays its economic growth; another said China overplays it. “Nobody really knows exactly what the right numbers are. Sometimes people say the Chinese government officials aren’t certain themselves. They tend to look at electricity consumption as the real measurement of economic growth because that’s something they know they can really put their fingers on. I would say it’s pretty likely that the growth is around the 8% to 10% range.”

While the recession has dampened China’s growth somewhat, the country has shown “amazing resilience” through the recent economic turmoil, making it the darling of private equity investors. “Even in the last few years, as private equity investment has gone down in other parts of the world, in China it has been going up,” Rubenstein noted. The investment has not been concentrated in one region or sector, he pointed out, but over a range of industries in all parts of China. “The money going into China is not just going into the coastal areas,” he said. “The government has been very happy with this development.”

“What makes the Chinese government encourage companies like The Carlyle Group to come invest there? “It isn’t capital,” Rubenstein said. “China does not need foreign capital. They have $2.4 trillion in foreign reserves … It’s the management that private equity firms have … I think the government is trying to get contacts, expertise, technology and skill sets, not capital.”

The image of private equity is better in China than probably any country in the world, Rubenstein noted. “When I’m in Washington D.C., people are barraging me, [saying that] I’m not paying enough taxes, I’m not worried enough about labor concerns. I’ve got labor unions protesting me. I’ve got everybody telling me that I didn’t do something right. In China, people want my autograph. In China, private-equity professionals are like rock stars. Because China has taken the view that private equity is a value-adding technique and a value-added resource, they encourage it.”

For Rubenstein, the irony is startling. “If Richard Nixon and Mao Zedong came back, they wouldn’t know which country was which. Honestly, I tell people — though I don’t like to get quoted saying it because I get in trouble — the center of capitalism is Beijing, the center of non-capitalism is Washington, D.C. Now obviously, that’s an exaggeration to make a point, but there’s no doubt that in China, what private equity people do is very much welcomed and not criticized,” Rubenstein asserted. “Right now you see more intervention in the economy in the United States than you do in China. It’s an incredible role-reversal. I never thought it would happen.”

Looking back, it took a while for private equity to reach China, said Rubenstein, who offered a synopsis of private equity’s history there. While the world generally considers the term “private equity” to mean buyouts, the U.S. uses the term to refer to both buyouts and venture capital, he said. The venture capital business in the U.S. started on a small scale in the 1960s, usually with investors putting down 20%. It expanded in the 1970s with what was known as “bootstrap deals” — when investors put down 5% and borrowed the rest. Private equity first entered Asia around that time, Rubenstein noted, but most deals were small, based in Hong Kong, and controlled by banks or insurance companies. Private equity investment in Asia took off in the 1990s, when the 1997 Asian Financial Crisis left many Asian companies in need of capital. But it was not until the turn of the century that private equity investors began to show a real interest in China as the government warmed to more foreign investment.

Opportunities Are Growing

Despite the increased interest in China, especially in the past five years, there is still a relative lack of private equity competition there, Rubenstein said. “In the United States, private equity as a percentage of GDP is 3.4%. In China it’s 0.2%. As a result, you can say there’s enormous opportunity there because it’s still a very small percentage of the economy.”

China’s burgeoning army of new entrepreneurs are opening doors to new investments, Rubenstein pointed out. And China’s creaky, state-owned enterprises (SOEs) “are ripe for private equity privatization,” he said. There are about 143,000 SOEs in China today and the government probably wants about 500 of them to remain state-owned, he estimated. “That means there are over 100,000 state-owned enterprises that are going to be privatized, and that’s a very good opportunity for private equity.”

Opportunities will also grow as China shifts the focus of its economy away from exports and more towards its domestic market. “I do think as China produces more products for its domestic market, it will transform its economy a bit and probably produce more so-called value-added products,” Rubenstein said. “In the United States, right now, 75% of our GDP is consumer spending. In China, that percentage is roughly 30%. So the Chinese government is trying to get that percentage up and trying to have more domestic consumption. And as it does so, the Chinese economy will grow differently and provide a lot of opportunities to invest in [companies] that will make things for Chinese consumers.”

Going forward, Rubenstein sees China playing an even larger role in the private equity world as it increases its investments abroad. “China is going to set the tone for private equity because a large number of their sovereign wealth funds are going to be investing large amounts of money outside of China, and they’re going to be setting the rules and the patterns for what some of those investments are going to be.” To take just one example, China’s national investment fund — China Investment Corp. (CIC) — revealed in a filing with the U.S. Securities and Exchange Commission early this year that it owned $9.63 billion in equity stakes at more than 60 U.S. companies, including American International Group Inc., Apple Inc., News Corp. and others.

“The United States has been the dominant player in private equity for the last 30 or 40 years,” Rubenstein said. “China will soon be almost as important as the United States in the world of private equity, and may replace the United States at some point because of the enormous amount of money that’s being invested — not only in China but the amount of money China is investing through CIC and other organizations outside of China.”

China is “the great economic story of the 21st century,” Rubenstein concluded. “Nobody would have predicted at the beginning of the 20th century that the United States would become as dominant as it did, and even today we probably can’t predict how dominant China will be in terms of its economy throughout the 21st century. But given its population, its entrepreneur culture, and capital, it’s going to dominate the global economy for most of this century.”

Wharten June 2010

Uncategorized China, energy, private equity, venture capital