A blog about business and economics.

Oct. 20 2014 6:48 PM

Apple: Still Enormously Profitable

I'm starting to the think that the relationship between U2 and Apple is more than a misbegotten co-branding exercise—there's pretty clearly a deep spiritual simpatico at play. Youthful icons of the 1980s who had some '90s-era hiccups before a turn-of-the-millennium revival, they've both settled into a groove as dull but enormously lucrative enterprises. U2 keeps cranking out forgettable albums and enormously successful tours. Apple continues tweaking its iPhones and iPads, then watches the money pour in.

Today, the company announced its fourth quarter earnings, which were robust as usual. The company earned $42.12 billion, beating expectations and up 12 percent year over year. iPhone sales keep rising, while iPad sales are slumping. Business Insider notes, meanwhile, that the Mac, "is the surprise of the quarter. Apple sold more Macs this quarter than any other quarter in its history." Chances are, the iPad and Mac stories are related. The Wall Street Journal suggests tablet sales are getting "squeezed" as laptops get ever thinner and smartphones evolve into phablets. (Ugh, that word.) So maybe the PC isn't dead, as long as it has an Apple logo somewhere on it.

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(How much money is $42 billion? Well, it's roughly the annual gross domestic product of Luxembourg. Price Waterhouse Cooper estimates that the entire North American sports market was worth $53.6 billion in 2012.)

Of course, questions always hover over Apple's continued dominance. Can it continue to expand in China? Its sales grew just 1 percent year-over-year in that all-important country, though management says it's still "bullish" on the market. And what about its famously thick margins? Apples have remained incredibly healthy, while its chief rival, Samsung, has seen its profits erode thanks to competition from inexpensive Chinese handset makers. Can Apple float above that fray forever?

And what of Apple Pay? The company just launched the mobile payment system, which allows users to pay for merchandise with a wave of their phone at the checkout counter. Apple has been promoting the app's convenience—no need to fumble with those pesky credit cards!—but its data security features may prove to be the real sell. Should that happen, it has "the potential to grow into a whole transactions empire for the company," as my colleague Lily Hay Newman put it.

But for now, Apple is still a reliable behemoth that makes little hand computers that lots and lots of people want to buy. And thankfully, its new phones still get better reviews than U2's albums.


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Oct. 20 2014 5:39 PM

Whole Foods Desperately Wants Customers to Feel Warm and Fuzzy Again

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Screenshot from YouTube.

Whole Foods has a national branding problem. Once synonymous with “healthy” and “organic,” Whole Foods has lately been derided for high prices and quackery. Its grip on natural has slipped as new competitors—most formidably Walmart—have stocked their shelves with organic foodstuffs for a fraction of its costs. The formerly elusive bag of high-quality quinoa has become, for Whole Foods, horrifyingly ubiquitous.

How do you fix a national branding problem? With a national branding campaign, which is what Whole Foods announced on Monday. Headlined “Values Matter,” the campaign is designed to restore customers’ faith in Whole Foods values in two senses: its prices and its ethics. “Not everyone knows what makes Whole Foods different from other grocers,” Jeannine D’Addario, global vice president of communications at Whole Foods, said in a statement. “This campaign will distinguish what makes our brand special, our food different, and our quality superior.”

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The campaign features 22 video ads, which were uploaded to YouTube in a “Values Matter” playlist between Friday and Monday. Two 31-second ads are marked as TV commercials—one for produce (above) and one for beef (below). They play heavily to the sustainability-conscious, emphasizing that Whole Foods produce is “grown locally on over 1,000 U.S. farms” and its beef is “from cattle who’ve had room to roam.” Inspirational string music hums in the background and the sun glistens on workers picking vegetables and a herd of cattle striding through fog. “Whole Foods Market: America’s healthiest grocery store,” the ads conclude.

Whole Foods hasn’t disclosed how much it spent on the campaign, but the New York Times reports that the budget is estimated between $15 million and $20 million. In previous advertising sprees, the store has spent less and focused on promoting specific products or marketing to local and regional customers. Since 2008, Whole Foods has spent between $4 million and $8.4 million on advertising each year. Its latest campaign targets people ages 25 to 49, the company said, and will run through winter 2015. It also seems geared to high-end consumers—print ads will appear in Bloomberg Businessweek, Rolling Stone, and the Times, among other publications. In presumably another effort to appeal to that demographic, Whole Foods also said Monday it will begin accepting Apple Pay.

Whole Foods, in other words, is not trying to radically expand its consumer base with this new campaign. It probably knows that it will never be able to compete with the likes of Walmart in increasing affordability and access to organic foods, so it’s not really trying to. What Whole Foods thinks it can do better than Walmart is values—of the ethical kind. “We’re trying to advertise who we are. We’re trying to change what we think is a negative narrative about our company,” co-CEO John Mackey told investors in July. What remains to be seen is whether that will be enough to win frustrated and disillusioned customers over again.

Oct. 20 2014 2:16 PM

Even When They Go to College, the Poor Sometimes Stay Poor

Over the weekend, the Washington Post’s Matt O’Brien published this killer graph that captures just how unequal the economic playing field is for children of the rich and poor. Low-income kids who graduate from college, it shows, have the same odds of ending up at the bottom of the economic ladder by age 40 as high-income children who drop out of high school.

Unfortunately, the article’s headline—which has been burning up Facebook and Twitter—is misleading. It isn’t true that “poor kids who do everything right don’t do better than rich kids who do everything wrong.” The graph, adopted from a new paper by Brookings researchers, makes that clear. If you’re a low-income kid who graduates from college, you’re much more likely to end up in the top 40 percent of earners than a privileged schmuck who flunked out of 11th grade.

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The real issue, as O’Brien points out, is that rich kids enjoy lots of advantages that keep them from falling to the very bottom of income distribution, and sometimes those advantages keep them at the very top. They might be able to go to work for family businesses, for instance, or family friends. Researchers like Brookings’ Richard Reeves call that collection of advantages “the glass floor.” Educated poor kids are in the exact opposite position. Many attend second- or third-rate (and possibly for-profit) colleges that churn out less-than-useful degrees. And instead of a floor propping them up, their families and friends can act like an anchor pulling them down. A classic example: a college-educated woman who goes home and marries a boyfriend who never made it past high school and has trouble holding down a job.

America’s lack of class mobility is still largely a problem of education. As of now, low-income kids have low high-school graduation rates, rarely go to college, and tend not to finish when they do, all of which keeps them out of the middle class. But education alone isn't the issue—there are plenty of forces that keep rich underachievers rich and poor strivers poor.  

Oct. 20 2014 12:37 PM

The Fed Will Probably Stop Injecting Huge Sums of Money Into the Economy This Month

The Federal Reserve is most likely sticking to its plans and taking away Wall Street's favorite punch bowl: the tremendous bond-buying program that began two years ago in an unprecedented effort to stimulate the economy.

A little over a year ago, any notion of winding down the purchases—not to mention stopping them entirely—was too soon for Wall Street. The market threw several "taper tantrums" last spring and summer after then–Fed Chairman Ben Bernanke hinted that the central bank would consider dialing back its stimulus if the economy continued to improve. Now, though, there's much less separation anxiety. The Fed started trimming its asset purchases in January and has slowly been weaning Wall Street off of them ever since.

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In an interview with the Wall Street Journal this weekend, Boston Fed President Eric Rosengren said that the Fed will probably adhere to its October timeline for wrapping up the program. "The bond purchase program was started under the context that we needed to make substantial improvement in labor markets," Rosengren said. "Unless my forecast of labor markets changes dramatically between now and the end of the month, I would think that the criteria for substantial improvement of labor markets would have been met."

The September jobs report contained some encouraging news on that front: The economy added 248,000 jobs and unemployment fell below 6 percent for the first time since July 2008. That's not to say the economy is golden—Americans keep leaving the workforce and long-term unemployment remains severe. But as Rosengren pointed out, jobs growth "has been pretty strong over the course of this year," and that seems to be good enough for the Fed.

Oct. 17 2014 10:54 AM

How YouTube’s Biggest Star Got His Start

This article originally appeared in Inc.

Felix Kjellberg, better known by his online gaming alias "PewDiePie," has one of the fastest-growing channels on YouTube—a sign of some serious entrepreneurial juice. 

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PewDiePie posts videos of himself playing video games, along with humorous commentary for viewers. The gamer hit an impressive 30 million followers in September, making his channel the most subscribed and the most viewed on YouTube for the month. His videos also have caused spikes in sales of games he's featured, such as Slender, Goat Simulator, and Flappy Bird, showing an influence he himself describes as "scary." But how did he get to where he is today?

"I just want to entertain; that is my main objective and what comes before everything else," PewDiePie told Swedish magazine Icon in a May interview.

Kjellberg comes from humble roots: Born in Gothenburg, Sweden, he gave up his pursuit of an industrial economics degree to focus on his YouTube career—something that, until recently, wasn't even considered a career. Yet his channel's revenue, which comes primarily from YouTube ads, ranges between $140,000 and $1.4 million a month, the Atlantic reports. 

PewDiePie's Web personality is remarkably human: He jokes, swears, shrieks, and giggles, all the while referring to his massive fanbase as his "bros" or "bro army." He ends almost every video with an affectionate fist bump (dubbed the "brofist"), encapsulating the entrepreneurial experience by effectively saying: I'm one of you, viewers.

And he's not afraid to be candid with his audience, either. In September, after reaching the 30-million-follower milestone, he posted a video titled "Goodbye Forever Comments," in which he remarks: "I'm not trying to offend you bros who show a lot of support, but I don't see it as much anymore. … I go to the comments and it's mainly spam, it's people self-advertising, it's people ... trying to provoke. … Just all this stuff that to me isn't anything."

After announcing that he would disable the comments section forever, he smiled cheekily and ended the video with his trademark fist bump. (On Monday, Oct. 13, however, he brought the comments section back, in a walkthrough of Alien: Isolation.)

Like any true entrepreneur, PewDiePie is devoted primarily to his project and to his consumers (read: bros). "The thing that has made YouTube so successful is that you can relate to the people you're watching to a much higher degree than to the people you see on TV," he tells Icon.

PewDiePie's contract with Maker Studios—the largest network of channels on YouTube—is up in December. In the interview with Icon, PewDiePie announced that he may be starting his own network instead of renewing the contract, though he wouldn't go into further detail.

Oct. 16 2014 2:20 PM

Illegal Airbnb Rentals Are Hugely Profitable and Gobbling Up Lower Manhattan

After launching an investigation into Airbnb's practices several months ago, the New York State attorney general's office released its findings in a report this morning. "Until now, the discourse has centered more on opinions and anecdotes than facts," it states in the introduction. "This report seeks to bridge the gulf between rhetoric and reality."

Airbnb, according to the AG's analysis of 497,322 transactions for stays between January 2010 and June 2014, is largely illegal, hugely profitable, and quickly consuming lower Manhattan. Rather than helping the average New Yorker make ends meet, much of Airbnb in New York City is making money for a small number of commercial hosts running large, multimillion-dollar operations. Here are a few quick facts and figures from the office's report (which makes droll and ample use of Airbnb's signature salmon-pink color scheme):

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  • 72 percent of "private short-term rentals" (renting out an entire apartment or private room when the host is not present for less than 30 days) were illegal
  • Private short-term rentals have increased tenfold since 2010
  • 6 percent of Airbnb hosts accept 36 percent of private short-term bookings and make 37 percent of all host revenue
  • The top Airbnb commercial operator in NYC ran 272 listings and made $6.8 million in revenue during the period examined
  • 41 percent of host revenue comes from bookings in the Lower East Side/Chinatown, Chelsea/Hell's Kitchen, and Greenwich Village/SoHo. Just 3 percent comes from Queens, Staten Island, and the Bronx combined.
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Airbnb in the City/New York State Office of the Attorney General

"This report raises serious concerns about the proliferation of illegal hotels and the impact of Airbnb and sites like it on the City of New York," Attorney General Eric Schneiderman said in a statement. He said his office and city officials have launched a program "aimed at aggressively tackling this growing problem" and will be working to track and shut down illegal hotels.

In a statement responding to the report, Airbnb said it is ready to "move forward" and "work together on some sensible rules that stop bad actors and protect regular people who simply want to share the home in which they live." It also contested the accuracy of the findings. "The report's conclusions rely on incomplete and outdated information," Airbnb said. "For example, the findings do not account for the more than 2,000 listings we have already removed from our community in New York."

Even granting that, the AG's report is certainly adding some hard numbers to the growing pile of Airbnb horror stories. One of the most striking of those, reported in late September by New York magazine's Jessica Pressler, involved a European designer in his 40s whose three Airbnb listings include a spare condo near the West Side Highway (rented to a Russian oligarch) and a rent-controlled studio in the West Village (the owner thinks he has a lot of relatives come to stay).

At the time, Airbnb denied that its business was having any effect on the New York housing market and cited a study finding that Airbnb could "make urban housing more affordable for more families." On the other hand, Airbnb commissioned that study. According to the AG's analysis, thousands of short-term rentals on Airbnb are displacing long-term options from the already limited housing stock. And if Airbnb is truly making the supply of long-term rentals go down, odds are it's also contributing to the price of those rentals going up.

Oct. 16 2014 1:54 PM

Walmart Says It’s Phasing Out Minimum Wage Pay

Today in tiny acts of corporate decency: The CEO of Walmart says the retailer plans to eventually phase out minimum-wage pay at its stores. “We only have a few thousand associates in the U.S., less than 6,000 of our 1.3 million associates in the U.S., that currently make a minimum wage and it is our intention over time that we will be in a situation where we don't pay minimum wage at all," Chief Executive Douglas McMillon told reporters on Wednesday. For reference, Walmart says hourly workers at its stores make an average of $11.83 per hour, including both full- and part-time employees.

According to spokesman Kory Lundberg, most of Walmart’s minimum-wage workers are in entry-level positions. He told me the company will likely adjust pay in those jobs “so that nobody is coming at the minimum.” He also clarified that the company plans to pay above the state or city wage floor wherever it's higher than the federal minimum of $7.25 an hour.

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As Reuters was quick to point out, this is a largely symbolic gesture that’s, at the moment, light on details. (How much above the minimum will the company pay? I asked Lundberg in a follow-up email, and will update this post when he responds.) But it’s another sign that ongoing protests by labor activists—more of which took place today—are at least having some success in pressuring the company to improve its treatment of workers on the margins.

Oct. 16 2014 11:41 AM

CBS to Offer Its Own Streaming Service, Will Include Macgyver, Star Trek, and Twin Peaks

TV à la carte is having its big bang moment this week. Yesterday, HBO said that it would finally offer a standalone online streaming service that wouldn't require fans to pay for a TV subscription. Today, after long hinting at the move, CBS announced that it would launch its own $5.99-a-month digital subscription service, called CBS All Access. And there's more! CBS Corp. CEO Leslie Moonves tells the New York Times that a similar option could coming for its premium network Showtime "in the not too distant future."

What will CBS All Access look like? Subscribers will be be able to stream local stations live, or watch shows on demand the day after they air. As the Times notes, this is the first time "a traditional broadcaster will make a near-continuous live feed of its local stations available over the web to non-pay-TV subscribers." Aside from current programs like The Good Wife and Survivor, fans can gorge on past hits both from CBS and other networks, including Star Trek, Macgyver, Cheers, and Twin Peaks. One big thing the service will be missing: live NFL games. But still: Macgyver!

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The bigger question: What does this all mean for the future of TV? After these last two days, it does certainly feel like a dam is breaking. If this experiment works for CBS, the other major networks will likely follow suit. We could be heading for a moment where you can pick and choose your favorite TV-bits in lieu of a full menu of online TV options.

But that doesn't necessarily mean the cable bundle is dying. Business Insider's Jay Yarow made a very good, simple point after the HBO news broke yesterday: Plenty of people watch more than one or two TV stations, and after a while, ordering them up one at a time gets pretty expensive, especially once you consider the cost of a broadband Internet connection. Aside from the HBO die-hards out there, it's still not clear how many households would save money by just paying to stream their favorite shows rather than shell out for a normal cable package.

Regardless, with the CBS news, the TV industry is moving decisively towards a world of more consumer choice, and that can't be a bad thing.

Oct. 15 2014 6:46 PM

Netflix Says a $1 Price Increase Crushed Its Subscriber Growth

Rough day for Netflix. The company’s stock is down 25 percent after hours following a lackluster earnings report that revealed the streaming service added fewer subscribers last quarter than it had expected. This comes just after rival HBO announced it would finally release a standalone, Web-only version of HBO Go that could potentially compete directly on Netflix’s turf.

Netflix tacked on about 3 million new users across the globe over the past three months, undershooting its forecast of 3.7 million. But perhaps more worrisome, it’s growth in the U.S. fell year over year, reaching just 1 million net new sign-ups, down from 1.3 million in the third quarter of 2013. The company is blaming its $1 price hike in May, which raised the cost of a subscription to $8.99 per month. “As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago," management said in its letter to shareholders. "Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the US.”  

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"Slightly less growth" is a bit of an understatement. The slowdown suggests that streaming customers might be more cost-conscious than it previously seemed. When prices first went up in the spring, subscription growth didn't seem to take a hit. But now, the company thinks that may have been due to "the large positive reception to Season Two of Orange Is the New Black."

But maybe that's the silver lining here: If it just manages to come up with a few more decent programs, investors might buck up.

Oct. 15 2014 6:04 PM

Taco Bell Now Testing Proposition That Sriracha Makes Everything Better

Taco Bell is trying all sorts of things to turn around its business: breakfast burritos, an upscale chain, and the entirely un-taco-like biscuit taco, to name a few. And it hasn't stopped there. The latest addition to Taco Bell's offerings is a comprehensive Sriracha-themed menu.

According to the Washington Post, Taco Bell's Sriracha menu will feature six items, with one breakfast option and other lunch- and dinner-like things:

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  • Sriracha Beef Griller
  • Sriracha Taco and Taco Supreme
  • Sriracha Quesarito
  • Sriracha Nachos
  • Sriracha Quesarito Box
  • Sriracha Grande Scrambler

Taken in isolation, none of these items is particularly groundbreaking; Taco Bell already sells various grillers, tacos and taco supremes, quesaritos, nachos, and scramblers. The innovation here is the addition of Sriracha. From one red, chili-infused sauce comes a whole new menu!

For now, the experimental items are only in 70 Taco Bell locations in the Kansas City area, and it's not clear how long they'll be around. But in case Sriracha lovers in other parts of the country feel left out, we have a suggestion: The next time you go to Taco Bell, order anything on the menu, and bring the Sriracha yourself.

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