A blog about business and economics.

July 11 2014 3:05 PM

France Banned Free Shipping. So Amazon Made It Cost One Cent.

This past October, French lawmakers decided it was time to show Amazon who's boss. Frustrated by Amazon's fast and cheap book-selling model, which poses a threat to France's healthy ecosystem of indie bookstores, politicians banded together to approve a bill that prohibited Jeff Bezos' company and other online retailers from shipping discounted books for free. The measure is designed to protect traditional booksellers who have complained that Amazon is hurting their businesses.

France's fun didn't last long. With the law officially in effect, Amazon announced that it is indeed complying with the terms and charging for shipping—a full one cent. "We are unfortunately not allowed to offer you free shipping for ordering books," Amazon writes in the FAQ section of its website. "We have therefore set delivery fees at one euro-cent for each order that contains books and that is sent by Amazon in order to systematically guarantee you the lowest price for your book orders."

Where Amazon can't shirk the law so easily is in its second provision: that online retailers can no longer legally discount the price of books. France used to allow retailers to sell books for up to 5 percent off the price set by the publisher but has now limited this privilege to traditional brick-and-mortar stores. Even with one-cent shipping, that promises to give physical bookstores a big edge—but then again, Amazon could appeal the decision to European courts for being anti-competitive.

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July 11 2014 12:56 PM

SEC Halts Trading of CYNK Technology

The meteoric rise of "social networking" stock CYNK Technology was halted this morning as federal authorities finally turned an eye to what just might possibly be suspicious trading activity.

Practically no one had heard of CYNK until early this week. It is thought to operate the half-baked website IntroBiz.com, a "social marketplace" that lets users pay to be introduced to celebrities, business professionals, and other random folk. (Intro to Johnny Depp: $50. Intro to Angelina Jolie: $50. Being thoroughly wary of these scammy "intros": priceless.)

Then, suddenly, Wall Street began clamoring about how the former penny stock had gained nearly 25,000 percent and reached a market cap of more than $4 billion in only 16 trading days. To get a sense of how insane that increase is, Apple's stock has added about 18,000 percent since going public in 1980, as Business Insider noted. Shares of CYNK peaked at more than $21 on Thursday before falling to about $14.

More absurd is that CYNK might not have any real value. Zero Hedge, the blog that first pointed out something weird was going on, dug through CYNK's latest filings to reveal that the company had no product, no revenue, no assets, and one employee. Its business plan contains vague statements about social networks and this gem: "Instead of paying for a lunch that neither party wants to eat, parties can get down to business knowing that their time has been valued."

The Securities and Exchange Commission this morning ordered trading of CYNK to be suspended from the market open until 11:59 p.m. Eastern on July 24. The SEC said in its order that the "public interest and the protection of investors" required a trading suspension "because of concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in CYNK's common stock."

While no one knows exactly what's going on, one theory is that a small group of insiders has conspired to drive up the stock price by making a limited number of shares available to short-sellers. You can read the whole explanation of what might be happening at Seeking Alpha. For now, it's probably best to steer clear of CYNK, unless you really want a shot at that online meetup with Channing Tatum.

July 11 2014 12:17 PM

Diane von Furstenberg Reflects on Her Career

This story first appeared in Inc

Designer Diane von Furstenberg was 27 when she made the first wrap dress in 1974. The iconic design landed her on the cover of Newsweek—and millions of women snapped up her dresses. But when demand faded, von Furstenberg ended up selling most of her licenses to avoid bankruptcy. In 1997, von Furstenberg relaunched her company, which now has annual sales of more than $200 million. The wrap dress, too, made a comeback, and recently celebrated its 40th anniversary with "The Journey of the Dress" exhibition, which traveled the globe. And, as the 67-year-old designer recently shared with Inc. contributing editor Liz Welch, she is focused on building a company to outlast any fad.*

My business career has been divided into three phases, starting with the "American dream" phase. I was in my 20s when I came to America from Europe, and I made this dress that tapped into the Zeitgeist. It was sexy but effortless. Easy and functional. It was empowering just as women were beginning to feel empowered. That was a once-in-a-lifetime thing.

In 1997, I decided to relaunch my brand using that dress. Fashion had changed by then, but I saw all these young hip girls buying that dress in vintage shops. I call that stage "the comeback years." It was time for me to show myself, and the world, that my success was not an accident. But I ran into trouble. We started to grow, I brought in a creative director, we tried to do too many things, and we lost our reason for being. I had to find that again. This is what you must do time and again as an entrepreneur.

I've learned to rely on my instinct, impulse, and passion. This is what entrepreneurs do best. It's what makes your company unique—the heart of your business, the engine. You also need a solid business plan and a great team—but the important thing is to not lose yourself.

I've come to realize that when you have your first success, it is often the essence of who you are and what you do. Trust that. Because as you grow and become more successful and hire more people, you can forget what you stood for in the first place. You have to stay true to yourself. That way, even if you make mistakes, it's OK, because you stand for it.

Last year, I started a new phase that I'm calling "legacy." That's when you realize that you have built something significant enough that it will last. But it also means building the next level of infrastructure to compete with the huge global brands. And at each moment, each phase of the business, you encounter new challenges equally as complicated but totally different, depending on the phase.

For me, I returned to the dress and realized that it was more than a dress. I had to extract why it hit, what was the Zeitgeist, what did the dress stand for? That's the spirit of the brand. That's long lasting. That can live forever.

It was only this year, when I created the exhibition, that I truly saw the power of that dress. I realized not only what it did for me but what it did for so many people. Now, I have to make sure that I have carved into our DNA all the things that the dress stands for: empowerment, sexiness, effortlessness.

*Correction, July 11, 2014: This post originally misstated Dian von Furstenberg's age. She is 67, not 68.

July 10 2014 5:50 PM

Fat, Impotent Roosters Are Making Chicken More Expensive

Somewhere, Foghorn Leghorn is weeping. Reuters reports that fertility problems afflicting an important breed of rooster are leading to a shortage of chickens raised for slaughter and pushing up poultry prices in stores. What's more, it looks like only evil humans are to blame for the current mess.

The rooster in question is Aviagen Group's standard Ross male, which sires up to 25 percent of the chickens raised for slaughter in the U.S. Chicken producers have found that about 17 percent of eggs laid by Aviagen hens who mated with this kind of rooster failed to hatch—above the average failure rate of 15 percent. Scientists investigated and came to the shocking conclusion that genetic engineering had made the roosters susceptible to overfeeding.

Here's Reuters talking to Sanderson Farms' chief financial officer Mike Cockrell:

Aviagen sent a team of scientists to Sanderson last autumn to study the issue and has acknowledged that an undisclosed change it made to the breed's genetics made the birds "very sensitive" to being overfed, he said.
"We fed him too much. He got fat. When he got big, he did not breed as much as he was intended to," Cockrell said about the breed of rooster. "The fertilization went way down, and our hatch has been way down."

Demand for chicken has been up this year as prices of other foods and meats in particular have surged. A deadly pig virus has decimated the pork supply while the domestic cattle herd is at its lowest level in more than 60 years. If that Fourth of July cookout seemed to take a bigger bite out of your wallet this year, it wasn't just you. The cost of grilling has reached an all-time high this year, according to the official Bloomberg-complied barbecue index.

In its June report on livestock, dairy, and poultry, the U.S. Department of Agriculture noted that the poultry production forecast for the year had been lowered by 195 million pounds. The report also observes that hatching eggs in the first four months of 2014 were down slightly from the previous year.

Aviagen has replaced the impotent rooster breed with another kind of bird. Preliminary results of mating with hens are encouraging, and Sanderson Farms expects to have swapped out its roosters entirely by the fall. The company did not specify what will happen to its current male fowl, but we can only assume it won't be good. For Sanderson, some roosters are more equal than others.

July 10 2014 1:04 PM

This Trick You Can Do With Lego Figurines Will Change Your Office Forever

Sugru, a company that apparently makes a moldable adhesive that hardens into rubber, has figured out that the tiny, cupping hands of Lego mini-figures are perfectly shaped to hold electric cords for your iPhone and Macbook, not to mention speaker jacks.

Never again will you need to leave a mess of cords sitting around your desk at work, and instead you can surround yourself with a friendly, supportive community of Lego colleagues. Enjoy the video demonstration below.

July 10 2014 11:36 AM

The Myth of the Lone Genius

This story first appeared in Inc.

Challenging the Great Man theory of entrepreneurship can be an uphill task. For every article in praise of Steve Wozniak's role as Apple's co-founder, you'll find hundreds crediting Steve Jobs as if he single-handedly invented laptops, cellphones, and digitized music.

Part of this is because of the lone-genius myth, which Joshua Wolf Shenk recently described in the Atlantic. "For centuries, the myth of the lone genius has towered over us, its shadow obscuring the way creative work really gets done," he writes.

The Truth About Talent

The result? When Jeff Bezos calls innovation a team activity, Bezos still gets the credit. When great companies share their big plans, we tweet about their celebrity-CEOs

The truth is, companies succeed or fail not because of one leader's talents, but because of the collective talent, brainpower, and work ethic under one figurative roof. (Cash and luck are also important.) 

In startups, a combination of many skills is necessary. Bill Gross, founder of the legendary startup incubator Idealab, believes the best management teams feature a blend of four complementary skills—each represented by a personality type. These personality types are:

  • The entrepreneur (E), who has the big-picture vision.
  • The producer (P), who "makes things happen, who actually takes a product, executes on it, sells it—all the execution stages, to get it in customers' hands."
  • The administrator (A), who is part bureaucrat, part troubleshooter, part organizer, someone who "puts systems in place and helps the trains run on time and keeps the wheels on the bus when things are going crazy."
  • The integrator (I), a "people person" who understands the other three types and helps "those three talents get along, because very often those other three talents hate each other's guts."

In Gross' experience, most people are dominant in one of these four areas. For a startup to be successful, its top team needs a mix of all four talents. 

Does that sound familiar? From the best teams you've been a part of, you can probably recognize which members of the team brought the key elements of E, P, A, and I to the table.

What's great about Gross' theory is that it applies to almost any team setting. It works for startups, but you can also think about successful sports teams—or rock bands—and deconstruct their identities, based on which members possessed the highest levels of E, P, A, and I.

Where Business Meets the Beatles

Though he doesn't use Gross' four-letter methodology, a comparable dissection of skills is behind Shenk's deconstruction of the lone-genius myth in the Atlantic. Specifically, Shenk's subject is the Beatles. He has a bone to pick with Beatles fans who try to decipher if Paul McCartney or John Lennon deserves more compositional credit as the lone genius behind one song or another. 

In reality, Shenk suggests, the Lennon-McCartney tandem worked because of how complementary their skills were. Here's how Geoff Emerick, the principal engineer for many major Beatles records, describes their complementary skills: 

Paul was meticulous and organized: he always carried a notebook around with him, in which he methodically wrote down lyrics and chord changes in his neat handwriting. In contrast, John seemed to live in chaos: he was constantly searching for scraps of paper that he'd hurriedly scribbled ideas on. Paul was a natural communicator; John couldn’t articulate his ideas well. Paul was the diplomat; John was the agitator. Paul was soft-spoken and almost unfailingly polite; John could be a right loudmouth and quite rude. Paul was willing to put in long hours to get a part right; John was impatient, always ready to move on to the next thing. 

If you apply Gross' four types to Emerick's description, a certain picture emerges. Painting with a broad brush, you can argue that Lennon brought the entrepreneurial (E) skills to the team, while McCartney brought the producer (P) skills. As for Emerick and legendary Beatles studio guru George Martin, they brought the administrative (A) and integrator (I) skills. 

To be sure, there were probably times when Lennon was more of a producer and McCartney was more of an entrepreneur. You don't have to be a Beatles historian to know that. You just have to know how great teams work. 

July 9 2014 4:13 PM

The Fed Has Picked an End Date for Its Historic Stimulus Program

By now, you might have forgotten that the Federal Reserve has been undertaking a massive, unprecedented stimulus program for nearly two years. But it has! And now, the end is officially nigh. Assuming the economy continues to heal at its current pace, the central bank expects to officially end its bond-buying program, known as QE3, come October, according to the newly released minutes from its June policy meeting.

This moment has been a while in the making. The Fed began its campaign to purchase $85 billion worth of assets each month back in 2012 and promised to continue until the job market had recovered sufficiently. Why the buying spree? At the time, Ben Bernanke & co. had already lowered interest rates as far as they could through conventional means, and the economy was still stuck in a stupor. The hope was that QE3 (the QE is for quantitative easing) would lower interest rates further, “in a manner akin to removing seats from a game of musical chairs,” as the New York Times put it at the time. The Fed believed that if it took mortgage bonds and treasuries off the market by purchasing them, banks would have to put their money elsewhere, and would compete to lend to businesses at rock-bottom rates. The Fed had tried previous rounds of easing (hence the 3 in QE3), but the open-ended commitment to keep on buying until the economy was good was supposed to add a little oomph.

How well it worked will be debated for years to come. But by December, the job market had improved sufficiently for the Fed to begin winding down its purchases. And despite some hyperventilating in the market that cutting off the tap would crash stock prices, disaster has yet to strike. In fact, the market doesn’t seem to have reacted at all to today’s news (the S&P 500 is up a bit for the day), which speaks well to the Fed’s decision to slowly take its foot off the gas pedal.

This means that the most important decision now facing the Fed is when to raise interest rates from zero. The whole world will be watching.

July 9 2014 11:34 AM

Amazon Puts Black Hat on Hachette in Latest Standoff Move

Amazon has a new tactic in its months-long standoff with Hachette: Make the publisher look like the bad guy. In a letter sent to Hachette on Tuesday and to a few authors before that, Amazon offers to give Hachette authors 100 percent of the sales price of the e-books it sells until the dispute ends. The e-commerce platform says it would also restore its print inventory of Hachette titles to normal levels and reinstate pre-orders for upcoming books, starting in as little as 72 hours. "What do you think?" Amazon concludes. "Would this be helpful, especially for midlist and debut authors?"

The question is almost absurdly rhetorical, or so Amazon seems to think. Would it help mediocre and breakout authors to get a full cut of their book sales—$9.99 in most cases instead of a tiny fraction of that—while two giants of publishing in print and online duke it out? Of course. Amazon also emphasizes in the note that Hachette has been the one causing negotiations to drag on:

We reached out to Hachette for the first time to discuss terms at the beginning of January for our contract which terminated in March. We heard nothing from them for three full months. We extended the contract into April under existing terms. Still nothing. In fact we got no conversation at all from Hachette until we started reducing our on-hand print inventory and reducing the discounts we offer customers off their list prices.

And in the following paragraph:

We agree that authors are caught in the middle while these negotiations drag on, and we’re particularly sensitive to the effect on debut and midlist authors. But Hachette’s unresponsiveness and unwillingness to talk until we took action put us in this position, and unless Hachette dramatically changes their negotiating tempo, this is going to take a really long time.

The famously taciturn Amazon has been notably more forthcoming throughout the Hachette dispute in providing statements—if not many details—that explain its thinking in the negotiations. Even so, the letter is a brash step, especially since it was almost certainly designed to leak before Hachette got ahold of it. "We haven't sent this offer to Hachette yet," Amazon notes toward the end. "We're sending this to a few authors and agents to get feedback first."

Hachette sent a brief response to Amazon's letter: "We invite Amazon to withdraw the sanctions they have unilaterally imposed, and we will continue to negotiate in good faith and with the hope of a swift conclusion," the publisher wrote. "We believe that the best outcome for the writers we publish is a contract with Amazon that brings genuine marketing benefits and whose terms allow Hachette to continue to invest in writers, marketing, and innovation." A spokeswoman for Hachette told the Wall Street Journal that the publisher had made Amazon its largest-ever offers to a retailer in April and May, both of which were rejected.

So far authors don't appear convinced of Amazon's tactics. "This seems like a short-term solution that encourages authors to take sides against their publishers. It doesn't get authors out of the middle of this—we're still in the middle," Roxana Robinson, president of the Authors Guild, told the New York Times. "What writers want is a long-term healthy publishing ecosystem, not a temporary windfall," she added. Douglas Preston, a best-selling Hachette author, told the Journal that Amazon's proposal would be "devastating" to Hachette while "barely hurting Amazon at all."

Hachette rejects the idea of cutting out the publisher from “its own revenue from e-books sold by Amazon, which would be a suicidal action,” as Hachette put it. "We call baloney," Amazon retorted. "Hachette is part of a $10 billion global conglomerate. It wouldn’t be ‘suicide.' They can afford it."

Throughout the continued mudslinging, Amazon has come off worse in the press, and Amazon's latest statements are almost certainly an attempt to change that. If Amazon is going to be depicted as a big, bad beast of a corporation, it wants everyone to think that Hachette is all of those things, too.

July 8 2014 4:49 PM

How a Financial Aid Mix-Up Created Thousands of Unwitting Paper Millionaires

Remember that thing called the decimal point? Federal financial aid applicants are relearning its value the hard way. Bloomberg reports that at least 165,000 filers have unwittingly become millionaires on paper after ignoring instructions in the FAFSA application to report their income and assets without the cents. In other words, someone who made $51,678.92 in 2013 should have reported that income as $51,678.

What happened to a lot of people was that they went ahead and included the $0.92 or other cents amount in their reported figures. But when the FAFSA system processed their entries, it got rid of the decimal point and interpreted the amount as $5,167,892—multiplying their income by 100. Here's a screenshot of the PDF version of the FAFSA so you can see what we're talking about:

fafsa_mixup

According to Bloomberg, the problem came about because FAFSA expanded the numeric field for adjusted gross income from six digits to seven. People with five-digit incomes used to get a warning if they tried to include cents that they were entering too many figures. But with the seven-digit capacity, those mishaps have gone unnoticed by the system and many of its users.

Officials at the National Association of Student Financial Aid Administrators told the Chronicle of Higher Education that most colleges will have at least one if not hundreds of students affected by the mishap and will need to reprocess their FAFSA forms to adjust for the mistake. On the bright side, fixing the error will make those accidental millionaires a lot more likely to get the financial aid they deserve.

July 8 2014 4:45 PM

Uber Will Cap Price Surges During Emergencies

Uber has agreed to drop one of its most controversial policies when disaster strikes. New York state Attorney General Eric Schneiderman announced this afternoon that the ride-sharing company known for adjusting fares based on demand—a model known as dynamic pricing—will cap its price surges during emergencies to comply with a New York law against price gouging in times of need. Schneiderman said in a statement that Uber will adopt a similar policy nationwide.

The relevant New York law was passed in the winter of 1978-79 in order to protect consumers from rising oil prices. In general, it aims to prevent merchants from imposing extreme price hikes during an "abnormal disruption of the market" caused by "extraordinary adverse circumstances":

For purposes of this section, the phrase "abnormal disruption of the market" shall mean any change in the market, whether actual or imminently threatened, resulting from stress of weather, convulsion of nature, failure or shortage of electric power or other source of energy, strike, civil disorder, war, military action, national or local emergency, or other cause of an abnormal disruption of the market which results in the declaration of a state of emergency by the governor.

Uber will not totally eliminate dynamic pricing during emergencies but will instead cap how high its rates can go based on what it charged consumers over the previous two months. The agreement between Uber and the AG's office states that if Uber employs price surging during an "abnormal disruption of the market" it will go no higher than the fourth-highest price charged in the area (all on different days) over the past 60 days. So if Uber's highest surges were 5X, 4.25X, 3.75X, and 2.5X in that period, it could charge no more than 2.5X during the emergency.

Of course none of this has any bearing on Uber's pricing practices during non-emergency times. That means you might still get stuck with a $100 bill on a snowy Friday night—and that's OK. Uber's dynamic pricing practices are generally a great way of bringing demand for car services in line with supply. But in case a hurricane devastates Manhattan or aliens invade the Financial District, one thing you won't have to worry about is the price of that Uber ride home.

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