A blog about business and economics.

Jan. 26 2015 7:42 PM

Microsoft Is Selling More Phones Than Ever, but It Isn’t Nearly Enough

This afternoon, Microsoft reported its second-quarter earnings for fiscal year 2015. The results were mostly in line with what analysts expected: Revenue increased to $26.5 billion, and earnings per share came in at $0.71. Despite that, shares are slipping. The stock initially declined about 2 percent,  then kept sliding after the company’s chief financial officer said she expected revenue growth in the third quarter to fall 4 percent because of poor currency exchange rates.

The report wasn’t without its bright spots: Microsoft’s cloud business continued to grow; Surface revenue was up 24 percent to $1.1 billion; and search advertising revenue grew 23 percent as Bing increased its market share. And the company sold 10.5 million Lumia phones. This last one was a big mark to hit. Microsoft had sold 9.3 million phones the quarter before this one, and topping the 10-million mark, as TechCrunch put it, was a “big psychological win.”

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But was it big enough? On the one hand, 10.5 million phones is nothing to discount. On the other, Microsoft’s revenue from Windows Phones fell 61 percent in the current quarter. The company says this is mostly because of its terminated commercial agreement with Nokia—Microsoft acquired Nokia’s handset division in early 2014 and has faced ongoing costs from that, in addition to losing its biggest licensee. Windows Phones’ already small market share also dwindled in 2014, from 3.3 percent to 3.1 percent, according to estimates from eMarketer.

Compare that to the figures Apple and Samsung are posting in mobile. Samsung, the biggest smartphone-maker since late 2011, sold about 78 million smartphones in its third quarter. Apple, which reports results on Tuesday, is expected by analysts to have sold 66.5 million iPhones in its latest quarter.

Of course, it’s hard to take too much away from any single earnings report. Microsoft also recently premiered Windows 10, a surprisingly fresh operating system designed to work across all Windows devices—computers, tablets, phones, and even Xbox. But since the second quarter ended on Dec. 31, 2014, and the product doesn’t even have a set release date yet, the company can’t really expect to see any impact from that on its financials for a while.

Microsoft faces an uphill struggle in the phone business. People don’t buy Windows Phones because all the good apps are on Android and iOS devices. But all the good apps are on Android and iOS devices because people don’t buy Windows Phones. Perhaps Windows 10 will finally break that cycle. If it doesn’t, Microsoft will have a hard time making its Nokia acquisition pay off.  

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Jan. 26 2015 3:27 PM

Greeks Are Voting for Radical Leftists and Nazis. Can You Blame Them?

So it turns out voters kind of hate living through an economic depression. Shocker, right?

As was expected, the anti-austerity leftists of Syriza triumphed in yesterday's Greek elections, winning 36.3 percent of the vote and coming just a nose hair shy of winning an outright majority in the country's parliament. They've already formed a government after striking a deal with the Independent Greeks, a far-right populist party with a charming habit of dropping anti-Semitic conspiracy theories that won a small chunk of the vote because it too really, really dislikes the austerity measures that European authorities demanded in return for a bailout.

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Meanwhile, the good folks of Golden Dawn—a bona fide neo-Nazi party whose leaders are sitting in jail accused of murder, among other charges—managed a third-place showing. To be fair, the BBC points out that their platform was more "anti-establishment" than "anti-austerity." Same theme, though. People are angry, and they've tossed out the mainstream pols whom they feel failed to protect them.

It is hard to say exactly what comes next for Greece. Syriza leader Alexis Tsipras, who was sworn in as prime minister today, has pledged to renegotiate the terms of Greece's sizable government debt with European Union officials. His party wants half of the loans forgiven so it can use the money that would be spent paying lenders on stimulus instead. All-important Germany has more or less said "fat chance" to a mass write-off, but it may be open to negotiating smaller changes. And personally, I think it's unlikely that the confrontation will escalate so terribly that Greece will finally exit the euro, as some fear. The country's economy is still in the gutter, sure. Its gross domestic product is 26 percent smaller than in 2008. Unemployment is still an ungodly 25.8 percent. Youth unemployment is a barely comprehensible 50.8 percent. But last year, Greece finally returned, however meekly, to growth. Joblessness has been declining, albeit slowly. The European Central Bank is finally loosening up its monetary policy. Abandoning the euro and defaulting on its debts would undo that minor progress and send the economy deeper into oblivion.

To put it another way, children may be starving in Athens, but with a Grexit, even more would go hungry. That doesn't seem like a path anybody would want to travel down. But then again, what do I know about Europe's future? After all these years of twists, what does anybody know?

So maybe it's best to think a little bit about the past. Greece's tragedy was caused by more than just austerity. (Its enormous debt load was a crisis in the making, and Europe's stingy monetary policy has compounded its pain.) But the tax hikes and spending cuts it agreed to in return for its bailout loans have made it worse than even the country's lenders expected. The International Monetary Fund has admitted that it, along with the European Central Bank and European Commission, likely underestimated the damage that belt-tightening would do to Greece's economy. And where they projected that unemployment would hit 15 percent in 2012, it instead hit 25 percent. Point being, lenders knew they were about to subject Greece to years of suffering. They just couldn't fathom how much—which is the sort of mistake you risk when you try to prescribe budget cuts like some sort of wonder drug. The downside risk of stimulus spending is a bit more debt. The downside risk of austerity is you further crater the economy, and maybe convince some angry voters to start casting ballots for, you know, Nazis.

Jan. 26 2015 2:24 PM

Uber Will Cap Surge Pricing in East Coast Cities During the Worst of the Blizzard

As snow slams New York City, normally volatile Uber fares won’t surge more than 2.8 times higher than normal.

Uber emailed New Yorkers on Monday to inform them that, per a policy the company rolled out in mid-2014, surge pricing will remain capped as long as a state of emergency lasts. Back in July, when snow was a far-off concern, Uber announced that it had reached an agreement with New York State Attorney General Eric Schneiderman to put a ceiling on surge pricing during state-declared emergencies. The change was made so that Uber would comply with a law New York passed in the winter of 1978–79 to protect consumers from price gouging 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.
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Under Uber’s now-national policy, price surging is capped during disasters and states of emergency at the fourth-highest nonemergency surge seen in the previous two months. Uber has also agreed to donate the 20 percent commission it takes on any trip with a surge price to the American Red Cross. Lyft, arguably Uber’s biggest competitor, alerted its New York City users that “Prime Time” pricing (its surge equivalent) would not exceed 200 percent of normal prices. Gett, another on-demand ride company that is currently offering rides in central Manhattan for a flat rate of $10, said its promotion will remain in effect throughout the storm. In a press conference earlier this afternoon, Mayor Bill de Blasio reminded New Yorkers that price gouging during emergencies is illegal and encouraged them to alert the city by calling 311 if they spotted it.

Governors have currently declared states of emergency in New York, New Jersey, Connecticut, and Massachusetts. Uber said surges in Boston will be capped at 2.9 times the normal fare and in New York, New Jersey, and Connecticut at 2.8 times the normal fare. It is possible for different cities within the same state to have different surge caps, though in this case that hasn't happened yet. Uber is alerting riders to storm-imposed surge caps on a city-by-city basis.

And while surge pricing is always controversial—especially in times of crisis—it's worth remembering that increasing the payout for drivers encourages people to stay on the road and makes it more likely you’ll still get a ride as conditions worsen.

Jan. 23 2015 7:41 PM

I Was a Flight Attendant, and I Also Thought SkyMall Was Incredibly Weird

I don’t think SkyMall really cared about selling you all of that stuff.

I never received a SkyMall memo or went to a SkyMall training hour. In the three years I spent working as a flight attendant on Delta Air Lines regional flights from 2011 through 2013, no one ever told me how to help customers who wanted to make a SkyMall purchase.* In the rare instance in which a passenger asked, I said something like, “I think you need to go online or something.”

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I was the closest thing SkyMall could have had to a sales associate, and I knew nothing about the company. This seemed to me like no way to run a business that’s focused on direct retailing. And perhaps it wasn’t, particularly in light of Friday’s news that SkyMall and its parent company Xhibit Corp. had filed for Chapter 11 bankruptcy.

Several boogeyman feature in the story of SkyMall’s decline, according to Xhibit’s filing: more planes with Wi-Fi, more passengers with electronic devices, Amazon and eBay. “The direct marketing retail industry is crowded, rapidly evolving and intensely competitive,” said chief financial officer Scott Wiley in the filing.

But this makes it sound like the SkyMall catalog was the problem, when the truth is that SkyMall (the business) had long since moved on from SkyMall (the catalog). In other words, Skymall had ceased to even be a direct retailing company.

According to Xhibit’s annual report from 2013, the year it acquired SkyMall, 66 percent of SkyMall’s consolidated revenue came from its “loyalty business,” mainly from three partners: Caesars Entertainment, Capital One, and Marriott Rewards. SkyMall wasn’t making most of its money from its catalogs. By 2013, it earned more money by acting as a middle man for credit card companies and other partners: When a credit card holder spends enough money on a card, these reward programs allow you to redeem reward points for magazine subscriptions, cheap electronics, and other junk. SkyMall handled the fulfillment.

The proximate cause of Skymall’s bankruptcy? Xhibit Corp. is a strange, spammy-seeming company with a history of financial losses. In September 2014, it sold the loyalty business for reasons I can’t easily ascertain from its financial documents. The company used the proceeds to pay down debt.

SkyMall began its loyalty business in 1999. From a 2001 filing by SkyMall Inc., we know that the loyalty business accounted for no more than 15 percent of SkyMall's revenue in 2000. We don’t know exactly what happened to SkyMall from 2001 through 2013, a period during which it was privately held. But what’s happened since the millennium, it seems, is that SkyMall depended less and less on the revenue it made from the catalogs in your seatback, and more and more on revenue from its credit card partnerships.

Maybe that explains why no one trained me to support your SkyMall purchase.

*Correction, Jan. 26, 2015: This post originally misidentified Delta Air Lines as Delta Airlines.

Jan. 23 2015 6:35 PM

Uber Study Finds Driving for Uber Is Great. Uber Study Is Flawed.

As 2014 wound down, Uber Chief Executive Travis Kalanick laid out an ambitious vision for the coming year. “In 2015 alone,” he wrote on the company’s blog, “Uber will generate over 1 million jobs in cities around the world.” Less than one month along the road, Uber has settled on its message to potential workers for achieving the ambitious 1 million target: Driving for Uber is a fun, flexible, and reliable way to earn a living.

On Thursday, Uber released a comprehensive new study on driver earnings and satisfaction in support of that narrative. The report, co-authored under contract by Princeton University economist and former Obama administration adviser Alan Krueger, and Jonathan Hall, the company’s head of policy research, contains a lot of fresh information. For example: Uber paid out $656.8 million to its U.S. drivers in the last quarter of 2014. The number of active drivers on its low-cost UberX platform (those giving at least four rides a month) is growing exponentially. Half a year after joining Uber, 70 percent of drivers are still actively using its system.

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The points that are really vital to Uber’s storyline, though, come from a survey conducted on its behalf by the Benenson Strategy Group in December 2014. It’s good to take what follows with a grain of salt. Just 11 percent of those surveyed, or 601 drivers, actually responded, and they were financially incentivized to do so. Still, the results were impressive. Seventy-eight percent of Uber drivers are “satisfied” with their experience driving for Uber. Seventy-one percent report their income has improved. And 73 percent say they would rather have “a job where you choose your own schedule and be your own boss” than “a steady 9-to-5 job with some benefits and a set salary.” Now combine that with Uber’s own data, which show that 81 percent of drivers work part time (51 percent work between one and 15 hours per week; 30 percent work 16 to 34 hours). The picture emerging is clear: People driving for Uber like setting their own schedules and working hours convenient to them, and overwhelmingly, they do that.

But here’s the single most important insight Uber has to offer: On a city-by-city basis, UberX drivers seem to earn about the same amount per hour, on average, no matter how many hours they choose to work.

screen_shot_20150123_at_4.34.53_pm

Uber

This is a big deal. The concept of a “part-time pay penalty”—that people, especially women and those in low wage jobs, get paid disproportionately less when they work below 40 hours a week—is well documented. Uber’s data on average hourly earnings suggest that the penalty just isn’t there. Or, as the study puts it, “The finding that hourly earnings for Uber’s driver-partners are essentially invariant to hours worked during the week ... makes Uber an attractive option to those who want to work part-time or intermittently, as other part-time or intermittent jobs in the labor market typically entail a wage penalty.” It’s the point that ties everything Uber is promising prospective drivers—a flexible, empowering, and reliable job—together.

So it’s kind of a shame that those figures on average hourly earnings might also be some of the most misleading in the entire report. Here’s why I think that. About two months ago now, Uber released some data on several thousands of its drivers in New York City. As part of that, the company created a scatter plot showing how the average net hourly earnings of drivers varied with the total number of hours they worked each week. For full-timers the average hourly earnings were fairly consistent. But for part-timers, and especially for those working between one and 15 hours, the data looked like a shotgun blast (imagine the shooter standing to the right):

uber_earnings

Uber

When I first spoke with Krueger about the study, I mentioned this. After all, the fact that the average of drivers’ hourly earnings in the same city is the same doesn’t mean that there isn’t also a great deal of variation. As the graph above shows pretty well, trend lines and averages can mask a lot. Krueger’s response was that “the requirements in New York City are different than in many other areas.” This is true. To drive for Uber in the city, you have to be licensed with the Taxi and Limousine Commission. But that alone doesn’t seem to explain why the earnings data for part-time drivers in other cities might not follow the same pattern. (Side note: It would help if the study included standard deviations for these averages, but it doesn’t, and when I asked Krueger for that he said he didn’t have it.)

This isn’t to say the study should be discounted entirely. As Danny Vinik points out at the New Republic, “whatever their actual net income, drivers are, on average, happy with their employment situation.” That’s good news for Uber and good news for the people it’s putting to work. Moreover, Uber’s driver base has continued to grow even as the economy has strengthened in recent months, suggesting that the supply of contract workers for Uber and other “on-demand” economy companies like it might not dwindle as we head back to full employment. Working for Uber is flexible. It pays pretty well. And at least based on one Uber-commissioned survey, drivers are happy. But are the earnings always reliable? That we still can’t say.

Jan. 22 2015 3:59 PM

Can This One Weird Trick Save Europe’s Economy?

This morning, Mario Draghi finally fired his bazooka. At least, that was the somewhat phallic metaphor finance Twitter and the press settled on to describe the new and aggressive bond-buying program, known as quantitative easing, that the European Central Bank president hopes will help salvage the eurozone's broken economy. Starting in March, Draghi announced at a news conference, the bank will effectively print money to buy €60 billion worth of public and private assets per month through at least September 2016, spending more than €1 trillion.1 The plan is bigger and bolder than many expected. Which is why it's inspiring bang-up Photoshop jobs like this.

And this.

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Anti-tank imagery aside, though, don't expect to see too many explosive effects from this effort.

The eurozone's economy has been in such awful shape for so long that it has become easy to forget just how dire the situation really is. Although it climbed out of a recession in 2013, the region's gross domestic product is barely growing. Overall unemployment is stuck above 11 percent, while in Greece and Spain, more than a quarter of workers are out of a job.

To make matters worse, the common currency area is now staring at deflation, which can suck an economy into a destructive downward spiral. When prices fall, families tend to put off spending (why buy today when that washing machine will be cheaper tomorrow?), debts become harder to repay as the relative value of old loans grows, and companies tend to hold off on raises for their workers. Last month, prices declined 0.2 percent. Part of that was due to the collapsing cost of oil—which is generally a good thing—but if they tumble further, it could spell more long-term trouble.

The imminent threat of falling prices seems to be what finally allowed the ECB to overcome objections by inflation-phobic Germany and launch its stimulus program. By purchasing government bonds in bulk, it hopes to drive down their interest rates and encourage investors to buy riskier assets like corporate debt and stocks. Convincing more people to get in the market for corporate bonds could theoretically lower the cost of borrowing for companies that want to invest while rising stock prices might make everybody feel wealthier, and spend. By metaphorically turning on the presses, the ECB will also push down the value of the euro, which should help countries sell more exports, and stimulate their economies.

The end goal: Nudge inflation back toward the central bank's target of slightly less than 2 percent.

Importantly, the ECB has said it will keep on buying bonds for as long as it takes to get the job done, or "until we see a sustained adjustment in the path of inflation," as Draghi put it. That open-ended commitment is a signal that Super Mario (as he's affectionately referred to) & Co. are dead serious about this effort. The more serious the ECB seems, the more likely inflation expectations will rise, and the more likely actual inflation will follow.

With that said, it's not clear how much good bond-buying can do for Europe at this point. The United States Federal Reserve and the Bank of England both resorted to quantitative easing, or QE, back in 2009 (the Fed just finished its third and final round in November). And while the policy is often credited as one reason the U.S. recovery has been far stronger than Europe's, nobody knows for sure exactly how much good it did. On the one hand, our economy managed to continue expanding despite cuts to state spending and sequestration. On the other, the early years of the recovery weren't exactly a period of torrid growth, and inflation has stayed low. Crafty central bank intervention wasn't necessarily a cure-all. And nobody should expect it to single-handedly fix Europe's far, far deeper economic troubles.

There are also reasons to think that the eurozone version of QE will be less potent than the U.S. edition. One, as the Financial Times highlights, has to do with the way European companies finance themselves. In the U.S., corporations largely borrow by tapping debt markets, which is why lowering bond rates is helpful for them. In Europe, companies borrow directly from banks that, even with easing, might not be interested in lending to them (they could, for instance, just buy U.S. treasuries). Beyond that, government interest rates in much of the eurozone are already quite low—in Germany, they've been at record lows, in fact. But that hasn't stopped investors from piling into them, and it's not obvious that pushing them down a bit further will dissuade them in the future. Meanwhile, whereas the Federal Reserve took investors by surprise when it began easing, the markets have been anticipating some sort of move from the ECB for a while, and may have priced much of its effects in.

There are also some arcane-sounding details of the program that could blunt its effect. For instance, rather than purchase government bonds from the most troubled economies, the ECB will buy bonds from each country in proportion to the amount of capital they hold at the central bank. The upshot of that completely numbing sentence (I apologize) is that it will be buying a lot of German debt, with its already low interest rates, and may simply convince banks to look for alternative investments in Germany rather than, say, Italy.

The ECB's program is still a worthwhile effort. The bank needs to do something to revive the eurozone, and quantitative easing is the biggest untried tool in its arsenal. But as Larry Summers put it at Davos, "necessity should not be confused with sufficiency"—monetary policy alone isn't going to save countries like Italy, Spain, and Portugal. Unfortunately, Europe is still largely focused on reducing debt, rather than using fiscal stimulus, and reforms that would fix its calcified, uncompetitive labor markets in the most troubled countries are slow coming.

Point being, nobody ever won a war with a single bazooka. Nobody should expect Draghi to, either.

Footnote1: Despite its popularity, some people object to the phrase "printing money" to describe QE, because in real life it involves creating electronic bank reserves, which isn't the same as just pouring a bunch of euros into the real economy. That actually has some meaningful policy implications, but for our purposes today, it's not exceedingly important.

Jan. 22 2015 3:48 PM

Delta Way Oversold Two Flights of People Heading to the Sundance Film Festival

It’s pretty common for airlines to oversell their flights as a hedge against last-minute no-shows. But sometimes, that usually savvy plan backfires. Like on Thursday morning, when Delta found itself looking at a pair of extremely overbooked flights from New York’s John F. Kennedy International Airport to Salt Lake City—presumably carrying passengers headed to the Sundance Film Festival—and began scrambling to find people willing to accept “Delta dollar” vouchers in exchange for switching to later travel options.

Ultimately, Delta ended up getting more than a dozen people from the two flights to agree to push back their trips in exchange for several hundred dollars in compensation per person, Delta spokesman Anthony Black says. Twelve might not sound like a lot, but in fact it’s an extraordinarily high number of denied boardings for just two flights. To give this some context, between January and September of 2014, overbookings kept Delta from boarding about 84,000 passengers compared with 87 million that successfully enplaned. Across U.S. airlines, less than 0.09 percent of passengers were unable to board during the same period, of which an even tinier fraction were involuntary (people forced to move to a different flight as opposed to volunteers who agreed to change for some amount of compensation).

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So, in the case of the Sundance flights, was it smart for travelers to accept Delta’s vouchers? Well, it depends. In its consumer guide to air travel, the U.S. Department of Transportation notes that overbooking is not illegal but that the consequences for “bumping” passengers depend on whether it is voluntary or involuntary. In the first case, the airline seeks out customers who are willing to give up their seats on one flight in exchange for some sort of compensation. If people volunteer, it’s left to the airline and passenger to negotiate what that compensation will be.

In the second, involuntary case, on the other hand, the DOT does set strict rules for how the airline must compensate affected passengers. The rules, which are based on the length of the delay passengers suffer and the price they paid for their ticket, are summarized below. For situations where compensation is required, the DOT specifies that customers are entitled to receive it “in the form of a check or cash”:

  • If the airline forces a passenger off one flight but arranges substitute transportation that reaches the final destination within one hour of the originally scheduled time, then the airline isn’t required to provide compensation.
  • If the alternate transportation is scheduled to get the passenger to his or her destination one to two hours later than originally planned (or one to four hours on international flights) then the airline has to pay that person 200 percent of the initial one-way fare, with a maximum of $650.
  • If the alternate transportation should get the passenger to their destination more than two hours later than initially planned (or more than four hours for international travel), or if the airline declines to provide alternate travel arrangements, then passengers are entitled to 400 percent of their one-way fare, with a maximum of $1,300.

Delta had five flights today out from JFK to Salt Lake City; three have already left and the next two are at 4 p.m. and 9 p.m. It’s tough to know what customers originally paid for their flights to Salt Lake City, but if they’d been forced to switch to another time slot and had arrived several hours late, it’s certainly possible that each one would have cost Delta more than several hundred dollars in compensation. On the other hand, Black says Delta doesn’t just worry about how much it’ll have to pay up when dealing with oversold flights. The goal, he said, is to both compensate customers fairly for their inconvenience and keep the flight queue moving along. Black added that it wasn’t immediately clear why those two flights out of JFK were so oversold this morning. But for next year, Delta might want to keep Sundance in the back of its head when it's seriously overselling flights to Salt Lake City.

Jan. 21 2015 7:04 PM

Uber Raises Another $1.6 Billion in Funding, Because Why Not Have More Money

Fresh off a $1.2 billion funding round, Uber has apparently added another $1.6 billion in convertible debt through Goldman Sachs to its stockpile. Bloomberg, citing “people with knowledge of the matter,” reports that Uber has arranged a six-year bond with Goldman Sachs’ private clients that, if Uber were to go public, could be changed into stock at a discount of 20 to 30 percent from the IPO price. All in all, Uber’s funding in both convertible debt and cash now easily tops $4 billion, and it might not end there—Uber is still in discussions to raise another $600 million in stock from hedge funds and strategic international investors.

What will Uber do with all this money? Well, a lot of things. As I recapped at the end of December, Uber is fighting regulatory battles and outright bans across the globe and no doubt pouring funds into what is effectively a huge political campaign for ride-hailing apps. Uber is also (hopefully) beefing up its public relations staff and local management teams to avoid more of the embarrassing blunders that dogged it in 2014. Uber’s ambitions also extend far beyond providing on-demand rides and even making car ownership obsolete. As Uber chief executive Travis Kalanick has said, “If we can get you a car in five minutes, we can get you anything in five minutes.” If services like UberRush and UberFresh take off, Uber could become an all-encompassing instantaneous delivery platform, one to possibly rival Amazon.

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Meanwhile, this new round of funding hands Uber an even bigger cash advantage over its current crop of competitors. Lyft, arguably the company's biggest rival, has just $332.5 million in six rounds from 15 investors, according to CrunchBase. That imbalance might make it easier for Uber to build a virtual monopoly over ride-sharing apps.

And if that's the case, we should probably be worried. After all, one major concern with Uber, as econ blogger Steve Randy Waldman astutely noted in late December, should be “ensuring that no single price-coordinating ‘platform’ dominates the nascent on-demand transportation industry.” As Uber deepens its already-deep pockets, preventing that outcome looks increasingly difficult.

Jan. 21 2015 3:48 PM

Tootsie Roll CEO’s Death Shines Wall Street Spotlight on Secretive Candy Empire

The candy world lost one of its king confectioners on Tuesday when Melvin Gordon, the longtime chief executive of Tootsie Roll, died at the age of 95 after a brief illness. Gordon’s death was announced by the company on Wednesday. His wife, Ellen, who previously served as Tootsie Roll’s chief operating officer and president and is in her 80s, will assume the roles of chairman and CEO in accordance with the company’s succession plan.

Tootsie Roll under Gordon’s leadership, like much of the notoriously secretive and exclusive candy-making world, was a real-life Willy Wonka factory. In a 2012 profile of the company, Wall Street Journal reporter Ben Kesling wrote that at Tootsie Roll’s Chicago headquarters, “massive puffs of steam billow out of humming machines on the roofs of the gray cinder block and red buildings, which sit surrounded by off-kilter 'no trespassing' signs.” The Gordons, he added, “haven't granted an interview in years,” and declined to comment for his piece.

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Though Tootsie Roll is a publicly traded company, a few members of the Gordon family control more than 50 percent of its shares. Melvin and Ellen Gordon also reportedly made every effort to keep Tootsie Roll in closely held hands. “We‘ve worked hard to keep suitors away,” she told Joël Glenn Brenner in The Emperors of Chocolate: Inside the Secret World of Hershey and Mars. “We want Tootsie to remain independent. Hopefully, our children, or the employees working in the company, will be able to run it someday.”

Now that Melvin Gordon has passed away, though, Wall Street seems to think Ellen might change her mind. Trading of Tootsie Roll was temporarily halted to make the announcement around noon, after which its stock popped 7 percent on apparent hopes that it might soon be the target of a takeover bid. In addition to owning the eponymous Tootsie Roll brands, the company sells Dots, Junior Mints, Charleston Chews, Sugar Daddies, and several other confections. “People have felt for some time that the company was a good sell-out candidate,” Elliott Schlang, managing director at Great Lakes Review and a former Tootsie Roll analyst, told Bloomberg.*

tootsie_stock_pop

Chart from Google Finance

Perhaps the most famous bit of Tootsie Roll branding—the “how many licks?” commercial—came out eight years into Melvin Gordon’s stewardship as CEO. The ad, which features a boy asking a cow, a Peter Lorre–esque fox, a turtle, and an owl, “How many licks does it take to get to the Tootsie Roll center of a Tootsie Pop?,” debuted in 1970 and became an instant classic. (You can watch it for yourself up top.) Since then, the company says it has received more than 20,000 letters from children claiming to have found the elusive answer to that quandary. Estimates range from a low of 100 licks to a high of 5,800—children are dedicated counters.

The real answer, the company writes on its website, “depends on a variety of factors such as the size of your mouth, the amount of saliva, etc. Basically, the world may never know.” Presumably that’s Tootsie Roll being facetious. But if Melvin Gordon did have any sort of answer (even a joking one), hopefully he passed it down to the rest of the family, along with all the other Tootsie Roll secrets.

*Correction, Jan. 21, 2015: This post originally misspelled Elliott Schlang’s first name.

Jan. 21 2015 11:12 AM

Motivated, Passionate, Creative: Meet the 2014 LinkedIn Everyman

LinkedIn has hundreds of millions of members around the globe, and they are motivated. And passionate. And creative. Yes, LinkedIn’s users are so motivated and passionate and creative that they are driven to describe themselves over and over again in exactly those terms. The LinkedIn Everyman also has extensive experience at being responsible and a strategic track record as an organizational expert.

Now, surely it is not for lack of originality that these 10 terms also happened to top LinkedIn’s list of most overused buzzwords in 2014, because, as previously mentioned, these people are creative. And they are motivated and driven to set themselves apart from the rest of the LinkedIn résumé-building masses. Such strategic individuals wouldn’t toss around buzzwords in a heedless and irresponsible manner. That would be a novice move—not an expert one.

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How much do LinkedIn users rely on buzzwords? Over the past three years, the company’s annual lists of the 10 most overused words have included a total of just 15 different terms. Creative, responsible, and organizational appeared in 2014, 2013, and 2012. Motivated, driven, extensive experience, strategic, track record, expert, effective, innovative, and analytical made the cut twice. The only words or phrases that are unique to a given year are passionate (2014), patient (2013), and problem solving (2012).

Maybe 2015 is the year LinkedIn should build in a thesaurus.

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