Apple Won't Shut Down Beats Music After All (But Will Probably Rename It)
This afternoon, TechCrunch reported that Apple was planning to shut down Beats Music, the streaming service founded by Dr. Dre and Jimmy Iovine that the company acquired, along with their headphone brand, for $3 billion. This seemed a bit strange, since Tim Cook has rhapsodized about just how much he loves the subscription service, and the fact that Apple desperately needed to find foothold in streaming. But the story cited five sources, "including several prominent employees at Apple and Beats."
“It’s not clear when exactly Jimmy Iovine and Dr Dre’s music service will be shut down or what Apple will do with streaming, but every source with knowledge of the situation that we talked to agreed Apple plans to sunset the Beats Music brand,” the site reported.
Now, Apple has denied the story through it's spokesman, Tom Neumayr. Except, it's sort of a non-denial denial. According to Re/code's Peter Kafka, the "Beats brand may go away," but the company "wants to stay in streaming music." Which seems a lot like what TechCrunch said. Here's a bit more of Kafka for context:
Note that Apple does seem pretty pleased with the iTunes brand, which was the focus of its controversial U2 album giveaway this month.
Shuttering the Beats Music brand name makes some sense, as the company hadn’t generated a ton of traction before Apple bought it in May — at that time, it only had a few hundred thousand subscribers.
Now here's where TechCrunch reports that Apple might just slap a new name on its Beats, or use its back end (which is the valuable part, anyway) as part of iTunes:
One source said Apple may roll streaming into iTunes. This could be the most logical strategy for Apple if it can find a way to keep its traditional music file download customers happy while opening its catalogue to streaming for early adopters who want to listen from the cloud. Perhaps rather than just buy buttons, there could be play buttons in iTunes, too. Another source said Apple plans to make some significant music announcement in the first half of next year.
Rebranding Beats as part iTunes isn't quite the same as shutting the service down. But it feels like we're splitting hairs over headlines here.
In any event, here's what we can take away from today's late afternoon music biz news: Streaming is still the future, Apple still seems to realize that, and it's not going to throw the whole streaming service it just bought into the trash heap becuase it likes iTunes better.
The U.S. Is So, So Far Behind Europe on Clean Energy
With the United Nations Climate Summit near at hand, the Energy Information Administration has published a short, chartified reminder of just how far the United States is behind Europe when it comes to generating no-carbon electricity. Behold—we're the stumpy bar at the bottom.
And for a sense of progress, here's what the chart looked like in 2002.
While most of the countries that produce at least half of their power from zero-carbon sources rely heavily on nuclear and hydroelectric power, the U.S. has been slow to convert its power sources to renewables like wind, solar, or biomass. The transition hasn't gone smoothly all over Europe; in Germany, the cost of going green has been immense enough that Der Spiegel ran a feature titled "How Electricity Became a Luxury Good." Still, you can get a quick sense of how much catching up we have to do.
Pabst Blue Ribbon Is Being Sold to the Russians, Was So Over Anyway
Pabst Blue Ribbon, the cheap-but-tolerable beer that will forever be identified with early 2000s American hipsterdom, is being bought by Russian investors. According to the New York Times, Oasis Beverages will pay more than $700 million to acquire the Pabst Brewing Co., which also makes Colt 45 and Old Milwaukee. The sale will net a tidy profit for Dean Metropoulos, the businessman who bought Pabst for a mere $250 million in 2010.
After a quarter century of declining sales, Pabst came back from the dead during the early aughts because it was a dirt-cheap beer with a kitschy, blue-collar appeal that tickled the cool kids in places like Portland and Williamsburg. It also had an absolutely unbeatable endorsement from Dennis Hopper in Blue Velvet, that, due to Slate's profanity policy, I won't reproduce here. But unlike style statements such as trucker hats and handlebar mustaches, its popularity managed to sustain and grow through the decade, even as sales of pale American lagers like Bud Light and Miller Light flat-lined. In a relatively short period of time it has become a mainstream bargain brew with a global market.
But last year, something funny happened. According to Euromonitor, U.S. sales of Pabst by liter basically stopped rising in 2013, even as they continued their upward march globally. Granted, it was just one off year. But it seems entirely possible that Pabst's future will hinge on drinkers abroad. It certainly wouldn't be the first beer to try and sell an all-American image overseas even as U.S. drinkers lose interest.
"Pabst Blue Ribbon is the quintessential American brand—it represents individualism, egalitarianism and freedom of expression—all things that make this country great," Eugene Kashper, the chairman of Oasis Beverages, said in a statement after the sale was announced. Most Americans probably stopped buying that a while ago. But maybe Russians haven't.
Why Innovators Hate MBAs
If you want to be an innovator or an entrepreneur, should you go to business school? At first glance, maybe not: Peter Thiel once said "never ever hire an MBA; they will ruin your company." Meanwhile, Scott Cook, founder and leader of Intuit, recently told me, "When MBAs come to us we have to fundamentally retrain them—nothing they learned will help them succeed at innovation." Perhaps a stronger indictment comes from Elon Musk, founder of Tesla, SpaceX, Solar City and PayPal, who said, "As much as possible, avoid hiring MBAs. MBA programs don't teach people how to create companies ... our position is that we hire someone in spite of an MBA, not because of one."
While we generally recognize that management training has value, why do leaders of innovative companies offer such harsh criticisms?
I would argue that the fault doesn't lie in the person but in the purpose of management itself. Business schools teach management principles that were developed in the later industrial revolution to solve the large-company management problem—not the innovation problem. As the industrial revolution transformed the economic landscape, replacing small workshops with large companies, the "new giants" created demand for management to make the trains run on time. Business schools followed close behind, with tools to train managers on how to coordinate and control these growing industry titans. However, while these more familiar management practices work well for relatively familiar problems, such as how to optimize activities and coordinate execution, increasing evidence suggests these techniques work poorly for managing the comparative uncertainty of bringing a new idea to market. In other words, business schools have focused on how to capture value from customers, not how to create value.
Another way to think about it would be examine the traditional S-curve that describes the life of a product or company (see Figure 1):
Early in the life of a company, during the startup phase, uncertainty is high and the entrepreneur is forced to wear a dozen hats to create value. Core tasks include search and discovery in an effort to create a customer. But once that uncertainty begins to resolve, the core tasks shift to execution and optimization in order to capture value. The founders are often kicked out of the company during this shift, and MBAs take the reigns to scale up the company.
When we talk about conditions of high uncertainty, we need what we might call an innovation school, rather than a business school, approach. An innovation school deals with the emerging science of managing uncertainty. Figure 2 shows the differences between these two schools of thought:
To provide an example of how these schools differentiate, consider the following: In business school (B-school), when you study marketing, you typically learn the importance of building and protecting your brand or doing quantitative analysis to identify customer segments and get customer feedback. In an innovation school (I-school), however, you should initially ignore your brand and obtain all customer feedback through direct interaction, whether by experience, observation, or interviews. What's more, rather than emphasize building brands by satisfying a broad range of customers through perfected products, I-school emphasizes the need to test low-fidelity prototypes with small groups of customers, embracing errors as opportunities to learn.
Further illustrating this point, in B-school, when you learn finance, you're taught about marginal cost logic: the importance of leveraging prior fixed-cost investments with new initiatives. But this approach biases you toward incremental innovation efforts. In I-school, you learn how to look for opportunities to build something disruptive, something that hasn't been built before, to deliver a unique solution. In a world of uncertainty, leveraging investments can often be a bad practice because it may lead to building a workaround solution instead of one that nails the job to be done.
I'm not saying that one approach is good and the other is bad. Both are good. The key to success is to recognize when to apply a more familiar B-school approach and when to apply I-school thinking—a decision that rests primarily on the degree of uncertainty. In other words, when uncertainty is high, apply an I-school approach. When the uncertainty has been resolved, use a B-school approach. Fortunately business schools are starting to adopt these ideas, but we are in the midst of a transition. The real question is, how do you manage uncertainty? Are you applying the right process?
How Accelerators Have Changed Startup Funding
A little more than a decade ago, it used to be a much costlier undertaking to start a new technology business, particularly in software. The cloud and distributed computing has changed all that.
So has the growth of accelerators, like Y Combinator and TechStars and others that provide small amounts of seed funding to startups in exchange for some equity in your business. But in contrast to a decade ago, that small amount of money goes further. That, plus the connections and mentoring that accelerators typically offer, has gone a long way toward displacing the importance of traditional venture capitalists in financing early stage companies. And that's likely to be a good thing for you.
"Now, if you go to an accelerator like YC or Techstars you have exposure to huge numbers of investors and a big network to help you," says Yael Hochberg, Ralph S. O’Connor Associate Professor in Entrepreneurship at Rice University Jones Graduate School of Business. Hochberg also compiles an annual ranking of best accelerators.
In the past, venture capitalists had the upper hand, Hochberg says. You had to get a "warm" introduction to one, and then they took their time getting back to you, especially if they were interested in your company and knew you were running out of money. You also needed larger sums from them—typically on the order of millions of dollars. And even if you you didn't always approach them for money—say for instance, if you were also interested in leveraging their connections to help get your business off the ground—the dynamics of operating in a closed environment also favored them and the deals they made.
A New Paradigm
Accelerators have turned all that on its head. The seed funding they offer, generally between $25,000 and $100,000 in exchange for an equity stake of between five percent and seven percent, is a lot more useful and sustaining to entrepreneurs now than it might have been years ago. The best accelerators also have a thicket of connections every bit as useful as venture capitalists who come in for later funding rounds. And when they send their companies out for so-called demo days, not one but dozens of venture capitalists show up to bid.
"When you talk to VCs on demo day, 100 people are competing in an atmosphere that's closer to an auction," Hochberg says.
That, in turn, is driving up the value of startups chosen by some of the leading accelerators. The average valuations of a Y Combinator-funded firm in 2013 and 2014 was between $40 million and $50 million, according to TechCrunch and others. The success of businesses that have emerged from accelerators—and they are some of the biggest names in tech today, including Airbnb, Dropbox, Reddit, which all cycled through Y Combinator—has also edged out VCs in other ways. Typically the funds associated with accelerators relied heavily on investments from venture capitalists, who often took on roles as limited partners to establish a window on the accelerator companies. The huge success of many of the portfolio businesses has allowed some of the funds to begin operating independently, Hochberg says.
Nevertheless, some venture capitalists claim to like the changes brought about by accelerators, even if that means more competition. Canaan Partners, of Westport, Connecticut, for example has invested in several Y Combinator companies in the past year, including cost-cutting travel startup RockeTrip and online grocery shopping company Instacart. Those companies received $2.6 million and $44 million respectively in funding in 2014.
"Because the ecosystem has become more transparent you are always competing with other firms," says Ross Fubini, a partner at Canaan, who adds startups are still likely to choose the best venture capital firm, rather than the highest valuation.
Entering the Fray
Meanwhile, some VCs have started their own accelerators to spot and support early stage companies that might make worthwhile investments later on.
Second Century Ventures, which invests primarily in real-estate focused companies, started an accelerator it calls REach in late 2012. The accelerator, which works with companies that are pre-revenue to $11 million in revenue annually, takes an equity stake of between two percent and five percent, but not in exchange for money. Instead, it offers a nine-month educational program, as well as mentorship and a 1,600 person "insights panel." The panel, made up of real estate companies, lets the accelerator companies test their products directly with them.
Of the 15 companies that have participated in the accelerator, nine have raised close to $30 million, primarily from other VCs, but also from SCV. And some, including electronic signature startup Docusign, have found their products resonate outside the real estate industry.
"Between the mentorship and insights panel, it helps the companies develop strategically and create products designed for this industry" and potentially others, says Constance Freedman, a managing director of REach and SCV.
See also: Six Productivity Tools for Entrepreneurs
A Chinese Company Just Announced the Biggest IPO in U.S. History
After months of anticipation, Alibaba's initial public offering has cemented its place in history as the biggest IPO ever in the U.S. Shares of the Chinese e-commerce giant, which does more sales than Amazon and eBay combined, were priced at $68 apiece on Thursday to raise $21.8 billion. No IPO in the U.S. has previously topped the $20 billion mark, though Facebook came close with $16 billion in 2012 and Visa raised $17.9 billion in 2008. The world record for largest offering is held by Agricultural Bank of China, which raised $22 billion in 2010.
Alibaba has been closely watched by investors as it planned its offering over the past several months. The company is a household name in China, where it is all but synonymous with online shopping. It is much less well known in the U.S., but essentially something of a PayPal meets Amazon meets Twitter meets Spotify meets Hulu meets plenty of other things. For almost every business you can think of, the odds are that there's an Alibaba equivalent.
The $68 share price values Alibaba's entire company at $168 billion, which the Wall Street Journal reports makes it "instantly one of the largest listed in the U.S." and gives it a larger market capitalization than Amazon's $150 billion. Alibaba stock is scheduled to begin trading on Friday on the New York Stock Exchange under the aptly named ticker "BABA."
Three CEOs Step Down in 30 Minutes
Sometimes it rains and sometimes it pours resignation notices from chief executives of major corporations. That's what happened this afternoon as first Oracle's Larry Ellison, then Clorox's Don Knauss, and finally JetBlue's Dave Barger said that they were stepping down from their posts. It is not clear at this time whether the near-simultaneous resignations are coincidence or the first phase of an elaborate marketing campaign for the new Atlas Shrugged movie.
The change at Oracle is effective immediately, with Ellison being replaced by a pair of executives: Safra Catz and Mark Hurd. Clorox said that Benno Dorer, currently the company's executive vice president and chief operating officer, will take over from Knauss starting Nov. 20. Knauss will stay on as chairman and a member of the board. Over at JetBlue, company president Robin Hayes has been appointed to succeed David Barger as chief executive beginning Feb. 16, 2015.
Anyway, we can only assume the retirees will enjoy their time in Galt's Gulch. Or on their gigantic yachts.
Amazon’s Carrier Billing Lets You Pay for Digital Purchases in Your Monthly Phone Bill
The big Amazon news of the day is the company's sudden release of six new devices: four Kindle Fire tablets and two Kindle e-readers. Slate technology writer Will Oremus tried them all and reports that "each is either a successor or a variation on some device that has come before" and "not one is revolutionary."
On the other hand, a quieter announcement involving Amazon on Wednesday might come closer to qualifying as revolutionary. Bango, a mobile payments company, said yesterday that it is working with Amazon and wireless carrier Telefónica Deutschland to let customers in Germany on Telefónica's O2 network pay for digital items such as e-books, music, and in-app purchases in their monthly phone bill starting next year.
This payment model is known as "carrier billing" and, according to Re/code, is common in emerging markets, where millions of people who own smartphones do not have credit cards. At the same time, Re/code notes that carrier billing is "gaining momentum" in Europe and other developed regions. Bango a month ago said that it was working with Deutsche Telekom to offer the same service across a variety of app and content stores, including BlackBerry World and Facebook.
Carrier billing is one of several systems vying to partly or entirely replace credit and debit cards. The new iPhone 6 and 6 Plus come equipped with Apple Pay, the company's stab at creating a global transactions empire. Google in March redoubled efforts to push Google Wallet and apps like Venmo are already well adopted among many smartphone users. What's interesting about carrier billing and other forms of mobile payments is the underlying assumption that access to smartphones will at some point exceed access to credit and debit cards.
In 2011, Farhad Manjoo dismissed the notion of universal mobile access as impractical, writing in Slate, "If we're looking for a payment method that everyone can use, we ought to choose something that everyone carries with them. You know what that isn't? A smartphone." But the growing popularity of carrier billing in emerging markets would seem to suggest otherwise. (A better point from that same piece: "Perhaps we should avoid it for security reasons. If someone steals your wallet but not your phone, at least you can call the police and your bank to report the crime. What do you do if your wallet is your phone—call them with your wallet?")
As things stand, carrier billing still represents a small subset of mobile purchases. According to online data site Statista, charges to a phone bill in 2013 made up just 4.4 percent of mobile payments in the U.S. Credit and debit cards facilitated the vast majority of those transactions, at a combined 95 percent. Carrier billing is also limited—at least in the form described by Bango for Amazon—to being used for a relatively narrow type of purchase (digital goods).
That said, in 2013 there were an estimated 245 million people worldwide making mobile payments with an estimated global transaction volume of $235 billion. Statista projects those figures will grow to 450 million global users doing $721 billion in transactions by 2017. And just because carrier billing is currently constrained to digital purchases doesn't mean it will stay that way forever. It does sound dangerously convenient for consumers—and enticingly lucrative for retailers—to have phone charges and other purchases all appear in the same monthly bill.
“For a While Liquidity Led to Stupidity”
In case you thought that economics was all about numbers, one professor has given it a poetic turn. On Friday, Wellesley College economist Karl Case—who together with Nobel laureate Robert Shiller created the famous S&P/Case-Shiller Home Prices indices—honored his longtime colleague with an original poem on real estate bubbles and the financial crisis.
"Reflection on the Housing Market: Seven Years After the Fall," which was reprinted in full with Case's permission on the Wall Street Journal's Real Time Economics blog, spans 21 stanzas and takes its readers from the beginning of the real estate boom to the lingering fallout of the recession. The poem appears to have been first published in 2010, but Case has updated some stanzas and added others to reflect the passage of time. For example, there's now a bit about people living with their parents:
In the longer run a lot depends
On the rate of household formation
That depends in part of course
On the rate of immigration
It also matters what kids do
Like living with Mom and Dad
Or doubling up till they get a job
To pay for their very own pad
Case has some fun turns of phrase in his poem ("For a while liquidity led to stupidity") and some genuine commentary on economic policy ("The guys at the Fed have repeatedly said/That their mandate includes employment/But with rates at zero no one's a hero/No weapons left for deployment"). And at least one thing hasn't changed in Case's poem since the original: his opinion of politicians. The updated version of "Reflection on the Housing Market," like its predecessor, ends with this zinger to Capitol Hill: "Politicians, of course, are starting to shout/That they want more retribution/It's better, I think, if they used their time/Helping to find a solution."
The iPhone 6 Marks a Fresh Chance for Wireless Carriers to Kill Your Unlimited Data
Apple is enjoying a record success with its iPhone 6. In its first day of pre-orders, the iPhone 6 received some 4 million requests—doubling the number the iPhone 5 got in its first 24 hours two years ago. Demand is so strong that Apple announced it is already exceeding the initial pre-order supply. While a "significant amount" of the devices will be delivered to customers starting this Friday, the company said "many" of the pre-orders will have to wait until October.
Should you want to get in on the iPhone 6 craze, you'll have ample choices from wireless providers. Verizon, Sprint, and AT&T are selling the 16 GB version starting at $199 with a two-year contract, while T-Mobile is carrying it contract-free for the full list price of $649. As per usual, at least one carrier is also using the iPhone 6 as a chance to break the customers still clinging to unlimited data from their plans. Verizon customers who wish to have their unlimited data grandfathered in with an iPhone 6 are once again being told that they must buy the device outright. If they choose to do that, the unlimited data will cost $30 a month on top of $55 to $90 per month for voice and texting fees.
Is the hefty upfront cost worth it in the long run? That depends on how much data you use. We crunched the numbers for a single smartphone on Verizon's standard More Everything plan as well as one on AT&T's Mobile Share Value plan to see how long you'd have to use your device—and with how much data—before keeping an unlimited plan would pay off.
As you can see from the interactive graph above, Verizon users who consume 3 GB or less of data a month shouldn't bother paying the full list price on the iPhone 6 to keep their unlimited data; they'd be better off purchasing a two-year contract (assuming they don't plan to hang onto their phone much longer than that). But for people who use 4 GB of data or more a month, it's a smart investment.
At AT&T the deal appears to be better: Holders of unlimited data are not required to purchase the iPhone 6 outright to keep their grandfathered plans. Still, there's a catch. AT&T starts reducing data speeds—aka "throttling" unlimited users—after the first 3 to 5 GB are used each month. So as much as the unlimited plan seems financially worth it if you use more than 2 GB of data, the actual benefits are more limited.
T-Mobile, on the other hand, still offers an unlimited data option on its Simple Choice Plan. Because the plan does not include annual service contracts, T-Mobile also requires users to buy their devices outright. But once you do that, it charges less each month than Verizon does on its grandfathered unlimited plan.