Thursday, June 29, 2006

MyMurdoch.

link to original piece.

His Space

Twilight of the media moguls? Not for this guy. With the $580 million purchase of MySpace, News Corp. chief Rupert Murdoch is betting he can transform a free social network into a colossal marketing machine.

By Spencer Reiss

Perched on the edge of a bright white power sofa on the supernaturally quiet eighth floor of the News Corporation’s global headquarters, the last thing Rupert Murdoch looks like is a fire-eyed revolutionary. Starched cuffs. Courtly manner. A month past his 75th birthday. But then he starts talking. “To find something comparable, you have to go back 500 years to the printing press, the birth of mass media – which, incidentally, is what really destroyed the old world of kings and aristocracies. Technology is shifting power away from the editors, the publishers, the establishment, the media elite. Now it’s the people who are taking control.” And he’s smiling.

Hold on a minute. Rupert Murdoch is the media elite. His Sixth Avenue office, lined with shelves devoted to dead-tree properties like London’s The Sun and muted video monitors tuned to news channels including News Corp.’s Fox and rival CNN, sits squarely within jaywalking distance of NBC, CBS, Time Warner, McGraw-Hill, and Viacom. But these days, midtown Manhattan’s valley of old media dinosaurs is besieged by a Cambrian explosion of digitally empowered life-forms: podcasters, bloggers, burners, P2P buccaneers, mashup artists, phonecam paparazzi. Viewers are vanishing, shareholders are in revolt, advertisers are Googling for the exit.

Twilight of the moguls, right? Not for the T. rex of mass culture. “We’re looking at the ultimate opportunity,” Murdoch says. “The Internet is media’s golden age.”

Of course, someone juggling $60 billion worth of TV studios, printing presses, and broadcast satellites would say that. But Murdoch has been putting his money where his mouth is – and it is his money: His family controls almost a third of News Corp.’s voting shares. Over the past year, he has spent nearly $1.5 billion on new-breed Internet companies, including online communities devoted to gaming, sports, and movies, plus a startling eruption of youthful energy known as MySpace. And he has put his lieutenants on notice: The days of top-down, force-fed, one-size-fits-all media are over. The new imperative is to deliver precisely what audiences want, when and where they want it.

How or even whether News Corp. can survive this cold dawn is an open question – Wall Street certainly has its doubts. But the man who built the world’s only truly global media company has a classically entrepreneurial answer. “We’ll figure it out,” he says, flashing his cat-that-ate-the-canary grin.

One of the great things about being a self-employed billionaire mogul – besides traveling in your own Boeing 737 and getting to play yourself on The Simpsons – is that you don’t have to talk like a management consultant. News Corp. culture is famously seat-of-the-pants; managers who can’t live by their wits quickly fall by the wayside. But more than that, Murdoch revels in spotting unfilled gaps and unmet needs. “Everything we’ve ever done is about giving people choices,” he says. “The Net has a billion people looking for news, sports, and entertainment. Another billion are on mobile phones, and another couple of billion are coming up behind those. That’s a hell of a lot more people making choices.”

Right, but how do you keep News Corp. at the center of their decisions? How do you produce planetary hits in a world of umpteen million YouTube videos? How do you find the next Bart Simpson if he’s being drawn in someone’s garage?

That’s where the Internet comes in, specifically MySpace and the millions of young trendsetters who make it the most disruptive force to hit pop culture since MTV. This nonstop global block party of music, video, and hookups is starting to look like the most powerful mass-media launching pad ever invented. To take advantage of that power, though, Murdoch’s crew faces two challenges. The most immediate is to avoid doing anything that might interfere with the runaway growth that has already made MySpace the biggest aggregation of people on the Web. But that’s just step one. Step two is to turn MySpace’s teeming masses into a wholly new kind of media entity, an advertising, marketing, and distribution vehicle that gives News Corp. a hand on the steering wheel of popular culture worldwide.

“Hi, this is Rupert Murdoch.” Ross Levinsohn answered the phone, heard those words, and thought it must be a joke. It was January 2005, and Levinsohn, a 41-year-old veteran of CBS SportsLine.com and AltaVista who was running Fox Sports’ online operations, had never actually met with the big boss. “Got time for a chat?” Murdoch asked. Sure. When? “How about now?”

An hour later, Levinsohn had rustled up a shirt with a collar and was sitting across a table from Murdoch at an employee café on the old Fox movie lot in Los Angeles, doing a core dump about new media. Levinsohn wondered whether he was about to be fired. Instead, two months later, Murdoch offered him an amazing new gig: Take whoever you want, go wherever you need, and come back with a strategy for making News Corp. a serious presence on the Net.

Murdoch had ventured online before, but those forays were mostly unhappy, including the near-debacle of a failed $450 million bid for PointCast, poster child for the late 1990s push-media craze. Chastened – “We’re not a technology company,” Murdoch says, “we don’t need to be early” – he focused on building satellite broadcast networks, a bold bet on the future of hi-def TV and a hedge in an ongoing cold war with his cable distribution partners (read: Liberty Media chair John Malone). But by early 2005, with the skies under control, the Net loomed once again on Murdoch’s radar. Apple’s iTunes was exploding. Broadband was splashing video – a core News Corp. interest – across a growing number of computer screens. Search engines and P2P networks were ringing alarm bells for traditional broadcast network command-and-control. And online ad revenue had swollen to $10 billion annually, sweeping away doubters, filling war chests at Google and Yahoo, and bleeding old media Goliaths dry.

Over two months in spring 2005, Levinsohn and a handpicked team hammered out an 80-page strategy document. A Yahoo- or MSN-style portal was out, they determined: Fast connections and search engines made aggregating content superfluous. Broadband-ready “aggressive vertical categories” were in, pegged to sports, news, and entertainment – areas where News Corp. had mountains of content, standout stars, and demographic expertise. Above all, the report concluded, speed was critical. M&A, not the company’s customary homegrown approach, was the fastest path forward.

Presented to Murdoch and the board just over a year ago, Levinsohn’s report included a short list of eight companies for potential purchase. They narrowed it down to two. One was IGN, a subscription-based gamer site that tapped one of News Corp.’s favorite demographics: young males. The other was a shady LA-based online marketing shop called Intermix, whose crown jewel – the riotous social network MySpace – had become the Net’s premier teen hangout. Murdoch loved it. “You could see this was life,” he says. “This was real.”

MySpace was big: 20 million people had signed up, and 100,000 more were arriving every day. And it was busy: 6.2 billion pageviews a month made it the fifth-most-visited site in the US from a standing start 18 months earlier. Added bonus: totally viral marketing and zero content costs.

When Levinsohn had earlier balked at choosing one company, Peter Chernin, News Corp.’s president and Murdoch’s second in command, proposed buying both. “It’s a couple of percent of our market cap,” he told Levinsohn. “Either we’re serious about this or we’re not.” The only obstacle was archrival Viacom, which was already deep in negotiations for MySpace, a perfect online mate for MTV. “They were pulling fingernails over the last $50 million,” says one News Corp. exec. Over a frantic weekend, Levinsohn trumped Viacom with a $580 million bid.

When the smoke cleared, Levinsohn and his team owned the biggest mall-cum-nightclub-cum-7-Eleven parking lot ever created. They also got the hottest pair of Web magic-spinners since Googlemeisters Sergey Brin and Larry Page. And they had a problem: how to turn this upwelling of teen spirit into big numbers at the bottom of News Corp.’s balance sheet.

MySpace cofounders Tom Anderson and Chris DeWolfe have the look and feel of a couple of guys who’ve just been shot out of a cannon. They’re sitting in a local latte dispensary a few blocks from their offices in a former Santa Monica ad agency. Anderson’s sneakers peek through ragged tears in the cuffs of his jeans. DeWolfe, huddled in a mock-Edwardian jacket, sports crocodile loafers. Did either of them ever imagine they’d be working for Rupert Murdoch? They just laugh. Back in 2003, half of the VCs in Silicon Valley were chasing the idea that the Web could connect people to one another, rather than to information. It took a couple of Los Angeles hipsters to give that abstraction – dubbed online social networking – a seriously viral form. Anderson and DeWolfe gradually cobbled together the ultimate Web-services mashup. It was a free-for-all of blogging, instant messaging, phonecam uploads, MP3s, video clips, and anything new that came along, all stewing in a broth of hot bands, hit movies, and teenage lovelies.

Like other social networks, MySpace is organized around free personal homepages, or profiles. People who designate each other as “friends” can link and post messages to one another’s pages. But MySpace profiles can also be transformed – “pimped” – by digging into their HTML code. And they can link to the rest of the Web, jacking the site into something that Silicon Valley, unlike News Corp., knows little about: pop culture. “MySpace is the site I wanted to be on,” says Anderson, the now-famous “Tom” who automatically becomes every new user’s first friend.

MySpace fits into an old media portfolio like a skateboard in a Manhattan boardroom. Even though News Corp. has a reputation for edgy content – The Simpsons, 24, American Idol, even Fox News – its business model is as old-fashioned as they come. The company earns its daily bread by luring people with carefully crafted content and selling their eyeballs to advertisers. MySpace, on the other hand, is out of control. Indeed, its core value is that users rule. They write what they like, stream their choice of music, link to their favorite sites, turn their profiles into HTML Niagaras of cascading style sheets. Hence the question: How do you manage MySpace without ruining the site’s irresistible free-for-all?

Silicon Valley has a practiced drill for dealing with hot young acquisitions: Thank the visionary founders, replace them with a SWAT team of grizzled industry vets, and start monetizing the asset. “That’s not News Corp.’s style,” Levinsohn says. “A media company depends on people with creative vision.” So instead of golden handshakes, Anderson and DeWolfe got Wall Street-size bonuses – reportedly in the multimillions – to stick around. And, other than a slew of Murdoch parody profiles and occasional avalanches of ads for Fox movies, there’s not a pixel of News Corp. presence on MySpace. “Obviously MySpace is a world unto itself,” says corporate president Chernin. “There’s never been a second when we said, ‘How do we put our stamp on it?’ We’d be crazy to interfere.”

More to the point, you don’t fire the pied pipers. MySpace’s membership has more than quadrupled since the News Corp. deal one year ago, confounding predictions that the new management would send members stampeding for the door. And the growth continues, adding a mind-boggling 280,000 new users every day – the circulation of a big-city US newspaper. Daily pageviews have passed the billion mark, second only to Yahoo. All without a shred of marketing.

To keep the juggernaut rolling, News Corp. has put $20 million into staff and infrastructure, starting with the site’s creaky servers and balky code, problems that crippled erstwhile rival Friendster just as it started to lift off. A hotline is now open for reporting online bullies and suspected cyberstalkers. A team of content monitors systematically removes overtly risqué images and obviously underage users. New features are in the works, including a drag-and-drop profile editor known as the Shuffler and an RSS desktop widget that makes it easy to post photos. In anticipation of depleting the supply of American recruits, MySpace scouts have visited China, while the new London office is organizing promotional concerts for 1.5 million UK members.

For all the monster numbers, though, MySpace is a flabby giant boxing well beneath its weight. Chernin and Levinsohn boast that monthly revenue, estimated to have been in the single-digit millions at the time of the acquisition, is doubling every quarter. But even at that rate, the newly bulked-up sales team will be lucky to pull in $200 million this year, less than 5 percent of Yahoo’s take. MySpace clearly isn’t the Net’s next great cash machine – not yet, anyway.

The most obvious problem is that the millions of profiles that are MySpace’s main real estate violate just about every rule in the marketing handbook. The site’s great strength – users’ freedom to design their pages any way they like – is an advertiser’s nightmare of scrolling, blinking, browser-crashing chaos. (And that’s when it’s not patently offensive.) The most teen-centric advertisers – Circuit City, Verizon, McDonald’s – have been willing to wade into MySpace’s black lagoon. Others are happy to take their quest for eyeballs elsewhere.

But the business flaw runs even deeper. In an online advertising market increasingly dependent on the Net’s ability to precision- target ads, MySpace offers no sure way to hit the bull’s-eye. Google decides which ads to show based on search terms and page content. By contrast, a typical MySpace pageview doesn’t offer much of a clue about anything. What conclusions can you draw when kid A bounces onto kid B’s profile and leaves the message “Wazzup”? That’s why a top-priced Google ad – say, one that appears with search results for the word “refinance” – is valued in dollars per click, while a MySpace ad clocks in around a hundredth of a cent per view. In theory, all those millions of lovingly, often exhaustively detailed personal profiles ought to make it possible to deduce a user’s interests. But no one knows how to do it, certainly not on an industrial scale. That’s why Ross Levinsohn spends his days scrutinizing advanced search technologies. “Believe me,” he says, “we’re seeing every VC’s deck.”

Meanwhile, DeWolfe and Anderson are trying to make the most of “Wazzup.” They’ve zeroed in on what the industry calls immersive ad campaigns: commercial MySpace profiles that publicize movies, albums, and consumer products. These promotions get an initial push on the site’s heavily trafficked public pages and then – if all goes well – spread virally as users add the products represented to their list of friends. (By the time Fox’s X-Men: The Last Stand opened in May, its elaborately conceived MySpace profile had already attracted 1.6 million friends.)

Levinsohn, for his part, thinks one way to make the site more ad-friendly is to introduce miniportals focused on MySpace core interests – music, movies, and comedy so far – that offer advertisers “clean” (that is, professionally designed and managed) pages. Smart stuff – but again, tidy the place up enough to make American Express happy, and it won’t be MySpace anymore.

One way or another, Murdoch talks about News Corp.’s Internet investments generating $1 billion a year by the end of the decade. Ads alone may not be able to accomplish that, but as Levinsohn points out, “there are a thousand ways to make money when you have this many people.” One obvious option is to strike an exclusive deal with Google or Microsoft to replace the site’s current (generic) search function with one provided by Google or Microsoft. (That alone could be worth every penny News Corp. paid for the site.) There’s also the initiative called MySpace on Helio. Users can sign up for a branded mobile network that means they’re never more than a speed-dial away from blasting a phonecam shot to their 235 friends. And video downloads: In May, the site began offering episodes of 24 for $1.99.

As lucrative as those ideas may be, they’re based on an old media conception of audiences as consumers. But MySpace members are something different: They’re participants. The site’s greatest value isn’t connecting people to products, people to information, or eyeballs to advertisers. It’s connecting people to people. The MySpace team is light on information theorists, but DeWolfe happily quotes Metcalfe’s law: “The value of a network is proportional to the square of the number of users.” In other words, MySpace multiplies the value of each member by connecting one to another. It’s a virtual nation of people instant-messaging their friends a link to Gnarls Barkley’s new track and decorating their pages with Family Guy clips. And that’s where MySpace could strike gold: It lets News Corp. host the cultural conversation.

Down a long hall and around a few corners from Murdoch’s command post, Jeremy Philips sits in a fishbowl office looking out on midtown’s concrete canyonland. A 33-year-old Australian who previously worked at the consulting firm McKinsey, he was recently promoted to executive vice president for strategy and acquisitions – Murdoch’s digital consigliere. Philips grabs a legal pad and draws a big V.

“News Corp.’s traditional media business has two legs: content and distribution,” he says. Then he sketches a circle in between. “That’s where MySpace fits. It’s neither one nor the other, though it shares aspects of both. It’s a media platform, and a very powerful and adaptable one. Which is why it has such enormous potential.”

When Philips says “enormous potential,” he doesn’t just mean the chance to become the next Yahoo or MSN. MySpace, the unruly child of a dodgy Net marketing company, energizes every corner of the News Corp. constellation. In doing so, it could ensure the company’s survival in the new era.

Platforms have long been the key to digital power, and the Internet only extends their scope and grip. eBay built one for retail transactions. Google’s organizes information. MySpace is a platform that gives ordinary people a place on the Net to interact with one another – and provides an expanding set of tools for doing so. With enough people, it just might be the ticket to selling media in a world where audiences, not corporations, call the shots.

How? Think of MySpace as an 80 million-screen multiplex where YouTube videos are always showing. Or an infinite radio dial where the DJs spin only the records they want to play. There may not be a working band or musician left in the English-speaking world who doesn’t have a MySpace profile. Ditto comedians, artists, photographers, and anyone else trying to catch the public eye. Why is Disney promoting Pirates of the Caribbean: Dead Man’s Chest on a News Corp. site? Because that’s where the viewers are. And that’s what a platform is: the place you have to be.

MySpace is doubly important to an old media armada like News Corp. as it navigates the infinity of distribution channels created by broadband, mobile devices, and search engines. News Corp. has been spinning deals with iTunes, two-minute mobisodes of Prison Break, and download agreements with terrified local affiliates. But none of that answers the question that gnaws at Rupert Murdoch and moguls everywhere: Without the old network certainties, who or what will perform the essential function of a media company – that is, grab and hold attention on an industrial scale? MySpace offers an answer.

Which brings us to MySpace’s ultimate value to News Corp.: the power to make hits. Umair Haque, who runs the trendy London media consulting shop Bubblegeneration Strategy Lab, puts it succinctly: “MySpace’s challenge is to do for branding what Google did for ads – to create a hyperefficient form of interaction.” In plain English, audiences create hits. Make that happen more quickly, cheaply, and reliably, and you have a philosopher’s stone for media: a Net-fueled word-of-mouth machine.

“You’ll see us morphing from a content company into a marketing company,” Levinsohn says, “a youth marketing company especially, because that’s where everything starts. No one is going to be able to control the flow of content the way we used to. MySpace gives us the ability to look inside and understand how hits get created” – that is, to spot micro-niches, track early breakouts, and identify hot IM buzzwords as they bubble up.

This is why MySpace poses a real threat to big players. It’s a nuclear missile across MTV’s bow. News Corp. personnel from Murdoch on down never tire of pointing out that MySpace reaches more kids each day than Viacom’s music channel sees in a week. The site is also a nice one-up on media wannabes Google and Yahoo, both of which have fielded their own social networks to mixed results. It’s a knock on Facebook, which avoids out-of-control content like an STD. And it rubs sand in the eyes of champion AOL, which has responded with AIM Pages, an extension of its instant-messaging service.

Murdoch’s troops affect unconcern. “Music, TV, movies, friends – those are what attracted people to MySpace,” DeWolfe says. “There has never been a social network you could buy your way into.” Theory is on his side – look how network effects have entrenched eBay. Indeed, the biggest challenge to MySpace may be something that’s inconceivable in old media: runaway audience growth. Movie and TV audiences self-select, if only by switching off. But what happens when the audience is part of the show? Participation feeds on itself, cementing established users and drawing new ones. Curious colonists from other demographics are already arriving. Forget the putative horror of being owned by Rupert Murdoch – will a sudden deluge of millions of thirtysomethings send their younger siblings running in the other direction? Senior citizens? Foreigners? (Google’s attempt at social networking, Orkut, has morphed inexplicably into a hangout for teenage Brazilians.) OMG!!! Mom has a MySpace profile!!!!!

Needless to say, that’s the kind of problem Rupert Murdoch would be happy to take up to the mountaintop (or, more precisely, his $44 million Fifth Avenue apartment) and think about. “God knows what we’re going to do with MySpace,” he says, leaning back on that immaculate white sofa. “We’re just discovering what this thing can do.” This is the kind of statement that confounds his more hidebound rivals and sends nervous chills down Wall Street’s spine: What will Rupert do next?

“You want to learn from MySpace,” he muses. “Can you democratize newspapers, for instance? What does it mean for how we do sports or politics? I don’t know – no one does. I just know we’ll figure it out.” And while he’s scratching his head, MySpace will be turning chatter into buzz, casual dilettantes into adoring fans, and homespun demos into off-the-chart successes. Popular culture will become more truly popular than ever before. Murdoch won’t have to give the people what they want – they’ll get it themselves.

---

The News Corp. chief on Google’s arrogance, American Idol, and the power of creativity.

BROADCASTING VS. NARROWCASTING
Mass media will go on. Look at American Idol, with 35 million viewers and advertisers rushing to get on. Niches have a future, too. Look at our Speed Channel, which is mostly Nascar stuff. The middle ground – that’s where you don’t want to get caught.

THE FUTURE OF TELEVISION
The majority of viewing will continue to be in a living room on a TV screen – one that is far bigger and better than what most people have today. Sure, everyone’s going to have a small screen, too. It’s a convenience. But I don’t see people sitting on the beach and watching a movie on their telephone.

THE FUTURE OF NEWSPAPERS
Can newspapers make money online? Sure. Can they make enough to replace what’s going out? At the moment, with the Internet so competitive, so new, and so cheap, the answer is no. But don’t look at it as a newspaper – look at it as a journalistic enterprise. If you’ve got authority and trust, if you can make the news interesting, you’ll survive.

GOOGLE
I like those guys, but there’s a bit of arrogance. They could have bought MySpace three months before we did for half the price. They thought, “It’s nothing special. We can do that.”

BANDWIDTH
What you get today is not real broadband, especially if you’re talking about hi-def television. Satellites are fast enough, but they don’t give you a two-way connection. That’s why we’re looking very seriously at building out a WiMax network in the US.

CONTENT VS. DISTRIBUTION
Distribution was nearly king – you couldn’t get a cable channel going in this country without John Malone. But when real broadband arrives, owning distribution will be less and less important.

- Spencer Reiss

MyEverything.

Personalize It

Jeans cut just for your hips, drugs designed just for your genome. The new me decade is a perfect fit.

By Kevin Kelleher

“Have it your way,” Burger King promised 32 years ago, pushing Whoppers and heralding the era of consumer products tailored to personal tastes. Today, Lands’ End lets you create a virtual model to your measurements and cuts clothes to fit. Adidas offers shoes customized to your feet. The British bank Abbey will emblazon your doodles on a debit card.

For all this, personalization remains the exception in hard goods. But it has become the rule online. Amazon.com uses your purchase and pageview histories to create a unique Web page that includes recommendations tuned to your taste. Netflix looks at past DVD rentals and suggests future choices. Apple’s iTunes and Google Video are prodding radio and television out of the broadcast era and into the dawning age of individualized media.

Now the trend toward personalized products is moving into a new arena: pharmaceuticals. Allen Roses, senior VP of gen­etics at GlaxoSmithKline, made headlines in late 2003 when he said, “The vast majority of drugs – more than 90 percent – only work in 30 or 50 percent of the people.” Most observers thought he was admitting failure. Actually, he was identifying a vast opportunity: the use of genetic profiles to ensure that ailing individuals receive treatments that work for them.

Prescribing medications is mostly a trial-and-error process. Doctors select the most promising medicine for a patient. If it doesn’t work, they try another. But scientists are discovering that diseases progress along physiological pathways that vary from person to person. As genomics becomes better understood, doctors will be able to use DNA tests to determine the right treatment for each individual. Genentech, Pfizer, and Gen-Probe – all on this year’s Wired 40 list – are leading the way.

The most dramatic success so far is Herceptin, a breast cancer treatment developed by Genentech. The company’s scientists discovered that breast cells in a quarter of breast cancer patients contain extra copies of a particular gene. The gene orchestrates production of a protein that encourages cell division, making this group prone to especially persistent, fast-growing tumors. Genentech created a drug to suppress that protein, and in subsequent trials, Herceptin was found to be more effective than chemotherapy in women who carry the genetic abnormality.

Patients aren’t the only ones who benefit from the personalized approach; drugmakers stand to save big money. A clinical trial that involves 1,000 targeted candidates rather than 20,000 from the general population can increase success rates and cut development time. “In the future,” says Citigroup biotech analyst Yaron Werber, “the smart companies will figure out why you responded to a drug, and why I didn’t.”

Among traditional pharmaceutical companies, one of the smartest is Pfizer. The drug powerhouse is testing two com­pounds that could benefit specific genotypes: Sutent for gastrointestinal tumors and kidney cancer, and CP-751,871 for bone marrow cancer. The tests to determine who should get these medications may well come from Gen-Probe, a leader in the nascent field of molecular diagnostics. The company is now working on a DNA screen to detect genetic markers associated with prostate cancer.

For pharmas, personalized medicine could bring big profits. But for the broader public, the stakes are much higher. After all, getting a burger your way is nice. Having drugs that reliably cure life-threatening diseases would be a triumph.
Who’s doing it?

Genentech
Personalized medicine

Gen-Probe
DNA screening

Apple
iTunes playlists

Netflix
Individualized recommendations

- Kevin Kelleher

Moving pictures.

Video Unlimited
Any time, any place, any format, any screen – there’s always something on.

By Eryn Brown

Just a quick look at the numbers told the folks at Yahoo Music they were onto something. In 2004, viewers tuned in to 2.9 billion music videos streamed from the site. In 2005, close to 25 million unique viewers visited Yahoo Music and watched 4 billion clips. But it wasn’t until 2006, when music labels started looking to Yahoo as an indispensable part of their marketing strategy, that Yahoo execs realized TV screens were being eclipsed by computer monitors and laptops.

Epic Records, for instance, had noticed that fans weren’t satisfied with videos on MTV and VH1 anymore. They were clamoring for access to music videos on all kinds of screens – from laptops to smartphones to video iPods. To feed some of that demand, Epic created a special fan video for Shakira’s “Hips Don’t Lie.” The clip, which was exclusive to Yahoo Music, became the most-viewed video on the site for three weeks. Verizon users could also watch the original video on their cell phones using the carrier’s V Cast service.

Talk of this multiscreen-video trend can sound like a rerun of that great mid-’90s hit “convergence”: TVs become PCs, PCs become TVs. But this time, industry insiders say, all the pieces are in place. The demand for content has fueled efforts by Wired 40 companies like Yahoo and General Electric (the parent of NBC Universal) to come up with stuff tailored for all kinds of different screens: first-run television shows, original content such as online webisodes of the soap opera Passions, and time-sensitive news and sports segments. NBC Universal, among its other efforts, has posted episodes of The Office, Scrubs, and Law & Order on Apple’s iTunes Music Store for download to video iPods. Saturday Night Live, also an NBC property, produces Digital Shorts that air on TV and are then posted online, where they take on a viral life of their own.

As content companies scramble, hardware makers are responding to the multiscreen demand with offerings of their own. Apple’s video iPod and Samsung’s video-enabled cell phones are just the start. Meanwhile, Apple and Microsoft are revamping their operating systems to handle digital video seamlessly. The move toward any time, any screen content also has pushed creators to post their wares on third-party sites like Yahoo (which serves up ad-backed news clips and other programming), Google (which offers free and pay video downloads), and iTunes. According to a March study by Nielsen//NetRatings, Microsoft’s MSN Video grew 44 percent in the past year to hit 9.3 million visitors in February. Google Video, which debuted only last June, had 6.2 million visitors. And Yahoo’s video search climbed 148 percent to 3.8 million visitors.

Unlike the first days of online music downloads, more content on more screens now means more revenue. At a recent shareholder meeting, GE announced that NBC Universal’s digital video offerings had already generated $300 million. More tantalizing still, says NBC Universal digital media president Beth Comstock, NBC has noticed that the new pipelines are actually expanding – rather than cannibalizing – the network’s audience. “It’s increasing the size of the pie,” she says.

Not that the companies pursuing these multiscreen consumers have figured out all the details – like how to generate profits consistently. “It’s kind of like the early Internet days,” says Kieve Huffman, vice president of media content at InfoSpace, which is planning to announce its own digital video offering for cell phones late this summer. “No one’s quite sure which business model is going to work.”
Who’s doing it?

Apple
Video iPod

GE
NBC TV online

Samsung
Mobile TV handsets

Yahoo
Music video service

- Eryn Brown

Do it ourselves.

People Power
Blogs, user reviews, photo-sharing – the peer production era has arrived.
By Chris Anderson


First, steam power replaced muscle power and launched the Industrial Revolution. Then Henry Ford’s assembly line, along with advances in steel and plastic, ushered in the Second Industrial Revolution. Next came silicon and the Information Age. Each era was fueled by a faster, cheaper, and more widely available method of production that kicked efficiency to the next level and transformed the world.

Now we have armies of amateurs, happy to work for free. Call it the Age of Peer Production. From Amazon.com to MySpace to craigslist, the most successful Web companies are building business models based on user-generated content. This is perhaps the most dramatic manifestation of the second-generation Web. The tools of production, from blogging to video-sharing, are fully democratized, and the engine for growth is the spare cycles, talent, and capacity of regular folks, who are, in aggregate, creating a distributed labor force of unprecedented scale.

The evidence is all around us. There are standard-bearers like Wikipedia and Yahoo’s Flickr photo-sharing service. There are entire realms that Second Life users are creating from scratch. And there is the enormous audience that YouTube has conjured with its idiotproof video-sharing technology.

There’s also gold in the casual Web droppings we all leave online. Much of the value of Amazon and Netflix comes from their tens of millions of customer reviews. Your click trail on Amazon is used to create better recommendations for those who follow. Your query on Google and the pages that you find relevant give feedback that fine-tunes the search algorithms. The ads you click don’t just boost revenue for Google, they also tell it how much to charge the next advertiser. These companies have found ways to harness the wisdom of the crowd, extracting information that was there all along, just latent and lost.

But the real miracle is in the more intentional work millions of us do to populate the Web: 80 million MySpace pages, 40 million bloggers, nearly a million amateur encyclopedians. The result is a shared culture of fandom, commentary, and camaraderie. And then there’s open source software, which has changed both the corporate server (Linux) and the consumer desktop (Firefox) – and given new life to IBM, a company that now thrives by building software and services atop peer-produced code.

Previous industrial ages were built on the backs of individuals, too, but in those days labor was just that: labor. Workers were paid for their time, whether on a factory floor or in a cubicle. Today’s peer-production machine runs in a mostly nonmonetary economy. The currency is reputation, expression, karma, “wuffie,” or simply whim.

This can all sound a little like, well, ’60s-style utopianism. After all, Marx himself believed that the industrial proletariat would revolt against the bourgeoisie, creating a state where the workers own the means of industrial production. It’s easy to see an echo of that in blogosphere triumphalism.

But it’s a mistake to equate peer production with anticapitalism. This isn’t amateurs versus professionals; it’s each benefiting the other. Companies aren’t just exploiting free labor; they’re also creating the tools that give voice to millions. And that rowdy rabble isn’t replacing the firm; it’s providing the energy that drives a new sort of company, one that understands that talent exists outside Hollywood, that credentials matter less than passion, and that each of us has knowledge that’s valuable to someone, somewhere.

Who’s doing it?

Amazon
Peer reviews

Google
User-based algorithms

News Corp.
80 million MySpace pages

Yahoo
Flickr photo-sharing

- Chris Anderson

Wednesday, June 28, 2006

The least charitable of foundations.

IKEA

Flat-pack accounting
May 11th 2006
From The Economist print edition


Forget about the Gates Foundation. The world's biggest charity owns IKEA—and is devoted to interior design

Rex Features


FEW tasks are more exasperating than trying to assemble flat-pack furniture from IKEA. But even that is simple compared with piecing together the accounts of the world's largest home-furnishing retailer. Much has been written about IKEA's remarkably effective retail formula. The Economist has investigated the group's no less astonishing finances.

What emerges is an outfit that ingeniously exploits the quirks of different jurisdictions to create a charity, dedicated to a somewhat banal cause, that is not only the world's richest foundation, but is at the moment also one of its least generous. The overall set-up of IKEA minimises tax and disclosure, handsomely rewards the founding Kamprad family and makes IKEA immune to a takeover. And if that seems too good to be true, it is: these arrangements are extremely hard to undo. The benefits from all this ingenuity come at the price of a huge constraint on the successors to Ingvar Kamprad, the store's founder (pictured above), to do with IKEA as they see fit.

Although IKEA is one of Sweden's best-known exports, it has not in a strict legal sense been Swedish since the early 1980s. The store has made its name by supplying Scandinavian designs at Asian prices. Unusually among retailers, it has managed its international expansion without stumbling. Indeed, its brand—which stands for clean, green and attractive design and value for money—is as potent today as it has been at any time in more than 50 years in business.

The parent for all IKEA companies—the operator of 207 of the 235 worldwide IKEA stores—is Ingka Holding, a private Dutch-registered company. Ingka Holding, in turn, belongs entirely to Stichting Ingka Foundation. This is a Dutch-registered, tax-exempt, non-profit-making legal entity, which was given the shares of Mr Kamprad in 1982. Stichtingen, or foundations, are the most common form of not-for-profit organisation in the Netherlands; tens of thousands of them are registered.

Most Dutch stichtingen are tiny, but if Stichting Ingka Foundation were listed it would be one of the Netherlands' ten largest companies by market value. Its main asset is the Ingka Holding group, which is conservatively financed and highly profitable: post-tax profits were €1.4 billion ($1.7 billion)—an impressive margin of nearly 11% on sales of €12.8 billion—in the year to August 31st 2004, the latest year for which the group has filed accounts.

Valuing the Inkga Holding group is awkward, because IKEA has no direct competitors that operate globally. Shares in Target, a large, successful chain of stores in the United States that makes a fifth of its sales from home furnishings, are priced at 20 times the store's latest full-year earnings. Using that price/earnings ratio, the Ingka Holding group is worth €28 billion ($36 billion).

This is probably conservative, given IKEA's growth prospects. Sales—the only financial information that IKEA releases—for the year to August 31st 2005 were €14.8 billion, 15.6% up on a year earlier. And there is plenty of scope for more stores. Ingka Holding has only 26 outlets in America. By contrast, in Europe, a market of comparable size, it has over 160, accounting for more than 80% of its total turnover. In April IKEA opened its first store in Japan.

If Stichting Ingka Foundation has net worth of at least $36 billion it would be the world's wealthiest charity. Its value easily exceeds the $26.9 billion shown in the latest published accounts of the Bill & Melinda Gates Foundation, which is commonly awarded that accolade.

Measured by good works, however, the Gates Foundation wins hands down. It devotes most of its resources to curing the diseases of the world's poor. By contrast the Kamprad billions are dedicated to “innovation in the field of architectural and interior design”. The articles of association of Stichting Ingka Foundation, a public record in the Netherlands, state that this object cannot be amended. Even a Dutch court can make only minor changes to the stichting's aims.

The Kamprad foundations compare poorly with the Gates Foundation in other ways, too. The American charity operates transparently, publishing, for instance, details of every grant it makes. But Dutch foundations are very loosely regulated and are subject to little or no third-party oversight. They are not, for instance, legally obliged to publish their accounts.

Under its articles, Stichting Ingka Foundation channels its funds to Stichting IKEA Foundation, another Dutch-registered foundation with identical aims, and which actually doles out money for worthy interior-design ideas. But the second foundation does not publish any information either. So just how—or whether—Stichting Ingka Foundation has spent the €1.6 billion that it collected in dividends from Ingka Holding in 1998-2003 remains hidden from view.

IKEA says only that this money is used for charitable purposes and “for investing long-term in order to build a reserve for securing the IKEA group, in case of any future capital requirements.” IKEA adds that in the past two years donations have been concentrated on the Lund Institute of Technology in Sweden. The Lund Institute says it has recently received SKr12.5m ($1.7m) a year from Stichting Ikea (which also gave the institute a lump sum of SKr55m in the late 1990s). That is barely a rounding error in the foundation's assets. Clearly, the world of interior design is being tragically deprived, as the foundation devotes itself to building its own reserves in case IKEA needs capital.

Although Mr Kamprad has given up ownership of IKEA, the stichting means that his control over the group is absolutely secure. A five-person executive committee, chaired by Mr Kamprad, runs the foundation. This committee appoints the boards of Ingka Holding, approves any changes to the company's statutes, and has pre-emption rights on new share issues.

Mr Kamprad's wife and a Swiss lawyer have also been members of this committee, which takes most of its decisions by simple majority, since the foundation was set up. When one member of the committee quits or dies, the remaining four appoint his replacement. In other words, Mr Kamprad is able to exercise control of Ingka Holding as if he were still its owner. In theory, nothing can happen at IKEA without the committee's agreement.

That control is so tight that not even Mr Kamprad's heirs can loosen it after his death. The foundation's objects require it to “obtain and manage” shares in the Ingka Holding group. Other clauses of its articles require the foundation to manage its shareholding in a way to ensure “the continuity and growth” of the IKEA group. The shares can be sold only to another foundation with the same objects and executive committee, and the foundation can be dissolved only through insolvency.

Yet, though control over IKEA is locked up, the money is not. Mr Kamprad left a trapdoor for getting funds out of the business, even if its ownership and control cannot change. The IKEA trademark and concept is owned by Inter IKEA Systems, another private Dutch company, but not part of the Ingka Holding group. Its parent company is Inter IKEA Holding, registered in Luxembourg. This, in turn, belongs to an identically named company in the Netherlands Antilles, run by a trust company in Curaçao. Although the beneficial owners remain hidden from view—IKEA refuses to identify them—they are almost certain to be members of the Kamprad family.


Inter IKEA earns its money from the franchise agreements it has with each IKEA store. These are extremely lucrative: IKEA says that all franchisees pay 3% of sales. The Ingka Holding group, the company owned by the Kamprad foundation, is the biggest franchisee, with its 207 stores; other franchisees run the remaining 28 stores, which are mainly in the Middle East and Asia.

How much money does Inter IKEA Systems make? Its results are included in its parent company's accounts filed in Luxembourg. These show that in 2004 the Inter IKEA group collected €631m in franchise fees and made pre-tax profits of €225m. This profit is after deducting €590m of “other operating charges”.

Although IKEA would not explain these charges, because its policy is not to comment on the accounts of a private group of companies, Inter IKEA appears to make large payments to I.I. Holding, another Luxembourg-registered group that is almost certain to be controlled by the Kamprad family and which made a profit of €328m in 2004.

Together these companies had nearly €11.9 billion in cash and securities at the end of 2004, even after I.I. Holding paid out a dividend of nearly €800m during the year. Most of this money has undoubtedly come from the collection of franchise fees. In total, these two groups suffered tax bills of a mere €19m in 2004 on their combined profits of €553m. Clearly, the Kamprad family pays the same meticulous attention to tax avoidance as IKEA does to low prices in its stores.

The IKEA financial system of stichtingen and holding companies is extremely efficient. Even so, next time you wonder how anyone could have come up with the fiendish plans for a Hensvik storage unit or a Bjursta sideboard, spare a thought for the Kamprads' accountants.

Copyright © 2006 The Economist Newspaper and The Economist Group. All rights reserved.

with all deliberate lack of speed.

The Times June 29, 2006

Ancient poems propelling a modern pencil boom
By Leo Lewis
MATSUO BASHO, Japan’s most famous poet, has triggered an unlikely revival in the flagging pencil market more than 300 years after his death.

A book of his poems has caused sales of the traditional HB and 2H wooden pencils to soar by nearly a third in the past few months.

Basho, often dubbed the “father of haiku”, is idolised by the Japanese. His works are drummed into every schoolchild, his deft observation of the natural world emulated by millions of haiku enthusiasts.

A publishing company sought recently to exploit that enthusiasm by creating Enpitsu de Oku no Hosomichi (Tracing the Narrow Road to the Deep North with a Pencil) — a book that has tracing paper between each page so that readers too can copy Basho’s poems as a form of meditation.

The book has sold nearly a million copies, and the effect on the pencil market has been explosive. Japanese have been flocking to stationery shops, and pencil sales have soared by about 3.5 million a month.

The tracing paper responds best to a proper, old-fashioned pencil — a propelling pencil will not do. Because readers like to trace the same poem several times, and to keep their pencils sharp, they get through them far more quickly than the prime consumers of pencils — schoolchildren.

Readers are also encouraged to compose their own haiku in the same calligraphic style as Basho. Practising the lettering has further increased the demand for pencils.

Shiyou Asai, editor of the book, hit on the tracing idea as an antidote to the frenetic lives of working Japanese. “We always seem to be looking for something we can read quickly or easily while commuting. We are used to reading things too fast, so I wondered whether people would like to experience the reverse,” he said.

Mitsubishi Pencil, which has 50 per cent of the Japanese market, is delighted. Yukako Matsuzaki, a spokesperson, said: “People are always being rather hasty in everything these days, and people must have found it good to return to the analogue world. Pencils are made of natural materials so it is a sort of return to nature.”

BASHO'S LINE OF BEAUTY

Kane tsukanu Mura wa nani wo ka Haru no kure

A village where they ring no bells!
Oh what do they do at dusk in spring?

Yamu kari no Yosamu ni ochite Tabine ka na

A sick wild duck
Falling in the evening cold
These traveller’s lodgings!

Sunday, June 25, 2006

Doing what you love.

Love at First Byte

Among the many enduring passions of Donald Knuth, The Art of Computer Programming is only the one with the most pages.

by kara platoni

In 1957, a lanky, bespectacled college student named Donald Knuth caught a glimpse of a beautiful stranger through a window and fell deeply in love. The object of his affection blinked enticingly back at him. It was an IBM Type 650, one of the earliest mass-produced computers and the first Knuth had ever seen. Although computer science wasn’t even really a science yet, Knuth was a goner.

As he would later muse in a memoir, “There was something special about the IBM 650, something that has provided the inspiration for much of my life’s work. Somehow this machine is powerful in spite of its severe limitations. Somehow it is friendly in spite of its primitive man-machine interface.” Knuth saw it as his passport to the new, man-made landscape of computer science, a world he would never tire of exploring.

Retired after more than two decades of teaching at Stanford, Knuth, 68, lives on campus in a house he helped design. Most nights you can find him in his upstairs study, a cozy room lined with so many books and papers that he relies on a computerized index to tell him what goes where. Although he stands to work at his computers, Knuth writes longhand, reclining beneath the amber lamplight in a Dux chaise lounge whose upholstery is in its third incarnation and whose powers of comfort he deems “magical.” Usually he’s attending to his masterwork, a seven-volume series called The Art of Computer Programming, which, although only half-done, is widely regarded as the discipline’s ultimate reference guide.

In providing the literary backbone of computer science, Knuth, the Fletcher Jones Professor of Computer Science, emeritus, has racked up nearly every honor the discipline has to offer: the first Grace Murray Hopper Award in 1971, the Turing Award in 1974, membership in the National Academy of Sciences in 1975, the National Medal of Science in 1979, and the Kyoto Prize in 1996. You would be hard-pressed to find a programmer who does not consider him the discipline’s Obi-Wan Kenobi, the venerable Jedi master who is too humble to make a big deal out of being a big deal.

Before young Donald met the IBM 650, he was a physics major from Milwaukee at the Case Institute of Technology (now Case Western Reserve). His interest in physics was a departure from a long-contemplated career in music: he played the organ, tuba, saxophone and sousaphone. Then one day, having missed the bus to band practice, he unraveled an extra-credit math problem so difficult that his professor had promised an automatic A in the course to anyone who solved it. By the year’s end, he was the math major with the highest GPA in his class. Knuth published two scientific papers as an undergraduate, not counting his debut article that devised a system of weights and measures for Mad magazine. (Basic unit of force: the whatmeworry.)

Yet Knuth’s switch to mathematics was nothing compared to the conversion inspired by the computer. Within a year of that love-at-first-sight moment, he had written a user manual and instructional software for the IBM 650. The world at large first witnessed his programming skills in 1958, when the CBS Evening News covered a computerized “magic formula” Knuth had devised to crunch the statistics of Case’s basketball players.

Knuth’s next stop was the California Institute of Technology, where he completed his doctorate in mathematics and consulted for the Burroughs Corporation, which designed computers. He soon found himself at the forefront of a new discipline, albeit one then regarded somewhat warily by academics. “Mathematicians have a well-established field that’s gone on for hundreds of years, and computer people were the new kids on the block,” Knuth recalls. The young professor believed that computer science would enrich and reinvigorate math, the way physics had broadened it during the 19th century. Discovering that high-level math could be applied to computer science, he says, “was like discovering gold, or a new vein of stuff to be mined.”

“He was basically the first great mathematician to take computer science seriously,” recalls Christos Papadimitriou, a former Stanford colleague who now teaches at UC-Berkeley. “He did it by introducing rigor and elegance into programming.”

Indeed, these have long been Knuth’s watchwords. Rigor is providing mathematical proof that a program is correct. Where proof was a time-honored concept for math, Knuth says, in the early days of computer science people just wrote code, then fixed bugs wherever they popped up. Knuth wanted to verify that programs worked in advance. Something is elegant, he says, if it is spare, memorable and pleasingly symmetrical; if it has the ease and immortal ring of an E=mc2. Therein lies the art in computer programming.

In the early ’60s, publisher Addison-Wesley invited Knuth to write a book on compiler design. Knuth eagerly drafted 3,000 pages by hand before someone at the publishing house informed him that would make an impossibly long book. The project was reconceived as the seven-volume The Art of Computer Programming. Although Knuth has written other books in the interim, this would become his life’s work. The first three volumes were published in 1968, 1969 and 1973. Volume 4 has been in the works nearly 30 years.

Its subject, combinatorial algorithms, or computational procedures that encompass vast numbers of possibilities, hardly existed when Knuth began the series. Now the topic grows faster than anyone could reasonably chronicle it. “He says if everyone else stopped doing work he would catch up better,” deadpans Jill Knuth, his wife of nearly 45 years.

One of the reasons Volume 4 is so delayed is that Knuth slowed work to spend time with his family. “He started writing these books actually before we were married,” Jill recalls. “He worked on it on our honeymoon. He had this idea that this project would be complete by the time our first child was born. Now our oldest son is 40.” Their children, John and Jennifer, were born within a year and a half of each other, and trying to complete the series while caring for two babies was too much. “We had to sit down and say this is a lifetime project, and if we accept it that way it will go a lot better,” she says.

Another reason: Knuth is the consummate perfectionist. “It’s frustrating because I have high standards,” he says wryly. “But the way I write, each page has at least 100 ways that it can be wrong. I don’t just say something is ‘faster,’ I say it is ‘12 percent faster.’ I’m always going out on a limb to give precision, and that takes a lot of time and a lot of cross-checking.”

Elegance may be the ultimate reason for Volume 4’s delay. Knuth adores beautifully designed textbooks, and in the late ’70s, they were becoming an endangered species. As publishers were switching over from lead type to digital layout, or as Knuth once put it, “from metallurgy to bits,” quality had slipped dramatically, particularly for technical publishing, which had long been derided by printers as “penalty copy” because it was so hard to do.

“The worst of it was the spacing, the way the letters would jam up against each other,” Knuth says. “It was like if you took every letter and you wiggled it and made some of them go up and some of them go down. It wasn’t random—it was systematically bad.” Because the letters in some words got smooshed together, it gave them the illusion of being darker than the others. The eye is naturally drawn toward dark spots, so the reader’s focus would jump all over the page. By 1976, when it was time to print a second edition of Volume 2, Knuth could no longer stand to look at his own work, and he felt that other scientists were getting a similarly raw deal. “We didn’t want our papers just to be there, we wanted them to be beautiful,” he protests. “I wouldn’t have wanted to write The Art of Computer Programming if it was going to look ugly.”

Knuth took it upon himself to find a solution, even though his typesetting experience was limited to a high school job at a print shop and some experiments with the offset press his father had kept in the basement. Typesetting was no longer a manual craft. “It had changed into a problem of bits, zeroes and ones,” he says. “You put the one where you want ink on the page and zero where you don’t want ink. So I figured, okay, I’m good at zeroes and ones.”

In 1977, Knuth halted research on his books for what he expected to be a one-year hiatus. Instead, it took 10. Accompanied by Jill, Knuth took design classes from Stanford art professor Matthew Kahn. Knuth, trying to train his programmer’s brain to think like an artist’s, wanted to create a program that would understand why each stroke in a typeface would be pleasing to the eye. “I wanted to try to capture the intelligence of the design, not just the outcome of the design,” he says. For example, how do you insert line breaks into a paragraph so there isn’t too much space between words and so that most of the lines don’t end in hyphens? Although this seems like an aesthetic challenge to be solved by human taste, Knuth says, computers do it well. “This is a combinatorial problem,” he explains. “There might be a thousand ways to break a paragraph into lines and each way has a score.” His solution was to build a computer program capable of ranking the thousand options and picking the best one.

Usually a lone wolf, Knuth collaborated on his typography programs with some of the world’s best typographers and his students. He produced two software programs, the TeX typesetting system and the METAFONT alphabet design system, which he released to the public domain. The programs are used for the bulk of scientific publishing today. “He made everybody’s life so much better and made the scholarly work so much more beautiful,” Papadimitriou says. “He has exported a lot of good will for computer science.”

Knuth was one of the first people to pronounce computer programming an art, believing that even the programs that crunch your taxes and produce your bank statements should be elegant. Like artists, he says, programmers have individual style and are propelled by intuitive leaps—Knuth knows he’s not really ready to solve a problem until he can think of it without using pencil and paper; his best ideas rise up from his subconscious while he swims. And like artists, he says, computer scientists are driven to produce. “Like a poet has to write poetry, I wake up in the morning and I have to write a computer program,” he says.

One of his most famous contributions to computer science is the idea of literate programming, that programs should be written so that people, not just computers, can understand them. They should be teaching instruments that explain themselves to subsequent programmers, making them more adaptable, less buggy and more enjoyable to read. An ideal program, he says, can be read by the fireside, like good prose.

Scott Kim, ’77, PhD ’88, one of Knuth’s doctoral students at Stanford who is now the brain behind Discover magazine’s Boggler puzzle, remembers how much Knuth emphasized enjoyment. “When it came to my dissertation defense, he said ‘This is a celebration, invite lots of your friends.’ ” Knuth is famous for his playful touches: the clever epigrams at the head of his chapters, the practice of paying a hexadecimal dollar (that’s 100 in base 16, or $2.56 for us decimal-system folks) to people who spot mistakes in his work. The last time Knuth consulted his bankbook, he’d written out more than $20,000 in checks for errata, although people rarely cash them—the checks are collectors’ items. He likes to hide jokes in the index, as in Volume 3, where “royalties, use of” leads you to a page with an illustration of an organ-pipe array, a little wink to the 16-rank organ that dominates his home. He plays four-hands music with Jill, who swears that the neighbors tend to complain that the music emanating from their house is in fact not loud enough.

Most of all, Knuth, a devout Lutheran, is known for being kind. “By virtue of being near him, you feel you are smarter and a better person,” says Papadimitriou. However, people who bring this up in Knuth’s presence tend to encounter what we will here dub the Knuth Modesty Paradox, in which the greatness of his achievements is inversely proportional to his willingness to admit them. He’s made it clear that he considers himself less of an innovator than a cataloguer. “He once told me that his very talent is detail and he didn’t consider himself all that brilliant otherwise,” Kim says. “His comment about playing the organ is you just hit the keys at the right time and the instrument plays itself.” No doubt he also believes that if you just hold the pencil long enough, the equations write themselves.

Has Knuth’s love affair with computer science changed over the years? The man who essentially gave away two of his greatest creations, TeX and METAFONT, is troubled by the software industry’s trend toward patenting everything, even the trivial. “This is a big detraction from doing creative work,” he says. “Imagine you are a writer and people have control over certain words in your vocabulary and you have to pay them a license to use their words!”

He wonders how long computer science, which is, after all, a man-made field of study, will continue to provide challenging problems that aren’t too esoteric or derivative. “We’re nowhere near the limits of interesting things to do—we’re getting more every year than we had the previous year,” he says, yet muses, “How can we predict that that’s going to continue, that we aren’t going to have some kind of closure?”

But he’s also very hopeful about the field’s future—computers are more powerful than ever, and the kind of cross-disciplinary cooperation he enjoyed with artists during his typography days is increasingly common. Just as he showed mathematicians that computer science would give them new room to explore, he hopes scholars from other fields will infuse computer science with fresh ideas. “The scientific world of the future will be pairs, or connections,” he says. “Everybody is going to be a bridge between specialties.” Fascinated by interdisciplinary overlap, Knuth is researching a book on how people computed before computers, finding the roots of binary thinking in places like the I Ching and ancient Greek poetry.

In retirement, he still writes several programs a week. He no longer advises students, but he hosts free public Computer Musings talks several times a year, drops in on graduate-level courses occasionally, and bikes to campus most days of the week to use the libraries or swim at the aquatic center. He famously regards e-mail as a time sink and no longer reads it—except for correspondence (printed out by a department secretary) relating to errata or his current work. His primary agenda item is, after all, Volume 4, although every few months he’ll browse journals for items to squirrel away for Volumes 5 through 7. People inquire delicately about how he expects to complete a seven-volume project at his current pace, and Knuth concedes he’ll be content to finish the first five. Those are the core of his series, he says, and the last two are more specialized topics. “If I get to the end of Number 5 and I see nobody’s yet written what I want to say about Number 6, I’ll continue.” Despite the enormous changes in computer technology since he began his series, the English editions of each of the first three books still sell about 3,000 copies annually. The books have been translated into 10 languages, with more on the way.

Those around him also seem unfazed by the enormousness of his task, including his extraordinarily patient editor (“When I actually present him with something, he’s surprised,” says Knuth) and Jill, who recently tried to urge deadline compliance with the help of stickers on a chart. She gave up when her husband overshot every goal. “Because he is a perfectionist, he is often tempted to go off on a sidetrack,” she says. “The whole typeface thing was one of those branches, and that’s been beneficial to a lot of people. Nobody can say he shouldn’t have done it.”

For a guy who’s devoted to exploring, this is fitting. “The journey is more important than the destination—that’s part of life,” he says. “If you only live for getting to the end, you’re almost always disappointed.” Perhaps, he adds, what seems like a liability is really a stroke of luck. “If I had been good at making estimates of how long something was going to take, I never would have started.”

His hair is whiter than when he began his journey, and his sideburns more brushy, but he is still the curious soul who has devoted his life to explaining humans and machines to one another. As the rest of the neighborhood sleeps, Knuth gets up from his magically comfortable seat and takes the first volume of The Art of Computer Programming from the shelf. He reads the dedication aloud: “This series of books is affectionately dedicated to the Type 650 computer once installed at Case Institute of Technology in remembrance of many pleasant evenings.” He closes the book, looking a bit misty. “It brings tears to the eye,” he says softly.

KARA PLATONI is a staff writer for the East Bay Express.

Good business ideas everywhere.

Success, no bun necessary

Hot Dog On A Stick keeps growing, with $40 million in sales last year

By Frank Green

STAFF WRITER

April 8, 2006

Sixty years on, Hot Dog On A Stick is still cutting the mustard.

The employee-owned, grab-and-go chain had $40 million in sales last year using the same stripped-down menu its late founder created just after World War II at a Venice Beach food stand in Los Angeles:

Harpooned frankfurters dipped in cornbread batter and deep-fried, and fresh-squeezed lemonade.

Add to that cheese-on-a-stick and french fries, and it makes for one of the most compact menu boards in the fast-food industry.

“We keep it simple with four distinct items,” said Fredrica Thode, the Carlsbad-based company's president and chief executive officer.

Analysts say Hot Dog On A Stick is an anomaly in the quick-serve business for reasons other than its elemental offerings.

The company's 100-plus stores – seven of which are in San Diego County – average nearly $400,000 in annual sales, comparable to the typical Subway sandwich shop, but with far lower overhead costs, analysts noted.

Virtually all of the outlets – each of which covers only about 500 square feet of retail space – are tucked away in shopping malls where customers want to get a meal or snack on the run.

Because Hot Dog On A Stick doesn't use such fast-food amenities as drive-through lanes, large dining rooms and wide menus, it can “minimize its labor requirements, typically employing no more than three workers at a time,” said Stuart Morris, president of QSR Consulting Group in Coronado.


DON KOHLBAUER / Union-Tribune
Hot Dog On A Stick lured a customer at Carlsbad's Westfield Shoppingtown Plaza Camino Real.
The company “has taken a few low-cost menu items and elevated them to extremely crave-able meal and snack-time revenues,” Morris said.

Most stores in the chain are branded under the corporate moniker, although some outlets in more upscale malls, including Fashion Valley, carry the company's Muscle Beach logo.

Some landlords have been “snobby” about Hot Dog On A Stick's name, considering it “reminiscent of carnivals and the circus,” said Thode in explaining the logo variation.

At the Hot Dog On A Stick in Carlsbad's Plaza Camino Real mall the other day, customers said they wanted food they could easily chew while walking down the aisles in nearby stores.

The outlet – which stands out among other stores with its somewhat gaudy red, yellow and blue color pattern – looks like a scrubbed-up version of a county fair food concession.

Moreover, employees wear distinctive striped uniforms in clashing colors that give them the look of airline stewardesses from the 1960s.

Hot Dog On A Stick's primary audience includes young mothers with children who walk the mallways looking for a quick snack or meal. Other prime customers include young teens, as well as older parents whose own parents took them to Hot Dog On A Stick when they were kids.

“We start to lose the teenagers once they get cars” and shy away from the mall, Thode said.

Hot Dog On A Stick was founded by Dave Barham in 1946 at a small stand at Venice Beach.

Barham, who had been working at a Lockheed plant, wanted to run a small business that would give him time for surfing along the fabled Los Angeles shores.

After borrowing $400, Barham bought a cotton candy stand on the beach and began selling deep-fried hot dogs using a family cornbread recipe.

From 1949 to 1972, most of Barham's business was conducted at county fairs in the region, including the Del Mar Fair. But one day, Barham had a surplus of hot dogs, batter and lemonade left over from the Ventura County Fair.

He transported the goods to his just-opened store in Torrance's Old Towne Mall and quickly sold out.

From that point on, Hot Dog On A Stick expanded rapidly by concentrating on niche locations in shopping centers. The company grew to 22 such stores by 1980.

Barham moved the company to Solana Beach in 1980 so the business would be close to his condominium at the Del Mar Beach Club. The firm relocated again in 1999 to Carlsbad.

Thode said one key to Hot Dog On A Stick's ongoing success has been the ownership of the company by its more than 1,500 employees, a concept Barham embraced when he made plans before his death in 1991 to turn over the business to his workers.

“Dave trusted his employees and treated them as if they were the owners” of the company, said Thode, who was hired as a receptionist at the company in 1990.


Under specifications in Barham's trust, Hot Dog On A Stick employees bought the firm for $10 million upon his death, paying off the purchase price over the next six years using company profits.

Employees become vested in the program after seven years, when they begin to “amass value” based on salary and an independent valuation of the company's assets.

Workers – who don't have a say about operations at the corporate level – can cash in their stake when they quit or retire.

“We have very low turnover because of employee ownership,” said Thode, noting that all 30 employees at the company's headquarters have been in place for at least three years.

Hot Dog On A Stick is growing at a rate of between five and 10 new outlets a year.

Thode said the company is also looking at the possibility of franchising some outlets to employees who opt to leave the company and start their own businesses.

Of course, all will be located in neighborhood malls.

“When you sell (hot dogs) at $2.50 apiece, you have to be where a lot of people are,” Thode said.

© Copyright 2006 Union-Tribune Publishing Co. • A Copley Newspaper Site

Comedy out of tragedy...for a price.

June 25, 2006

Tragicommerce

By ROB WALKER

Da Mayor in Your Pocket

A few days into the Hurricane Katrina crisis, Steve Winn was in a hotel room in Memphis when he heard a now-famous radio interview with Mayor C. Ray Nagin of New Orleans. Begging for more federal help and using harsh language, Nagin sounded raw and desperate. A New Orleans native, Winn evacuated before the storm, assuming that he'd be home in a few days. Winn's company was also based in New Orleans: Emanation Inc., maker of amusing novelty items like Cajun in Your Pocket (a plastic device with six buttons that plays recordings of Cajun sayings) and the similar Mr. T in Your Pocket. But like many evacuees, Winn was thinking not so much about work as about the implications of this disaster for his life, and for a place that he loved, and he was frustrated about what seemed an impotent government response to the catastrophe. So he didn't know what to make of it when friends and acquaintances called him with the following suggestion: The interview was great fodder for a Nagin in Your Pocket.

Winn didn't take that advice — at first. There was nothing cute or campy about Nagin's remarks, and the hurricane was a deadly tragedy, not a pop-culture moment. Winn had friends who had lost everything. He understood Nagin's tone. "That's kind of how I felt," he says. Gradually, however, his thinking changed. Da Mayor in Your Pocket ("da" instead of "the" to reflect a local accent) became commercially available several months ago, emitting sound bites from that Nagin interview like "This is a national disaster," "You gotta be kiddin' me" and several that can't be printed here. Thousands have been sold. Nagin himself held one up in a speech during the New Orleans mayoral election (which he eventually won, last month).

Winn's gizmos, which started with the Cajun version in the late 1990's, are not technological marvels — when Winn got hold of a manufacturing-source directory, he found pages of companies in Asia capable of building talking toys designed around an integrated circuit chip. But he figured that the "in your pocket" hook, combined with picking the right phrases (like "You gotta suck da head on dem der crawfish") could catch on in French Quarter tourist shops. The Mr. T version involved working out a deal with the actor (or whatever Mr. T is), and Winn was able to get it wider distribution, including Urban Outfitters. He followed up with Triumph (the Insult Comic Dog), a couple of characters from "Family Guy" and, most recently, Scarface in Your Pocket. ("Say hello to my little friend," it says.)

Da Mayor in Your Pocket is obviously in a category apart. But spinning products off events, or even off what the historian Daniel Boorstin called pseudo-events, is not rare. A whole section of the Web site CafePress is devoted to news-driven products — from illegal-immigrant-bashing tote bags to coffee mugs commenting on the wiretapping controversy. Not long ago, a minor league hockey team gave away "Runaway Bride" bobble-head dolls, in a nod to a brief-lived cable news spectacle, as a ticket-selling promotion (some fans promptly sold them on eBay). A later Nagin speech — the one in which he used the phrase "chocolate city" — inspired plenty of T-shirts and the like. If shared references focus consumer attention, those references can evidently be drawn not just from a cultural property but from the headlines of the moment.

Winn is living in Atlanta, unsure when he might be able to return permanently to New Orleans. He did not make Da Mayor in Your Pocket to mock Nagin, he says. It's just that, as time went by, and people kept bringing it up, he began to wonder whether something about the idea didn't make sense in a perverse, New Orleans kind of way. "In New Orleans," Winn says, "people are cut from a different cloth." He had a batch made with no packaging and gave them to friends. They loved them — and the items soon came to the attention of store owners, who wanted to sell them. Winn also sells them online and in a few stores across the country, but most of the buyers are in New Orleans. Perhaps the mere existence of such a thing offers relief, as evidence that life goes on — or perhaps if there's one thing New Orleanians love, it's anything that non-New Orleanians simply cannot fathom. "I still don't know why people laugh at it," Winn says, pausing for a moment before adding in a tone that suggests he's as surprised as anybody, "But it is funny."

E-mail: consumed@nytimes.com.

Copyright 2006 The New York Times Company