According to the Washington Post, one car industry expert maintained that while the car sharing industry, in which both Flexcar and Zipcar are engaged, may not supplant the more traditional car rental market, it has developed a "little cult of users." Both Flexcar and Zipcar, the nation’s two largest car-sharing firms, rent cars by the hour to people who are able to satisfy their environmental consciousness, while avoiding the expense of car ownership. I must admit I never really thought this idea would take off. It could be because I grew up in LA and cannot image getting around without owning a car. Or maybe it is because the car sharing industry relies significantly on students, and hence I wonder about the wear and tear on the cars being shared. Yet now that I think about it further, it seems that the car sharing industry is just a further extension of the leasing business model, whereby people are able to use cars without the expense and hassles of car ownership. Indeed, the car sharing companies take care of gas and insurance. And because relying on car sharing means you do not have to worry about where to park your car, it certainly makes sense for people who live in cities like DC where parking is scarce. Of course neither of the two car sharing companies has managed to achieve profitability. However, the two companies hope profitability is just around the corner, and hence plan to merge in order to establish one identifiable brand that offers a larger fleet of cars to share. Experts predict that a larger fleet of cars will allow the company to achieve economies of scale and hence make more money. I can imagine that offering a larger fleet of cars also provides certainty for customers regarding the availability of cars, thereby ensuring their commitment to the car sharing arrangement. Since I am not personally aware of anyone I know actually participating in car sharing, it could be that this trend has simply passed by me. Yet I can imagine that if the new company is successful in getting students to believe that car sharing is a viable and environmentally friendly alternative to car ownership, then there could be a core set of people committed to this industry and its business model.
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Before, I said Crocs rock. Now, it turns out, Crocs bite. Looks like kids, Crocs, and escalators don't mix. It's gotten to the point, CNN notes, that:
One of the nation's largest subway systems -- the Washington Metro -- has even posted ads warning riders about wearing such shoes on its moving stairways. The ads feature a photo of a crocodile, though they don't mention Crocs by name.
Ouch!
Crocs says it's working with the Elevator Escalator Safety Foundation on public education initiatives, but that's apparently news to the foundation.
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Steve Jobs rents the Moscone Center, calls everyone in for the show, and then announces he's slashing the iPhone price $200 bucks and that Apple is gonna give the iPods iPhone interfaces. Used to hearing more exciting claims from the CEO, the analysts slash Apple's stock value - mostly while Steve Jobs is talking.
Sometimes the hype machine can turn on you. I liked the way Fake Steve Jobs described his thoughts before the presentation:
I have been up all night, energy coursing through my body. I'm totally electric. I'm vibrating at the frequency of the highest astral plane, thinking about what we are going to unleash upon the world on this day, September 5, 2007 -- a date that will live in history. Yes, it is big. It is huge. It is profound. But the words big and huge and profound are not sufficient to describe this event. No words, in fact, can contain the magnitude of today. Seismic? Still not big enough.
Well, it's tech after all, but the reaction to the stock did seem a little seismic, especially in speed. But, then, I'm a lawyer; financial economists report during-the-announcement volatility is par for the course; or, more precisely that "prices react significantly to news over a 2 hour window on the announcement day."
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For some reason, a financial scandal doesn't excite me the way it does most people. I guess I'm something of a cynic: newspapers need to fill column-inches, TV networks need to fill airtime (oh, and law professors need to fill law journals and resumes). At least to some extent, IMHO, financial scandals may be manufactured by media coverage. Or if not manufactured, at least sensationalized.
So I've been following the mortgage crisis with only one eye. But that one eye was caught by Gretchen Morgenstern's NYT piece two Sundays ago (sorry, I been busy), where she does something of an expose on Countrywide, the giant mortgage lender that has just been rescued by BofA. Her tagline for the piece is Countrywide's scripted pitch that it's getting "the best possible loan" for the customer. She also echoes familiar outrages expressed about mortgage lenders and the mortgage crisis:
1. Countrywide made risky subprime loans they should not have made.
a. subprime loan terms are unfair
b. Countrywide made too much money from subprime loans
2. Countrywide is now getting its comeuppance, as subprime mortgage defaults are causing massive losses.
3. securitization of mortgage debt is bad because it enables Countrywide and other mortgage lenders to lend irresponsibly and dish hidden problems to unsuspecting securities purchasers.
No doubt, the real estate downturn is causing much suffering for folks who are being hit with interest rate adjustments that can't meet. How much of that is Countrywide's fault, though, I'm just not sure.
Subprime loans are surely risky, and according to Ms. Morgenstern's piece, 25% of Countrywide's subprime loans are now delinquent. What this means also, though, is that 75% of Countrywide borrowers now own homes they would not have been able to buy if the subprime mortgage market had never emerged. And without securitization to diversify the risk of these overly risky loans, lenders would not be making these loans, and many fewer folks would be homeowners.
Ms. Morgenstern points out objectionable loan terms--prepayment
penalties, teaser interest rates, 100% financing, and loans requiring
no supporting documentation of borrower income. Each of these no doubt
places risk on borrowers. OTOH, each also makes it easier for a
subprime borrower to get a loan. I hate prepay penalties myself, but
presumably the borrower gets a break on the interest rate in exchange
for accepting the term, which gives the lender (and investors in
mortgage-backed securities) some short-term protection from market-wide
interest rate drops. 100% financing is also risky for both lender and
borrower, but again, easy financing puts folks into homes they
otherwise could not buy. Moreover, each of these terms shows up in
prime loans as well. Are they inherently evil?
Countrywide made way too much money from these loans, according to
the article, and now they're taking it on the chin. The stock price is
dropping and Countrywide had to draw down its bank credit line. Again,
I'm not sure how this counts as a criticism. Countrywide took some
risks by lending into the subprime market. For a while, the risktaking
paid off. Now it turns out that delinquency rates are up, and
Countrywide is smarting. But that's how it goes, right?
Ms. Morgenstern also objects to smooth sale pitches, agents pushing home equity lines, high closing costs, and high appraisal costs, among other things. We all hate these things, and perhaps Countrywide sale agents were pushier or slicker than most, but this is hardly expose material.
I don't want to minimize the human and financial toll of too-easy credit. But I foresee Countrywide becoming the Wal-Mart of subprime mortgage lenders--condemned by being the biggest to also being the scapegoat. Too much smoke just obscures the discussion of what ought to be done.
Most observers seem to agree that market failure abounds in the subprime mortgage market (though I'm hardly an expert). But regulating is tricky. Though fraudulent representations to borrowers must surely be at least part of the story, even coming up with a definition of "predatory loan" is controversial. As with Ms. Morgenstern's attack, many loan terms common in predatory loans also appear in prime loans. What about disclosure? A whole raft of federal disclosure regulation already exists--perhaps too much? Anyone who has bought a house is familiar with the raft of federal (as well as local) disclosure documents that accompany a mortgage. Moreover, any regulatory approach should keep in mind that a lot of folks are (presumably) happy homeowners because of the availability of subprime mortgages.
Today's NYT discusses the plight of Maple Heights, a small town in Ohio because of slumping real estate values and foreclosures. There, an advocacy group called East Side Organizing Project is helping homeowners renegotiate their mortgages. Countrywide is in their cross hairs as well. Besides protesting outside Countrywide offices, they've scattered plastic sharks on the lawns of Countrywide's regional managers.
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Are Crocs ugly? There are websites devoted to their derision. The proprietary resin ("NOT plastic NOR
rubber") shoes have even won Ugly Shoe of the
Year awards. The company's stock, OTOH, has had a pretty good run since its IPO
in early '06. It IPO'd at 21; it closed Friday above 47.
Financial pundits have debated the staying power of the company and its Croslite (TM) clogs. Now Crocs have finally made it to my Sunday morning reading via the NYT Magazine. I tend to view this as something of a milestone. Even if Crocs are just a fad, NYT coverage arguably elevates them to bona fide cultural phenomenon status. So I wandered around the company's website for a little bit. The quick history of the company goes like this:
Its (sic) all started when three Boulder, Colorado based founders decided to develop and market an innovative type of footwear called Crocs™ shoes.
Originally, Crocs were intended as a boating/outdoor shoe because of its slip-resistant, non-marking sole. By 2003 Crocs had become a bona-fide phenomenon, universally accepted as an all purpose shoe for comfort and fashion.
I also found out the originals now come in college colors, which for some reason I find endearing. My kids wear the original ugly ones, too, as does just about every kid in their preschool and many of the parents. So far my wife and I haven't succumbed (though for me, it's just been about finding my size in a color I can stand). Probably a shoe and a company to watch.
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As your go to source for family business gossip, and lengthy Sunday profiles of business titans, I would be remiss if I didn't point you to the Post's excellent account of the 75-year-old Bill Marriott's increasingly permanent tenure as CEO of the eponymous hotel chain - one of the few actual businesses that started in the District of Columbia that didn't involve government contracts (the Marriotts began with one (1) root beer stand). Marriott doesn't want to leave the job now. I got the sense that he plans to die with his boots on. But ... "There are other issues keeping Marriott behind his desk, the most personal and discomfiting being that nobody with the last name Marriott appears ready to succeed him."
It's a good analysis of a business dynasty and an interesting look in at a company that got to be a category leader by never, ever being cool. Marriott, instead, excells at consistency. I've never looked forward to a stay at a Marriott Courtyard - the company's most successful brand - but I've always been pleased to know pretty much exactly what I'll be getting.
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When Khaja M. Din approached me several years ago with an idea for creating an internet privacy and ID theft prevention solution, I was intrigued but skeptical. Many of the students who enroll in my Law & Entrepreneurship Seminar have nascent business ideas, and they rarely get beyond that. But Khaja was convinced that he was onto something big. He may be right.
Check out the a.K.a. Card. It is simple and ingenious. At the moment, however, it isn't cheap: $14.99/month. I haven't spoken with Khaja about this for awhile, but this looks like a company Citi or MBNA should buy so that they can bundle it with their existing cards.
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Ann discovered the charms of business histories on the road:
I adore [Paul] Orfalea, [founder of Kinko's,] who wrote a memoir called "Copy This! How I turned Dyslexia, ADHD, and 100 square feel into a company called Kinko's." He got me through the loneliest segment of that 1235 mile drive from Austin to Madison last month as I clicked the satellite radio over to C-Span and heard him giving a talk based on that memoir. What a wonderful, inspiring guy! Did you know Kinko's is called Kinko's because Ofalea was called Kinko because of his kinky hair.
As I have noted many times on this blog, I love business histories. When well done, they are both dramatic and instructive. With a recommendation like Ann's, Orfalea's book just went on my summer reading list.
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I confess to being a bit of a residential real estate voyeur. Like others of my ilk, I sometimes browse the real estate listings in my neighborhood or town just to get a sense of what’s out there. I’ve used Realtor.com and ZipRealty, among others. I’m still waiting for the internet to become the great equalizer for the consumer. Standard broker commissions haven’t gone down much, as far as I can tell, although fee-for-service arrangements appear to be more common, and DOJ is currently prosecuting an antitrust suit against the National Association of Realtors for its “blanket opt-out” rule, which enables traditional brokers to inhibit online brokers from providing complete MLS listings to their customers.
It was interesting to see Zillow, a relatively new real estate website, as the subject of a recent Fortune cover story. Zillow is trying to innovate, to go above and beyond the basic internet listing site. It is intensely data-focused, unlike most real estate sites. It aspires to collect and analyze lots of data on every house in the nation, in order to be able to offer accurate valuations across the board. The site collects publicly available information on each home, and also allows a homeowner to update existing information on her house. Zillow’s proprietary valuation algorithm calculates a “Zestimate” of the value of each home once enough data has been obtained. Apparently, much or most of the data used to Zestimate a house are publicly available. It’s another nice example of the power of the internet to aggregate “small” information—lots of little bits of data, each piece of which may be useful to only a handful of people, such that collection, analysis, and dissemination just wouldn’t be cost-effective pre-internet. (See here for another example).
Zestimates are far from perfect, of course, and there are lots of parts of the country where Zestimates are either unavailable or way off. To its credit, Zillow gives statistics showing Zestimates coverage (as a percentage of all houses) in major metropolitan areas, as well as ratings and statistics on Zestimates’ accuracy in each market, including median error as a percentage of selling price and percentage of Zestimates within 10% of selling price.
The site also has amazing “bird’s eye view” photos of houses from multiple perspectives. They’re taken from fairly close up—much better, say, than Google satellite photos. I can actually “walk” down the street of my childhood home, identifying each house on the street. Another interesting innovation is the Make Me Move option, which allows a homeowner to effectively announce to the world the price at which she’d be willing to sell, without actually going to the trouble and cost of a formal listing. Potential buyers can email the owner via the website. I was a little surprised at how popular this Make Me Move tool is. There are several hundred Make Me Move homes in Atlanta, and almost 70,000 nationwide.
Worth a look.
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. . . ain't the hazard it used to be, at least not if you want to run Coca-Cola. Coke just appointed Muhtar Kent as its president and COO, making him the No. 2 behind CEO Neville Isdell, as well as Isdell's likely successor. Almost ten years have passed since Kent was fired from a senior position with Coca-Cola Amatil--a regional bottler based in Sydney--for shorting 100,000 of his own company's shares just hours before the company issued a serious profit warning that caused a drop of $2.5BB in the company's market cap, almost a 30% loss. Kent had been managing director of the bottler's European division. He apparently made about $324,000 from the sale. After an investigation by the Austrialian Securities Commission, Kent coughed up the profits and another $30,000 to cover the costs of the investigation.
This past October, Kent denied prior knowledge of the impending profit warning, calling it all a "bad coincidence." The current official story from Coke is of the "dog ate my homework" variety:
Mr Kent was advised by his financial adviser to diversify his financial portfolio, which at the time consisted solely of KO stock and CCA stock options. . . . He accepted the proposal and left it to the financial adviser to execute. In doing so, he did not fully understand that it would involve a short sale or the elements of a short sale. As a result, he also did not know the specific timing of the transaction.
So he didn't know about the impending profit warning. And he didn't know about the impending short. Hmmm . . . Sorta sounds like Martha Stewart's oral stop loss order. I'm also not sure how short-selling diversifies his portfolio. And why was he shorting his own company anyway?? When Kent was made president of Coca-Cola international in January, less than a year after rejoining Coca-Cola, it made Colin Barr's The Five Dumbest Things on Wall Street This Week at TheStreet.com. Or you can watch the video.
In any event, CEO Isdell (declining to be interviewed) recently
issued a written statement: "Without doubt, Muhtar is a man of the
highest integrity and deepest skills."
When Coke sneezes, Emory catches a cold. So we tend to follow our local benefactor quite closely.
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Yesterday I was preparing to teach my first bankruptcy class of the semester, reviewing the Fair Credit Reporting Act. And then last night at a parent conference for my sons' preschool, I ran into another parent who gave me an education about a new niche business related to credit reporting. An Alanta startup called RentBureau collects tenants' apartment rent payment history for use not only by landlords to evaluate prospective tenants, but also for incorporation by the credit reporting agencies into their scoring models. The business model seemed interesting to me: RentBureau collects the information from owners and property managers and makes the entire database available to its reporting members. So members have good incentives not to free ride re reporting. Selling the information to the credit reporting agencies is in the offing as I understand. Transunion also recently announced the creation of RentBridge, its own rent payment history database. See also the report of consumeraffairs.com.
Just for fun, I googled a little to see what comparable firms were out there. I found RentREPORTERS and RentReporting, which take a different approach. They solicit applications from renters, pitching themselves as a free service that enables renters to get their good payment history into their credit reports to improve their credit scores. This model seems to cast the firm as an information aggregator that puts renters and the credit reporting agencies together, whereas RentBureau gathers the information from the landlords' end. I have no idea which model works best (or even details of exactly where the revenues come from). Are there information privacy issues? What's interesting to me is this new enterprise geared to filling information gaps in consumer credit scoring models.
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Freeload Press has a catchy name. Their tagline is "Liberating the Textbook." Their marketing pitch:
Students spend an average of $900 per year on textbooks.
We propose they spend $0.
The secret sauce: advertising. Their e-books, which come with embedded ads, are provided without charge. Paperback versions are available in two flavors -- ads and no ads -- with differential pricing.
I registered and tried to download a finance book, but was unsuccessful. When I returned to the site, I was asked to register again. Forget it. I get the concept, and it doesn't appeal to me. "Burdening the Textbook" is more like it. But I freely admit that am a snob about advertising. (You will notice that we do not accept ads on Conglomerate.)
That said, this is probably an inevitable development. Students are a captive audience, and 20 years from now, I suspect that our textbooks will look more like People magazine than Prosser on Torts.
Also, for students with limited means, this idea would be a very welcome development. Unfortunately for those students, Freeload has only a handful of titles, and the current lack of execution on the website does not bode well for the long-term prospects of the company.
HT David Wood.
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Joe Francis has found his niche in porn, and Claire Hoffman of the LA Times has a fascinating, albeit disturbing, expose on Francis and his company. The story begins with Francis assaulting Hoffman and screaming, "You don't care about the 1st Amendment. I care about the 1st Amendment, but you are the kind of reporter who doesn't care."
Hoffman also describes the tactics Francis uses to recruit the women in his videos:
Tonight we had spent almost five hours in a sweaty nightclub, crowded with 2,500 very young and very drunk people. Clubs like this are fertile fields for Francis. He's made a fortune selling videos of women who agree to flash their breasts and French-kiss their friends for the cameras. In exchange, a girl who goes wild will receive a T-shirt, a pair of panties, maybe a trucker hat. It had been a typical night for him. He'd scoured the club, recruiting young and, for the most part, intoxicated women.
As you would expect, this strategy comes with some built-in legal hazards:
It seems like Francis spends a lot of money on lawyers. I guess that comes with the territory of filming strangers who take off their clothes. More than a dozen women have sued him, alleging that his company used images of them exposing their bodies on "Girls Gone Wild" videos, box covers and infomercials without their permission. Only a few have convinced the courts that they were unwitting victims. For the most part, judges and juries have sided with Francis' 1st Amendment argument that the plaintiffs' images were captured in public places and that the company was free to use them as it pleased, particularly in light of the fact that the women had signed waivers.
The story is long and describes the day's activities in great detail, including an incident in which one of Francis' recruits claims that Francis forced himself on her. The woman stated, "I told him it hurt, and he kept doing it. And I keep telling him it hurts. I said, 'No' twice in the beginning, and during I started saying, 'Oh, my god, it hurts.' I kept telling him it hurt, but he kept going, and he said he was sorry but kissed me so I wouldn't keep talking."
Much of my life is spent studying entrepreneurs, and I admire many of them. I find nothing admirable about Joe Francis.
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This cover and its accompanying story have been getting a lot of play on the blogs ...
Check out Jason at 37signals, Scott at Wordyard, Mike at 9rules, and Paul at Infectious Greed ... in decreasing order of outrage.
The problem is that Kevin Rose has not made $60 million from Digg. Not even close.
Where did BW get that number? The article contains these sentences: "So far, Digg is
breaking even on an estimated $3 million annually in revenues.
Nonetheless, people in the know say Digg is easily worth $200 million." Add this sentence: "Rose ... owns 30% to 40% of the company (he won't specify)." And voila! You get $60 million! (Or $80 million! Why not $80 million on the cover? Were they really trying to be conservative?)
Well, if the point was to get me to read the article, it worked.
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W$J headline: "Big Three Restructuring Hits Minority Suppliers"
How much longer before we stop using "Big Three" to describe Ford, GM, and Chrysler?
Big? Consider this:
Last week, for the first time, Japanese auto companies said they were now selling more vehicles outside Japan than at home — the bulk in the United States. What’s more, Japan’s biggest automaker, Toyota, upset Ford for second place in the American market in July and reported a huge rise in profits for the quarter. Many analysts predict that Toyota will overtake first-place General Motors in global sales this year.
Three? With Dr. Z spreading "auf wiedersehens" across the U.S., it's hard to imagine that "Chrysler Group" will remain an American icon for long.
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