Tag Archives: Dogpile.com

About 4405 days ago E-Commerce

Why Disney and AT&T Went Astray in Dot-comland

Newspaper headlines are filled with reports describing the demise of dot-com firms. The rapid reversal of fortunes, however, has not been limited to pure-play Internet companies. Some of the largest losses on the Internet have occurred on the books of Fortune 500 companies. Consider this: Disney recently reported that it would take a charge of more than $790 million related to restructurings within its Internet group. This amount was dwarfed, however, by an even greater icon of U.S. business. AT& T reported that it would take a noncash charge totaling $2.7 billion related to its investment and control of Excite@Home. Both Disney and AT& T are seasoned companies that have weathered numerous business cycles. It would be easy to believe that their management teams were caught up in Internet hype, which led to these massive losses. A deeper examination, however, shows a more subtle cause. In both cases, high executive turnover combined with hand-waving business plans that had a high assumption-to-knowledge ratio led to faulty decision-making at both companies. Business plans for new ventures involve many assumptions; that comes with the territory. Creating a vision of the future and then working backwards to assess how to achieve it requires educated guesswork. Inevitably, many guesses turn out to have been wrong. That is why companies entering unfamiliar markets must continually test assumptions, adjust their tactics, and then readjust their assumptions in a never-ending forward march. That, in part, was where things went awry at AT& T and Disney: A prolonged game of musical chairs in the executive corridors led to translation errors in the business plan. Just as in the childhood game of telephone, where a message is passed between a number of people and the ultimate message is grossly distorted from the original message, assumptions in the business plan were translated into certainties. Take Disney first. In 1995 the company was looking to enter the brave new World Wide Web arena. The depth of Disney’ s ambitions was widely noted. Jim Cramer, founder of TheStreet.com, a financial news and analysis website, reported that “there was a period of a couple of years where Disney acted as if it were the king of the web.” Despite its ambitions, Disney’ s online operations began in a modest manner. The first version was called Disney Online and consisted of interactive websites for Disney properties. Some of these were instant hits. ABCNews.com, ESPN.com, Mr. Showbiz, and Disney.com were all considered niche successes. Disney then decided to create a broad-based portal. The reasons were clear. Although the Disney stock was in a mild upward trend, it did not have the explosive growth of broad portals such as Yahoo or AOL. The Disney management saw this move as a way to rapidly create shareholder value. In addition, it allowed Michael Eisner to convey a clear, simple Internet strategy. It was easy for executives to rally around this strategy, and Disney had the media assets to make it plausible. Moreover, by 1996 the only metric of significance to portal performance was Media Metrix – a website that measures online traffic. By themselves, the focused Disney media sites would never be able to achieve enough traffic to register on this rating. In 1998 Disney created the Buena Vista Internet Group by merging its assets sites with a search engine, Infoseek. The deal was structured so that Infoseek got $70 million in cash, a $139 million five-year note, at least $165 million in promotion, and Starwave (a web-development outfit valued at approximately $350 million). Disney got 43% of Infoseek’ s shares, along with warrants, that when exercised would give Disney a 50.5% stake. However, the success of this new venture hinged on one critical assumption – that at this time in the portal wars, Disney’ s ability to promote across its “offline” network was sufficient to leverage itself into a new brand, Go.com At that time, this seemed a plausible assumption. Most portals had grown without any advertising simply as a result of word-of-mouth, or as some might say, word-of-mouse. Although Yahoo had the fastest growth rate among portals, absolute traffic numbers for Excite.com, Lycos, Yahoo, and Infoseek weren’ t that far apart. In comparison to pure-play portals, Disney also had another huge advantage: It was a bricks-and-mortar company with a vast arsenal of off-line promotion possibilities including theme parks, cruise ships, and retail stores. A member of a prominent strategy consulting firm that evaluated Disney’ s Internet operations says it just wasn’ t known how off-line promotion would deliver Internet traffic but that there was no logical reason it couldn’ t. That was one of Disney’ s most significant assumptions. Disney acted on its strategy cautiously, seemingly testing its assumptions. The Go.com portal rolled out slowly with only a small number of features. Some observers saw the slow rollout as a mistake, considering the immense growth rates of its competitors – but it did show that Disney was going through initial testing of product features. Harry Motro, CEO of Infoseek, told consulting firm Forrester Research that heavy offline promotion wouldn’ t start until the following year. Disney was not planning a major media blitz for more than six months as it tested various product/promotion bundles. The Go.com portal was making progress. Forrester reported that “offline media helped boost GO Networks’ reach from 25% of online users in December 1998 to 33% in June 1999.” At the same time, Disney executives were rapidly defecting. With a stagnant stock price, especially in comparison to pure-play Internet companies, and the scarcity of experienced media executives, Disney was ground-zero for recruiters. Jim Cramer recently described his experience with Disney at that time. “People kept getting deposed and new rulers were installed with regularity.” Akther Ahmed, president of Xavient Technologies, said “having Disney on your resume was all you needed for an offer.” Michael Eisner, CEO of Disney, acted to stop the defections. He bought the remainder of Infoseek and created a tracking stock in order to create Internet-style options-based compensation. Disney then began to marshal its massive “offline” assets to promote Go.com. The assumption that this would be effective had become a truism around the company. One former NBCi executive claims that the web-marketing notion that companies should “use offline assets to build online traffic” originated at Disney. By this time, however, the data was available to test this assumption. Go.com was getting some 50 million pageviews a day while Yahoo was getting more than 300 million daily pageviews and more. In addition, most of the Go.com traffic was coming from the Infoseek search engine, which was itself getting new competition from rivals such as Google.com and Dogpile.com. “If the slowdown in growth was known, Disney likely would have chosen a different organization of its assets and might have succeeded,” says Wharton marketing professor Peter Fader. “It likely wouldn’ t have stayed with the alternate (GO) brand.” Disney took another year to come to that realization. After months of heavy advertising, Go.com had little to show except for a $242 million operating loss. Following one last attempt to reposition Go.com into an “entertainment and leisure” destination site, Disney shut it down. Go.com continued to exist as a website, though in a much tamer form that primarily offered links to other Disney sites. On January 29, Disney announced that it would dissolve its online tracking stock, Disney Internet Group, converting its shares into common stock on the parent company as of March 20. Each outstanding share of the tracking stock was to be converted into a 0.19353 of a share of Disney common stock. As a result of the restructurings, a charge of $790 million was related to the write-off of intangible assets. Another $25-50 million in charges were attributed to severance and the write-off of fixed assets. Just as Disney’ s Go.com went astray, AT& T ran into serious trouble with Excite@Home. The company’ s long-standing profits from long-distance services were rapidly disintegrating, and it was looking for ways to capture a greater share of the consumer’ s wallet. One way to do this was to deliver both voice and Net access to consumers. Regulation prevented AT& T from getting direct access customers without going through the regional Bell companies, which still dominated the local phone services business. Cable access seemed like a promising way to reach the end consumer, and AT& T began a massive buying spree of cable properties. One of AT& T’ s most significant cable acquisitions was TCI, which owned a significant stake in Excite@Home and also used its exclusive high-speed Internet service by contract. By acquiring TCI, AT& T inherited the relationship. AT& T’ s management was primarily interested in gaining access to consumers and the Excite@Home assets just added value to the deal. AT& T made the assumption that this strategy would allow the company to create a content-access bundle that could get premium pricing. This was a foray into unknown territory for AT& T. According to Wharton professor G. Anandalingam, “It’ s okay to be opportunistic, but it’ s a very different matter to make the opportunism work.” AT& T repeatedly said that it did not want to be in the content business. Immediately, the assumption was put to a test on all these issues. Numerous counties, including Oregon’ s Multnomah County and Broward County in Florida, refused to transfer their local cable franchises over to AT& T. The accusation was the bundling of access-content, and the communities – and America Online – demanded that AT& T open its access channels to other content providers. AT& T, however, had a solid management team that understood this issue, led by Leo Hindery. A vice president at a large cable company who requests anonymity says that “TCI’ s CEO John Malone and Leo Hindery understood this assumption and how to navigate through it.” Hindery even made a speech at Stanford Graduate School of Business entitled “The Future of Content.” Through a variety of actions, Hindery made it known that AT& T would be better off selling access to its pipes to whatever content providers were willing to pay, rather than bundling proprietary content with access. The most plausible strategy seemed to be to divest the stake in Excite, a content portal, in order to allow open access to other content providers. Hindery then resigned to pursue personal interests. Malone was busy running Liberty Media and wasn’ t operationally near these issues. Also, the top leaders at Excite – Tom Jermoulak, followed soon after by George Bell – resigned. These events were followed by a continual departure of executives from AT& T and Excite@Home. The new management executed a plan that was based on a premium priced content-access bundle. Responding to America Online’ s acquisition of Time Warner, AT& T began to assemble its own broadband Internet service. It was as if an assumption that had already been proven wrong now was suddenly being acted upon, as if it were a given in the plan. AT& T offered to buy out the stakes of two minority partners in @Home, Comcast and Cox, at a 27% premium. AT& T also took over 74% of Excite@Home voting stock and consolidated financial statements which diluted its 2000 earnings by 20 cents a share. In addition, AT& T extended its own non-exclusive carriage of @Home to 2008, six years past the expiration of its exclusive carriage of @Home in June 2002. At the same time, it was stated that after June 2002, other Internet service providers and portals would share that space. Initial deals were struck with Mindspring and Earthlink. Not surprisingly, the value of Excite, already at a 52-week low, plummeted which showed up in AT& T’ s books. Ironically, Excite@Home took a $4.6 billion write-down of its assets from its content acquisitions. AT& T’ s 23% share of the noncash charge equaled $1.1 billion. Also, AT& T took another noncash charge of $1.6 billion because of the plummeting valuation of Excite@Home. A recent report in BusinessWeek Online offers a final footnote. “The end may be near for the once-mighty Excite Internet portal,” the publication writes. “Patti S. Hart, appointed chairman and CEO of Excite@Home on April 23, already is exploring opportunities to sell the money-losing Excite business and may shut it down in the next several months if no buyers emerge.” What overall conclusions may be drawn from these twin disaster stories? At Disney and AT& T, the companies began a careful process of entering unfamiliar territory by working their way through assumptions about the future. It appears, however, that accelerating executive departures led to translation errors in the operational plans. Assumptions were treated as realities, a formula that has often been known to lead to massive losses. The take-home lesson: Watch out for business plans with a high assumptions-to-knowledge ratio. They can get distorted as they pass through a rotating set of executives, and get you into a lot of trouble. All materials copyright © 2001 of the Wharton School of the University of Pennsylvania.

About 4739 days ago PCs, Laptops, and Notebooks

A Soloist’s Blueprint

CEO’s Start-Up Toolkit: CEO Profile An architect relies on good old-fashioned word of mouth to outfit his high-tech office in the woods Tony Fallon resisted the computer revolution for as long as he possibly could. Sole proprietor of Tony Fallon Architecture, the firm he founded in 1992, Fallon prepared his drawings and did other work entirely by hand until 1996. That’s when he had to face the fact that — as much as he hated the idea — a computer could significantly increase his productivity. Plus he was in danger of losing business without one. So he held his nose and bought an Apple Macintosh outfitted with MiniCAD drafting software. Even then, the system sat untouched for a year until Fallon — who had rarely used a computer – decided that it was finally time to get on with it. You could call Fallon a classic antigeek (he still thinks sledgehammers should come standard with every computer), but he has ramped up rapidly. Today he couldn’t run his Strafford, N.H., office without computers. Inc. Technology asked Fallon to imagine his office as a tabula rasa waiting to be filled with computer equipment. We invited him to draw up a list of the machinery he would need if he were starting from scratch, set a realistic budget, and then hit the stores — both online and off. Fallon’s needs assessment and shopping experience were very real — and instructive to any soloist just starting out or contemplating a technology refresh. What wasn’t real was the budget — Fallon hasn’t yet purchased any equipment on his wish list. Little office in the woods Fallon designs summer houses, home additions, and affordable housing, in addition to planning public buildings such as libraries, theaters, and churches. He had worked in architectural firms for many years but struck out on his own nearly eight years ago. For a time, Fallon’s company was known as Aeropera (pronounced air opera), which is loosely translated as spatial compositions. His professional tag line was “composure for your space.” “I compose my designs like music or writing,” says Fallon. “I try to put it all together so the total assembly has value in itself. It’s not just that you’ve got the $10,000 Jacuzzi and the $3,000 fancy windows. It’s that the space is proportional.” Fallon, 43, physically embodies the composure he strives for in his designs. With a shock of white hair and light blue eyes, he has an imperturbable air. Used to soothing high-strung clients all day long, he can — and does — talk to anyone. Not that there are all that many people to talk to where Fallon lives and works. One robust system can be more cost-effective than two or more cheaper ones used for different tasks. Indeed, tiny Strafford is so rural that there’s no cable of any kind; broadband is a distant dream. Fallon accesses the Internet at the pedestrian rate of 28.8Mbps, courtesy of the local phone company. Still, his profession requires a robust set of gear. Fallon needs the fastest chip, the most RAM, and the roomiest hard disk he can afford for storing his massive drawings (each comprising several megabytes) and running VectorWorks, his architectural software package. In keeping with his original platform choice, Fallon will stick with the Mac, because he doesn’t want the hassle of porting his files to a PC format. He needs a laptop so he can access his files when he’s visiting client sites. He also thinks he needs two cheaper desktop machines: one to function as a server and one for accounting tasks. One unessential but seductive option he’d like to add: the ability to send digital pictures — even video clips — by E-mail to show clients the progress on their homes. He also needs a costly plotter to print his blueprints (using a plotter service would be less money up front but not timely enough). Other items on his wish list: a multifunction scanner-printer-copier machine, an uninterruptible power supply, a surge protector, a personal digital assistant, an external backup drive, and a cell phone. But, as for any soloist, money is tight. Fallon figures a bare-minimum office setup based on the Mac platform will cost about $11,000, which he plans to finance through a combination of cash and an equipment lease. Exploring the options When it comes to researching computer equipment, Fallon defines the word methodical (just what you’d expect from someone who reads the dictionary for fun). His information sources include the Dogpile.com search engine, Consumer Reports, MacMall.com, CNet, the MacWarehouse catalog, and the advice of a Mac-savvy land surveyor with whom Fallon works. He spends a week or two mulling information from those sources and then hits the stores. For Fallon, human interaction — not price or convenience — is paramount. “I can rattle off the right buzzwords,” he says. “I know just enough to be dangerous. But it is great to have someone geeky help you.” When Fallon needed equipment in the past, he paid Scott Drummey, an Apple consultant based in Dover, N.H., $60 per hour to devise a list, which Fallon took to his favorite store, Computer Town in Salem, N.H. Skip all-in-one machines that fax, copy, print, and scan. Buy separate systems that do one thing well. Fallon haunts the smaller, Mac-oriented computer stores at off-peak hours, when he can get to know the salespeople by name. He has an Irishman’s love of dialogue. (Once he even sent a salesperson a $100 check because he’d bent the guy’s ear for so long and left without buying anything.) On this shopping trip, salespeople offer up a number of pointers, which Fallon either uses or ignores. For instance, salespeople at three stores all advise him not to buy a multifunction machine. (He had been eyeing the Epson Stylus Scan 2000, which included fax, copier, scanner, and printer functions for an attractive $250.) Jon Claflin, a salesman at Computer Town, calls multifunction machines “the bottom of the barrel for all the different elements.” Due to the overwhelming consensus, Fallon agrees that he’ll have to spend some extra money and split up the printing, scanning, and copying functions into separate machines. Fallon also heeds consultant Drummey’s advice that there’s no need to buy three separate computers (a laptop, a desktop for accounting functions, and a desktop to function as a server). Fallon needs a server to provide extra horsepower so he can print blueprints on the plotter without hanging up his main workstation for hours. Drummey points out that Fallon could use one desktop computer — he recommends an iMac DV series machine (400MHz with 64MB of RAM) for about $1,300 — for both functions. Fallon is quickly persuaded. (That decision will help bring him in more than $2,000 under budget, for a final sum of $8,881.) On the other hand, Fallon is unmoved by Claflin’s argument that an Iomega Zip 250 USB drive (about $180) would not be adequate for backup. Claflin recommends VST Technologies’ FireWire external hard drive (which will connect through the PowerBook’s FireWire drive) with 14GB of memory for $429. After consulting with Drummey, Fallon decides to save nearly $250 by going with the Zip drive. And if he loses files, well, he can always go back to the drawing board. Lauren Gibbons Paul is a freelance writer based in Waban, Mass. The Gear He Picked MAIN WORKSTATION: Fallon likes to beat computer makers at their own game by buying models that have just become obsolete. So he was in the market for a 333MHz PowerBook notebook (about $1,900). But Fallon’s advisers urged him to spend about $600 extra on a PowerBook G3 with a 400MHz chip, a 6GB hard drive, and 64MB of RAM (about $2,500). The extra money translated into a faster chip, more RAM, and two FireWire ports (which allow high-speed data transfer between the machine and peripherals such as digital cameras). Final Choice: PowerBook G3, $2,494, from Computer Town COLLATERAL WORKSTATION: Since he needs a desktop machine only to perform some accounting tasks and to function as a print server, Fallon economized as much as possible on this choice. Luckily for him, now is a good time to buy an iMac. With a 400MHz G3 processor, 64MB of RAM, a 10GB hard disk, and dual 400Mbps FireWire ports, the iMac DV is a bargain at just over $1,300. Final Choice: iMac DV series, $1,323, from Computer Town PLOTTER: The Achilles’ heel of Fallon’s budget — and the bane of his crowded office — the plotter was the most expensive and heftiest piece of equipment on his shopping list. Because this is mission-critical equipment, it made sense for Fallon to drop some dough on this machine. Fallon bypassed several cheaper models and opted for a 36-inch (E-size) Hewlett-Packard DesignJet with 300-dpi color capability (600 dpi for black). Final Choice: HP DesignJet 488CA, $3,534, from Hewlett-Packard PRINTER: Fallon needed a printer that could handle 17-by-22-inch color output. He decided to purchase a stand-alone model rather than an all-in-one printer-scanner-copier-fax machine. Final Choice: Epson Stylus 1520, $590 (with PostScript add-on), from Computer Town SCANNER: Once he made the decision to split up the scanning, printing, faxing, and copying functions, Fallon wasn’t much interested in researching each choice to death. He took the advice of a Mac adviser and picked a relatively inexpensive scanner model from Umax. Final Choice: Umax Astra 2200, $199, from MacMall.com CELL PHONE: Fallon chose this model for Nokia’s reputed reliability. Service: SunCom. Final Choice: Nokia 5160, $99 (plus activation fee and a $35 service charge per month that includes 300 minutes) DIGITAL CAMERA: Fallon was sorely tempted by Epson PhotoPC 850Z (about $800), which can handle panoramic views and has a microphone capability for documenting each photo. Though that would be useful when sending site photos to clients, Fallon couldn’t justify the expense. He went for a cheaper model. Final Choice: Epson PhotoPC 650, $300, from Computer Town The Gear He Skipped COMBINATION MOUSE-TRACKBALL: The Kensington Orbit mouse-trackball is easier to position and more precise than a conventional mouse — a real temptation for an architect — but Fallon stuck with the mouse that came with his PowerBook G3. Saved: $50 FLAT-PANEL MONITOR: Fallon wanted the 15-inch flat-panel Apple Studio Display, but he knew he could get by without it. Saved: $1,299 COPIER Fallon regretfully knocked the Sharp AL-1220 off his list; it put too much of a strain on the budget. Fallon will visit the local Kinko’s for copies, though that will mean driving and gas expenses. Saved: about $850 HANDHELD DEVICE: Fallon’s wife bought him a Casio electronic organizer for Christmas many years ago, and it’s been collecting dust ever since. Although he realizes both the functionality and the size of handhelds have improved greatly, Fallon prefers to carry a tiny calendar and a notebook in his pocket, a trick he learned at the knee of his businessman father. Saved: about $200 STAND-ALONE FAX: Fallon felt that he maxed out his budget on the stand-alone printer and scanner, so he didn’t want to cough up extra for the fax machine. He decided to use the software fax capabilities that come standard on the Mac. Saved: about $250 For more on the gear you really need to start and grow your small business, see our CEO’s Start-Up Toolkit. Please e-mail your comments to editors@inc.com.