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Tag Archives: General Motors Corporation
Envision the day when you can video chat or write a report while behind the wheel on your way to work. Not only is the car driving itself, but it communicates with other vehicles and senses the environment, so getting into an accident is nearly impossible. That sounds like a sci-fi fantasy, right? Not at all. Several car companies, including Volvo, General Motors, Ford, Audi and its parent company, Volkswagen, are aggressively developing autonomous cars. Even Google has figured out a way to make cars drive themselves. “Almost all accidents take place because of human distraction,” says Sebastian Thrun, a fellow at Google and director of Stanford University’s Artificial Intelligence Lab. “A self-driving car never sleeps and always pays attention so we believe there is a significant opportunity to make cars much safer.” For the small business, using AI for robotic driving means commute time can someday be turned into work time. And, it could mean a fleet of delivery vehicles autonomously controlled. “The capability of this is absolutely realistic,” says Karl Brauer, senior analyst and editor-at-large for Edmunds.com. “There might be a few odd things to iron out but we’re talking years, not decades to finish it off.” The Google car One of the strangest examples of robotic driving comes from the search engine giant, based in California, who is using their programming prowess to help build AI for cars. Google announced in October that seven Toyota Prius test cars have driven more than 140,000 miles on California roads with only occasional human control. Considering Google’s penetration into the average person’s everyday life — whether through search, maps, or apps on Android phones — it’s entry into the automotive scene almost makes sense. During the tests, a driver was always on board in case something went awry, but it’s still amazing to think about. Six months ago who would have considered the search engine giant would be letting their robocars roam the California countryside? Of course, current AI programming is not quite ready for rush hour. “Construction zones aren’t handled well yet. If the car were to drive on a snow-covered road it would cause problems for us. We also get hiccups, for example, if someone parks and blocks our lane — then our cars are stopped and the person needs to take over,” Thrun says. That said, Thrun maintains that Google’s accomplishment is remarkable. “Until recently, there seemed to be a consensus that this was 30 or 40 years off. And I would submit that the progress that we and others have made has stunned all of us in this area,” he says. Self-driving cars and safety Recently, GM gave reporters (including this one) a ride in a small, autonomous concept car at the Consumer Electronics Show last month in Las Vegas. The two-seater EN-V, which stands for Electric Networked-Vehicle, was designed for use in large cities to help with traffic congestion, parking availability (you can’t imagine a car that is easier to park!) and improved air quality. According to GM spokesperson Daniel Flores, when vehicles are able to communicate with each other and sense their environment, the accidents that contribute to traffic congestion can be eliminated. “Urban congestion is a very legitimate problem. If left without new technologies it’s going to become a bigger and bigger issue,” he says. Volvo also is working on autonomous cars and already offers, in its S60 sedan, sophisticated options such as pedestrian detection and collision warning, both with full automatic braking. The Swedish carmaker is also working on a project backed by the European Union called SARTRE, which stands for Safe Road Trains for the Environment. Spokesperson Daniel Johnston says the project is all about platooning many vehicles together — a sort of long-distance game of “follow the leader” in which all the occupants can do other things instead of paying attention to the road. “The idea is to compact distances between lead and following cars. Compacting space allows for more cars in one lane,” he says, adding that platooning also saves fuel by reducing air resistance, resulting in the use of less horsepower. What about people who like driving? Along with Stanford University and Oracle, Audi and Volkswagen have successfully created the Autonomous Audi TTS Pike’s Peak Research Car which last September completed the 12.42-mile Pike’s Peak International Hill Climb without any driver behind the wheel. Because some people actually like driving, Dr. Burkhard Huhnke, executive director of the Audi Electronics Research Laboratory in Palo Alto, Calif., says Audi is less concerned about making fully autonomous cars and is more focused on “reducing accidents down to zero. That would be a dream.” He says Audi is working toward that lofty goal by experimenting with its self-driving car and through a new research collaboration with four universities in California and Michigan to bring as much information as possible about drivers and their environments into the vehicle. Cars that talk to one another Edmunds’ Karl Brauer says the technology in today’s new cars like Audi’s A8, which is covered from head to toe in sensors, has several cameras and is connected to the Internet, making the prospect of cars talking to each other and automatically averting dangers on the road much more feasible. “We can put sensors in roadways. We can put sensors in cars. We can put GPS devices in vehicles so that they are aware of where they are and what’s around them. That can already be done now — it’s largely what the Google car does. But it’s going to cost money and it’s going to require some standardization work,” he says. About that standardization, Ford recently said it is partnering with other auto makers and the federal government to create a single language that ensures all vehicles can talk to each other based on a common communication standard. The company says its involvement is part of a stepped-up commitment to developing wirelessly connected intelligent vehicles. Steve Birkeland, who owns a Minnesota-based company called Custom Canopy, says he often drives hundreds or more miles to get to a job site and would be interested in reclaiming time spent in the car as long as doing so was safe. “I could easily see a sleeping area where I would leave for Denver after dinner, watch a movie, go to sleep and wake up in the morning in Denver.” Not everyone is buying the idea of cars that talk to each other and drive themselves. Paul Burton, who owns West Point Driving School in Sacramento, says, “Unless autonomous cars are vastly superior to the average teenage brain — which is pretty sophisticated — they’re going to make a lot of mistakes.” According to Thrun, the AI is coming along, however. In the next decade (or less), your car might just drive you home. Now if we can just figure out how to make them brew coffee.
When the Boston Red Sox reversed their curse in 2004 by vanquishing the Yankees and going on to take the World Series, many fans and pundits were quick to give much of the credit to management’s decision to enlist sophisticated computerized analyses of player performance data to make staffing decisions. This year, the team’s all-too-familiar collapse left these same observers wondering how the numbers could have led the Red Sox astray. Einstein kept a sign in his office that read, “Not everything that counts can be counted, and not everything that can be counted counts.” Baseball fans are not the only ones being forced to consider that the best decisions aren’t necessarily the ones based on analyzing reams of data. Companies of all sorts are setting themselves up for the same hard lesson, thanks to the growing excitement over technology’s ability to place all manner of salient data at the fingertips of managers. Armed with so-called dashboard displays on their PCs, CEOs can effortlessly summon up a cornucopia of performance indicators. Call up this week’s sales by product line, throw in profit by region, cost per widget produced, and change in inventory levels. Compare it all with last week, with the same week last year, and with forecasts and goals. And there you have it: a comprehensive guide to the organization’s performance and to what you need to do to improve it. If only it were that easy. The fact is, this sort of data worship can provide a distorted, misleading view of what’s going on, and it can lead to flat-out bad decisions. Part of the problem is that some of the most important inputs aren’t easily quantifiable. (Einstein used to keep a sign in his office that read, “Not everything that counts can be counted, and not everything that can be counted counts.”) Adam Galinsky, an associate professor at Northwestern University’s Kellogg School of Management who studies decision making, notes that a bias toward hard data causes organizations real harm. “Things that are hard to quantify tend to get left out of the decision-making process,” he says. For business owners, there are all sorts of intangible or hard-to-quantify factors that can mean the difference between life or death: employee morale, the emergence of new technologies, changes in the competitive landscape, evolution in customer tastes. Think of executives at Ford (NYSE:F) and GM (NYSE:GM) endlessly twiddling with the easy-to-track impact of rebates, advertising, and health care costs, while remaining oblivious to the cultural and political forces–forces that helped trigger higher gas prices–that spelled doom for their obsession with SUVs. This isn’t a new problem. Managers have always had a misplaced confidence in numbers. But the ability to do more and more with the data in an increasingly high-tech fashion is making things worse. Indeed, the availability of slick new data-crunching tools, and the hype they’re receiving, leads executives to rely on them more. Good managers know the nonnumerical stuff matters, of course, but it sure must feel as if you’re being highly effective when you can dash off a few e-mail notes and then in a few days or even hours watch those real-time graphs leap skyward on your screen. And, of course, companies can’t help but treasure these data tools, given that they’ve spent a fortune investing in them, egged on by consultants and other experts. Thus, the CEO risks becoming Nero, fiddling with his keyboard, as it were, while the company burns. The problem goes beyond neglecting the intangibles. Sometimes the data that goes into a dashboard is incomplete or biased in subtle but significant ways that can lead a manager astray. Jorge Grau, the CIO at cell-phone-tower operator SBA Communications (NASDAQ:SBAC) in Boca Raton, Florida, helped build a system to place virtually any sort of real-time report in the hands of managers. But there have been occasions when managers, delighted by the sheer number of facts at their fingertips, were oblivious to problems with the data. “We’ve been bitten,” Grau says. In several cases, managers were making decisions based on summary performance for the entire company, not realizing that those numbers did not include data from a few key regions. When data is misread this way, it can lead to bad calls on anything from budgeting to promotions. “Reports can do more harm than good,” Grau says, which is why he now cautions managers about accepting a slick table of figures at face value. Even when the data is complete, there are plenty of ways to misinterpret it. One temptation for managers is to assume that when two sets of numbers go up and down together, changing one will lead to a change in the other–inspiring a CEO, for example, to order up a series of costly facility upgrades simply because the last two facility investments happened to be followed by sales spikes. “You can find correlations between the most improbable things, if you look for them,” says Luca Rigotti, a decision sciences researcher at Duke University’s Fuqua School of Business. “You’ll just end up doing silly stuff.” In fact, there’s a range of potentially costly psychological tricks that managers can inflict on themselves in the face of perfectly solid data, says Northwestern’s Galinsky. For example, the same set of numbers can provoke wildly different decisions depending on the order in which the numbers are presented. That’s because people tend to jump to conclusions based on the first numbers they hear, and they don’t allow the later figures to change their minds. The same numbers can also have different impacts depending on how they are framed–for example, stating that 10 percent of the customer base will defect if a product is changed, as opposed to stating that 90 percent will stay. “Managers need to protect themselves against falling for those sorts of biases,” says Galinsky. Even if you avoid false correlations and biases, you’re still in danger of getting smacked by the law of unintended consequences when you try to manage by dashboard, says Christopher Zappe, who studies decision sciences at Bucknell University. “People tend to respond to falling numbers with a knee-jerk reaction to try to halt the fall,” Zappe says. “But it often ends up aggravating the situation because they often don’t really understand the ways in which the different things going on at an organization affect each other.” Thus, the manager who sees the on-screen sales graph start to droop might order sales reps to increase the number of prospects they contact, not realizing that sales are falling because the reps are already stretched too thin. Or a jump in inventory might lead to a decision to slow production, even though much of the inventory is set to go out the door. None of this is to say that dashboards are the enemy here. Indeed, CEOs probably get into more trouble when they fail to bring enough data into the decision-making process. And companies that sell dashboard-related systems are themselves quick to point out some of the pitfalls of data-driven decision making. “The concept of data quality is a very unsexy part of our business,” says Kendall Collins, vice president of product marketing for Salesforce.com (NYSE:CRM). “But without it you’re not going to have the ability to make decisions or react in an intelligent way.” Dashboards also can be modified to deal with the problems. Howard Diamond, CEO of ePartners, an Irving, Texas, consultancy that installs information systems that often include executive dashboards, notes that even intangible aspects of a business can be brought into a dashboard if companies are clever. For example, part of the Cool Cuts 4 Kids chain of hairstyling shops, an ePartners client, wanted to track trends in customer satisfaction. The company’s system will chart the number of customers who fail to return within 10 weeks. But part of the key to success also has to be to retain a certain amount of healthy skepticism about the value of the information we get from our computers, no matter how slick or costly the system. That, and not trading Babe Ruth to the Yankees. Contributing editor David H. Freedman (firstname.lastname@example.org) is a Boston-based author of several books about business and technology. His latest, A Perfect Mess, co-authored with Eric Abrahamson, will be published by Little, Brown in January.
For most small business technology applications, price is the top consideration. But when considering high-speed or broadband Internet service, that top consideration needs to be speed. That’s because slower broadband access will likely cost more money in the long run in the form of lost productivity. So, for a small business owner, the question of whether cable is faster than DSL is a salient one. The answer? It depends. Cable firms advertise speeds of up to 6 megabits per second (Mbps), but to quote a well-known auto ad disclaimer, actual speeds may vary. Because cable relies on shared bandwidth technology, if a lot of users are on at once in the immediate area, they will slow the connection. Average speeds for the telcos’ broadband rival to cable, digital subscriber line (DSL) service, go as high as 1.5 Mbps, but that rate tends to be steadier since bandwidth isn’t shared outside the office. Actual speeds, of course, vary from minute to minute for both. Small business traditionally preferred DSL More small businesses have traditionally gone for DSL. This year, 35 percent of businesses with fewer than 500 employees will have DSL versus 25 percent for cable, according to The Yankee Group, a Boston research firm. (The rest of the pie is divided by dial-up, “none” or T-1, the latter of which can be DSL or cable.) That’s changing. Over the last three or four years, many cable firms have begun targeting small businesses. “The cable companies are doing a smashup job talking about speed, speed, speed,” said Yankee Group director Steve Hilton. “It’s worked.” In response, telcos have slashed rates for DSL. Covad, a DSL provider based in San Jose, Calif., dropped its prices 30 percent over the last 18 months. Cable companies haven’t responded to the price war, so they tend to be more expensive. Covad’s DSL starts at around $50. Hilton says $90 a month is around the average a small business can expect to pay for either cable or DSL. Companies typically waive a set-up fee in return for a year or more contract. Many upgrade to T-1 The question for many fast-growing businesses is whether DSL or cable broadband service is fast and/or reliable enough. Many companies opt for the more expensive and robust T-1 service, which telcos and cable firms both provide. David McMorrow, vice president of sales for Covad, says his technicians can repair a busted T-1 line in about four hours, versus 12 to 18 hours to fix a standard DSL connection. “Businesses can’t tolerate their Internet connection being down,” Hilton says. Your business will pay for the better service, though. T-1 averages around $400 a month. But it guarantees small businesses consistent speeds of 1.5 Mbps and up. Thermal Dynamics, an Ontario, Calif., firm that makes oil coolers and power steering coolers for General Motors’ Hummer and Ford’s Mustang, respectively, bonds three T-1s to get an average speed of 4.5 Mpbs. The firm, which has about 300 U.S. employees, pays about $1,200 a month, which includes on-call support from Los Angeles T-1 provider TierZero. Hanns Schweis, IT director at Thermal Dynamics, says it’s worth the extra expense. In three years, the network only went down once and that was Verizon’s fault, not TierZero’s. Plus, the connection is fast. “Speed was a big issue,” he says. Jim Gurol, vice president of sales for TierZero, says small firms want fast pipes, too. “If their business relies on the Internet, they’ll spring for it,” he says. “We’ve got Web consultants that run a one- or two-man shop that use it.”
If you’ve seen images of the war in Iraq or long lines for the flu vaccine on television this year, chances are good that Shoba Purushothaman had a hand in getting them in front of your eyes. Her New York City company, the NewsMarket, enables broadcasters to transmit, watch, and download high-quality video footage over the Web. This year alone, the firm delivered thousands of video clips from dozens of clients to more than 3,000 newsrooms around the world. Purushothaman came up with the idea while she was running a public relations firm specializing in supplying corporate news to the networks. The Malaysian-born CEO — who had also worked as a reporter for The Wall Street Journal — knew that journalists needed information on a moment’s notice. She also knew that there were only two ways to deliver broadcast-quality video footage to TV newsrooms — by tape or by satellite, neither of which are quick or easy. Why not make the footage available on the Internet? Purushothaman would offer her service free to the press, instead charging corporate and government clients about $100,000 each to have their news footage distributed to the broadcast media. As is often the case with new ideas, the NewsMarket took a while to catch on. Purushothaman founded the company in the midst of the dot-com crash, when capital was scarce and potential clients were slashing budgets. To make matters worse, many newsrooms weren’t equipped with the broadband access necessary to download broadcast-quality videos from the Web. Purushothaman never lost faith in her idea, and managed to raise money and hire good workers even during the rough economy. “She’s been through difficult times and maintained her cool and confidence,” says venture capitalist Alan Patricof, whose firm, Apax Partners, also backed America Online. This year, her hard work paid off. She landed several blue-chip customers, including General Motors, Yahoo, and Google. That last account was such a coup that, after the ink was dry on the contract, the CEO toasted her success with a glass of champagne. Then in April, she raised $4 million in financing from Apax, as well as Hearst Interactive Media, and Boldcap Ventures. She spent some of the cash on new headquarters in midtown Manhattan and some of it to hire four seasoned executives to beef up her 26-person staff. Purushothaman’s unwavering optimism and magnetic personality surely rank among the NewsMarket’s many competitive advantages. “Shoba lights up a room when she walks into it,” explains co-founder Anthony Hayward. “Even in tough times, people saw the vision that she was communicating, and that kept our team steady.”
The Big Idea A handful of entrepreneurs are building marketplaces designed to hook up creative thinkers with businesses that need them. Is the world ready for an eBay of ideas? Anyone who has spent time hunting for his glasses only to discover them on the bridge of his nose can relate to Sanjay Goel’s feelings when he finally came up with the business idea for which he had been searching for half a year. The idea was this: to build a Web site for ideas. Ideas are now widely regarded as the lifeblood of the economy. By some measures the market for the transfer of intellectual property has hit $100 billion. Increasingly, organizations are looking outside the ranks of employees to find these ideas. Last year, for example, mining company Goldcorp Inc. offered a total of $500,000 for the best ideas for getting 6 million ounces of gold out from under a lake in Ontario. The incentive paid off so well that the Canadian company upped the ante in March, offering a total of $2 million for other stellar gold-mining ideas. You can’t even say it’s not rocket science: NASA recently called on the world at large to come up with a scheme for launching a probe to Pluto for less than $500 million, having scrapped its own, more expensive plans. Meanwhile, hundreds of thousands, and possibly millions, of people routinely generate ideas that could conceivably make someone a lot of money or otherwise improve the lot of some subset of humankind, but they’re clueless about what to do with them. Send them uninvited to a company? Call a patent lawyer? Hire an intellectual-property agent? Start a company? Take out an ad? All are avenues conventionally taken by those imaginative thinkers who don’t simply let their ideas die on the vine. But maybe a better notion is to bring the Internet’s aggre- gating capabilities to bear on idea matchmaking, in much the same way that eBay has brought together buyers and sellers of collectible goods. And so it was that the company Goel and Sharat Singh founded, called Ideas.com, along with a small pack of competing Web sites, intended to pull in orphaned ideas and funnel them to businesses willing to pay cold, hard cash for the best of them. “We’re creating a marketplace of ideas,” says Goel. “The ideas that are now being wasted are extremely valuable to companies.” Trafficking in ideas, of course, entails complexities that Beanie Baby traders never had to worry about, including the daunting difficulties in determining and valuing ownership of ideas. But, as with so many dot-coms, the biggest barrier faced by Ideas.com and its competitors has been having to struggle with unproved revenue models in an investment market that has turned its back on Internet companies unlikely to turn a quick profit. Indeed, time may have run out on Ideas.com. On July 31, Goel and Singh were seriously considering shutting down the company. But in bringing his company as far as he did, Goel managed to raise a question that may continue to beguile companies and individuals for years to come: can the Internet help transport ideas across organizational boundaries and in doing so render obsolete the entire notion of corporate boundaries? HIDDEN JEWELS: “The ideas that are now being wasted are extremely valuable to companies,” says Sanjay Goel, founder of Ideas.com. Sanjay Goel was born in Delhi, India, to parents who expected him to become an engineer or a doctor. But Goel was fascinated with business and by age 12 had cofounded a thriving neighborhood magazine-rental stand. He dutifully trudged off to the Indian Institute of Technology in 1984, where he studied electrical engineering and secretly planned to start a business when he graduated. But, like many of his classmates, he felt obligated to first grab a master’s degree in the United States, and he ventured to UCLA. After a stint as a robotics researcher in Japan, Goel returned to California in 1990 and reinvented himself as a programmer specializing in finance. “I had zero background,” he says. “My whole thing is I’d rather fail doing something very ambitious than succeed doing something that’s not ambitious.” After a year of programming, Goel decided it was Wall Street or bust, so he loaded up his aging Honda Civic and headed cross-country. In New York City he had several interviews, to no avail. His credit cards were maxed out, so Goel decided he’d drive a taxi to make ends meet — only to learn that a taxi driver’s license would cost $300 — $290 more than he had. Still, he wouldn’t budge from his goal. “I’m either going to do what I want or nothing,” he says. “There’s nothing in the middle.” He was counting his change to see if he had enough money for a meal when Citibank called and offered him a position in its investment-banking division. By 1998 Goel had already been named the division’s managing director — a career rise of unheard-of velocity in the staid world of big-time investment banking. Despite the success and his indulgence in on-the-edge hobbies — he carried his parachute with him on business trips, began flying airplanes and helicopters, climbed Mount McKinley, and started motorcycling and windsurfing — Goel became increasingly restless. In 1999 he realized that, for all his daring exploits, he had been keeping his back turned on the biggest adventure of all: building a company from scratch. Goel came up with a sensible course of action: develop a business plan, get funding, and then resign from his position. He then promptly rejected his own advice and quit on the spot. “It had to be a clean break,” he says. “I have enough confidence in myself to know that for the second time in my life I was going to restart my career.” Goel had already come up with what he thought was a golden business idea: an innovation marketplace. Now he had to figure out how to make such a thing work. He took to spending his days at the New York University Law Library, reading about innovation. “The books were telling me that companies understand the value of innovation, but that they haven’t found an optimal way to deal with it,” he says. But what sort of business could close that gap? For months Goel researched the problem and couldn’t nail down an answer. Then, as if in tribute to the adventitious nature of idea generation, the solution came to him in his sleep. “I woke up and said, ‘Now I’m ready for this,” he recalls. The idea behind Ideas.com was simple enough. Anyone could post to the site a brief description of an idea. Corporate executives in need of an R&D boost paid a fee to become affiliated with the site, along with monthly fees to maintain their affiliations. The executives perused the postings, and if they liked what they saw, they could negotiate directly with the poster. Postings described such things as a Web-based system for taking opinion polls; a laboratory bench that prints documents; and a heated, rollable pad for covering a sidewalk before a snowstorm. Companies paid commissions to Ideas.com of as much as 30% on ideas that they bought. (Neither Goel nor his customers will divulge how high any of those fees ran, except to say that the prices depended on company size and other unnamed variables.) Idea contributors paid nothing. If Goel had had any doubts about the plan’s viability, they evaporated when he shared his idea in late 1999 with Venky Harinarayan, a former UCLA classmate who had sold his own dot-com, Junglee, to Amazon.com in 1998 for $250 million. “I had been talking about it for 30 seconds when he told me to stop. I thought he was going to kick me out of his office, but he immediately offered to invest,” Goel says. Harinarayan brought in his two Junglee cofounders, and the three chipped in $1.2 million to get Ideas.com off the ground. It launched last November with 15 employees. Among the executives who joined the start-up’s board of advisers was John Seely Brown, the near-legendary former director of Xerox’s ultrainnovative Palo Alto Research Center. Things can get prickly in the field of idea vending when, for starters, a potential buyer notifies an idea poster that he or she wants to hear more about the idea. To sell the idea, the author must spell it out to the prospective purchaser. But once the idea is explained, the business could take it and run with it without paying. “How do you simultaneously advertise what an idea is while maintaining it as a secret?” asks Stephen Margolis, head of the economics department at North Carolina State University. For that reason, he says, economists call an unshared idea a form of “impacted information,” meaning that it is hobbled by a breakdown in market forces. Goel was well aware of the dilemma. “It was the first and main issue we had to deal with,” he says. To get around it, the site encouraged idea sellers to ask prospective buyers to sign nondisclosure agreements (NDAs). Sellers were urged to enlist the “principle of incremental disclosure” — that is, to unveil the idea in layers of increasing specificity. After each layer was revealed, the buying company could demonstrate its good faith with a payment or by upping the price it was proposing to pay for the idea. If negotiations broke down, the buyer left the picture, in theory without having seen enough details to implement the idea. Thus one Ideas.com contributor listed an idea for a “Computer Mouse (special type)” in this oblique manner: “It is a normal mouse with some very useful additional features.” More details were available to “serious buyers,” he or she noted. In fact, incremental disclosure is the means by which the business world has long handled the sale of trade secrets. Trade secrets are designs and processes that aren’t patented, typically because their owners fear that competitors will glean the secret from the patent file and find a way to implement it without violating the strict confines of the patent. (Think Coca-Cola recipe, which has never been patented.) Incremental disclosure became particularly popular in the 1970s, after Asian companies proved maddeningly adept at turning U.S. businesses’ own innovations against them. “Certain offshore organizations with far more experience than us would send armies of guys over to look at information on the pretext of evaluating the company for a joint venture,” says Kathryn Rudie Harrigan, Henry R. Kravis Professor of Business Leadership, at Columbia Business School. “These people were actually intellectual-property vacuum cleaners, and they got away with it until U.S. companies became more savvy and found ways to break their information into pieces with a pricing schedule.” Goel concedes that NDAs and incremental disclosure don’t offer ironclad protection against unscrupulous companies bent on stealing ideas. But he insists that most idea sellers recognize that unethical companies are the exception. “Individuals generally have a sense that companies will treat them fairly,” he says. “It’s in a company’s interest to reward someone for contributing an idea. The value of an uncooked idea is generally a small fraction of the value which the company is going to derive from it. Buying an idea isn’t a one-shot transaction, it’s a magnet for attracting the best ideas going forward.” In other words, the best way to make sure smart thinkers send you their most valuable ideas — as they come up with them — is to buy their half-baked ideas now. Ronald S. Jonash, managing director of Arthur D. Little’s Global Technology and Innovation Management Practice and chief of innovation at ADL, agrees that companies need to be cautious about leaving idea generators feeling exploited. Jonash has worked with the automotive-supply industry and says that employees at many supply companies are not inclined to share new ideas with General Motors because of its reputation for taking ideas and developing them on its own. Chrysler, meanwhile, paid some suppliers to develop promising ideas in exchange for the exclusive rights to the resulting product for two years. That — along with other creative relationships with suppliers — is why Chrysler became the preferred customer of more than 75% of all suppliers, says Jonash. HIGH RISK, HIGH REWARD: “I’d rather fail doing something very ambitious than succeed doing something that’s not ambitious,” says Goel. Even if an Ideas.com posting attracted a company that wanted to do the right thing, the formidable task of placing a value on the idea remained. Typically, the buyer and the seller would take their own shots at coming up with a value and then the negotiations would begin. “When it comes to assessing an idea’s worth before the idea is implemented, wilderness is a good word for describing the position you’re in,” says North Carolina State’s Margolis. In cases where a reasonable sales estimate can be made for products based on the idea, he notes, a royalty of 2% to 10% of revenues is a rough rule of thumb. But if the product couldn’t exist without the idea, he adds, the figure is frequently 30% of revenues and can go even higher. The amount may dip to a tiny fraction of a percent if the idea represents a slight improvement in an established product, such as a better knob in a car. Things only get more complicated from there. In most cases, it’s not clear up front whether an idea will end up being worth implementing at all, let alone how well the resulting product will sell. “Generally speaking, an idea by itself is worth nothing,” says Mel Lazar, managing partner of Lazar Levine & Felix LLP, a New York City accounting firm that specializes in business valuation. “The question is, Can you take that idea and put it into a business in a form that will generate income?” For that reason, Lazar thinks the chances that a company will pay much money for an idea it spots in a Web-site posting are small. And even if it is willing to pay, it will probably enlist a hardball negotiator to get it cheaply. “The average guy would get run over,” he says. Goel doesn’t argue with the suggestion that the majority of posters are unlikely to score big financially. But he points out that for many idea authors, money isn’t the main point. “A large number of people are very happy just seeing their idea taken to fruition, even if they never get paid for it,” he says. “If you come up with an idea for a new windshield wiper and it gets implemented by an automaker and before you know it millions of cars around the world are using it, that’s a very powerful experience.” Of course, the man who had that experience, an inventor named Robert W. Kearns, spent decades in court trying to get automakers to pay up, eventually receiving $30 million. Still, Goel has a point: the average person who comes up with a modestly good idea isn’t likely to hold out for big bucks at the almost certain cost of seeing the idea ignored. In any case, even if the site had been frequented by the most fair-minded of buyers, the vast majority of ideas posted there didn’t seem destined for the big time. Consider this posting, from “skankinARTboy,” for a “Wider Salsa Container”: Hey tostitos — i am a lazy college student. I buy nachos and chips all the time, and i personaly hate that i cannot dip my chips into your tiny containers. Half-way empty your container becomes impossible to dip into. I undestand you can pour it out but guess what? America is lazy, and convience is the key to marketing. So shorter but wider container, same glass cost, it hold the same amount and it is better for all lazy people who sit and eat your chips and salsa on the couch. To help idea buyers skip the junk and root out the gems, Goel worked on “reputation engines” that would have enabled at least some site visitors to rank idea sellers. But he warns that ranking ideas isn’t as reliable as ranking baseball cards on eBay. “It’s hard to say that an individual who in the past has not come up with good ideas will not come up with good ideas in the future,” he says. Conversely, he adds, someone who has had one good idea may not ever come up with a useful idea again. He would not allow sellers to rank buyers. “Everybody believes their idea is very powerful and that it deserves significant reward,” he says. Clearly, posting a random idea in the hope that a company will seek it out and buy it is a long shot. But Goel built some twists into Ideas.com that were intended to strengthen the odds. One was that a company could pay Ideas.com to allow posters to submit ideas for that company only. In fact, of the 50,000 ideas that the site received, 48,000 were such “dedicated” ideas. Unfortunately, many of them were addressed to companies such as Apple and GM that didn’t pay Ideas.com for the privilege of receiving ideas. But Goel didn’t mind. He used the homeless missives to entice those companies to join. Of course, corporations have always received unsolicited ideas from eager innovators, and in general it’s caused them giant headaches. Ideas from the public tend to be not only less than earth-shatteringly useful but also not unique. ADL’s Jonash explains that even in-house ideas typically aren’t original. For instance, after a recent productive brainstorming session that ADL had with a corporate client’s scientists and managers, research revealed that most of the resulting ideas were already known to the industry. But try telling that to the proud idea submitter who is promptly blown off by a corporate R&D manager, only to see his or her idea appear in a product the next year. Large companies are so routinely hit with lawsuits by such sincere but misguided idea producers that, notes Margolis, many have set up departments whose sole function is to ensure that over-the-transom ideas almost never make it to the desk of any employee who might be working on a similar project. From that perspective, a steady stream of unsolicited ideas doesn’t seem like the answer to the business world’s dreams. That’s one reason more-experienced inventors and idea producers often turn to intellectual-property agents who shepherd submissions to corporate buyers and negotiate deals. That’s all well and good, says Goel — if you don’t mind paying commissions of 15% or more and waiting a year to get an answer. Why not let the Internet do what it’s best at? Goel asks — which is avoiding the need for a middleman and eliminating the friction. In fact, Goel Offered an even more compelling use of the Internet than giving idea generators a chance to promote their ideas to corporate buyers. He helped companies put their problems in front of idea generators. When a fee-paying company wanted the public to try its hand at coming up with a winning idea, it posted an “Idea Quest.” Coca-Cola offered $5,000 each for two Idea Quests: “an energized packaging system” and “a new fun and healthy kids’ drink.” And Sears ponied up $5,000 for the best idea for “hand and bench tools for the 21st century.” Ideas.com also wrote its own Idea Quests. Those quests were by far the more interesting, including “new personal handheld devices” and “a better election process for the U.S.” The Idea Quests from outside companies, in contrast, had a public-relations feel to them. Which was exactly as it should have been, says Jonash. He argues that the real benefit of soliciting ideas from the public is not to get usable ideas but rather to make customers feel like part of the team and to provide market research. Steven Kirn, former vice-president of innovation and organization development for Sears, agrees that opening up a dialogue with customers is one of the big payoffs of soliciting ideas. “We wanted an effective and efficient way to make customers feel there’s a point of contact where they can tell us what they’re thinking,” he says. But Kirn also insists that Sears was pleased with the results of the Idea Quest. “Out of 130 to 150 ideas sent in, probably about 12 to 15 of them were pretty viable,” he says. “That’s not a bad ratio of ideas to ideas worth thinking about.” The winning idea — for an improved wet-dry vacuum attachment — might never have made it to the right person’s attention at Sears if it hadn’t been for the contest, he adds. “In the past Sears didn’t have a consistent way to deal with submitted ideas,” he says. “Some might have made it to the fast track, but some probably withered.” Not surprisingly, many entrepreneurs see potential in a marketplace of ideas. Some, like Rob Brazell, coauthor of a 1995 book called The Idea Economy, have focused on mass-market ideas — that is, ideas aimed at Joe Consumer. Brazell, who founded a site named Ideaexchange.com, says, “I wanted the everyday useful idea that would deliver immediate return on investment to consumers.” The ideas that appear at Ideaexchange range from the mundane (how to keep your shoelaces from untying) to the offbeat (how to improve your singing range) to the esoteric (how to double your cattle yield without cutting your wheat yield). Idea buyers rate ideas. I bought an idea for $5 about how to reduce the number of lost signals on cell phones. I’m prohibited from revealing the details. But I can report that the notion was simple and helped a bit. People can also post idea requests on the site. I found one from a businessperson looking for an idea for a Web company, another from someone seeking a shark repellent, and one pleading for antiwrinkle secrets. Brazell is convinced there is gold in such trivialities. He charges idea generators for listing an idea for sale; they name their own price for their ideas. The seller splits any revenues with Ideaexchange. Brazell won’t disclose revenues or profitability but says he has $22 million to work with, all raised from private investors. By this past summer Brazell had expanded his vision of the company and planned to eventually provide paid content of many kinds, including a deep well of how-to information. He recently purchased the assets of the bankrupt eHow, a site that offers thousands of tips on everything from how to feed an orphaned kitten to how to save money on taxes. But Goel’s more direct competition came from sites like IdeaDollar.com, BrightIdea.com, and NewIdeaTrade.com, all of which are gunning for business-oriented ideas. Those sites don’t seem as polished or as well stocked with ideas and idea solicitations as Ideas.com did, but each has its own twist on the concept. It’s too soon to say which of those sites will catch on. Niaz Ahmed, founder of NewIdeaTrade, says that his willingness to let businesses access all ideas on the site without paying any fees gives his advertising-supported site a competitive advantage — at least for the time being. Ahmed, who won’t disclose the company’s financial details, admits, “How long we’ll be able to continue to offer this service for free, I don’t know.” Ideas.com’s short life is, of course, just about over. Visitors had downloaded more than a million pages by the summer, Goel says. The company had raised a second round of financing but was unable to raise a third. At press time Goel and Singh had laid off all their employees, and Goel was jetting off to London to interview, once again, for banking jobs. But Goel, ever upbeat, still believes in his dream. “One day,” he says gamely, “someone’s going to make a lot of money from it. It’s just not going to be us.” Had his financial prospects allowed it, Goel planned to expand his services. He wanted to set up a branded version of the site accessible through Coca-Cola’s Web site; there, visitors would have submitted ideas only to Coca-Cola. Creating branded idea sites was supposed to become an important source of revenues for Goel’s company as more and more businesses recognized the value of soliciting ideas but didn’t want the cost and hassle of building their own idea-handling system from scratch. And he was working on offerings that would have enabled client companies to set up versions of Ideas.com accessible only to specific groups — employees, for example, or suppliers and customers or outside professionals likely to be useful contributors. “These companies already spend a lot of money to reach out to these groups for ideas, even though they might already be members of their commu- nity of interest,” he explains. In fact, Goel had recently changed the name of the company to Ideation Networks Inc., to emphasize that Ideas.com was just one manifestation of a grander plan to set up many different idea-collection engines. Steven Kirn, for one, thinks that’s the right way to go. “Where I think we’re headed is that there will be some problems that we’ll want everyone in the world’s ideas on, and others where we’ll establish relationships with communities of inventors,” he says. Jonash, too, believes that companies will want a portfolio of “idea banks.” Some of the most successful idea networks, he notes, involve large corporations’ paying for the expertise of small companies. Most of the large pharmaceutical companies now work closely with small biotech companies, he points out, and in the computer industry Cisco has created a successful model for providing generous funding to small enterprises and then acquiring them on friendly terms if their technology pays off. Coca-Cola, meanwhile, recently created a sort of in-house incubator called Fizzion to fund and support start-ups whose services could be of value to Coca-Cola. Other large companies are likely to follow those models, and online idea swapping could become a standard part of corporate R&D. Small companies especially may be big beneficiaries of idea networks, since they’re less likely to have experts in-house. And they typically don’t have an army of people that they can send to conferences and trade shows to scope out new ideas, although those are among the best places to find them. Consider Cirrus Design Corp., a small manufacturer of aircraft in Duluth, Minn. Dean Vogel, vice-president of research and technology at Cirrus, notes that some of the company’s ideas for aircraft features come from randomly encountered sources. As an example, he offers the fellow who was ogling one of the company’s planes at an aviation show. The man casually observed that a minivan-style sliding door would make it easier to get into and out of the plane. Vogel overheard him, and Cirrus execs have since been thinking about how a sliding-door mechanism could be made lightweight enough for the plane. “If you can reach out to the world, you’ll be harvesting a lot more brains than you could afford to hire,” says Vogel. Goel had been planning to push the envelope even beyond Ideation Networks. For example, he speaks of creating networks that would enable everyone in a company’s “value chain” — that is, suppliers through customers — to put their heads together not just to trade formal ideas but to interactively solve problems, meet needs, and create new opportunities. But he appears to have also discovered that his concept for commercializing ideas is one idea that the world may not yet be ready to pay for. Even if that’s the case, Goel is not likely to give up permanently on his ambitions. “I don’t like to dabble,” he says. “I like to take my adventures all the way.” David H. Freedman is a contributor to Inc. Hold That Thought When does a simple thought become transformed into something you can buy and sell? Reporter Kate O’Sullivan spoke with some inventors, investors, and experts who’ve struggled with that question. Steve Jurvetson, managing director of venture-capital firm Draper Fisher Jurvetson, invests in early-stage companies. Kevin Rivette is coauthor of Rembrandts in the Attic: Unlocking the Hidden Value of Patents. Scott Randall founded FairMarket, which builds online auctions for such businesses as the Miller Brewing Co. John Kowalski, CEO of Load Hog Industries, turned his unlikely invention into a product that attracted the attention of Ford Motor Co. (See ” The Pickup Artist,” June 2001.) And Paul Moller built a company around his own invention — a flying car. (See ” This Is Rocket Science,” July 2000.) Here’s what they said about idea marketplaces. Is an online idea marketplace a valid business concept? Steve Jurvetson: “At some level I do believe that there’s a worldwide marketplace for information. … But I’m not sure there’s a thriving market for patentable ideas.” Paul Moller: “In the early ’70s I could have benefited if I had had such a process available to me. It would have maybe been a great way to get exposure for some of the other products I’ve developed.” What would it take to make something like this work? John Kowalski: “They’d have to build some credibility. Any exchange of soft product is really hard to track. Who’s buying? Who’s selling? What’s been sold? I would think anyone with a substantive idea would be concerned about throwing something like that into the barrel. It might be knocked off, and then you don’t get paid.” What could cause such companies to fail? Kevin Rivette: “If I’m going to download my novel idea into somebody else’s database, that completely eliminates my ability to get patents in other places in the world. Once you’ve made a publication for sale, bingo, you can’t get patent rights. Once you’ve put it up on the site, you’ve published it for sale. That is the triggering event at which point you should have filed for your patent application in most of the world.” What do you think of the notion of corporations’ offering branded idea marketplaces? Scott Randall: “I love the democratization of the idea-collection process. This is the truest form of listening to your customers. The goodwill generated would be enormous. Consumers will shower tremendous loyalty on those companies that are perceived as listening best to their needs. The major caveats would be the legal ownership questions, the potential disputes around people submitting similar ideas but not getting credit, and the royalties associated with paying the inventors.” Is this concept ahead of its time? Paul Moller: “Oh, no. I don’t think it’s ahead of its time at all. I think, like a lot of things, there will probably be half a dozen [companies] that come and half a dozen that go, and I think there will be one who eventually separates himself from the pack.” Please e-mail your comments to email@example.com.
Road Warrior Our road warrior test-drives the latest in digital personal assistants. The bottom line: don’t fire your secretary yet In movies from the 1940s and 1950s, you can tell a corporate titan by his secretary. This woman had to do much more than type and file; she was an extension of her boss’s will, a personal assistant paid to drop everything and attend to his every need. “Vera, get me the latest figures on borax futures,” he would command. Barely had Vera reappeared at her desk, pencil in mouth, arms loaded down with manila folders, when her boss would be back on the intercom: “Vera, have a dozen roses delivered to my wife.” “Vera, make lunch reservations for two at Delmonico’s.” “Vera, get me Smithers on the line.” That last one always killed me: here was a man too busy to flip through his address book and dial the telephone. You hated him, and yet you envied him. What must it be like to have someone at your beck and call like that? I’ll be able to tell you shortly. I recently signed up with Quixi, a sort of digital secretary for busy travelers. For about $20 a month, I can pick up my cell phone, press a rapid-dial key, and bark my wishes to a Quixi “helper.” The helpers can tell me, say, how to get back to the airport from my hotel. They can charge flowers to my credit card and have them delivered. They’ll also do “M-commerce” (the M standing for mobile) Web searches for whatever I absolutely must have, ASAP. To date, Quixi subscribers’ M-commerce requests have ranged from the sublime (a 1985 Bordeaux) to the ridiculous (a desktop dartboard). Best of all, I can say, “Get me Smithers on the line,” and lo and behold, they get him. In the age of cellular phones, getting Smithers on the line has become less a matter of status than of convenience, not to mention safety. When I’m driving 70 mph down the freeway, I don’t want to be rummaging through my briefcase for my PalmPilot or the file containing Smithers’s phone number. How does the Quixi helper know Smithers’s phone number? Because when you signed up for the service, you downloaded Quixi software that enabled you to electronically dispatch the contents of your address book — be it on a Palm device or in an E-mail program such as Outlook Express — to Quixi’s virtual switchboard. Keeping the listings up-to-date is a simple matter of clicking on the Quixi icon on your cell phone’s screen and then clicking Synchronize, whereupon any new names and numbers are sent, through the Internet, to Quixi. (The process is similar for users with PDAs and contact-management software.) I tried out my personal assistant last week, en route to a backpacking trip in the mountains with my husband, Ed. In the course of our meandering conversations, we came up with a list of things we wanted to know right then and there, our own version of borax futures: What percentage of one’s body weight should a backpack weigh? What is the highest elevation from which a human being has jumped from a plane into the ocean and survived? Why was Password host Allen Ludden buried in Mineral Point, Wis.? I started with the last one and contacted Quixi. The clicking sounds of someone typing on a keyboard could be heard in the background. I imagined my helper whizzing around the Web, scanning Allen Ludden fan sites. Finally, she said, “We can’t call anyone that’s not on your contact list.” Apparently, she had been searching my contact list for Allen Ludden (or perhaps Betty White — who knows?). It turned out that, aside from taking M-commerce requests, Quixi wouldn’t do anything on the Web for you. It was as if Vera, when asked for the borax figures, had looked up from her typewriter and said, “Get it yourself.” Undaunted, we then asked for directions. “Ask them where the closest Dairy Queen is,” suggested Ed. Ed has a soft spot for soft serve. “Tell them we’re on 580 East, somewhere before Modesto.” Aside from taking M-commerce requests, Quixi wouldn’t do anything on the Web. It was as if Vera had looked up from her typewriter and said, “Get it yourself.” My helper said it would take from one to four hours to get back to us with directions of any kind. Ed looked glum. One to four hours was a long time to wait for an ice-cream cone. The helper explained that Quixi could not yet provide real-time directions, only pretrip directions. The real-time program is in its pilot phase, and apparently the pilot is still flying paper airplanes in the backyard. Quixi plans to be real-time-ready by early 2001. But you may be able to do Quixi one better before then. More and more cars and SUVs are being outfitted with helper systems, consisting of a built-in global positioning system (GPS) and a cellular connection to a 24-hour adviser. General Motors Corp. has 32 different cars outfitted with such an adviser, called the OnStar system. With it, drivers press a button and ask a live adviser for what they want. Using the car’s GPS, the adviser will be able to locate drivers on the road and provide them with real-time directions, heard over the car’s stereo speakers. The adviser can also make reservations, and an OnStar concierge will book same-day tickets for popular shows. Starting next month, the 2001 GM line will come with the option of a voice-activated cell-phone and Internet connection, called the OnStar Virtual Advisor. The service enables drivers to talk on a cell-phone connection hands-free. In place of Vera at her desk in the next room, there’s a microphone hidden in the car’s ceiling or in the rearview mirror. At the push of a button, a voice prompts you for a phone number, which you tell to your mirror, feeling only mildly silly, and then the number is dialed for you. And voilÃ, Smithers is on the line — or rather, on your car speakers. There’s even a text-to-speech engine in the system that will, at your command, translate E-mail into a digitized voice and read it aloud to you while you drive. Somewhere past Modesto, I wanted to call my editor to ask whether maybe we should be doing a column on the 2001 GM line instead. I pressed my Quixi speed-dial number. “Get me Elaine Appleton Grant on the line,” I said. My helper couldn’t find the name. “When did you insert that name, ma’am?” she asked. “Because it can take up to 24 hours to show up.” “I synchronized my contact list on Monday,” I said, sounding very James Bond. It was now Wednesday. “Hunh,” she said. Then she said that in fact none of my contacts were coming up on her screen. I asked to speak to Quixi’s public relations man, Alex Pachetti, and ruin his day. “There’s no Alex here,” said my helper. “Maybe he’s in the New York office.” “Could you put me through?” “Of course,” she said helpfully. “What’s his number?” “I don’t have his number.” My voice was beginning to take on a certain strident edge. “I left his number at home because I thought I had this wonderful new service whereby I could just press a button and get Alex Pachetti on the phone.” “You do have that service,” she said brightly. “There just aren’t any listings coming up for you.” I turned to my rearview mirror. “Can you believe this?” As it turned out, I’d been sent the wrong version of Quixi’s software, and my contact list had failed to upload. I installed the new version the day my husband and I got back from our trip. The next afternoon, driving home from work, I pressed the Quixi speed-dial on my phone. “Get me Smithers on the line,” I said. Under the name Smithers in my address book, I had entered my husband’s phone number. “Mr. Smithers for you,” said the woman promptly and courteously. It was worth 20 bucks. When she’s in her office, new Road Warrior Mary Roach can be reached at firstname.lastname@example.org. Please e-mail your comments to email@example.com.
CEO’s Start-Up Toolkit: E-commerce Becoming an E-business is cheaper and easier than it used to be — if you’ve got the time to do it yourself There was nothing “dot-com” about Dr. Beex Birdkakes. When Jeff Clemmer bought the Skippack, Pa., specialty-bird-food business in 1995, he began taking orders from loyal customers around the country on a toll-free phone line. In 1998 customers suggested he sell his Birdkakes online. Until then Clemmer had used his computer primarily for making labels and storing files, and he had yet to experience the World Wide Web. But he flipped open the phone book and found a Web developer. The programmers at AB Internet, in nearby West Norriton, created a clean-looking custom Web page that accepts credit-card orders. The project took two months and cost $800. Clemmer is comfortable with the way AB Internet walked him through every step of the process. And though his modest site isn’t going to be the next Amazon.com, “it’s exactly what I wanted,” he says. Experiences like Jeff Clemmer’s are about to go the way of the dodo bird. As easy and inexpensive as Dr. Beex’s site was to create, setting up E-commerce has gotten even faster and cheaper, at least in terms of up-front costs. Last fall, about a year after Dr. Beex went online, dozens of dot-coms flocked to the Web offering E-commerce services that were either free or cost a few hundred bucks. Companies like Freemerchant.com, Bigstep.com, eCongo.com, and others are giving small businesses the ability to register their own domain name, create a site, list an unlimited number of catalog items, and — most important — sell their goods and services securely. Analysts say free or cheap online E-commerce services will grab a major chunk of the small-business market. For one thing, many consultants are unwilling to take on jobs as small as Clemmer’s Dr. Beex site. And the new services provide more flexibility — and offer more help in setting up and marketing the site — than your typical shrink-wrapped E-commerce software does. “Small businesses have little time, little money, and little technical expertise,” says Jack Staff, chief economist for IntelliQuest’s Zona Research, in Redwood City, Calif. “Clearly, these services are a chief value-add for small businesses.” Just one caveat: “free” E-commerce bears an eerie resemblance to that other mythical beast, the free lunch. Take the case of John Watts, who with partner Doug Puls founded Coast to Coast, an online harmonica store in Ellicott City, Md. Their Web site was basically a company brochure at first. Some of the company’s customers wanted to shop electronically but worried about putting their credit-card numbers online. Despite the growing popularity of the Web, 72% of small businesses don’t yet sell goods and services online. With the new “almost free” e-commerce tools, you can join the 28% of companies that do. So last December, Watts signed up with service provider Freemerchant and created a secure page for collecting credit-card numbers on the company’s existing site. Watts processed the transactions off-line with the dirt-world merchant account he already had. Coast to Coast’s sales rose from $3,500 in December 1999 to $11,000 in February, and Watts didn’t have to pay Freemerchant a dime. In fact, Freemerchant, which proudly claims to have no billing department, makes money when its customers avail themselves of optional services offered by its business partners, including an online bank, an office-supply store, and an E-mail newsletter service. Look a little closer at Coast to Coast, however, and hidden costs emerge. Watts has spent about 40 hours entering product information and tweaking the site with extra Java-script programming to give it the look he wanted. Because Freemerchant does not yet offer a search function for perusing sales data, Watts also has to scroll through page after page of sales records when he’s looking for a particular invoice. Watts says he doesn’t mind. “What I’m getting from Freemerchant seems perfectly adequate for what I need it to do,” he says. But he does plan to let Freemerchant know what it could be doing better. “I’ve got a whole list of suggestions,” he says, including more flexible design options and a search function for the back-office side. Many entrepreneurs need more guidance than Watts did. Watts at least had a Web site before he became an E-merchant. According to a report from online business researcher eMarketer, only 28% of small businesses currently sell goods and services online. Until recently, the founders of Treadmill Doctor were among the uninitiated. In late 1998 brothers and fitness enthusiasts Clark and Jon Stevenson started the Memphis-based treadmill-repair shop, which took in revenues of $120,000 in 1999. The brothers thought a Web site that posted answers to frequently asked questions about treadmills would free them from the phones and give customers the information they sought, plus it would give the company a new sales channel for the treadmill lubricant the founders had invented. So the Stevensons built a site from a template available on Bigstep.com. “In terms of programming, you need no experience — absolutely none,” says Clark Stevenson. The brothers pay $14.95 a month plus 20Â¢ per transaction for a merchant account through Bigstep business partner Cardservice International Inc. Like Freemerchant, Bigstep doesn’t place banner ads on customers’ sites, which Clark Stevenson appreciates. He also likes being able to update the site whenever he has the time; many traditional hosting services limit how often a site can be changed. But once again, hidden costs can emerge, in this case on the marketing front. The brothers quickly found that their site wasn’t getting much business from people using Web search engines. So they spent $1,000 to register the site with three different services, ensuring that potential customers who enter treadmill-related keywords will encounter their site. At this early stage, says Zona Research’s Jack Staff, E-commerce service providers are concentrating on attracting a solid customer base of small businesses, the Internet-commerce mother lode. Next the providers plan to roll out additional premium services, like more aggressive search-engine indexing and custom banner ads. Meanwhile, any business, from a treadmill tinkerer to a music maker, can go ahead and add that e to its commerce. Best of Breed Even in a category as new as E-commerce service providers, the cream has already started to rise to the top. Researchers at Cahners In-Stat Group, in San Jose, Calif., recently evaluated and ranked 15 of the new providers. “The small-business market used to be a neglected segment,” says industry analyst Leslie Shattuck, who coauthored the report. “Now small businesses are beginning to see wide-open opportunities for getting on the Net. With all these companies trying to serve them, they don’t have to step out into a black hole.” Here are In-Stat Group’s top nine companies that provide mass-customization services. The evaluators based their ranking on the quality of each company’s site setup, back-office-management capabilities, variety of marketing services, and value-added services. Freemerchant.com OhGolly.com eCongo.com SmartAge.com Bigstep.com Hostway.com bCentral.com Zanova.com Convey.com Source: eBusiness service provider ranking: Small Business Q1 2000, Cahners In-Stat Group Free-for-all? Don’t get carried away with elaborate fantasies of free E-commerce. “The bottom line is, you’re going to pay for it one way or the other,” says Ken Burke, CEO of Multimedia Live, a Web-development company in Petaluma, Calif., that serves big-name clients like eBay and General Motors. Burke has conducted hundreds of E-commerce seminars for small businesses. He suggests that companies ask the following important questions before signing up with a service provider — “free” or otherwise. Do you have toll-free, 24-hour tech support? Can I register my own domain name? Can I take my domain name with me when I move on? Will you register my site with multiple search engines? Will you put banner ads on my site? Will I have any control over those banner ads? How many templates do you have? How often can I make changes to my site? Is there a limit to how big the site can be? Do you collect transaction fees? What’s your cut? Will you charge me additional fees if I add more items to my catalog? Will credit-card orders be secure on my site? How will I retrieve orders? Do you handle tax and shipping? Do you handle order fulfillment? Under Construction In journalism school I took a course called “Multimedia Publishing,” in which I learned clunky programs for building Web sites. That was three years ago, and since then my father-in-law, Jim Maxwell, has been asking me to build a site for his heavy-construction business, Hub Foundation Co., in Harvard, Mass. Various distractions (such as attempting to make a living as a journalist) forced me to keep putting him off. Creating a Web site would take too long, I told him. It would probably be ugly, and I wouldn’t know how to mount it on the “real” Web, as opposed to a university server. Then I heard about Homestead.com. Getting over the guilt: Inc. writer turned Web designer finally comes through on her promise. I tuned my browser to Homestead’s very flexible design page, typed in some text, dragged and dropped some clip art, and in five minutes Hub Foundation had a working home on the Web. For a few more hours that evening at Jim’s home computer, we fine-tuned it. On it contractors can read about Hub’s projects and fill out forms to request bids for future work. They can E-mail Jim for more information. I even pasted on a hit counter, which Jim had always wanted. The Homestead site editor takes a couple minutes to download, and saving changes to a page takes a while. But when I E-mailed Homestead about a linking problem I was having, a tech-support person responded with a solution within half a day. Although many sites don’t charge more than the standard $70 to register a domain name for two years, Homestead charged Jim $139.95 for the name www.hubfoundation.com. Homestead also collects a transaction fee from merchants selling products. CEO Justin Kitch says the company, which hosts personal sites as well, plans to offer more services, like E-mail marketing, to small businesses in the future. Right now the important thing is that Jim finally has a site to work with. And I feel no Hub-related guilt for the first time in years. –Jill Hecht Maxwell 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 firstname.lastname@example.org.
The potential benefits of the molten-hot, new B2B market are enormous, but so are the potential pitfalls as industry giants muscle their way into the arena, Web builders take advantage of the high demand for their services, and an industry shakeout looms large. The Big-Business Squeeze Manufacturing titans in almost every major industrial sector are forming alliances to create their own buyer-driven exchanges. For example, Boeing, Lockheed Martin, Raytheon, and BAE Systems plan to build an online marketplace for the aerospace industry. Ford, General Motors, and DaimlerChrysler are creating an auto industry exchange. Forest products giants International Paper, Weyerhaeuser, and Georgia-Pacific have joined forces to launch a pulp-and-paper marketplace. The list goes on and on. If you’re looking to start your own exchange, you could be up against some heavy competition. The industrial behemoths have an edge over start-ups due to the enormous amount of capital they have to put into the development and promotion of their exchanges. The idea is that vendors will flock to the well-funded, buyer-driven marketplaces because these will be the only venues in which the major buyers will participate. In this way the megaindustrial exchanges hope to gain critical mass, and it could work, given analysts’ prediction that the B2B market will be winner-take-most: This means that because gains for participants increase as more members join, few businesses will want to deal with the #2 market — the independent exchanges. Similarly, if you’re a vendor in one of the industrial sectors where a buyer-driven megaexchange is king of the hill, you may be forced into doing business in a marketplace where prices are forced as low as possible and the rules are set by the buyers. But do not despair just yet; there is reason for hope. First of all, does the term “price fixing” come to mind? If so, you’re not the only one whose antitrust sensors are going off. Government officials are beginning to scrutinize exchanges made up of competing industry giants. Look for antitrust cases to start popping up as the big-business marketplaces kick into high gear later this year. A second potential weakness of the big-biz exchanges is their lack of neutrality. Mark Walsh, president and CEO of the successful Verticalnet, predicts a “revenge of the vendors.com” as suppliers rebel under the pressure of lowering their prices as far as they can go. Walsh also contends that independent ownership of exchanges is crucial to their success. He believes that all participants must feel that the marketplace is trustworthy: that everyone involved has open access to vendors and prices. It’s questionable as to whether the corporate giants, which are so invested in their own interests, will be able to provide such a neutral environment. High Cost of Development Another potential pitfall to be aware of when considering the creation of your own B2B is the high costs associated with developing your site’s back-end capabilities. Whether you’re looking to create your own exchange or support transactions with the exchanges you desire to do business with, you will most likely face development prices forced high by the tight Web development market. Companies that specialize in building B2B sites and integrating information systems on various platforms are in extreme demand. “Clients chase integrators the way teenagers chase rock stars,” says Christine Ferrusi Ross, a Forrester Research analyst. This results in high prices and, more often than not, poor service. An October 1999 Forrester report titled “Taming eCommerce Integrators” stated that many corporate customers are facing huge fees, long delays, demands for equity, and even abandonment from the Web developers that are supposed to be helping them. These developers then move on to the next lucrative project. Of course, not all development companies are run in this way. But to protect your fledgling B2B company from such a devastating scenario, it would be wise to clearly outline the scope of every project for the development company you work with and obtain a contract that covers all the bases, allowing for proper recourse if the relationship with your developer should fall apart. The Inevitable Shakeout Another major hazard to B2Bs is the winnowing of the hot from the not. Not all these new businesses will succeed. Factors contributing to the coming shakeout include: An overcrowded market. Two dozen B2B firms plan to go public this year alone, and many industrial sectors have four or five exchanges elbowing each other for the hallowed top spot. As Patrick Walravens, an analyst at Lehman Bros., puts it, “For a year, B2B was a land grab. We’re now reaching the end of the land grab, and all the flags are in the ground.” Untested revenue models. B2B sites are so new, no one’s quite sure how to turn a profit. Even the most successful of B2B firms have yet to find themselves in the black. Wary investors. The volatile motions of the stock market with respect to B2B companies have put fear into venture capitalists, the major money source B2Bs depend on. Those businesses that jumped into the game early now have nervous investors breathing down their necks, and may have trouble securing further rounds of funding. Those new to the market may have a hard time finding investors at all. Investors are a fickle bunch, and if they don’t like the way things are going, they’ll pull out in a heartbeat. Take, for example, Neoforma, a medical supply exchange. The company’s shares opened at $13, rose to $73 in February, and now loll about in the $7 to $8 range. If your B2B site is an exchange, you face the possibility of losing to your competitors for the above reasons. If you are a vendor dealing with a potentially unsuccessful exchange, you risk the time and money lost should that exchange go under. The safest approach for an exchange in such an environment is to choose a niche marketplace where it will be less likely to face such heated competition. The best maneuver for vendors would be to avoid committing to doing business exclusively with a particular exchange. Now is the time to diversify. Overall Strategies for Sidestepping B2B Pitfalls Despite the tricky landscape, some experts believe there are definite strategies to staying alive in the current B2B marketplace. Below are a few tips floating around the e-commerce world. If your B2B site is an exchange: Have a well-respected, established partner in your camp that will see you through the rough times and give you the clout needed to rise above the rest. Create a diversified revenue stream, thereby becoming a moving target for your competitors. Focus on earlier links in the supply chain not covered by the large exchanges. As with any business venture, develop a solid business plan and procure a niche for yourself. If you are a vendor dealing with exchanges: Keep a close eye on which marketplaces are doing the best in your industry. These are usually the ones with the most value-added services to offer and the greatest number of players involved. If at all possible, do business with and support independent exchanges that offer impartial access to all vendors. Focus your attention and efforts on marketplaces that have the most buyers looking for the product you offer. The B2B market is in the early phase of formation, and with that phase come the peaks and valleys necessary to hammering out an entirely new industry. Keep your eyes and ears open, there’s still much more to come. To find out more about the emerging B2B market, read the following articles: Is There Gold under That There Hype? B2B Exchanges: Industry Heavyweights Push Aside Little Guys Middlemen Business-to-Business Exchanges Trim Costs and Time, Open Up Larger Markets for Goods — But Success Isn’t Assured Copyright Â© 1995-1999 Pinnacle WebWorkz Inc. All rights reserved. Do notduplicate or redistribute in any form.