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CONGRESS TO ASSESS 10% TAX ON INDOOR TANNING SALONS

nobody@vox.com(Tommy Toy) — Wed, 06 Jan 2010 08:50:05 -0800

Just before leaving Washington, lawmakers cut a controversial cosmetic-surgery tax from the Senate version of the health care bill and, in its place, tucked in a 10 percent tax on indoor tanning services. The new tax, reportedly proposed by the American Academy of Dermatology Association, is meant to discourage the practice of indoor tanning, which studies have shown can lead to skin cancer. Plenty of people are fired up about the issue. Some say the government shouldn’t tax what it deems as bad-for-you things—whether they’re fake suntans, cigarettes, or soda. Others argue that the tax unfairly targets young and small businesses. But the real trouble with the tan tax is in the math.

While the so-called “bo-tax” was supposed to bring in an estimated $5.8 billion, the tan tax—according to the Joint Committee on Taxation—would bring in bring in $2.7 billion by 2019. Industry groups representing the tanning salons say that number is way off. A recent press release issued by International Smart Tan Network, a Jackson, Miss.-based industry group, says that the proposal “overestimates tanning revenues by 40-50 percent.”

John Overstreet, executive director of the Indoor Tanning Association, sounded equally confused about the $2.7 billion figure. “I don’t know where that number came from,” he says. “I just don’t think it could be that high.” Of course, the tanning lobbies are aiming to paint the tax proponents as dumb and out-of-the-loop while there’s still a chance to scrap the tax when the Senate bill is reconciled with the House version. But while their claims that cooking your skin is actually healthy sound contrived, this argument—that the proposal can’t generate as much revenue as is being touted—may actually be worth considering.

The Joint Committee on Taxation estimates that, under the new proposal, taxable revenue from tanning salons will remain steady or rise slightly year over year for the next decade. Yet the $5 billion business of bronzing—especially by means of the conventional tanning bed—is currently struggling. Over the past year, for example, Hollywood Tans has closed one-fifth of its franchised salons because of sluggish sales. Revenues for the industry as a whole will fall an estimated 5.1 percent this year and sink even further in 2010, according to research firm IBISWorld. Salons have been hard-hit by the recession, as an artificial suntan is an easily forgone luxury; a single tanning-bed session costs $6 on average, and devoted tanners tend to go twice or more per week.

As the economy improves, will demand for indoor tanning warm up again? That’s unclear; the tanning industry had its heyday 30 years ago. Since the mid-80s, the industry has been battered by a rising tide of critical medical studies and anti-tanning legislation. At least 31 states currently regulate indoor tanning for minors, according to the National Conference of State Legislatures. Just last month, the country’s first local ban on indoor tanning for those under the age of 18 was passed in Howard County, Md. And in July, the World Health Organization broadcasted one of its most damning warnings yet about tanning beds, declaring them “carcinogenic,” and placed them in the same category as cigarettes and arsenic.

Over the years, such health warnings have gone heard but unheeded by many. But that may have been because, up until quite recently, tan seekers saw no worthy alternative to fake baking. Increasingly, they have another option on the table—or in the booth, that is. Spray-on tanning—when the face and body are misted with nontoxic colored chemicals—is the bright spot for the future of the tanning industry. Even though the service can cost more than three times as much as baking under bulbs, it’s considered much safer and, thus, guilt-free. “Growing awareness about the high cancer risk associated with UV tanning beds will invariably diminish market share,” George Van Horn, an IBISWorld senior analyst, said in a recent press release. He estimates that sunless tanning accounted for roughly 11 percent of tanning-salon revenues two years ago and may reach as high as 17 percent for 2009. And as technology improves for the spray tan (read: customers exit looking less orange), most industry insiders predict that it will continue to lure customers away from traditional tanning beds.

COMMENTARY: Indoor tanning is something that I know a lot about having served as the Controller/CFO for QDM/Solar Planet, a distributor of indoor tanning salon equipment and operator of Solar Planet, a national tanning salon chain.

I was taught that indoor tanning, referred to as a "vanity" lifestyle business and was recession-proof. But, this turned out to be a false assumption. In fact, tanning, like many industries, is very susceptible to economic downturns because it is considered a discretionary or luxury expense.

The tanning salon industry was especially hit hard beginning in 2005 when the cost of gasoline began to increase substantially. Subsequently, a lot of tanners cutback on tanning, and revenues for the industry have been more or less, flat for several years.

The current recession, which began towards the end of 2007, has endured for over two years, and the high unemployment rate has negatively impacted many salons, particularly in the industrial midwest and several of the larger metropolitan markets (San Francisco, Los Angeles, Florida, to name a few).

90% of tanning salons are mom-and-pop or single-owner businesses, and like many small businesses, rely on the availability of credit to get them through the slow season (July through December) and to finance purchases of new tanning salon equipment, essential for their long-term success and competitiveness. Banks have reduced their small business lending by nearly 40%, and the portrayal of tanning as a high-risk business, has hurt tanning salons even more.

I began to see tanning's cyclical pattern of ups-and-downs after 2002, when I left QDM/Solar Plantet and started consulting for tanning salon clients. I quickly realized that I would need to diversify, and have since expanded my practice into a broad rage of industries. Today, tanning represents a miniscule portion of what I do.

The indoor tanning industry has always been controversial, with critics (e.g. FDA, American Cancer Society, American Dermatologist Association, and others) claiming that indoor tanning causes skin cancer. State legislatures have also hurt the indoor tanning salon industry by passing legislation placing age limits on tanners.

The indoor tanning industry has defended itself by claiming that tanning is a good source for vitamin D, that claims of it causing skin cancer are distorted and exaggerated, and that the industry's certification of tanning salon staff insures that tanning is safe and closely monitored.

The recent attempt by the Federal government to place a 10% "tan tax" on tanning salons is going to severely damage the industry. I also did the math, and Congress' estimate of raising $2.7 billion over the next ten years way off because the calculations do not adjust for tanning salon equipment, lotions, and other non-tanning services, but this is besides the point. that tax is a terrible idea.

I fully support the indoor tanning salon industry and will continue to do so.

Courtesy of an article dated December 30, 2009 appearing in The Slate The Big Money

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PART VI - ENTREPRENEURSHIP SERIES - EXPLOITING ESTABLISHED COMPANY WEAKNESSES FOR TECH VENTURES

nobody@vox.com(Tommy Toy) — Tue, 05 Jan 2010 17:41:05 -0800

In "Part V - Entrepreneurship Series - Understanding Customer Adoption", I focusd on teaching high-tech entrepreneurs how, when and why new high-tech products or services are adopted by customers. Some of the concepts that I duscussed included: managing the new product or service adoption process, the normal distribution of product adoption, how to make the transition from early adopter to the middle or mainstream market, how to select the right market segment and customers and understanding market dynamics, including common mistakes committed by entrepreneurs in estimating the size of a market and diffusion and substition adoption patterns.

If you didn't read it, here's the link: "Part V - Entrepreneurship Series - Understanding Customer Adoption".

In this section, we analyze how new technology product and service companies can effectively compete against established firms. As pointed out in previous sections, new firms have many competitive disadvantages. As a result, most of the time, established companies are at an advantage when entrepreneurs try to compete with them.

So what should you do? DO NOT try to compete head-on with established companies. Instead, target their weaknesses.

WHY ESTABLISHED COMPANIES WIN MOST OF THE TIME

There are several reasons why established companies are better at exploiting business opportunities than new firms:

The Learning Curve - Established firms have time and experience under their belts. They have paid their dues, learned through repetition how to manufacture more efficiently, market more effectively, recruit the best people, manage people better and many other things. New firms are still at ground zero and learning by trial and error.
Reputation Effects - Customers prefer to buy from businesses they have purchased from previously instead of new, unknown firms. The reputation that successful past interactions provide creates opportunities for repeat sales from existing firms.
Cash Flow - Successful established firms develop positive cash flow from operations that they can then use to reinvest in research and development to develop new products and keep the growth engine going without resorting to borrowing. New firms require external capital sources because of their high initial startup costs and have negative cash flow because early in their development their expenses exceed their revenues.
Economies of Scale - New firms produce less product and at a higher cost than established firms and are still in the process of recovering their product or service development costs. Established companies have the advantage of economies of scale and experience increasing returns because they have recovered most or all of their development costs.
Complementary Assets - Established firms have an advantage over new firms because they already control the complementary assets that are needed to commercialize a new product or service. EXAMPLE: Established firms have experienced sales forces and well established distribution channels in place. New firms have difficulty recruting experienced salespeople from scratch and often encounter resistance from distributors and wholesalers who are reluctant to sell products from a new firm.

Let's stop and review some valuable DO's and DON'Ts pertaining to the material just covered:

DON'T ignore the advantages that established companies have in competing with your new firm.
DON'T try to go head-to-head with established companies; look for their weaknesses in exploiting new technology products and services.

ESTABLISHED COMPANY WEAKNESSES THAT NEW FIRMS CAN EXPLOIT

Successful entrepreneurs of new companies do not compete head-on against established firms, but exploit their weaknesses as follows:

Focus on Research and Development - Established firms have the advantages of economies of scale and greater operating efficiencies from conquering the learning curve. New firms are still learning how to become efficient by trial and error. Established firms' concentrate their R&D on making small, incremental improvements to existing products, instead of developing truly new products or services. New firms are ore entrepreneurial and exploit this weakness by emphasizing research and development to develop leading edge, breakthrough or disruptive technologies with the potential to become transformational.
Exploiting Existing Capabilities - Established firms have more capital, more efficient production, economies of scale, better marketing, well established distribution channels, stockpiles of consumer data, and many other capabilities. However, established firms concentrate their R&D efforts on making incremental product or service improvements instead of transforming markets or tapping into new ones with truly revolutionary products. New firms can exploit this weakness by developing truly new, leading edge products and services that are transformational and can change the competitive landscape. EXAMPLE: Apple was able to transform and establish a new paradigm in mobile telecommunications when the company introduced the iPhone, with its revolutionary touchscreen, bigger screen footprint and other powerful features. As a result, Apple was able to develop a two to three year headstart on competitors.
Meeting The Needs of Underserved Markets - Established firms often introduce new products or services for the overall market while neglecting the needs of certain customers. Established firms often deliberately ignore those customers or incorrectly believe that the niche is too small for them to exploit profitably. New firms can exploit this weakness by introducing products or services that are specifically designed to meet the needs of that underserved market niche. If established firms fail to respond, a new firm can establish a permanent beachhead that leads to a trusted brand name and a loyal customer base that will allow it to expand, grow and prosper as it fully exploits the needs of that niche with new product or service offerings. EXAMPLE: Women's fashion designers have deliberately ignored the fashion needs of the plus-sized or full-figured women. The recession exasperated this situation, as designers and retailers cut back on women's plus-sizes in order to reduce inventories. Retailers like Forever 21, Target and Lane Bryant have taken advantage of this underserved market niche and have done very well.
The Constraints of Existing Organizational Structure - Established firms suffer from a weakness that comes from having an existing organization structure that is specifically designed to meet the needs of its core business or a dominant design. While this organizational structure improves production, operating and communications efficiencies, established firms become myopic, filtering out or ignoring new products that are introduced by competitors. An established firm's organizational structure may become so rigid and centrally focused, that it becomes problematic and the firm loses its nimbleness and ability to react quickly to new technologies. A new firm can exploit these weaknesses and outmaneuver established firms by addressing emerging or underserved market needs. EXAMPLE: Kodak's organizational structure was designed specifically around photographic film, an industry it dominated for decades. Kodak was the world leader, able to fully exploit the needs of the photographic film market with a broad range of complementary products like film cameras, accessories and flash bulbs. When digital photography was introduced it was too slow to transition to the new digital photographic technology because its entire organizational structure would require a radical change. It finally made the transition to digital photography, but by then it had lost its market dominance and reduced to a much smaller company.
The Need to Reward People for Doing Their Jobs - To survive, established firms need to reward people for doing their jobs. This process creates two weaknessed for established firms: A) Large established firms compensate employees with straight salaries and do not give them adequate incentives to be innovative, and people tend to focus their attention on the aspects of their jobs that are rewarded, B) People with the skills to create new products and services prefer to work in new companies where they can have significant upside potential through equity holdings. As a result established firms have problems recruiting the best and brightest research and development talent. New firms can capitalize on these two weaknesses by offering product development people strong incentives, including stock options, and most importantly, the creative environment and freedom they need to flourish.
The Difficulty of Big Company Bureaucracy - Another weakness of large established companies is their hiearchy and bureaucracy, communications inefficiencies, decision-making by committee and rigidness. This bureaucracy stiffles the product development process and gives employees limited autonomy because they have to follow established policies and procedures to ensure efficiency at ongoing activities. The greater flexibility of new companies allows them to rapidly respond to changes in the marketplace much more easily and effectively than large established companies. New firms have simpler organization structures, lack formality, offer more direct communications and product development decisions are made on-the-fly and often based on entrepreneurial instincts rather than collecting and analyzing tons of raw data.

OPPORTUNITIES THAT FAVOR NEW FIRMS

We have pointed out several weaknesses of established firms that allow entrepreneurs to successfuly exploit new opportunities and launch new firms. This section discusses four characteristics of technological opportunities that make them better for new firm formation: discreteness, human-capital intensity, general purposeness, and uncertainty.

Let's discusss each one of them.

Discreteness - New companies perform best when they pursue opportunities to create new products and services based on discrete technologies. A discrete technology is one that can be exploited on its own, as opposed to a systemic technology that must be exploited as part of a larger system. Established firms will have this system in place, but new firms will need to create it. In contrast, a discrete technology does not require the re-creation of a system for it to be deployed. Therefore, established firms have no advantage over new firms in developing products based on these technologies. EXAMPLE: The development of the World Wide Web allowed entrepreneurs to build their own websites and sell things online. This allowed entrepreneurs to market products and services in a different way that was simpler and more cost-effective and allowed them to sell direct-to-consumer and circumvent the brick-and-mortar retail distribution chain.
Human capital Intensity - Opportunities that are based in human capital are better for new firms to exploit than opportunities based in physical capital. Three-quarters of the new business opportunities that entrepreneurs discover are related to the businesses of their former employers, either serving the same customers or offering similar products. EXAMPLE: Employees are legally precluded from infringing, and illegally using for economic gain, the valuable intellectual property or physical capital (patents, copyrights, trade secrets, secret formulations, and so forth) of their former employers. However, there is nothing to to preclude a former employee utilize their unique creative abilities oruman capital to develop entirely new products and technologies that are superior to those of their former employer or that are disruptive, transformational and serve new market needs.
General Purpose - New firms tend to perform better when they exploit general purpose technologies than when they exploit specific purpose technologies. A general purpose technology is a technology that can be applied in multiple markets. EXAMPLE: The invention of the laser found applications in making CD's, CD players and recorders, supermarket scanners, laser pointers, laser measurement devices, and a host of other products. General purpose technologies are good for new firms because they provide entrepreneurs with the flexibility and ability to shift to between market applications and exploit the most valuable application. Established firms tend to focus manpower and resources in their core businesses. Their entire organization structure is designed to manage existing products and services. Their entire research and development is focused on making incremental improvements to their existing products and services, to the exclusion of other applications or emerging new market needs.
Uncertainty - New firms tend to perform better when exploiting opportunities in new markets with unknown demand. The nimbleness and entrepreneurial instincts of new firms outflanks the strengths of established firms in capturing large marketing data through surveys and focus groups. While these methods work well for making incremental improvements to existing products and services, they are ineffective in identifying new market needs. Entrepreneurs can often make decisions on the basis of smaller amounts of information than established firms because they do not need to adhere to large company decision-making rules and are free of internal bureaucacy.

Let's stop and review some valuable DO's and DON'Ts pertaining to the material just covered:

DON'T start a company to exploit a systemic technology; Look for opportunities in discrete technologies.
DON'T start a company to exploit a technology opportunity that is based in physical capital (i.e. intellectual property) belonging to your previous employer. Avoid legal entanglements. They can be very costly in the end.
DON'T start a company to exploit a single purpose technology: Look for general purpose technologies.
DON'T start a company to exploit an opportunity in a market with well-known demand.

Courtesy of "Finding Fertile Ground - Identifying Extraordinary Opportunities for New Ventures" by Dr. Scott A. Shane, Department of Economics, Weatherhead School of Management, Case Western Reserve University, Whaton School Publishing.

Click this link to read the previous section in the "Entrepreneurship Series": "Part V - Entrepreneurship Series - Understanding Customer Adoption".

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HOUSING INDUSTRY MAYBE HEADED FOR A DOUBLE DIP AND DOUBLE BUBBLE

nobody@vox.com(Tommy Toy) — Tue, 05 Jan 2010 15:50:13 -0800

WASHINGTON - The number of people preparing to buy a home in November fell sharply in the latest sign that the housing market, which had been rebounding strongly, may be headed for a "double-dip" downturn over the winter.

Consumers are taking their time following the extension of a tax credit deadline, and that is draining momentum from the summer's recovery, according to data Tuesday from the National Association of Realtors. The figures echoed what homebuilders saw in November and showed how dependent the housing market is on government programs to lower interest rates and lure buyers with tax credits. If those programs expire as planned early this year, the housing market will have to stand on its own.

But outside of housing, there are other signs the economy is climbing out of the recession. Orders to U.S. factories posted a big gain in November, the Commerce Department said Tuesday. That data was the latest evidence of a strong turnaround in manufacturing as industries from China to Europe flash recovery signs.

Taken together, the reports show that, while housing remains vulnerable, makers of steel, computers and chemicals are mounting a surprisingly robust rebound.

"We expect housing to just limp along even as the rest of the economy is growing fairly strongly," said Nomura Securities economist Zach Pandl.

The stock market, meanwhile, zigzagged after the reports gave mixed signals about the economy.

The National Association of Realtors said its seasonally adjusted index of sales agreements fell 16 percent from October to a November reading of 96. It was the first decline following nine straight months of gains and the lowest reading since June.

The drop was far larger than the 2 percent expected from economists surveyed by Thomson Reuters, and analysts were surprised.

"This was bound to happen at some point, although not by this much," wrote a startled Jennifer Lee, senior economist with BMO Capital Markets. "Gulp," she added.

"It will be at least early spring before we see notable gains in sales activity as homebuyers respond to the recently extended and expanded tax credit," Lawrence Yun, the Realtors' chief economist, said in a statement.

Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer of future sales. Pending sales were down 26 percent from October in the Northeast and Midwest, 15 percent in the South and 3 percent in the West.

The housing market had been rebounding from the worst downturn in decades, aided by aggressive federal intervention to lower mortgage rates and bring more buyers into the market. Sales of existing homes surged in November to the highest level in nearly three years, but analysts expect December sales to show a big drop.

And concerns remain that the market recovery will stall as the federal programs are phased out.

"This sudden drop risks the stability housing markets have enjoyed in recent months," wrote Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

The nation's factories, however, are faring much better. The Commerce Department orders rose by 1.1 percent in November, more than double the 0.5 percent increase economists had forecast. The increases were widespread with the exception of autos and aircraft, which posted declines.

The Institute of Supply Management had reported Monday that its key gauge of U.S. factory activity showed manufacturing was expanding in December at the fastest pace in more than three years.

Economists are hoping that the fortunes of the manufacturing sector are beginning to rebound as the economy struggles to emerge from the worst recession since the 1930s.

COMMENTARY: Many real estate experts have warned of the potential for a double real estate bubble--residential and commercial--predicted for 2010, most likely around mid-year.

The biggest problem with the residential market is the "Shadow Inventory - Housing Overhang" of approximately 7 million in unsold homes due to foreclosures and homes that are upside down and listed for sale or pulled off the market.

The banks are also contributing to the problem because they are holding on to foreclosed properties a lot longer before auctioning them off, hoping that a sustained housing recovery will increase demand and housing prices. A lot of these homes, mostly in the states of Michigan, Florida, California, Arizona and Nevada are just sitting there empty, waiting for buyers.

When the announcement that sales contracts were down by 16 points, this sent shivers up my spain, because I did not expect such a huge decline. I am very surprised that the stock market didn't take a bigger drop today.

The $8,000 tax credit which expired last year, was extended by Congress for another six months, beginning in January, but home buyers have to meet higher LTV's and credit requirements. The banks are just too risk averse, not wishing to repeat the mistakes that led to the first bubble. In fact, Fed Chairman Bernanke warned banks to be cautious because he was seeing similar patterns as in the past.

Now the situation has shifted in the direction of prime borrowers, which represents the bulk of real estate loans outstanding. Loans delinquent over 30 days were 9% at the end of 2009, which is twice the rate of 2008. As many as 40% of those delinquent prime loans have a high probably of going into foreclosure.

Subprime loans also continue to fall into foreclosure, but not at the huge rates of 2007/2008. However the decline is only temporary, due to loan modifications and extensions of time before the home goes into foreclosure. According to Amherst Capital Partners, the firm that calculated the Shadow Inventory, subprimes are a ticking timebomb because as many as 60% of subprimes that were given extensions or whose loans were modifed eventually fall into foreclosure.

In addition to currently delinquent subprimes, a batch of adjustable rate mortgage (ARM) subprime loans booked in 2007 are scheduled for rate adjustments. Some of those loans were at rates as low as 2% to 3% and little or no down payment during the era of cheap money. Rates today are about 6.00%, so if they are renewed at those rates, all hell is going to break lose, because many borrowers will be unable to meet the payments. A lot of those borrowers are under water, so there is no incentive to refinance.

I have also commented on my blog about an impending commercial real estate bubble that could happen any day now, because as many as $3 trillion in commercial real estate loans are now delinquent and the tight credit situation and higher rates will make it difficult to refinance those loans.

It is really quite a messy situation, compounded by a scarcity of small business loans, the engine of employment in the country. Even with Obama's Stimulus Plan, this has failed to create sufficient new jobs to dramatically eliviate the national unemployment rate of 10%.

I have this gut feeling that the majority of home buyers are deliberately holding back, because many believe the shakeout is not over yet, and that prices will come down even more, even with the $8,000 tax credit as an incentive to buy. This exasberates the problem, and the result is the 16% drop in new sales.

Courtesy of an article dated January 5, 2009 appearing in MSNBC

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ADVERTISERS THINKING OF PAID TWEETS USING TWITTER MEMBERS, BUT FIRST, LET'S LOOK AT THE MATH

nobody@vox.com(Tommy Toy) — Tue, 05 Jan 2010 12:52:11 -0800

NEW YORK (AdAge.com) -- When Kim Kardashian can ask $10,000 just for sending a marketer's tweet to her 2.8 million followers on Twitter, traditional news companies have to wonder whether they can cash in too.

Since last month, major Canadian news publisher Canoe has used a service from Assetize that inserts an advertising bar on top of pages that get shouted out in participating Twitter feeds.

Many news sites have successfully harnessed Twitter to distribute their stories and build their audiences, after all, but they aren't making money from news tweets yet. Now, though, early exploration is emerging from Los Angeles to New York to Montreal.

Paid-tweet purveyor Ad.ly, the 4-month-old Los Angeles startup, has pitched its services for the most obvious approach, inserting paid tweets among news tweets. So far the big takers are individuals such as Ms. Kardashian, but Ad.ly says major publishers are coming to the table, too.

The New York Times isn't ready to try paid tweets, despite nearly 2.3 million followers for its main Twitter feed -- heady enough territory to ape Ms. Kardashian if it wanted to. "We're taking a bit of a wait-and-see approach on that one," said Denise Warren, senior VP-chief advertising officer at The New York Times Media Group. "We want to be sure that audiences really understand the difference between the paid tweet and the real tweet."

Instead, however, The New York Times Online has started selling packages of ads that appear specifically for visitors who arrive through social media such as Twitter and Facebook. Advertisers can buy certain shares of such readers, typically around 25%, so a page receiving a million visitors via social media would show a participating marketer's ad to 250,000 of them.

The effort, begun last fall, is still too young to gauge. "I couldn't give you projections yet for what we think this is going to yield," Ms. Warren said, declining to identify advertisers that have bought the program. "What we've seen, like most publishers, is that there's more of an acceptance by marketers to embrace these kinds of tools. We're definitely seeing much more interest in these programs."

It's one way to try monetizing all the traffic arriving through Twitter and other social media, but Canoe, a major Canadian news publisher based in Montreal, has just started trying something even more directly tied to its news tweets. Since last month, it's used a service from Assetize that inserts an advertising bar on top of pages that get shouted out in participating Twitter feeds.

There's room for the publisher's branding and an ad message, plus buttons encouraging retweets and ad sales. So far Canoe is using the advertising bar to promote itself, displaying the Canoe logo and messages like "@canadapolitics shared this article through the Canoe network." But ads from outside marketers might be coming next.

"They've given us ample opportunity to present advertising or sponsorship in that space," said David Newland, who was editor in chief at Canoe before being named its first director of social media. "We're interested in potentially going that route, depending on what happens."

Mr. Newland isn't ready for paid tweets yet either, but like more and more in the news business, he's eager to figure out what might work. "I'm very conscious of people's sensitivities around advertising in any new medium," he said. "We don't want to tick people off. At the same time, we are in the business of doing business."

"I don't think we're the only ones scratching our heads and asking, 'How does a big company use a micro media?'" Mr. Newland added.

That process of exploration seems likely to deliver paid tweets to news feeds sooner or later. Assetize and critics argue that paid tweets are an interruption and alienate followers. Ad.ly CEO Sean Rad believes tweets are media like any other, perfectly able to carry advertising as long as it's relevant and used with restraint.

"Twitter is like blogging in the early days," Mr. Rad said. "You had people using blogging in the beginning as a toy to express their behind-the-scenes thoughts. Then you had it shift into this very serious platform. Twitter's the same thing."

It's not clear how much money could be in play for news publishers. Ad.ly's prices range from $1 up through the Kardashian $10,000, depending on the Twitterer, or about $1 to $3 to reach a thousand consumers. That's a higher rate than ad networks get but lower than standard display advertising costs on the web.

Ad.ly, which connects participating Twitterers with advertisers, plans to introduce an algorithm this month that will tie pricing for paid tweets with the quality of each feed, considering factors such as retweets and how much advertising the feed runs. "Advertisers have the peace of mind knowing that they're paying based on a performance value of the publisher," Mr. Rad said. "The Twitter ecosystem is happy because everyone is incentivized not to spam and to have a great quality stream."

No big news publishers have signed on yet; The Daily Beast, Tina Brown's site, signed up for a trial but never ran ads.But, Mr. Rad said, news sites are intrigued. "Obviously the larger ones are more careful, but a lot are interested in coming on," he said.

COMMENTARY: I am going to play devil's advocate for a few minutes and point out somethings about Twitter that a lot of members and advertisers may not know. Roughly 97% of Twitter members are passive. They log in less than once a month. Only 2 to 3% are active members, who visit 20 or more times per month.

In advertising it is about eyeballs, or how many times your ad is likely to be seen. If we do some simple math, and use Kim Kardasian's 2.8 million followers, and assume that 97% are passive members, the number of instances that an advertiser's tweet is likely to be seen on Kim's page is negligible. Here's the math:

2,800,000 x 3% = 84,000 active members

84,000 x 20 (no of times visiting/month) = 1,680,000 potential impressions

1,680,000 / 1000 = 1,680 (thousands)

$10,000 / 1,680 = $5.95 CPM impressions

You didn't like that one, okay, let's use the active members to derive a CPM.

$10,000 / 84 (84,000 divided by 1,000) = $119.05 CPM members

You see the point that I am driving here? If you use active followers, the real CPM, once it has been "watered" down is $119.05 per thousand members (active) This is outrageously high no matter how sexy Kim Kardashian is.

If you use number of impressions, the cost per thousand impressions is $5.95. This is also much too high compared what you would pay on Facebook, which is like under $2.00, the last time i looked.

My conclusion, Kim is the biggest rip-off on Twitter, but if she can get advertisers to run their tweets through her page, more power to her. Case in point? Advertisers really better do their math before they have someone on Twitter retweet their news announcement. I just doesn't appear to make economic sense.

If you have a better idea or dispute my "rough" findings, let me know. I welcome the criticism or praise.\

Courtesy of an article dated January 5, 2009 appearing in Advertising Age

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IT’S OFFICIAL: GOOGLE'S NEXUS ONE PHONE REVEALED

nobody@vox.com(Tommy Toy) — Tue, 05 Jan 2010 11:36:50 -0800

The Google Phone has been officially revealed. After weeks of LEAKS AND REVELATIONS, the search giant is finally telling the story behind its self-branded smartphone, which Google calls a “Superphone.”

In its announcement, Google brought out Peter Chou, the CEO of HTC, the creator of the hardware of the Nexus One, to explain the genesis of the phone, as well as members of the Nexus One Google team. Here are some of the things we’ve learned so far:

The specs match previous leaks. It’s a 3.7″ AMOLED display with a trackball.
It comes with features such as a light sensor, GPS, and accelerometer. These are all features pioneered by Apple’s iPhone.
It’s 130 grams in weight and 11.5 mm in width, about the width of a standard #2 pencil.
The camera is 5MP with LED flash.
The audio has received an upgrade. It has two microphones, one of which is used for noise cancellation.
Customization is a key to the Nexus One. There are five home screens to cusotmize your interface.
Google showed off some of its dynamic touchscreen features of the software.. For example, one of the wallpapers is a lake with leaves. When you touch it, it will ripple. It’s quite nifty, actually.
They worked with the team at CoolIris to visualize photons on the Nexus One in a 3D environment. If you tap on an album, you’ll be able to quickly scan and load photos. You can also tip and dip photos based on your hand motions and the accelerometer.
Every text field is voice enabled. Every time you speak, it will process your speech into text. It gets better and better the more and more you use it.
You’ll be able to buy the phone at the Google web store, which was leaked last week. You can find it at Google.com/Phone.
It will be on Verizon in Spring 2010.

Overall, it’s what we expected: a slick, fast Android smartphone meant to be a true competitor to the Apple iPhone. It provides some new features (the voice technology is especially impressive) and is fast, but we’ll have to wait to see whether or not this is the phone that will give Apple a run for its money.

Here are some screenshots of the Nexus One smartphone:

Live Stream

COMMENTARY: The Google Nexus One smartphone is definitely a cool looking phone. I like the fact that the phone uses AMOLED display and has a touch screen display like the iPhone. However, the Nexus One has got to be superior in every way possible to the Apple iPhone, or anything else that is out there, or going to be released in 2010, for it to gain traction and compete in and over-crowded and largely commoditized market for smartphones.

I have not exactly be overly excited about Google's Nexus One smartphone, because this takes Google out of its core search business. Google is not exactly a household name in the smartphone arena. The Nexus One cannot be a "poor man's" version of the Apple iPhone, which is currently superior to any smartphone out there.

Apple has legions of Apple evangelists, like nothing you have ever seen. Google may have a huge loyal following when it comes to online search, but will this translate into Nexus One smartphone sales? I doubt that Google will be able to steal marketshare from the Apple iPhone, so they will have to convert other smartphone owners. And this means going against the likes of Nokia, Motorola, Samsun and Emerson. All of them are major players.

I have to admit that Apple was not in the mobile phone sector before they came out with the iPhone, but Steve Jobs' staff of creative product designers and engineers pulled it off, and are now firmly supplanted in the smartphone arena. Talk about a bonafide product picker. Jobs is has had one winner after another. Where is that Google win streak?

Okay, we got the images of the Nexus One. I am impressed, but it looks too much like the iPhone to suit my fancy. What is the Nexus One's value propositin and key points of differentiation from the iPhone. Remember, what I said earlier--the Nexus One cannot be as good. It has to be superior in every way to gain adoption.

Now some unanswered questions:

How much will the phone cost?
Does the phone have sufficient memory to compete with the iPhone's online speed?
What kind of batteries and how long will a typical charge last?
How do we know that the touchdown screen won't crack or wear out like the original iPhone?
Are the Nexus One's accessories bundled or sold separately?

AT&T's contract with Apple expires this year, and I was kept hearing that AT&T would no longer be the exclusive distributor. If Verizon becomes an Apple iPhone distributor, isn't it a risky strategy for them to sell both phones side-by-side without creating cannabilization?

I don't think people are just going to buy the phone off of Google's website without first trying it out, so why even bother? Verizon can do a much better job of marketing, demonstrating and selling the Nexus One. That's their strength, not Google's.

I hate to harp on Google, but this is a company that has a completely disjointed growth strategy. Every Google engineer works on new product development, all 7,000 of them. Google appears to be in 40 different directions simultaneously. Larry and Sergey don't seem to have any real growth strategy. It's nothing more than throwing darts and hoping something sticks.

I can understand the DoubleClick and AdMob acquisitions, they fit nicely with the search advertising business, but how is Google gonig to make money off a smartphone? AT&T was already bitching that Apple would come out with a cheaper iPhone.

If Google has a bigger and secretive reason for getting into the smartphone market, I just don't see it. They are not a hardware company, and they are not Apple, nothing like them at all. I rest my case.

Courtesy of an article dated January 5, 2009 appearing in Mashable

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APPLE IPHONE RANKED TOP SOCIAL BRAND FOR 2009

nobody@vox.com(Tommy Toy) — Tue, 05 Jan 2010 09:25:48 -0800

For the second straight year, the iPhone topped a ranking of social media brands in which Apple placed three in the top ten. Disney was runner-up to the iPhone and CNN fell one spot to third in the ranking of the top 100 social brands begun last year by social advertising company Vitrue.

Underscoring Apple's dominance of the ratings, iTunes came in at No. 6 and "Apple" at No. 8, while iPod and Mac ranked 34th and 35th, respectively. With its legions of fanboys and independent blogs dedicated to all things Apple, it's hard to imagine the storied company getting knocked off its perch anytime soon.

Will "iSlate" join the roster of Apple brands on the list next year?

The ranking of social brands is based on Vitrue's social media index (SMI), which calculates a brand's share of voice by applying algorithms to conversations on various social networking, blogging, micro-blogging, photo and video-sharing sites. It monitors more than 2,000 brands online.

The biggest gainer over the last year was the NBA, which jumped from 29th to fifth on the list, just behind MTV. Other brands that moved up the chart include Nike, MLB, Nissan, Victoria's Secret, HP and KFC.

Luxury companies defied the recession by posting a stronger showing in 2009, with Gucci, Louis Vuitton, Prada and Burberry all making the top 100 social brands. Other categories with multiple brands on the list included media, automotive, restaurants and sports.

None of the top three companies in BusinessWeek's 2009 ranking of top global brands -- Coca-Cola, IBM and Microsoft -- cracked the top ten on the Vitrue 100 list. (Microsoft finished highest at No. 18). By contrast, Apple dropped four places to No. 24 last year on BusinessWeek's list.

Other prominent brands making the Vitrue top 100 included Amazon (40), BlackBerry (15), Pepsi (73), Visa (87) and Zappos (60).

COMMENTARY: This does not surprise me at all. Apple has now become a lovemark, not because of the Mac's, but because Steve Jobs' great vision has transformed Apple into a media and communications company.

The smartphone market has become mostly commoditized with similar phones, similar call plans, but not the iPhone. The iPhone's larger, touchscreen and 3GS speeds truly differentiates them from the competition. Just how big the Apple iPhone will become is unknown.

It certainly appears that the iPhone has room to grow, but how much growth? The first iPhone reached its product life cyle maturity in 15 months, but was replaced by the 3G. The 3G reach its maturity in about a year, quickly being replaced by the 3GS. How long will the popularity of the 3GS last?

The incremental improvements in the iPhone product line, primarily bigger memory and faster Internet speeds, are quickly being matched by touchscreen phones of other smartphone makers. Google's Android platform-based smarphones may have something to say.

Where is Nokia, the iPhone Killer? I am truly disappointed. They have been very quiet, sticking to regular basic cellphones targeting underdeveloped and developing nations, where WIFI and DSL are practically non-existent. Maybe something big to be announced at CES?

I want to see a serious smartphone war, to see if the three year-old iPhone has staying power. I predicted the iPhone's demise, but Steve Jobs and his highly creative team of designers and engineers are unmatched. Could I be wrong? Gulp.

Courtesy of an article dated January 4, 2009 appearing in MediaPost Publications Online Media Daily

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SURVEY: MOBILE INDUSTRY EXECS PREDICT MOBILE ADS WILL INCREASE BY 200% IN 2010

nobody@vox.com(Tommy Toy) — Tue, 05 Jan 2010 09:00:28 -0800

Nearly half of mobile industry executives and analysts in a new survey expect mobile ad spending to double this year, while almost one-third expect it to grow by 200%. That's quite a bullish outlook. The survey by mobile consulting and research firm Chetan Sharma on 2010 predictions also covered topics including app stores, tiered pricing and mobile payments.

The continued growth of mobile data worldwide is expected to be the top mobile story in 2010, followed closely by the new Google phone and Android, with the rumored Apple tablet computer rounding out the top three.

When it comes to whether Android-based phones will outsell the iPhone in 2010, however, 57% said "no," with the balance about evenly split between "yes" and "maybe." At the same time, the 150 people surveyed believe the biggest impact of Google launching its own phone (the forthcoming Nexus One) will be to help the search giant go "toe-to-toe" with Apple in the smartphone market.

Usage-based pricing for mobile data became a hot topic after AT&T Mobility head Ralph de la Vega suggested the carrier might consider imposing congestion pricing to help reduced bandwidth consumption. According to the survey, 35% don't expect the major carriers to turn to tiered-pricing at all this year, 34% predict it will start in the third quarter, and 25% in the second quarter. Only 6% think it will begin in the first quarter.

While divided on when tiered-pricing might emerge, more than half of mobile executives view that step as the most likely to gain traction for managing bandwidth consumption. Backhaul upgrades and the build-out of 4G networks were the next-most-cited solutions.

What devices other than phones will be big? Netbooks were cited by 41%, followed by e-readers (21%), and tablets (15%). And Motorola was the company pick as "comeback kid" in 2010, outpacing others like Microsoft, Nokia and Sprint by a wide margin.

One area where industry executives were not optimistic was the wireless carriers' own app stores. Almost half (47%) predict they will lose steam this year and 26% by next year. Only 20% believed carriers' branded app storefronts will be around for a long time.

On the regulatory front, the mobile industry doesn't appear overly concerned with a more aggressive Federal Communications Commission under Chairman Julius Genachowski. Nearly 70% said the FCC's national broadband plan to be submitted to Congress in February either won't have any impact until the courts rule on it, or it won't matter anyway.

The majority of survey participants (53%) were from North America, followed by Europe (15%), Asia (12%) and other regions (20%). And 35% described themselves as CXO-level officers, 29% as vice presidents, 15% as managers, 12% as directors, and 9% as analysts.

COMMENTARY: The predictions for netbooks, ebook readers and tablets match those of the International CES show in Las Vegas (see previous post).

The predicted growth in mobile ad spending of 200% is definitely bullish, but with an improved economy, consumer spending like to open their wallets again, albeit slowly, and the interest in mobile devices, particularly the iPhone and new smartphones supporting the Android mobile platform, anything is possible.

I can clearly see the day when Apple iPhone apps will serve as platforms for ad delivery with the mobile media or advertising network splitting the ad revenues. 150,000 Apple iPhone, Android and Facebook apps, that's a hell of a lot of apps, and now with the advent of do-it-yourself software to build your own apps without programming experience, the app sector is going to go crazy. I think I am going to produce some of my own apps. Just saying.

Courtesy of an article dated January 4, 2009 appearing in MediaPost Publications Online Media Daily

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AGENCIES AND CLIENTS PLAN THEIR MOVES IN AN UNCERTAIN 2010

nobody@vox.com(Tommy Toy) — Mon, 04 Jan 2010 09:37:34 -0800

The Challenges and Pitfalls Ahead for the Industry in 2010

NEW YORK (AdAge.com) -- For many, 2009 will be remembered as a year the marketing world will happily put behind it. The lingering recession has depressed consumer spending and marketers have sharply curtailed their outlays on advertising. Two Detroit automakers filed for bankruptcy. TV and print have been trying to find their way in a digital future and agencies have been put in a vise by clients demanding better return on investment.

Where will you land in 2010?

A new decade might mean a fresh start, but there will be significant challenges ahead in ad land. Ad Age asked its correspondents to look ahead to the coming year and identify the single-most important issue faced by the industries they cover in 2010.

AD AGENCIES

Chat with any agency executive these days and there's a good chance the dreaded "procurement" word makes its way into the conversation. It's a safe bet that pushback from agencies will continue in 2010.

Although clients have long invited procurement departments to weigh in as they choose their ad agency partners and decide how to compensate them, the amount of power procurers wielded grew as the economy worsened and marketing budgets were stretched. In 2009, it wasn't chief marketing officers, but procurement officers who were increasingly leading the discussion in ad-agency reviews. Decisions in some of the biggest pitches of last year -- from media duties for Danone to creative duties for Volkswagen and UPS -- leaned heavily on what procurement had to say.

It's no surprise then that there's been a spike in job listings for marketing procurement executives. While there are experienced procurers out there, to be sure, the bulk of them haven't worked in marketing, and treat the business of creating connections between brands and consumers the same as they might purchasing office supplies like push-pins. The 4A's reported a disturbing trend in 2009 that a growing number of clients have been using the same request-for-proposal forms to solicit information from ad agencies as they use for sourcing manufacturing vendors, or research and technology providers.

Separately, Ad Age found that 100 leading advertisers' spending remained virtually flat from 2008 to 2009 while agency margins dropped from 12.2% to 10.5%.

All that squeezing was enough to get some shops to fight back. Big agencies like JWT pulled out of reviews, citing frustrating financial discussions, and top executives like MediaBrands Chief Financial Officer Tara Comonte publicly decried procurement's stepped-up role in the agency world. "Procurement wants to pay less than enough," she said at the American Advertising Federation's Hall of Achievement awards. "And it will be self-destruction."

Advertising Age covered the following advertising channels and industry segments concerning their outlook for 2010:

Automotive
Beer
Beverages
Consumer Packaged Goods
Digital Marketing
Direct Marketing
Food Marketing
Media Agencies
Print
Public Relations
Retail
TV Distribution
Wireless
China

Courtesy of an article dated January 4, 2009 appearing in Advertising Age

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10 NEW TRENDS TO EMERGE FROM THE LAS VEGAS CES SHOW

nobody@vox.com(Tommy Toy) — Mon, 04 Jan 2010 09:12:06 -0800

NEW YORK (AdAge.com) -- We've become a nation of early adopters -- now can the consumer electronics industry lead the U.S. recovery? That's what CE manufacturers (who happen to include a few of the world's biggest consumer marketers) hope for as they gather in Las Vegas this week for the annual International Consumer Electronics Show (CES).

Check out this CES video:

What are we looking for at CES? Here are 10 trends:

1. 3-D TVS

Avatar is in theaters, but is there a James Cameron fanboy out there who will buy it on Blu-ray in plain old 2-D? Maybe, but look for CE manufacturers to promise a coming generation of sets with 3-D capability in hopes of getting a piggyback effect on the $150 million spent marketing the film. There's a lot separating vapor from reality on this one, including that there is no established format for home 3-D, but that won't stop set manufacturers from claiming they're close.

2. E-READERS

Record sales for the Amazon's Kindle and print publishers' hopes for subscription dollars make the segment one of the hotter sectors at this year's CES. The one to watch for will come from Plastic Logic, which is using the show to introduce its Que reader, which promises newspaper and magazine publishers a better share of revenue and more subscriber information than the Kindle. Others in the e-reader fray include Entourage Systems, which will show off a two-screened device that combines an e-reader and a netbook, not to mention Aluratek's Libre, the Astak EZ Reader, Booken's Cybook Opus, Interead's Cool-er, and the Western Graphics PocketBook.

3. NETBOOKS

They were the rage at last year's show and the industry is bracing for another tsunami of these low-cost, net-connected laptops running Intel's Atom processor. But the bigger story here is the impact of Google's Chrome operating system designed to optimize Google's free cloud apps such as Docs and Gmail. Google is working with hardware manufacturers, and TechCrunch believes that in addition to developing its own phone (see trend No. 8), Google will build, market and sell its own branded netbook by the end of the year.

4. PAID CONTENT

Content generally takes a backseat at CES, but this year the show devotes an entire day-long track, called "Content, Creativity and Cash," to emerging paid models for content and how net-connected TVs, e-readers, tablets and mobile phones enable this new ecosystem. Not surprising: CBS and NBC Universal both have big stakes in how the CE industry interacts with content and both have huge roles in this year's show, the former as owner of CNET and the latter as official TV sponsor (CNBC broadcasts from the floor).

5. WHAT WILL APPLE DO?

The world believes Apple will roll out a tablet computer in February, and that will cast a long shadow over the first generation of e-readers and netbooks on display at CES. But more significant than the hardware will be the paid-content models it could enable for newspapers, magazines, TV and film. Paid, iTunes-like downloads are an obvious feature, but Apple is reported to be negotiating a subscription service for TV which could change everything.

6. CONNECTED CARS

Ford CEO Allan Mullaly takes the opening CES keynote this year to tout the next generation of Ford's Sync system, but that's just the tip of the iceberg of the new auto technologies for handling media, directions, communications and even car diagnostics. But just as car tech reaches fever pitch, so too does growing concern of the impact of all this technology on, well, actual driving. Congressional hearings are scheduled on "driving while distracted," which is quickly becoming the new drunk driving. So expect CE and auto companies to pitch their tech as enhancing, rather than handicapping driver skills.

7. REAL-TIME WEB

The real-time web arrived in 2009 so we foresee a deluge of new applications that make the stream of Twitter, Facebook and Foursquare updates relevant and useful to consumers and marketers. Included in this are location-based applications that deliver both locally relevant information (and marketing) to individuals and all the requisite privacy concerns.

8. MOBILE

With no new iPhone to jawbone about, the spotlight will be on Google's Android and the host of new applications unveiled in December, including visual search such as Google Goggles. Adding to the din will be speculation over the Google-branded phone, Nexus One, rumored to be unveiled with T-Mobile in January.

9. GREEN TECH

Last year Greenpeace singled out members of the CE industry for "green" marketing claims that have little or no basis in reality. This year, device makers are cranking up the green claims with low-power devices, solar chargers and home energy monitors. CNET reports that there will be 30 exhibitors in CES's Sustainable Planetzone this year, up from 20 in 2009.

10. ERR, RECOVERY?

Fueled by both the business-upgrade cycle and by consumer discretionary spending, consumer electronics are a bellweather for the economy. So, how's the economy doing? We already know consumers are willing to spend more for a web-connected phone, but what will make them consider a new flat-screen? Watch for marketers to presume (actually, hope) that the worst is over and that the economy can only get better from here.

COMMENTARY: I love Las Vegas, but it gets too crazy during the CES show, plus all that walking is not good for my body. Las Vegas does need a boost, and this is the show that just might give Vegas that jolt it needs as it tries to emerge from a terrible 2009.

I could not disagree with this list of CES show trends. Apple is going to make a big splash with their rumored eBook tablet at both MacWorld and the CES show. It would not surprise me if all these rumors about the Apple ebook reader were planted by Job's to create marketing buzz, excitement and raise anticipation to a fever pitch. That's Job's modus operandi. Just the rumors alone are worth $100 million in free advertising.

However, CES missed the following trends: do-it-yourself app development software (see previous post), a proliferation of Apple iPhone app search services, more GPS devices, augmented reality devices, more mobile phones (Google Nexus One), mobile 3D goggles for viewing 3D/2D movies, robots that can think like humans (okay, maybe this is a stretch, but experts say possible in 10 years), more cloud computing services (this sector is exploding), developer toolkit software for Windows 7, etc.

Courtesy of an article dated January 4, 2009 appearing in Advertising Age

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AUTODESK OFFERS FREE DESIGN AND ENGINEERING SOFTWARE GRANTS FOR CLEANTECH STARTUPS

nobody@vox.com(Tommy Toy) — Mon, 04 Jan 2010 07:49:47 -0800

The Autodesk Clean Tech Partner Program grants free* design and engineering software to early-stage clean technology companies in North America who are working to solve some of the world’s most pressing environmental challenges. Clean tech companies who can benefit from Autodesk’s solutions for Digital Prototyping are invited to apply for the Autodesk Clean Tech Software Grant valued** at up to $150,000.

Autodesk, a leading provider of 2D and 3D design, engineering, and entertainment software, understands the important role that design can play in creating a sustainable future. We are committed to helping leading clean tech companies bring their ideas to market faster and more profitably.

The Autodesk Clean Tech Software Grant is a collection of industry-leading software applications and includes up to five licenses each of:

These powerful tools enable you to develop digital prototypes of your ideas, for quicker innovation and more predictability in your product development.

Apply for an Autodesk Clean Tech Software Grant

If you are an early stage investor in clean technology and are interested in learning how the Clean Tech Partner Program can benefit your portfolio companies, please contact us at cleantech@autodesk.com.

COMMENTARY: I think this is great that Autodesk should offer these free software grants to promissing cleantech startups.

Courtesy of Autodesk

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