Friday, June 19, 2015

Business journalism: Math is hard!

As a buyer, I hate price increases as much as the next consumer. As a business professor for the past 17 years, I have tried to develop (and encourage) economic literacy among future employees, entrepreneurs and voters.

Thus, as a parent about to shell out $200 for Disneyand tickets for two teenagers, last weekend I had decidedly mixed feelings as I read an article in the Washington Post:

How theme parks like Disney World left the middle class behind
By Drew Harwell
June 12

When Walt Disney World opened in an Orlando swamp in 1971, with its penny arcade and marching-band parade down Main Street U.S.A., admission for an adult cost $3.50, about as much then as three gallons of milk. Disney has raised the gate price for the Magic Kingdom 41 times since, nearly doubling it over the past decade.

This year, a ticket inside the “most magical place on Earth” rocketed past $100 for the first time in history.

Ballooning costs have not slowed the mouse-eared masses flooding into the world’s busiest theme park. Disney’s main attraction hosted a record 19 million visitors last year, a number nearly as large as the population of New York state.

But looking closer at the article, I found two math errors — both obvious to someone of my generation (but perhaps not a 30-ish graduate of U. Florida’s j-school). The net result was an apples and oranges comparison that undercut the core premise of the breathless 1,730-word exposé.

As a former newspaper reporter, I thought I'd follow procedure — by writing to the ombudsman to request a correction. Here is the letter that I sent:
Subject: Inaccurate statistic in Disney story
Date: Fri, 12 Jun 2015 22:03:06 -0700
From: Joel West
To: readers@washpost.com

Dear Reader Rep,

I am writing to call attention to the inaccurate (or at best misleading) story and graph in the story on Disneyland.

http://www.washingtonpost.com/news/business/wp/2015/06/12/how-theme-parks-like-disney-world-left-the-middle-class-behind/?tid=pm_business_pop_b

The story says:
When Walt Disney World opened in an Orlando swamp in 1971, with its penny arcade and marching-band parade down Main Street U.S.A., admission for an adult cost $3.50, about as much then as three gallons of milk.
This number is highly misleading because today's $99 admission includes unlimited rides, and the 1971 admission included no rides whatsoever. Instead, (when I was a kid) we had books of A- through E-tickets, or just E-tickets -- an additional amount that always totaled more than the amount of admission.

Wikipedia and this local TV station explain it clearly:

https://en.wikipedia.org/wiki/E_ticket
http://www.mynews13.com/content/news/cfnews13/on-the-town/article.html/content/news/articles/cfn/2014/2/27/disney_ticket_price_history.html

In the story's graph, the "price" jumps in 1982 because 1982 was when (according to Wikipedia) admissions included unlimited rides. So the 1982 price is not directly comparable to the 1971-1981 price

This website estimates that the actual net cost in 1971 was $10.25, or almost 3x as much as your newspaper reported:

http://historical.whatitcosts.com/facts-disney-1971.htm

According to this inflation calculator, that would be $59.88 in today's dollars:†

http://www.usinflationcalculator.com

So yes, Disney pushed through a 65% price increase ($59.88 to $99) in an era when the real price of air travel, computing, TVs and other products fell. (California and Northern Virginia real estate probably increased faster than inflation during this period).

Still, the claim the price went from $3.50 to $99 is inaccurate, since today's readers would assume the admission prices would include unlimited rides (as it has for the past 40+ years).

Joel West
…, California
(I have never worked for Disney Co nor has any member of my family)
† With the June CPI update, the website now says the present value is $60.19.
The ombudsman didn't think the criticism was important enough to investigate (let alone publish):
Subject: RE: Inaccurate statistic in Disney story
Date: Mon, 15 Jun 2015 19:43:59 +0000
From: Readers Internet DropBox <readers@washpost.com>
To: 'Joel West'

Hi Mr. West,

Thanks for taking the time to write. I’ve forwarded your feedback along to the author of the piece.

Best,

--
Alison Coglianese
Reader Representative
The Washington Post
As I suspected, when asked to self-police, the reporter neither published a correction (or clarification) or even bothered to reply to my correspondence.

The article overstates the increase in the out-of-pocket price by a factor of three: as someone who went to Disneyland before Disney World opened, I can testify first hand as to how much parents had to feed the mouse to satisfy teens and pre-teens. The 6x increase in the CPI is also not negligible: a gallon of gas that today is $3.50/gallon was 25¢/gallon up until the 1973 Arab Oil Embargo. So the 28x increase is less daunting when there’s an 18x correction needed for a mouse-to-mouse comparison.

Now I get that business skills and journalism skills are a rare combination. When in my 20s as a (small-town) reporter, I had two years of college calculus, one semester of upper division math (tensor calculus) and a degree from a prestigious technical university. Despite that, I didn’t really understand business or economics until I left journalism — starting my own company in 1987 and getting an education from the school of hard knocks. Still, a cable TV station in Orlando (the 19th largest TV market) managed to get it right — in a story written by their “web content editor”.

This is not rocket science, folks. The reality is that the Walt Disney Company charges all the traffic will bear because it can. Knott’s, Six Flags and other amusement park are pale imitations of Uncle Walt’s original. It’s much more than the proprietary IP, as teens really don’t care about mice and princesses — but the imagination and creativity that make the rides more than just spin-until-you-puke physical entertainment. (Universal Studios —with its Wizarding World of Harry Potter — seems to be the only park operator who seems interested in competing in this segment of the market).

Overall, one would think that America’s seventh largest newspaper — one with a historic disproportionate policy influence — would be able to hire more qualified business reporters in what is clearly a buyer’s market. (Or at least one will derive the story from the facts rather than the other way around.) For example, the WSJ is laying off a veteran business reporter who’s knows a lot about pharma and has a bachelor’s in accounting.

That’s why I usually find more insightful and accurate coverage from industry professionals (and part-time columnists) at sites such as Forbes or Seeking Alpha. For example, more than any other news source, I learn the more about the pharma industry from Scott Gottlieb (who brings both FDA and Medicare/Medicaid experience to his MD).

Wednesday, May 27, 2015

More about the Silicon Valley legend

My friend Shane Greenstein this week wrote a book review of Moore’s Law, a biography of the famous Silicon Valley chemist, entrepreneur, billionaire, philanthropist and visionary. As Shane opened his Wall Street Journal commentary:

Fifty years ago, Gordon Moore formulated his famous “law,” typically summarized as “the number of transistors that can be placed on an integrated circuit will double every two years.” The accumulation of exponential improvements that he foresaw has indeed ushered in perpetual reductions in the cost of computing and the size of computers. And it’s at the core of the information technology revolution.
Even before his famous 1965 paper, Moore was a Silicon Valley pioneer, there when they put the silicon in Silicon Valley. After attending SJSU, Cal and Caltech, in 1956 Moore went to work for (later Nobelist) Bill Shockley, working on the technical challenges of adapting silicon (rather than germanium) to construct reliable semiconductor devices.

The next year, Moore and others of the Traitorous Eight set the pattern for the Valley when they Shockley Semiconductor to found Fairchild Semiconductor — the Valley’s first (unsanctioned) spinoff. In 1968, two of the eight — Moore and Robert Noyce — took Andy Grove to start Intel. (Four years later, fellow Traitor Gene Kleiner joined Tom Perkins to found the Valley’s legendary VC firm)..

Never fired and married to the same woman for 60+ years, Moore was neither a showman nor celebrity like the late Steve Jobs. Arguably, he and his compatriots did more than anyone else to set the pace of Silicon Valley (at least during the five decades when there was still silicon in Silicon Valley).

The authors of this latest biography — “a chemist, a historian and a journalist” — offer the definitive story of the 86-year-old chemist. As Shane concludes:
The authors have material on just about everything in Mr. Moore’s life—his relationships with his wife and children, the Porsche he drove, even his childhood adventures with nitroglycerin. The detail, on occasion, becomes overwhelming.

Yet the book brings an insider’s perspective into the discussion of Moore’s law. What became the law first emerged in 1965, in an article modestly titled “Cramming More Components Onto Integrated Circuits,” published in the journal Electronics. By the authors’ account, nobody paid much attention to it at the time. Why do we know it today? Mr. Moore revisited the idea in 1975, updated it and devoted public speeches to it. Others began to notice its deep foundations at the boundaries of science and production; Carver Mead, a longtime professor at Caltech, was the one who actually coined the term “Moore’s Law.”

Gordon Moore’s forecast was spectacularly right. Yet, as this compelling biography proves, even if he had never hazarded it, he would remain a legend in Silicon Valley.
Alas, it’s hard to deny the passing of this era. Moore is the only one of the Intel founders still alive, and one of only two (with Jay Last) of the Fairchild founders. Despite its continuing microprocessor monopoly, nearly 15 years later Intel stock is still only half its peak level of August 2000. Internet software — not electronics — is where Kleiner Perkins is making its money nowadays.

Wednesday, April 22, 2015

Target's Pulitzer-losing strategy

The success of Target over the past two decades has been built by offering better quality merchandise at lower prices, creating a unique position (and loyal following) between traditional discounters and higher-end retailers. As with other discount retailers, Target has partnered with higher end brands, providing volume in exchange for their cachet.

The latest effort was Sunday, when Target offered an exclusive collection from Lilly Pulitzer, a line of colorful women’s clothing originally based in South Florida. My teen tells me this is the brand of sorority girls and other Southern Belles. The line is normally sold in expensive boutiques, and thus Target provided both convenient distribution and the promise of better prices.

However, the demand vastly exceeded Target's expectations. As with healthcare, the initial focus was on the crashing. However, as it turns out, the more systemic problem occurred in the retail stores.

At the two stores nearest to our home, the clothing sold out in the first hour, with cosmetics and accessories lasting about a day — a pattern repeated around the country. It was a one-time deal, with no restocking planned. Target later admitted that it expected that the sales (and traffic) would last weeks and not hours.


Instead, enterprising shoppers cleaned out the stores — one shopping cart at a time — to resell the products upon eBay. By our count, there are 38,000+ “Lilly Pulitzer for Target” products on eBay at 3x the original price. Lilly’s fans have vowed to boycott the online sales with their own hashtag (#LillyforeBay).

Avoiding this problem isn't rocket science. Our generation knows this as the Rolling Stones (or Springsteen) concert ticket problem — limit 2 per customer. The former newsmagazine Newsweek reports that H&M imposes limits on similar promotions.

Per Fortune, Target claims that only 1.5% of the merchandise is being resold, but I suspect that includes the less desirable accessories. The fashionistas denied even a single copy of the iconic Lilly Pulitzer shift dress — despite being there when the doors opened at 8 — would consider the problem more serious than Target wants us to believe.

The Pulitzer fiasco has certainly undercut Tarzhay’s image of chic fashion and operational efficiency. And apparently this happened four years ago when Target sold the Missoni designer brand. A brand is a shortcut for quality — including reliability and predictability – which is the opposite of what this weekend’s shoppers experienced.

If they were targeting boomer geezers it wouldn’t be a big deal, but irritating the pre-teens and teens that are its future customers is equivalent to pissing in the soup. It’s a perfect plan to send these young shoppers back to mall for H&M and other specialty realtors.

So — as in so many other aspects of business — here is another example where the execution is more important than the strategy.

Thursday, February 5, 2015

Adieu, Radio Shack

As expected, Radio Shack filed for Chapter 11 Thursday. The brand isn't worth much, but some of the locations are coveted by the 3rd largest cellphone carrier, who plans to operate almost 3/4 of the stores to peddle cellphone service.

The failure of Radio Shack — like so many other firms — is almost anti-climactic. The business model failed years ago, and the firm has been struggling to find any excuse to stay open and throw good money after bad. The company had its time, and that time has passed: like K-Mart, Sears, Borders, Circuit City and (my greatest distress) Mervyn’s.

Radio Shack served several roles: it was the only hobbyist electronics chain and the only electronics store in many small towns and exurbs. As a parts store, it actually played an important role in the 1970s in getting the PC revolution off the ground. And I still remember visiting it for that purpose in high school and college to get some switch or solder or other part to finish a project. There was also a brief period where they had cutting edge computer equipment, notably the TRS-80 Model 100.

Whether or not that would pay the bills today — and certainly not for 2,400 stories — the company has been struggling to find a business model for the past 10-20 years,with an emphasis on cellphones (plus misc. consumer electronics like novelties like toys). They never had very good audio equipment, so anyone who bought stereo stuff there (other than cables) didn't know what they were doing. But they were a cellphone distributor — and a neutral one at that — in thousands of local malls that gave people a predictable place to buy electronics.

Today, you can buy better stereo and computer equipment at Best Buy (at equally inflated prices): yes you have to drive 5-10 miles instead of 1-2 miles, but if it’s a purchase over $100 it’s worth it (and many of the cables can be purchased at the corner drugstore, Target or Wal-Mart).

The death of Radio Shack won’t even be noticed by Southern California hobbyists. The last two times I went to my local store, I was struck by how few components (like wire or solderable connectors) were offered compared to earlier this century. Instead, we all go to Fry’s which offers components, tools, assembled products, recorded content, toys, kitchen appliances, candy and a cafe.

So Radio Shack is like the pro athlete who retires after two years of warming a bench, or the movie star who dies in their 60s when they haven’t had a role for 15 years. Yes, they were important once, but now no one will shed a tear.

The funny thing is, the hobbyist market might survive the onslaught of Amazon — just as Home Depot (or Lowe’s) could do so. When you're in the middle of a project, you need the part now, and you don’t want to wait 2 days for it to be delivered (and unless you’re in NYC or SF, the Amazon warehouse is unlikely to have it in inventory for same-day drone delivery). So this yet another reason for me to support Fry’s at every opportunity.

So my condolences to Radio Shack’s shareholders and employees. Forgive me if I don’t have time to attend the wake. And if Radio Shack comes back from the dead (as some accounts imply), there’s nothing in their current (or rumored future) formula that’s going to bring me back.

Tuesday, January 6, 2015

For once, LG may beat Samsung

Samsung has been touting the latest strategy for Tizen — this time as an integrated OS for its smart TVs. It’s earned dozens of news stories this month, all tied to its promotional efforts for this week’s CES show in Las Vegas.

Samsung has always been better at announcing and publicizing Tizen strategies than it has been at executing on them. It did not skimp on the grandiloquent predictions when its original incarnation (then called Bada) was announced in November 2009:

Samsung Launches Open Mobile Platform: Samsung bada – The Next Wave Of The Mobile Industry
November 10, 2009
Samsung Electronics Co. Ltd., a leading mobile phone provider, today announced the launch of its own open mobile platform, Samsung bada [bada] in December. This new addition to Samsung's mobile ecosystem enables developers to create applications for millions of new Samsung mobile phones, and consumers to enjoy a fun and diverse mobile experience.

In order to build a rich smartphone experience accessible to a wider range of consumers across the world, Samsung brings bada, a new platform with a variety of mobile applications and content.

Based on Samsung's experience in developing previous proprietary platforms on Samsung mobile phones, Samsung can create the new platform and provide opportunities for developers. Samsung bada is also simple for developers to use, meaning it's one of the most developer-friendly environments available, particularly in the area of applications using Web services. Lastly, bada's ground-breaking User Interface (UI) can be transferred into a sophisticated and attractive UI design for developers.

Samsung will be able to expand the range of choices for mobile phone users to enjoy the smartphone experiences. By adopting Samsung bada, users will be able to easily enjoy various applications on their mobile.
Encouraged by Samsung, one analyst predicted that Tizen would make up “half of its portfolio by 2012.”

Instead, (according GSM Arena) only 11 bada models ever shipped — out of more than 3200 models during the past 5 yearsbefore bada was discontinued in favor of Tizen — a merger of bada and the Intel- and Nokia-flavored mobile Linuxes (among others).

Samsung announced its first Tizen phone — the Samsung Z  — June of 2014. A defeatured version of the Galaxy S5, it debuted not in Korea — or North America or Europe — but in Russia, suggesting the company did not think it could compete head to head with the latest Android and iOS phones. In fact, it was even ready for a third world BRIC country: the release was cancelled due to a lack of applications.

At CES this week, Samsung announced that Tizen would jump species — from its viral reservoir in rare smartphones and smartwatches — and become the only OS it uses for its smart TVs. I had three reactions.

First, so what? Yes, as the leading TV vendor Samsung can push out lots of copies of Tizen. But does anyone care what OS is in their VCR, DVR, Blu-ray, TV or home stereo? (I care about the OS in my car stereo — due to cellphone compatibility — but that’s a story for another time.)

Second, Samsung is saying: “let’s ship a platform in a product category where no one cares about app availability.” In other words, it may never win developer support for Tizen — and thus a large assortment of apps — but on TVs, who cares?

Finally, while Tizen frees Samsung from dependence on the evil Google, is shipping Tizen an asset for Samsung — or a liability?

Under the hood, Tizen has a very robust Linux, reflecting bada’s 2011 merger with MeeGo, which in turn built upon years of work by Nokia (with Maemo) and Intel (with its Maemo fork called Moblin). (It also included the failed Linux Mobile standard, LiMo).

However, a robust OS under the hood means nothing if it has a clunky UI. Exhibit A is the Symbian OS with Nokia’s aged S60 UI; Exhibits B-Z are every incarnation of desktop Linux known to mankind.

Which brings me to the dark horse: LG. I hadn’t noticed, but two years ago LG bought webOS, the failed Palm smartphone OS that HP owned for three years before dumping it. This week LG announced it’s using webOS for its own TVs.

Almost six years ago, webOS was a really good smartphone OS. But despite Palm’s efforts to double-down on its modern OS, it wasn’t enough to save the company. Now, webOS has a $100+ billion/year company behind it — and unlike with OS — a large volume of shipping products where it can run.

With a product strategy that usually consists of copying Samsung — much like Panasonic copied all its Japanese rivals — LG is rarely thought of as an innovative company. But here, instead of copying Samsung by developing its own lousy embedded OS, it bought a good one.

Again, will it matter? Will the TV OS matter more than screen size, brightness or — most importantly for a commodity product — price? As a former software guy, I want software to matter in providing differentiation. But I’m not going to bet even one dollar of our youngest’s college fund on it.