tag:theconversation.com,2011:/au/topics/yahoo-3489/articlesYahoo – The Conversation2020-10-29T12:30:53Ztag:theconversation.com,2011:article/1486912020-10-29T12:30:53Z2020-10-29T12:30:53ZGoogle antitrust case suggests Apple should be in the Department of Justice’s crosshairs too<figure><img src="https://images.theconversation.com/files/366276/original/file-20201028-13-1fpcvkw.jpg?ixlib=rb-1.1.0&rect=10%2C318%2C3327%2C2376&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Apple devices drive over half of all Google search traffic. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/AppleBeatsExxon/a953a0fa656b4464b5e0c8b8e18bea27/photo?Query=apple%20AND%20logo&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=270&currentItemNo=93">AP Photo/Russel A. Daniels</a></span></figcaption></figure><p>Google’s payments to Apple to promote its search engine in iPhones, iPads and Mac computers <a href="https://www.justice.gov/opa/pr/justice-department-sues-monopolist-google-violating-antitrust-laws">are at the center</a> of the Department of Justice’s antitrust lawsuit against the tech giant. </p>
<p>The suit alleges this creates a “continuous and self-reinforcing cycle of monopolization” by limiting which search engines consumers can use. </p>
<p>But as <a href="https://scholar.google.com/citations?user=z9oUtFsAAAAJ&hl=en&oi=ao">someone who studies platform markets, competition and industry structure</a>, I believe the agreement seems more like a damning indictment of Apple’s own potentially illegal business practices. </p>
<h2>Why Google needs Apple</h2>
<p>The Department of Justice alleges that Google pays Apple and other device-makers to set its search engine as the default “on billions of mobile devices and computers worldwide,” thus controlling how users access the internet. </p>
<p>It’s true, Google is dominant in search, which accounted for an <a href="https://www.forbes.com/sites/greatspeculations/2019/12/24/is-google-advertising-revenue-70-80-or-90-of-alphabets-total-revenue/#18092d894a01">estimated 83% of parent company Alphabet’s revenue</a> in 2019. </p>
<p>But <a href="https://www.businessinsider.com/apple-search-deal-google-value-privacy-2020-10">about half of Google’s search traffic</a> originates from Apple devices. If Apple were to replace Google with an alternative default search engine on its devices, I estimate that Google could lose US$30 billion to $40 billion in annual revenue, assuming most users didn’t change the setting back to Google.</p>
<p>Even if Apple didn’t pick a default and pushed the search engine choice to users, it would still have to create a list of possibilities. Research on <a href="https://www.doi.org/10.1287/ijoc.2020.0968">search</a> and <a href="https://scholar.smu.edu/cgi/viewcontent.cgi?article=1565&context=jalc">airline tickets</a> has shown that consumers overwhelmingly tend to pick whatever is at the top of the list, meaning Apple would still wield significant power over user choice. </p>
<p>Because of this, Google clearly has a powerful motive to keep its search engine as the default choice. </p>
<figure class="align-center ">
<img alt="The Google search application is pictured running on an iPhone." src="https://images.theconversation.com/files/366230/original/file-20201028-13-1dzjqne.jpg?ixlib=rb-1.1.0&rect=132%2C111%2C4530%2C2992&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366230/original/file-20201028-13-1dzjqne.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366230/original/file-20201028-13-1dzjqne.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366230/original/file-20201028-13-1dzjqne.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366230/original/file-20201028-13-1dzjqne.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366230/original/file-20201028-13-1dzjqne.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366230/original/file-20201028-13-1dzjqne.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ultimately Google depends on device-makers like Apple to reach users.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/the-google-search-application-is-seen-running-on-an-iphone-news-photo/1027366886">Jaap Arriens/NurPhoto via Getty Images</a></span>
</figcaption>
</figure>
<h2>Why Apple would pick Google anyway</h2>
<p>Apple’s role as the gateway to billions of searches is the critical factor here. </p>
<p>Consider an Apple executive preparing the iPhone or another device for launch, choosing whether to set a default search engine and, if so, which one to pick. Presumably, there are two key factors: costs and customer satisfaction. </p>
<p>The cost to Apple of presetting a default search engine is negligible, just a few lines of code. Without a default, consumers would need to set it themselves or type google.com or bing.com themselves to conduct a search, as opposed to the common practice of typing a search term in the URL field. </p>
<p>To prevent this <a href="http://ceur-ws.org/Vol-2220/06_CONFWS18_paper_1.pdf">user inconvenience</a>, Apple would be best off presetting a search engine that was, ideally, the preferred choice of most users. The question then is: What would they prefer?</p>
<p>Google became synonymous with search since its founding in 1998 not simply due to its dominance – and <a href="https://www.nytimes.com/2011/10/16/technology/default-choices-are-hard-to-resist-online-or-not.html">payments to browser companies over the years</a> – but because users <a href="https://www.forbes.com/sites/forbesagencycouncil/2017/06/05/how-google-came-to-dominate-search-and-what-the-future-holds/#a3a0dbd38721">found the results of its algorithm and simple interface superior</a> to the competition. And Google <a href="https://www.statista.com/statistics/185966/us-customer-satisfaction-with-google/">continues to score high marks</a> with consumers in satisfaction surveys. </p>
<p>If Apple product managers were to preset one default search engine in order to maximize user satisfaction, they would probably pick Google anyway. </p>
<h2>A credible threat</h2>
<p>So why would Google pay <a href="https://www.nytimes.com/2020/10/25/technology/apple-google-search-antitrust.html">Apple $8 billion to $12 billion a year</a>? </p>
<p>In my view, it comes down to the the fear of being supplanted by a rival search engine if it stopped paying the fee. Apple has done this to Google before. </p>
<p>The iPhone used to come preloaded with two Google apps: Maps and <a href="https://www.scientificamerican.com/article/who-killed-youtube-on-the-iphone-apple-or-google/">YouTube</a>. In 2012, Apple kicked both off its devices as the two companies <a href="https://www.theguardian.com/technology/2012/nov/05/apple-google-maps-iphone-dropped">began to compete more aggressively with one another</a>, requiring consumers to download the apps if they wanted to use them. </p>
<p>From a game theory perspective, a <a href="https://www.econlib.org/library/Enc/GameTheory.html">credible threat or perception of one</a> could be enough to ensure continued compliance. </p>
<p><a href="https://www.emarketer.com/Article/Apple-Takes-Biggest-Bite-of-Mobile-Web-Traffic/1011234">Since at least 2014</a> – around <a href="https://www.nytimes.com/2020/10/25/technology/apple-google-search-antitrust.html">when the first Apple-Google partnership</a> on preset default occurred – Apple <a href="https://www.statista.com/statistics/236550/percentage-of-us-population-that-own-a-iphone-smartphone/">has dominated mobile web traffic</a>. This power gives Apple, as a platform providing access to users, the leverage it needs to charge and potentially extort a rent – in <a href="https://www.investopedia.com/terms/e/economicrent.asp">economic parlance</a> – for a product design decision that it would have likely chosen on its own. This could violate antitrust law, though Apple would likely argue it’s merely monetizing a resource it built.</p>
<h2>It all comes down to the platform</h2>
<p><a href="https://books.google.com/books?hl=en&lr=&id=Bvd1CQAAQBAJ">Platforms provide</a> the technological and economic infrastructure and set the rules participants must abide by. </p>
<p>This gives them significant power as the access point to potentially massive numbers of users, which has been the core issue underlying past antitrust actions against major tech companies such as <a href="https://www.justice.gov/atr/complaint-us-v-microsoft-corp">Microsoft in the late 1990s</a>.</p>
<p>While the Department of Justice lawsuit <a href="https://www.axios.com/heres-what-the-us-antitrust-case-charges-google-with-cbaf5458-0fd9-4c3d-a85e-0c8637675ea5.html">does have a strong case against Google in other areas</a>, it seems like the part about the Google-Apple partnership should be more directed toward the company that actually controls the access to consumers.</p>
<p>And with <a href="https://nypost.com/2020/10/28/apple-is-reportedly-looking-to-develop-its-own-search-engine/">new reports that Apple is planning</a> to develop its own search engine, the government’s desired remedy in its lawsuit – the end of the partnership and the Google default – may happen anyway, making the case mostly moot. </p>
<p>[<em>You’re smart and curious about the world. So are The Conversation’s authors and editors.</em> <a href="https://theconversation.com/us/newsletters/weekly-highlights-61?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=weeklysmart">You can get our highlights each weekend</a>.]</p><img src="https://counter.theconversation.com/content/148691/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hemant K. Bhargava's work has been supported and inspired by various tech firms, including Google (and other search firms such as Yahoo! and Overture) with a research excellence gift from the Google Cloud Platform in 2018.</span></em></p>Google pays Apple to make its search engine the default on its devices, but the iPhone maker actually has more market power in the relationship.Hemant K. Bhargava, Professor, Suran Chair in Technology Management; Director, Center for Analytics and Technology in Society, University of California, DavisLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/814342017-09-11T00:40:41Z2017-09-11T00:40:41ZThe only safe email is text-only email<figure><img src="https://images.theconversation.com/files/185136/original/file-20170907-9599-1mirisc.png?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">For safety, look to text-only messaging.</span> <span class="attribution"><span class="source">The Conversation, via picascii.com, publicdomainpictures.net and kelvinsong</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>It’s troubling to think that at any moment you might open an email that looks like it comes from your employer, a relative or your bank, only to fall for a <a href="http://gizmodo.com/a-huge-and-dangerously-convincing-google-docs-phishin-1794888973">phishing</a> <a href="http://gizmodo.com/beware-of-this-dangerously-convincing-google-docs-phish-1546278702">scam</a>. Any one of the endless stream of innocent-looking emails you receive throughout the day could be trying to con you into handing over your login credentials and give criminals control of your confidential data or your identity.</p>
<p>Most people tend to think that it’s <a href="https://theconversation.com/cybersecuritys-weakest-link-humans-57455">users’ fault</a> when they fall for phishing scams: Someone just clicked on the wrong thing. To fix it, then, users should just <a href="https://theconversation.com/before-decrying-the-latest-cyberbreach-consider-your-own-cyberhygiene-37834">stop clicking on the wrong thing</a>. But as security experts who study malware techniques, we believe that thinking chases the wrong problem. </p>
<p>The real issue is that today’s web-based email systems are electronic minefields filled with demands and enticements to click and engage in an increasingly responsive and interactive online experience. It’s not just Gmail, Yahoo mail and similar services: Desktop-computer-based email programs like Outlook display messages in the same unsafe way. </p>
<p>Simply put, safe email is plain-text email – showing only the plain words of the message exactly as they arrived, without embedded links or images. <a href="http://cromwell-intl.com/cybersecurity/html-email.html">Webmail is convenient for advertisers</a> (and lets you write good-looking emails with images and nice fonts), but carries with it unnecessary – and serious – danger, because a webpage (or an email) can easily show one thing but do another.</p>
<p>Returning email to its origins in plain text may seem radical, but it provides radically better security. Even the <a href="https://www.us-cert.gov/">federal government’s top cybersecurity experts</a> have come to the startling, but important, conclusion that any person, organization or government serious about web security should <a href="https://www.us-cert.gov/sites/default/files/publications/AR-17-20045_Enhanced_Analysis_of_GRIZZLY_STEPPE_Activity.pdf#page=53">return to plain-text email</a>:</p>
<blockquote>
<p>“Organizations should ensure that they have disabled HTML from being used in emails, as well as disabling links. Everything should be forced to plain text. This will reduce the likelihood of potentially dangerous scripts or links being sent in the body of the email, and also will reduce the likelihood of a user just clicking something without thinking about it. With plain text, the user would have to go through the process of either typing in the link or copying and pasting. This additional step will allow the user an extra opportunity for thought and analysis before clicking on the link.”</p>
</blockquote>
<h2>Misunderstanding the problem</h2>
<p>In recent years, webmail users have been <a href="https://www.consumer.ftc.gov/articles/0003-phishing">sternly instructed</a> to <a href="https://www.wired.com/2017/03/phishing-scams-fool-even-tech-nerds-heres-avoid/">pay perfect attention</a> to <a href="https://www.mcafee.com/us/threat-center/resources/security-tips-13-ways-to-protect-system.aspx">every nuance of every email message</a>. They pledge <a href="http://www.phishing.org/10-ways-to-avoid-phishing-scams">not to open emails</a> from people they don’t know. They say they won’t <a href="https://ssd.eff.org/en/module/how-avoid-phishing-attacks">open attachments without careful vetting</a> first. Organizations <a href="https://www.infosecurity-magazine.com/news/phishing-awareness-grows-but/">pay security companies to test</a> if their employees make good on these pledges. But phishing continues – and is <a href="https://www.scmagazine.com/email-malware-phishing-and-spam-attempts-hit-new-highs-for-2017/article/680281/">becoming more common</a>.</p>
<p>News coverage can make the issue even more confusing. The New York Times called the Democratic National Committee’s email security breach <a href="https://www.nytimes.com/2016/12/13/us/politics/russia-hack-election-dnc.html">somehow both “brazen” and “stealthy,”</a> and pointed fingers at any number of possible problems – old network security equipment, sophisticated attackers, indifferent investigators and inattentive support staff – before revealing the weakness was really a busy user who acted “without thinking much.”</p>
<p>But the real problem with webmail – the <a href="http://www.csoonline.com/article/2975807/cyber-attacks-espionage/phishing-is-a-37-million-annual-cost-for-average-large-company.html">multi-million-dollar</a> security mistake – was the idea that if emails could be sent or received through a website, they could be more than just text, even webpages themselves, displayed by a web browser program. This mistake created the criminal phishing industry.</p>
<h2>Engineered for danger</h2>
<p>A web browser is the perfect tool for insecurity. Browsers are designed to <a href="https://www.theverge.com/2017/9/7/16257470/little-snitch-connection-map-app-vpn-utility">seamlessly mash together content</a> from multiple sources – text from one server, ads from another, images and video from a third, user-tracking “like” buttons from a fourth, and so on. A modern webpage is <a href="https://www.mozilla.org/en-US/lightbeam/">a patchwork of third-party sites</a>, which can number in the dozens. To make this assemblage of images, links and buttons appear unified and integrated, the browser doesn’t show you where the pieces of a webpage come from – or where they’ll lead if clicked. </p>
<p>Worse, it allows webpages – and thereby emails – to lie about it. When you <a href="http://igoro.com/archive/what-really-happens-when-you-navigate-to-a-url/">type “google.com” into your browser</a>, you can be reasonably sure you will get Google’s page. But when you click a link or button labeled “Google,” are you actually heading to Google? Unless you carefully read the underlying HTML source of the email, there are a dozen ways your browser can be <a href="https://textslashplain.com/2017/01/14/the-line-of-death/">manipulated to trick you</a>.</p>
<p>This is the opposite of security. Users can’t predict the consequences of their actions, nor decide in advance if the potential results are acceptable. A perfectly safe link might be displayed right next to a malicious one, with no apparent difference between them. When a user is faced with a webpage and the decision to click on something, there is no reasonable way to know what might happen, or what company or other party the user will interact with as a result. By design, the browser hides this information. But at least, when browsing the web, you can choose to start at a trusted site; webmail, however, delivers an attacker-made webpage right into your mailbox!</p>
<p>The only way to be sure of security in today’s webmail environment is to learn the skills of a professional web developer. Only then will the layers of HTML, Javascript, and other code become clear; only then will the consequences of a click become known in advance. Of course, this is an unreasonable level of sophistication to require for users to protect themselves.</p>
<p>Until software designers and developers fix browser software and webmail systems, and let users make informed decisions about where their clicks would lead them, we should follow the advice of C.A.R. Hoare, one of the early pioneers of computer security: “<a href="https://www.cs.fsu.edu/%7Eengelen/courses/COP4610/hoare.pdf">The price of reliability is the pursuit of the utmost simplicity</a>.”</p>
<h2>Safe email is plain-text email</h2>
<p>Companies and other organizations are even more vulnerable than individuals. One person needs only to worry about his or her own clicking, but each worker in an organization is a separate point of weakness. It’s a matter of simple math: If every worker has that same 1 percent chance of falling for a phishing scam, the <a href="http://www.statisticshowto.com/what-is-a-bernoulli-trial/">combined risk to the company</a> as a whole is much higher. In fact, companies with 70 or more employees have a <a href="https://www.wolframalpha.com/input/?i=69+Bernoulli+trials+probability+0.01">greater than 50 percent chance</a> that someone will be hoodwinked. Companies should look very critically at webmail providers who offer them worse security odds than they’d get from a coin toss.</p>
<p>As technologists, we have long since come to terms with the fact that some technology is just a bad idea, even if it looks exciting. Society needs to do the same. Security-conscious users must demand that their email providers offer a plain-text option. Unfortunately, such options are few and far between, but they are a key to stemming the webmail insecurity epidemic. </p>
<p>Mail providers that refuse to do so should be avoided, just like back alleys that are bad places to conduct business. Those online back alleys may look eye-pleasing, with ads, images and animations, but they are not safe.</p>
<p><em>This article was written in collaboration with cybersecurity researcher and developer <a href="http://blog.erratasec.com/">Robert Graham</a>.</em></p><img src="https://counter.theconversation.com/content/81434/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s impossible to be certain of safety while using Gmail, Yahoo mail and other web-based email systems. The best solution is a radical one: It’s time to return to plain, text-only email.Sergey Bratus, Research Associate Professor of Computer Science, Dartmouth CollegeAnna Shubina, Post-doctoral Associate in Computer Science, Dartmouth CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/815722017-07-27T13:34:26Z2017-07-27T13:34:26ZSilicon Valley firms are over-valued – here’s why a correction is coming<figure><img src="https://images.theconversation.com/files/180004/original/file-20170727-8533-bypmnr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/manoftaste-de/9483452871/in/photolist-fs2b98-dgWV3R-mX3Xx3-6xiuGW-aaLcXm-7X4Zjj-wWuE8S-o5BTeY-axYa2o-wiHi9L-7VcHft-9ZdBc4-abetZ3-7mD4zj-7Ud1Lr-hfFRBb-asjYVj-6fYqJS-9xzoiS-dLd5kE-9HwDdB-bWvRyG-bsJvdf-iSbzHw-95VPKh-3Pft6B-bsJv7y-6hhQvg-agvuX9-GqM5CE-bFDozT-bsJvFh-a7bdks-bFDmZk-bFDnyv-e8Linq-bsJuD7-bFDmVa-bFDnNi-bFDo96-bsJxUm-HLu4Wo-bsJuiy-bsJu4m-HLu4ES-w97DVN-o9Zzhw-DERbat-PaXbLb-a1RwYP">Christian Schnettelker</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>As Facebook’s shares hit a record high, CEO Mark Zuckerburg will be patting himself on the back for bucking the trend and outperforming financial projections <a href="http://www.cio.com/article/3194866/it-industry/facebook-nears-2-billion-users-warns-ad-growth-will-slow.html">for eight consecutive quarters</a>. Meanwhile, many of his competitors are worried – and they should be. </p>
<p>While Evan Spiegel, 27-year-old CEO of Snapchat, enjoyed a yachting break, his company’s shares <a href="http://pagesix.com/2017/07/20/evan-spiegel-to-keep-sailing-with-bros-amid-snapchat-stock-dive/">sunk below their launch price</a>. The market is losing faith in the social sharing app’s ability to find features that Facebook cannot instantly copy. </p>
<p>Similarly, Travis Kalanick, ex-CEO of Uber, is also enjoying his <a href="https://theconversation.com/uber-gets-a-backseat-driver-as-kalanick-exits-top-job-79854">enforced break</a> as concerns grow around Uber’s business model and <a href="https://www.ft.com/content/09278d4e-579a-11e7-80b6-9bfa4c1f83d2">whether it can ever generate profit</a>. </p>
<p>Yet both businesses have been enormously effective in raising funds from investors. Uber has <a href="https://www.recode.net/2017/5/25/15686886/ride-hail-valuation-investment-uber-didi-lyft">raised around US$12 billion</a> and Snap <a href="https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/alexkonrad/2017/02/02/snap-ipo-means-big-windfall-for-early-snapchat-investors/&refURL=https://www.google.co.uk/&referrer=https://www.google.co.uk/">around US$6 billion</a> (if you include <a href="http://www.firstpost.com/tech/news-analysis/snap-inc-raises-3-4-billion-in-its-ipo-shares-will-start-trading-on-nyse-today-3698657.html">proceeds from its float</a>).</p>
<p>Other Silicon Valley perennial under-performers <a href="https://theconversation.com/livening-things-up-can-twitter-stay-afloat-through-new-innovations-54579">Twitter</a> and <a href="https://theconversation.com/whats-going-on-at-yahoo-54121">Yahoo</a> have similarly raised significant sums from investors but failed to provide any sort of return. Too many tech companies seem to be better at raising funds from investors than generating profits from their operations. This speaks to a fundamental issue with the tech market and the level of investment that is being poured into it.</p>
<h2>The search for returns</h2>
<p>Since the 2007-08 financial crisis, <a href="http://www.global-rates.com/interest-rates/central-banks/central-banks.aspx">interest rates have approached zero</a>, forcing businesses and investors with cash to find other means of generating returns. The stock market is the obvious place, as returns from private equity and hedge funds <a href="http://fortune.com/private-equity-investors-effect/">have also been declining</a>. </p>
<p>The sheer weight of money looking for opportunities forces investment into more marginal opportunities that yield lower returns. Conversely, this same weight of money has been pushing share prices <a href="https://www.theguardian.com/business/2017/may/16/global-stock-markets-whats-driving-the-rise-and-will-it-continue">ever higher</a>, despite the uncertainties of <a href="https://theconversation.com/what-the-stock-market-tells-us-about-the-british-economy-post-brexit-63981">Brexit</a> and <a href="https://theconversation.com/why-markets-have-bounced-back-after-the-election-of-donald-trump-68636">Trump</a>. </p>
<p>Nowhere is the problem of finding destinations for cash more evident than in Silicon Valley. Enormous amounts are channelled into almost any opportunity in the hope of hitting the next Facebook, Google, or Amazon jackpot, and riding the share price surge. In turn, some of the money being thrown off by these mega corporates is dribbling down through the acquisition of other tech businesses at sky high valuations. </p>
<p>Start-ups that are valued at over US$1 billion have become so common they have a name: unicorns. But investors should start to question their value following the stock market launches of companies like <a href="https://techcrunch.com/2017/07/10/snap-falls-below-its-ipo-price-for-the-first-time/">Snapchat</a> and recipe and ingredients service <a href="https://techcrunch.com/2017/07/05/blue-apron-falls-9-on-fourth-day-as-a-public-company/">Blue Apron</a>, which have both rapidly fallen below their float price. </p>
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<p>Valuations of US$24 billion for Snapchat made Spiegel worth US$5 billion. But there is no way of connecting this valuation <a href="http://uk.businessinsider.com/analyst-snapchats-valuation-numbers-dont-add-up-2017-3">with any hard statistics</a>, financial or otherwise from Snapchat’s books. And the banks which supported the float are becoming <a href="https://www.bloomberg.com/gadfly/articles/2017-07-13/snapchat-hasn-t-changed-but-investors-feelings-have">more sanguine</a> on the company’s outlook.</p>
<p>Uber has not yet listed, but is valued at <a href="https://techcrunch.com/2017/06/22/as-ubers-value-slips-on-the-secondary-market-lyfts-is-rising/">around US$50 billion</a> (down from US$68 billion a year ago), and backers have invested US$12 billion which is principally being used to fund incentives to drivers and customers. Uber is being launched amid significant incentives around the world, whatever the nature of the local competition. In effect, this consists of cheaper fares to passengers and subsidised pay to encourage recruitment of self-employed taxi drivers. </p>
<p>This is risky business. The unregulated taxicab industry is one that is traditionally viewed as unattractive to investors as profits have never done much more than cover drivers’ wages and car running costs due to the plentiful supply of drivers. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/180008/original/file-20170727-8516-13pj4gi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180008/original/file-20170727-8516-13pj4gi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180008/original/file-20170727-8516-13pj4gi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180008/original/file-20170727-8516-13pj4gi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180008/original/file-20170727-8516-13pj4gi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180008/original/file-20170727-8516-13pj4gi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180008/original/file-20170727-8516-13pj4gi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Uber risky?</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
</figcaption>
</figure>
<p>Customers are fickle in that they will take the cheapest and most responsive taxi, and will have more than one taxi app. There is no patentable technology and most taxi businesses have their own apps. So once the Uber incentives cease, what is to stop the original taxicab companies claiming back market share? In short, app or no app, competition is fierce in this industry and there is little to guarantee Uber’s success.</p>
<h2>Sheer volumes of cash</h2>
<p>Silicon Valley firms are also awash with cash and the idea of giving it back to shareholders is apparently unappealing. Instead, much of it is spent on acquisitions which are partly intended to ensure competitor technologies do not reach a dangerous size. This is facilitated by the US Department of Justice, which has <a href="https://theconversation.com/are-us-antitrust-regulators-giving-silicon-valleys-free-apps-a-free-pass-63974">still not decided</a> whether normal competition law should apply in Silicon Valley. </p>
<p>Similarly, there is still a pursuit of the next big thing. Microsoft, for example, has spent almost US$60 billion on acquisitions such as <a href="https://www.wsj.com/articles/microsoft-to-acquire-linkedin-in-deal-valued-at-26-2-billion-1465821523">LinkedIn at US$26.2 billion</a>, and <a href="https://www.theverge.com/2016/5/25/11766540/microsoft-nokia-acquisition-costs">Nokia at US$7.2 billion</a>, along with more than a hundred others. It is not clear that any are delivering returns. Indeed, Microsoft tried to buy Yahoo for <a href="https://techcrunch.com/2008/02/01/wow-microsoft-offers-446-billion-to-acquire-yahoo/">US$45 billion</a> but luckily for them, the bid was rejected. Yahoo was eventually sold to Verizon this year – <a href="https://techcrunch.com/2017/06/13/verizon-closes-4-5b-acquisition-of-yahoo-marissa-mayer-resigns-memo/">for US$5 billion</a>. </p>
<p>It is likely that Microsoft’s attitude to risk is influenced by the <a href="https://seekingalpha.com/article/3586136-microsoft-earnings-preview-100-billion-cash-95-billion-held-overseas">US$100 billion of cash</a> it is sitting on. Google has bought more than 200 businesses, spending around US$24.5 billion on the ten biggest, including Motorola at US$12.5 billion. Facebook has been more prudent and successful, buying WhatsApp at US$19 billion in 2014 after paying US$1 billion for Instagram in 2012, then a 13 person operation. </p>
<p>Overall, the sheer volume of cash looking for a home is driving behaviour which in more “normal” times would be viewed as profligate and high risk. Indeed, investor behaviour has some <a href="https://www.wsj.com/articles/startups-spend-with-abandon-flush-with-capital-1412549853">similarities to the dot.com era</a> when it was seen as a good thing to burn through shareholder capital. </p>
<p>The canny investor may well be wise to let their cash rot in the bank rather than become involved in this casino, which runs the risk of coming to a sad end. <a href="https://www.theguardian.com/technology/2017/jul/02/is-it-time-to-rein-in-the-power-of-the-internet-regulation">Regulation is growing</a> and starting to catch up with technology, certainly outside the US. Sky high valuations bear little resemblance to future earnings capabilities and result from too much surplus cash and a wish to prevent competition growing up. A correction is coming.</p><img src="https://counter.theconversation.com/content/81572/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Colley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It hasn’t been a good round of earnings for Silicon Valley’s big names.John Colley, Professor of Practice, Associate Dean, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/794962017-06-16T05:04:03Z2017-06-16T05:04:03ZWith the rise of subscription and online TV, we need to rethink local content rules<figure><img src="https://images.theconversation.com/files/173972/original/file-20170615-23542-fqy55g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Kate McCartney and Kate McLennan in The Katering Show (2015), which began as a short form web series.</span> <span class="attribution"><span class="source">idmb</span></span></figcaption></figure><p>The newly released Australian Bureau of Statistics (ABS) report on Film, Television and Digital Games <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/8679.0Main%20Features12015-16?opendocument&tabname=Summary&prodno=8679.0&issue=2015-16&num=&view=">2015-16</a> offers fascinating insights into how our screen media landscape has changed over the past four years.</p>
<p>A key factor has been the <a href="https://theconversation.com/netflix-arrival-will-be-a-tipping-point-for-tv-in-australia-38386">introduction</a> of subscription video-on-demand services in early 2015. Indeed, the report notes that the income of subscription broadcasters and channel providers (A$5.3 billion), such as Netflix, Stan and Foxtel, now exceeds that of commercial free-to-air broadcasters (A$3.9 billion).</p>
<p>So, what does this mean for the Australian screen media landscape?</p>
<p>Set against the <a href="https://theconversation.com/ten-networks-problems-are-history-repeating-79420">Ten Network’s woes</a> and media reforms being <a href="https://mumbrella.com.au/fifield-tens-voluntary-administration-wake-call-opponents-proposed-media-reforms-451413">debated</a> by the federal government, the ascendancy of subscription broadcasting adds to the worries of free-to-air broadcasters. </p>
<p>The number of commercial free-to-air broadcast businesses dropped over the four-year period measured by the ABS report from 24 to 14. Income declined from $4.6 billion in 2011-12 (the time of the last report) to $3.9 billion (2015-16) and operating profit before tax from $996 million to $420 million.</p>
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<p>Subscription broadcasters and channel providers saw a huge increase in income - from $4.6 billion to $5.3 billion - although their total expenses also increased. (The total number of businesses in the area declined slightly from 36 to 32 in this period).</p>
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<p>A recent Roy Morgan report found that more than one in three Australians now have <a href="https://www.roymorgan.com/findings/7242-netflix-subscriptions-march-2017-201706080957">Netflix</a>, an increase of 20% in the first quarter for 2017. <a href="http://www.roymorgan.com/findings/7118-netflix-subscribers-and-commercial-television-december-2016-201701310906">According</a> to Roy Morgan, </p>
<blockquote>
<p>Netflix subscribers watch less commercial TV than others. </p>
</blockquote>
<p>And Foxtel last week announced a revision of its streaming and on-demand service, Foxtel Play - now called Foxtel Now - after buying out its joint venture partner in Presto, the Seven Network, and shutting Presto down. Meanwhile, we are still yet to see the full impact of Amazon Prime in Australia, which arrived here late last year.</p>
<h2>Other threats to free to air</h2>
<p>But free-to-air TV faces other threats. This report shows there has also been an enormous increase in non-TV production for online distribution. The makers of these shows use platforms like YouTube to gain access to a global audience, far greater than that available through traditional TV broadcast. </p>
<p>Many <a href="https://theconversation.com/the-battle-for-audiences-as-free-tv-viewing-continues-its-decline-58051">Australian YouTubers with large followings</a> and subscribers have a greater audience than some TV programs. For instance, <a href="https://www.youtube.com/user/Reslim">Jamie and Nikki</a>, a Melbourne-based couple, have more than a million subscribers and receive hundreds of thousands of views within days of uploading new videos, without any association to traditional TV networks.</p>
<p>There are also examples of shows such as <a href="https://www.youtube.com/user/LeadBalloonTV">The Katering Show</a>, which have <a href="http://www.smh.com.au/entertainment/tv-and-radio/the-katering-shows-kates-to-tackle-breakfast-tv-in-new-abc-series-get-krackn-20170215-gue17a.html">moved</a> from a short format web-series to a long format TV series. The Katering Show’s makers have created a new full-length series for the ABC titled Get Krack!n, which is co-funded by Film Victoria and NBC Universal’s US comedy streaming channel Seeso.</p>
<p>Screen Australia CEO Graeme Mason <a href="https://www.screenaustralia.gov.au/sa/media-centre/news/2017/06-15-abs-survey-results?utm_source=email&utm_medium=media-release&utm_campaign=abs-survey-results">pointed out yesterday</a> that:</p>
<blockquote>
<p>online content creators… have delivered exponential production growth, now representing $93.6m of non-TV production costs compared to just $5.5m in the 2011/12 survey.</p>
</blockquote>
<p>The number of webisodes increased from 107 (2011-12) to 3248 (2015-16). As Screen Australia <a href="https://www.screenaustralia.gov.au/sa/media-centre/news/2017/06-15-abs-survey-results?utm_source=email&utm_medium=media-release&utm_campaign=abs-survey-results">noted</a>, </p>
<blockquote>
<p>Since 2012, Screen Australia has funded 107 online projects including Soul Mates, The Katering Show and Starting from Now.</p>
</blockquote>
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<figcaption><span class="caption">The first episode of Starting From Now, which began as a web series and was later picked up by SBS 2.</span></figcaption>
</figure>
<p>The digital game developers’ sector has also seen an <a href="https://www.screenaustralia.gov.au/sa/media-centre/news/2017/06-15-abs-survey-results?utm_source=email&utm_medium=media-release&utm_campaign=abs-survey-results">increase</a> in employment - up 26% since the 2011/12 survey. Income in the sector rose from $89 million to $111 million. </p>
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<p>Then there is the <a href="https://theconversation.com/the-rise-of-the-pro-player-as-australia-hosts-its-richest-computer-gaming-event-76865?sa=google&sq=esports&sr=5">increased</a> interest in eSports. Sydney <a href="https://theconversation.com/the-rise-of-the-pro-player-as-australia-hosts-its-richest-computer-gaming-event-76865?sa=google&sq=esports&sr=5">recently</a> hosted a Counter-Strike: Global Offensive event with a record $260,000 in prize money. The AFL is interested in this area, with the Adelaide Crows <a href="http://www.foxsports.com.au/afl/adelaide-crows-buys-professional-gaming-team-legacy-esports-best-known-for-their-league-of-legends-team/news-story/ad0a43e10f1d5a90f7fb2bc6412c5138">recently</a> acquiring its own eSports team.
There is also <a href="https://theconversation.com/the-rise-of-the-pro-player-as-australia-hosts-its-richest-computer-gaming-event-76865?sa=google&sq=esports&sr=5">The eSports Network</a>, a newly formed media company that plans to bring eSports to Australian screens in the near future. </p>
<p>Other key findings of the ABS report include a slight rise in the income of film and video production businesses and digital game developers. This is despite a fall in the overall number of game productions from 245 in 2011-12 to just 178.</p>
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<p>Based on Ten’s recent announcement and the continued discussion around the revenue decline in television, Australia’s television networks need to rethink what a network is in this ever-changing media landscape. </p>
<p>Seven has made the first move here, particularly in relation to its recent re-negotiations with Yahoo. Opting to keep both its <a href="https://7live.com.au">seven.com.au</a> website and <a href="https://au.yahoo.com">Yahoo7</a> separate, Clive Dickens, Seven’s chief digital officer, <a href="https://mumbrella.com.au/critically-important-seven-no-longer-seen-broadcaster-clive-dickens-following-amended-yahoo7-deal-451612">observed that</a>, “Seven is no longer purely a broadcaster, it is a total video company”. </p>
<h2>What about local content?</h2>
<p>These trends raise questions about how to provide adequate local content. Should <a href="https://theconversation.com/is-a-quota-the-key-to-getting-netflix-and-co-to-spend-more-on-australian-content-60308">Netflix and co</a> be subject to a local content quota in the same way that the free-to-air broadcasters are?</p>
<p>But this discussion needs to broaden beyond subscription TV providers: it must be consider all platforms and screens. According to the recent <a href="http://www.oztam.com.au/documents/Other/Australian%20Multi%20Screen%20Report%20Q1%202016%20FINAL.pdf">Australian Multiscreen Reports</a>, Australians now spend an average eight hours and 33 minutes per month watching online video via a PC or Laptop, up from six hours and 57 minutes just a year ago. </p>
<p>Australians’ viewing habits are continuing to change. We must rethink the local content quotas in light of this and the new media landscape. A quota on specific platforms will no longer be sufficient as the screen media industry evolves.</p><img src="https://counter.theconversation.com/content/79496/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marc C-Scott is a board member of C31 Melbourne (Community Television Station).</span></em></p>New ABS figures on film, TV and digital gaming show that subscription broadcasters and online content creators are booming. Yet local content quotas only apply to free-to-air broadcasters.Marc C-Scott, Lecturer in Screen Media, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/652912016-10-19T16:09:38Z2016-10-19T16:09:38ZHow Western companies can succeed in China<p>Not too long ago, when Western CEOs pondered China’s fast-growing market and billion-plus potential customers, their eyes would fill with dollar signs. But these days, thoughts of China are more likely to elicit serious soul-searching, as some of the companies that eagerly dove into China have withdrawn.</p>
<p>Earlier this year, the car-hailing service Uber <a href="http://www.wsj.com/articles/china-s-didi-chuxing-to-acquire-rival-uber-s-chinese-operations-1470024403">surrendered</a> its China operations to arch competitor Didi Chuxing in exchange for a 17.7 percent stake in the combined company. Later this month, Yum Brands, the owner of KFC and Pizza Hut, <a href="http://www.yum.com/press-releases/yum-brands-names-expected-board-of-directors-of-yum-china-holdings/">plans</a> to spin off its China unit amid growing competition in the food delivery business. Even Coca-Cola has <a href="http://www.coca-colacompany.com/press-center/press-releases/the-coca-cola-company-announces-plans-to-significantly-accelerate-bottler-refranchising">announced</a> its intention to refranchise its company-owned bottling operations in China. </p>
<p>Was the <a href="https://theconversation.com/ubers-didi-deal-dispels-chinese-el-dorado-myth-once-and-for-all-63624">China dream just a mirage</a> with Beijing simply using foreign ventures to import Western technologies and skills? Or is there a way to make money in the People’s Republic of China without giving away the store? </p>
<p>While finding success in the People’s Republic can be tricky, several Western companies have prospered – and even some of the companies that have “retreated” in recent years have profited handsomely from their China operations.</p>
<h2>Partnerships and profits</h2>
<p>While some research on joint ventures <a href="https://hbr.org/1994/07/collaborative-advantage-the-art-of-alliances">has tended to see success</a> in terms of harmony, longevity and the “ability to create and sustain fruitful collaborations,” other research has focused more on the <a href="https://hbr.org/1989/01/collaborate-with-your-competitors-and-win">benefits</a> of <a href="https://hbr.org/1991/11/the-way-to-win-in-cross-border-alliances">participation</a> in a joint venture and company profits. </p>
<p>Unduly attached to the longevity of a partnership as a measure of success, several recent articles seem dismayed by the retreat of some American companies from China. Reconsidering the activities of such companies from a profit perspective, however, reveals a somewhat different picture than the one <a href="http://www.economist.com/news/business/21703409-chinas-didi-chuxing-and-americas-uber-declare-truce-their-ride-hailing-war-uber-gives-app">suggested</a> by the <a href="http://www.smh.com.au/business/china/yum-brands-mcdonalds-look-for-buyers-as-chinese-tastes-shift-20160804-gqkzk3.html">headlines</a>. </p>
<p>Of course, the idea that China is a dangerous place for outsiders has been around for a while. Jack Perkowski, a Wall Street veteran who founded a Chinese investment firm, <a href="http://www.wsj.com/articles/SB1013037331816672480">famously dubbed</a> China “the Vietnam War of American business” – because so many promising young careers were lost there.</p>
<p>In the 1990s, international brewers arrived in China like “stampeding wildebeest,” <a href="https://www.amazon.com/China-Dream-Quest-Untapped-Market/dp/0802139752">according to journalist Joe Studwell</a>, opening 60 breweries and operating another 30 via licensing agreements. Not one of those 90 foreign breweries, however, is believed to have turned a profit. </p>
<h2>Not so fast</h2>
<p>The picture, however, is more mixed than the above stories and anecdotes suggest. While Bank of America, Yahoo and Uber all engaged in well-publicized retreats, such moves were far from disastrous.</p>
<p>Bank of America, for example, made headlines when it sold the remainder of its stake in China Construction Bank in 2013 after once owning as much as almost a fifth of the Chinese lender. The <a href="http://www.wsj.com/articles/SB10001424127887324432404579052401692576092">move was seen as a retreat</a> at the time, but the eight-year relationship was <a href="http://www.wsj.com/articles/SB10001424127887324432404579052401692576092">certainly profitable</a> for Charlotte, N.C.-based Bank of America, producing an annual return of over 10 percent.</p>
<p>Yahoo had a similar experience with Alibaba. Yahoo invested US$1 billion in Alibaba in 2005 and handed over all of its China operations in return for a 40 percent equity stake. It <a href="https://www.yahoo.com/news/yahoo-closes-7-6-billion-deal-alibaba-group-161614948--finance.html">sold half back</a> for about $7.6 billion in cash and preferred stock in 2012. Considering Yahoo still owns a sizable stake, its return looks pretty impressive. </p>
<p>Even Uber’s retreat is less than a total rout. Assuming a $35 billion valuation of the combined Uber-Didi Chuxing entity that remains, Uber’s 17.7 percent stake is worth about $6.2 billion. While this represents a haircut of nearly 25 percent from the <a href="http://www.reuters.com/article/us-uber-china-valuation-idUSKCN0UT0C9">$8 billion value</a> placed on Uber’s China operations before the surrender, Uber stands to make more from its investment. In the two years before Uber decided to fold its operations into Didi’s, Uber <a href="http://www.economist.com/news/business/21703409-chinas-didi-chuxing-and-americas-uber-declare-truce-their-ride-hailing-war-uber-gives-app">lost $2 billion in China</a>. Now, with the Uber – Didi price war in the rearview mirror, the future seems fairly promising for Didi shareholders like Uber. </p>
<p>On top of that, for a favored few, China has been a gold mine, and both Coca-Cola and GM represent examples of American companies that have achieved some version of the China dream.</p>
<h2>Coca-Cola: From ‘bourgeois’ to dominance</h2>
<p>Coca-Cola had an auspicious start in China a century ago, some trouble with Communists in the mid-20th century, and enormous success in more recent years. </p>
<p>The soft-drink maker <a href="http://fortune.com/2014/09/11/opening-happiness-an-oral-history-of-coca-cola-in-china/">had been successful</a> in China as early as the 1920s. But Mao Zedong, who <a href="http://fortune.com/2014/09/11/opening-happiness-an-oral-history-of-coca-cola-in-china/">deemed</a> the company’s fizzy brown drink a “<a href="http://thesilkinitiative.com/5-things-to-learn-from-cokes-brand-building-story-in-china/">bourgeois concoction</a>,” nationalized the bottling companies after the Communist takeover in 1949. The company would have to wait nearly thirty years for another crack at the market. </p>
<p>That came in 1978, when efforts to reach out to state-owned import-export companies led to a meeting with the China National Cereals, Oils and Foodstuffs Corporation. After that, <a href="http://www.coca-colacompany.com/stories/celebrating-35-years-of-coca-cola-in-china">things moved quickly</a> and rapidly led to a deal, helped by the Carter administration’s <a href="http://millercenter.org/president/carter/speeches/speech-3935">normalization of diplomatic relations</a> around the same time. </p>
<p>Things did not, however, always go smoothly. Initially, Coca-Cola <a href="http://www.coca-colacompany.com/stories/celebrating-35-years-of-coca-cola-in-china">only received permission to sell</a> to international visitors in foreign hotels and “friendship” stores in three cities, and the company <a href="http://fortune.com/2014/09/11/opening-happiness-an-oral-history-of-coca-cola-in-china/">lost a lot of money</a> in the first two or three years shipping Coke from Hong Kong. In the early 1980s, the company was <a href="http://fortune.com/2014/09/11/opening-happiness-an-oral-history-of-coca-cola-in-china/">barred from selling</a> its products in the country for a year.</p>
<p>Over time, however, restrictions on company sales were loosened, and the company began to see real growth in the market. From a shipment of <a href="http://www.coca-colacompany.com/stories/celebrating-35-years-of-coca-cola-in-china">20,000 cases in January 1979</a>, Coca-Cola was <a href="http://www.joc.com/maritime-news/coca-cola-uncaps-plan-build-bottling-plants-chinese-venture_19930721.html">operating 13 bottling plants</a> in China by 1993 and controlled 23 percent of the country’s carbonated soft-drink market by 1996. By 2010, it <a href="http://www.wsj.com/articles/SB10001424053111903596904576515553953471040">held a 60 percent share</a> and <a href="http://www.coca-colacompany.com/stories/celebrating-35-years-of-coca-cola-in-china">owned 43 bottling plants</a> in 2014. Today, the country is now Coca-Cola’s <a href="http://www.coca-colacompany.com/stories/coke-breaks-ground-on-45th-plant-in-china-as-part-of-4-billion-investment">third-largest market</a> in the world after the U.S. and Mexico.</p>
<h2>GM’s late start</h2>
<p>In contrast to Coca-Cola’s long history in China, General Motors is a relative newcomer to the People’s Republic – even compared with other foreign automakers.</p>
<p>While Jeep formed its first joint venture in China in 1984 and Volkswagen entered in 1985, GM didn’t make <a href="http://articles.latimes.com/1992-01-16/business/fi-377_1_auto-markets">its first investment</a> until January 1992. Even less auspicious, GM <a href="http://www.nytimes.com/1998/06/23/business/gm-to-expand-investment-in-building-trucks-in-china.html">abandoned</a> that investment three years later, before local production had even begun.</p>
<p>In retrospect, the <a href="http://www.bloomberg.com/news/articles/1995-11-05/how-gm-got-the-inside-track-in-china">key to GM’s long-term success</a> in China would have to wait until the fall of 1995, when China’s leading car maker, Shanghai Automotive Industry, <a href="https://history.gmheritagecenter.com/wiki/index.php/1995,_GM_Links_with_SAIC">picked the company</a> as its foreign partner in a billion dollar project to build sedans. </p>
<p>The deal was significant enough that then-Vice President Al Gore and Chinese Prime Minister Li Peng presided over the signing ceremony of the 50/50 joint venture in 1997, and by 1999, Shanghai GM <a href="http://www.wsj.com/articles/SB940882358599254880">was selling Buicks</a> as fast as it could make them.</p>
<p>Since then, GM’s partnerships in China have thrived. In 2015, GM’s automotive China joint ventures <a href="http://phx.corporate-ir.net/phoenix.zhtml?c=231169&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNzA4NjE4JkRTRVE9MSZTRVE9NzMmU1FERVNDPVNFQ1RJT05fUEFHRSZleHA9JnN1YnNpZD01Nw%3d%3d">generated</a> roughly $45 billion in net sales and nearly $4.3 billion in net income, and the country accounted for <a href="http://phx.corporate-ir.net/phoenix.zhtml?c=231169&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNzA4NjE4JkRTRVE9MSZTRVE9NSZTUURFU0M9U0VDVElPTl9QQUdFJmV4cD0mc3Vic2lkPTU3">37 percent of its total vehicle sales</a>. Despite being late to the party, the Shanghai partnership put GM on top of the pack.</p>
<h2>How to understand China</h2>
<p>Despite this kind of success, there have been frequent concerns raised in the press about the long-term costs of doing business in China, ranging from fears of regulatory fallout to the common allegation that Western businesses get pushed out once domestic companies are able to acquire and master key technologies. </p>
<p>Back in 1998, The Wall Street Journal <a href="http://www.wsj.com/articles/SB887147472543929500">reported</a>: </p>
<blockquote>
<p>“While the world’s biggest auto maker wants access to what one day may become the world’s biggest auto market, China wants the technology and training to build its own cars – and possibly compete with GM.</p>
</blockquote>
<p>And others have gone further, <a href="http://www.wsj.com/articles/SB10001424127887324482504578451410328454302">suggesting GM</a> – through its technical partnership with its Chinese partners – is gradually transitioning from a company that wraps its cars and trucks in the patriotism of "Old Glory” to one selling vehicles with “Made in China” stickers affixed on the bumper.</p>
<p>Having thought about China’s <a href="http://thediplomat.com/2016/10/the-race-to-chinas-19th-party-congress/">politics</a> and <a href="http://www.fletcherforum.org/2014/11/14/brookfield/">business environment</a> for a number of years, I think that being in China, when done right, can yield significant benefits. Moreover, if one believes that China’s renminbi is only going to get stronger, then there may be no better time than the present to invest in China. The tuition for learning about the place will never be smaller, the cost of mistakes will never be lower, and a long-term presence in the country may open the door to increasingly valuable sales over time.</p>
<p>Of course, there are many different factors that go into a successful investment decision, and it may be that Clint Eastwood’s character Harry Callahan was on to something. At a certain point, a CEO has got to ask him or herself one question: “Do I feel lucky?” Well, do you?</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/bwSxtPEZz9A?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Feeling lucky?</span></figcaption>
</figure><img src="https://counter.theconversation.com/content/65291/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan Brookfield does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Uber’s ‘retreat’ from China has led to soul-searching about whether the country is worth it. Don’t tell that to Coca-Cola and GM, however, which have found great success in the People’s Republic.Jonathan Brookfield, Adjunct Associate Professor, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/660142016-09-30T19:12:58Z2016-09-30T19:12:58ZWhy did Yahoo take so long to disclose its massive security breach?<figure><img src="https://images.theconversation.com/files/139927/original/image-20160930-8030-9vsk7p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Need you announce you've been hacked? The clock is ticking.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-321319685.html">Woman with clock and megaphone via shutterstock.com</a></span></figcaption></figure><p>In late September, Yahoo announced that <a href="https://yahoo.tumblr.com/post/150781911849/an-important-message-about-yahoo-user-security">at least 500 million user accounts had been compromised</a>. The data stolen included users’ names, email addresses, telephone numbers, dates of birth and encrypted passwords, but not credit card data. Large data breaches have become increasingly common: Just in 2016 we have found out about Yahoo’s breach as well as the <a href="https://thehackernews.com/2016/05/linkedin-account-hack.html">LinkedIn hack</a> (compromising 167 million accounts) and the <a href="http://www.usatoday.com/story/tech/2016/05/31/360-million-myspace-accounts-breached/85183200/">MySpace breach</a> (360 million accounts).</p>
<p>The Yahoo breach affected more users than the other two, but all of them share a crucial element: They were announced to the public <a href="http://www.zdnet.com/article/the-hidden-breach-is-the-new-enemy/">years after the fact</a>. The <a href="http://www.computerworld.com/article/3077478/security/linkedin-s-disturbing-breach-notice.html">LinkedIn hack happened in 2012</a>, <a href="https://www.wired.com/2016/05/hack-brief-old-myspace-account-just-came-back-haunt/">MySpace was breached in 2013</a> and Yahoo was hacked in 2014. Not until 2016 did users of the three sites found out their information had been stolen.</p>
<p>When personal information is stolen, rapid response is important. Customers need to change their passwords, and take other steps to protect their identity, including securing bank accounts and credit records. If people don’t know a breach has occurred and that they need to take these protective steps, they remain vulnerable.</p>
<p>So why does it take such a long time for companies to disclose that they have been hacked? It’s not as simple as you might think – or hope.</p>
<h2>Time is a key factor</h2>
<p>It’s not yet clear when Yahoo learned about its attack, though in this case the timing is questionable. A news article published on August 1 quoted <a href="https://motherboard.vice.com/read/yahoo-supposed-data-breach-200-million-credentials-dark-web">a company spokesperson saying Yahoo was “aware” a hacker was selling</a> login details for 200 million Yahoo accounts in an online black market.</p>
<p>But more than a month later, the company filed a document with U.S. financial regulators <a href="http://fortune.com/2016/09/23/yahoo-data-breach-government/">saying it didn’t know</a> of any claims of “unauthorized access” that might have an effect on its <a href="http://www.nytimes.com/2016/07/25/business/yahoo-sale.html">pending sale to Verizon</a>. And Verizon said publicly that it had heard about the breach <a href="http://money.cnn.com/2016/09/22/technology/verizon-yahoo-data-breach/">only two days before</a> Yahoo announced it to the world.</p>
<p>All those events, of course, were years after the breach had actually happened. This is an uncommonly long delay. According to a recent report from network security firm FireEye, in 2015 the median amount of time an <a href="https://www2.fireeye.com/rs/848-DID-242/images/Mtrends2016.pdf">organization’s network was compromised before the breach was discovered</a> was 146 days.</p>
<p>That includes all sizes of companies in all types of business. As a major internet company with an extremely large user base, it’s reasonable to expect Yahoo might detect – and disclose – breaches much sooner than other firms.</p>
<h2>Detecting, and confirming, the hack</h2>
<p>The company has said it believes the attack was conducted by a national government, though it hasn’t said from what country. That may suggest the attack was more sophisticated, and therefore harder to detect – but <a href="http://www.wsj.com/articles/yahoo-hackers-were-criminals-rather-than-state-sponsored-security-firm-says-1475081065">it’s impossible to know if that’s true</a>, because the company has declined to offer details of how the breach was achieved. </p>
<p>In addition, anyone on the internet can claim anything they want – <a href="http://www.zdnet.com/article/the-target-breach-two-years-later/">companies have to investigate their systems</a> to find out whether someone who is advertising they have login information for sale actually took anything, or is just making it up to cause trouble.</p>
<p>Nontechnical reasons that Yahoo took so long to discover the hack could include frequent <a href="http://www.zdnet.com/article/yahoo-hires-new-ciso-now-the-third-exec-in-role-in-6-months/">changes in leadership</a> of its security team and the companywide stress of finding a buyer.</p>
<h2>Notifying the public</h2>
<p>Once a company has learned it has been hacked, it’s important to tell customers – and the public – so that people can take proper measures to protect their information, privacy and identities. </p>
<p>At present there is no federal law regarding when companies must tell the public about information security breaches. In 2015, Democrats <a href="https://www.washingtonpost.com/news/post-politics/wp/2015/01/12/obama-to-propose-legislation-on-data-breaches-student-privacy/">proposed giving firms 30 days</a> from discovering a hack to announcing it had happened. That effort failed because many states, which have varying requirements, have stricter standards that the federal law would have overruled.</p>
<h2>Recovering a corporate reputation</h2>
<p>Tech companies can typically recover quickly from data breaches – if they respond fast and take the necessary steps to notify their users. That’s true even for corporations whose data breaches resulted in the compromise of customers’ credit card information, such as <a href="http://techland.time.com/2013/12/19/the-target-credit-card-breach-what-you-should-know/">Target in 2013</a> and <a href="http://www.wsj.com/articles/home-depot-breach-bigger-than-targets-1411073571">Home Depot in 2014</a>. </p>
<p><a href="http://time.com/money/4251435/home-depot-data-breach-reimburse/">Lawsuits filed</a> after the breaches have <a href="http://fortune.com/2015/04/16/target-mastercard/">cost companies millions</a> in settlement costs, not to mention legal fees and lost business. The lesson is clear: Early disclosure of a data breach is better. If Yahoo knew about its hack as early as August – or even years ago – and took this long to announce it to the public, the company has manifestly betrayed its users’ trust. </p>
<p>Though Yahoo <a href="http://www.businesswire.com/news/home/20160922006198/en/">urged users to change their passwords</a> and security questions after the public disclosure of the security breach, <a href="https://twitter.com/search?q=%23yahoobreach">thousands of users took to social media</a> to express anger that it had taken the company two years to uncover the data breach. The <a href="http://www.mercurynews.com/2016/09/23/yahoo-hit-with-class-action-lawsuit-over-massive-data-breach/">lawsuits filed against Yahoo</a> are mounting.</p>
<p>It can be extremely difficult for companies, even tech-focused ones like Yahoo, to protect themselves from skilled and determined hackers. But not reporting the attack as soon as it’s suspected can be almost as damaging as the hack itself.</p><img src="https://counter.theconversation.com/content/66014/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yanfang Ye does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>LinkedIn, MySpace, Yahoo: Why does it take such a long time for companies to disclose that they have been hacked?Yanfang Ye, Assistant Professor of Computer Science and Electrical Engineering, West Virginia UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/636242016-08-10T22:22:50Z2016-08-10T22:22:50ZUber’s Didi deal dispels Chinese ‘El Dorado’ myth once and for all<figure><img src="https://images.theconversation.com/files/133717/original/image-20160810-28926-10l0inr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Plenty of gold but little growth.</span> <span class="attribution"><span class="source">Golden dragons via www.shutterstock.com</span></span></figcaption></figure><p>Didi, the Chinese ride-sharing service, did more than run the American ride service, Uber, <a href="http://www.wsj.com/articles/china-s-didi-chuxing-to-acquire-rival-uber-s-chinese-operations-1470024403">out of China</a>. In my view, it destroyed the China El Dorado myth.</p>
<p>The <a href="http://www.bbc.co.uk/news/magazine-20964114">El Dorado</a> (“the golden one”) myth referred to a supposed city of gold somewhere in Latin America. Spanish explorers went looking for wealth for Spain and rewards for themselves. </p>
<p>Similarly, the China myth attracted Western CEOs to the country, looking for something as valuable to them as gold: corporate growth and job security. </p>
<p>The Spanish explorers returned home disappointed. So have the CEOs.</p>
<p>Over a long career as a researcher on entrepreneurship, startup investor and corporate advisor, I have encountered myths like this one many times. Such myths often guide – and mislead – CEOs and their boards.</p>
<p>So where did the China myth come from?</p>
<h2>Facts and hope</h2>
<p>In part, the myth is based on observable facts. </p>
<p>China has a growing population and a <a href="https://www.kpmg.com/ru/en/services/nationaldesk/china-practice/documents/future-for-mnc-in-china.pdf">growing middle class</a> of <a href="http://images.forbes.com/forbesinsights/StudyPDFs/Marketing_to_the_Chinese_Consumer.pdf">consumers</a>. The Chinese government has become more open, at least when it comes to letting citizens enjoy consumer goods. China has <a href="http://www.bloomberg.com/news/articles/2016-05-21/ex-pboc-adviser-says-china-still-needs-infrastructure-investment">huge infrastructure needs</a>. </p>
<p>And like most myths, it’s based not only on facts but also hope.</p>
<p>Many large Western companies have little hope of growing much in their established markets. Population growth in the U.S. and Europe <a href="http://www.china-profile.com/data/fig_WPP2010_NatPopChange_1.htm">will trail</a> China’s growth for the next two decades. <a href="http://www.wsj.com/articles/the-fed-has-hurt-business-investment-1445899627">Easy money</a> and <a href="http://www.marketwatch.com/story/heres-the-big-problem-with-low-interest-rates-2015-11-13">low or even negative interest rates</a> haven’t spurred growth. Slow growth is a problem because when a company’s growth rate drops, its stock price falls. When its stock price falls, its CEO gets fired.</p>
<p>That’s what makes the China El Dorado myth important. The myth has rescued imperiled and even incompetent CEOs, if not their companies. General Motors CEO Rick Wagoner, for example, <a href="http://www.wsj.com/articles/SB106674796042932100">pinned the company’s hopes</a> on expanding in China. In 2003, he said: “We are going to scheme every way we can to do this the most quickly.” Five years later the company went into <a href="http://www.motorsliquidationdocket.com/">bankruptcy</a>. </p>
<p>If a CEO sold shareholders the idea that the company would eventually enjoy huge growth in China, the stock price stayed up and the CEO kept his or her job. </p>
<h2>History makes it a hard sell</h2>
<p>It wasn’t an easy sell. </p>
<p>Previously, companies had sold shareholders on the idea that <a href="http://www.cbsnews.com/news/why-wal-mart-failed-in-brazil">Latin America</a>, <a href="http://money.cnn.com/2014/08/23/news/companies/western-companies-russia/">Russia</a> and <a href="http://www.nbcnews.com/news/asian-america/why-do-western-businesses-fail-india-n178091">India</a> <a href="http://knowledge.wharton.upenn.edu/article/98411">were all growth markets</a>. But the companies didn’t get much growth. Instead, they got <a href="http://www.fiercepharma.com/regulatory/are-fcpa-penalties-a-cost-of-doing-emerging-markets-business">bad debts</a>, had their property confiscated and were fined for violating the <a href="http://latintrade.com/more-fcpa-cases-in-latin-america/">Foreign Corrupt Practices Act</a>, a <a href="https://www.justice.gov/opa/pr/hewlett-packard-russia-pleads-guilty-and-sentenced-bribery-russian-government-officials">seemingly unavoidable expense</a> of doing business in <a href="http://timesofindia.indiatimes.com/business/india-business/Mondelez-faces-action-in-US-for-India-bribery-case/articleshow/51098763.cms">those places</a>.</p>
<p>Even though history made the China myth a hard sell, it was worth trying because the myth had helpful features. China required patience – maybe decades of patience. </p>
<p>China is different. To do business in China, you have to spend years learning the Chinese ways. You have to spend years building relationships. You have to expect to lose a lot of money for a long time.</p>
<p>Could there be a more convenient myth for CEOs? You get to lose money for years. You can’t be expected to show results for a long time. </p>
<p>That’s a hard lesson learned for <a href="https://www.bloomberg.com/features/2016-marissa-mayer-interview-issue/">Yahoo CEO Marissa Mayer</a>, who didn’t invoke the China myth. During her four years at the helm, she was unable to produce much growth. She was hoping for three more to keep trying. She didn’t get them and was forced to put the company up for sale (<a href="http://www.reuters.com/article/us-yahoo-m-a-verizon-idUSKCN1040U9">Verizon just announced plans to buy it</a>). If she had sold her investors on the China myth, she might have gotten an extra decade. </p>
<h2>Uber did everything right</h2>
<p>Unfortunately for CEOs, Uber just destroyed the China myth. It destroyed it by doing nearly everything right. </p>
<p>It learned the Chinese ways, even calling itself “People’s Uber.” It <a href="http://www.fastcompany.com/3047188/fast-feed/peoples-uber-baidu-and-driver-bonuses-ubers-quest-to-crack-the-chinese-market">emphasized socialist rhetoric</a>, not capitalist profit-making. It <a href="http://www.independent.co.uk/life-style/gadgets-and-tech/uber-launches-peoples-uber-to-woo-china-9649845.html">courted Party officials</a>.</p>
<p>It lost a reported US$2 billion, not stupidly, but as an investment – <a href="http://www.ft.com/cms/s/0/7f6e251a-5801-11e6-9f70-badea1b336d4.html#axzz4GwL7aIgU">subsidizing driver incomes and passenger fares</a> to build its business. It didn’t act like an arrogant Western multinational that stuck to its “superior” Western way of doing business. It was a <a href="http://www.wsj.com/articles/china-s-didi-chuxing-to-acquire-rival-uber-s-chinese-operations-1470024403">case study</a> of how to adapt to the Chinese market and culture.</p>
<p>If anyone could and should have succeeded in China, it was Uber. But it failed. It finally cut its losses by selling its China operation to Didi for a stake in the Chinese company that might end up being Uber’s most valuable asset, the way the <a href="http://www.businessinsider.com/yahoo-value-almost-entirely-tied-to-alibaba-stake-2016-5">stake in Alibaba</a> became Yahoo’s most valuable asset. </p>
<p>Doing everything right didn’t matter. What mattered is that Uber is not Chinese. </p>
<p><a href="http://www.bloomberg.com/news/articles/2016-03-15/china-congress-to-foreign-firms-brace-for-bigger-competitors">China wants to build Chinese champions</a> that can become global champions. If you are in an industry that China deems important, you can operate there <a href="http://www.strategyand.pwc.com/media/file/China%E2%80%99s_Local_Champions_EN.pdf">if you train Chinese people to take over the business</a>.</p>
<p>A <a href="http://www.tandfonline.com/doi/full/10.1080/09654313.2015.1029442">pharmaceutical company</a> can do business in China if it opens research laboratories there that train Chinese scientists to build a Chinese pharmaceutical champion. An <a href="http://www.wsj.com/articles/boeing-plans-new-deal-in-china-1442955334">aircraft company</a> can do business in China if it opens plants there so Chinese engineers learn how to manufacture aircraft and build a Chinese champion. </p>
<p>Uber is the company that destroyed the myth that you can grow huge in China without being Chinese. <a href="http://fortune.com/2011/04/15/inside-googles-china-misfortune/">Google</a> and Facebook didn’t destroy the myth because their exits from China were framed as being the result of clashes between Western and Chinese versions of free speech. <a href="http://www.pri.org/stories/2013-09-23/why-big-american-businesses-fail-china">Other exits</a> <a href="https://www.bloomberg.com/view/articles/2015-09-10/amazon-struggles-with-china-market-a-case-study">were framed</a> as being the result of Western failures to adapt to Chinese ways. </p>
<p>The Uber story can’t be framed either of those ways. Uber handled itself well – it acted better in China than it often acts in the U.S. In the U.S., <a href="http://www.mercurynews.com/business/ci_30091649/uber-faces-attacks-multiple-fronts">Uber went to war</a> with regulators and had often rocky relationships with its drivers. Its problem was that the Chinese government wanted a Chinese champion in the ride-sharing industry. </p>
<p>Western companies can hold their own against Chinese competitors, but not against Chinese competitors if the government wants a Chinese champion. </p>
<h2>Giving up on gold</h2>
<p>That is not an indictment of China. </p>
<p>The reality is simply that <a href="http://fortune.com/2015/07/22/china-global-500-government-owned/">China looks out for China and Chinese companies</a>, unlike the U.S. government, which is more often seen by business <a href="http://www.economist.com/node/21547789">as a source of regulation</a>, prosecution, fines and a tax regime that puts their companies at a global disadvantage. That requires a <a href="http://www.people-press.org/2012/02/23/section-2-views-of-government-regulation/">mindset adjustment</a> for American CEOs in terms of how they need to think about their dealings with Chinese companies. </p>
<p>As such, Uber’s experience offers a few lessons. Uber in China taught us that most Western companies, even if they do things right, cannot count on China for growth. It taught us that shareholders should be skeptical of CEOs who tout their company’s growth prospects in China. More surprisingly, it taught us that Uber can be diplomatic when it wants to be.</p>
<p>Centuries ago, Spanish explorers crossed an ocean in search of a city of gold. Most of them found little gold and gave up on finding a city that was just a myth. </p>
<p>CEOs crossed an ocean in search of growth. Most of them found little of it. It is time to ask whether China as the growth engine for Western companies is just another myth.</p><img src="https://counter.theconversation.com/content/63624/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erik Gordon does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Uber did everything right in China. That’s where it really went wrong and why it should serve as a cautionary tale for Western CEOs looking for growth in China.Erik Gordon, Clinical Assistant Professor, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/630102016-07-25T16:07:12Z2016-07-25T16:07:12ZVerizon’s five-billion-dollar bet on Yahoo looks like an alliance of the weakest<p>US telecoms giant Verizon paid an eye-opening US$4.8 billion for Yahoo’s search, email and advertising businesses which will be merged into its own online operation <a href="http://fortune.com/2015/06/24/verizon-gains-aol/">bought from and still branded as AOL</a>, to better compete against tech giant rivals Google and Facebook. </p>
<p>The new Yahoo-AOL alliance will control 5.2% of the digital advertising market compared to Google’s 39% and Facebook’s 15%. Yahoo’s CEO Marissa Mayer has <a href="https://theconversation.com/whats-going-on-at-yahoo-54121">struggled to prevent Yahoo’s continuing decline</a>, with losses mounting despite a US$3 billion investment in new features and acquisitions. </p>
<p>Unfortunately, these “alliances of the weak”, where smaller companies merge in order to try and take on stronger competition, are very rarely successful. If anything, they usually create only a weak competitor that is now bigger than before. And this is what seems likely to have happened with Yahoo-AOL here, in a market in which the winner takes all: if a firm isn’t in the top two then without a credible niche market to exploit the firm will suffer. Yahoo’s <a href="http://www.recode.net/2016/7/18/12217390/marissa-mayer-last-stand">recent results were particularly disappointing</a>. Why should adding Verizon and the AOL into the mix change that?</p>
<p>The history of AOL itself is sobering. As a leading light of the online world in the 1990s it grew rich enough to be able to <a href="http://fortune.com/2015/01/10/15-years-later-lessons-from-the-failed-aol-time-warner-merger/">buy the giant media conglomorate Time Warner</a> in a US$164 billion deal in 2001. But the merger was unsuccessful: within a year the combined operation had lost 97% of its value, which is believed by many to be the worst merger ever. AOL’s dial-up modem internet infrastructure was rapidly superseded by broadband, and Time Warner’s expensive content needed wide offline media access anyway to create a return – something AOL could never provide.</p>
<h2>Winner takes all</h2>
<p>In many internet markets there are clear network effects in terms of suppliers and buyers: more suppliers attracts more buyers, which in turn attracts more sellers to sell to the growing number of buyers. In this mutually reinforcing process the rewards tend to go to the largest, which is usually among the first to enter the market. Late arrivals tend to struggle unless they can find some sort of niche. Examples include Amazon and Ebay’s domination of the online market place, just as Uber dominates the on-demand ride-sharing business, Facebook dominates social networking, and LinkedIn dominates professional networking. </p>
<p>The efficiency of internet markets and ease of access and participation means network effects are particularly powerful online, pushing weaker players out.</p>
<p>In technology markets such dominant positions tend to persist, brought down only through major upheavals in technology that are often rapid and unpredictable – just ask AOL. Alternatively, the market loses interest and moves on to other options, as email and Twitter have lost out to Snapchat, WhatsApp and Instagram. </p>
<p>The history of technology is littered with the remains of once all-powerful companies: Nokia, once the king of smartphones; RIM, makers of the must-have Blackberry; or IBM, which for decades dominated the computer industry, from mainframe and personal computer hardware and operating systems to application software and services, but which today struggles to find its way. Seeing how these titans have fallen, it’s not so hard to believe that Twitter, Microsoft, and even Apple may one day follow the same trajectory unless they can invent or secure access to the <a href="http://www.inc.com/jessica-stillman/5-top-vcs-predict-the-biggest-tech-change-coming-in-the-next-five-years.html">“next big thing”</a>.</p>
<h2>Taking a last stand?</h2>
<p>Yahoo has struggled against the strength of network effects for a long time despite the promises of various CEOs. It’s difficult to see how this merger will change anything, or indeed how Verizon will benefit. Buying up AOL and Yahoo, which are essentially media content and advertising businesses, is a big change from Verizon’s business of offering broadband internet and mobile phones. It’s not clear what benefits arise from combining both as they are such different businesses. As the mobile telecoms industry matures, Verizon’s move seems like a gamble on finding future growth in unrelated areas – always a high risk path.</p>
<p>The acquisition appears motivated by AOL’s chief executive Tim Armstrong, who some see as a better boss at Yahoo than current CEO Mayer. Mayer has been under pressure from investors for failing to stop the rot at Yahoo. If this task falls to Armstrong he will certainly have his work cut out – not just to turn around the fortune of one failing tech giant, but to oversee the merger of two. </p>
<p>A failure to integrate is frequently blamed for botched acquisitions and mergers that destroy the value of the merged businesses. Loss of market share and key personnel during the integration process is the norm, and competitors use the opportunity to move in on customers and staff alike. The process is major distraction for staff, who wonder what the future holds for them. Effectiveness collapses and the business suffers. There are few exceptions. Armstrong will need all the luck he can get.</p><img src="https://counter.theconversation.com/content/63010/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Colley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>How will Verizon benefit from the mega-merger between its subsidiary AOL and Yahoo?John Colley, Professor of Practice, Associate Dean., Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/541212016-02-03T15:40:20Z2016-02-03T15:40:20ZWhat’s going on at Yahoo?<p>Spare a thought for the CEO of Yahoo, Marissa Mayer. Nearly four years on the job, the ailing internet giant is still struggling to deliver a credible path to growth. And following the US$4.3 billion loss the company reported for the year in its <a href="https://investor.yahoo.net/releasedetail.cfm?ReleaseID=952998">latest results</a>, the Yahoo board undercut her plan to “accelerate Yahoo’s transformation” with its intent to “engage on qualified strategic proposals” – widely interpreted as <a href="https://next.ft.com/content/86f50b44-c9ec-11e5-be0b-b7ece4e953a0">putting the company up for sale</a>. </p>
<p>Mayer’s <a href="http://www.bbc.co.uk/news/business-35479175">plan</a> involves laying off 15% of the company’s workforce in an effort to streamline the business. Yahoo is also planning to sell real estate and intellectual property. But investors are clearly unhappy with Yahoo’s performance – some interpret the focus on cost cutting and profit raising as the latest sign the company is planning to offload its core business.</p>
<p>A major reason for this is that by some measures – if you subtract the value of Yahoo’s major assets from the market value of the company, which includes a hefty stake in Chinese e-commerce behemoth Alibaba, for example – Yahoo’s core internet business is worth <a href="http://www.vox.com/2015/12/3/9842442/yahoo-negative-valuation">less than zero</a>.</p>
<h2>Asset management</h2>
<p>How Yahoo manages its investments is therefore crucial and unlocking their value is a challenge. Selling its stake in Alibaba is easier said than done. Selling the stake and paying out the proceeds to shareholders would lead to a big tax bill. One way to lower this liability, however, could be in holding the Alibaba investment under the existing company and spinning off its core Yahoo business into a new listed company. This has the obvious advantage of keeping the current management in-situ – but is premised on market confidence in the existing management team. </p>
<p>Once a major player, Yahoo has become increasingly irrelevant, despite huge investments in engineering and media talent. Instead of cashing out when it had a US$45 billion offer from Microsoft in 2008, Yahoo has spent cash acquiring other companies and investing in new equipment in the vain hope that it can compete successfully with today’s major players, Google and Facebook. This has largely been led by Mayer who was hired from Google in 2012 <a href="http://www.forbes.com/sites/dorieclark/2012/07/16/3-reasons-why-marissa-mayers-hiring-is-a-huge-win-for-yahoo/#4c461f07eb3d">to turn the company around</a>. </p>
<p>The reporting of significant “goodwill impairment charges” was essentially a write-down of the value of previous acquisitions, reflecting recognition that they have not paid off. Investor awareness of this suggests that a private buyer might be welcome to take over Yahoo’s assets, optimise tax liabilities and eliminate expenditures that seek to compete in arenas where the probabilities of success are exceedingly low – this is how some have interpreted Mayer’s strategy. </p>
<p>Buyers are more likely to have a lower tolerance for re-imagination and a far more singular focus on maximising cash flows from Yahoo’s existing product line – hence the board’s emphasis on seeking out “strategic alternatives”.</p>
<h2>In search of profits</h2>
<p>In the meantime, Mayer will be hoping her attempts to engineer a turnaround at Yahoo materialise. In a deft presentation, she sought to break revenues into two parts – the declining revenues from the existing business and the potentially exponential growth that will result from newer product lines. Her analysis warned of decreased revenues in 2016 with the prospect of higher revenues in the future. Missing from this, however, was any detail of the profitability of these newer businesses. </p>
<p>Ultimately, investors care about results and these were – to say the least – <a href="https://investor.yahoo.net/releasedetail.cfm?ReleaseID=952998">disappointing</a>, and followed swift on the heels of rival Google’s <a href="http://qz.com/607378/were-live-charting-googles-first-alphabet-earnings/">bumper earnings report</a>. At best Yahoo’s profit margins were 2% in the fourth quarter of 2015 compared to <a href="http://www.reuters.com/article/us-alphabet-results-idUSKCN0VA3IS">Google’s 31.9%</a>. Similarly, free cash flow was essentially zero in the second half of 2015. </p>
<p>It is difficult to see Yahoo surviving in its current form with its current management. The earnings announcement was an opportunity for a far more candid account of its problems and how they could be addressed. Rather, listeners were told that things will get better in a year’s time, based on an arbitrary classification of old and new products. </p>
<p>The gap between Yahoo’s market value and the value of its investments reflects investor scepticism. At such a time, <a href="https://theconversation.com/translated-the-baffling-world-of-business-jargon-52795">phrases</a> like “propel execution to a new level”, “re-imagining search” and “intense legacy drag” are unlikely to restore confidence. If anything, Mayer’s reassurances will only serve to propel investor scepticism to a new level, which further drives speculation that they are open to buyers.</p><img src="https://counter.theconversation.com/content/54121/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eamonn Walsh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The options available to Yahoo following another disappointing round of earnings and increasing angst among investors.Eamonn Walsh, Professor of Accounting, University College DublinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/470832015-09-04T18:21:08Z2015-09-04T18:21:08ZWhy did Google’s logo rollout go more smoothly than Yahoo’s?<figure><img src="https://images.theconversation.com/files/93829/original/image-20150903-8845-1qzqj20.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Google now has the unenviable task of redoing all iterations of its old logo.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/mwichary/2611732281/in/photolist-4YMP1V-rMBcnb-4YS8Wy-4YMQLg-6mxLuR-6MJQxk-8UTcJf-d7z9HU-d7zavy-2pzHG5-jKNcn-a5QayG-a5Mj1r-59dWxG-bmB3w-8UT7uj-8UTfUo-8UTf6W-dsSBJq-6MJQw6-6MJQ58-6MP2X7-8UTegm-8UQabR-8UQedM-btmG6Q-4YMPGa-rs9Sua-bmB7K-8UT8ed-8UTb23-8UT96f-6mBUyd-2pvnbF-9Byh5g-bmB3x-d7z8SU-bmB7H-2fsDo8-2fsBLg-6MJQsX-6MP2PJ-6MP2FG-6MJQgD-6MJQst-6MP2QE-6MJQjk-6MP2Tm-6MJQoF-6MP2ZE">Marcin Wichary/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>We’re uncomfortable with change. From a cynic’s perspective, the bevy of adages embracing it (flashback to high school yearbook opening page: “The only constant is change”) is evidence: it’s as if we’re trying too hard to convince ourselves.</p>
<p>Perhaps the most illustrative phenomenon of this aversion is the logo switcheroo. Remember Gap’s logo disaster in 2010? Oh wait, you probably don’t; <a href="http://mashable.com/2010/10/11/gap-logo/">they reverted back</a> to their original logo only four days after the rollout. And more recently, after spending five months and more than US$125,000, <a href="http://mobile.philly.com/blogs/?wss=/philly/blogs/real-time/&id=320806271&">Penn State’s new logo</a> had disenchanted students and alumni taking to Twitter in droves.</p>
<p>So it’s no surprise at all that Google’s new logo has ruffled some feathers: an informal <a href="http://adage.com/article/digital/love-hate-google-s-redesigned-logo-poll/300171/?utm_source=digital_email&utm_medium=newsletter&utm_campaign=adage&ttl=1441730224">Ad Age poll</a> shows a majority dislike it. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/93955/original/image-20150904-14625-4e5t2d.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/93955/original/image-20150904-14625-4e5t2d.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=197&fit=crop&dpr=1 600w, https://images.theconversation.com/files/93955/original/image-20150904-14625-4e5t2d.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=197&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/93955/original/image-20150904-14625-4e5t2d.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=197&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/93955/original/image-20150904-14625-4e5t2d.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=248&fit=crop&dpr=1 754w, https://images.theconversation.com/files/93955/original/image-20150904-14625-4e5t2d.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=248&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/93955/original/image-20150904-14625-4e5t2d.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=248&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Google’s new logo: yay or nay?</span>
<span class="attribution"><a class="source" href="https://upload.wikimedia.org/wikipedia/commons/thumb/2/2f/Google_2015_logo.svg/800px-Google_2015_logo.svg.png">Wikimedia Commons</a></span>
</figcaption>
</figure>
<p>Yet, at least anecdotally, the Google logo unveiling has not solicited <a href="http://www.forbes.com/sites/roberthof/2013/09/05/yahoos-new-logo-fails-to-impress-but-people-are-talking-about-it/">quite the vitriol that Yahoo did</a> when it rolled out a logo redesign in 2013. </p>
<p>Why was this the case?</p>
<p>On the face of things, there are plenty of similarities: Both Google and Yahoo are tech behemoths that have been around since what seems like the beginning of the internet – long enough that each likely had its respective logo done by a developer experimenting with CorelDRAW in a nondescript Northern California garage.</p>
<p>But this is not really about design. Yahoo’s final product could have been the 21st century’s answer to the Mona Lisa, but I suspect reactions would have been the same. </p>
<p>When it comes to logo redesigns, it’s not <em>what’s</em> done so much as <em>when</em> it’s done and <em>how</em> it’s rolled out. </p>
<h2>Tech years are like dog years</h2>
<p>Brand scholars posit that <a href="http://www.sciencedirect.com/science/article/pii/S0148296311002621">brands age much like humans</a>: there’s birth, childhood, adolescence, marriage (mergers and acquisitions), parenthood (brand extensions), aging (market share decline) and death. </p>
<p>Yahoo, which launched in 1994, had four real years on Google, which appeared in 1998. In the tech world, that’s at least a generation. So while Google is arguably somewhere around marriage/parenthood, Yahoo was already well into the aging stage when Marissa Mayer (formerly of Google) became CEO in 2012. </p>
<p>Let’s face it: staging a late-life comeback is tricky (see: <a href="http://www.entrepreneur.com/article/230362">Arby’s</a> and <a href="http://www.wired.com/2015/06/20-years-frowns-ihops-logo-gets-happy/">IHOP</a>). On the other hand, making significant changes is baked into the marriage and parenting “life stages” of brands. </p>
<h2>It’s all in the execution</h2>
<p>In 2013, crowdsourcing was a hot (kinda) new thing, so it’s no wonder Yahoo jumped on the train. The company pushed out <a href="http://techcrunch.com/2013/09/05/yahoo-looks-ahead-with-a-new-logo-but-users-still-prefer-the-older-one-more/">29 versions</a> of its logo – the reason for which is still unclear to me. I do believe the public was under the impression that it had a say. But then Mayer <a href="http://adage.com/article/digital/marissa-mayer-yahoo-s-logo-i-helped-design/243990/">announced</a> she and a team had spent the past weekend hammering out the new logo. It’s like we got all riled up and then learned, post-hoc, that we didn’t score an invite to the slumber party.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/_0b6qaPY-CQ?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Yahoo’s roll out video.</span></figcaption>
</figure>
<p>Google, on the other hand, incorporated its change in a way that felt organic. <a href="https://www.google.com/doodles/about">Google Doodles</a> – those delightful animations that often stand in for the organization’s logo on the Google homepage – have been around nearly as long as the company itself.</p>
<p>So to introduce the new logo in a way that was consistent with previous <a href="http://heavy.com/news/2015/09/google-logo-history-new-best-original-burning-man-doodle-gif/">Google Doodle animations</a> was genius; I might be thicker than most, but I didn’t actually realize a logo rebrand was going on. I just thought it was kind of cute how the hand reached up and tilted the last “e” ever so slightly.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/olFEpeMwgHk?wmode=transparent&start=29" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Google’s roll out video.</span></figcaption>
</figure>
<h2>The aspirational unveiling</h2>
<p>Both companies announced the logo changes via blog and video channels, but that’s where the similarities stop. Mayer’s <a href="http://marissamayr.tumblr.com/post/60336044815/geeking-out-on-the-logo">blog post</a> gives a rational appeal, outlining a step-by-step explanation of the design choices in detail that only an engineer could appreciate. The video is equally mathematical (news flash: Americans are <a href="http://www.nytimes.com/2014/07/27/magazine/why-do-americans-stink-at-math.html">terrified of math</a>), with music that, inexplicably, sounds like it should be blaring in a Gap store, circa 1999. </p>
<p>Meanwhile, the <a href="http://googleblog.blogspot.com/2015/09/google-update.html">Google post</a>, signed by the VP of product management and director of user experience, is emotional without being at all personal, and the video is simply a multimedia translation of this message (though it does feel a bit like a frenetic timeline of Dr Evil’s mounting world domination). It’s a rallying cry for where Google has been and where it’s going.</p>
<p>Yahoo, once the leading search engine, made a huge fanfare of its intent, and the rollout was an everything-but-the-kitchen-sink affair. </p>
<p>Google, on the other hand, has been evolving since nearly Day 1, so the new logo felt like just another iteration; its communique stayed consistent with this theme.</p>
<p>After all, for Google, the only constant is change.</p><img src="https://counter.theconversation.com/content/47083/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kay Tappan is affiliated with the Public Relations Society of America and the Florida Public Relations Association. </span></em></p>It’s not necessarily the redesign that matters – it’s when and how you unveil it.Kay Tappan, Lecturer of Public Relations, University of FloridaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/237922014-02-27T15:01:33Z2014-02-27T15:01:33ZYahoo can present top news but journalists decide what matters<figure><img src="https://images.theconversation.com/files/42666/original/n3w4yxw7-1393505343.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Old news is not necessarily bad news.</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/doug88888/4627497417/sizes/o/">@Doug88888</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>Yahoo has launched a new app aimed at making reading the news easier. <a href="http://www.standard.co.uk/business/business-news/mobile-world-congress-alevel-student-nick-daloisio-launches-second-app-after-summly-success-9149487.html">News Digest</a> is the latest invention from Nick D’Aloisio, Yahoo’s 18-year-old recruit who found fame with Summly, another app that takes the chore out of reading the news.</p>
<p>The idea of News Digest is to offer users short bursts of the top stories of the day and is the latest attempt to solve the problem of how we keep ourselves informed in the modern day. We get such a vast quantity of information thrown at us but struggle to balance it against quality.</p>
<p>Instead of continuously updating, the app only delivers two editions a day to avoid the constant barrage of information online. That’s a refreshing change and makes me hopeful that Yahoo is as sick of the barrage of information on social media as many of us are. But ultimately, whether this app is any good or not will depend on the quality of the journalism behind it. Quality should not be measured by the standards of social media and web information aggregators, but by the classical standards of journalistic rigour and integrity.</p>
<p>Social media has begun to dominate our news consumption in recent years. In 2012, Barack Obama chose to break the news of his re-election on Twitter rather than via an established news outlet. His “four more years” tweet was sent at 5:16am on 7 November and had been retweeted more than half a million times within three hours. </p>
<p>This was the fastest way for Obama to communicate the information to his 34 million followers and only added to the idea that social media is first for news. But it is important to note that what Obama said was true. Social media is first, but not always best and that’s a problem in an age when an ever increasing number of people rely exclusively on <a href="http://www.journalism.org/2013/11/14/news-use-across-social-media-platforms/">social media for news</a>.</p>
<h2>Back to Latin</h2>
<p>True information and false information travel at the same speed online. That means there is still a vital role to be played by the more traditional press and media even if they stand to lose the race for breaking and short-lived spectacular news tsunamis and <a href="http://www.springer.com/medicine/book/978-3-319-03831-5">#infostorms</a>, like when a giraffe named <a href="http://topsy.com/s?q=marius&window=m">#marius</a> is killed at a Danish zoo.</p>
<p>With social media, everybody has a direct link to information and misses out on the filter that was once provided by the established press. Web robots constantly scout for “loud” information which is of interest to one public or another and filter bubbles sort information on an <a href="https://theconversation.com/from-the-art-world-to-fashion-to-twitter-were-all-living-in-bubbles-21812">individual basis</a>. </p>
<p>It doesn’t matter whether it is information about finance, religion, politics, people, art, science or fashion. The conditions are often perfect for an opinion epidemic to spread as an unreflective contagion, where everybody thinks what everybody else thinks without seeking to back it up with quality information.</p>
<p>Ulrik Haagerup, executive director of news at The Danish Broadcasting Company summed up the problem when he said:</p>
<blockquote>
<p>Modern man doesn’t need more news – he needs better news. And journalists should learn that information is no longer a scarce resource. We all drown in the polluted information surrounding us. What people need is means of navigation, meaning and alignment. </p>
</blockquote>
<p>If breaking news is free and easily accessible, what we need more than ever is high-quality, in-depth analysis and reflective and properly formatted information useful for deliberation, decision and action. </p>
<p>If Yahoo appreciates that and plans to filter content with this principle in mind, this app might just work. The app will scour reputable news sites like Reuters, Business Insider and Sky News for sources but it will use an algorithm to make decisions about what is and isn’t important when it collates the top 10. We don’t know what feeds into that equation. We could end up with yet another filter bubble.</p>
<p>The top 10 shouldn’t be decided according to noise and hits but more old-fashioned values in journalism. </p>
<p><em>Sapere aude</em>, or “dare to be wise”, for example. This is the mantra of the Age of Enlightenment indicating the risky nature of acquiring new knowledge. Sometimes it is dangerous to know, you might not always like the truth, the public may not always like it either but as a journalist you are committed to finding it for the better of mankind, science, society and democracy.</p>
<p><em>Festina lente</em>, or “hurry slowly” is another. Finding the truth takes time, researching properly requires consulting a diversity of sources, don’t run with a <a href="https://theconversation.com/when-twitter-storms-cause-financial-panic-22262">rumour and hearsay</a> and don’t get seduced into thinking that just because some opinion apparently trends on social media it mirrors the general public opinion.</p>
<p>Finally, <em>semper ardens</em> – “always burning”. Journalism is a sophisticated skill-set, and as Malcolm Gladwell says, getting good at anything requires <a href="http://www.newyorker.com/online/blogs/sportingscene/2013/08/psychology-ten-thousand-hour-rule-complexity.html%5D(http://www.newyorker.com/online/blogs/sportingscene/2013/08/psychology-ten-thousand-hour-rule-complexity.html">10,000 hours of hard work and practice</a>. </p>
<p>What links all three is time. Time to develop journalistic skill, time to produce a good story and time to reflect on what you’re doing. And time is precisely what news driven by social media has no patience for. However much Yahoo would like to revolutionise news with this app, it must use the old-fashioned way of doing things as a foundation.</p><img src="https://counter.theconversation.com/content/23792/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vincent F Hendricks does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Yahoo has launched a new app aimed at making reading the news easier. News Digest is the latest invention from Nick D’Aloisio, Yahoo’s 18-year-old recruit who found fame with Summly, another app that takes…Vincent F Hendricks, Professor of Formal Philosophy, University of CopenhagenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/234212014-02-24T05:38:37Z2014-02-24T05:38:37ZMultinationals unfazed by G20 tax crackdown<p>The G20 finance ministers have once again <a href="https://theconversation.com/g20-finance-ministers-agree-to-growth-target-experts-react-23566">agreed</a> to cooperate to counter aggressive cross-border tax avoidance by multinationals. </p>
<p>Many US firms are using tax avoidance schemes for their non-US earnings while they shamelessly claim they are paying appropriate taxes in the source countries in which they operate.</p>
<p>The OECD responded to earlier requests for action from the G20 by initiating the “Base Erosion and Profit Shifting” (BEPS) project, and since then has published an action plan to address the issue. The aim of the OECD is to develop measures to counter aggressive tax avoidance in both member and non-member countries, and to limit the risk of double taxation.</p>
<p>When US multinationals assert that their entire non-US income is derived through the <a href="http://www.investopedia.com/terms/d/double-irish-with-a-dutch-sandwich.asp">double Irish</a> scheme (see explanation below), and is subjected to a very low rate of tax, the artificial and contrived nature of the arrangements is obvious. The OECD is making progress, but there does appear to be some unintended consequences for the OECD and national governments as they develop measures to counter tax avoidance.</p>
<p>Despite the extra scrutiny facing US multinationals since 2012, when <a href="http://www.reuters.com/article/2012/10/15/us-britain-starbucks-tax-idUSBRE89E0EX20121015">Starbucks</a> agreed to “voluntarily” pay company tax in the UK, tax avoidance activities appear not to have slowed.</p>
<h2>Yahoo betting against BEPS project?</h2>
<p>Since the BEPS project commenced it would be expected that US multinationals not using the double Irish scheme would at least hesitate before implementing it. And that other US multinationals might consider unwinding the arrangement. Regrettably, the reverse appears to be taking place with the announcement that Yahoo is moving to Ireland in March to exploit the double Irish scheme.</p>
<p>Yahoo is moving the headquarters for its European operations from Switzerland to Ireland and has boldly asserted that the move is not motivated by tax reasons. Twitter set up a double Irish scheme when it was floated last year after the BEPS project commenced. </p>
<p>The news that Yahoo is moving to Ireland and that other US multinationals may follow suggests an unforeseen consequence of BEPS may have been to highlight the aggressive avoidance opportunities available to US multinationals. </p>
<p>There may be pressure within the management of US multinationals that are paying higher amounts of foreign tax on non-US earnings to use the double Irish scheme to reduce their foreign tax liability. It appears US multinationals are betting BEPS is unlikely to be significant. </p>
<p>Yahoo would be incurring transaction costs in moving to Ireland and it would be pointless to move to a double Irish structure if the BEPS project were to eliminate the tax advantages that Ireland is able to provide to US multinationals. Moreover, Yahoo’s decision would have been based on advice from its accountants and lawyers on the tax benefits of the move, especially in light of the BEPS project.</p>
<h2>No excuses</h2>
<p>National governments need revenue and they want to ensure that US multinationals deriving income from within their borders pay an appropriate amount of tax, which is not unreasonable. In these source countries, US multinationals get the benefit of infrastructure and reliable legal systems provided by governments. </p>
<p>Unlike national governments, US multinationals engaging in aggressive tax avoidance are well funded. US multinationals are <a href="http://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shifting-and-the-us-tax-code_-part-2">estimated</a> to be holding more than US$1.7 trillion in undistributed foreign earnings. One of the largest tax avoiders is Apple Inc, which in 2013 was reported to have US$102 billion in offshore untaxed foreign earnings.</p>
<p>Information on Apple’s tax position was first exposed in 2012 by the US Congress’ Permanent Subcommittee on Investigations. The Subcommittee was able to obtain insight into the foreign taxes that Apple Inc’s subsidiaries paid on their foreign earnings which is information that is not made publicly available for US listed companies. </p>
<p>It was disclosed that Apple negotiated a tax rate with the Irish government of 2% compared to the normal low company tax rate of 12.5%. In 2011, one of Apple Inc’s Irish subsidiaries, Apple Sales International, had a foreign tax rate of 0.05% on non-US earnings of US$22 billion. Apple Inc’s first tier subsidiary, Apple Operations International (AOI) is incorporated in Ireland, but claims it is not a tax resident in any country and accordingly it does not submit tax returns in any country. AOI’s entire foreign income of US$29.9 billion for the period 2009-12 was untaxed and represents 30% of the Apple group’s entire income during this period. The artificial nature of the arrangement is reflected in the fact that AOI has no employees.</p>
<p>In comparison, Yahoo Inc’s annual reports indicate it has paid relatively higher amounts of foreign tax on its non-US earnings. It is impossible to make a direct comparison of Yahoo’s and Apple’s effective rate of foreign tax on non-US earnings because Yahoo’s tax returns are confidential; the only source of information is the annual report of US listed companies which is an accounting statement and is different to the tax returns that the foreign subsidiaries of US listed companies lodge in their countries of tax residence. </p>
<p>Yahoo’s 2012 Annual Report does not report the foreign “cash taxes paid” by Yahoo subsidiaries. In Yahoo Inc’s 2012 Annual Report the provision for non-US tax (which is a prediction) on non-US income indicates that its average rate of tax for the period 2010-12 was 26.42%. </p>
<p>The tax information in Yahoo’s 2012 annual report suggests the reason for its migration to Ireland is to reduce the foreign taxes it pays on permanently deferred income. As the OECD develops consensus measures in response to BEPS, the stakes for governments appear to be rising.</p>
<hr>
<h2>How the Double Irish Dutch Sandwich scheme works</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/42290/original/xyvq3sbb-1393205483.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/42290/original/xyvq3sbb-1393205483.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/42290/original/xyvq3sbb-1393205483.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/42290/original/xyvq3sbb-1393205483.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/42290/original/xyvq3sbb-1393205483.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/42290/original/xyvq3sbb-1393205483.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/42290/original/xyvq3sbb-1393205483.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The “Double Irish Dutch Sandwich” involves shifting profits between multiple offshore subsidiaries in order to reduce tax liabilities.</span>
<span class="attribution"><a class="source" href="http://www.flickr.com/photos/roboppy/8426510262/sizes/l/">roboppy/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>US multinationals are exploiting a gap in US domestic tax law that allows for tax on foreign income to be deferred indefinitely. The foreign income is only subject to tax when the income is remitted to the US parent with a credit for any foreign tax paid. This in turn provides US multinationals with the incentive to avoid taxes in the source countries in which they derive income and then indefinitely defer remitting the income to the US parent company. </p>
<p>The commonly used “Double Irish Dutch Sandwich” scheme involves shifting profits from an Irish to Dutch subsidiary, and then a second Irish company headquartered in a tax haven, such as Bermuda. The practice, known as tax avoidance rather than tax evasion, is not currently illegal. Tax evasion is fraud, such as not declaring income, whereas tax avoidance is legal but conflicts with the spirit of the law.</p>
<hr><img src="https://counter.theconversation.com/content/23421/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Kobetsky does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The G20 finance ministers have once again agreed to cooperate to counter aggressive cross-border tax avoidance by multinationals. Many US firms are using tax avoidance schemes for their non-US earnings…Michael Kobetsky, Global Professor of Law, New York UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/147552013-05-30T04:47:56Z2013-05-30T04:47:56ZYahoo is on a shopping spree, but should it do the Hulu?<figure><img src="https://images.theconversation.com/files/24667/original/dp9trv2v-1369886441.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Yahoo has submitted bid for Hulu, but will the video streaming service be a good buy?</span> <span class="attribution"><span class="source">alexanderwrege</span></span></figcaption></figure><p>In less time than it takes for the average teenager to get bored, Yahoo has put its <a href="https://theconversation.com/the-cost-of-cool-yahoo-swaps-cash-for-cachet-in-tumblr-deal-14523">acquisition</a> of blogging site Tumblr behind it and moved onto its next potential target, <a>Hulu</a>. A couple of years ago, when it was considering whether to become a listed company, Hulu was valued between US$1-2 billion. Yahoo’s rumoured <a href="http://paidcontent.org/2013/05/29/why-a-sale-to-yahoo-may-just-be-the-best-bet-for-hulu/">bid</a>, which lies somewhere between US$600 million to US$800 million, falls well short of that.</p>
<p>Hulu is not that well-known outside of the US as the content it streams has been locked to that country and its territories. Currently owned by News Corp and Walt Disney Co, it allows the streaming of TV shows, movies and “webisodes”, with much of its content showing its age. The free version is ad-supported with a premium version that makes Hulu available on mobile platforms. Its advertising and three million subscribers to Hulu Plus [brought Hulu](http://money.cnn.com/2013/05/29/technology/hulu-takeover-rumors/index.html?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+(Top+Stories) US$700 million in revenue in 2012, although Hulu has not disclosed its profits — if any.</p>
<p>It is easy to see this potential move by Yahoo as an attempt to cash in on a growing trend away from traditional TV and cable towards internet-based services, which are being increasingly viewed over computer and mobile devices. While the trend may be true, “regular” broadcast and cable TV is still by far the <a href="http://www.businessspectator.com.au/article/2012/8/7/business-spectator/technology-spectator-why-tv-will-survive-online-video-revolution">dominant</a> way in which most people in the US at least view shows and movies in their homes. There are nearly 115 million households in the US with TV sets and only five million that qualify as not having a traditional TV (either free-to-air or cable). People are mostly supplementing their regular TV viewing with the use of other platforms. This trend is likely to continue for some time.</p>
<p>As part of the video streaming market, Hulu faces possibly insurmountable competition from Google’s YouTube and services from Amazon, Netflix and Apple, among many others. A <a href="http://news.cnet.com/8301-1023_3-57546405-93/netflix-gobbles-a-third-of-peak-internet-traffic-in-north-america/">recent estimate</a> claimed that 33% of all peak internet traffic in the US is due to people streaming Netflix content; this compares with only 1.4% for Hulu and 1.8% for Amazon.</p>
<p>The other challenge that Yahoo could face if taking over Hulu is whether any content deals that it had negotiated with its current owners would continue, or at least continue under the same terms. Even if Yahoo used Hulu to create more original content, in the same way that Amazon and Netflix [are doing](http://money.cnn.com/2013/05/29/technology/hulu-takeover-rumors/index.html?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+(Top+Stories), they would still need to continue to provide the same volume of content to drive ads for the day-to-day revenue.</p>
<p>Couple these challenges with the need to invest large amounts of money needed to expand Hulu outside of the US and the buying price of even $600 million starts looking less attractive. Indeed, the rumoured bid for Hulu from the <a href="http://arstechnica.com/business/2013/04/hulu-seeks-buyers-gets-500-million-bid-from-former-news-corp-president/">Chernin Group</a> was only $500 million. </p>
<p>It is difficult to see the sense in this acquisition from Yahoo’s perspective. They are in the midst of a move to refocusing themselves as a company and have just started on the task of assimilating Tumblr into their new structure. Taking a business that is not exactly effusing potential and trying to turn it around would seem like a forlorn wish at best. The puzzling thing about Yahoo’s interest in Hulu is trying to spot what aspect makes the acquisition a deal worth doing. </p>
<p>Another possibility is that this offer is not serious and isn’t actually intended to be a winning bid. If Yahoo really wanted Hulu, it could have “made an offer they couldn’t refuse”. What Yahoo may be doing is just using the opportunity to learn more about both Hulu and the market in general. It may be more serious for Hulu though, as time may be running out. Their CEO Jason Kilar, is <a href="http://money.cnn.com/2013/01/04/technology/hulu-ceo-jason-kilar/index.html?iid=EL">on his way out</a> — and Hulu’s owners may have decided that they too have had enough.</p><img src="https://counter.theconversation.com/content/14755/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Glance does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In less time than it takes for the average teenager to get bored, Yahoo has put its acquisition of blogging site Tumblr behind it and moved onto its next potential target, Hulu. A couple of years ago…David Glance, Director, Centre for Software Practice, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/145232013-05-22T04:24:11Z2013-05-22T04:24:11ZThe cost of cool: Yahoo swaps cash for cachet in Tumblr deal<figure><img src="https://images.theconversation.com/files/24237/original/qks6nfxt-1369186176.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tumblr CEO David Karp is worth US$250 million after the sale of his popular blogging platform to Yahoo.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>This is the ultimate stuff of <a href="http://www.urbandictionary.com/define.php?term=hipster&defid=2705928">hipster</a> dreams. Despite the protestations of user defections, Tumblr bloggers couldn’t help but be beguiled by the attentions of 37-year-old Yahoo CEO Marissa Mayer, whose company <a href="http://www.abc.net.au/news/2013-05-20/internet-giant-yahoo-to-buy-blogging-website-tumblr-for-1-1bn/4701862">acquired the popular blogging platform</a> for US$1.1 billion. This is the parent they wished they had: educated, rich and chic-geek dressed. </p>
<p>Hipster Tumblr CEO David Karp, 26 years old and perhaps not so well educated (he didn’t finish high school), obviously thought so. But then, all of the other grown-ups, including Facebook’s Mark Zuckerberg and Google’s Sergey Brin, had turned down Karp’s approaches to buy this premier site of teenage hangouts.</p>
<p><strong>Tumblr brings traffic, mobile and a cooler image</strong></p>
<p>Mayer paid handsomely for the site, with US$250 million of the US$1.1 billion purchase price going to Karp. Mayer has also claimed that <a href="http://marissamayr.tumblr.com/post/50902274591/im-delighted-to-announce-that-weve-reached-an">she will keep the site as it is</a>, including the NSFW (not suitable for work) content (more on this later) and will “<a href="http://www.reuters.com/article/2013/05/20/us-tumblr-yahoo-idUSBRE94I0C120130520">not screw it up</a>”. </p>
<p>And why would she? Tumblr’s <a href="http://www.forbes.com/sites/jeffbercovici/2013/01/02/tumblr-david-karps-800-million-art-project/">numbers</a> speak for themselves: 86 million blogs with 184 million unique visitors, and 12.1 billion pageviews last month. (However, it is worth taking some of these numbers with a pinch of salt – they vary greatly depending on the source.)</p>
<p>Tumblr is also set to make money this year. Not an astronomical amount, by any means: the site has had a limited amount of advertising on the site and does not generate significant revenue. But being part of Yahoo may provide more avenues for advertising and monetisation. </p>
<p>For Yahoo, survival comes first; money is a secondary concern. Survival depends on staying relevant and, for most companies that have made their business on the web, this means increasing your audience and succeeding on mobile. Growing one’s audience, especially the sort of audience that Tumblr brings, would have been next to impossible through Yahoo’s existing platforms.</p>
<p>The rapid move to mobile, especially in competing against Google and Facebook, has also presented a challenge. Some progress has been made. The mobile version of photo site Flickr has got the attention it needs and is starting to make headway, especially from threats posed by Instagram and its owner, Facebook. Tumblr’s extremely popular mobile applications again bring Yahoo a more immediate presence on that platform.</p>
<p><strong>Making money</strong></p>
<p>From the perspective of income, Tumblr’s <a href="http://www.forbes.com/sites/petercohan/2013/05/20/yahoos-tumblr-buy-fails-4-tests-of-a-successful-acquisition/">first quarter revenue</a> of US$13 million will, in all likelihood, leave them short of their target of US$100 million for this year. This may not matter so much in the short term, as Yahoo doesn’t really have to make much money from Tumblr to justify its purchase. It really only has to make more money than it would have done leaving the money in investments, which won’t be hard. The only thing lost is the potential opportunity of using the money to buy something more worthwhile.</p>
<p>What really matters are the users. They represent a potential goldmine of opportunities for Yahoo and Yahoo’s advertisers – at least in the short term.</p>
<p><strong>What about the content?</strong></p>
<p>Although not on the level of <a href="http://www.4chan.org/">4chan</a>, there is a great deal of pornography and other adult content on Tumblr, with <a href="http://techcrunch.com/2013/05/20/tumblrs-adult-fare-accounts-for-11-4-of-sites-top-200k-domains-tumblrs-adult-fare-accounts-for-11-4-of-sites-top-200k-domains-adults-sites-are-leading-category-of-referrals/">some estimates</a> putting it at around at least 11% of all of the blogs containing pornographic images and content. Of other types of undesirable content, Tumblr has acted in the past <a href="http://www.washingtonpost.com/blogs/blogpost/post/tumblr-youtube-others-broadcast-teen-insecurity-for-all-to-see/2012/02/24/gIQAArtkXR_blog.html">to ban</a> pro-anorexia and self-harm blogs.</p>
<p>Part of the challenge that Yahoo faces in the short term is that any moves to act against unreasonable behaviour on Tumblr will be construed as evidence that somehow it is acting to clean up the content. This may change the character of the site for those who use it. Indeed, Yahoo may start getting pressured by advertisers to do so – especially if that is how Yahoo intends to drive revenues through the site.</p>
<p><strong>Will it work?</strong></p>
<p>It seems that at the moment, Mayer is doing all of the right things. So far, the proof is that Yahoo stock <a href="http://gadgets.ndtv.com/internet/news/6-things-marissa-mayer-has-done-to-make-yahoo-cool-again-369548">has risen</a> 70% since she became CEO. The jury is still out whether she can completely turn Yahoo’s image around, even with the purchase of companies like Tumblr, but she has definitely stopped the downward trajectory Yahoo was on before she joined.</p>
<p>I suspect that the purchase of Tumblr will be seen as a smart move on Mayer’s part, eventually even by Tumblr’s bloggers. For the moment at least, some may need more <a href="http://www.tumblr.com/tagged/yahoo">convincing</a>. </p><img src="https://counter.theconversation.com/content/14523/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Glance does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>This is the ultimate stuff of hipster dreams. Despite the protestations of user defections, Tumblr bloggers couldn’t help but be beguiled by the attentions of 37-year-old Yahoo CEO Marissa Mayer, whose…David Glance, Director, Centre for Software Practice, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/125862013-03-04T19:33:20Z2013-03-04T19:33:20ZYahoo’s telework ban signals a return to ‘command and control’ management<figure><img src="https://images.theconversation.com/files/20873/original/9x4jhvk8-1362368120.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Yahoo! CEO Marissa Mayer's stance on teleworking reflects a shift in management strategy.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>When I read last Friday that the CEO of Yahoo!, Marissa Mayer, was implementing a <a href="http://www.smh.com.au/comment/yahoos-have-little-to-cheer-as-ban-hits-home-for-mothers-20130228-2f959.html">ban on Yahoo! employees from working at home</a>, I confess I was staggered by the apparent absurdity of it. After all, Yahoo!’s business model is predicated on facilitating virtual relationships, rather than those based on physical presence, aiming to “<a href="http://yhoo.client.shareholder.com/faq.cfm">keep people connected to what matters most to them, across devices and around the globe</a>”.</p>
<p>Yahoo!’s decision comes at a time when the Australian government has committed to a target of <a href="http://www.theage.com.au/it-pro/government-it/public-service-teleworking-target-of-12-20121111-296sb.html">12% of Commonwealth public servants working from home</a> (teleworking or telecommuting) by 2020, and the leader of the opposition is promoting a <a href="http://www.liberal.org.au/latest-news/2013/02/28/tony-abbotts-address-universities-australia-higher-education-conference">greater role for online learning in our universities</a>, presumably to take further advantage of the National Broadband Network. Yahoo!, it seems, wants to support these kinds of efforts—to keep us connected—but by taking the “tele” out of “telecommuting” in the process.</p>
<p>The decision has sparked quite an <a href="http://natpo.st/WxRqob">outpouring of criticism</a> via our key 21st century communication medium: the Internet. On the one hand, Forbes considers the decision symptomatic of a <a href="http://onforb.es/YHLbQy">failure of leadership</a>, while <a href="http://www.smh.com.au/comment/yahoos-have-little-to-cheer-as-ban-hits-home-for-mothers-20130228-2f959.html">Maureen Dowd</a>, writing in the New York Times, is more concerned about Ms Mayer’s “less-privileged sisters with young children [for whom] telecommuting is a lifeline to a manageable life”. Others have argued that <a href="http://www.networkworld.com/news/2013/022813-yahoo-telework-267219.html">the jury is out</a>, and there is plenty of <a href="http://www.fiercecio.com/story/yahoo-got-it-right-and-wrong-say-telework-surveys/2013-03-01">evidence to support either position</a>.</p>
<p>Writing in November last year about whether <a href="http://theconversation.com/go-forth-and-telework-but-will-it-work-for-you-10682">telework</a> is for everyone, I discussed some of its pros and cons: increased productivity, improved employee well-being, and better green outcomes for the community on the one hand, but more complex coordination challenges, missed development and promotion opportunities, and feelings of isolation from the community on the other. These have been variously rehearsed in the more recent exchanges of views about teleworking, and so I won’t replay them here. Instead, I want to focus on a more general point that the move seems to suggest – the return of a “command and control” approach to employees and their performance, ostensibly to improve productivity and, thereby, the return on shareholders’ funds.</p>
<p>Throughout the 20th century, we were witness to the “evolution” of people management, as the efficiency focus of <a href="http://www.emeraldinsight.com/journals.htm?issn=1751-1348&volume=12&issue=4&articleid=1569997&show=abstract">Frederick Winslow Taylor</a>’s scientific management gave way to the <a href="http://www.emeraldinsight.com/journals.htm?issn=1751-1348&volume=18&issue=1&articleid=17009781">human relations movement</a> and, later, the importance of <a href="http://www.emeraldinsight.com/journals.htm?articleid=1410214&show=abstract">organisational culture</a> and <a href="http://books.google.com.au/books?hl=en&lr=&id=zCndDk5W9nQC&oi=fnd&pg=PA186&dq=%22employee+relations%22&ots=gfIP2-xvv3&sig=RsEofkby5Mf5liPsDuq6bpLW-90#v=onepage&q=%22employee%20relations%22&f=false">employee relations</a>. </p>
<p>More recently though, with the effects of the GFC reflected in demands for increased productivity and increased job insecurity at all levels, it seems that the notion of “management by walking/wandering around” has been replaced by one of “management by pushing around”, as organisations turn from people management strategies informed by <a href="http://www.economist.com/node/12370445">Douglas McGregor’s</a> participative Theory Y to the more authoritarian Theory X. It is not coincidental that, at the same time, we have been witness to significant increases in claims of <a href="http://www.aph.gov.au/%7E/media/05%20About%20Parliament/53%20HoR/537%20About%20the%20House%20magazine/46/PDF/Poison1.ashx">bullying in the workplace</a> and levels of reported <a href="http://www.medibank.com.au/Client/Documents/Pdfs/The-Cost-of-Workplace-Stress.pdf">work-related stress</a>.</p>
<p>Samuel Johnson once described patriotism as the last refuge of the scoundrel. In the face of a diminished capacity to retain and motivate employees by throwing money at them (because this is, of course, their primary driver, at least when one’s thinking is informed by Theory X assumptions) and an apparent inability to create a positive company culture, through effectively recognising and rewarding employees (by drawing on intra-and inter-personal skills to encourage, praise and lead by a “no blame” example), Theory X may well be the last refuge of the manager now managing by pushing around. </p>
<p>And so we hear the following kinds of statements from CEOs and their senior executives, together with the unintended accompanying messages: “I have to have staff nearby so I can motivate them” (sotto voce: they goof off when I can’t see them); “We have to centralise to increase specialisation and therefore efficiency” (geographically dispersed staff can’t be trusted to do our work in a timely and proper manner);“We’re bringing people together to improve collaboration” (if we don’t have you physically present with each other, you’re not smart enough to come up with clever ways of virtual collaboration).</p>
<p>In this era of KPIs and performance-driven manager remuneration, the assumptions of McGregor’s Theory X provide managers with a convenient explanation for failing to meet deadlines, meet revenue projections or implement strategic initiatives – we haven’t got the right structures in place to take account of the inherent inadequacies of our human resources; we need to centralise and have people working in physical proximity to increase their productivity and teamwork.</p>
<p>An interesting footnote is that, at the same time it is stopping its employees from teleworking, Yahoo! has also stopped referring to itself as a “digital media company”, now describing itself as a “<a href="http://techcrunch.com/2013/03/01/yahoo-is-now-officially-calling-itself-a-technology-company-ditching-the-digital-media-tagline/">global technology company</a>” instead. Perhaps it is easier to avoid the “Do as I say ….” tag when your business is about technology and not the medium it supports.</p><img src="https://counter.theconversation.com/content/12586/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Lamond does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When I read last Friday that the CEO of Yahoo!, Marissa Mayer, was implementing a ban on Yahoo! employees from working at home, I confess I was staggered by the apparent absurdity of it. After all, Yahoo!’s…David Lamond, Adjunct Professor of HRM & International Business, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/125902013-03-04T03:40:43Z2013-03-04T03:40:43ZMarissa Mayer is right: your company needs you (in the office)<figure><img src="https://images.theconversation.com/files/20868/original/sg4kqfkq-1362366888.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Marissa Mayer's ban on remote work has sparked a lengthy debate about the value of working from home.</span> <span class="attribution"><span class="source">Image from www.shutterstock.com</span></span></figcaption></figure><p>Last week, the media went into overdrive when Marissa Mayer announced that Yahoo was <a href="http://blogs.wsj.com/atwork/2013/02/25/at-yahoo-working-from-home-doesnt-work/">doing away with telecommuting</a> and insisting that employees come into the office and work cheek-to-cheek — or cubicle to cubicle — with their co-workers.</p>
<p>The reactions to the announcement have been fairly typical. On the one hand are articles with pictures of “workers at home” beavering away at desks that seem too clean, and expressing outrage as to how such a decision ignores all the value created by giving people the freedom to work at home or in the neighbourhood coffee shop. Invariably, these articles include criticisms of the move by other CEOs, such as Richard Branson, who consider them out of line with modern workforce practices. The <a href="http://www.smh.com.au/it-pro/business-it/mayer-feels-heat-over-telecommuting-ban-20130227-2f4rj.html">usual evidence touted by HR types</a>, that firms that embrace workplace flexibility have higher satisfaction ratings and lower turnover, is invariably part of the discussion.</p>
<p>But a number of articles argue that a ban on telework is no big deal — or that it could be beneficial. These articles point to the <a href="http://www.forbes.com/sites/margiewarrell/2013/02/27/get-to-the-office-or-get-out-why-marissa-mayer-has-made-a-smart-move/">importance of face-to-face contact</a> and the serendipitous nature of innovative collaboration. Many point out that few telecommuters working in major corporations spend the majority of their time in the home offices, as most of the individuals supposedly being more efficient at home are contractors to companies rather than full employed with a single company.</p>
<p>But what few of these articles discuss is whether there is any value for a company in having fully employed managers and staff operating in isolation for the majority of their working time. Of course, there are situations where working away from the office is necessary and efficient. There are distractions to be ignored when concentration is necessary to complete a project or task and being away from the office increases the costs to others from distracting you. However, the whole point of having individuals working together implies that there are compensating benefits to co-location. So what is the evidence?</p>
<p>First, it turns out that to get the benefit of working effectively with others you need to be quite close to them. For example, <a href="http://www.sciencedirect.com/science/article/pii/S0048733304000964">studies</a> in laboratories and technology companies show that the probability of interaction drops to virtually zero at a distance of about 30 meters. This suggests that if you are on the other side of a building floor (or on another floor altogether), the likelihood that you will interact someone in those locations is nil on any given day. Hence, one conclusion is that if I, as an employee, am unlikely to interact with these people, why can’t I not interact with them from home?</p>
<p>Organisations know this and structure interactions to counter this effect. As strange as it may seem, open-plan offices and all those distractions telecommuters complain about are actually meant to counter this problem of organisational distance. While it sounds “modern” to argue for workplace flexibility, the reality is that successful modern corporations are not just exploiters of knowledge, but explorers and creators of knowledge. Such creation activities cannot and do not arise from individuals operating independently at a distance.</p>
<p>Second, telecommuting is little more than a form of outsourcing. The best value from removing employees from the corporate prison will arise with those individuals who are least effective or least necessary to increase the value of those around them. In other words, telecommuters may be very efficient at what they do – indeed, maybe more efficient than a cubicle-bound drone. But what telecommuters are not good at doing is making other people more efficient or innovative. </p>
<p>Indeed, this is the logic behind outsourcing. If a “module” from a value chain of activities can be removed and contracted to someone who specialises in certain tasks and then do this in a market-based transaction then it certainly makes sense to do so. “Output” is simply plugged into the outsourced module. Outsourcing also is enhanced when there is a clear measurable output and all one is concerned about is making sure that the output meets quality, time and price specifications.</p>
<p>However, what one would want to keep in-house is the sharing of tacit knowledge between employees, which often occurs when employees interact face-to-face. Unlike an outsourcing agreement, it is difficult to assess the market value of these interactions.</p>
<p>A group working together in proximity can meet a corporation’s goals in a way that cannot be replicated by aggregating the efforts of individual actors. Unfortunately, these effects are less predictable and harder to manage and, hence, the outputs cannot really be measured easily. This is why managing the “inputs” — the employees — is so important. For example, I keep my PhD students close to me on a daily basis because the plethora of small interactions I have with them have far more value to them than a single formal meeting.</p>
<p>These points together highlight why being in proximity to your co-workers matters, particularly in knowledge-intensive activities. The burden of proof of the value of an employee in this world is not that you are more efficient, but that your proximity to others makes them more efficient.</p><img src="https://counter.theconversation.com/content/12590/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Timothy Devinney receives funding from the Australian Research Council.</span></em></p>Last week, the media went into overdrive when Marissa Mayer announced that Yahoo was doing away with telecommuting and insisting that employees come into the office and work cheek-to-cheek — or cubicle…Timothy Devinney, Professor of Strategy, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/125362013-02-28T19:23:17Z2013-02-28T19:23:17ZYahoo brings workers back into the office but leaves real issues out in the cold<figure><img src="https://images.theconversation.com/files/20766/original/fpfb6z9x-1362026109.jpg?ixlib=rb-1.1.0&rect=4%2C792%2C3160%2C2320&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A memo from Yahoo's Marissa Mayer calling all staff into the office has elicited widespread criticism, while it may not address the underlying issue of lack of collaboration.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>An internal memo to Yahoo employees has created quite a stir in the press and in social media outlets of late, questioning the leadership direction of Yahoo CEO Marissa Mayer. </p>
<p>According to reports, from June this year, Yahoo employees who have been allowed to work from home will now need to make themselves present in the office to enhance collaboration, interaction and innovation in the company.</p>
<p>Yahoo’s plan has been met mostly with outrage and mild puzzlement. I’m always wary of media frenzy over the actions of leading female business figures and politicians because I’m often concerned that their decisions are judged through the lens of sexism.</p>
<p>Nevertheless, this is an interesting case for a number of reasons – because it reveals underlying tensions in a three decade old pattern of decentralising knowledge work and workers out of the office workplace (and increasingly out of the country).</p>
<p>Since the 1970s there have been competing visions of “the mobile and flexible office”. Telecommunication and mobile operators take advantage of the shift away from the office afforded by mobile and networked technologies to promote ideals of flexibility, freedom and enhanced productivity (“anywhere, anytime work”). </p>
<p>Building designers and architects propose an alternative vision: focusing on the benefits of collaboration, interaction and innovation within the workplace (“Alternative workplacing”, “activity-based working” and such like).</p>
<p>The memo and policy it describes reinforces the sense that these are opposing models of organisation and that the two can’t work together but I’m sure employees of Yahoo who have had flexible work arrangements have been benefiting from both models and experiencing their mutual pitfalls. What is really behind this recent reaction against supporting flexible working? </p>
<p>On the surface there is the perceived advantage that companies are able to capture and leverage more value from employees who are ‘present’ in the office and for longer periods of time. Indeed, this is an implicit objective clearly signalled by campus style office designs that supply fridges, beds, lounges, pool tables and other ‘fun stuff’.</p>
<p>But while the memo argues that innovation, collaboration and interaction are the outcome of being present at work - bumping into one another in corridors, at the water-cooler and peeking over partitions – this claim doesn’t stand up to further scrutiny.</p>
<p>Let’s consider the following six points. First of all this stance negates that virtual presence of employees (whether flexibly located or not) is an important factor in organisational communication and collaboration. Water cooler interactions (even when in the office) can these days take place as much in email exchanges, Skype chats, Twitter feeds and Facebook updates. </p>
<p>Secondly, it assumes that employees who are not physically present are contributing less. But how is this measured? Has it been evaluated at Yahoo and if so, what are the results? Studies that have been conducted in this area have shown that workers working from home or in other locations contribute more or the same as their workplace counterparts. Indeed, many work overtime partly to compensate for their lack of presence and partly because they can through their networked and mobile digital technologies.</p>
<p>Thirdly, it assumes that if we don’t know what these workers are contributing then this must be a problem with them not being present – rather than it being a matter of supervision, communication and better support – a point made by <a href="http://www.huffingtonpost.com/sara-sutton-fell/the-hypocrisy-in-yahoos_b_2766030.html">Sara Sutton Fell writing in The Huffington Post</a>.</p>
<p>Fourthly, the assumption that simply extracting more time and ‘presence’ from employees will increase productivity, is misleading and false. Undoubtedly, there are times when putting in extra time may be required for particular tasks or project phases, but creating an organisational culture of constant presence and work can lead to a poor sense of well being and inefficiencies and not necessarily to any of the qualities that the memo identified as important to an innovator of new ideas and technologies.</p>
<p>Fifthly, it applies selectively only to those workers for whom flexible work is a formal component of their jobs. I’m guessing that those who work flexibly outside of these hours continue to be encouraged to do so, from wherever they happen to be – no doubt through the <a>free iPhone 5’s that Yahoo generously supplied their employees.</a></p>
<p>Finally, there is inherent inequity at the heart of this decision. For some employees, particularly those with caring responsibilities, this will mean they will lose out on the very conditions that allow them to work, participate and innovate in the first place.</p>
<p>Teasing out this event tells us a few things:</p>
<ul>
<li><p>Yahoo’s response is unlikely to solve the perceived problem identifed in the memo - the need for more collaboration, interaction, innovation - because it doesn’t look seriously at where and how these qualities are produced.</p></li>
<li><p>It is a huge diversion from possibly other more serious structural or external barriers and problems that Yahoo as a company is facing.</p></li>
<li><p>From an employee perspective, it simply represents another effort in the established arsenal of management strategies to extract more ‘time’ and ‘effort’ from employees, this time through spill-in and surveillance: bringing workers bodies and actions into the field and gaze of the organisation.</p></li>
<li><p>Perhaps most importantly - it is a backward step in the development of flexible work arrangements that really can work for organisations and employees. High-tech organisations have a history of acting as a testing ground for new ways of working. Because of this, they also have the potential to become ‘best practice’ models (although Yahoo’s chances of this happening are looking grim!). </p></li>
</ul>
<p>In the end, Yahoo’s plan is simply an opportunity for different visions of the future of work to be pitted against each other rather than trying to understand the realities, benefits and actual challenges that come with flexible work arrangements in the larger context of a shift to decentralised models of work.</p><img src="https://counter.theconversation.com/content/12536/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Justine Humphry does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An internal memo to Yahoo employees has created quite a stir in the press and in social media outlets of late, questioning the leadership direction of Yahoo CEO Marissa Mayer. According to reports, from…Justine Humphry, Lecturer, Digital Cultures, School of Letters, Art, and Media, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/85182012-07-31T02:15:39Z2012-07-31T02:15:39ZMarissa Mayer and the business case for hiring pregnant women<figure><img src="https://images.theconversation.com/files/13629/original/rbx85cv9-1343693873.jpg?ixlib=rb-1.1.0&rect=17%2C35%2C1958%2C1389&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The public backslapping around the hiring of a pregnant Marissa Mayer as Yahoo's CEO acknowledges this type of discrimination is alive and well.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The public praise heaped upon the struggling Yahoo for <a href="http://www.forbes.com/sites/forbesleadershipforum/2012/07/24/how-to-balance-motherhood-and-career-if-youre-not-marissa-mayer/">hiring a pregnant Marissa Mayer</a> as its new chief executive shows a covert acknowledgement that this form of bias against women remains alive and well. </p>
<p>Under the US Pregnancy Discrimination Act, it is unlawful to discriminate on the basis of pregnancy, childbirth, or related medical conditions in companies with 15 or more employees.</p>
<p>But there remains an underlying belief that hiring pregnant women makes bad business sense.</p>
<p>A <a href="http://www.whattoexpect.com/forums/hot-topics-1/topic/as-an-employer-would-you-hire-a-pregnant-woman">popular US pregnancy website</a> appeared to sum up many views on Mayer’s hiring when it asked its readers whether as employers they would hire a pregnant woman: the answers were on the whole negative.</p>
<p>Responses mostly viewed this action as being unprofitable - particularly assuming a business would incur expenses to recruit and train another employee in the woman’s absence or her non-return; others were concerned that hiring a pregnant woman might incur insurance claims if an injury occurred at work, or that the productivity of the woman might diminish due to physical changes during and after pregnancy. </p>
<p>Thankfully, it is evident that some companies don’t hire with a sole focus on monetary concerns, but also take into account the value of the talent, competencies and contribution the woman has made, her passion for the company and her role, her leadership and knowledge, and her potential in advancing the organisation.</p>
<p>These companies value women and are prepared to support their choice to have a child. This indeed is the ideal - when business contributes to the well-being of a woman employee in supporting her choices for fulfilment and in return benefits from her engagement and high performance. </p>
<p>Rice University Professor Jennifer M. George, who specialises in the areas of management and psychology, writes that an <a href="http://www.ingentaconnect.com/content/psych/pewo/2011/00000020/00000001/art00007">“exchange relationship”</a> normally entails employees contributing valuable inputs including their time for outcomes such as pay. In this context the value an employer places on a woman implies an exchange of trust, respect and willingness to appreciate the significance of who we are, beyond economic boundaries.</p>
<p>Globally, some companies are recognising the importance of programs to encourage women to return to work after taking maternity leave and to help women maintain a career.</p>
<p>Although only 15% of women hold directorships in UK’s FTSE 100 companies this year - and only 17% of these companies have <a href="http://www.som.cranfield.ac.uk/som/dinamic-content/research/documents/2012femalftse.pdf">female executive directors</a> - there are some standouts. </p>
<p>At Asset management company MITIE Group, for example, women comprise 22.2% of its board programs.</p>
<p>MITIE has put in place flexible working hours and a flexi‐leave system, also enabling working from home and the option of compressing the working fortnight.</p>
<p>It also provides childcare vouchers and additional annual leave purchase schemes, while offering a maternity coaching program for its senior HR professionals.</p>
<p>In Australia, the Commonwealth Bank of Australia was awarded the 2012 Catalyst for its <a href="http://www.catalyst.org/publication/527/commonwealth-bank-of-australiaopening-the-door-for-gender-diversity">gender diversity initiatives</a>. Women’s representation in executive manager roles increased from 21% in 2005 to 30% in 2011; directorships also increased from 20% to 27%. </p>
<p>Women represent almost 45% of leaders in CBA. In addition, it was found that women’s engagement scores were above Gallup “world’s best practice levels” in three out of the last four years.</p>
<p>If CBA or any other company valuing women hired or promoted a woman who became pregnant, it would be unreasonable to think that it took this action to avoid being discriminatory. </p>
<p>The broader culture and organisational systems in being transparently aligned to valuing women would make such a decision an obvious outcome. If more companies acted like this, such news would not be ground-breaking news, but commonly expected and accepted.</p>
<p>It is important that valuing women does not stop when women become pregnant. This not only cripples the pipeline for talent, but makes little sense on a national scale. </p>
<p>In the US, given that in 2012, 46.6% of the labour force were women, but only <a href="http://www.catalyst.org/publication/132/us-women-in-business">4% of the Fortune 500 CEOs were women </a> and 14.1% were in executive Fortune 500 positions, this would hardly make good business sense. </p>
<p>Moreover, as 60.6% of women with children under three years old were in the <a href="http://www.catalyst.org/publication/249/women-leaving-re-entering-the-work-force">US labour force in 2011</a>, not hiring women who had family responsibilities and not supporting their leadership progression would be nationally unjustifiable on many fronts.</p>
<p>For those of us who use comparative lenses to evaluate how <a href="http://www.forbes.com/sites/forbesleadershipforum/2012/07/24/how-to-balance-motherhood-and-career-if-youre-not-marissa-mayer/">Mayer can afford to “have it all”</a>, it would do us good to shift our focus onto being critical of companies which choose to not support their valuable female employees in the short-term.</p>
<p>The long-term benefits for supportive organisations are numerous, with women reciprocating this with their commitment to the organisation. </p>
<p>According to <a href="http://www.census.gov/hhes/www/ioindex/Opting-Out-paper.pdf">Catalyst 2009 report</a>, researchers found that between 2005 and 2007, most working mothers in the US return to the workforce within a year after having a child.</p>
<p>Economist Heather Boushey for the Centre for Economic and Policy Research found in 2005 that women’s labour force <a href="http://www.cepr.net/documents/publications/opt_out_2005_11_2.pdf">participation rates did not fall</a> due to the presence of children at home.</p>
<p>However, those organisations that toe rigid lines when mothers return to the workplace find that women choose to opt out. Catalyst attributed women leaving their employers due to the unresponsiveness of companies to support women’s work and life choices:</p>
<blockquote>
<p>“There is a misunderstanding that women find it easy to leave their jobs to stay home with their children … we find that most women are conflicted about leaving their jobs and find it very difficult to do so. They have spent much time and money investing in their professional development, and their jobs are a large part of their ongoing personal and professional identification. If they do leave, often it is because employers are not making available or not making obvious a way to conceivably combine work with the rest of their lives.”</p>
</blockquote>
<p>If organisations refuse to incorporate in their valuing of women an appreciation that women bear children and that their choice to do this and to care for them is a human right, isn’t economic rationalism flawed in overriding realism and the laws of nature? </p>
<p>Who or what is it really serving?</p><img src="https://counter.theconversation.com/content/8518/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Diann Rodgers-Healey does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The public praise heaped upon the struggling Yahoo for hiring a pregnant Marissa Mayer as its new chief executive shows a covert acknowledgement that this form of bias against women remains alive and well…Diann Rodgers-Healey, Adjunct Professor, James Cook UniversityLicensed as Creative Commons – attribution, no derivatives.