Monthly Archives: May 2009

John Gapper

There is what I found a rather remarkable piece in the FT this morning by Irwin Stelzer, director of economic studies at the free-market Hudson Institute, praising Neelie Kroes, the EU competition commissioner and taking an anti-trust dig at Anton Scalia, the right-wing Supreme Court justice.

Mr Stelzer’s support for the EU’s action against Intel may be influenced by his consulting role to AMD, which complained to the EU about Intel’s pricing strategy and aggressive use of discounts. Even so, such a strong stance in favour of the European style of anti-trust is striking:

“Take it from a conservative economist who prefers less to more government: if markets are not competitive, or if they are otherwise failing to function properly, it takes the long arm of government to protect the invisible hand. Let us hope that this view is shared by Mr Obama’s Supreme Court nominee, Sonia Sotomayor – and that she is prepared to take on the formidable and otherwise estimable Justice Antonin Scalia, who has little use for the antitrust laws”

The signs are, as Mr Stelzer points out, that the US anti-trust regulators will fall in line with Europe’s more vigorous approach in future. Silicon Valley, and big business, should watch out.

John Gapper

Somehow it was bound to happen. The “Twittergate” scandal involving German members of parliament who leaked the result of the president’s re-election is symptomatic of the current craze for Twitter among the world’s politicians, business people and media types.

As the FT reports this morning:

Julia Klöckner, of chancellor Angela Merkel’s CDU, told her Twitter “followers” that afternoon: “People, you can watch the football in peace. The vote was a success.” Ulrich Kelber, of the SPD party, was even more specific, prematurely uploading the result of the vote-count to his micro-blog: “The count is confirmed: 613 votes. [Horst] Köhler is elected.”

Ms Klöckner later apologised for the “somewhat premature timing” of a message. She has stepped down from her party role in Germany’s parliament.

That comes after various New York Times journalists Twittered about an internal meeting at the paper, which covered topics such as digital business models, irritating Bill Keller, its executive editor.

Lots of organisations are trying to draw up new rules to deal with Twitter, which is not only a real-time tool but crosses the divide between professional and personal use.

I cannot help thinking, that this horse has left the stable. The notions of embargoes, and of confidentiality itself, are inevitably strained by everyone being able to broadcast their thoughts instantly to all those who care to listen.

The text-messaging phenomenon among teenagers has just transferred to the business and professional world, with unruly results.

John Gapper

My column in the FT on Thursday is about luxury and premium good in the downturn:

The harder they come, the harder they fall, one and all. The decade of decadence, of affordable luxury and premium everything, from expensive spirits to fashion label clothes and first-class air travel, is over.

It was, of course, an illusion to imagine that the business cycle had gone away in historically cyclical industries such as airlines and luxury goods. But the years of expansion carried on long enough, with only a brief interruption in 2001, that a lot of people came to think so.

They have changed their minds. Virgin Atlantic expects to lose money in this financial year. Giancarlo di Risio, chief executive of Versace, is to step down after falling out with the family amid a 13 per cent fall in revenues in the first quarter.

Double-digit falls in demand for luxury and premium goods and services are common in recessions but this hangover is especially sharp. Big airlines suffered a 35 to 40 per cent fall in revenues from international first- and business-class passengers in the year to March.

So what should such industries do when faced with a slump in consumer demand? The textbook answer is to cut costs, curb output and do everything possible to adjust – apart from slashing prices.

“You must accept that you will sell less but the biggest mistake is to cut prices across the board and ruin your brands. People are not refusing to buy because prices are too high, but because they are frightened and are hoarding money,” says Hermann Simon, chairman of Simon-Kucher, a pricing consultancy.

There is logic to what Mr Simon says. Even for non-premium industries it takes three to five years to get consumers to pay the full price again once you have started discounting. As for luxury goods, price-cutting rips apart the industry’s artfully constructed image.

Discounting can exact a terrible price, as the imminent bankruptcy of General Motors shows. The company was the king of cheap finance and price-discounting even in the good times; it was left with thin to non-existent margins, having put its brands through the crusher.

But the reality for many companies (happily for consumers) is that they have no choice. Luxury and premium brands have grown so much – and reached so far into the mass market – that their owners cannot choose from a menu of cutting costs, output or prices. All are required.

You can read the rest here and comment below.

John Gapper

It has always struck me that lengthy face-offs among internal candidates within companies to become the next head, a tradition popularised by Jack Welch when he was about to step down as chairman and chief executive of General Electric, are internally destabilising.

Having two or three senior executives publicly duking it out in something akin to a medieval joust for a king’s or queen’s approval absorbs a lot of energy and exacerbates internal fiefs.

In most cases, however, there is at least a chief executive in place to oversee the process and keep everyone more or less honest. What happens when there is no-one there to referee?

BP and its Russian partner in TNK-BP, the oil joint venture, are about to find out. Bizarrely, two outsiders will be brought into the company to tussle for the top job over the next six months, after the two sides failed to agree on who would succeed Robert Dudley.

To observe the fall-out from such contests, BP need only cast a glance sideways at Royal Dutch Shell, where Linda Cook, head of its gas and power division and a former contender to be its chief executive, has just resigned.

Ms Cook does not seem to have wanted to see her empire within Shell curtailed by Peter Voser, the man who beat her to the top job and takes over as chief executive on July 1.

I would say it was a recipe for instability at TNK-BP, except that the company is hardly an oasis of calm at the moment, with Mr Dudley having been forced to resign in a bitter dispute last December.

Still, the worst may be yet to come in terms of management upheaval.

John Gapper

I have written a column for the Weekend FT on internet search:

For years, there has been little competition in the business of enabling people to find out things on the web: Google led and a bunch of its would-be rivals lagged behind. Suddenly, however, internet search is becoming lively again.

Next week, Microsoft will launch its latest effort to catch up with Google – a refreshed search engine codenamed Kumo. Meanwhile Yahoo has just shown off its own efforts to help people extract data from the internet’s millions of web pages, rather than wade through it link by link.

All this might be yawn-inducing – Microsoft and Yahoo have tried and failed to catch up with Google before – but for two things.

One is that Google, despite its 64 per cent share of search, according to the comScore research group, knows there is a gulf between what it provides and what many people want and is experimenting with making its search engine perform better.

The second is that Google faces a new challenge from an Illinois-based software group founded by Stephen Wolfram, a British scientist. This week, Wolfram Research launched Wolfram Alpha, a web application that resembles a search engine but aspires to be a digital oracle.

Wolfram Alpha will never rival Google as an entry point to the web because it serves up information from a private database, rather than the internet as a whole. But it is an intellectual slap in the face to Google because it approaches the quest for knowledge in another way.

You can read the rest here and comment below.

John Gapper

For some reason, the headline “Why journalists deserve low pay” caught my attention (via Roy Greenslade) and I have read the essay on the topic by Robert Picard.

I think his analysis that the economic value of general news content has diminished because local papers no longer have a distribution monopoly is correct. However, I am not sure about his solution – that such papers should reconfigure themselves as digital providers of specialist information.

The Boston Globe, for example, could become the national leader in education and health reporting because of the multitude of higher education and medical institutions in its coverage area. Not only would it make the paper more valuable to readers, but it could sell that coverage to other publications. Similarly, The Dallas Morning News could provide specialized coverage of oil and energy, The Des Moines Register could become the leader in agricultural news; and the Chicago Tribune in airline and aircraft coverage.

It is a nice idea, given that non-distinguishable national and political coverage has very limited economic value on the internet. But turning local, general news sources into global, specialised ones strikes me as quite a stretch, in terms of both branding and execution capacity.

I cannot see why the Hartford Courant, for example, is more likely to become a compelling brand in insurance coverage online than, for example, Lloyd’s List, which now Twitters. On the whole, I agree with the thoughts of Jeff Jarvis – that local news providers should stick to their knitting (and knit harder).

John Gapper

The financial crisis has at least had one good effect, finally pushing over the top the right of US shareholders to nominate directors to company boards. I am not sure whether that is strictly logical, since there has not been a broad failure of corporate governance – just one on Wall Street – but so be it.

Since I hail from a country where shareholders have more explicit rights than in the US, I have always found the US system of corporate governance hard to grasp. In particular, the notion that investors need either to sue or to mount a public battle to displace directors in order to be heard strikes me as odd.

The Securities and Exchange Commission proposal to give larger shareholders the right to nominate directors without going through a proxy contest does, of course, impinge on the rights on states such as Delaware to set how locally-incorporated companies run their affairs.

However, despite my soft spot for the Delaware chancery court, I do not believe that should stand in the way of SEC action. It appears that this time, after three failed efforts in the past five years, Mary Schapiro has the votes to get the proposal through.

John Gapper

My Thursday column for the FT is on the president’s fuel-efficiency standards:

It was, the president declared, “an extraordinary gathering”. Bounding into the White House rose garden for his latest policy pronouncement, Barack Obama this week unveiled his plan to limit US petrol consumption and reinvigorate the domestic motor industry.

Compared with what had preceded it, it was extraordinary, for not only did he unveil a rise in fuel efficiency standards after years of drift, but his administration had also hammered out a consensus among government agencies, states led by California, and auto companies.

In the sweep of history, however, it was very ordinary indeed. Yet again, a president was placing his faith in government regulation to limit his countrymen’s fondness for big, gas-guzzling vehicles.

Instead of the simplest, most obvious and least expensive way of achieving that end – raising the national excise tax on petrol – the president was again relying on a complex, dirigiste intervention.

You can read the rest of the column here and comment below.

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This blog is mainly about business and strategy and how and why people who run companies take the decisions that they do.

Most of the time, John Gapper is in New York and Andrew Hill is in London. We occasionally debate business issues between us, but your comments and criticism are welcome.




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Contact andrew.hill@ft.com or john.gapper@ft.com about the Business blog.

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About John and Andrew

John Gapper is an associate editor and the chief business commentator of the FT. He has worked for the FT since 1987, covering labour relations, banking and the media. He is co-author, with Nicholas Denton, of All That Glitters, an account of the collapse of Barings in 1995.

Andrew Hill is an associate editor and the management editor of the FT. He is a former City editor, financial editor, comment and analysis editor, New York bureau chief, foreign news editor and correspondent in Brussels and Milan.

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