Economics of Technology – Page 31

Founding Entrepreneur Still Runs FedEx

Clayton Christensen plausibly argues that in the rare cases where an incumbent firm has been able to disrupt itself, it is almost always a firm where the founding entrepreneur is still running the firm.

(p. A1) MEMPHIS, Tenn.— Fred Smith bristles at any hint that FedEx Corp., the global delivery giant he built over four decades, could be disrupted by a player such as Amazon.com Inc.

. . .

FedEx’s 75-year-old chairman and chief executive, the man who pioneered the business of moving packages around the world at lightning speed, is confronting some of the greatest threats to the company he founded.

Global trade is slowing and tariff (p. A9) fights have companies rethinking supply chains. A key partner, the U.S. Postal Service, is struggling. Amazon has morphed from a customer into a competitor.

. . .

Mr. Smith, a former Marine officer and decorated Vietnam War veteran, started FedEx in 1971 and has been CEO for nearly its whole history. The billionaire was preparing to hand over the reins, but he extended his stay after two top executives, including his heir apparent, abruptly left.

That has left Mr. Smith, who remains one of FedEx’s biggest shareholders, to revamp the business. He started with divorcing Amazon.

For years, Amazon has been building up its logistics operations to handle more deliveries itself. The online retailing giant added tractor-trailers, hundreds of sorting centers and dozens of cargo planes to carry millions of its packages. It now delivers nearly half its orders, compared with less than 15% in 2017, according to estimates from research firm Rakuten Intelligence.

In February [2019], Amazon noted in its annual report that it views companies in “transportation and logistics services” among its rivals.

“They had never done that before that day,” Mr. Smith said. “So we took it seriously.”

For the full story, see:

Paul Ziobro. “FedEx Chief Reinvents Firm He Founded.” The Wall Street Journal (Friday, October 18, 2019): A1 & A9.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story has the date Oct. 17, 2019, and has the title “Fred Smith Created FedEx. Now He Has to Reinvent It.”)

At-Home Workers Are Leaving Costly Largest Cities

(p. A1) Kelly Swift grew tired of the Los Angeles area a few years ago so she decided to leave—and take her job with her.

Ms. Swift kept her role in health-care information-technology consulting, and her California salary, when she and her family settled in a suburb of Boise, Idaho. Her employer didn’t mind that she started working from home.

Ms. Swift joined a group of workers fueling a renaissance in U.S. cities that lie outside the major job hubs. People who do their jobs from home, freelance or constantly travel for work are migrating away from expensive urban centers such as Los Angeles and San Francisco toward cheaper cities including Boise; Denver; Austin, Texas; and Portland, Ore., according to economists and local residents.

For the full story, see:

Ben Eisen. “Workers Leave Largest Cities, Taking Their Jobs With Them.” The Wall Street Journal (Monday, Sept. 9, 2019): A1 & A4.

(Note: the online version of the story has the date September 7, 2019, and has the title “Workers Are Fleeing Big Cities for Smaller Ones—and Taking Their Jobs With Them.”)

Google Pivots Back to Search and Away from Audacious Projects

(p. B1) Sundar Pichai’s appointment this week as chief executive of Google parent Alphabet Inc. effectively shifts the focus back on the company’s advertising profit machine and away from its “moonshots” and other potential new businesses.

Mr. Pichai’s promotion late Tuesday amounted to the biggest managerial overhaul of the internet giant since 2015, when co-founders Larry Page and Sergey Brin created Alphabet as a parent company above Google. Their goal then was to make Google and its highly profitable advertising businesses just one of many subsidiaries. The stated purpose, as they said in a public letter: “We are still trying to do things other people think are crazy.”

Those goals were on-brand for the two former Stanford University graduate students. They famously celebrated a “don’t be evil” ethos and were working on driverless cars, wearable computers, beating death and a host of other money-losing projects. The idea was to free the duo from the day-to-day at Google, which remains a profit machine, to build out new, world-changing ideas.

Those now include Alphabet’s Waymo unit, which is piloting self-driving car rides, and Calico Labs, which says it’s “tackling aging.”

At least financially, those efforts have yet to amount to much. Google, which includes search, YouTube, the Chrome web browser, hardware and much else, reported $40 billion of revenue in the past quarter alone, with a 23% margin. These areas draw in more than 99% of the parent company’s staggering $155 billion in annual revenue.

The rest of Alphabet eked out $155 million in revenue, and lost $941 million while doing it.

For the full story, see:

Rob Copeland. “Alphabet Backs Off the ‘Crazy,’ Turns to Reliable Model.” The Wall Street Journal (Friday, December 6, 2019): B1 & B4.

(Note: the online version of the story has the date Dec. 5, 2019, and has the title “Google Management Shuffle Points to Retreat From Alphabet Experiment.” The online version says that the title of the print edition was “Alphabet Backs Off On Experimentation.” My copy of the print edition had the title “Alphabet Backs Off the ‘Crazy,’ Turns to Reliable Model.”)

Bicycles Gave Women “Freedom and Self-Reliance”

(p. B8) The decade before the 20th century began saw an explosion in bicycle sales and cycling in general. The so-called “safety bicycle,” with wheels of equal size and a chain mechanism that allowed pedaling to drive the back wheel, along with the arrival of the pneumatic tire, had transformed cycling from an acrobatic and somewhat perilous enterprise into a pleasurable, less hazardous and even utilitarian recreation. Bicycles were mass produced as men increasingly used them to commute to work.

Especially significant was that women, for the first time, took to the activity, relishing the freedom it gave them from the restrictions of a homebound existence. Corsets and billowy skirts even gave way to bloomers so that women could ride comfortably. The bicycle was very much a part of the early women’s movement.

“Let me tell you what I think of bicycling,” the suffragist Susan B. Anthony said in an 1896 interview in The New York World with the pioneering journalist Nellie Bly. “I think it has done more to emancipate women than anything else in the world. I stand and rejoice every time I see a woman ride by on a wheel. It gives woman a feeling of freedom and self-reliance. It makes her feel as if she were independent. The moment she takes her seat she knows she can’t get into harm unless she gets off her bicycle, and away she goes, the picture of free, untrammeled womanhood.”

If ever there was an avatar of these combined social trends, “of free, untrammeled womanhood,” it was Annie Cohen Kopchovsky, a Latvian immigrant who in June 1894, at about age 23, cycled away from her Boston home, leaving a husband and three small children, for a journey around the world.

. . .

Kopchovsky’s celebrity, though it lingered through the completion of her trip, was short-lived, and her adventure would probably have remained obscure were it not for Peter Zheutlin, a journalist and cycling hobbyist who, decades after her death, became intrigued by what little he knew of Kopchovsky, his great-grandfather’s sister. For his book “Around the World on Two Wheels: Annie Londonderry’s Extraordinary Ride” (2007), he scoured newspaper archives from around the world, dug up family relics and plumbed the memory of Kopchovsky’s only survivor, a granddaughter.

For the full obituary, see:

Bruce Weber. “Annie Londonderry.” The New York Times (Monday, November 11, 2019): B8.

(Note: ellipsis added.)

(Note: the online version of the obituary has the date Nov. 6, 2019, and has the title “Overlooked No More: Annie Londonderry, Who Traveled the World by Bicycle.”)

The book mentioned above, is:

Zheutlin, Peter. Around the World on Two Wheels: Annie Londonderry’s Extraordinary Ride. New York: Citadel Press Books, 2007.

Theil Venture Capital Firm Will Invest More in Later Stage Startups

(p. B1) Peter Thiel’s venture-capital firm is raising nearly $3 billion—and in a switch from the company’s usual script, much of the war chest will be poured into the swelling ranks of technology startups that have stayed private for years.

. . .

The venture firm, co-founded by Mr. Thiel, typically backs early-stage companies. But with its biggest winners, like Airbnb Inc., staying private longer than startups of an earlier generation, Founders needs to be able to make larger investments at later stages of a company’s lifetime to maintain comparable stakes and a say in company operations, some of the people said.

. . .

Founders Fund has told potential investors that older companies that stay private longer can prove to be more stable, if less lucrative, investments than moonshot startup bets, according to the people familiar with the matter.

. . .

Founders has produced investment returns well-above the industry average, The Wall Street Journal reported earlier this year. Its earliest funds, from 2005 and 2007, grew sixfold and more than eightfold, respectively, by the third quarter of last year.

For the full story, see:

Rob Copeland and Katie Roof. “Thiel Fund Builds War Chest in Strategy Shift.” The Wall Street Journal (Tuesday, October 22, 2019): B1.

(Note: ellipses added.)

(Note: the online version of the story has the date Oct. 21, 2019, and has the title “Peter Thiel’s Founders Fund Builds New War Chest in Strategy Shift.” In the third passage quoted above, the quote follows the print version instead of the slightly different online version.)

Tesla’s Process Innovation May Be Low-Defect, Fast-Assembly

(p. A13) Tesla became a darling of government handouts, with tax credits and public funding galore. It quickly grew into a sales phenom with high prices but low volume. Then, this year, its production numbers started to match those of the other major manufacturers. How Mr. Musk achieved this—and whether he should be considered a visionary or a charlatan—is the subject of “Ludicrous: The Unvarnished Story of Tesla Motors,” by the automotive journalist Edward Niedermeyer.

. . .

The book hits its stride when the author details Mr. Musk’s attempts to revolutionize the way cars are built. DeLorean and others faltered due to their inability to roll out large numbers of vehicles at a decent level of quality. Likewise the assembly line has been Tesla’s biggest obstacle. For a generation, automakers have cleaved to Toyota’s system of production, which emphasizes reducing waste and defects, slowing down the assembly line to achieve these goals. Mr. Musk, in contrast, feels Teslas should be assembled with a fast-moving line, deploying robots where other carmakers have employed workers.

Many observers bet that fast assembly won’t work. But this year Tesla delivered an impressive 158,000 cars to customers in the first two quarters, about the same number of Lexus models sold in the U.S. during that same period. Low-defect assembly was the major innovation of the automotive industry a generation ago; fast-line assembly may be the next. If Tesla’s fast-produced vehicles turn out to be reliable, Mr. Musk will deserve plaudits.

. . .

The portrait of Elon Musk that emerges from this book is one of a social-media obsessive who is constantly overpromising, playing the role of the self-sufficient business person while relying on government favors. Still, Tesla facilities produce lots of actual cars, which is more than what most other one-man marques have achieved. The accomplishment may not be as grand as Mr. Musk would like us to believe: He couldn’t have built his cars without subsidies from taxpayers who cannot afford Teslas and were given no choice in funding playthings for the rich. But his is an achievement, nonetheless.

For the full review, see:

Gregg Easterbrook. “BOOKSHELF; A Revolutionary Old Product.” The Wall Street Journal (Wednesday, Aug. 28, 2019): A13.

(Note: ellipses added.)

(Note: the online version of the review has the date Aug. 27, 2019, and has the title ” BOOKSHELF; ‘Ludicrous’ Review: A Revolutionary Old Product.”)

The book under review is:

Niedermeyer, Edward. Ludicrous: The Unvarnished Story of Tesla Motors. Dallas, TX: BenBella Books, Inc., 2019.

Regenerative Farming Practices “Could Soak Up Half to 100% of All the Carbon Dioxide Emitted”

(p. A2) AINSWORTH, Iowa—What if there was a way to combat climate change that didn’t require technological breakthroughs, carbon taxes or eliminating all fossil fuels?

Such a solution might lie here in an Iowa cornfield beneath the feet of Mitchell Hora, a seventh-generation farmer. Mr. Hora experiments with “regenerative growing practices” that improve soil health, boost yields, reduce water and fertilizer use, and carry a significant collateral benefit: they sequester in the soil carbon released from burning fossil fuels.

Mr. Hora could soon be rewarded for providing this social benefit. Indigo Ag Inc., a Boston-based company specializing in agricultural technology and management, is setting up a market for carbon credits. Companies and consumers with voluntary or compulsory commitments to reduce their carbon footprint can, rather than reduce emissions themselves, pay farmers to do it for them. Via the Indigo Carbon marketplace, they can pay farmers like Mr. Hora $15 to sequester one metric ton of carbon dioxide in the soil.

. . .

David Perry, Indigo’s chief executive, is almost messianic about the potential: “We could soak up half to 100% of all the carbon dioxide emitted since the industrial revolution,” or roughly one trillion tons.

The Rodale Institute, a think tank that promotes organic agriculture and has partnered with Indigo, cites trials that suggest through regenerative growing practices, an acre of agricultural land can sequester one to 2.6 tons of carbon dioxide a year. Extrapolating to the world, that equals the about 37 billion metric tons of carbon dioxide released globally through fossil fuel use each year.

For the full commentary, see:

Greg Ip. “CAPITAL ACCOUNT; Carbon Emissions Get a Fix on the Farm.” The Wall Street Journal (Saturday, Sept. 12, 2019): A2.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Sept. 11, 2019, and has the title “CAPITAL ACCOUNT; How to Get Rid of Carbon Emissions: Pay Farmers to Bury Them.”)

Netflix Flourished by “Unplanned” Leaps

(p. A17) Starting a business is tough enough. Why would any sane person choose to start a business in a dying industry?

One answer to that question can be found in “That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea,” a charming first-person account of the early days of one of the most successful tech startups ever.

. . .

Most of Netflix’s early business came from sales of DVDs, not rentals. The struggling company even considered selling to Amazon in 1998, but passed on the offer.

In desperation, Netflix tested monthly subscriptions. To its surprise, customers eagerly forked over their credit-card details. The little company turned on a dime, dropping sales and one-off rentals almost immediately. “If you had asked me on launch day to describe what Netflix would eventually look like, I never would have come up with a monthly subscription service,” Mr. Randolph claims. Netflix’s innovation with a subscription model would point many other internet-based companies to a reliable source of revenue.

Another unplanned leap soon followed: a predictive algorithm that offered to each user individualized recommendations based on reviews by customers with similar preferences. This feature helped hook customers, but it had a less obvious benefit for Netflix: By directing the user to a less popular film that happened to be in Netflix’s inventory, it allowed the company to buy fewer of the most popular DVDs. Yet profits were elusive. Video-store giant Blockbuster, unconvinced about the online business model, turned down a chance to buy the company in 2000, and the dot-com meltdown short-circuited a public offering. In September 2001, Netflix had its first layoffs, cutting costs and steadying the ship.

Mr. Randolph himself left in 2003, not long after Netflix finally went public. By then, he says, he had figured out that he loved starting companies, not running them. “I missed the late nights and early mornings, the lawn chairs and card tables. I missed the feeling of all hands on deck, and the expectation that every day you’d be working on a problem that wasn’t strictly tied to your job description,” he writes. The chaos of a startup enthralls him. A company with hundreds of employees and the demands of quarterly reports to investors is not his thing.

For the full review, see:

Marc Levinson. “BOOKSHELF; Streaming Ahead.” The Wall Street Journal (Monday, Sept. 23, 2019): A17.

(Note: ellipsis added.)

(Note: the online version of the review has the date Sept. 22, 2019, and has the title “BOOKSHELF; ‘That Will Never Work’ Review: Streaming Ahead.”)

The book under review is:

Randolph, Marc. That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea. New York: Little, Brown and Company, 2019.

STEM Skills Are Quickly Obsolete

(p. B8) In a recent working paper with a Harvard doctoral student, Kadeem Noray, I calculated how much the skills required for different jobs changed over time. Help-wanted ads for jobs like software developer and engineer were more likely to ask for skills that didn’t exist a decade earlier. And the jobs of 10 years ago often required skills that have since become obsolete. Skill turnover was much higher in STEM fields than in other occupations.

We can also see this by looking at changes in college course catalogs. One of the largest and most popular courses in the Stanford computer science department is CS229 — Machine Learning, taught by the artificial intelligence expert and entrepreneur Andrew Ng. This course did not exist in its current form until 2003, when Professor Ng taught it for the first time with 68 students, and very little like it existed anywhere on college campuses 15 years ago. Today, the machine learning courses at Stanford enroll more than a thousand students.

. . .

Liberal arts advocates often argue that education should emphasize the development of the whole person, and that it is much broader than just job training. As an educator myself, I agree wholeheartedly.

But even on narrow vocational grounds, a liberal arts education has enormous value because it builds a set of foundational capacities that will serve students well in a rapidly changing job market.

For the full commentary, see:

David Deming. “Engineers Start Fast, but Poets Can Catch Up.” The New York Times, SundayBusiness Section (Sunday, September 22, 2019): B8.

(Note: ellipsis added.)

(Note: the online version of the commentary was last updated on Oct. [sic] 1, 2019, and has the title “In the Salary Race, Engineers Sprint but English Majors Endure.”)

The working paper referred to above, is:

Deming, David J., and Kadeem L. Noray. “Stem Careers and Technological Change.” National Bureau of Economic Research, Inc, NBER Working Paper # 25065, June 2019.

“No One Has the Stomach to Challenge the Status Quo”

(p. B14) Before precision-scheduled railroading, or PSR, locomotives had been run the same way for more than a century. Trains waited for cargo at the rail yard, then left when customers brought their shipments and loaded them up. It was an unreliable business with plenty of inefficiencies. But that started to change early this decade, when Mr. Harrison teamed up with William Ackman’s Pershing Square Capital to take control at Canadian Pacific Railway.

“No one has the stomach to challenge the status quo,” Mr. Harrison, who started his railroad career as a 19-year-old laborer in 1963, said several years ago.

Rather than leave the departure times up to clients such as factories, farms and mines, Mr. Harrison demanded they be ready or miss their trips, much like airline passengers. This didn’t win many friends among clients, but after successfully implementing the model in Canada, Mr. Harrison moved on to take the helm of Jacksonville, Fla.-based CSX in 2017. Tragically, his tenure this time was short-lived. Mr. Harrison died just a short time after joining the company.

For the full story, see:

Lauren Silva Laughlin. “Late Railroad Guru’s Legacy Is Losing Steam.” The Wall Street Journal (Saturday, Aug. 24, 2019): B14.

(Note: the online version of the story has the date Aug. 23, 2019, and has the title “Hunter Harrison’s Train Overhaul Starts Running Out of Steam.”)

Amazon Has 30,000 Open Permanent Jobs, and Half “Are Tech Oriented”

(p. A1) SEATTLE — Engineers in the Bay Area. Advertising managers in Chicago. Freight specialists in Arizona. The job listings keep piling up at Amazon, a company that is growing in many directions amid one of the tightest labor markets in memory.

On Monday [Sept. 9, 2019], Amazon said it had 30,000 open positions in the United States, including full- and part-time jobs at headquarters offices, technology hubs and warehouses.

Although the company has positions to fill across the country, Amazon’s job boards list many more openings in the Seattle area and California and by its new campus near Washington, D.C., than it does anywhere else.

The vacancies, which Amazon said it hoped to fill by early next year, are permanent jobs and do not include seasonal positions for the warehouse workers and drivers that the company typically hires to handle the spike in orders it gets around Christmas. More than half the jobs are tech oriented, and roughly a quarter are for warehouse work, the company said.

For the full story, see:

Karen Weise. “Amazon’s Work Force Has 30,000-Job Hole.” The New York Times (Tuesday, September 10, 2019): B3.

(Note: bracketed date added.)

(Note: the online version of the story has the date September 9, 2019, and has the title “Amazon Has 30,000 Open Jobs. Yes, You Read That Right.”)