Some Fear Google’s Power in Digital Books
By NOAM COHEN
IN 2002, Google began to drink the milkshakes of the book world.
Back then, according to the company’s official history, it began a “secret ‘books’ project.” Today, that project is known as Google Book Search and, aided by a recent class-action settlement, it promises to transform the way information is collected: who controls the most books; who gets access to those books; how access will be sold and attained. There will be blood, in other words.
Like the oil barons in the late 19th century, Google is thirsty for a vital raw material — digital content. As Daniel J. Clancy, the engineering director for Google Book Search, put it, “our core business is about search and discovery, and search and discovery improves with more content.”
He can even sound like a prospector when he says Google began its effort to scan millions of books “because there is a ridiculous amount of information out there,” he said, later adding, “and we didn’t see anyone else doing it.”
But there is a crucial difference. Unlike Daniel Plainview, the antihero of “There Will Be Blood,” played by Daniel Day-Lewis, who cackles when describing how his rigs can suck the oil underneath other peoples’ property — drink their milkshakes, if you will — when Google copies a book the original remains.
Instead, the “property” being taken is represented by copyrights and other kinds of ownership. There will be lawsuits.
•
In the latest issue of The New York Review of Books, Robert Darnton, the head of the Harvard library system, writes about the Google class-action agreement with the passion of a Progressive Era muckraker.
“Google will enjoy what can only be called a monopoly — a monopoly of a new kind, not of railroads or steel but of access to information,” Mr. Darnton writes. “Google has no serious competitors.”
He adds, “Google alone has the wealth to digitize on a massive scale. And having settled with the authors and publishers, it can exploit its financial power from within a protective legal barrier; for the class action suit covers the entire class of authors and publishers.”
Google is certainly solidifying a dominant position in the world of books by digitizing the great collections of the world. It relies on a basic mathematical principle: no matter how many volumes Harvard or Oxford may have, each can’t have more than Oxford plus Harvard plus Michigan, and so on.
The class-action settlement (which a judge must still approve), Mr. Darnton writes, “will give Google control over the digitizing of virtually all books covered by copyright in the United States.”
As long as Google has a set of millions of books that it uniquely can offer to the public, he argues, it has a monopoly it can exploit. You want that 1953 treatise on German state planning? You’ll have to pay. Or, more seriously, your library wants unfettered access to these millions of books? You’ll have to subscribe.
While Harvard has allowed Google to digitize its public domain holdings, it has thus far not agreed to the settlement. “Contrary to many reports, Harvard has not rejected the settlement,” Mr. Darnton wrote in an e-mail message, in which he said his essay was “not meant as an attack on Google.” “It is studying the situation as the proposed accord makes its way through the court.”
To professors who track the fast-changing nature of content on the Internet, not to mention Google officials, the idea of Google as a robber baron is fanciful. Google has no interest in controlling content, Mr. Clancy said, and in the few cases where it does create its own content — maps or financial information, for instance — it tries to make it available free.
Eben Moglen, a law professor at Columbia and a free-culture advocate, puts it this way: if the fight over digitization of books is like horse-and-buggy makers against car manufacturers, Google wants to be the road.
To those who write about the significance of Google Book Search — and a bit of a cottage industry has formed online in a few months — it is not Google’s role as the owner of content that preoccupies them. Rather it is the digitization itself: the centralization — and homogenization — of information.
To Thomas Augst, an English professor at New York University who has studied the history of libraries, including those in the past that were run as businesses, what is significant is that the digitization of books is ending the distinction between circulating libraries, meant for public readers, and research libraries, meant for scholars. It’s not as if anyone from the public can walk into the Harvard library.
“A positive way to look at what Google is doing,” he said, “is that it is advancing the circulating of books and leveling these distinctions.”
•
In a final twist, however, the digital-rights class-action agreement has the potential to make physical libraries newly relevant. Each public library will have one computer with complete access to Google Book Search, a service that normally would come as part of a paid subscription.
One of Mr. Darnton’s concerns is that a single computer may not be enough to meet public demand. But Mr. Augst already can see a great benefit.
Google is “creating a new reason to go to public libraries, which I think is fantastic,” he said. “Public libraries have a communal function, a symbolic function that can only happen if people are there.”
Monday, February 2, 2009
Thursday, January 29, 2009
How Netflix got started
Netflix founder and CEO Reed Hastings tells Fortune how he got the idea for the DVD-by-mail service that now has more than eight million customers.
(Fortune Magazine) -- The genesis of Netflix came in 1997 when I got this late fee, about $40, for Apollo 13. I remember the fee because I was embarrassed about it. That was back in the VHS days, and it got me thinking that there's a big market out there.
So I started to investigate the idea of how to create a movie-rental business by mail. I didn't know about DVDs, and then a friend of mine told me they were coming. I ran out to Tower Records in Santa Cruz, Calif., and mailed CDs to myself, just a disc in an envelope. It was a long 24 hours until the mail arrived back at my house, and I ripped them open and they were all in great shape. That was the big excitement point.
Don't be afraid to change the model
Early on, the first concept we launched was rental by mail, but it wasn't subscription based, so it worked more like Blockbuster. Some people liked it, but it wasn't very popular. I remember thinking, God, this whole thing could go down, and we said, Let's try the more radical subscription idea. We knew it wouldn't be terrible, but we didn't know if it would be great. We launched the service on Sept. 23, 1999, and we could tell within a month that we had a renewal rate. It was a free trial, but only 20% didn't go from the free trial to the paid. We're up to 90% renewal now.
You know it's working when...
I was down in Arizona in 2003 visiting one of our distribution centers on the outskirts of Phoenix. It was raining, and my umbrella wasn't working, so I walked the half mile from the distribution center to the hotel. I got the message on my BlackBerry that we hit a million [subscribers] that day while I was walking in the rain. It was this beautiful moment where I was just so elated that we were going to make it, and that was also the first quarter that we turned profitable. It was a magic walk.
In my queue
I've seen well over 1,000 movies. The one I remember most was Sophie's Choice, because I was taking European history in college at the time, and I was totally bored with the topic. And then I saw the movie, and I started to care. It changed my perspective. I could relate to the trauma after seeing the movie in a way that I couldn't by studying it.
Secrets of my success
* Target a specific niche: When there's an ache, you want to be like aspirin, not vitamins. Aspirin solves a very particular problem someone has, whereas vitamins are a general "nice to have" market. [The Netflix idea] was certainly aspirin.
* Stay flexible: We named the company Netflix (NFLX), not DVDs by Mail because we knew that eventually we would deliver movies directly over the Internet. DVDs will be around a long time, but we're building for the day when they're not.
* Never underestimate the competition: We erroneously concluded that Blockbuster (BBI, Fortune 500) probably wasn't going to launch a competitive effort when they hadn't by 2003. Then, in 2004, they did. We thought, Well, they won't put much money behind it. Over the past four years they've invested more than $500 million against us.
* There are no shortcuts: Occasionally great wealth is created in a short amount of time, but it's through a lot of luck in those situations. You just have to think of building an organization as a lot of work. It may or may not turn into great wealth.
(Fortune Magazine) -- The genesis of Netflix came in 1997 when I got this late fee, about $40, for Apollo 13. I remember the fee because I was embarrassed about it. That was back in the VHS days, and it got me thinking that there's a big market out there.
So I started to investigate the idea of how to create a movie-rental business by mail. I didn't know about DVDs, and then a friend of mine told me they were coming. I ran out to Tower Records in Santa Cruz, Calif., and mailed CDs to myself, just a disc in an envelope. It was a long 24 hours until the mail arrived back at my house, and I ripped them open and they were all in great shape. That was the big excitement point.
Don't be afraid to change the model
Early on, the first concept we launched was rental by mail, but it wasn't subscription based, so it worked more like Blockbuster. Some people liked it, but it wasn't very popular. I remember thinking, God, this whole thing could go down, and we said, Let's try the more radical subscription idea. We knew it wouldn't be terrible, but we didn't know if it would be great. We launched the service on Sept. 23, 1999, and we could tell within a month that we had a renewal rate. It was a free trial, but only 20% didn't go from the free trial to the paid. We're up to 90% renewal now.
You know it's working when...
I was down in Arizona in 2003 visiting one of our distribution centers on the outskirts of Phoenix. It was raining, and my umbrella wasn't working, so I walked the half mile from the distribution center to the hotel. I got the message on my BlackBerry that we hit a million [subscribers] that day while I was walking in the rain. It was this beautiful moment where I was just so elated that we were going to make it, and that was also the first quarter that we turned profitable. It was a magic walk.
In my queue
I've seen well over 1,000 movies. The one I remember most was Sophie's Choice, because I was taking European history in college at the time, and I was totally bored with the topic. And then I saw the movie, and I started to care. It changed my perspective. I could relate to the trauma after seeing the movie in a way that I couldn't by studying it.
Secrets of my success
* Target a specific niche: When there's an ache, you want to be like aspirin, not vitamins. Aspirin solves a very particular problem someone has, whereas vitamins are a general "nice to have" market. [The Netflix idea] was certainly aspirin.
* Stay flexible: We named the company Netflix (NFLX), not DVDs by Mail because we knew that eventually we would deliver movies directly over the Internet. DVDs will be around a long time, but we're building for the day when they're not.
* Never underestimate the competition: We erroneously concluded that Blockbuster (BBI, Fortune 500) probably wasn't going to launch a competitive effort when they hadn't by 2003. Then, in 2004, they did. We thought, Well, they won't put much money behind it. Over the past four years they've invested more than $500 million against us.
* There are no shortcuts: Occasionally great wealth is created in a short amount of time, but it's through a lot of luck in those situations. You just have to think of building an organization as a lot of work. It may or may not turn into great wealth.
Sunday, October 5, 2008
Monday, August 25, 2008
Wednesday, July 2, 2008
Buffett's Berkshire Has Worst First Half Since 1990
By Josh P. Hamilton
July 2 (Bloomberg) -- It must be a bear market because even billionaire Warren Buffett's Berkshire Hathaway Inc. has slumped almost 20 percent since December.
The decline exceeds the drop of the Standard & Poor's 500 Index and marks the worst first half for the Omaha, Nebraska- based investment and holding company since 1990. Price competition has driven down revenue at Berkshire's insurance units, which account for about half of its income.
Berkshire is ``close to getting more fairly priced,'' said Charles Hamilton, a Nashville, Tennessee-based analyst at FTN Midwest Securities Corp., who has a ``neutral'' rating on Berkshire. ``I wouldn't say it presents a buying opportunity right now.''
After reporting record 2007 earnings of $13.2 billion, the 77-year-old Buffett told shareholders in February that profit margins from insurance will drop.
``That party is over,'' Buffett wrote in his annual letter to shareholders in February. ``It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008.''
Berkshire also has been hurt by the declines of Wells Fargo & Co., American Express Co. and U.S. Bancorp, three of the company's 10 biggest equity holdings at the end of March. Wells Fargo, Berkshire's second-largest holding, dropped 18 percent in the second quarter, while American Express and U.S. Bancorp slipped 14 percent.
Buffett Bulls
Berkshire declined $250 to $119,850 at 9:58 a.m. in New York Stock Exchange composite trading, and is down more than 19 percent since its all-time closing high of $149,200 on Dec. 10. That exceeds the 15 percent slide of the S&P 500 in the same period. Berkshire spokeswoman Jackie Wilson didn't respond to a request for comment.
The slide hasn't deterred Buffett devotees, who think Berkshire's decline represents a buying opportunity.
``I'd put a new client in Berkshire right now,'' said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which oversees $800 million, including Berkshire shares. ``It's probably the highest-quality collection of individual companies that's ever been assembled. Long slides are not in the Berkshire Hathaway lexicon.''
Berkshire bulls are betting with history on their side: the shares advanced in 17 of the past 20 years. The last annual decline was 3.8 percent in 2002. The company had record earnings last year as Buffett booked a $3.5 billion profit on a $500 million investment in oil producer PetroChina Co., and insurance units made money selling coverage against storms that never came.
`Chaotic Markets'
The decline in financial shares may provide Buffett an opportunity to boost holdings, said Whitney Tilson, a principal at New York-based hedge fund T2 Partners, which counts Berkshire among its investments.
``Where Buffett makes his money is taking advantage of weak, chaotic markets,'' Tilson said. ``The odds that Buffett could do a large transformative deal have gone up substantially.''
Buffett built Berkshire over four decades from a failing maker of men's suit linings into a $185 billion company. He plows revenue into companies whose management he trusts and whose business models he deems superior. The billionaire's Berkshire stake makes him the world's richest person, according to Forbes magazine.
With Berkshire's $35 billion in cash, Buffett can scoop up bargains on beaten-down securities and make acquisitions while near-frozen credit markets curb purchases by leveraged buyout firms, Tilson said.
Bond Insurance
Buffett entered the bond insurance business in December as the largest companies in the industry, MBIA Inc. and Ambac Financial Group Inc., struggled to maintain their credit ratings. CIT Group Inc., the lender that lost 84 percent of its market value in 12 months, said yesterday that a Berkshire subsidiary agreed to pay $300 million for its portfolio of loans backing factory-built homes.
Tilson calculates the so-called intrinsic value of Berkshire's assets and operations at $157,000 a share. The stock reached intrinsic value in 11 of the past 12 years, Tilson said. The discount was about 24 percent at yesterday's close.
This year's gap emerged amid a drop in commercial property rates from their peaks after Hurricane Katrina in 2005. Property and casualty prices in the U.S. fell 14 percent in the first quarter from the same period a year earlier, according to a survey by the Council of Insurance Agents and Brokers.
Housing Slump
Berkshire, which owns National Indemnity, General Re Corp. and Geico Corp., saw first-quarter earnings from underwriting insurance policies fall 70 percent to $181 million. Pretax underwriting profit at Berkshire Hathaway Reinsurance Group, which sells catastrophe coverage, dropped 95 percent.
Also damaging to Berkshire's earnings is the biggest housing slump since the Great Depression, which slowed the company's building-related businesses, including Acme Brick, wallboard maker Johns Manville and Shaw Industries, the world's largest carpet manufacturer.
Buffett says the U.S. is mired in ``stagflation,'' a period of slowing economic growth and accelerating inflation.
``We're right in the middle of it,'' Buffett said in a June 25 interview. ``I think the `flation' part will heat up, and I think the `stag' part will get worse.''
An economic recovery isn't ``going to be tomorrow, it's not going to be next month, and may not even be next year,'' he said.
Tilson and Carret Zane's Betz say they'll wait. Berkshire gained 26-fold since 1988 in NYSE trading -- a return more than three times greater than the S&P 500.
``I sleep well,'' Tilson said. ``It's not going to double overnight, but we think it will in five years, which is a 15 percent compounded annual rate. It's the stock you want to own.''
July 2 (Bloomberg) -- It must be a bear market because even billionaire Warren Buffett's Berkshire Hathaway Inc. has slumped almost 20 percent since December.
The decline exceeds the drop of the Standard & Poor's 500 Index and marks the worst first half for the Omaha, Nebraska- based investment and holding company since 1990. Price competition has driven down revenue at Berkshire's insurance units, which account for about half of its income.
Berkshire is ``close to getting more fairly priced,'' said Charles Hamilton, a Nashville, Tennessee-based analyst at FTN Midwest Securities Corp., who has a ``neutral'' rating on Berkshire. ``I wouldn't say it presents a buying opportunity right now.''
After reporting record 2007 earnings of $13.2 billion, the 77-year-old Buffett told shareholders in February that profit margins from insurance will drop.
``That party is over,'' Buffett wrote in his annual letter to shareholders in February. ``It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008.''
Berkshire also has been hurt by the declines of Wells Fargo & Co., American Express Co. and U.S. Bancorp, three of the company's 10 biggest equity holdings at the end of March. Wells Fargo, Berkshire's second-largest holding, dropped 18 percent in the second quarter, while American Express and U.S. Bancorp slipped 14 percent.
Buffett Bulls
Berkshire declined $250 to $119,850 at 9:58 a.m. in New York Stock Exchange composite trading, and is down more than 19 percent since its all-time closing high of $149,200 on Dec. 10. That exceeds the 15 percent slide of the S&P 500 in the same period. Berkshire spokeswoman Jackie Wilson didn't respond to a request for comment.
The slide hasn't deterred Buffett devotees, who think Berkshire's decline represents a buying opportunity.
``I'd put a new client in Berkshire right now,'' said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which oversees $800 million, including Berkshire shares. ``It's probably the highest-quality collection of individual companies that's ever been assembled. Long slides are not in the Berkshire Hathaway lexicon.''
Berkshire bulls are betting with history on their side: the shares advanced in 17 of the past 20 years. The last annual decline was 3.8 percent in 2002. The company had record earnings last year as Buffett booked a $3.5 billion profit on a $500 million investment in oil producer PetroChina Co., and insurance units made money selling coverage against storms that never came.
`Chaotic Markets'
The decline in financial shares may provide Buffett an opportunity to boost holdings, said Whitney Tilson, a principal at New York-based hedge fund T2 Partners, which counts Berkshire among its investments.
``Where Buffett makes his money is taking advantage of weak, chaotic markets,'' Tilson said. ``The odds that Buffett could do a large transformative deal have gone up substantially.''
Buffett built Berkshire over four decades from a failing maker of men's suit linings into a $185 billion company. He plows revenue into companies whose management he trusts and whose business models he deems superior. The billionaire's Berkshire stake makes him the world's richest person, according to Forbes magazine.
With Berkshire's $35 billion in cash, Buffett can scoop up bargains on beaten-down securities and make acquisitions while near-frozen credit markets curb purchases by leveraged buyout firms, Tilson said.
Bond Insurance
Buffett entered the bond insurance business in December as the largest companies in the industry, MBIA Inc. and Ambac Financial Group Inc., struggled to maintain their credit ratings. CIT Group Inc., the lender that lost 84 percent of its market value in 12 months, said yesterday that a Berkshire subsidiary agreed to pay $300 million for its portfolio of loans backing factory-built homes.
Tilson calculates the so-called intrinsic value of Berkshire's assets and operations at $157,000 a share. The stock reached intrinsic value in 11 of the past 12 years, Tilson said. The discount was about 24 percent at yesterday's close.
This year's gap emerged amid a drop in commercial property rates from their peaks after Hurricane Katrina in 2005. Property and casualty prices in the U.S. fell 14 percent in the first quarter from the same period a year earlier, according to a survey by the Council of Insurance Agents and Brokers.
Housing Slump
Berkshire, which owns National Indemnity, General Re Corp. and Geico Corp., saw first-quarter earnings from underwriting insurance policies fall 70 percent to $181 million. Pretax underwriting profit at Berkshire Hathaway Reinsurance Group, which sells catastrophe coverage, dropped 95 percent.
Also damaging to Berkshire's earnings is the biggest housing slump since the Great Depression, which slowed the company's building-related businesses, including Acme Brick, wallboard maker Johns Manville and Shaw Industries, the world's largest carpet manufacturer.
Buffett says the U.S. is mired in ``stagflation,'' a period of slowing economic growth and accelerating inflation.
``We're right in the middle of it,'' Buffett said in a June 25 interview. ``I think the `flation' part will heat up, and I think the `stag' part will get worse.''
An economic recovery isn't ``going to be tomorrow, it's not going to be next month, and may not even be next year,'' he said.
Tilson and Carret Zane's Betz say they'll wait. Berkshire gained 26-fold since 1988 in NYSE trading -- a return more than three times greater than the S&P 500.
``I sleep well,'' Tilson said. ``It's not going to double overnight, but we think it will in five years, which is a 15 percent compounded annual rate. It's the stock you want to own.''
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