IBM has built South Korea's first cloud computing environment for SK Telecom. The cloud environment gives developers the software and hardware needed to develop applications that will allow SK Telecom to offer up to 20 new services to their customers by the end of 2009, such as sports news feeds and a photo service.
The IBM-built cloud environment will allow SK Telecom and its business partners to more quickly develop, test and publish new end-user services. The new cloud environment delivers the following business and technology benefits: all the servers, storage and middleware required for application development on a secure, stable environment; low up front costs and reduced investment risks of mobile content developers; and faster time to market and decreased barriers to entry of new services.
"Our efforts to develop services with IBM and other partners reflect the latest trends in Web 2.0, which will ultimately enhance our customers' experience," said Jong-tae Ihm, senior VP and head of SK Telecom's data network office. "Together with venture capital firms our aim is to create new business opportunities by rapidly commercializing the ideas of content developers, further advancing the development of the information and communication technology industry."
SK Telecom also operates an R&D test bed for developing and testing cloud computing technologies. By the end of 2009 the SK Telecom plans to accommodate more than 20 services for NATE, SK Telecom's WAP portal and in the coming years says it hopes to extend its entire IT infrastructure to the cloud model. This will in turn enhance the competitiveness of the cloud industry and foster business partnerships and cooperation.
"With this new environment SK Telecom will lead in innovation by offering IT infrastructure for software developers through a Platform-as-a-Service model," said Kang-yoon Lee, head of IBM's Cloud Computing Center in Korea. "We believe this project will be a model example in how enterprises in Korea and worldwide can leverage the cloud environment to support business requirements in continual change."
For this project IBM Korea worked jointly with SK Telecom to develop the entire cloud environment—from concept planning to hardware and software selection and implementation. The cloud includes 80 systems, comprised of both System x and blade servers, Xen virtualization technology and IBM middleware and service management technology. Service management is a key to any successful enterprise cloud computing project as it orchestrates hundreds—even thousands—of services in a workload-optimized fashion, maximizing efficiency of the overall system. SK Telecom is using IBM's Tivoli Service Automation Manager to enable software to be leased and installed seamlessly, and virtual machines provisioned accordingly. In planning the cloud architecture, SK Telecom also used implementation services and operation process consulting from IBM Global Technology Services through to implementation services and operation process consulting.
Sunday, January 3, 2010
Thursday, December 31, 2009
Monday, December 28, 2009
How Galleon's Boss Spun a Web of Contacts Into an Empire
The Man Who Wired Silicon Valley
Fund Boss Built Empire on Charm, Smarts and Information
By ROBERT A. GUTH and JUSTIN SCHECK
[The case against fund king Raj Rajaratnam hinges on whether he knowingly traded on inside information.] Bloomberg News
The case against fund king Raj Rajaratnam hinges on whether he knowingly traded on inside information.
Raj Rajaratnam liked to tell people that his first name meant "king" in Hindi, and, coupled with his last name, that made him "king of kings."
He told the story with the broad, toothy smile that had ingratiated him to a generation of Silicon Valley executives. The grin softened the edge of a boss who'd call you an "idiot" or prod you into some humiliating stunt: Would you take $5,000 to be shocked with a stun gun?
In a mansion on a manmade island in Biscayne Bay in February 2007, Mr. Rajaratnam seemed determined to live up to his regal description of his name. It was Super Bowl weekend, and America's rich and powerful had descended on South Florida to watch the Indianapolis Colts play the Chicago Bears. Mostly they were there to do business. Mr. Rajaratnam's business was running a hedge fund, Galleon Group, that had made him a billionaire. And that business was based on contacts.
[The Rise of Raj]
Wealthy investors and executives swirled around the rented home -- $250,000 for the week -- on exclusive Star Island. Miami Beach twinkled in the darkness as they drank, smoked cigars and hobnobbed with beautiful women -- rent-a-dates, one Galleon employee called them -- around a swimming pool that seemed to disappear into the horizon.
But a fall was already brewing. Federal agents were circling Mr. Rajaratnam, starting to build the biggest insider-trading case in a generation. Prosecutors and securities regulators worked for the next 32 months before springing a sprawling indictment in October that charged Mr. Rajaratnam and 20 others with profiting off market-moving, inside information.
Mr. Rajaratnam has pleaded not guilty, and is free on bail.
"Throughout his career Mr. Rajaratnam has worked tirelessly as permitted by the securities laws to build a mosaic of public information about the companies he follows," his attorney, John Dowd, said. "His detailed, meticulous research into company fundamentals distinguished him as an exceptional analyst and portfolio manager. Mr. Rajaratnam is innocent of the charges against him and looks forward to his day in court when a jury of his fellow citizens will examine and evaluate all of the evidence."
Wednesday:
How federal prosecutors assembled the biggest insider-trading case in a generation.
A Wall Street Journal examination of Mr. Rajaratnam's career -- including interviews with more than 75 ex-business associates and a review of copies of Mr. Rajaratnam's own handwritten notes -- gives the clearest picture yet of how, for two decades, he persuaded executives at some of America's most prominent companies to risk their careers by passing corporate secrets.
The Galleon investigation has already touched McKinsey & Co., International Business Machines Corp., Intel Corp. and Advanced Micro Devices Inc. in connection with the leaking of confidential information that Mr. Rajaratnam allegedly traded on.
Mr. Rajaratnam got his start as an analyst just as the moribund semiconductor industry started to boom. Charming and puckish, he made contacts in Silicon Valley's Indian expatriate community, using them to meet other executives. By the early 1990s, tech industry executives and Mr. Rajaratnam's co-workers say he made himself the hub of dozens of sources funneling him supposedly confidential corporate information. In exchange, Mr. Rajaratnam would often pass them tips he'd heard.
The question of his guilt or innocence will turn on whether in this relentless cultivation of contacts, Mr. Rajaratnam grew rich by knowingly trading on inside information gleaned from the influential and savvy players who made up the network.
'One-Legged Men'
As a Needham & Co. staffer walked into the firm's reception area one day in 1985, a young man in a suit popped out of his seat, flashed a big smile and said he was there for a job interview. There was nothing to indicate that he'd one day be the impresario of a $7 billion hedge fund.
Raj Rajaratnam, who had been at Chase Manhattan Bank for two years after getting his M.B.A., was one of a stream of applicants hoping to catch on at the fledgling investment bank. The word was Needham would take a chance on the callow and the cast off, as long as they were willing to work grueling hours for low pay.
"I hire one-legged men, and I beat the crap out of them," the firm's founder, George Needham, was heard to say. He declined to comment through a spokesman for this article.
It was a time when corporate information flowed more freely than today. Until the late 1990s, executives tended to speak more openly with analysts, unfettered by tighter regulations put into place during the past decade. Mr. Needham, who hasn't been accused of any wrongdoing, expected his analysts to prospect for information on the industries they covered anywhere, any time: On a plane, quiz your seatmate; in a bar, chat up the drinker next to you.
He also expected them to be frugal. He checked expense reports himself, telling employees to take red-eye flights and chiding them when he found redeemable soda cans in the trash.
The digs at 400 Park Ave. matched the ethos: Mr. Needham furnished the place with second-hand furniture, such as a $100 credenza from the office of Ivan Boesky, the disgraced financier busted for insider trading.
Mr. Rajaratnam thrived in a job that could have been a dead end: analyzing the computer chip industry. Beset by a flood of Japanese chips, U.S. makers were on the ropes, many large investors had fled the sector, and few analysts covered it in depth.
View Full Image
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Sipa Press
Raj Rajaratnam appeared on top of the world at a 2007 benefit in New York; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Mr. Rajaratnam would fly overnight from New York to California, bunk at a Palo Alto motel that fit Needham's $90-a-night limit, and spend his days with chip executives.
Mr. Rajaratnam cut a more appealing figure than rival analysts. Gerald Taylor, a former finance chief at Applied Materials Inc., a manufacturer of chip-making machines, found most of them to be ill-informed "prima donnas, hot-shots." Mr. Rajaratnam, on the other hand, told stories of "a kind of Horatio Alger" upbringing in Sri Lanka. He told others of how, as Tamils in Sri Lanka, his family had to dodge bullets during the country's civil war.
The exotic tales sometimes glossed over the fact that Mr. Rajaratnam grew up in relative wealth. The son of a manager for sewing machine maker Singer Co., he attended college in England before going on to the University of Pennsylvania's prestigious Wharton School.
'Get the Number'
The stories added a dash of color to the sharp analysis and willingness to push hard that impressed chip executives.
When Applied Materials' Mr. Taylor was explaining a new technology called "chemical vapor deposition" in early 1987, one analyst at a big Wall Street bank fell asleep during his presentation. Mr. Rajaratnam, though, flew to Silicon Valley, met Mr. Taylor and company engineers, and touted the technology in reports to investors.
Mr. Rajaratnam also visited Applied's customers and myriad suppliers elsewhere, something few analysts did.
"He earned your respect because he did his homework," says Mr. Taylor, even though he only gave Mr. Rajaratnam the same information he offered to other analysts.
Sometimes, Mr. Rajaratnam's persistence raised alarms. "He was always trying to weasel more information out of you," says David Orgill, who was Applied's head of investor relations in the late 1980s and early 1990s.
All along, Mr. Rajaratnam worked to persuade executives at Applied and other companies to use Needham to help underwrite their stock offerings. Applied and chip makers including Atmel Corp., Oak Technology Inc. and Opti Inc. used Needham for that; so did Xilinx Corp., which picked Needham "because Raj promised to write extensive research reports," says the company's then-senior vice president of finance, Gordon Steel.
As Mr. Rajaratnam brought more business to the firm, he pushed for more power by touting job offers from bigger Wall Street banks. Mr. Needham made Mr. Rajaratnam the firm's director of research and then, in 1991, president.
[GeorgeNeedham, with wife, emphasized building contacts to Mr. Rajaratnam.] Patrick McMullan
George Needham, with wife, emphasized building contacts to Mr. Rajaratnam.
That year, an analyst named Gerald Fleming found out that while Mr. Rajaratnam had moved up the organizational chart, he was still plugged in. At a regular morning meeting with Mr. Rajaratnam and a roomful of colleagues on May 13, Mr. Fleming estimated Applied's earnings per share at 41 cents. A short time later, Mr. Rajaratnam told Mr. Fleming the projection was wrong. "A good source" told him the earnings would be 42 cents a share. When Applied announced its earnings later in the day, that was the number.
In the morning meeting the next day, Mr. Rajaratnam told Mr. Fleming, "I hired you to develop sources and get the number."
Mr. Rajaratnam's close ties to Applied led Mr. Needham to jokingly ask in meetings about what the "pillow talk" was telling him about the company's earnings, say three former Needham employees.
"Mr. Rajaratnam's interactions with representatives of Applied Materials were completely professional at all times, and any suggestion to the contrary is false," Mr. Dowd, his attorney, said.
Mr. Rajaratnam expanded his power at Needham by starting a hedge fund to invest in tech stocks in 1992, tapping many of his chip-industry contacts for investments. By the beginning of 1994, Mr. Rajaratnam owned 17% of the firm -- second only to Mr. Needham's 26% -- and was paid $1 million that year. He also made sure that new executives knew his stature at the firm: "I'm the boss here," he told one in his first week there. "George may be the guy who has his name on the door, but I'm the guy who makes things happen."
Taking Note
Mr. Rajaratnam became a charismatic leader, cementing a culture at the firm that was defined by testing personal limits.
After Mr. Rajaratnam boasted one day that there was no spicy sauce that he couldn't stomach, a colleague brought a bottle of habanero sauce called Armageddon to the trading desk. A crowd gathered to watch as Mr. Rajaratnam doused two chicken wings with it and chowed down. Within moments, Mr. Rajaratnam was crying and coughing uncontrollably. He ran to the bathroom and left work early. Mr. Rajaratnam laughed about it later.
By the early 1990s, Microsoft Corp.'s Windows software and fast, cheap microprocessors from Intel spawned a personal-computer boom that reinvigorated the chip industry that Mr. Rajaratnam had worked so assiduously to cultivate.
Intel in early 1994 was facing new threats from AMD over the brains used in PCs. AMD had just won a big court case against its larger rival, and investors were itching to find out whether AMD's 486 chips were eroding Intel's dominance.
View Full Image
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Getty Images
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
On March 21 of that year, Mr. Rajaratnam was working the phones in his corner office overlooking Park Avenue and across a hallway from Needham's trading floor. It was two weeks before AMD would report earnings for its first fiscal quarter.
With a felt-tip pen, he wrote the date and two names in a spiral notebook. One was the first name of a manager at various tech companies in the 1990s, including AMD; the other was that of an engineer who worked at chip companies.
"Could do over $500 million," Mr. Rajaratnam noted farther down the first page. On an adjacent page, he wrote that the "goal," as of March 1, was "$484," then "New $515." Below that he wrote "486's" and "1 million units." In bold strokes across the two pages, he jotted other numbers, including prices for two versions of the 486 chip.
On April 4, AMD surprised Wall Street by announcing a record $513 million in revenue for its fiscal first quarter. The company said 486 chips sold more rapidly than expected early in the quarter, with sales surpassing 900,000 units.
A devoted note-taker, Mr. Rajaratnam kept a series of notebooks that recorded frequent conversations with people at tech companies, including Actel, Atmel and Alliance Semiconductor Inc. The pages were studded with the kind of information that analysts normally didn't get, the fruit of all those attentive visits to Silicon Valley.
It was the kind of work that enabled Mr. Rajaratnam to emerge from his office and be heard telling his top trader, Gary Rosenbach, that he had "the number" for earnings from Intel and AMD before they were announced.
Firms Try to Plug Leaks
Mr. Rajaratnam's aggressive tactics led several companies over the years to try to caulk leaks. Executives at chip makers Cirrus Logic and Silicon Valley Group, which both used Needham in stock offerings, grew frustrated with Mr. Rajaratnam badgering employees for tips.
In the mid-1990s, he offered to trade Cirrus executives proprietary information on other companies in exchange for Cirrus details. Similarly, Mr. Rajaratnam tried extracting information from Silicon Valley Group's then-chief executive, Papken Der Torossian, by saying he had information about orders from someone at an IBM plant in Vermont. Mr. Der Torossian says he turned him down.
Cirrus implemented a policy allowing just three top executives to talk with Mr. Rajaratnam and other analysts. Employment contracts were re-written to say that employees who violated that policy would be fired.
The Galleon Case
* Galleon Defendants Criticize Timing of Cases
* Rajaratnam, Chiesi Charged in Insider Case
* WSJ Topics: Raj Rajaratnam
At SVG, Mr. Der Torossian chastised employees for talking with Mr. Rajaratnam. Still, he says, while other analysts would "try to dig deep," Mr. Rajaratnam "was particularly clever, particularly good, and would get more information."
Around the same time, Intel held internal meetings to try to figure out how Mr. Rajaratnam's published reports were so uncannily accurate ahead of the company's earnings.
Concerns about Mr. Rajaratnam's activities helped cool Paine Webber's interest in buying Needham in 1995, according to a person with direct knowledge of negotiations. Soon, similar worries spurred complaints from some inside Needham.
Between 1993 and 1996, at least five Needham executives told Mr. Needham that they were worried about Mr. Rajaratnam's conduct, according to several people with knowledge of the situation. Needham brokerage clients complained to executives that Mr. Rajaratnam had potentially conflicting roles in the firm as president, fund manager, and sometime stock analyst. Normally, investment banks keep those areas separate to prevent clients' interests from clashing with the interests of bank-run funds.
Toward the end of 1996, the concerns fueled tensions between the executives and Mr. Rajaratnam. Meanwhile, Mr. Rajaratnam, who wanted to expand his hedge fund faster than Mr. Needham would allow, had been raising money for his own operation.
In November 1996, Mr. Needham told his employees that "I greatly regret to announce that Raj Rajaratnam, my friend and partner," would be leaving to form his own firm, ending a breakneck 11-year run at Needham.
Mr. Rajaratnam set up Galleon in a small office at Lexington Avenue and 57th Street, about a block from his old firm. He hired several former colleagues, including Mr. Rosenbach, the firm's head trader, and tapped Silicon Valley contacts for investment. Riding the wave of investors anxious to get in on the tech boom, Galleon was managing $800 million by the end of 1997, up from up from $250 million 12 months before.
Mr. Rajaratnam established a looser culture at his new firm. On Thursdays, employees could sign up to get massages at the office. Still, the game plan was the same as Needham: watch expenses closely and ferret out corporate information.
Not long after Galleon launched, Intel renewed its efforts to find out if someone at the company was leaking financial data to Mr. Rajaratnam. Intel installed cameras by a fax machine in its Santa Clara, Calif., headquarters. In March 1998, it recorded an employee named Roomy Khan sending handwritten notes and documents marked "Intel Confidential" to Mr. Rajaratnam.
Included were data on Intel chip orders from several dozen computer makers and selling prices of those chips. Combined, the information could be used to determine Intel's revenue for the quarter.
Ms. Khan left Intel soon after, and the company reported her to federal authorities. Soon, she had a new job. Mr. Rajaratnam hired her at Galleon.
She left Galleon after a year. In 2001, Ms. Khan agreed to plead guilty to wire-fraud charges -- and to cooperate in a probe of Mr. Rajaratnam. Ms. Khan served six months under house arrest, but prosecutors dropped the investigation, unable to prove that Mr. Rajaratnam traded on the information.
Galleon Sets Sail
Each day at Galleon started with a morning meeting. Traders and analysts streamed nearly all at once into a conference room trying to get there before start time -- 8:35 in recent years. A stickler for punctuality, Mr. Rajaratnam would sometimes fine latecomers $25.
Surrounded by his staff, Mr. Rajaratnam began the meeting by asking for an overview of the significant events of the day or week -- earnings announcements, a product launch, anything that might move stocks. Mr. Rajaratnam grilled them, sometimes sending analysts leafing through binders to find a figure, such as gross margins or the pricing of a product line.
He often got angry if an analyst couldn't confidently say whether a stock would go up or down. Mr. Rajaratnam always wanted "the variant view," his mantra for an opinion on a stock that was different from the rest of Wall Street. "If the market comes into your variant view, we make money," he would say.
At Galleon, Mr. Rajaratnam took his fondness for pranks and dares to a new level. When executives from stun-gun maker Taser International Inc. came to make an investment pitch around 2005, Mr. Rajaratnam offered $5,000 to anyone who'd agree to be shocked. Employees gathered around as two people propped up trader Keryn Limmer at the elbows and another person fired the weapon. Ms. Limmer's legs buckled beneath her from the shock. Ms. Limmer declined to comment.
That same year, employees arrived at Galleon's morning meeting to a surprise: In the conference room was a dwarf whom Mr. Rajaratnam introduced as an analyst hired to cover "small-cap" stocks. He was, in fact, an actor hired for an April Fool's Day gag.
By 2004, Mr. Rajaratnam was building a profile outside the hedge-fund world. He joined the board of the Harlem Children's Zone, an education nonprofit, and later raised about $7.5 million for victims of the South Asian tsunami. In January 2007, a list of celebrity donors honored Mr. Rajaratnam's philanthropy with a symphony performance at Lincoln Center.
By the time of the Super Bowl party a month later, Galleon and Mr. Rajaratnam appeared to be on top of the world. Approaching $7 billion under management, the firm moved into larger Manhattan offices at Madison Avenue and 57th Street, expanded into Asia and started a new fund based in California. Employees were convinced the firm would soon go public.
Yet all was not well. Mr. Rajaratnam was cooperating with a Securities and Exchange Commission investigation of his younger brother Rengan's now-defunct hedge fund, Sedna. No charges have been filed in that investigation, and Rengan Rajaratnam's lawyer declined to comment.
Raj Rajaratnam answered questions and provided reams of Sedna-related documents that raised investigators' suspicions about Galleon itself.
As the summer ended that year, the real shape of the threat was only beginning to emerge. On a hot September afternoon, Mr. Rajaratnam threw a party at his Greenwich, Conn., home for Galleon employees and their families -- a clambake with a cowboy theme, owing to the day's star attraction, country singer Kenny Rogers. Guests wore cowboy hats and sheriff's badges as they ate lobster while sitting on white folding chairs or red blankets with the Galleon logo.
Mr. Rajaratnam seemed relaxed, mingling with family and friends. One guest stuck out, a blonde woman in a black spaghetti-strap top, low-slung tangerine skirt and aviator sunglasses. A few guests knew her as Danielle Chiesi, a trader at a Bear Stearns hedge fund who had strong chip-industry connections. Some there wondered what Ms. Chiesi, accompanied by her mother, was doing at a Galleon party.
Mr. Rogers' hit song "The Gambler" was a favorite of Mr. Rajaratnam's: "You got to know when to hold 'em, know when to fold 'em, know when to walk away and know when to run...."
As Mr. Rogers sang, Ms. Chiesi sat in a folding chair; Mr. Rajaratnam stood a few paces behind.
Within a year federal agents would be recording their phone calls, pulling at loose threads in a web that had taken two decades to weave.
Fund Boss Built Empire on Charm, Smarts and Information
By ROBERT A. GUTH and JUSTIN SCHECK
[The case against fund king Raj Rajaratnam hinges on whether he knowingly traded on inside information.] Bloomberg News
The case against fund king Raj Rajaratnam hinges on whether he knowingly traded on inside information.
Raj Rajaratnam liked to tell people that his first name meant "king" in Hindi, and, coupled with his last name, that made him "king of kings."
He told the story with the broad, toothy smile that had ingratiated him to a generation of Silicon Valley executives. The grin softened the edge of a boss who'd call you an "idiot" or prod you into some humiliating stunt: Would you take $5,000 to be shocked with a stun gun?
In a mansion on a manmade island in Biscayne Bay in February 2007, Mr. Rajaratnam seemed determined to live up to his regal description of his name. It was Super Bowl weekend, and America's rich and powerful had descended on South Florida to watch the Indianapolis Colts play the Chicago Bears. Mostly they were there to do business. Mr. Rajaratnam's business was running a hedge fund, Galleon Group, that had made him a billionaire. And that business was based on contacts.
[The Rise of Raj]
Wealthy investors and executives swirled around the rented home -- $250,000 for the week -- on exclusive Star Island. Miami Beach twinkled in the darkness as they drank, smoked cigars and hobnobbed with beautiful women -- rent-a-dates, one Galleon employee called them -- around a swimming pool that seemed to disappear into the horizon.
But a fall was already brewing. Federal agents were circling Mr. Rajaratnam, starting to build the biggest insider-trading case in a generation. Prosecutors and securities regulators worked for the next 32 months before springing a sprawling indictment in October that charged Mr. Rajaratnam and 20 others with profiting off market-moving, inside information.
Mr. Rajaratnam has pleaded not guilty, and is free on bail.
"Throughout his career Mr. Rajaratnam has worked tirelessly as permitted by the securities laws to build a mosaic of public information about the companies he follows," his attorney, John Dowd, said. "His detailed, meticulous research into company fundamentals distinguished him as an exceptional analyst and portfolio manager. Mr. Rajaratnam is innocent of the charges against him and looks forward to his day in court when a jury of his fellow citizens will examine and evaluate all of the evidence."
Wednesday:
How federal prosecutors assembled the biggest insider-trading case in a generation.
A Wall Street Journal examination of Mr. Rajaratnam's career -- including interviews with more than 75 ex-business associates and a review of copies of Mr. Rajaratnam's own handwritten notes -- gives the clearest picture yet of how, for two decades, he persuaded executives at some of America's most prominent companies to risk their careers by passing corporate secrets.
The Galleon investigation has already touched McKinsey & Co., International Business Machines Corp., Intel Corp. and Advanced Micro Devices Inc. in connection with the leaking of confidential information that Mr. Rajaratnam allegedly traded on.
Mr. Rajaratnam got his start as an analyst just as the moribund semiconductor industry started to boom. Charming and puckish, he made contacts in Silicon Valley's Indian expatriate community, using them to meet other executives. By the early 1990s, tech industry executives and Mr. Rajaratnam's co-workers say he made himself the hub of dozens of sources funneling him supposedly confidential corporate information. In exchange, Mr. Rajaratnam would often pass them tips he'd heard.
The question of his guilt or innocence will turn on whether in this relentless cultivation of contacts, Mr. Rajaratnam grew rich by knowingly trading on inside information gleaned from the influential and savvy players who made up the network.
'One-Legged Men'
As a Needham & Co. staffer walked into the firm's reception area one day in 1985, a young man in a suit popped out of his seat, flashed a big smile and said he was there for a job interview. There was nothing to indicate that he'd one day be the impresario of a $7 billion hedge fund.
Raj Rajaratnam, who had been at Chase Manhattan Bank for two years after getting his M.B.A., was one of a stream of applicants hoping to catch on at the fledgling investment bank. The word was Needham would take a chance on the callow and the cast off, as long as they were willing to work grueling hours for low pay.
"I hire one-legged men, and I beat the crap out of them," the firm's founder, George Needham, was heard to say. He declined to comment through a spokesman for this article.
It was a time when corporate information flowed more freely than today. Until the late 1990s, executives tended to speak more openly with analysts, unfettered by tighter regulations put into place during the past decade. Mr. Needham, who hasn't been accused of any wrongdoing, expected his analysts to prospect for information on the industries they covered anywhere, any time: On a plane, quiz your seatmate; in a bar, chat up the drinker next to you.
He also expected them to be frugal. He checked expense reports himself, telling employees to take red-eye flights and chiding them when he found redeemable soda cans in the trash.
The digs at 400 Park Ave. matched the ethos: Mr. Needham furnished the place with second-hand furniture, such as a $100 credenza from the office of Ivan Boesky, the disgraced financier busted for insider trading.
Mr. Rajaratnam thrived in a job that could have been a dead end: analyzing the computer chip industry. Beset by a flood of Japanese chips, U.S. makers were on the ropes, many large investors had fled the sector, and few analysts covered it in depth.
View Full Image
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Sipa Press
Raj Rajaratnam appeared on top of the world at a 2007 benefit in New York; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Mr. Rajaratnam would fly overnight from New York to California, bunk at a Palo Alto motel that fit Needham's $90-a-night limit, and spend his days with chip executives.
Mr. Rajaratnam cut a more appealing figure than rival analysts. Gerald Taylor, a former finance chief at Applied Materials Inc., a manufacturer of chip-making machines, found most of them to be ill-informed "prima donnas, hot-shots." Mr. Rajaratnam, on the other hand, told stories of "a kind of Horatio Alger" upbringing in Sri Lanka. He told others of how, as Tamils in Sri Lanka, his family had to dodge bullets during the country's civil war.
The exotic tales sometimes glossed over the fact that Mr. Rajaratnam grew up in relative wealth. The son of a manager for sewing machine maker Singer Co., he attended college in England before going on to the University of Pennsylvania's prestigious Wharton School.
'Get the Number'
The stories added a dash of color to the sharp analysis and willingness to push hard that impressed chip executives.
When Applied Materials' Mr. Taylor was explaining a new technology called "chemical vapor deposition" in early 1987, one analyst at a big Wall Street bank fell asleep during his presentation. Mr. Rajaratnam, though, flew to Silicon Valley, met Mr. Taylor and company engineers, and touted the technology in reports to investors.
Mr. Rajaratnam also visited Applied's customers and myriad suppliers elsewhere, something few analysts did.
"He earned your respect because he did his homework," says Mr. Taylor, even though he only gave Mr. Rajaratnam the same information he offered to other analysts.
Sometimes, Mr. Rajaratnam's persistence raised alarms. "He was always trying to weasel more information out of you," says David Orgill, who was Applied's head of investor relations in the late 1980s and early 1990s.
All along, Mr. Rajaratnam worked to persuade executives at Applied and other companies to use Needham to help underwrite their stock offerings. Applied and chip makers including Atmel Corp., Oak Technology Inc. and Opti Inc. used Needham for that; so did Xilinx Corp., which picked Needham "because Raj promised to write extensive research reports," says the company's then-senior vice president of finance, Gordon Steel.
As Mr. Rajaratnam brought more business to the firm, he pushed for more power by touting job offers from bigger Wall Street banks. Mr. Needham made Mr. Rajaratnam the firm's director of research and then, in 1991, president.
[GeorgeNeedham, with wife, emphasized building contacts to Mr. Rajaratnam.] Patrick McMullan
George Needham, with wife, emphasized building contacts to Mr. Rajaratnam.
That year, an analyst named Gerald Fleming found out that while Mr. Rajaratnam had moved up the organizational chart, he was still plugged in. At a regular morning meeting with Mr. Rajaratnam and a roomful of colleagues on May 13, Mr. Fleming estimated Applied's earnings per share at 41 cents. A short time later, Mr. Rajaratnam told Mr. Fleming the projection was wrong. "A good source" told him the earnings would be 42 cents a share. When Applied announced its earnings later in the day, that was the number.
In the morning meeting the next day, Mr. Rajaratnam told Mr. Fleming, "I hired you to develop sources and get the number."
Mr. Rajaratnam's close ties to Applied led Mr. Needham to jokingly ask in meetings about what the "pillow talk" was telling him about the company's earnings, say three former Needham employees.
"Mr. Rajaratnam's interactions with representatives of Applied Materials were completely professional at all times, and any suggestion to the contrary is false," Mr. Dowd, his attorney, said.
Mr. Rajaratnam expanded his power at Needham by starting a hedge fund to invest in tech stocks in 1992, tapping many of his chip-industry contacts for investments. By the beginning of 1994, Mr. Rajaratnam owned 17% of the firm -- second only to Mr. Needham's 26% -- and was paid $1 million that year. He also made sure that new executives knew his stature at the firm: "I'm the boss here," he told one in his first week there. "George may be the guy who has his name on the door, but I'm the guy who makes things happen."
Taking Note
Mr. Rajaratnam became a charismatic leader, cementing a culture at the firm that was defined by testing personal limits.
After Mr. Rajaratnam boasted one day that there was no spicy sauce that he couldn't stomach, a colleague brought a bottle of habanero sauce called Armageddon to the trading desk. A crowd gathered to watch as Mr. Rajaratnam doused two chicken wings with it and chowed down. Within moments, Mr. Rajaratnam was crying and coughing uncontrollably. He ran to the bathroom and left work early. Mr. Rajaratnam laughed about it later.
By the early 1990s, Microsoft Corp.'s Windows software and fast, cheap microprocessors from Intel spawned a personal-computer boom that reinvigorated the chip industry that Mr. Rajaratnam had worked so assiduously to cultivate.
Intel in early 1994 was facing new threats from AMD over the brains used in PCs. AMD had just won a big court case against its larger rival, and investors were itching to find out whether AMD's 486 chips were eroding Intel's dominance.
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Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Getty Images
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
On March 21 of that year, Mr. Rajaratnam was working the phones in his corner office overlooking Park Avenue and across a hallway from Needham's trading floor. It was two weeks before AMD would report earnings for its first fiscal quarter.
With a felt-tip pen, he wrote the date and two names in a spiral notebook. One was the first name of a manager at various tech companies in the 1990s, including AMD; the other was that of an engineer who worked at chip companies.
"Could do over $500 million," Mr. Rajaratnam noted farther down the first page. On an adjacent page, he wrote that the "goal," as of March 1, was "$484," then "New $515." Below that he wrote "486's" and "1 million units." In bold strokes across the two pages, he jotted other numbers, including prices for two versions of the 486 chip.
On April 4, AMD surprised Wall Street by announcing a record $513 million in revenue for its fiscal first quarter. The company said 486 chips sold more rapidly than expected early in the quarter, with sales surpassing 900,000 units.
A devoted note-taker, Mr. Rajaratnam kept a series of notebooks that recorded frequent conversations with people at tech companies, including Actel, Atmel and Alliance Semiconductor Inc. The pages were studded with the kind of information that analysts normally didn't get, the fruit of all those attentive visits to Silicon Valley.
It was the kind of work that enabled Mr. Rajaratnam to emerge from his office and be heard telling his top trader, Gary Rosenbach, that he had "the number" for earnings from Intel and AMD before they were announced.
Firms Try to Plug Leaks
Mr. Rajaratnam's aggressive tactics led several companies over the years to try to caulk leaks. Executives at chip makers Cirrus Logic and Silicon Valley Group, which both used Needham in stock offerings, grew frustrated with Mr. Rajaratnam badgering employees for tips.
In the mid-1990s, he offered to trade Cirrus executives proprietary information on other companies in exchange for Cirrus details. Similarly, Mr. Rajaratnam tried extracting information from Silicon Valley Group's then-chief executive, Papken Der Torossian, by saying he had information about orders from someone at an IBM plant in Vermont. Mr. Der Torossian says he turned him down.
Cirrus implemented a policy allowing just three top executives to talk with Mr. Rajaratnam and other analysts. Employment contracts were re-written to say that employees who violated that policy would be fired.
The Galleon Case
* Galleon Defendants Criticize Timing of Cases
* Rajaratnam, Chiesi Charged in Insider Case
* WSJ Topics: Raj Rajaratnam
At SVG, Mr. Der Torossian chastised employees for talking with Mr. Rajaratnam. Still, he says, while other analysts would "try to dig deep," Mr. Rajaratnam "was particularly clever, particularly good, and would get more information."
Around the same time, Intel held internal meetings to try to figure out how Mr. Rajaratnam's published reports were so uncannily accurate ahead of the company's earnings.
Concerns about Mr. Rajaratnam's activities helped cool Paine Webber's interest in buying Needham in 1995, according to a person with direct knowledge of negotiations. Soon, similar worries spurred complaints from some inside Needham.
Between 1993 and 1996, at least five Needham executives told Mr. Needham that they were worried about Mr. Rajaratnam's conduct, according to several people with knowledge of the situation. Needham brokerage clients complained to executives that Mr. Rajaratnam had potentially conflicting roles in the firm as president, fund manager, and sometime stock analyst. Normally, investment banks keep those areas separate to prevent clients' interests from clashing with the interests of bank-run funds.
Toward the end of 1996, the concerns fueled tensions between the executives and Mr. Rajaratnam. Meanwhile, Mr. Rajaratnam, who wanted to expand his hedge fund faster than Mr. Needham would allow, had been raising money for his own operation.
In November 1996, Mr. Needham told his employees that "I greatly regret to announce that Raj Rajaratnam, my friend and partner," would be leaving to form his own firm, ending a breakneck 11-year run at Needham.
Mr. Rajaratnam set up Galleon in a small office at Lexington Avenue and 57th Street, about a block from his old firm. He hired several former colleagues, including Mr. Rosenbach, the firm's head trader, and tapped Silicon Valley contacts for investment. Riding the wave of investors anxious to get in on the tech boom, Galleon was managing $800 million by the end of 1997, up from up from $250 million 12 months before.
Mr. Rajaratnam established a looser culture at his new firm. On Thursdays, employees could sign up to get massages at the office. Still, the game plan was the same as Needham: watch expenses closely and ferret out corporate information.
Not long after Galleon launched, Intel renewed its efforts to find out if someone at the company was leaking financial data to Mr. Rajaratnam. Intel installed cameras by a fax machine in its Santa Clara, Calif., headquarters. In March 1998, it recorded an employee named Roomy Khan sending handwritten notes and documents marked "Intel Confidential" to Mr. Rajaratnam.
Included were data on Intel chip orders from several dozen computer makers and selling prices of those chips. Combined, the information could be used to determine Intel's revenue for the quarter.
Ms. Khan left Intel soon after, and the company reported her to federal authorities. Soon, she had a new job. Mr. Rajaratnam hired her at Galleon.
She left Galleon after a year. In 2001, Ms. Khan agreed to plead guilty to wire-fraud charges -- and to cooperate in a probe of Mr. Rajaratnam. Ms. Khan served six months under house arrest, but prosecutors dropped the investigation, unable to prove that Mr. Rajaratnam traded on the information.
Galleon Sets Sail
Each day at Galleon started with a morning meeting. Traders and analysts streamed nearly all at once into a conference room trying to get there before start time -- 8:35 in recent years. A stickler for punctuality, Mr. Rajaratnam would sometimes fine latecomers $25.
Surrounded by his staff, Mr. Rajaratnam began the meeting by asking for an overview of the significant events of the day or week -- earnings announcements, a product launch, anything that might move stocks. Mr. Rajaratnam grilled them, sometimes sending analysts leafing through binders to find a figure, such as gross margins or the pricing of a product line.
He often got angry if an analyst couldn't confidently say whether a stock would go up or down. Mr. Rajaratnam always wanted "the variant view," his mantra for an opinion on a stock that was different from the rest of Wall Street. "If the market comes into your variant view, we make money," he would say.
At Galleon, Mr. Rajaratnam took his fondness for pranks and dares to a new level. When executives from stun-gun maker Taser International Inc. came to make an investment pitch around 2005, Mr. Rajaratnam offered $5,000 to anyone who'd agree to be shocked. Employees gathered around as two people propped up trader Keryn Limmer at the elbows and another person fired the weapon. Ms. Limmer's legs buckled beneath her from the shock. Ms. Limmer declined to comment.
That same year, employees arrived at Galleon's morning meeting to a surprise: In the conference room was a dwarf whom Mr. Rajaratnam introduced as an analyst hired to cover "small-cap" stocks. He was, in fact, an actor hired for an April Fool's Day gag.
By 2004, Mr. Rajaratnam was building a profile outside the hedge-fund world. He joined the board of the Harlem Children's Zone, an education nonprofit, and later raised about $7.5 million for victims of the South Asian tsunami. In January 2007, a list of celebrity donors honored Mr. Rajaratnam's philanthropy with a symphony performance at Lincoln Center.
By the time of the Super Bowl party a month later, Galleon and Mr. Rajaratnam appeared to be on top of the world. Approaching $7 billion under management, the firm moved into larger Manhattan offices at Madison Avenue and 57th Street, expanded into Asia and started a new fund based in California. Employees were convinced the firm would soon go public.
Yet all was not well. Mr. Rajaratnam was cooperating with a Securities and Exchange Commission investigation of his younger brother Rengan's now-defunct hedge fund, Sedna. No charges have been filed in that investigation, and Rengan Rajaratnam's lawyer declined to comment.
Raj Rajaratnam answered questions and provided reams of Sedna-related documents that raised investigators' suspicions about Galleon itself.
As the summer ended that year, the real shape of the threat was only beginning to emerge. On a hot September afternoon, Mr. Rajaratnam threw a party at his Greenwich, Conn., home for Galleon employees and their families -- a clambake with a cowboy theme, owing to the day's star attraction, country singer Kenny Rogers. Guests wore cowboy hats and sheriff's badges as they ate lobster while sitting on white folding chairs or red blankets with the Galleon logo.
Mr. Rajaratnam seemed relaxed, mingling with family and friends. One guest stuck out, a blonde woman in a black spaghetti-strap top, low-slung tangerine skirt and aviator sunglasses. A few guests knew her as Danielle Chiesi, a trader at a Bear Stearns hedge fund who had strong chip-industry connections. Some there wondered what Ms. Chiesi, accompanied by her mother, was doing at a Galleon party.
Mr. Rogers' hit song "The Gambler" was a favorite of Mr. Rajaratnam's: "You got to know when to hold 'em, know when to fold 'em, know when to walk away and know when to run...."
As Mr. Rogers sang, Ms. Chiesi sat in a folding chair; Mr. Rajaratnam stood a few paces behind.
Within a year federal agents would be recording their phone calls, pulling at loose threads in a web that had taken two decades to weave.
Sunday, December 27, 2009
Saturday, December 5, 2009
NBC-Comcast: A TV Deal for the Post-TV Era
Giant cable-TV provider Comcast has reached a deal with GE this morning to take over giant entertainment company NBC Universal. This means big changes ahead for 30 Rock's Jack Donaghy, who will have to adapt his core competencies from selling microwave ovens to pushing upgrades on DVR cable boxes. But what does it mean for you as a TV viewer?
In the short term, not much; probably not even that much in the medium term. (For starters, the deal faces an approval process which could take a year.) In the longer term, it says a few things about what the TV business is becoming, and what "TV" will mean in the future:
* For starters, it reminds us how small a part of the package what we recently knew as "TV"—free, over-the-air broadcast entertainment—now is. Comcast, a cable company whose interest is in finding new ways to sell viewers media, be it cable packages or movies on demand, is especially interested in NBCU's cable and theatrical properties. The Peacock, Jay Leno, The Office, et al., are more or less being thrown in the deal like complimentary floor mats in a new car. Keep in mind that one big reason GE bought NBC way back when was because broadcast TV was valued as a reliable cash cow. Not so much anymore.
* So what replaces "TV"? Well, more TV, but in different forms. The way mass entertainment worked for a long time was that there were genres that were defined by the machines and venues you used to experience them: a "movie" was what you saw on a big screen in a special building, "TV" was what you saw on a screen in your living room, "radio" came out of a box, etc. Now all the screens and means we have for distributing the same stuff render those distinctions increasingly moot. What Comcast and others envision is a world in which you buy the things you want to see and experience (TV shows, sporting events, movies), when you want to see them, on whichever device you prefer to use—and, of course, you pay and pay and pay for them.
* Speaking of pay and pay and pay: this deal is about online media, too, and the hope of getting you to pay for watching entertainment that way. Hulu is partly owned by NBC, and there's already been talk of making that a pay service.
* And the movies? This is more speculative, but there is increasing talk about monkeying with the "window"—that is, the amount of time you have to wait after a movie is in theaters before you can see it on demand, download it, rent it, buy it, etc. Take away the window, and the next Twilight movie becomes a high-profile Friday-night TV show. Now, there are plenty of people arguing for preserving the window, but it's already started to erode for some movies. And what studio might be especially aggressive about experimenting with it? Why, a troubled movie studio... like Universal.
* This is also speculative, but the NBC affiliates—already chafing at how they were thrown under the bus by the decision to give them a weaker news lead-in with Jay Leno—probably have even more reason to be nervous about their place, their importance and their leverage in the Comcast universe. Comcast is a cable company, and is probably not inclined to be too sentimental about the legacy or value of local TV stations.
* Jeff Zucker remains bulletproof. For now, anyway, Though the NBCU chief has been kicked around by TV critics and industry observers for the way he's run the flagship TV network into fourth place over the past decade, he'll stay in charge of the enterprise for the time being. And whatever you say about his programming acumen, the deal itself fits with his business vision, namely, that the TV business is now mainly the cable business.
Having said all this, is the merger a good deal? How the hell do I know? I work for Time Warner: you've seen how much we know about smart synergistic media mergers! Seriously, the thing I will say is that whether or not the Comcast deal specifically will be a success, it does at least grow out of the right sense of where entertainment media is heading. Of course, so, in a general sense, did the AOL and Time Warner merger, in that it recognized the importance of the Internet: the problem was deciding that AOL was the right company to take advantage of it, and grossly overvaluing AOL in the deal.
NBC and Comcast, in other words, probably have the right idea about where media is going. That doesn't mean this is the best means to get there. Now they'll just have to unravel the tangled cable of this deal, and see where it leads.
In the short term, not much; probably not even that much in the medium term. (For starters, the deal faces an approval process which could take a year.) In the longer term, it says a few things about what the TV business is becoming, and what "TV" will mean in the future:
* For starters, it reminds us how small a part of the package what we recently knew as "TV"—free, over-the-air broadcast entertainment—now is. Comcast, a cable company whose interest is in finding new ways to sell viewers media, be it cable packages or movies on demand, is especially interested in NBCU's cable and theatrical properties. The Peacock, Jay Leno, The Office, et al., are more or less being thrown in the deal like complimentary floor mats in a new car. Keep in mind that one big reason GE bought NBC way back when was because broadcast TV was valued as a reliable cash cow. Not so much anymore.
* So what replaces "TV"? Well, more TV, but in different forms. The way mass entertainment worked for a long time was that there were genres that were defined by the machines and venues you used to experience them: a "movie" was what you saw on a big screen in a special building, "TV" was what you saw on a screen in your living room, "radio" came out of a box, etc. Now all the screens and means we have for distributing the same stuff render those distinctions increasingly moot. What Comcast and others envision is a world in which you buy the things you want to see and experience (TV shows, sporting events, movies), when you want to see them, on whichever device you prefer to use—and, of course, you pay and pay and pay for them.
* Speaking of pay and pay and pay: this deal is about online media, too, and the hope of getting you to pay for watching entertainment that way. Hulu is partly owned by NBC, and there's already been talk of making that a pay service.
* And the movies? This is more speculative, but there is increasing talk about monkeying with the "window"—that is, the amount of time you have to wait after a movie is in theaters before you can see it on demand, download it, rent it, buy it, etc. Take away the window, and the next Twilight movie becomes a high-profile Friday-night TV show. Now, there are plenty of people arguing for preserving the window, but it's already started to erode for some movies. And what studio might be especially aggressive about experimenting with it? Why, a troubled movie studio... like Universal.
* This is also speculative, but the NBC affiliates—already chafing at how they were thrown under the bus by the decision to give them a weaker news lead-in with Jay Leno—probably have even more reason to be nervous about their place, their importance and their leverage in the Comcast universe. Comcast is a cable company, and is probably not inclined to be too sentimental about the legacy or value of local TV stations.
* Jeff Zucker remains bulletproof. For now, anyway, Though the NBCU chief has been kicked around by TV critics and industry observers for the way he's run the flagship TV network into fourth place over the past decade, he'll stay in charge of the enterprise for the time being. And whatever you say about his programming acumen, the deal itself fits with his business vision, namely, that the TV business is now mainly the cable business.
Having said all this, is the merger a good deal? How the hell do I know? I work for Time Warner: you've seen how much we know about smart synergistic media mergers! Seriously, the thing I will say is that whether or not the Comcast deal specifically will be a success, it does at least grow out of the right sense of where entertainment media is heading. Of course, so, in a general sense, did the AOL and Time Warner merger, in that it recognized the importance of the Internet: the problem was deciding that AOL was the right company to take advantage of it, and grossly overvaluing AOL in the deal.
NBC and Comcast, in other words, probably have the right idea about where media is going. That doesn't mean this is the best means to get there. Now they'll just have to unravel the tangled cable of this deal, and see where it leads.
Saturday, November 14, 2009
Toilet Paper History
Linda Rodriguez
Toilet Paper History: How America Convinced the World to Wipe
by Linda Rodriguez
Since the dawn of time, people have found nifty ways to clean up after the bathroom act. The most common solution was simply to grab what was at hand: coconuts, shells, snow, moss, hay, leaves, grass, corncobs, sheep’s wool—and, later, thanks to the printing press—newspapers, magazines, and pages of books. The ancient Greeks used clay and stone. The Romans, sponges and salt water. But the idea of a commercial product designed solely to wipe one’s bum? That started about 150 years ago, right here in the U.S.A. In less than a century, Uncle Sam’s marketing genius turned something disposable into something indispensable.
How Toilet Paper Got on a Roll
toilet-paper-1The first products designed specifically to wipe one’s nethers were aloe-infused sheets of manila hemp dispensed from Kleenex-like boxes. They were invented in 1857 by a New York entrepreneur named Joseph Gayetty, who claimed his sheets prevented hemorrhoids. Gayetty was so proud of his therapeutic bathroom paper that he had his name printed on each sheet. But his success was limited. Americans soon grew accustomed to wiping with the Sears Roebuck catalog, and they saw no need to spend money on something that came in the mail for free.
Toilet paper took its next leap forward in 1890, when two brothers named Clarence and E. Irvin Scott popularized the concept of toilet paper on a roll. The Scotts’ brand became more successful than Gayetty’s medicated wipes, in part because they built a steady trade selling toilet paper to hotels and drugstores. But it was still an uphill battle to get the public to openly buy the product, largely because Americans remained embarrassed by bodily functions. In fact, the Scott brothers were so ashamed of the nature of their work that they didn’t take proper credit for their innovation until 1902.
“No one wanted to ask for it by name,” says Dave Praeger, author of Poop Culture: How America Is Shaped by Its Grossest National Product. “It was so taboo that you couldn’t even talk about the product.” By 1930, the German paper company Hakle began using the tag line, “Ask for a roll of Hakle and you won’t have to say toilet paper!”
As time passed, toilet tissues slowly became an American staple. But widespread acceptance of the product didn’t officially occur until a new technology demanded it. At the end of the 19th century, more and more homes were being built with sit-down flush toilets tied to indoor plumbing systems. And because people required a product that could be flushed away with minimal damage to the pipes, corncobs and moss no longer cut it. In no time, toilet paper ads boasted that the product was recommended by both doctors and plumbers.
The Strength of Going Soft
In the early 1900s, toilet paper was still being marketed as a medicinal item. But in 1928, the Hoberg Paper Company tried a different tack. On the advice of its ad men, the company introduced a brand called Charmin and fitted the product with a feminine logo that depicted a beautiful woman. The genius of the campaign was that by evincing softness and femininity, the company could avoid talking about toilet paper’s actual purpose. Charmin was enormously successful, and the tactic helped the brand survive the Great Depression. (It also helped that, in 1932, Charmin began marketing economy-size packs of four rolls.) Decades later, the dainty ladies were replaced with babies and bear cubs—advertising vehicles that still stock the aisles today.
By the 1970s, America could no longer conceive of life without toilet paper. Case in point: In December 1973, Tonight Show host Johnny Carson joked about a toilet paper shortage during his opening monologue. But America didn’t laugh. Instead, TV watchers across the country ran out to their local grocery stores and bought up as much of the stuff as they could. In 1978, a TV Guide poll named Mr. Whipple—the affable grocer who implored customers, “Please don’t squeeze the Charmin”—the third best-known man in America, behind former President Richard Nixon and the Rev. Billy Graham.
Currently, the United States spends more than $6 billion a year on toilet tissue—more than any other nation in the world. Americans, on average, use 57 squares a day and 50 lbs. a year.
Even still, the toilet paper market in the United States has largely plateaued. The real growth in the industry is happening in developing countries. There, it’s booming. Toilet paper revenues in Brazil alone have more than doubled since 2004. The radical upswing in sales is believed to be driven by a combination of changing demographics, social expectations, and disposable income.
“The spread of globalization can kind of be measured by the spread of Western bathroom practices,” says Praeger. When average citizens in a country start buying toilet paper, wealth and consumerism have arrived. It signifies that people not only have extra cash to spend, but they’ve also come under the influence of Western marketing.
America Without Toilet Paper
Even as the markets boom in developing nations, toilet paper manufacturers find themselves needing to charge more per roll to make a profit. That’s because production costs are rising. During the past few years, pulp has become more expensive, energy costs are rising, and even water is becoming scarce. Toilet paper companies may need to keep hiking up their prices. The question is, if toilet paper becomes a luxury item, can Americans live without it?
The truth is that we did live without it, for a very long time. And even now, a lot of people do. In Japan, the Washlet—a toilet that comes equipped with a bidet and an air-blower—is growing increasingly popular. And all over the world, water remains one of the most common methods of self-cleaning. Many places in India, the Middle East, and Asia, for instance, still depend on a bucket and a spigot. But as our economy continues to circle the drain, will Americans part with their beloved toilet paper in order to adopt more money-saving measures? Or will we keep flushing our cash away? Praeger, for one, believes a toilet-paper apocalypse is hardly likely. After all, the American marketing machine is a powerful thing.
Toilet Paper History: How America Convinced the World to Wipe
by Linda Rodriguez
Since the dawn of time, people have found nifty ways to clean up after the bathroom act. The most common solution was simply to grab what was at hand: coconuts, shells, snow, moss, hay, leaves, grass, corncobs, sheep’s wool—and, later, thanks to the printing press—newspapers, magazines, and pages of books. The ancient Greeks used clay and stone. The Romans, sponges and salt water. But the idea of a commercial product designed solely to wipe one’s bum? That started about 150 years ago, right here in the U.S.A. In less than a century, Uncle Sam’s marketing genius turned something disposable into something indispensable.
How Toilet Paper Got on a Roll
toilet-paper-1The first products designed specifically to wipe one’s nethers were aloe-infused sheets of manila hemp dispensed from Kleenex-like boxes. They were invented in 1857 by a New York entrepreneur named Joseph Gayetty, who claimed his sheets prevented hemorrhoids. Gayetty was so proud of his therapeutic bathroom paper that he had his name printed on each sheet. But his success was limited. Americans soon grew accustomed to wiping with the Sears Roebuck catalog, and they saw no need to spend money on something that came in the mail for free.
Toilet paper took its next leap forward in 1890, when two brothers named Clarence and E. Irvin Scott popularized the concept of toilet paper on a roll. The Scotts’ brand became more successful than Gayetty’s medicated wipes, in part because they built a steady trade selling toilet paper to hotels and drugstores. But it was still an uphill battle to get the public to openly buy the product, largely because Americans remained embarrassed by bodily functions. In fact, the Scott brothers were so ashamed of the nature of their work that they didn’t take proper credit for their innovation until 1902.
“No one wanted to ask for it by name,” says Dave Praeger, author of Poop Culture: How America Is Shaped by Its Grossest National Product. “It was so taboo that you couldn’t even talk about the product.” By 1930, the German paper company Hakle began using the tag line, “Ask for a roll of Hakle and you won’t have to say toilet paper!”
As time passed, toilet tissues slowly became an American staple. But widespread acceptance of the product didn’t officially occur until a new technology demanded it. At the end of the 19th century, more and more homes were being built with sit-down flush toilets tied to indoor plumbing systems. And because people required a product that could be flushed away with minimal damage to the pipes, corncobs and moss no longer cut it. In no time, toilet paper ads boasted that the product was recommended by both doctors and plumbers.
The Strength of Going Soft
In the early 1900s, toilet paper was still being marketed as a medicinal item. But in 1928, the Hoberg Paper Company tried a different tack. On the advice of its ad men, the company introduced a brand called Charmin and fitted the product with a feminine logo that depicted a beautiful woman. The genius of the campaign was that by evincing softness and femininity, the company could avoid talking about toilet paper’s actual purpose. Charmin was enormously successful, and the tactic helped the brand survive the Great Depression. (It also helped that, in 1932, Charmin began marketing economy-size packs of four rolls.) Decades later, the dainty ladies were replaced with babies and bear cubs—advertising vehicles that still stock the aisles today.
By the 1970s, America could no longer conceive of life without toilet paper. Case in point: In December 1973, Tonight Show host Johnny Carson joked about a toilet paper shortage during his opening monologue. But America didn’t laugh. Instead, TV watchers across the country ran out to their local grocery stores and bought up as much of the stuff as they could. In 1978, a TV Guide poll named Mr. Whipple—the affable grocer who implored customers, “Please don’t squeeze the Charmin”—the third best-known man in America, behind former President Richard Nixon and the Rev. Billy Graham.
Currently, the United States spends more than $6 billion a year on toilet tissue—more than any other nation in the world. Americans, on average, use 57 squares a day and 50 lbs. a year.
Even still, the toilet paper market in the United States has largely plateaued. The real growth in the industry is happening in developing countries. There, it’s booming. Toilet paper revenues in Brazil alone have more than doubled since 2004. The radical upswing in sales is believed to be driven by a combination of changing demographics, social expectations, and disposable income.
“The spread of globalization can kind of be measured by the spread of Western bathroom practices,” says Praeger. When average citizens in a country start buying toilet paper, wealth and consumerism have arrived. It signifies that people not only have extra cash to spend, but they’ve also come under the influence of Western marketing.
America Without Toilet Paper
Even as the markets boom in developing nations, toilet paper manufacturers find themselves needing to charge more per roll to make a profit. That’s because production costs are rising. During the past few years, pulp has become more expensive, energy costs are rising, and even water is becoming scarce. Toilet paper companies may need to keep hiking up their prices. The question is, if toilet paper becomes a luxury item, can Americans live without it?
The truth is that we did live without it, for a very long time. And even now, a lot of people do. In Japan, the Washlet—a toilet that comes equipped with a bidet and an air-blower—is growing increasingly popular. And all over the world, water remains one of the most common methods of self-cleaning. Many places in India, the Middle East, and Asia, for instance, still depend on a bucket and a spigot. But as our economy continues to circle the drain, will Americans part with their beloved toilet paper in order to adopt more money-saving measures? Or will we keep flushing our cash away? Praeger, for one, believes a toilet-paper apocalypse is hardly likely. After all, the American marketing machine is a powerful thing.
Monday, November 2, 2009
Human face of Dirt Cheap moves on — as competitor
By Phil O'Connor
ST. LOUIS POST-DISPATCH
Monday, Nov. 02 2009
His family's legacy in the St. Louis business community traces back to 1812,
when his great-great-grandfather founded a pretzel shop near what is now the
south leg of the Gateway Arch.
But it was his television appearances, often alongside an oversized furry
yellow chicken that chirped "Cheap, cheap, fun, fun," for which Fred Teutenberg
may be best known. Those corny TV spots, regularly laced with low-brow humor,
made Dirt Cheap discount liquor and cigarette stores a hit, both as a business
and as a recognizable brand across the metro area.
Now the man, who not long ago was reminding viewers that "the more she drinks,
the better you look," has moved on. After spending the last 16 years helping
establish Dirt Cheap and nurturing its growth to 14 stores, Teutenberg is
starting a new line of liquor stores under a new name.
While he's excited about his new venture, Teutenberg declined to discuss how he
feels about competing against the company he helped build. Nor does he care to
discuss his departure from Dirt Cheap, including reports that he was forced
out.
"No use going into the nitty-gritty, but we had a parting of the ways," said
Teutenberg, who was the company's president.
Dirt Cheap is controlled by members of the Paul Taylor family. Taylor founded
U-Gas, which operates 15 gas and convenience stores in the St. Louis area.
Through an attorney, company officials declined comment about Teutenberg and
his plans. In fact, both sides signed a legal agreement that prohibits them
from discussing the split.
Already, it's clear Teutenberg won't stray too far from the strategy that made
Dirt Cheap such a success. The name — Fred's Cheapo Depot — is the first
giveaway. The stores also will carry many of the same product lines as Dirt
Cheap.
But there will be some changes. The Cheapo Depot stores will have a retro
atmosphere that harken back to a time when, as Teutenberg describes it, "people
were more comfortable drinking and smoking in public and not so politically
correct."
Competitors, friends and family describe Teutenberg as a kind-hearted
workaholic with a passion for his customers. At 70 years old, he has no
intention of retiring.
Instead, he is busy working on two new stores he hopes to open by the end of
the year. One store will be in downtown St. Louis, the other in South County.
"It's starting from scratch," said Stacey Page, a former Dirt Cheap employee
who is vice president and chief financial officer of the new stores. "But
there's a lot of people who care about Fred and want him to be successful."
Teutenberg says he's ready for the challenge. And besides, it's not the first
time he has had to start over.
HARD KNOCKS
For five generations, the Teutenbergs operated several well-known bakeries and
restaurants in the area, making it at one time the oldest continually operating
business in the Midwest.
But with creditors closing in, it was Fred Teutenberg who made the decision to
close the last of the restaurants in 1991.
"It was no longer economically viable," he said. "We couldn't go on."
The family sold their home in Ladue and moved to a smaller house in Clayton.
"It's fair to say we struggled," he said.
Teutenberg's wife of 42 years recalled the months after the restaurants closed
as an introspective period for her husband. "It was time when he figured out he
wanted to go in a new direction," Janet Teutenberg said.
About that time, cigarette outlet shops were opening across the country that
took advantage of tax variances among neighboring jurisdictions to sell their
products at a lower price.
Teutenberg went into business with Taylor, a friend he had been classmates with
in high school and college. The first Dirt Cheap store opened in January 1993
in a strip shopping center that Taylor's mother owned at Highway 30 and Valley
Dell Drive in Fenton. They hoped Jefferson County's lower cigarette taxes would
lure customers from St. Louis County seeking cheaper alternatives.
The second and third stores opened later that year at Telegraph and Forder
roads, and at Dunn and Bellefontaine roads, locations aimed at drawing Illinois
buyers. Buying in bulk, selling at a discount and operating on thinner margins,
the business took off. Then came the television spots.
Teutenberg offered customers "the last refuge for the persecuted smoker." His
reminder to "be careful out there" became a staple. The chicken arrived when
the store needed a logo for its own line of beer.
"We struck some kind of chord," Teutenberg said.
Haim Mano, an associate professor of marketing at the University of
Missouri-St. Louis, said he often discusses the Dirt Cheap ads in classes.
Despite their low-value production, the ads effectively use humor to draw in
viewers and boost brand awareness.
"The fact that they've been going on for so many years, and we talk about them
and love to watch them even though we hate them, means they're doing something
right," Mano said.
A television commercial for Teutenberg's new stores — minus some of the
trademark lines of the previous ads but featuring a cartoon version of
Teutenberg — began running earlier this month. On the new store's website,
Teutenberg wrote, "We have ditched the pesky chicken and the big company
bureaucracy and left them behind."
FRUGALITY LEARNED
Friends and business associates say Teutenberg's common-man approach isn't just
a marketing ploy.
Teutenberg grew up in Webster Groves and attended public schools before
graduating from Washington University. Despite their success, his parents were
frugal, influenced by the Depression and World War II, a trait they passed on
to their son, according to his wife.
From his father, Teutenberg said he learned to work hard, not waste money, be
diligent and treat everyone fairly. But he said one lesson didn't stick.
"He always said, 'You have your business so you can live, you don't live so you
can have your business,'" Teutenberg said. "He might accuse me of living too
much for my business. But I think he would be proud of me."
Along the way, Teutenberg said he has learned that karma and luck have as much
to do with success as anything. "I know people in business who worked hard and
were successful and other people who worked just as hard and weren't. Working
hard, per se, doesn't guarantee it."
The couple, who have four grown children, now live in a modest-size brick house
with an American flag out front on a quiet street in Brentwood. Teutenberg
drives a 4-year-old Jeep Cherokee. He has no real hobbies, belongs to no
country clubs. He sleeps only a few hours a night, smokes a pack and half of
Kent Lights a day, and relaxes with Beefeaters gin and a good book.
He wears rumpled, off-the-rack suits and rarely dons a tie.
"It's who he is," said Jon Rand, president of Discount Smoke Shops. "Fred could
afford as nice a suit as anybody, but that's not his image. He'll wear a suit
every day, but it's a common man's suit, isn't it?"
REFLECTING ON LEGACY
If Teutenberg ever had any guilt about not passing the family restaurant
business on to his children, it has been alleviated.
Three years ago, his youngest daughter put the family name on a restaurant she
opened with the help of relatives at Seventh and Olive streets. Joanne
Teutenberg, 26, believes her father always had regrets about leaving the
restaurant business even though it opened up other opportunities for him.
"I think it was nice for him to be able to reconnect with that when we reopened
down here," she said.
Taking a break at a table in the restaurant's smoking section last week,
Teutenberg was asked to reflect on his family's legacy and his place in it. He
doesn't worry that he might one day be best remembered for his corny
commercials.
"I don't think about that kind of stuff at all," he said in his smoke-cured
voice. "That stuff's for presidents."
His competitor, Rand, suggested what he considered a most appropriate epitaph —
Fred Teutenberg: "He loved his customers."
ST. LOUIS POST-DISPATCH
Monday, Nov. 02 2009
His family's legacy in the St. Louis business community traces back to 1812,
when his great-great-grandfather founded a pretzel shop near what is now the
south leg of the Gateway Arch.
But it was his television appearances, often alongside an oversized furry
yellow chicken that chirped "Cheap, cheap, fun, fun," for which Fred Teutenberg
may be best known. Those corny TV spots, regularly laced with low-brow humor,
made Dirt Cheap discount liquor and cigarette stores a hit, both as a business
and as a recognizable brand across the metro area.
Now the man, who not long ago was reminding viewers that "the more she drinks,
the better you look," has moved on. After spending the last 16 years helping
establish Dirt Cheap and nurturing its growth to 14 stores, Teutenberg is
starting a new line of liquor stores under a new name.
While he's excited about his new venture, Teutenberg declined to discuss how he
feels about competing against the company he helped build. Nor does he care to
discuss his departure from Dirt Cheap, including reports that he was forced
out.
"No use going into the nitty-gritty, but we had a parting of the ways," said
Teutenberg, who was the company's president.
Dirt Cheap is controlled by members of the Paul Taylor family. Taylor founded
U-Gas, which operates 15 gas and convenience stores in the St. Louis area.
Through an attorney, company officials declined comment about Teutenberg and
his plans. In fact, both sides signed a legal agreement that prohibits them
from discussing the split.
Already, it's clear Teutenberg won't stray too far from the strategy that made
Dirt Cheap such a success. The name — Fred's Cheapo Depot — is the first
giveaway. The stores also will carry many of the same product lines as Dirt
Cheap.
But there will be some changes. The Cheapo Depot stores will have a retro
atmosphere that harken back to a time when, as Teutenberg describes it, "people
were more comfortable drinking and smoking in public and not so politically
correct."
Competitors, friends and family describe Teutenberg as a kind-hearted
workaholic with a passion for his customers. At 70 years old, he has no
intention of retiring.
Instead, he is busy working on two new stores he hopes to open by the end of
the year. One store will be in downtown St. Louis, the other in South County.
"It's starting from scratch," said Stacey Page, a former Dirt Cheap employee
who is vice president and chief financial officer of the new stores. "But
there's a lot of people who care about Fred and want him to be successful."
Teutenberg says he's ready for the challenge. And besides, it's not the first
time he has had to start over.
HARD KNOCKS
For five generations, the Teutenbergs operated several well-known bakeries and
restaurants in the area, making it at one time the oldest continually operating
business in the Midwest.
But with creditors closing in, it was Fred Teutenberg who made the decision to
close the last of the restaurants in 1991.
"It was no longer economically viable," he said. "We couldn't go on."
The family sold their home in Ladue and moved to a smaller house in Clayton.
"It's fair to say we struggled," he said.
Teutenberg's wife of 42 years recalled the months after the restaurants closed
as an introspective period for her husband. "It was time when he figured out he
wanted to go in a new direction," Janet Teutenberg said.
About that time, cigarette outlet shops were opening across the country that
took advantage of tax variances among neighboring jurisdictions to sell their
products at a lower price.
Teutenberg went into business with Taylor, a friend he had been classmates with
in high school and college. The first Dirt Cheap store opened in January 1993
in a strip shopping center that Taylor's mother owned at Highway 30 and Valley
Dell Drive in Fenton. They hoped Jefferson County's lower cigarette taxes would
lure customers from St. Louis County seeking cheaper alternatives.
The second and third stores opened later that year at Telegraph and Forder
roads, and at Dunn and Bellefontaine roads, locations aimed at drawing Illinois
buyers. Buying in bulk, selling at a discount and operating on thinner margins,
the business took off. Then came the television spots.
Teutenberg offered customers "the last refuge for the persecuted smoker." His
reminder to "be careful out there" became a staple. The chicken arrived when
the store needed a logo for its own line of beer.
"We struck some kind of chord," Teutenberg said.
Haim Mano, an associate professor of marketing at the University of
Missouri-St. Louis, said he often discusses the Dirt Cheap ads in classes.
Despite their low-value production, the ads effectively use humor to draw in
viewers and boost brand awareness.
"The fact that they've been going on for so many years, and we talk about them
and love to watch them even though we hate them, means they're doing something
right," Mano said.
A television commercial for Teutenberg's new stores — minus some of the
trademark lines of the previous ads but featuring a cartoon version of
Teutenberg — began running earlier this month. On the new store's website,
Teutenberg wrote, "We have ditched the pesky chicken and the big company
bureaucracy and left them behind."
FRUGALITY LEARNED
Friends and business associates say Teutenberg's common-man approach isn't just
a marketing ploy.
Teutenberg grew up in Webster Groves and attended public schools before
graduating from Washington University. Despite their success, his parents were
frugal, influenced by the Depression and World War II, a trait they passed on
to their son, according to his wife.
From his father, Teutenberg said he learned to work hard, not waste money, be
diligent and treat everyone fairly. But he said one lesson didn't stick.
"He always said, 'You have your business so you can live, you don't live so you
can have your business,'" Teutenberg said. "He might accuse me of living too
much for my business. But I think he would be proud of me."
Along the way, Teutenberg said he has learned that karma and luck have as much
to do with success as anything. "I know people in business who worked hard and
were successful and other people who worked just as hard and weren't. Working
hard, per se, doesn't guarantee it."
The couple, who have four grown children, now live in a modest-size brick house
with an American flag out front on a quiet street in Brentwood. Teutenberg
drives a 4-year-old Jeep Cherokee. He has no real hobbies, belongs to no
country clubs. He sleeps only a few hours a night, smokes a pack and half of
Kent Lights a day, and relaxes with Beefeaters gin and a good book.
He wears rumpled, off-the-rack suits and rarely dons a tie.
"It's who he is," said Jon Rand, president of Discount Smoke Shops. "Fred could
afford as nice a suit as anybody, but that's not his image. He'll wear a suit
every day, but it's a common man's suit, isn't it?"
REFLECTING ON LEGACY
If Teutenberg ever had any guilt about not passing the family restaurant
business on to his children, it has been alleviated.
Three years ago, his youngest daughter put the family name on a restaurant she
opened with the help of relatives at Seventh and Olive streets. Joanne
Teutenberg, 26, believes her father always had regrets about leaving the
restaurant business even though it opened up other opportunities for him.
"I think it was nice for him to be able to reconnect with that when we reopened
down here," she said.
Taking a break at a table in the restaurant's smoking section last week,
Teutenberg was asked to reflect on his family's legacy and his place in it. He
doesn't worry that he might one day be best remembered for his corny
commercials.
"I don't think about that kind of stuff at all," he said in his smoke-cured
voice. "That stuff's for presidents."
His competitor, Rand, suggested what he considered a most appropriate epitaph —
Fred Teutenberg: "He loved his customers."
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