Category Archives: Innovation

The Times Cracks the Digital Code

The New York Times has been congratulating itself for signing up the one-millionth paid subscriber to its digital edition, and well it should. In an age when information wants to be free, as Stewart Brand supposedly said, convincing a million people to pay for access to information over the Internet is a big deal.

The folks at the Gray Lady, predictably, attribute NYT.com’s large following to the high-quality journalism provided by its crack reporters around the world. In my view, the Times has succeeded in finding subscribers online for an entirely different reason. Its digital editors, if that’s the proper name for the folks who manage NYT.com, have figured out how to create a product that’s hard to steal.

Content theft is the bane of any information provider’s existence in the digital era. Articles, chapters, even entire books end up on the Internet without authorization, placed there by people who think they are providing a public service. A couple of years ago, I even came upon a French translation of one of my books on the Internet, the work of a university student who had translated it, without permission, because he thought that was a cool thing to do. Similarly, people think nothing of copying music or photos from the Internet without permission from those who wrote the songs, took the pictures, or acquired the rights from the creators. Many  content providers have tried to deal with rampant theft by putting their content behind pay walls, but in general this strategy has not succeeded. In the case of newspapers, many of them have trimmed their staffs to the point that their content just isn’t worth the money they charge, especially when potential subscribers know that any truly important news will appear all over cyberspace within minutes of its publication.

After years of treating its web product as a digital version of its print edition, the Times finally learned that the way to deal with content theft is to publish a multimedia product instead of an online newspaper. While much of the content on NYT.com is plain old news articles, a significant amount is infused with videos, audio clips, photo essays, or dynamic maps and charts. This non-written content is of extremely high quality and well worth seeing or hearing. But what matters from the commercial point of view is that the complete package of these diverse content types embedded in a written article can’t readily be cut and pasted into other websites. If you want to read, watch, and listen, and if you want to talk to others about that terrific video on NYT.com just like you talk about an article, you’ve got to subscribe.

So congrats to the Times on finding an approach that makes its product harder to steal while making digital subscribers feel like they are getting something valuable and unique for their money. If subscribers like the digital product enough that they are willing to pay serious money for it,  advertisers should like it, too.

End of the Road for an American Icon

The July 20 bankruptcy filing by the Great Atlantic & Pacific Tea Company marks the end of the road for one of the icons of American business. The filing was in no sense a surprise: A&P has spent more than half a century driving itself out of business, shrinking over the years from a nationwide retailer to a small regional grocery chain. Few people, aside from its remaining employees, will grieve. Indeed, most people who think of A&P at all today remember it mainly as the dim and dowdy place where their Grandma used to shop.

But in its day, A&P transformed American retailing several times over. The company, then known as the Great American Tea Company, introduced mail-order shopping in the 1860s. In the 1890s, it developed the concept of handing out reward coupons with each purchase, an idea that soon had millions of housewives collecting trading stamps to exchange for lamps and crockery. Discount shopping as we know it today originated with A&P in 1912, despite the objections of Boston attorney Louis D. Brandeis, not yet on the Supreme Court, who thought consumers would be confused if a product did not sell at the same price everywhere. “The evil results of price-cutting are far-reaching,” Brandeis warned.

For more than four decades, from 1920 into the 1960s, A&P was the largest retailer in the world. It may also have been the most controversial. With stores in 3,800 towns, supplied by its own state-of-the-art bakeries and macaroni plants, dairies and salmon canneries, it squeezed costs out of the food distribution system and consistently undercut mom-and-pop grocers. A&P put fear into the hearts of small-town merchants. The earliest radio talk show hosts built their audiences by inveighing against it. State legislatures tried to tax it out of business. When that did not stop it from cutting prices, many states limited discounting by requiring minimum mark-ups on every single item in the store.

Washington got into the act, too. The literature lionizing Franklin Roosevelt as the first pro-consumer president ignores his support for a 1936 law intended to prohibit manufacturers from granting volume discounts, as well as the fact that his Justice Department sued A&P for selling food too cheaply—and won in court. As late as the 1950s, the federal government was still trying to break A&P into pieces, claiming that it was “impervious to competition.”

Washington needn’t have bothered. Competition carried the day. More aggressive grocers pushed A&P to the sidelines, but now they, too, are being pushed aside. The supermarket, a format A&P pioneered in the 1930s, is old hat. A host of innovators, from deep discounters to organic food chains to drug stores touting packaged foods to glitzy gourmet emporia, has the food retail industry in turmoil. If you shop for groceries, this is a wonderful development. If you’re trying to sell them, life won’t get any easier.

Missing the Bus

A couple of days ago, I had to catch a flight at Dulles Airport. This is a considerable inconvenience: although Dulles supposedly serves Washington, DC, where I live, getting from Washington to Dulles can take longer than getting from Dulles to your destination. It can be expensive, too. The cab fare is upwards of 80 bucks. So to reach the airport, I took the 5A bus.
I boarded at L’Enfant Plaza, a dead zone of 1960s architecture in Southwest Washington. Only four other passengers joined me, aboard a bus without a luggage rack. Having made this trip before, I knew where my suitcase should go: in front of the rear exit door. The two Brits who boarded with me didn’t believe this was necessary.
They were convinced when we pulled up to the next stop, at Rosslyn, just across the river in Northern Virginia, to find a small army awaiting. Perhaps 50 people climbed on board. The first few put their luggage by the exit door, next to mine, making the emergency exit absolutely inaccessible in the event of an emergency. The next three dozen sat with their suitcases on their laps. Another 15 stood in the aisle, with one hand on their roller boards, the other grasping the silver handrail above their heads. Fifteen or 20 more were left at curbside, informed that the bus was full, and that they’d have to wait for the next one.
All in all, the hour-long ride on the 5A is a pretty lousy way for Metro, the Washington area’s main transit agency, to treat its customers, and it’s certainly not a nice way for the nation’s capital to greet its visitors. It’s worth asking why this problem can’t be fixed.
The answer, of course, is that it is being fixed. The Metropolitan Washington Airports Authority, the agency that runs Dulles Airport, is building a rail line to the airport. The first phase opened last year. The second, supposedly, will open in 2020. Together, they will cost at least $5.8 billion, a good hunk of it supplied by the federal government. When the Silver Line is finished, passengers may have a more comfortable trip from Washington to Dulles Airport, but that trip will take even longer on a Metro train than it does on the 5A bus.
We’ve heard a great deal of lamentation about America’s infrastructure crisis, about the purported lack of investment in vital transportation facilities. There are, indeed, places where the infrastructure is crumbling. But it is equally true that we have a marked preference for expensive solutions to our transportation problems. Yes, I know that many people besides airline passengers will ride the Silver Line. But I also know that for a great deal less than $5.8 billion, and in a matter of weeks rather than five years, Metro and the airports authority could provide more frequent service between Washington and Dulles. They could introduce luggage racks, so passengers who’ve paid $7 for the ride don’t have to spend an hour with their suitcases on their laps. With a better, more comfortable bus service, they might even manage to reverse the declining passenger numbers at Dulles by proving that the airport is not so hard to get to.
Innovation is a tough slog in the public transportation business. Too often, the folks who run transportation agencies associate innovation with expensive new equipment, custom-built infrastructure, and whizzy branding. But as I showed a couple of years ago when I described how the grocery chain A&P became the biggest retailer in the world, the best innovations often involve nothing more than better ways of doing business. It’s a lesson the folks at Metro and the Metropolitan Washington Airports Authority could stand to learn: a frequent, less uncomfortable bus service that gets passengers to the airport on time would be a valuable innovation.

The Case for Giving It Away

Elon Musk, the head of Tesla Motors, announced today that his company will not sue others who use Tesla’s technology. Rather than continuing to protect its inventions, Tesla is giving them away.

This isn’t as daft as it sounds. In fact, I wrote about a similar situation in my book on containerization, The Box. One of the factors that limited the growth of container shipping, in the 1950s and early 1960s, is that there was no standard way to move containers. Some had slots at the bottom, so they could be lifted by forklifts. Others had eyes on the top, to be picked up by hooks dangling from a crane. Most had steel fittings at the corners, so that a crane could lower a steel frame, called a spreader, that could grab the container at all four corners and lift it. But the corner fittings and spreaders were patented, and no two companies’ designs were alike. What this meant was that a crane capable of handling a Grace Line container couldn’t lift a container belonging to Sea-Land Service or United States Lines.

Everyone connected with the container shipping recognized that a standard design was essential if the industry was to grow. But each company thought its design should become the standard. Finally, in 1963, Malcom McLean, who had started the modern container shipping industry in 1956 with the ship line that became Sea-Land, agreed that his company would allow anyone to use its patents for the corner fitting and the twist-lock, a nifty little device that connects the corner fittings of two containers with the turn of a handle. The Sea-Land corner fitting became the basis for a worldwide standard. Once any crane in any port could lift any container, the container shipping industry burgeoned. Sea-Land became far bigger and more profitable by giving away its technology than it would have been had it kept its innovations to itself.

This seems to be what Mr. Musk has in mind. Tesla, its stratospheric market capitalization notwithstanding, is a small manufacturer of what is very much a niche product. The company’s long-run prospects are limited unless electric cars go mainstream, but this won’t happen unless they become far cheaper than they are today.  Cost saving is likely to require standardization of many components in electric vehicles. By giving away Tesla’s technology, Mr. Musk may be encouraging suppliers to develop components that can be sold to many electric vehicle assemblers, creating economies of scale. If that happens, costs and prices should fall, boosting sales of electric cars and accelerating the installation of charging stations. Down the road, Tesla could have an important role in a far larger industry, with profits to match.