“I always want to start my own business…I don’t like the food around our campus…so I think if I have chance to cook I would make it more delicious and healthy…Then I talked to my girlfriend and she supported my idea…Actually USC has a lot of Chinese students,” said Zhong.

After deep conversations with their parents, they decided to start their new business with the money, 50,000 dollars, supported by their parents.

As the largest segment of enrolled international population, USC has 2,515 Chinese students, which ranks NO.1 in US universities, according to annual Open Doors report by the Institute of International Education.

In September, after eight-month preparations, Zhong finally signed a contract with a professional catering kitchen in downtown area, Los Angeles and officially started his business in October.

They set up a website and an app, which both could search their menus and order meals online. After the first month, they built connections with some returned customers and their friends. On Chinese twitter, Weibo, they launched special order promotions for attracting customers and got much more followers than before. However, the booming market didn’t bring them more orders.

“…Eight to nine dollars for a combo is actually cheap for lunch…we plan to have 30-50 orders every day after the first month, but it’s much harder than we imagined…the truth is that we only have less than 15 orders every day…under our expectations,” said Zhong.

In December, China News, one of the largest Chinese news agencies, reported their story on Chinese websites. They were getting popular on Chinese Internet and even attracted Chinese investors who are in US.

“ The investor told me that he could invest around one million dollars…we met once in bay area before…it’s just unbelievable…We are going to meet again after New Year,” said Zhong.

In Las Vegas, Zhong and his girlfriend met their investor Mr. Xi. After two-day negotiations, 10,000 dollars would be put at the beginning stage for new products research such as fresh fruit juice and marketing plans, which means they have to change their original business model.

“ With the money we can hire more people to help us with market research and other stuff…but it’s getting a little bit different with our original goal… we are still thinking over the whole business plan,” said Zhong.

More than 200 million businesses are started in US every year, according to a study released today by the Small Business Administration Office of Advocacy, nearly 20 percent of immigrant-owned businesses started $50,000 or more in startup capital, compared to 15.9 percent for non-immigrant-owned business.

Zhong has entirely stopped his food delivery since February. They might need more time to adjust their dream and try to find a way to achieve it in the real world. They still have a long way to go.

 

In April, the initial delivery of Tesla arrived in China. As one of the first customers, Dongfeng Wang got the key from Elon Musk who is the founder of Tesla Automotive in Beijing. Wang described that driving Tesla reminds him of the experience using a new smartphone, according to Phenix.com.

“I fall in love with it at first sight, I paid 40,000 dollars for ordering a Tesla while I visited Tesla in Silicon Valley,” said Wang.

Building up the marketing team in China at the beginning of 2013, Tesla already received 5,000 orders all over China by the end of the year, even though they hadn’t set up any service store in Beijing yet. It became a new luxury fashion among Chinese rich people. The average price of a Tesla Model S costs about 800,000 RMB (around 150,000 dollars).

Tesla–the apple of auto industry 

Founded in 2003, Tesla, as an electronic car company, has been making records in the past few years not only for their plan to build the world’s largest lithium-ion battery factory, but also for the new Arizona bill that would allow the company to sell cars and bypass dealers, a win in its ongoing battle in other states against dealer licensing regulations, according to Forbes, the interview with Eugene Groysman, an Apple expert at Marketocracy.

“Just like Apple, Tesla has an opportunity to revolutionize a market. With Apple it was the unique products of the iPod and iPhone that revolutionized the digital music and mobile phone markets,” said Groysman.

Elon Musk, as the founder of Tesla and Space X, created a new revolution in auto industry. Electronic car technology was not latest developed but Musk made it as a new fashion of driving. In Tesla’s 10 years of existence, the company has suffered through embarrassing delays and leadership overhauls, verged on bankruptcy at least once, and been a favorite target of short sellers. In May 2013, it posted its first profitable quarter, with earnings of $11.2 million; sales for the first quarter rose 83 percent, to $562 million. Now more and more young people love to choose a Tesla or make it as one of their dreams to achieve.

Following Tesla’s lead, General Motor and Ford have started hiring software developers in its technology department. “The carmakers see kids opting to watch movies on their iPads instead of on pricey, built-in infotainment systems, and know they need to find a way to keep up”, by Bloomberg BusinessWeek. Tesla has just released its Q1 financial results. Adjusted earnings per share came in at $0.12 per share, which was higher than the $0.07 expected by analysts surveyed. During the quarter, the company produced 7,535 models S and delivered 6,457, according to Bloomberg. The stock is down by around 6% in after-hours trading. Management expects about 7,500 deliveries in Q2 and says it’s on track for 35,000 deliveries for the year.

“We are expanding our factory capacity to support increased Model S production later this year and the introduction of Model X next year,” said Musk.

Tesla’s Competitors

In the traditional auto industry, there are several old electronic car brands such as Chevrolet Volt, Ford Focus EV and Nissan Leaf. Tesla’s sedan may fall short of some of its electric competitors’ efficiency, but its driving range blows every one of them out of the water, according to an assessment website, Car and Driver. However, Tesla was outstanding on sales in the first quarter.

The company’s supercharger network is expanding quickly, it feels like a new location opens almost every other day. With 65 chargers in the U.S., 14 in Europe, and plans to expand it to China, Tesla is doing what it can to make it possible to drive its cars long distances given the constraints of current battery technology. The network is especially strong in California and along the west coast, where Teslas have been especially popular, according to Forbes.

Coda and Fisker were two main competitors in the new electronic vehicle industry. Parent company Coda Holdings filed for bankruptcy protection in 2013 in Delaware. Bloomberg Business Week says Los Angeles-based Coda Holdings is seeking to sell its assets to a publicly traded private equity group, Fortress Investment Group, for $25 million. It listed assets of up to $50 million and debt of $100 million. Fisker lost money on its first model. Unlike Tesla, though, Fisker ran out of cash before it could rein in costs and establish tighter controls. Fisker stopped production in the summer of 2012, and was seeking new investment. Fisker eventually declared bankruptcy in November 2013, and in February 2014 the company was bought by Chinese auto-parts conglomerate Wanxiang Group, according to Bloomberg BusinessWeek.

At the same time, Tesla was also struggling with government rules in US. It has to overcome strong political opposition in many states. It is one of significant hurdles about which there is much disagreement.

If there’s a secret to Tesla’s success, it’s been to outsource as little as possible. According to Bloomberg, the company has insisted on doing just about everything it can in-house, which has helped it develop intellectual property and control costs. Tesla built the battery pack replacement feature into the Model S, for example, and then designed the robots that will do the work. None of the engineers came from the auto industry; they were largely solar-powered car hobbyists and gadget makers. A key decision by the founding crew was to lash together thousands of the lithium ion batteries found in laptops to form a giant battery pack.

To the investor, the biggest concern is that the Model X and the new sedan won’t be cheap enough to attract regular buyers.

It won’t break down sales by state, though the company has opened multiple stores in New York, Texas, Illinois, and Florida, and says about three-quarters of revenue comes from outside California, according to Bloomberg, and its next test will be in Europe and Asia. Investors will be watching closely to see whether Germans and Chinese take to the car the way wealthy American geeks and eco-absolutists have—and if they do, how well that Fremont factory holds up under the stress. These are predictions for Tesla.

Tesla vs. BYD 

Founded in 1995, BYD has developed very quickly at the early ages in China. Recent years, it has been losing power in China’s auto market. However they put more effort on digging into US market. A battery-powered, 40-foot bus is set to roll off the assembly line in a former recreational vehicle factory in Lancaster, California, a blue-collar desert community north of Los Angeles. The $38 billion Chinese conglomerate makes everything from electric cars to LED lighting to solar panels, according to Los Angeles Times.

Most of media focused on BYD’s rocky entry into the U.S. market and his famous investor-Warren Buffet. California state regulators last year docked the company $99,245 for violating state labor laws by under-paying Chinese engineers it brought over to work at the Lancaster factory. The labor commission later dropped that charge and reduced the fine to $37,803 for minor infractions of state labor laws. However, it didn’t stop BYD to become the “official electronic vehicle”.

http://youtu.be/sA3Sz1T79mc

“BYD could make a Tesla any minute if consumer demand for electric cars really ramps up.” that was the latest bold claim by Wang Chuanfu, chairman of BYD.

Wang also acknowledged Tesla got an astonishing success at developing high-end electric cars, changing consumer-buying habits, and training environmentally conscious drivers. However, Wang believes that Tesla’s high-end electric car strategy is not compatible with BYD’s low-end consumer strategy. not planning to go head-to-head competition with Tesla.

“For us, the technology for pure electric car is not the problem. The problem is the market. To scale up new production capabilities, it takes about 4-5 years,” said Wang.

Holding 10% stake in the company back in 2008, Warren Buffet is BYD’s rock. At the moment, BYD’s all-electric e6 car—not a high-performance sports car like Tesla’s has been sold only in Shenzhen, where it is mainly used for taxicabs. It has struggled to gain traction due to a high sticker price, which costs about $60,000 in China, according to the Wall Street Journal.

As a hugely important market for Tesla and BYD, China will be their direct battlefield in next decades. According to Quartz, Dougherty & Company analyst Andrea James has said it has the potential to be the company’s second biggest market. Tesla unveiled highly competitive pricing for the Chinese market earlier this year and plans to start selling cars in April. Whatever Musk may have said in 2011, BYD may now be the company he has to beat.

Is China ready for Tesla?

A group of 23 Chinese Tesla buyers from cities other than Beijing and Shanghai has filed a class action against the company addressed to Tesla Automobile Sales (Beijing), Chinese retailer of Tesla, and CFO of the company Deepak Ahuja. Tesla is accused of consumer fraud or false advertising for changing the shipment order of the preordered automobiles without noticing the customers, according to TechNode.

The customers complained that Tesla promised consumers to ship products based on the payment order of deposit, which amounts to 250,000 RMB ($40,150), but customers in Beijing and Shanghai received emails to take their preordered cars recently, while buyers in areas other than these two cities are left behind. Elon Musk, the CEO of Tesla visited China last month and amid customer complaint turmoil.

Musk had another “mission” for his tour in China, handing keys to first delivery customers. He ever described China as a “wild card” in the company’s future. It’s all about timing.

China has set a target of having 5 million electric vehicles on its roads by 2020 as part of efforts to curb pollution, and other automakers are closely watching to see if Tesla can win over consumers in the market, according to LA times.

Beijing recently held a special auction for electric-vehicle license plates. The government also offers special incentives to buyers of Chinese-made electric vehicles, for instance, the Beijing municipal government enforced a quota of about 13% for hybrid electric and full-electric vehicles in the license plate registration lottery. And this share will keep increasing through 2017 to about 40%. The incentive has not been appealing enough for many in China. At the latest draw, while each permit for conventional gasoline autos received more than 90 bids, only 1,428 people applied for the 1,666 NEV plates on offer, according to ckgsb.edu. However, Tesla does not qualify for the program.

Besides government incentives, subsidies and tax reduction benefits provided for electric vehicles are certainly attractive in China.

Based on the targets set out in March 2013, the overall number of NEVs must reach 0.5 million in 2015 and 2 million by 2020. This revised target is less than half of the target of 5 million set earlier for 2020. Also, according to IHS data, at the end of 2012 there were only 27,800 such vehicles on the road, of which 80% were electric buses. Last year China sold a total of 17,642 NEVs including the 11,963 passenger NEVs (refer to the graph). This brings the total number of NEVs in operation to 45,442 units.

Among the first nine buyers to receive their Model S cars, which sell for about $122,000 in China, were influencers such as Cao Guowei, CEO of Internet company Sina, and Yu Yongfu, chief executive of the mobile Internet browser company UCWeb, according to LA Times.

Tesla ever said that they would make the price “fair” in China. In fact, At least 800,000 RMB per car is a kind of rich people’s toy. For instance, Chinese automaker BYD’s all-electric e-6 car can be bought for under 400,000 RMB, and its model Qin for even less.

Tesla recently announced that they would produce a mass-market electric car” in three years. They are planning to build a large-scale factory that will allow it “to achieve economies of scale and minimize costs through innovative manufacturing, reduction of logistics waste, optimization of co-located processes and reduced overhead”.

At least, China still need more time to be ready for a big warm welcome for Tesla or other electric vehicle companies.
 

 

 

 

 

 

 

 

 

 

 

 

 

Chinese e-commerce giant Alibaba on Tuesday filed for its long-awaited initial public offering, one of the largest in history.

Alibaba –described as eBay, Amazon and Google rolled into one – was evaluated at $150 billion to $200 billion. Its stock debut immediately gave it a higher market value than Facebook and Amazon.

It was estimated that the Hangzhou-based tech behemoth to raise $15 billion to $20 billion, exceeding Facebook’s record-breaking $16 billion IPO in May 2012.

Alibaba was founded in 1999 by Jack Ma, who was turned down for a number of jobs before starting his own e-commerce empire, including a manager post at a Kentucky Fried Chicken store.

Alibaba’s businesses include online shopping, business-to-business sales, online payments, shipping, wholesale trade and cloud computing. Alibaba’s retail marketplace last year processed 11.3 billion orders from 231 million active buyers for a total of $248 billion in purchases, more than the transaction volume on eBay and Amazon combined. On Singles Day in November, a popular holiday in China for online shopping, the company’s online retail portals processed $5.8 billion in spending. Alibaba earned net income reached about $1.4 billion last year with $5.6 billion in revenue.

While little known outside of China, Alibaba dominates the e-commerce market in the world’s second biggest economy. The company’s Taobao service has 800 million product listings from 8 million sellers. About 80 percent of all Chinese e-commerce transactions go through Alibaba.

The company also has strong U.S. ties. Yahoo owns a 22.6% stake in Alibaba. The IPO is great news for Yahoo investors and Yahoo shares rallied on that report. The Alibaba IPO filing followed the debut of Weibo , Chinese version of Twitter, which raised $286 million in April.

In the past few months, Alibaba invested $215 million in Mountain View mobile messaging service TangoMe, pouring $250 million into San Francisco ride-sharing app Lyft and $206 million worth of investment into ShopRunner, a delivery service for online purchases.

Alibaba has dropped billions of dollars to acquire other Chinese companies as well, including a $1.2 billion purchase last week of 16.5% share in China’s Youku and Tudou, Chinese equivalent to YouTube and Netflix.

However, Alibaba faces the challenge of convincing investors it will be a good buy.

The biggest concern has to do with transparency. People have suspicions about the way Chinese companies are operating, and they want know specific numbers and details about Alibaba’s books.

Analysts estimate the company could be worth $136 billion to $245 billion when it started to sell stocks, according to Wall Street Journal.

One key concern is where Alibaba’s core revenue growth is coming from and the company’s system for recording and reporting sales.

 

 

 

 

The advent of the internet allowed, for the first time, a more participatory, two-way form of communication. In the past, corporations and media companies broadcasted messages for the public to digest without offering a truly significant out for feedback save for letters to the editor. The internet however, created a collaborative platform in which not one single entity controlled the message. Users from around the world for the first time could engage in discussion and share ideas.

It is unsurprising, then, that the disruption of the model of communication would be echoed in the disruption of the traditional ways an entrepreneur would seek funding. While in the past entrepreneurs and hopeful business owners would have to rely on investors, loans or their own money, the emergence of the internet has allowed for a fairly new form of funding: crowdfunding.

According to Investopedia, crowdfunding is defined as “the use of small amounts to capital from a large number of individuals in finance a new business venture.” Social media platforms such as Twitter, Facebook, and LinkedIn and crowdfunding work in perfect tandem to attract as many investors as possible for the business venture.

There are two main models of crowdfunding: donation-based and investment crowdfunding. As the name suggests, with donation-based crowdfunding, funders willingly donate money towards some collaborative goal. More often than not, these funders will receive some sort of reward based on how much money they donate. For example, in the case of funding a new album for a band, a funder may receive a CD for donating $10, or a private concert for donating $10,000.

Investment crowdfunding is different in the sense that funders will gain a portion of the business in form of stocks, equity or debt in return for their investment. In this model, funders have the opportunity to make money off their investment as opposed to the donation-based model, where funders will only receive a product or service (similar to pre-ordering an item.)

Research conducted by Massolution, an association dedicated to researching crowdsourcing and crowdfunding, showed that “crowdfunding platforms raised $2.7 billion and successfully funded more than 1 million campaigns in 2012.” Forecasts see these numbers increasing dramatically over the next few years as the successes of crowd-sourced projects continue to catch the public’s and potential business owners’ interests.

Crowdfunding offers many advantages over traditional forms of investment. First of all, it greatly benefits small businesses which lack the cash or resources in order to grow. When seeking funding for a project, the business sets a time limit (varying from a few weeks to a few months) and a target goal. Furthermore, details of the product are made available to the public, and the business’ financial records are made more transparent. Funders are also able to see the progress a business is making towards achieving that goal. Funders can be as involved as they like in the process by tracking progress, asking questions and offering suggestions. This creates a closer bond between the funder and the project owner, which creates a greater sense of loyalty and a better chance of retaining the funder as a potential customer.

There are various different crowdsourcing platforms available, but the most popular and most successful websites are Kickstarter, Indiegogo, and Crowdfunder. There are also more industry-specific crowdfunding websites such as Pledgemusic, which allows fans to contribute money towards their favourite artist to help them fund their next album or music endeavours.

 

Kickstarter, the biggest crowdfunding platform, was founded in 2009. In 2013 alone, 3 million people pledged $480 million to Kickstarter projects. 19,911 projects were successfully funded, resulting in the development of those products or services that were offered.

There are many projects which have become famous and popular in their own right after being funded on Kickstarter. Pebble – a customizable smartwatch which can connect to one’s iPhone or Android phone – is one of the most successful projects successfully funded by Kickstarter. The project attracted 68,929 backers and raised $10,266,845 out of the $100,000 goal it set. While the project is no longer open on Kickstarter, its enormous success allowed it to grow as a business and offer new and updated models from their website.

What made Kickstarter such an effective and popular platform was its unique business model. Kickstarter adopted an “all or nothing” approach. A project must achieve 100% of its funding goal in order to receive the funds. If a project is unable to reach the goal, the funds are returned to the backers. For every successful project, Kickstarter receives 5% commission. This means that with just the Pebble project alone, Kickstarter received $513,342.25 by simply hosting the project on their website. If the product is distributed on Amazon, Amazon will also take a commission of 2%.

However, Kickstarter – and crowdfunding – has its downsides as well. One of the general misconceptions of crowdfunding is that it is an easier way of obtaining funds. However, backers need to have faith in the product or service that is being offered – their ‘donation’ is essentially a vote of confidence. This means that one can’t just have an idea and post it on Kickstarter – they need to have already invested some of their own money in creating a prototype, videos and pictures to show the public. There is a risk on the backer’s side too: by pledging an amount of money, the backer is risking receiving a delayed, faulty, and/or low quality product that may not reach their expectations.

A committed community is also essential in order to reach the required number of backers. Due to Kickstarter’s “all or nothing” business model, it is imperative that a project receives at least 100% of their goal – else their efforts will have gone to waste. Kickstarter is also purely online. It is difficult to translate the efforts to raise money offline, and offline donations do not count towards the Kickstarter goal.

Overall, crowdfunding opens up many opportunities to small businesses that may not have otherwise been able to raise fund, and generates interest in creative and unique ideas. Crowdfunding, when done correctly, can clearly encourage entrepreneurship and innovation. With any investment, however, there is a risk in something not living up to one’s expectations. One also needs to keep in mind that the more investors, the more people one needs to please.

Additional sources:

Homepage

http://www.investopedia.com/terms/c/crowdfunding.asp

http://www.forbes.com/sites/chancebarnett/2013/05/08/top-10-crowdfunding-sites-for-fundraising/

http://www.forbes.com/sites/geristengel/2014/05/07/crowdfunding-is-more-than-just-the-money-it-helps-you-raise/

https://www.kickstarter.com/year/2013/?ref=footer#6-pebble

http://www.forbes.com/sites/suwcharmananderson/2012/11/30/kickstarter-dream-maker-or-promise-breaker/

 

 

 

 

 

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These images above are some of the most recognizable icons in the South Korean entertainment industry.  The Korean Wave, or hallyu, is still going strong, continuing to shape East Asian culture and trickling to parts of Europe as well. As an outsider, it is easy to ask, “What makes Korean entertainment so great?” What has made this tiny peninsula–divided in half–an Asian entertainment powerhouse?

The success of South Korea’s entertainment industry can be traced back to the Kim Dae Sung Administration in the late 1990s. During this time, the government’s investment in cultural products increased dramatically. One motivation was to strengthen its domestic market against the Japanese cultural products lingering from the colonial days. Another reason was to recover from the crippling Asian Financial Crisis of 1997, when the country’s GDP dropped 7%. In order to reinvigorate the economy and to raise South Korea’s global profile, President Kim put his faith into the entertainment industry, planting the seed of the hallyu phenomenon. In 1998, the Culture Ministry executed its first five-year campaign, including an increase of culture and fine arts departments in colleges. In 2002, the ministry opened the Korea Culture an Content Agency to encourage exports, sparking the beginnings of the Korean Wave, and injected funding into the Korean Film Council. The results were astronomical. The size of South Korea’s entertainment industry, jumped from $8.5 billion in 1999 to $43.5 billion in 2003. Cultural product exports were so insignificant before 1998 that the government could not even provide figures. Five years later, the number would grow to $650 million.

According to a Oxford Economics report titled, “The economic contribution of the film and television industries in South Korea,” the film and television sector have directly contributed 7,749 billion Won to the South Korean GDP in 2011. It has also supported 67,600 jobs and 3,752 billion Won in tax revenues. Average growth of this industry from 2005-2011 has been 10.7%. From this figures, it is clear this industry provides direct support to the country’s economy.

Cultural exports have promoted tourism and business into Korea, particularly from South East Asia. Past work by the Korean International Trade Association (KITA) suggested that Hallyu related tourism amounted to $825 million in 2004. I definitely experienced the impact of hallyu when I visited Seoul for a cultural immersion program. The hot tourist spots were cafes that were themed with a certain popular drama (for instance, the “Coffee Prince Cafe”). There was a statue of the famous lovers from the classic soap opera, Winter Sonata, one of the most successful Korean dramas to date. Many tourists sign up for hallyu-themed tours that take visitors to production sites of famous dramas and films.

What South Korea ultimately gained from their investment in entertainment was soft power. There have been instances where the government leveraged its cultural exports as means of diplomacy. For instance, the official Korean Overseas Information Service gave airing rights to “Winter Sonata” to Egyptian television. They even paid for Arabic subtitles in hopes of generating positive feelings toward South Korean soldiers stationed in northern Iraq.

Another crucial factor of the Hallyu wave has been the web. There is greater access to content than ever before. Anyone can consume foreign content with the swipe of their phone. Online fan communities were formed to share and distribute Korean content. Youtube channels or content websites like mysoju.tv effectively crowd-source translators, graphics personnel, and coders to recreate original Korean content with subtitles and high quality streams. In 2010, an website turned app called “Viki” was launched by a group of Harvard and Stanford students who aggregated the fan-created content to one platform. According to their website, “Viki, a play on the words video and wiki, is a global TV site powered by a volunteer community of avid fans.”

It seems South Korea’s  investment in entertainment exports was money well spent. I am scheduling a 20-hour binge session of “Alien from Another Planet” after finals as we speak.

 

In November 2013, Business Insider CEO Henry Bodget made a compelling presentation analyzing the state of media in the tech space. The findings were from Business Insider’s new research arm, BI Intelligence. The report created waves in the tech industry. In a matter of two days after the reports’ release, it had over 900,000 views.

There were many insightful slides that demonstrated the current digital realm.  However, one slide especially caught the eye of media leaders.

“Digital is now bigger than TV.”

Although a very contested claim, recent years have indicated that digital is causing a major disruption in the media business. In his slideshow, Bodget echoed the industry’s standard rule: money follows eyeballs. Until recent years, “eyeballs” were monetized through a rating system called GRP, invented by Nielsen. However, this method only worked wonders when our eyeballs had one screen: television. Today, we have tablets, smartphones, and desktops. We are constantly consuming and content is becoming available across all of these exhibition windows. The chart above indicate that “eyeballs” are moving to digital, and people want to know how to measure this revolution, and so far, GRPs aren’t cutting it. The rise of digital is shaking up the longstanding media metrics system, and everyone is keeping an eye on the digital ratings race.

Metrics as Currency

In his book, Audience Economics: Media Institutions and the Audience Marketplace, Phillip Napoli refers to audience measurement organizations as one of the four principal actor–along with media organizations, advertisers, and consumers–in the market for audience product. All services are interrelated and depend on eachother to survive.

Audience measurement organizations seek to provide quantitative data on audience viewership. In other words, they are in charge of monetizing attention. The value of a media product, whether it is a sitcom or an article, depends on the audience exposure, or ratings. How many people are watching? How many people are paying attention? Napoli says audience data functions as the “coin of exchange” in the audience marketplace, and it is the currency that media organizations use to sell, and the advertisers use to buy.

The rise of digital advertising has created a ripple effect in the media industry. The industry understands digital ad spending will eventually overtake television; it’s only a matter of time. However, there is also one giant obstacle in the way of this digital takeover–Nielsen.

Nielsen 

Nielsen is the undisputed king in the media metrics business. Founded in 1923, the 91-year-old company had revenues of $5.5 billion in 2011. During the TV era, Nielsen dominated the audience measurement industry. Nielsen’s monopoly has been a double edged sword. On one hand, having one audience measurement system eliminates complication and uncertainty. If there were multiple ways to measure, more resources would have to be put in media companies and agencies. If CBS used one method of audience measurement but Viacom used another, and a big client like Proctor and Gamble wanted to advertise on both, media agencies would have to juggle the different numbers and invest in new systems, making it immensely difficult and confusing.

However, on the other hand, because Nielsen is a monopoly, it gets to name its price without competition. Last summer, I had the amazing opportunity to be an IRTS (International Radio and Television Society) fellow, a media scholarship program that funds a select group of students to pursue a media internship in New York City. I got to attend a week-long “media bootcamp,” where we visited major media companies that included broadcasting, cable, digital, etc. In multiple panels, industry leaders complained about Nielsen’s monopoly over the metrics industry. Nielsen has been criticized to be slow in responding to rapid industry changes. Les Moonves, the CEO of CBS, is one of many industry executives who advocated for a better rating system. He pushed Nielsen and the media industry to accept the C7 metric rather than the C3, as the introduction of DVRs (digital video recorders) has allowed audiences to watch their favorite shows later in the week. While speaking to investors at a Deutsche Bank media confab in March 2013, Moonves expressed his frustrations when he said, “All we want is a fair measurement—we want Nielsen to measure everybody, and ultimately, we want an eyeball to count as an eyeball no matter where you watch your television shows.” CEO of Viacom, Phillip Dauman, also echoed Moonves’s frustration in an Economist interview when he said measurement is the “number one issue for television right now.”

How Ratings Work

There are a dizzying amount of terms to know in the media industry. CPMs, GRPs, LPMS, PPC, PPM, and the list goes painfully long. Ad Buyers stare at these numbers every day to allocate their clients’ media budgets; the ultimate goal is to reach as many people as possible for the lowest price. Just to give you a snippet of how the current rating system works, here is a ratings report for this Monday (5/5/2014).

I know, there are a lot of numbers on here. When I was interning at a major broadcast network in the ad sales division, a huge stack of these reports were delivered to our desks each week. The numbers on the columns determined the value of our product. Without going into too much detail, ratings on a sheet like this indicates the Nielsen ratings point system. One ratings point = 1% of the Nielsen estimate for the category being measured. On the chart above, the categories, or the target demographics, are 18-49 year-old viewers. LIVE+SD indicates the number of viewers that watched a program either while it was broadcast or watched via DVR on the same day.

Of course, there are so many questions that are unanswered by these numbers alone. What about Hulu? What about all the binge-watching of 30 Rock I did on Netflix last weekend? What about how much I actually like the show or paid attention to it? Nielsen has yet to come up with a satisfying answer, causing buyers to turn to new players.

The Digital Wave and its New Players

Now that the digital revolution is disrupting the media space, allowing more viewers to consume online, the media community is applying greater pressure on Nielsen to keep up with the trends. Although Nielsen traditionally monopolized almost every aspect of the media industry, it seems that the increased demand for digital measurement systems have introduced new challengers. Today, the digital audience measurement sector is the most vibrant and competitive sector in the metrics market.

As Nielsen is already the established leader is measuring “eyeballs,” majority of these agencies have focused on the question of audience engagement–how audiences feel, respond, and interact with content. For instance, a client may seek to reach the coveted 18-49 audience, but the viewing experience of Mad Men on cable versus Huffpost Live on digital stream is vastly different. Social media has been the answer for many stakeholders who seek to gain this information (partly because Nielsen does not provide it). In his 2012 TWC research report, Napoli talks about the new players in market and their varying methods. Digital measurement companies like Bluefin, now owned by Twitter, engage in a new metric model depending on information gathered  from “web scraping.”

“Web scraping” is a common method used by social media analytics services, and it involves aggregating comments posted on social media platforms and using sophisticated algorithms to measure the popularity or sentiment of a show. These measurements derived from online conversations go beyond television consumption to include the consumer’s buying behavior and affinities. Another advantage of this method is that unlike Nielsen, which has a set measurement sample, information can be extracted from anyone who participates in the web.

However, Napoli points out that these digital measurements do not try to stray too far from traditional methods. For instance, Trendrr.tv offers a “share of voice” metric, representing the share of all television-focused social mid activity attributed to a network or a show in a specific time period. Bluefin Labs showcases a “response share” metric that measures a program’s share of the online television conversation at the time the program aired. Other applications like Getglue or Viggle depend on the “check-in” method, measuring digital activity on second screens like computer or mobile phones.

So far, there is no “one-size-fits-all” rating system for social media activity. Some analytics firms focus on a programs’ market share in a weekly or monthly basis while others focus on individual days. One major challenge of these new technologies is that their measuring process is not transparent. One reason for its secrecy is to protect its patents from competitors, but this creates a black box effect that drives ad buyers crazy. Again, the cost of having multiple players in the metrics marketplace is confusion and inconsistency.

Nielsen Strikes Back

Nielsen is trying to meet these new threats by introducing weapons of its own. Check out this cover of their latest yearly report.

Notice anything?

No television in sight.

Nielsen is no fool. The company understands industry trends and it is trying hard to keep up. Last year, it released a new product called “Digital Program Ratings,” recruiting big name partners like NBC, Fox, ABC, AOL, CBS, Univision, Discovery and A+E to participate in the test run. The product will mainly track the network’s desktop websites with plans to integrate mobile in the future. This release follows the company’s introduction of the Twitter TV Ratings system, a measurement of pure social activity. Nielsen also acquired Arbitron for $1.3 billion in December 2012, swallowing its rival with expertise in measuring mobile content.

Despite its shortcomings, Nielsen is still the undeniable leader in its industry. Despite initial reluctance, Google began a partnership with Nielsen in testing ad campaigns on Youtube using OCR (online campaign ratings) deals with select clients. It is a win for Nielsen and a smart move by Google. The search engine giant understand the major ad spenders have a longstanding relationship with Nielsen, and if it wants to gain their trust, they have to use a credentialed third party entity.

What About the Ad Buyers? 

Dubbed as “promiscuous consumption,” Millennials are consuming content through search, social, online video, mobile, and television. Ad Buyers are adjusting their buying habits in response to these new trends as well. Since 2010, ad spending on the internet saw the greatest change with a 7.5% increase.

Laura Desmond, chief executive of one of the world’s biggest ad-buying firms, Starcom Mediavest Group, shared her strategy of partnering with new measurement firms to help her company transition to digital. In a WSJ interview, Desmond said, “[p]art of the market is lagging, mostly because they’re holding on to the measurement that they know.”

She agreed part of this lag was due to Nielsen’s monopoly over the measurement business, and hinted that ad buying will eventually depart from the traditional Nielsen rating methods. With the increased media fragmentation and the promiscuous consumption of media by audiences, what Ad Buyers are ultimately looking for is a unified digital measurement system. Until digital measurement reaches this level of sophistication, agencies will continue to fall back to the biggest and most reliable measurement system. Love ‘em or hate ‘em, Nielsen is still the undeniable rating king.

Patrons of this Los Angeles health food boutique have their choice of a cutting edge selection of foods and supplements, including the likes of calcified seaweed, Chinese herbs and fresh venison. They can even sample an organic cookie while they browse the store.

But if they want to make a purchase, they’ll have to beg their owners for their credit card.

My Pet Naturally is one of a growing number of dog boutiques that embraces all-natural wares. In addition to raw food and exotic treats, it sells recycled and hemp products and “a lot of the same supplements that people take,” said owner Neil Massa.

Consumers have become more concerned about organic food not only for themselves, but for their pets as well. Sales of organic pet food increased ten times from 2002-2009, according to the Organic Trade Association. And analysts predict the industry will grow even more, at 12 percent a year through 2015, according to Packaged Facts Market Research Company. Organic pet food is more expensive, it can cost as much as 30 percent more than non-organic, but an increasing number of pet owners are willing to pay the higher price. A few factors may contribute to this trend: two high-profile incidents of contaminated commercial food and an overall growth in the pet industry due to more Americans bringing furry friends into their homes.

Massa said he thinks the trend toward organic pet food took off more in urban areas because the residents are more attuned to holistic living.

“If you look at big cities, people are more aware of their food sources and they want the same for their pets. In metropolitan areas, people are more aware of wanting organic than you see in smaller towns,” he said. “I know from experience. My in-laws are from a smaller town and they have more of a Wal-Mart mentality.”

But even in Los Angeles, Massa finds he must still compete with chain stores, where prices range about five percent cheaper, he said.

“Because I have a smaller store, I buy food by the bag rather than by the truckload, like they do. They can buy more food and get a better deal on it,” Massa said. “We might also sell something for the same price, but it will end up being cheaper at a chain store because they offer a coupon.”

A pound of raw venison costs $8.00 at My Pet Naturally, while at Wal-Mart; customers can buy a 27.5 lb. bag of venison flavored dry food for $30.

(Supplement shelves at My Pet Naturally)

Massa opened his store in 2006, a year before Menu Foods pet food manufacturer recalled more than 60 million containers of food. Menu Foods, which was based in Ontario, Canada, was the largest dog and cat food maker in North America. Its products were sold under well-known brand names atchain stores such as Petsmart and Wal-Mart.

“I’ve been making homemade food for my dogs since the 1980s,” Massa said. “I saw there was a need for it and not many were doing it. I read an article about how dead animals become dog food around the same time that people became more aware of Mad Cow disease.” Massa said the recall bumped business up about 10 percent and helped make up the difference in the lack of customers during the recession.

The toxic food killed about 1,950 cats and 2,200 dogs, according to estimates from the U.S. Attorney’s office. The Food and Drug Administration found that the Chinese wheat gluten present in Menu products was tainted with melamine, a substance also used in fertilizer. It is not approved as an ingredient for pet or human food. The products also had a contaminant used as rat poison, and another used to stabilize chlorine in swimming pools. Consequently, the incident scared many pet owners into shelling out for higher-quality fare.

Jacob Gonzalez, the owner of Woof Dog Boutique in Los Angeles, said organic food is “almost the first thing” customers are looking for since the beginning of another epidemic, also in 2007. In this case, thousands of dogs have fallen ill and about 600 died over the course of seven years after eating jerky treats imported from China. The FDA is still investigating the causes. The problems do not seem specific to a certain brand or manufacturer, but according to the FDA, dogs all over the world have been affected. Gonzalez said that ever since, his clientele have made buying American-made food another priority.

Even before the two food episodes, sales of natural and organic pet products had been growing in the U.S. by teen-double-digit rates since 2002, according to Packaged Facts. But in 2007, sales jumped 43 percent. This may result from the contaminations, as well more pet food marketers extending their lines to ‘natural’ products at this time as well. Sales continued rising to 20 percent in 2008. The increase dipped to six percent during the recession in 2009, but it began climbing up in 2010 and growth went back into the double-digits in 2011.

 

(Packaged Facts)

Some brands market their pet food with labels such as “natural,” “premium,” or “holistic,” and it is typically more expensive. For example, the brand Alpo Come & Get It! Cookout Classics is sold for $0.51 per pound, while Iams Sensitive Naturals Dog Food fetches $2.49 per pound, according to Walmart.com. But the label does not necessarily mean the food is healthier. It is only the “organic,” designation that requires manufacturers to meet any standards. For both human and pet food, 95 percent of the ingredients must be organically grown or cultivated without synthetic pesticides or fertilizers in order to meet the qualifications set by the USDA. Some of the brands containing tainted food from Menu included products billed as “natural.”

Century City resident Linda Schwartz began buying raw venison from My Pet Naturally upon recommendation from her veterinarian. Her Shih Tzu dog was experiencing stomach issues for about six months, including colitis and irritable bowel syndrome.

“My vet said the preservatives in normal food were making my dog sick,” she said. Schwartz is also a fan of the store’s treats that Massa’s wife makes on-site. “My dog is allergic to chicken, but not the treats because they just have chicken juice.” She said that since she started feeding her dog raw meat her dog’s stomach issues have improved.

Although raw meat diets have proved beneficial to some pets, they are not recommended for all. The American Veterinary Association discourages feeding pets raw and uncooked meat because of the food-born illnesses it could inflict on both pets and the humans who are in contact with them. A study at the Cummings School of Veterinary Medicine at Tufts found that up to 48 percent of raw commercial food tested contained salmonella. The researchers also found that these diets could contribute to nutritional deficiencies.

But pet owners are treating their pets more like people, which sometimes means projecting their own desires onto their four-legged children. Sixty-two percent of American households own pets, up from 56% in 1988, according to statistics from trade association American Pet Products. And pet owners are spending more on everything, from products such as Halloween costumes to services related to travel and grooming, according to a 2013 report on pet trends from pet insurance company Embrace.

“People treat their pets like family members,” Gonzalez said. “Not just the dog we leave outside.”

 

 

 

 

 

 

Q1 home sales in Beijing, Shanghai, Guangzhou and Shenzhen dropped more than 40% this year from the same quarter in 2013.

Real estate is a huge driver of China’s GDP growth.Housing market contributes 33% of fixed-asset investment, equivalent of 16% of GDP. The decade-long housing boom has so far defied the bubble warnings, which began as far back as in 2007.

Is China’s housing bubble real? That depends on whether China’s surging housing prices are backed by speculation or a real lack of supply.

China has more than 160 cities with more than one million people and many hundreds the size of San Francisco.China added 787 million square meters of new residential floor space in 2013. There has been excessive buildout—that means the current supply is sufficient.

However, before 2000, affordable properties were in massive construction to be sold to poor and middle-class families. Those flats are small and often share kitchens or bathrooms with the entire floor. And these houses are mainly in downtown, thus convenient for people to commute. Families, counting on them to save money for fancier and bigger flats, find them unable to sell and waiting to be bought out by developers when the land parcel sells. At the end of 2011, around 47% of China’s overall housing is such “crappy legacy housing.” Experts estimated only around one-third of home owners are living in “commodity houses”—while others hang on social or legacy housing. That means China might actually have a housing shortage.

What’s more, China’s household registration system limits who can buy property where, distorting potential demand and supply balance.

However, some argue that with building around 13.4% more floorspace each year, China finally has too much housing. For each person that moves to a city this year, developers will build around 121 square meters of new flooring. That number was 113 last year.

People, especially those in first-tier cities—Beijing, Shanghai, Guangzhou and Shenzhen, buy property in the big metropolises as investments.

But the first-tier cities’ account for only 5% of housing under construction and sales—and only 8% of overall housing investment in 2013. This is comparable to US property bubble burst when property prices did not collapse in New York, but instead in places like Orlando and Las Vegas. In China, the true risks property market might actually lie in third- and fourth-tier cities.

Tens of thousands of people protested outside Taiwan’s Presidential Office Building in downtown Taipei last month, stepping up pressure on President Ma Ying-jeou to re-examine a trade deal with Beijing.

At the heart of the protests is the Cross-Strait Service in Trade Agreement signed between Taipei and Beijing last year. The deal, according to the Taiwan government, will help boost the economy by opening service sectors such as banking, health care and food catering to companies across the Taiwan Strait.

So what are the grievances? The most widely held complaint of the protesters is that the agreement passed with little public review. Protesters accused the government of “black box” and have dubbed campaign the Sunflower Movement, meaning sunlight and transparency.

The protesters were also worried China will exert more control over Taiwan’s economy and leave small- to medium-size enterprises in Taiwan struggling to compete. They feared that China’s efforts to absorb the island into its economy are a malicious scheme for ultimately reunifying straits. The main opposition party, the Democratic Progress Party, has been relentlessly against any moves to go closer to its giant neighbor even if on trivial things like allowing more tourists to visit Taiwan.

Resistance to the deal in Taiwan indicated that the Mainland’s strategy of trying to win Taiwan’s heart economically through closer economic ties may not be working.

After the Communist forces led by Mao Zedong won China’s civil war in 1949, Generalissimo Chiang Kai-shek fled to Taiwan with his defeated Kuomintang armies. For decades, hostilities between the Kuomintang government in Taiwan and the Chinese Communist Party led to a policy on the Taiwan side of “no contact, no compromise and no negotiation.”

China has long claimed Taiwan as a part of its territory, It fired missiles over the Taiwan Strait in 1995 and 1996 in response to President Lee Teng-hui’s call for Taiwanese identity. During the 2000-2008 reign of Chen Shui-bian, China frequently condemned him of is his Taiwan independence inclination. In 2005, China passed an anti-secession law that allowed the use of force in the event of a formal declaration of Taiwan’s independence.

After Mr. Ma took presidency in 2008, the two sides began signing a range of economic agreements including the landmark Economic Cooperation Framework Agreement (ECFA) in 2010. ECFA cuts tariffs on 539 Taiwanese exports to China and 267 Chinese products entering Taiwan. Two-way trade doubled since 2008, reaching $197 billion last year.

Beijing tried to use tariff cuts on half as many products from Taiwan to Mainland to appease opponents who warned that Taiwan will be flooded by cheap Chinese products with small businesses squeezed and jobs stolen.

The Taiwanese government has said it believes the ECFA will help create 260,000 jobs and boost economic growth by as much as 1.7%.

Taiwan’s economy depends on trade, and China is its biggest export market and source of a huge trade surplus. China is central to the supply chains of Taiwanese manufacturers, and the destination to 80 percent of Taiwanese foreign direct investment.

Today, 118 airline flights fly back and forth between Taiwan and 54 cities in China per day, mainly packed with Taiwanese businesspeople mainland tourists. Seven years ago, such flights were banned.

There are also over one million Taiwanese working and living in China.

One of the biggest Taiwanese companies, Foxconn Technology, which assembles Apple products, employs hundreds of thousands of workers in Mainland China.

The service agreement centered in this event would open 80 Chinese industries to investment from Taiwan, while Taiwan’s side would open 64. In addition, Taiwan reserves the right to apply many barriers and restrictions. Mr. Ma said that was a sign that China was sacrificing more while Taiwan will be benefitted more in the deal.  He argued the deal would create 12,000 jobs and boost service exports by $394 million, nearly a quarter of cross-Strait trade last year.

Ma said, Taiwan, as one member of the “the Four Asian Tigers ”, has already lagged behind regional rivals like South Korea and Singapore and he warned that failing to pass the pack will impede Taiwan to enter other economic agreements, like the American-led Trans-Pacific Partnership.

Chen Deming, China’s chief negotiator in the trade talks with Taiwan, told Xinhua News Agency that he would be “deeply regretful” if the pact isn’t passed in Taiwan. He cited the huge complementarity of the two sides economies as the reason why the deal could be tremendously beneficial to Taiwan’s economy.

Merril Lynch forcasts Taiwan’s economy will grow at 2.9% if the bill passed and 2.55 of it’s delayed into next year.

Many experts argued that with China’s rapid rising in today’s world and Taiwan’s sluggish economy, It is increasingly harder for Taiwan to pay the price of ignoring its giant neighbor.

“The bottom line is that if the same deal was between Taiwan and pretty much any other country in the world it wouldn’t be a problem,” Jonathan Sullivan, an associate professor at the University of Nottingham’s School of Contemporary Chinese Studies told New York Times. “But Taiwan’s relationship with China is unlike any other in the world. And depending on who you talk to, China is Taiwan’s only way to peace and prosperity or an existential threat.”

“Taiwan’s service industry accounts for more than 60 percent of its GDP. However, Taiwan manufacturers got more opportunities in Mainland than service providers. That does not reflect Taiwan economy’s real balance,” said Xianghong Hua, an economic professor at the University of International Business and Economics. “ Then this pact is a perfect opportunity for Taiwan to adjust its investment structure in China, which is definitely mutually beneficial.”

In essence, Beijing, known as a tough negotionator, offered Taiwan a special deal that other countries would kill to get.

Chung-Hua Institution for Economic Research, a government think tank, said the agreement could add 12,000 jobs to Taiwan’s services industry, mainly in retail and storage sectors. It could also add around 0.025-0.034 percentage point to Taiwan’s gross domestic product.

In response to people’s ingrained anxiety about closer economic integration with Beijing, Taiwan’s government said it would earmark nearly US$3 billion to help small and medium enterprises survive or transform themselves against rising competition from across the strait

“Due to globalization and Taiwan’s maturing market, those SMEs are facing a tougher business environment whether there is a services trade pact with China or not. But they just don’t know how they will be assisted, of course they are against the deal,” Mr. Luo, an economist at Fubon Financial Holding told Bloomberg.

Some experts believe The Trade in Services Agreement will not benefit Taiwan’s services exports.

About 2.4 million of its 6 million workers are employed in Taiwan’s 1 million shops and services. Taiwan’s domestic services sector including local retail, printing, e-commerce, logistics, mass transport is in vibrant competition while China’s services sector is far more centralized, and subject to government regulations.

In addition, Taiwanese businesses already have far more access to China’s services sectors than any other foreign investors. However, Taiwanese investors in Mainland do not enjoy the same shields from arbitrary law enforcement, regulations and contract disputes as investors from other countries, which have embassies. Chinese investors, however, in Taiwan’s services industry can be operated in a modern democracy with a rule of law.

Taiwan’s banking institutions are too small and too competitive among themselves to have any structural impact in China’s financial services market. On the other hand, China’s financial institutions are all centrally controlled and have much more capital. The agreement gives Chinese banks and institutions up to 20 percent ownership in Taiwan counterparts, which will exert am effective control. But it is almost impossible for an y Taiwan  institution to have the same impact in China’s banking system.

Under the pact, investment threshold of $200,000 allows the investor to bring 21 new immigrants from China— three employees and up to seven family members per worker. That further inflamed Taiwan’s concern about the scenario of flocks of immigrants and small businesses being swamped.

Like the United States, Taiwan has seen thousands of good jobs move offshore, most of them to China. University graduates in particular complain that there aren’t enough decent jobs for them.

“They are stealing our jobs,” said Godwin Wang, an assistant vice president at Farglory Free Trade Zone Co., which provides air cargo and other services to importers and exporters. Farglory’s warehouse space by the airport is half full, he told Wall Street Journal days before the students took to the streets. “We are suffocating.”

However, China is not solely responsible for all of Taiwan’s economic predicaments. Taiwan has been hit hard by weak global demand since the Great Recession, due to the slow recovery in the United States and other large markets.

Many experts pointed out that Taiwan is hindered by structural weaknesses. Among them are excessive government regulation, the world’s lowest birth and a pattern of developing small businesses instead of giant corporations without giving them enough help.

Taiwan’s economic development paled in face of some of its faster-growing neighbors, especially South Korea.

In recent years, with the rise of global powerhouse companies such as Samsung and Hyundai, Korea’s economy has been far more dynamic, leaving many Taiwanese to wonder where they have gone wrong.

Nonetheless, many Taiwanese see China as the biggest, most immediate issue.

A poll conducted on March 20th-21st by TVBS found that nearly half of respondents supported the students’ action and opposed the trade pact. Only a fifth were in favor of the deal.

However, a free trade agreement is something unavoidable between Mainland China and Taiwan. Trade with mainland China is vital to Taiwan’s future economic development and future integration into the global economy. It is not possible for Taiwan to compete in the world without signing a lot of FTAs (free trade agreements), including (with) mainland China.

 

 

References:

http://www.bbc.com/news/world-asia-pacific-11275274

http://www.bloomberg.com/news/2014-04-10/taiwan-students-to-end-24-day-occupation-of-legislature-today.html

http://www.bbc.com/news/world-asia-pacific-11275274

http://online.wsj.com/news/articles/SB10001424052702303978304579470552484527172

http://www.washingtontimes.com/news/2014/apr/1/tkacik-taiwan-struggles-in-chinas-grip/?page=all

http://www.businessspectator.com.au/article/2014/3/24/china/why-taiwanese-protestors-are-wrong-china-trade-pact

http://www.economist.com/news/asia/21599807-students-occupy-taiwans-legislature-protest-against-free-trade-pact-china-manning

http://articles.latimes.com/2014/apr/04/business/la-fi-taiwan-economy-20140405

http://thediplomat.com/2014/02/to-counter-beijing-japan-moves-closer-to-taiwan/

http://america.aljazeera.com/articles/2014/2/15/what-s-next-for-chinataiwanrelations.html

http://www.reuters.com/article/2014/02/11/us-china-taiwan-idUSBREA1A0EP20140211

http://www.forbes.com/sites/russellflannery/2014/05/04/a-free-trade-agreement-is-something-unavoidable-between-mainland-china-and-taiwan/

 

 

Oh how times have changed. Best Buy, the consumer electronics company once renowned as one of the best companies in the early 2000’s, has gone from record growth to huge declines and stagnation. When one of its biggest competitors fell off in 2011, Circuit City, experts following the company have accused the company of lazy tactics, as well as a lack of innovation in order to stay ahead of the times. However, despite all of the talk of doom and gloom for the company, there is still belief that Best Buy can still turn things around as its share price hit $44 last November, a new high for the company. Sure, your neighborhood Best Buy may have closed in the past few years but that does not mean the company won’t see a brighter future.

But first, in order to properly understand how Best Buy can thrive in the future, we must examine how it got to where it is today. It all started in 1966 when founder Richard Schulze and his business partner opened an audio specialty store, with no emphasis on consumer electronics, yet. The first stores were all in Minnesota, where Shulze was from, and in 1970 Sound of Music, the name of the company, had made its first $1 million and had opened 9 other stores within the state (Wall Street Journal, 2013). Fast forward to 1983, and the board of directors of the company had decided to rename and rebrand the company as Best Buy, with the purpose of putting more of an emphasis on consumer electronics. This year was the turning point for the company as it also opened its first “megastore” that we have begun to know over the years. After this, the changes begin to steamroll quickly because is 1985, the company raised $8 million on its initial public offering on the Nasdaq (Wall Street Journal, 2013). Along with its debut on the New York Stock Exchange in 1987, the company sought to transform its stores by having stores that were not cheap and dimly lit. Along with this change in the nature of their stores, the company did away with the practice of paying their salespeople on commission, in an attempt to rid the work environment of questionable sales tactics like we see at car dealerships across the country. Just five years after the company hit the New York Stock Exchange, it made its a first $1 billion in annual revenues (WSJ, 2013.) Fast forward to 1999, and we see the successful partnership with Microsoft that saw the two companies cross-promoting products, and just a year later Best Buy was added to the S&P 500 index.

As 2000 came, the company began to see many changes that began with the succession of Richard Shulze, the company’s founder and long time CEO. He was taken over by Brad Anderson who had been apart of the company for many years. Along with this theme of change and reaching new heights, Best Buy opened its first international store in Canada, along with their acquisition of Geek Squad in 2002 (TWICE, Alan wolf, 2002). Another international acquisition took place occurred in 2006 when they bought the Chinese based appliance retailer Jiansu Five Star Appliance, and the company opened its first stores in China the year after (Businessweek, 2007). Before most of these acquisitions of international companies and their subsequent emergence in the international market, in 2004 Best Buy was named “Company of the Year” by Forbes, a recognition that this was once one of the most well run companies in the United States (Forbes, 2004). In 2009 Best Buy became the first third-party company to sell Apple’s iPhone as well as its purchase of Napster in 2008, as the company was thinking of entering the music selling market, as it had already begun to sell musical instruments (Reuters 2009). But in 2010 is where things stet to get tricky for the consumer electronics giant.

In 2010 Best Buy had opened 11 store in the United Kingdom to further their goal of having an international presence. But in a bizarre move in the following year, Best Buy closed those “U.K. big-box stores and paying $1.3 billion to buy out its partner in U.S. mobile-phone retailing as the electronics giant retools its struggling business to focus on smaller shops” (Bustillo, Wall Street Journal, 2011). At this point in time, the company could be described as having a “recession”, if it were a government, instead it is a mightily struggling company trying to figure out how to turn around “five consecutive quarters of sales declines at stores open at least 14 months, already closed big-box locations in China and Turkey earlier this year as it reins in capital investment” (Bustillo, Wall Street Journal, 2011). But this was just the beginning of the avalanche of bad news that the company had yet to announce. The next year, 2012, Best Buy announced a “$1.7 billion quarterly loss and outlines a plan to move away from the big-box strategy. The company says it will close 50 large stores in 2012 and test remodeled store formats in San Antonio and Minneapolis, while adding hundreds of small stores focused on selling cellphones. It also discloses plans to lay off 400 workers as part of a plan to trim $800 million in costs” (Wall Street Journal, 2013). For whatever it’s worth, as a resident of San Antonio during the years of their “remolded store formats”, I have yet to step foot in the store, and I’m not sure if any of my generation have been frequent visitors either. But we’ll get to this later on.

In his 3 year reign as CEO of the company, Brian Dunn had experienced both some of the best and worst times of the company’s history, but to add to his misery the now ashamed  Dunn quite possibly took the company to a new low. When Dunn first joined the company as a salesperson, he slowly moved his way up the corporate ladder for 28 years until 2012 when he resigned due to the criticism that he was “not moving quickly enough in the face of online competition” and as a result, “Director Mike Mikan is named interim CEO until a replacement is found” (Wall Street Journal, 2013). However, the controversy did not stop there. In internal investigation was released later that year where “an internal probe finds that he [Schulze] didn’t alert other directors that his handpicked successor as chief executive, Mr. Dunn, was allegedly having an inappropriate relationship with a female employee” (Wall Street Journal, 2013). Over the next year Shulze, who was still the company’s biggest shareholder, looked to buy out the remaining shares in the company in an attempt to take the company private, but newly appointed CEO Hubert Joly nixed the deal and the company remains in a struggle to find itself in an ever evolving marketplace for big-box retailers.

But how did it all go wrong for the “ultimate showroom” electronics retailer after many years of sustained success? First of all, many of its products that it sells are easily bought online with the click of a button, which further curtails the company’s pride in their showroom experience and excellent customer service track record. Some experts who have followed the company over the years that, despite its success against its former competitors like Circuit City who have gone by the wayside, the company has struggled to innovate and too sure of its own position in the marketplace. With the emergence and growth of Amazon, who sells essentially the same products as Best Buy and then some, Best Buy hasn’t coped with this evolving and changing scenario. As Al Lewis of the Wall Street Journal aptly states, “the electronics retailer’s critics have been calling this a deadly idea for years: Customers go to its giant stores to play with its toys, then they buy them somewhere else, sometimes using a smartphone before they even leave the floor” (Lewis, WSJ, 2014). Recently, after a dismal holiday period for the company resulted a whopping 28% slump in the stock price after they reported total revenue had slid 2.6% (Lewis, WSJ, 2014). This should not come as a surprise as a company the way Best Buy is structured would see its employees working more hours during  the holiday period, but still not seeing more sales. In essence, a higher operating cost with no benefit in terms of more sales of products.

But just exactly how Best Buy crawls out of the dark hole of irrelevancy that it is currently is a more difficult question to answer. One idea that has been tossed around is the idea of irrelevancy in terms of the number of stores. For example, Best Buy currently “maintains a total of 1,512 in the U.S. and another 489 around the world” (Rosenblum, 2013), which is an astonishing number when you think about the cost of overhead in maintaining these stores along with the employees. But its not just a fewer amount of stores that could help alleviate the company, they also need to invest in their website so that it can compete with the likes of Amazon in regards to its ease of interface navigation. After going to the Amazon website all it takes is a few clicks, sign into your account, and your package will arrive in the next three to five business days. But the investments should not stop there. Along with fewer stores and a better website, Best Buy has to capitalize on its physical advantage that it has on its competitors rather than simply try to be like them, because you are not Amazon. Meaning the company has to multiply its efforts in offering the customer the best experience possible, and that does not just entail great customer service. It means hatching out a store layout, something they have toyed with over the years, to where people know where they can easily find the product they are looking for compounded with a knowledgable employee who can tell them about the shiny new gadget that you absolutely have to have.

Sure, there is a lot of work to be done for Best Buy but that does not mean big-box retailers like them cannot survive in today’s world. The good news is, there is a lot of room for improvement and that it should maintain the stance that the company has already seen the worst of it and better times are to come. All of the listed improvements for the stores certainly are not too much to ask for, and despite the tribulations with the scandal, and cover up with former CEO’s, Best Buy can play an important role in the future as it tries to find a balance between the likes of Wal-Mart and Amazon.

 

Sources: http://online.wsj.com/news/articles/SB10001424052702303465004579324992775153208, http://www.forbes.com/sites/paularosenblum/2013/08/12/can-best-buy-survive-and-are-its-problems-really-all-about-amazon/, http://www.forbes.com/sites/lauraheller/2011/09/19/where-best-buy-went-bad/, http://online.wsj.com/news/articles/SB10001424052702304299304577350223835262792, http://www.twice.com/news/news/best-buy-wraps-future-shop-deal/22591, http://online.wsj.com/news/articles/SB10001424052970204554204577023320303430402, http://journalistsresource.org/studies/government/municipal/impact-big-box-retailers-employment-wages-crime-health?utm_source=JR-email&utm_medium=email&utm_campaign=JR-email#