Business Week 50: The Journal's Annual Listing Of Best American Companies
Originally Posted at BusinessWeek.com

As our 13th annual ranking of the BW 50 shows, innovation is still alive and well—vital, even—among America's largest companies

Nestled in the rolling hills just north of San Francisco, Autodesk is no Silicon Valley mover and shaker. The company is known mostly among engineers as the maker of the 3D software programs used by everyone from Hollywood animators to the architects designing the newest Manhattan skyscrapers. But Autodesk's bigger contribution to the U.S. economy may not be its role in such movies as Kung Fu Panda or the latest Indiana Jones epic. Rather, it's in helping manufacturers scattered across the Rust Belt compete against foreign rivals.

Consider the experience of Hardinge (HDNG), a machine tool maker in Elmira, N.Y. After watching many of its U.S. rivals go bankrupt—their equipment unbolted and shipped abroad for use by companies in Japan, Taiwan, and South Korea—Hardinge employed Autodesk as part of its survival plan. The software maker's engineers developed a customized set of 3D programs that enabled Hardinge to design and build a highly sophisticated lathe with 5,000 parts in as little as five months, roughly a third of what it took a decade earlier. That helped the $345 million company survive, turning a profit in four of the past five years. Autodesk's software "allows us to go from concept to finished machine much faster, and that's helped us stay competitive," says Richard L. Simons, Hardinge's president and chief executive.

Autodesk exemplifies many of the companies in this year's BusinessWeek 50, our 13th annual ranking of the best-performing companies in the Standard & Poor's 500-stock index. While each list invariably includes companies that rode the wave of powerful industry cycles—such as this year's four energy companies—many more, like Autodesk, earned their spot in the BW 50 as innovators. They created products or services dramatically better and cheaper than anything offered by rivals. "These companies are what I call the 'disrupters' of the economy," says Harvard Business School professor Clayton H. Christensen, an innovation expert. Autodesk training in the use of its cutting-edge design software, for example, have helped the makers of everything from appliances to cars to prosthetic limbs take on entrenched rivals with greater resources.

This year's BusinessWeek 50 is chock-full of companies that changed the rules of engagement in their industries. At Nucor (NUE) (No. 20), experimental technologies and cutting-edge compensation revolutionized steel manufacturing—and may help explain why the company is holding up despite tough times. IntercontinentalExchange (ICE) (No. 17) and its electronic futures market brought greater price transparency to energy trading, and the company is now blazing a new trail by launching one of the first clearinghouses for complex credit default swaps. Occidental Petroleum (OXY) (No. 43) has relied on advanced technology to wring more production out of its oil fields in Texas and is now doing the same in Libya. Laparoscopic tools from Intuitive Surgical (ISRG) (No. 41) have shortened the recovery period for many surgery patients and could in time dramatically reduce the number of beds the nation's surgical hospitals need. "This technology has potentially profound implications for the health-care system," says Intuitive Chairman and CEO Lonnie M. Smith.

And then there's this year's No. 1, Gilead Sciences (GILD). The Northern California biopharmaceutical company scored a huge success earlier this decade when it sensed an opening for HIV drugs that were simpler and cheaper than standard treatments, which required patients to pop dozens of different pills throughout the day. Gilead's researchers responded with a new manufacturing process allowing them to produce compounds of several drugs to be released into the bloodstream at different times. The result was a daily-dose pill that replaced the old drug cocktails for a fraction of the cost. Now the company is going after another big market: patient-friendly treatments for hepatitis C, a chronic liver disease that affects 170 million people worldwide.

Disruptive technologies and strategies may be a key tool for companies in periods of economic and industrial stress, like the current one. That's because recessions are historically times when companies make the biggest competitive strides—or fall behind. A 2002 survey by McKinsey of the performance of 1,000 companies during an 18-year period found that those that made the biggest leaps in profitability were often the ones that increased their spending on acquisitions and innovation the most amid recessions. It was during the 2001 recession, for example, that Apple began marketing its first iPod and IntercontinentalExchange expanded its energy trading platform with a key acquisition.

OLD AND STILL INNOVATIVE

Given the carnage on Wall Street and in the economy, you might expect considerable turnover in the BusinessWeek 50. While some notable companies dropped off this year—for instance, UnitedHealth Group (UHH), No. 14 in 2008—the 2009 list includes a surprising number of return performers. Among the Class of 2009, 33 companies were repeats from last year's ranking, the largest number in the history of the BW 50.

The Class of 2009 also demonstrates that companies don't have to be startups to be innovative. Colgate-Palmolive (CL) (No. 5), Coca-Cola (KO) (No. 26), and Northern Trust (NTRS) (No. 49) stand out for their innovative spirit, even though their roots extend as far back as the 1800s. In most instances, these companies overcame difficult times by refreshing the values that made them great in the first place. In the case of Coca-Cola, that meant finally embracing the change in consumer tastes—and marketing niche brands, such as vitaminwater and its Dasani water, with the same commitment as it does its flagship cola. "Coke refutes the theory that all successful companies grow old and then disappear at some point," says management consultant Jim Collins. "They took their brand image—wholesomeness and friends and family—and applied it to new categories."

If there's another trait common among this year's BW 50 companies, it's that a good number have developed pay-for-performance cultures. At Nucor, IntercontinentalExchange, Fastenal (FAST) (No. 19), and Expeditors International of Washington (EXPD) (No. 28), employee salaries are nothing special—and in some instances they are below average for their sectors. But each of those companies supplements miserly salaries with generous incentives based on such metrics as profits and customer satisfaction.

Consider Fastenal, a distributor of nuts, bolts, and 49,000 other tools and parts used by industrial customers. Given the commodity nature of its products, Fastenal works hard to guarantee its costs are the industry's lowest. To encourage employees to act like owners and shave every penny possible out of its cost structure, Fastenal pours 10% of all profits above a preset level each year into bonuses and 401(k) contributions. That ensures managers don't grumble about the companywide ban on secretaries. Employees willingly share hotel rooms and forgo meal reimbursement on business trips because they know that part of the savings will flow back into their paychecks. "The benefit of this frugality is that it forces everyone to always look for ways to change, to improve every single thing you do," says Fastenal CEO Willard D. Oberton.

All these companies know there's no guarantee of success. Look through this year's rankings, and you'll see a number of current high achievers at risk of seeing their franchises disrupted by upstart rivals. For Starbucks (SBUX) (No. 32), the threat is coming from McDonald's (MCD) and Dunkin' Donuts, which are undercutting the coffee giant on price. For Microsoft (No. 8) (MSFT), the spread of cheap—or even free—Internet applications offered by Google (GOOG) (No. 35) is threatening its hegemony over the desktop computer. And Best Buy (No. 9) is seeing its CD and video franchise threatened by the digital downloading services run by the likes of Amazon and Apple. But these challenged companies have a history of rising to the occasion and may prove that they can be innovative—and disruptive—players once again.

See the full 50 Scorecard

Union Station Project In Goldsboro, NC Receives 43 Bids
Originally Posted at Goldsboro News-Argus

Architectural firms' letters of interest for the Union Station revitalization project have arrived - more than 40 of them.

"We're very pleased with the turnout there. It's a long process, but we're excited to be moving on it," said Craig M. Newton, senior project engineer for the North Carolina Department of Transportation.

The committee received 43 letters from firms around the country expressing interest in turning the historical building into a modernized and fully functional multimodal public transportation center. Project officials expected the Station would generate a lot of interest, but an uncertain economy likely added to the competition.

"We knew it would probably be more than typical because of the environment of the economy," said Julie Thompson, president of the Downtown Goldsboro Development Corporation.

The committee members sorted through the bulk of the letters and plan to organize a short list of candidates this week.

The steering committee is also discussing how to arrange interior features like ticket counters, bathrooms and offices while placing exterior structures to the best, safest and most efficient effect and remaining true to the historical significance of the station. They plan to have a basic format prepared in time for the winning architectural firm to step in and take over the designs.

"We hope to have the layout done about the same time as the architect is ready to start," Julie Thompson said.

The early and tentative layout designs include several exterior features that will require entirely new construction, including a bus terminal and outdoor waiting area. Funding for the exterior structures may not come from the exact same sources as the money dedicated to Union Station itself, and will likely utilize a combination of funds from federal, state and local sources, Ms. Thompson said.

"We're getting parts of money from wherever we can get it," she said.

Greyhound plans to contact the city this week with information on the specifics of what they will need to operate service from the reinvented station, and other plans are still in the works with the NCDOT Rail Division.

The Union Station revitalization project won't be awarded to a company based on which firm comes up with the lowest offer, Newton said. The committee will instead negotiate the fee once they've decided on the winning company.

"We're making it based on who's best qualified," Newton said. "The primary criteria is simply whether they have recent, relevant experience on similar projects."

Among those criteria are whether they've worked on projects of size and scope matching that required by Union Station, and the firms' previous experience with renovations of historical buildings and Goldsboro homes.

The handpicked candidates will be asked to submit a more detailed proposal, and the committee will further narrow down the possibilities by an interview elimination process.

Fast-Food Coffee Gaining Ground During Recession
AP Story Posted at Forbes

A Stifel Nicolaus & Co. analyst said Friday fast-food and other quick-service operators will likely continue to take customers away from specialty coffee retailers as consumers search for more affordable options.

Analyst Steve West said in a note to investors that Peet's Coffee & Tea Inc., Dunkin' Donuts and McDonald's Corp. could be big winners in the "coffee wars" through 2009.

"Just as Starbucks is trying to turn around its U.S. business ... McDonald's is rolling out McCafe, arguably one its largest national initiatives in company history," he said.

McDonald's has now added new espresso-based drinks to more than half of its U.S. restaurants. The drinks are slightly cheaper than those at Starbucks Corp., which has struggled lately with slow U.S. same-store sales, or sales at stores open at least a year.

To boost sales and profits, Starbucks has been cutting jobs, closing under-performing stores and offering customers more deals.

West also said he expects more consumers will brew their coffee at home using espresso coffee makers and other inexpensive home appliances - a trend that could help Peet's and the privately owned Dunkin' chain.

West noted that in February, both Dunkin' and Peet's saw sales grow in their grocery business while Starbucks Corp. reported a "significant decline" in year-over-year sales for the month.

Silicon Valley To Take Advantage Of Record Low Mortgage Rates
As Originally Posted to Mercury News

Mortgage rates dropped to a record low this week, stoking a surge in refinance applications in the South Bay as homeowners look to take advantage of some of the best loan deals in nearly 40 years.

The national average interest rate for 30-year home loans fell to just 4.85 percent this week from 4.98 percent last week, Freddie Mac said Thursday. That's the lowest ever recorded by the government-backed mortgage financing company, whose data goes back to 1971. The previous record low was set in mid-January, when rates fell to 4.96 percent. Average rates are those for "conforming" loans, up to $417,000.

Experts say rates are likely to stay low for the rest of the year, perhaps providing a much-needed balm for the wounded housing market.

Even in Silicon Valley, where residents need bigger loans to buy in the area's more expensive neighborhoods, news of the low rates is spurring loan applications, local mortgage industry professionals said.

"I am busier right now than I was all of last year," said Todd Flesner, a broker with Stern Mortgage in Palo Alto, "due primarily to low interest rates and the correction in values on home purchases."

With home prices down from last year, he's got several first-time clients purchasing homes in the $500,000-and-under price range in San Jose.

Similarly, Chris Amsden, owner of Golden State Lending in Los Gatos, said he's seen a surge of loan applications in the past two weeks. Sixty-five percent are for refinances, he said, and the rest are for purchases. Most of those purchasing are seeking foreclosures or short sales, he said.

Interest also spiked as measured by Zillow.com. At the real estate site's Mortgage Marketplace, there were 7,868 requests for loan quotes from March 12-18, and 21,841 requests from March 19-25, just as rates dived to 5 percent and lower.

A lack of equity

But despite the good news about low rates, obstacles remain for many local homeowners who want to refinance. Loans are generally available only to those who have at least 20 percent equity in their homes. And with home values falling, fewer people have the equity needed to refinance. Also, while rates for conforming loans and so-called "jumbo conforming loans" ($417,000 to $729,750), are at or near record lows, rates for loans even bigger than that remain at an average of 6.66 percent this week, according to Bankrate.com.

The recent drop in rates occurred after the Federal Reserve announced plans last week to buy more than $1 trillion worth of Treasury bonds and mortgage-backed securities from Freddie Mac and its sister company Fannie Mae, in an effort to keep mortgage rates attractive and bolster the weak housing market.

Rates dropped sharply on the news last week, although they have ticked upward slightly since then. (Freddie Mac's report provides an average rate for the seven days ending Thursday.)

For borrowers willing to pay a point up front, rates for loans of up to $417,000 were about 4.75 percent Thursday, Flesner said. And for jumbo conforming, rates were about 5.125 percent with 1 point paid.

A point is equal to 1 percent of the loan's principal; some borrowers opt to pay points in exchange for lower interest rates. In the Freddie Mac survey, borrowers paid an average seven-tenths of a point on the record-low average 4.85 percent interest rate.

The Fed's announcement nearly assures that rates will stay low, said Greg McBride, senior financial analyst with Bankrate.com.

"By purchasing mortgage debt and Treasuries over the remainder of the year, the Fed is going to keep a lid on mortgage rates for the remainder of the year. Low mortgage rates for as far as the eye can see is what's needed to bring buyers back to the market," he said.

Refinance, refinance.

The mortgage market is being dominated by refinance transactions, according to the Mortgage Bankers Association. In its most recent weekly survey, for the week ended March 20, nearly four out of five mortgage applications nationwide were for refinance transactions. Refinance applications increased 42 percent compared with the previous week, the trade group said.

Arlene Allert, Bay Area regional manager for Wells Fargo Home Loans, urges homeowners to consider their long-term financial goals and research various loan products available before deciding to refinance.

"A lot of people over the last few years got into a culture of 'the rates are down, I'm going to refinance,' " she said. "A lot of people ended up in products that maybe weren't the best for them."

Allert added that the Obama administration's new refinancing and loan modification programs, dubbed Making Home Affordable, should help some "underwater" homeowners — those who owe more than their homes are worth — when the programs are up and running. She wasn't sure when Wells Fargo will begin helping customers navigate the options available through Making Home Affordable, but said the bank was "working diligently" on a process that will help customers quickly gauge whether they qualify for refinancing or loan modification.

Video: Ukraine, Rest of Eastern Europe On Verge Of Financial Collapse
From BBC




In a related article from Reuters:

Billionaire investor George Soros said on Tuesday Eastern Europe was a "prime candidate" for International Monetary Fund (IMF) support.

Speaking at the London School of Economic ahead of the G20 summit, Soros said: "G20 should not just provide pious words but should take steps to stabilise periphery countries."

Last week Soros told the Times that it was "conceivable" for Britain to seek help from the IMF.

Obama Forces Wagoner Out at GM
Originally Posted to the Detroit News

In a dramatic development on the day before President Barack Obama was to unveil his plan for the auto industry, General Motors Corp. Chairman and CEO Rick Wagoner stepped down after the administration asked him to resign.

Obama has said he wants to help the U.S. auto industry and is offering GM and Chrysler LLC fresh short-term aid, but he faces mounting public opposition to industry bailouts.

"From the government's perspective, they had to show a visible form of sacrifice," said David Cole, chairman of the Center for Automotive Research in Ann Arbor and the son of a former GM president. "At one level I'm surprised, and at another level, not at all."

GM confirmed the management change just after midnight and Wagoner released a statement."Fritz Henderson is an excellent choice to be the next CEO of GM," Wagoner said. "Having worked closely with Fritz for many years, I know that he is the ideal person to lead the company through the completion of our restructuring efforts."

Henderson, 50, a GM veteran who has led the automaker's European and Chinese operations, has been carrying out the company's restructuring on a day-to-day basis and knows the leaders of Obama's auto task force.

GM also said that Kent Kresa, chairman emeritus of Northrop Grumman Corp., had been named interim non-executive chairman of the board of directors. Kresa became a GM director in 2003.

Wagoner, 56, was a GM lifer who became the company's CEO in 2000 and chairman in 2003.

Industry experts credit Wagoner with pushing through reforms and a landmark labor contract at the 100-year-old automaker, but he may have moved too slowly.

"If you can criticize Rick, it's that he was incremental by nature," said Jeremy Anwyl, chief executive officer for the automotive research site Edmunds.com. "Step by step they were moving forward but they ran out of time."

After losing $82 billion since 2004, GM is subsisting on federal loans as it struggles through one of the most perilous stretches in its history. It has received $13.4 billion from the government and sought up to $16.6 billion more.

The government said late Sunday it will provide GM with an unspecified amount of working capital over the next 60 days.

There will be no immediate management changes at Chrysler, which will receive aid for 30 days as it moves to conclude an alliance with Italy's Fiat SpA.

Obama is scheduled to publicly outline his strategy for the American auto industry today in Washington.

In his statement, Wagoner said he was asked to step down during a meeting Friday at the U.S. Treasury Department.

"I think the need for something symbolic was pretty strong, and this certainly qualifies," Anwyl said.

In its assessment of GM's restructuring plan submitted on Feb. 17, the task force concluded that the plan was not viable, that GM needed a change of leadership, including changing most of the directors on its board.

It also said GM's plans did not go far enough, and it still has too many nameplates. It also said that while the Chevrolet Volt extended-range electric vehicle looks promising, it will probably be too expensive to be commercially successful initially.

Wagoner, who had agreed to work for $1 a year, is barred from getting a golden parachute or a big severance package under the terms of the government's Troubled Asset Recovery Program.

Earlier on Sunday, on one of the morning news shows, Obama said he believed the U.S. auto sector could be restructured to become a successful industry.

"But it's got to be one that's realistically designed to weather this storm and to emerge at the other end much more lean and mean and competitive than it currently is," he said on CBS's "Face the Nation." "And that's going to mean a set of sacrifices from all parties -- management, labor, shareholders, creditors, suppliers, dealers."

He acknowledged that Detroit's automakers had taken measures to address "longstanding problems in the auto industry and the current crisis, which has seen the market for new cars drop from 14 million to 9 million.

"Everybody's having problems, even Toyota and other very profitable companies," he said.

But GM is suffering more than the overall industry, and some analysts say the talk of government bailouts and even possible bankruptcy is hurting the automaker in the marketplace.

So far this year, GM's U.S. sales are down by more than half, compared with the market's overall 39 percent decline, and GM's market share has dropped to 18.2 percent from 22.7 percent a year ago.

During Wagoner's tenure, GM lost the title of being the world's largest automaker, a position it had held for 77 years.

Accustomed to being treated as one of the country's top business leaders, Wagoner was subjected to intense grilling late last year on Capitol Hill as he sought federal loans to keep GM afloat.

The automaker began to run low on cash even though it has dramatically reduced its North American operations through a series of restructuring plans. The latest calls for the elimination of 47,000 jobs, 14 plant closures and the selling, shrinking or winding down of the Saturn, Saab, Hummer and Pontiac brands.

But the restructurings failed to make GM efficient enough to withstand a severe downturn that knocked auto sales to their lowest levels in 27 years.

In spite of the company's troubles and the stock's recent plunge to a 75-year-low below $2, Wagoner retained the support of the board of directors.

GM CEO Wagoner Forced Out By Obama Administration
Originally Posted to the Wall Street Journal

The Obama administration used the threat of withholding more bailout money to force out General Motors Corp. Chief Executive Rick Wagoner and administer harsh medicine to Chrysler LLC, marking one of the most dramatic government interventions in private industry since the economic crisis began last year.

The administration's auto team announced the departure of Mr. Wagoner on Sunday. In a summary of its findings, the task force added that it doesn't believe Chrysler is viable as a stand-alone company and suggested that the best chance for success for both GM and Chrysler "may well require utilizing the bankruptcy code in a quick and surgical way."

The move also indicates that the Treasury Department intends to wade more deeply than most observers expected into the affairs of the country's largest and oldest car company.

After more than a month of analysis, the administration's auto task force determined that neither company had put forward viable plans to restructure and survive. The verdict was gloomier for Chrysler. The government said it would provide Chrysler with capital for 30 days to cut a workable arrangement with Fiat SpA, the Italian auto maker that has a tentative alliance with Chrysler.

If the two reach a definitive alliance agreement, the government would consider investing as much as $6 billion more in Chrysler. If the talks fail, the company would be allowed to collapse.

Despite the grim view of Chrysler, the task force said it had no intention of replacing CEO Robert Nardelli. Unlike Mr. Wagoner, who had been at the helm of GM since 2000, Mr. Nardelli is considered an auto-industry outsider who has only been in charge at Chrysler since the company was acquired by Cerberus Capital Management LP in 2007.

In addition to pushing out Mr. Wagoner, the task force said GM is in the process of replacing the majority of its directors. Kent Kresa, a longtime director, will serve as interim chairman. Mr. Wagoner will be replaced as CEO by Chief Operating Officer Frederick "Fritz" Henderson.

The administration said it would provide the company sufficient working capital for 60 more days, during which a revamped GM board and top management has to put forward a much more rigorous restructuring plan than it submitted last month.

"The administration is prepared to stand by GM throughout this process to ensure that GM emerges with a fresh start and a promising future," according to term sheets released by the White House Monday morning.

Administration officials made it clear that an expedited and heavily supervised bankruptcy reorganization was still very much a possibility for both companies. One official, speaking of GM, compared such a proceeding with a "quick rinse" that could rid the company of much of its debt and contractual obligations.

The clearest losers appear to be the thousands of bondholders and lenders to both GM and Chrysler. In both cases, administration officials said that the companies were burdened by inordinate amounts of debt that would have to be scrubbed. Chrysler's survival, the administration said, would require "extinguishing the vast majority" of the company's secured debt and all of its unsecured debt and equity.

To assure consumers reluctant to buy GM or Chrysler cars, the government plans to take the unusual step of guaranteeing all warrantees on new cars from either company. These guarantees would lapse back to the companies once they return to health.

Mr. Wagoner had managed the company through some of its most difficult moments. The company hasn't logged a profit since 2004, reporting losses since then of $82 billion. It nearly ran out of money at the end of 2008 before the Treasury Department provided emergency loans. GM's stock was trading above $70 when Mr. Wagoner took over as CEO in June of 2000. The shares closed last week at $3.62, placing the company's market capitalization at $2.21 billion. In Monday-morning trading on the New York Stock Exchange, GM shares were down 89 cents, or 25%, to $2.73.

Mr. Wagoner's tenure came amid extraordinary challenges that weren't entirely of his own making--including costly retiree benefits and union contracts that predate him, and the recent deep recession. Yet GM by most measures performed worse than other auto companies. Among the key decisions that hurt the company: a huge bet on trucks and sport-utility vehicles that piled up on dealers' lots unsold as high gasoline prices drove Americans to look for more fuel economy offered by rival companies.

Mr. Wagoner was asked to step down on Friday by Steven Rattner, the investment banker picked last month by the administration to lead the Treasury Department's auto-industry task force. Mr. Rattner broke the news to Mr. Wagoner in person at his office at the Treasury, according to an administration official. Afterward, Mr. Rattner met one-on-one with Mr. Henderson, who will fill in as GM's CEO.

"On Friday I was in Washington for a meeting with administration officials," Mr. Wagoner said in a statement released by GM. "In the course of that meeting, they requested that I 'step aside' as CEO of GM, and so I have."

GM spokesman Steve Harris declined to comment.

In a statement released by GM Sunday night, Mr. Kresa said: "The Board has recognized for some time that the Company's restructuring will likely cause a significant change in the stockholders of the Company and create the need for new directors with additional skills and experience."

Plan for Viability

President Obama plans Monday to lay out the administration's interim conclusions on the companies' viability and the many steps that need to be taken to return the companies to health. The president will hold off on granting the companies the $21.6 billion in new loans they requested last month.

In remarks Sunday, Mr. Obama said that he intends to extract "a set of sacrifices from all parties involved--management, labor, shareholders, creditors, suppliers, dealers." The industry, he said on CBS's "Face the Nation," must "take serious restructuring steps now in order to preserve a brighter future down the road." The two companies "are not there yet," he added.

Mr. Wagoner's removal shows that the sacrifices could cut deep. The departure of the company's top executive promises to further shake up a company that has already been through considerable change over the past six months. The 56-year-old executive had been scrambling to craft a strategy aimed at maintaining leadership in the global sales chase with Toyota Motor Corp. and making big profits in emerging markets.

But Mr. Wagoner's plans came crashing down in the second half of 2008 as the company ran short of cash and was forced to ask the government for billions of dollars in aid. At the same time, his executive team started dismantling several parts of the company, including a plan to shed several brands, slow the pace of new-product introductions and sell stakes in international operations.

Industry's Outlook

The president's auto task force has spent more than a month digging into the restructuring plans that GM and Chrysler submitted last month. The team has struggled to make two determinations: when will the steep plunge in car sales end and what will the market look like once it revives.

GM has based its revival plans on the U.S. market rebounding to sales of 14.3 million vehicles a year in 2011, up from a rate of about nine million vehicles so far this year. Many analysts now consider GM's short-term forecasts to be overly optimistic.

The two companies received a total of $17.4 billion in government loans in December and have requested another dose to keep them going through this year. Of the $21.6 billion, GM is seeking $16.6 billion more, while Chrysler has asked for $5 billion more.

Among challenges the administration faced leading up to this weekend's decision, foremost were the efforts to draw steep concessions from the United Auto Workers union and from the bondholders.

Attempts to solidify deals with the UAW and bondholders were slowed by disagreements by both parties over how exactly the other party needed to budge. The UAW, for instance, insists it already made health-care concessions in 2005 and 2007, and argues that the bondholders have never been asked to concede anything.

"I don't see how the UAW will do anything until they see what the bondholders will give up," one person involved in the negotiations on behalf of the UAW said Sunday.

Bondholder Factor

The bondholders have said that they are willing to make concessions, but they have wanted to see the union make further cuts. The fact GM raised most of the unsecured debt to fund union health-care and pension costs is also seen as a reason why the union needs to take bigger steps.

With Mr. Obama potentially holding off on new loans until concessions are made, analysts said GM likely has enough cash on hand to weather at least another month before its need for more government aid becomes urgent. Chrysler may need another infusion of cash sooner. Ford Motor Co. hasn't sought federal assistance.

Both GM and Chrysler are negotiating with the UAW to accept a range of cost-cutting measures, including greatly reduced work forces, lower wages and a revamped health-care fund for retirees.

The U.S. auto industry has been reeling from a plunge in car sales over the last six months. Sales in February were down about 40% over the same month last year. The drop has sent shock waves through the hundreds of smaller parts companies that supply the big auto makers. To keep the sector afloat, the administration recently announced a $5 billion financing facility to help suppliers cover their expenses.

"We think we can have a successful U.S. auto industry," President Obama said on Sunday. "But it's got to be one that's realistically designed to weather this storm and to emerge--at the other end--much more lean, mean and competitive than it currently is."

Treasury Secretary Timothy Geithner, who is nominally in charge of overseeing the auto bailout, said on Sunday the government was prepared to lend more money "if we believe it's going to provide the basis for a stronger industry in the future that's not going to rely on government support."

The original December loans were given under the agreement that all sides would strike a compromise deal by March 31, but the administration is taking advantage of a clause allowing all sides another month to negotiate. "It was unrealistic to renegotiate a new labor agreement and the unsecured debt in so short a time," said Sean McAlinden, chief economist with the Center for Automotive Research, in Ann Arbor, Mich. "That has never happened before."

GM and Chrysler are meant to submit by Tuesday assessments of where their restructuring efforts are heading. In February, both companies put forward plans for paring their operations, reducing their work forces and eliminating vehicle models.

GM and representatives for its bondholders remained in talks over the weekend about a deal that would force these investors to turn in at least two-thirds of the value of the debt they hold in exchange for equity and new debt.

This arrangement would force GM to issue significantly more stock than what is currently being traded in the market. In addition, the government is being asked to guarantee the new debt with federal default insurance in order to entice bondholders who otherwise wouldn't be interested in participating in the swap.

If GM can't eventually forge a deal with the ad hoc committee representing the bondholders, the company may be forced to issue a debt-for-equity swap without the blessing of some of its biggest and most influential unsecured investors. This would heighten the possibility of the company eventually needing to file for Chapter 11 bankruptcy protection.

N.C. Research Campus, David Murdock, Aging Research to Be Featured On 'Oprah'
Originally Posted to Triangle Business Journal

Work on aging being done at the North Carolina Research Campus in Kannapolis will be featured Tuesday on “The Oprah Winfrey Show.” The campus’s founder, Dole Food Co. owner David Murdock, also will appear on the show.

According to a statement, Tuesday’s “Oprah” is dedicated to health and aging.

Various scientists at the research center, which is being backed heavily by North Carolina businesses and the UNC System ( Raleigh Web Design ), were interviewed by “Oprah.” So was Murdock, 85, who will appear on the show to discuss his lifestyle habits.

The Murdock interview includes a bicycle ride on Murdock’s farm and “an impromptu trip to Costco,” Dole Food says in a statement.

Murdock established the Research Campus in Kannapolis to further advances in biotechnology and health research. The Triangle’s biggest research universities all have a presence there; so do companies including Red Hat (NYSE: RHT), PPD Inc. (Nasdaq: PPDI) and LabCorp (NYSE: LH).

Whole Foods, Starbucks, Costco Propose Compromise Over Congressional Union Bill

Originally Posted to Triangle Business Journal

Whole Foods Market Inc., Starbucks Corp. and Costco Wholesale Corp. introduced a proposed compromise over the weekend to a bill before Congress that would make it easier to create unions.

Austin, Texas-based Whole Foods was joined by Seattle-based Starbucks and Issaquah, Wash.-based Costco in the proposal, which they say is an alternative to the controversial Employee Free Choice Act.

The EFCA – pushed by labor officials and many Democrats and heavily opposed by business leaders – would allow a majority of employees at a company to form a union by signing cards. Currently, if a majority of employees sign the cards, a process known as "card check," then employees vote in a secret-ballot election on forming a union.

The proposal from the companies, calling themselves the Committee for A Level Playing Field, would reject unionization via card check. It also would strip from the EFCA a controversial provision requiring unions and employees to go to federal arbitration if they cannot reach a deal within 120 days of a union's formation.

But the compromise legislation would allow unions access to employees during nonworking hours at a neutral location – a first – and mandate a fixed time for elections so companies wouldn’t be able to delay a vote. Delays in union votes are common complaints among labor organizers.

Speaking to reporters in a conference call, attorney Lanny Davis, who is representing the companies in the proposal, said the goal is to “trigger a conversation” between the two sides in the debate.

North Carolina business leaders are among those opposed to the card check bill, which they say would put a major dent in many of the state's economic development advantages.

A Tough Economy Makes Cooking At Home More Popular Than Ever
Originally Posted at Winston-Salem Journal

The tough economic times are having an effect no one predicted: Cooking. At home. By you.

Cooking classes are packed. Sales of such cooking magazines as Gourmet and Bon Appetit have been up since last summer. Sales of quality ingredients and cookware are doing fine, too, even as high-end restaurants go out of business.

We may be watching our wallets by skipping the high cost of dining out, but some of us are apparently rewarding ourselves by trying to cook better meals at home.

"As the economy is going down, we're going up," said Vic Giroux, the owner of What's Your Beef?, a butcher shop that specializes in high-quality meat and poultry. "Perfect example -- Valentine's Day. We had a line out the door." Practical gifts are in - flowers that die and chocolates are out. With prices being slashed, this is a great time to buy new kitchen appliances.

That's the key to the whole thing, say many retailers who watch the food economy from the inside: quality. We're not buying much, but what we're buying is choice.

"They're not going out and just buying rice and beans, like we did in the early '70s and '80s, when the economy was just as bad," Giroux said.

Nationally, it's part of a bigger trend that has been pushing us back home for dinner for a while, says Harry Balzer, the vice president of the consumer research company NPD Group.

Since 2001, he says, the percentage of women working full time or part time while their children are young has hit a peak and started declining. When families have only one wage-earner, they make more frugal choices.

"It's being exposed by the economy," he said. "But it's been going on for years."

We spend half of our food dollar in restaurants and half at the supermarket, Balzer says, so the quickest way to save money is to skip restaurants.

Amid Sluggish Growth, Ex Partners Become Rivals In Techno Turf War
As Originally Posted at The Wall Street Journal

With a big product launch Monday, Cisco Systems Inc. is propelling the technology industry into a new era: Giant companies that once prized profitable cooperation are invading each others' turfs.

Cisco announced it will start building its own servers, the powerful machines that run corporate computer colocation centers across the globe. Its "blade" server, which it designed and developed for two years under unusual secrecy, places it in direct competition with long-time partner Hewlett-Packard Co.

For years, Cisco enjoyed heady growth in its core business of making the switches and routers that allow computers to communicate with each other. Hewlett-Packard dominated the server market. The two cooperated with each other, as well as with the makers of storage devices and software, each providing complementary pieces of the data centers that make corporations and the Internet run.

But that has been changing in recent years. The maturing tech industry has set giant companies on a collision course, as once-disparate technologies take on new capabilities in a "convergence" of computers, software and networking. With the recession expected to shrink sales across the industry, tech companies are turning on each other in their search for growth.

Since Cisco's core networking markets began slowing in 2005, it has taken on the likes of H-P, Microsoft Corp. and International Business Machines Corp. It is also picking new fights as it expands into home electronics and entertainment systems for sports stadiums.

Cisco Chief Executive John Chambers says the company expects to deploy its hoard of cash during the economic downturn to expand further into areas where it hasn't historically competed. In February, the San Jose, Calif., company took on $4 billion in debt in part to add to its war chest for acquisitions. "The fact that we have $29.5 billion gives us a huge competitive advantage," Mr. Chambers said in an interview just before raising that capital. "Cash is king, queen and the royal family."

Cisco's new rivalry with H-P provides a particularly good window into the industry's latest offensives. As Cisco moves onto H-P's territory, H-P is stepping up its own investments in networking gear that competes with Cisco's.

Those outside Cisco say the move into servers could be difficult. "This is, by far, the riskiest, most bold move they [Cisco] have made in their history," says Zeus Kerravala, an analyst at tech research company Yankee Group.

Cisco's chief technology officer, Padmasree Warrior, says the company has moved boldly in the past, and suggests the old rules are changing. "We're going to compete with H-P. I don't want to sugarcoat that," she says. "There is bound to be change in the landscape of who you compete with and who you partner with."

Battles are breaking out across the industry. Within the past year or so, H-P has fueled a new rivalry with IBM in tech outsourcing by buying services giant Electronic Data Systems Inc. Microsoft set its sights on Internet-search giant Google Inc. by attempting to buy Yahoo Inc. Sun Microsystems Inc. is moving beyond its core market in servers and software to take on database-software leader Oracle Corp. Later this month, Dell Inc. says it plans to introduce new data-center management software that will compete with existing offerings by H-P, IBM and others.

Other growth industries have followed similar paths into maturity. General Motors Corp. expanded years ago into defense contracting, computer services and mortgages. Textile companies responded to slowing growth by expanding into chemicals.

In the past, when big tech companies made similar incursions into others' businesses, they often dismissed it as "co-opetition," meaning they planned to compete in some areas and cooperate in others. Brisk growth across tech markets meant that, even while these companies' products increasingly overlapped, there was more than enough profit to go around. But this downturn's severity heightens the impact of these clashes. World-wide tech spending is expected to decline in 2009 -- by as much as 3%, predicts forecaster Forrester Research.

"Tech companies can't continue to satisfy Wall Street's requirements for growth without encroaching into the markets of their long-time partners," says Joe Skorupa, an analyst at tech-research company Gartner Inc. "All of these guys are banging into one another trying to figure out where they are going to grow, and at whose expense."

Cisco's Shift

Cisco's case is remarkable for how dramatically the company has shifted its strategy since the turn of the decade.

Founded in 1984, Cisco undertook a high-profile expansion throughout the 1990s, its revenue growing from $69 million to $18.9 billion over the course of the decade. But even into the new millennium, the company remained focused on selling routers and switches to corporations.

In the past few years, the company's core networking business has grown more slowly than the company as a whole. In its 2008 fiscal year, which ended last July, Cisco's networking business grew 10%, down from 16% the year before.

Cisco has compensated by expanding into new areas. It is using its Linksys and Scientific Atlanta brands, which it acquired this decade, to get into people's homes with wireless networks and cable boxes. It is butting heads with Microsoft over a recent move into technology that unifies email, telephone and voicemail. It has started installing big-screen networks in sports stadiums. Cisco is also taking on physical security companies by pushing video-surveillance systems.

In January, the company introduced a line of wireless home speakers aimed at consumers, a move unimaginable a few years ago. "It's definitely intimidating," says Adam Castillo, a marketing director at Avid Technology Inc., which sells competing products through its M-Audio division. Mr. Castillo says that Cisco's overall size and manufacturing strength immediately make it a force in the segment.

Cisco's fiercest turf battle is over the data center, the giant computing rooms where companies store, process and route information. Businesses will spend about $100 billion on data-center software and hardware in 2009, research company IDC forecasts.

Data centers typically have been a cozy symbiosis of products from a mix of companies: Cisco networking gear runs alongside servers from H-P or IBM or Dell; software from Microsoft runs along with programs from BMC Software Inc. or VMware Inc. But as lines between software, hardware and network technologies have blurred in recent years, companies like Cisco see an opportunity to grab more data-center dollars.

That's a reversal from 2003, when a team at Cisco studied the market for servers to see if Cisco should make its own. The group concluded that the market was big -- around $50 billion a year. But Cisco decided not to develop a server, say people familiar with the discussions. Profit margins were low, the company decided. The cost of entry would be high, as the most successful server sellers have armies of consultants who help companies choose which equipment to buy.

Plus, setting up a server business would mean competing with IBM and H-P, two partners that were generating huge revenues for Cisco. Field consultants for the two tech giants were pitching not only IBM or H-P servers but also Cisco products -- sales that currently account for $2 billion a year, or 5% of Cisco's overall sales, according to Pacific Crest Securities Inc. H-P's then-CEO, Carly Fiorina, was a Cisco director.

The goal then was to not upset IBM or H-P, say people familiar with the decision.

H-P Moves In

Allegiances began to change in 2005, when Mark Hurd took over as H-P's chief executive. The Palo Alto, Calif., company had been making its own networking gear for more than 20 years, but its ambitions for the products had been modest. Mr. Hurd called attention to the networking products during a company meeting shortly after he was named CEO, says a person who attended -- a surprise because the unit had a low profile under Ms. Fiorina. Mr. Hurd pushed H-P further into the profitable networking-gear business, emphasizing H-P networking gear over Cisco's.

That year, H-P increased its investment in developing new networking products, says Marius Haas, who now heads the networking division. The company would also eventually increase the incentives for its sales force to sell H-P gear, rather than certain Cisco products.

By 2006, the amount of Cisco equipment sold by H-P and IBM was no longer growing at the same rate as Cisco's own sales, say people with knowledge of those numbers.

Cisco laid the groundwork for a counterattack in August 2006, when it paid $50 million for a controlling stake in Nuova Systems Inc., a networking start-up. In early 2007, Mr. Chambers authorized Nuova to develop a Cisco-branded blade server, say people familiar with the matter. Nuova operated as an independent unit with its own offices, heightening the project's secrecy.

Blade servers, named for their slim vertical profile, are the fastest-growing part of the server market. H-P had 55% of the blade-server segment by revenue in the last quarter of 2008, according to research company IDC, followed by IBM with 22%. IBM declined to comment for this article.

Some Cisco executives still agreed with the 2003 analysis that favored partnerships, arguing that taking on H-P in servers was a bad business move. Big tech companies, says one person involved in the project, will often bump up against each other in overlapping projects, but will benefit from remaining cooperative on others. "There are always smoldering fires," this person says. "Deciding to build a server was deciding to pour gasoline on a smoldering fire."

Nonetheless, Cisco moved ahead. By fall 2007, the company was touting the server to customers, say people familiar with its sales presentations. But Cisco didn't tell H-P about the project, even though the two companies routinely had detailed sales discussions, say people familiar with the talks, and maintained an official strategic alliance that continues to exist.

Mr. Chambers kept a tight lid on the project. Ms. Warrior, Cisco's chief technology officer, met with the Nuova team in her first week with the company in March 2008. But she says she didn't learn of its server plans until the next month, when Cisco bought the rest of Nuova. H-P wasn't convinced that Cisco was planning to sell its own server until the second half of 2008, say people familiar with H-P's dealings with Cisco.

Ms. Warrior says the company's system isn't intended as a direct replacement for models from H-P and IBM. She says it is unlike others on the market because it combines server and network, eliminating the need for information-technology staff to integrate the components on their own. It also automates some functions that are currently separate.

To make up for its lack of an in-house consulting business, Cisco in February aligned itself with Accenture Ltd. and India-based Tata Consultancy Services Ltd. Both companies will establish practices to sell Cisco products to businesses.

H-P has stepped up its offensive. For the past several months, it has been trying to fill "holes in our portfolio" by increasing its networking offerings to many large corporate clients, says Mr. Haas, H-P's networking chief. Last fall, members of Mr. Haas's staff started calling smaller companies that sell networking products that compete with those made by Cisco. In the last few months of 2008, H-P struck deals with more than a dozen of them, packaging their products into a single piece of H-P networking gear.

The new product, which H-P rolled out in January, comes with free product updates -- a service Cisco customers need to pay for -- undercutting Cisco's prices, say analysts and companies that sell Cisco gear. Another consideration is he launch of server colocation managed services in key markets across the country. Some scenarios include:

Atlanta Colocation

Chicago Colocation

Los Angeles Colocation

New York Colocation

and more.

The turf grabs have gained the attention of the independent consultants who assemble computer networks and data centers that include Cisco equipment. Some of these Cisco resellers spent half an hour at a recent meeting with Cisco executives, complaining that they were losing sales because they couldn't compete with H-P's offer of free support. Cisco's execs had no answer at the time, according to a person who attended the meeting. Another Cisco reseller said "my phone blew up" with calls from angry Cisco executives when he recently announced plans to sell H-P's networking gear as well.

Since then, Cisco has started offering 0% financing on some of its equipment. Overall, Cisco says, resellers account for 80% of its revenue. "Over the years, we've addressed numerous competitive challenges with our partners," says Keith Goodwin, a senior vice president. "Our track record of success speaks for itself."

New From Dell - A Luxury Laptop
PC Maker Targets Apple's MacBook Air With Pricey, Ultrathin Notebook
As Originally Posted to The Wall Street Journal

Dell Inc. began taking orders for its new ultrathin, high-end Adamo notebook computer, as the company strives to make inroads into the consumer PC market.

The Adamo, which starts at $1,999, is Dell's first foray into luxury notebook computers. It comes to market two years after founder Michael Dell returned as chief executive in an attempt to revive the struggling Round Rock, Texas, company.

With the Adamo, Dell follows rivals Apple Inc. and Hewlett-Packard Co. into extra-thin, lightweight notebooks. Apple created the category when the company introduced its MacBook Air laptop in early 2008. H-P last year introduced its Voodoo Envy laptop, which has a painted carbon-fiber case.

"We're focusing on the fashion" rather than technical features, said John New, Dell's director of consumer marketing. "We want the user to be presented with this and feel special about what they're getting."

The Adamo's metal case comes in black and iridescent white versions. Dell says that at 0.65 inch thick, it is the thinnest notebook personal computer in production. Its technical specifications are similar to Apple's MacBook Air, which starts at $1,799.

Dell has also signed up the fashion line Tumi to design carrying cases for the Adamo.

When Mr. Dell returned as CEO, his company was grappling with a relatively weak presence in the consumer PC market. Mr. Dell said he would reinvent the company, which was known for selling low-price PCs in bulk to corporations.

The PC maker has since introduced new consumer PCs including inexpensive laptops and desktops. Last week, Dell also released a touchscreen desktop aimed at families.

Still, the weak economy and declining PC demand has hurt Dell's business. Last month, Dell said profit had plunged 48% for its fiscal fourth quarter.

The Adamo faces tough conditions. In addition to falling PC sales, the prices of computers have been sliding. Sanford Bernstein & Co. analyst Toni Sacconaghi recently said "a broad shift to low-cost computing is a long-term possibility" as consumers gravitate to less-expensive products during the downturn.

Mr. New said Dell doesn't expect to sell a high volume of Adamo notebooks, because the high price makes it a niche product. He added that Dell plans to expand the Adamo brand with other PCs.

Starbucks Seeks More Frugal Image
As Originally Posted to The Wall Street Journal

SEATTLE -- Starbucks Corp. Chief Executive Howard Schultz said the coffee chain would combat the notion that its drinks are expensive, as he outlined plans to weather an economic downturn.

At the company's annual investors meeting Wednesday in Seattle, Mr. Schultz railed against the notion that Starbucks -- where the menu includes beverages that can cost upwards of $4 -- is "the poster child for excess," pointing out that half of the beverages Starbucks sells cost less than $3.

"Starbucks has got to demonstrate to our customers and the marketplace that we can still be a premium brand and create a premium experience and at the same time create a platform for value," said Mr. Schultz.

He also said new efforts such as the company's Via instant coffee and its $3.95 pairings of breakfast sandwiches with drinks have received a good response.

Mr. Schultz spoke to a nearly packed auditorium in an event markedly more subdued than those in previous years that often included a big musical act and baristas on stage. Most of the efforts Mr. Schultz discussed had been previously announced, compared with past years when he used the meeting to introduce big new ideas.

After years of rapid growth, Starbucks is now focused on cutting costs, making its operations more efficient and introducing new products that might help increase sales at its existing outlets. Mr. Schultz said the company needs to adapt to a shift in behavior that has customers coming to its stores less frequently and brewing coffee at home.

He indicated the company will use more television advertising after years of using very little. He didn't address whether Starbucks's planned campaign is in response to plans by McDonald's Corp. to start advertising its new line of espresso drinks this year, but he said "it is not true that customers are going to fast-food restaurants" instead of buying their coffee at Starbucks.

The company also plans to reintroduce a promotion from last summer that offers some drinks for $2 to patrons who had made a purchase at a store that morning.

During questions from investors, one Starbucks executive said the company is working on a single-cup solution to be able to quickly brew decaffeinated coffee after recently taking decaf out of the regular afternoon brewing rotation at many outlets.

San Diego Union-Tribune Finds Discount Buyer
As Originally Posted to The Wall Street Journal

A California private-equity firm clinched a deal -- at a rock-bottom price -- to buy the San Diego Union-Tribune newspaper, one of the few large dailies that have found a buyer as industry profits sag.

Platinum Equity, a Beverly Hills firm specializing in distressed deals, is leading the acquisition of the Union-Tribune, which was put up for sale in July by closely held Copley Press Inc. David Black, owner of the Akron Beacon Journal and a string of Canadian papers, also is part of the buying group.

The Union-Tribune is the country's 23rd-largest newspaper, with weekday circulation of nearly 270,000.

The deal price wasn't disclosed, but a person familiar with the matter said it was less than $50 million, a price largely driven by the Copley Press real estate, which includes the complex housing the Union-Tribune and another facility. The value of the assets -- even amid a downtrodden real-estate market -- gives the buyers some cushion against the struggling newspaper, according to people familiar with the matter.

The fire-sale price reflects the dried-up market for big newspapers. A number of papers have been put up for sale in the last year, but bankers say suitors are staying on the sidelines while it is hard to predict when advertising declines will hit bottom. E.W. Scripps Co. recently closed the Rocky Mountain News and Hearst Corp. this week ended the print edition of its Seattle Post-Intelligencer after the papers attracted no serious offers.

There are growing calls to ease regulations limiting newspaper consolidation so papers can seek merger partners. Attorney General Eric Holder told reporters Wednesday he was open to re-examining the policies.

The Union-Tribune attracted several suitors, including Ronald Burkle's investment firm Yucaipa Cos. and newspaper publishers MediaNews Group Inc. and Tribune Co. Several buyers said they were dissuaded by the paper's rapidly declining profits.

The Union-Tribune deal is a startling turnaround for its controlling Copley family. The paper generated about $100 million in cash flow in 2004, according to people familiar with the paper's finances, meaning the Union-Tribune could have been worth $1 billion based on valuations at the time. Now, the paper is close to break-even, these people say, as it has been battered by the collapse of newspaper classifieds.

In an interview, Mr. Black said he is "a big believer in newspapers, as is Platinum Equity" and that the Union-Tribune's location, readership and Web site made it an attractive property.

Mr. Black said he will have to cut costs to help offset the bleak newspaper revenue outlook. "In this case the paper hasn't had [cuts] as of the sale process and a whole lot of other papers have," Mr. Black said. "There's some catch-up there."

Priceline.com to Offer Price Guarantee on Airline Tickets, Travel Packages
As Originally Posted to The Wall Street Journal

Priceline.com Inc. is expected to announce Thursday that it will launch a price guarantee on airline ticket purchases and package bookings such as cheap Bahamas Cruises made through June 1, similar to programs announced recently by other online travel agencies.

The "Pricedrop Protection" program promises to automatically reimburse travelers if they book an airline ticket or cheap Caribbean cruises on priceline.com, and then someone else books the same ticket or package at a lower price. The reimbursement will be available for airline ticket price drops of between $1 and $300, from $1 to $600 on packages involving a hotel booking, and up to $300 for air and rental-car packages.

Orbitz Worldwide Inc. announced a similar, though long-term program for airline-ticket reimbursement, called "Price Assurance," last June.

Over the past few weeks, online travel agencies have found themselves in a bit of a promotion war. Expedia Inc. announced last week they would drop booking fees on airline ticket purchases until May 31, matching a long-term program already in play at Priceline.com and Expedia Inc.'s Hotwire.com.

Then, earlier this week, Travelocity.com, which is a unit of Sabre Holdings Corp., dropped booking fees on airline tickets and launched a price guarantee on vacation packages like cheap Canada cruises—both through May 31. It promised to refund a price difference, from $10 to $500, if a different Travelocity customer buys the same package for a cheaper price at a later date.

Google And WPP Join Forces For Web Ad Research
As Originally Posted to The Wall Street Journal

WPP and Google are going back to school.

The ad holding company and the Internet giant have teamed up to fund research on how ads in traditional and digital media work together to influence consumer choices. Though the two companies have committed just $4.6 million to the three-year program, their venture marks the latest example of Madison Avenue and Silicon Valley working together to shed light on questions that face the industry as it tries to persuade marketers to spend more than a fraction of their budgets online.

On Wednesday, the two companies plan to unveil the first round of studies, which will take place at institutions including Harvard Business School, the Massachusetts Institute of Technology and Stanford University. The researchers will have direct access to up-to-date data from Google and WPP's clients, which include major advertisers like Unilever and Ford.

Several of the studies will try to determine the best ways to allocate ad spending between traditional and digital media, as well as how online ads affect a company's sales and brand image. Another will use psychology and neuroscience to analyze how the brain determines whether Web ads are relevant. Still another will examine how Chinese Internet users respond to different online-ad formats, such as display and search ads.

Marketers and ad agencies already can gauge the impact of online ads by counting the Web users who click on them or tallying up the amount of buzz they generate among bloggers. But they would like to gain a broader understanding of what makes Web campaigns likely to succeed.

"Because the firms are, correctly, focused on solving the problems of individual clients, they don't necessarily step back and see the big picture and develop useful generalizations," says John Quelch, senior associate dean of Harvard Business School and a nonexecutive director of WPP, who is helping oversee the program.

That uncertainty has prevented big marketers from shifting even more of their ad dollars to the Web, says Mark Read, WPP's director of strategy and CEO of WPP Digital.

Despite the excitement about digital marketing, the average marketer still spends just 9.9% of its ad budget online, according to Forrester Research. Even so, the Internet is the fast-growing ad medium. Digital-ad spending has continued to grow even as marketers have cut back on conventional advertising.

"Digital is young and hasn't had the same amount of rigorous study applied to it" as print and TV advertising, says Forrester analyst Emily Riley.

WPP and Google put out a call for research proposals last fall and received more than 120 applications. Among the applicants was Glen Urban, a professor at MIT's Sloan School of Management.

Prof. Urban plans to analyze Web users' surfing habits to determine their thinking styles -- such as whether they are most influenced by verbal or visual messages or if they are more holistic or analytical -- and how to tailor ads accordingly.

A phone company promoting a new long-distance calling plan, for example, might show a holistic thinker an ad with a slogan like "Reach Out to the World," with an image of two people reaching toward each other across the globe. An analytical thinker might get the same slogan but with bullet points highlighting the plan's features.

The WPP-Google project isn't the first time a big advertising company has allied with a top Internet player. Last year, Publicis Groupe and Google said they were working together to explore new marketing technologies, and Yahoo has linked up with WPP and Havas to develop new ad technologies and streamline the purchase of online ads.

Some of the Google-WPP studies will involve complex statistical and business analysis. Others studies are looking at the business from a psychologist's perspective. One, at the University of Southern California, is examining the role emotions play in decision making and how advertising can influence those choices. The study will analyze how online ads affect blood flow to different areas of the brain, says Martin Reimann, a fellow at USC.

Amazon Faces Suit Over Kindle Device
As Originally Posted to The Wall Street Journal









Cable programmer Discovery Communications Inc. filed a lawsuit Tuesday against Amazon.com Inc., claiming Discovery owns a patent to technology used in Amazon's Kindle electronic-book reader.

The suit, filed in U.S. District Court in Delaware, cites a patent to an encryption system for e-books and asks for triple damages as well as a "continuing royalty" on the system.

The popularity of the Kindle, which allows users to download books, contributed to Discovery's decision to bring suit against Amazon rather than against the makers of other e-book readers, such as Sony Corp., people close to Discovery said.

"The Kindle and Kindle 2 are important and popular content delivery systems," Joseph A. LaSala Jr., Discovery's general counsel, said in a statement. "We believe they infringe our intellectual property rights, and that we are entitled to fair compensation."

Amazon declined to comment on the lawsuit. Sony declined to comment on the suit but said that in general it wants its e-book device to be an open platform. Right now, it supports a variety of formats.

The Kindle, released in 2007, is just the latest piece of mobile technology to be the subject of a patent dispute in recent years. "The courts are, as always, trying to keep up with the rapid change in technology. There are a lot of disputes now about what is even patentable," said Edward Reines, an intellectual-property litigator at the law firm Weil, Gotshal & Manges LLP.

The patent named in Discovery's suit, for an "electronic book security and copyright protection system," was filed in 1999 and awarded to Discovery in 2007, according to online records from the U.S. Patent and Trade Office.

In the 1990s, Discovery founder John Hendricks led research at his company into digital delivery of television and book content, filing for several patents in those areas, according to patent-office records. In 2004, the company sold about 20 patents relating to TV to a consortium of cable operators, according to people close to Discovery.

Amazon spent three years developing the Kindle. Part of the Kindle's initial edge over competitors has been its connection, via cellular data network, to the Amazon bookstore, enabling users to browse and buy books directly from the Kindle rather than from a regular computer.

Amazon has been protective of its proprietary e-book format. Last week, the company asked a Web site to take down instructions on how to run a program that could enable a Kindle device to display books from other e-book providers.