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February 27, 2007
From 0 to 60 to World Domination - New York Times - Toyota
By JON GERTNER 1. Here Comes the Tundra For most of the January morning, the reporters at the Detroit auto show crisscrossed the Cobo convention center like a herd of livestock, moving at least once every hour to feed sometimes literally, since Lexus offered fresh fruit. All the world's car companies were unveiling this year's models. Often, the back-to-back corporate announcements required everyone to scurry clear across the exhibit floor to get a seat at the next press conference. It was hard not to lose yourself in the scenery, however, as you passed by a dazzling showroom exhibit of Maseratis, for instance, or encountered some gleaming Infinitis. The event was a place untroubled by thoughts of traffic jams, long commutes or gas prices. It was also a place where C.E.O.'s like Rick Wagoner of General Motors showed off electric cars like the Chevy Volt that cannot yet be produced at least until battery technology improves but that can nonetheless be driven slowly across a stage toward a cluster of photographers. In this context, it seemed, G.M. was not a company that posted a $10.6 billion loss in 2005, nor was Ford a manufacturer that announced plans last year to shed more than 30,000 employees. There were no overwhelming pension and health-care burdens.
Source: From 0 to 60 to World Domination - New York Times
Shortly after noon that day, in a ballroom just off the convention center’s main floor, the crowd was waiting for Toyota to unveil the latest (and largest) version of its new full-size truck, the Tundra. From where I stood, pinned against a back wall in the darkened room, it was getting hard to breathe. At this point I had been following Toyota and the Tundra for months; I visited the company’s new Tundra plant in San Antonio, its sales headquarters near Los Angeles, its executive offices in Manhattan and its Camry plant near Lexington, Ky. Apart from some recalls of faulty parts (an unusual and humiliating occurrence for the carmaker), Toyota had seemed as close to a juggernaut as any corporation in existence.
By any measure, Toyota’s performance last year, in a tepid market for car sales, was so striking, so outsize, that there seem to be few analogs, at least in the manufacturing world. A baseball team that wins 150 out of 162 games? Maybe. By late December, Toyota’s global projections for 2007 — the production of 9.34 million cars and trucks — indicated that it would soon pass G.M. as the world’s largest car company. For auto analysts, one of the more useful measures of consumer appeal is the “retail turn rate” — that is, the number of days a car sits on a dealer’s lot before it is turned over to a customer. As of November 2006, according to the Power Information Network, a division of J.D. Power & Associates that tracks such sales data, Toyota’s cars in the U.S. (including its Lexus and Scion brands) had an average turn rate of 27 days. BMW was second at 31; Honda was third at 32. Ford was at 82 and G.M. at 83. And Daimler-Chrysler was at 107. The financial markets reflected these contrasts. By year’s end, Toyota would record an annual net profit of $11.6 billion, and its market capitalization (the value of all its shares) would reach nearly $240 billion — greater than that of G.M., Ford, Daimler-Chrysler, Honda and Nissan combined.
When the Tundra finally arrived onstage in Detroit, Jim Lentz, one of the company’s North American executives, told the packed ballroom that this vehicle “changed everything” for Toyota. It was researched, designed, engineered and built in America, Lentz pointed out; and it seemed, from his presentation, to be the toughest, brawniest and most iconically masculine pickup truck anywhere, ever. Such boasts were in keeping with the spirit of car-dealership hucksterism at the show. Still, 50 years after coming to the U.S., Toyota views the Tundra, which arrived in American showrooms earlier this month, not only as another big truck but also as the culmination of a half-century of experimentation, failure, resurgence and domination. And as anyone with even a passing familiarity with Toyota’s strategic history knows, the company never makes rash moves or false promises.
Whether Toyota has evolved into the world’s most sophisticated modern corporation — one whose example has challenged the American model of manufacturing and management — happens to be a common topic of conversation among business analysts these days. “It’s influencing just about every major company in the world, in that they’re asking the question: What can we learn from Toyota?” says Jeff Liker, an engineering professor at the University of Michigan who has written several books on the company. Indeed, what you can learn from Toyota is something that even Bill Gates has pondered publicly. And yet deconstructing Toyota means breaking down a corporation that uses all its resources, and more than 295,000 employees worldwide, to construct things that are not meant to come apart.
2. Kaizen Means Never Being Satisfied
One of the Toyota executives attending the Tundra’s debut was Jim Press. A tall, lean Midwesterner, Press is the president of Toyota Motor North America, making him the company’s highest-ranking American. Toyota is governed by a large corporate board, which is made up of top executives in Japan and senior managing directors spread around the globe; Press is one of 49 managing officers of the company just below that level. For most of his career, Press worked on the West Coast, at Toyota’s North American sales headquarters in Torrance, Calif. More than half of Toyota’s profits now come from the U.S.; its success here, and its success globally, are so closely related as to be indistinguishable. In the view of one longtime Toyota watcher, Press’s high standing reflects the fact that, more than any single manager, he delivered the American market to Toyota. His efforts helped make the Camry the best-selling car and the Lexus the most popular luxury brand in the U.S.
Press, who is 60, never had an ambition to be an auto executive. When I first met him in his Midtown Manhattan office in October, he told me that after college he took a job working for Ford. “My family was in retail,” he said, “and this was a foray into the manufacturing side to kind of learn what goes on in the industry before I went on and became a car dealer.” In 1970, his boss at Ford moved to Toyota and encouraged him to join up too. At the time, Toyota sold a few Land Cruisers and was known mainly for one car, the Toyota Corona. It seemed like a poor career move. “When you’re young and your head is full of ideas, you don’t let facts get in the way,” Press said. So he took a flier, gave up his company car (a new Ford Thunderbird) and went to work at Toyota.
When he started, the Big Three completely controlled car sales in the United States. The only foreign company of any prominence was Volkswagen, and as Press recalled, Toyota’s modest sales were lumped with various tiny carmakers as “Other.” Still, soon after he arrived, Press realized he liked the company’s intimacy: he could meet face to face with top managers and exert some influence over marketing decisions. And he liked Toyota’s obsession with customer satisfaction. When he told me about his first trip to Japan, he seemed to be recounting a religious experience. “As a young person, you are searching for this level of comfort, you don’t know what it is, but you’re sort of uncomfortable,” he said. In Japan, as he put it, he found a home, a place where everything from the politeness of the people to the organization of the factories made sense. On that first trip, at a restaurant one evening, he tried a rich corn soup and asked the waitress for the recipe. She checked with the chef, who explained that there was no recipe; it had been handed down from his mother. The next morning, the waitress came to Press’s hotel room: she had found a cookbook with a recipe for the soup. Press, apparently, was still her customer. “That blew me away,” he said.
It can be simplistic, and often a distortion, to accept a corporate executive as the personification of a corporation, especially one as large and varied as Toyota. Yet Press serves as an apt representative, and not merely because his career arc mirrors the company’s ascendancy. Like Toyota, he expresses himself in private with modesty and care, yet in public his speeches are bold, declarative and effervescent. In his office, he has an informal, relaxed presence and exhibits just a hint of an avuncular stoop; yet he loves to race cars and sometimes swims 5,000 meters a day. Press also has a fluency in the company’s arcane systems and history. Toyota is as much a philosophy as a business, a patchwork of traditions, apothegms and precepts that don’t translate easily into the American vernacular. Some have proved incisive (“Build quality into processes”) and some opaque (“Open the window. It’s a big world out there!”). Toyota’s overarching principle, Press told me, is “to enrich society through the building of cars and trucks.” This phrase should be cause for skepticism, especially coming from a company so adept at marketing and public relations. I lost count of how many times Toyota executives, during the course of my reporting, repeated it and how often I had to keep from recoiling at its hollow peculiarity. And yet, the catch phrase — to enrich and serve society — was not intended, at least originally, to function as a P.R. motto. Historically the idea has meant offering car customers reliability and mobility while investing profits in new plants, technologies and employees. It has also captured an obsessive obligation to build better cars, which reflects the Toyota belief in kaizen, or continuous improvement. Finally, the phrase carries with it the responsibility to plan for the long term — financially, technically, imaginatively. “The company thinks in years and decades,” Michael Robinet, a vice president at CSM Worldwide, a consulting firm that focuses on the global auto industry, told me. “They don’t think in months or quarters.”
Certainly the most obvious example of Toyota’s long view is the Prius hybrid. Press said he believes that every automobile in the U.S. will eventually be a hybrid. I asked how soon. Not in five years, he replied, “but I think at some point in the not-too-distant future.” I asked whether Toyota developed and marketed the technology years ahead of the other major automakers because it possessed better technical skills. Press instead framed the issue as a matter of philosophy. Ten years ago, he said, at about the same time the Prius made its debut, Ford rolled out the huge S.U.V. franchise. “Both of us had the same tea leaves, the same research,” he said. “One of us bet on hybrid, one of us bet on big S.U.V.’s.” In his view, the wisdom of making big S.U.V.’s — Press left unacknowledged that Toyota eventually brought out its own line of S.U.V.’s — seemed dubious: “First of all, long term, is fuel going to get cheaper or more expensive? Is oil going to become more plentiful or less plentiful? Is the air going to become cleaner or more polluted? And so, do you do something proactive and innovative, to be in tune with where society is going? Or do you hold on to where it has been, and then don’t let go, to the bitter end?” It was never a matter of altruism, he seemed to be saying, but an example of how corporations survive in society. “What’s the right thing to do to sustain the ability to sell more cars and trucks?” he asked. The Prius was not about a fast return on investment. It was about a slow and long-lasting one.
The Tundra is hardly green like the Prius, yet it, too, illustrates Toyota’s characteristic patience and belief that it should serve every kind of customer. The biggest-selling vehicle in the United States is not the Camry (448,445 sold last year) or the Accord (354,441) but Ford F-Series trucks (796,039). Not far behind in sales are the full-size trucks from Chevrolet. These are among the most lucrative consumer products around, yielding anywhere from $6,000 to $10,000 in profit for every unit sold. “To the American automakers, that’s their bread and butter,” Jeff Liker, from the University of Michigan, explains. “They break even on passenger cars, lose money on small cars. But all their profits come from large S.U.V.’s and trucks. For the American auto companies, this is the last hill that they dominate.” Several auto analysts pointed out to me that G.M. and Ford trucks not only have an extremely loyal customer base; they’re also widely regarded as extremely well built and engineered (often in contrast to their passenger cars). When I asked Jim Press how long the company had been thinking about creating a full-size truck, he said it had been a priority dating to the early 1990s, when Toyota failed with its first big truck, the T100. The company failed again in 2000 when its first (and smaller) Tundra came out; only 124,508 units were sold last year.
Within Toyota, there is a rare and secretive designation for certain development projects known as irei, which is roughly translated as “not ordinary” or “exceptional” and refers to vehicles that the company will spend any amount on and go to almost any lengths to engineer, market and perfect. In the early 1990s, the Prius had this designation. When it came time several years ago to begin redesigning the new Tundra, it received the classification, too. The success of G.M. and Ford suggested that it was a product that could eventually reap tremendous profits. It was also a vehicle that could conceivably cement Toyota’s reputation, once and for all, as an all-American company.
3. The Engineers Open the Window on the Big World Out There
It’s often noted that American carmakers are hobbled by their obligations to pay health care “legacy costs” to their ranks of retirees. Toyota has only about 1,600 retirees in the U.S., and many of its factories have never been successfully organized by a union. Yet Toyota has other strategic advantages too. For one thing, its enormous cash reserves allow it to spend billions on the pursuit of market share in the U.S. — designing a new car or significantly redesigning an old one usually costs $1 billion, and building a new plant costs between $1 billion and $2 billion — and at the same time to think deeply about where society will be in 20 years.
These two pursuits, which might appear contradictory, actually reinforce each other. “Toyota has always gone where the money is, and there’s money in trucks,” says John Casesa, an industry consultant and a former automotive analyst at Merrill Lynch. “This is a company that has, as its mission, to serve any customer. But the other reality is that you’ve got to make a lot of money to develop the research and development for hybrids.” Toyota spends $20 million a day, Jim Press told me, on research and factories. “They are outspending G.M. in R.&D., product development and capital spending,” says Sean McAlinden, an economist at the Center for Automotive Research, a not-for-profit consulting firm in Ann Arbor. “If that trend continues, we’re dead. The problem is, suppose we made a car” as good as a Toyota. “Then we only have a car as good as they do. It’s not just about catching up, or getting into the game. You’ve got to get ahead somehow. But how?”
Toyota itself keeps pushing ahead. Under its system, an engineer appointed to lead a new project has a huge budget and near absolute authority over the project. Toyota’s chief engineers consider it their responsibility to begin a design (or a redesign) by going out and seeing for themselves — the term within Toyota is genchi genbutsu — what customers want in a car or a truck and how any current versions come up short. This quest can sometimes seem Arthurian, with chief engineers leading lonely and gallant expeditions in an attempt to figure out how to beat the competition. Most extreme, perhaps, was the task Yuji Yokoya set for himself when he was asked to redesign the Sienna minivan. He decided he would drive the Sienna (and other minivans) in every American state, every Canadian province and most of Mexico. Yokoya at one point decided to visit a tiny and remote Canadian town, Rankin Inlet, in Nunavut, near the Arctic Circle. He flew there in a small plane, borrowed a minivan from a Rankin Inlet taxi driver and drove around for a few minutes (there were very few roads). The point of all this to and fro, Jeff Liker says, was to test different vans — on ice, in wind, on highways and city streets — and make Toyota’s superior. Curiously, even when his three-year, 53,000-mile journey was finished, Yokoya could not stop. One person at Toyota told me he bumped into him at a hotel in the middle of Death Valley, Calif., after the new Sienna came out in 2004. Apparently, Yokoya wanted to see how his redesigned van was handling in the desert.
When I spoke not long ago with the Tundra’s chief engineer, Yuichiro Obu, and its project manager, Mark Schrage, both of whom work in Ann Arbor, they characterized their research for the Tundra as quite unlike what was done for the Sienna. For starters, designing a full-size pickup truck for the American worker is more complex than designing a van for a soccer mom. The way a farmer uses a truck is different from the way a construction worker does; preferences in Texas (for two-wheel drive) differ from those in Montana (for four-wheel drive). Truck drivers have diverse needs in terms of horsepower and torque, since they carry different payloads on different terrain. They also have variable needs when it comes to cab size (seating between two and five people) and fuel economy (depending on the length of a commute). In August 2002, Obu and his team began visiting different regions of the U.S.; they went to logging camps, horse farms, factories and construction sites to meet with truck owners. By asking them face to face about their needs, Obu and Schrage sought to understand preferences for towing capacity and power; by silently observing them at work, they learned things about the ideal placement of the gear shifter, for instance, or that the door handle and radio knobs should be extra large, because pickup owners often wear work gloves all day. When the team discerned that the pickup has now evolved into a kind of mobile office for many contractors, the engineers sought to create a space for a laptop and hanging files next to the driver. Finally, they made archaeological visits to truck graveyards in Michigan, where they poked around the rusting hulks of pickups and saw what parts had lasted. With so many retired trucks in one place, they also gained a better sense of how trucks had evolved over the past 30 years — becoming larger, more varied, more luxurious — and where they might go next.
Obu’s team, which drew on hundreds of engineers, ultimately produced a pickup model with 31 variations that include engines, wheelbases and cabs of different sizes. Design engineers, however, cannot simply create the best truck they can; they need to create the best truck that can be built in a big factory. In other words, Tundra’s design engineers had to confer with Tundra’s manufacturing engineers at every step of the way to create a truck — or 31 trucks, really — that could be assembled efficiently and systematically. To that end, Toyota spent $1.28 billion to build its San Antonio plant; it has the capacity to produce about 200,000 vehicles a year. The company considers it one of the most advanced manufacturing plants in the world.
I visited San Antonio in late November, after the factory had just begun operating. Management theorists who study Toyota’s production system tend to say that it is difficult to replicate, insofar as the company’s methods are not simply a series of techniques but a way of thinking about teamwork, products and efficiency. Still, some aspects of the system were clearly visible in San Antonio. In the Tundra plant, there is no real inventory of parts, which is a hallmark of Toyota’s approach. Once a truck chassis begins its run on the factory line, an order goes out to, say, an on-site parts supplier that provides seats for the interior. At Avanzar, an independent company located in a large workroom adjacent to the assembly line, I watched workers build a car seat from scratch. They chose a raw steel frame with springs, put it on their own minifactory assembly line to add padding, then leather, and then they transferred it (via pulley, over a partition wall) to the Tundra assembly line, where it was installed in the truck. If the front seat had not been ordered 85 minutes earlier, it would not exist.
The idea of actually situating a parts supplier inside an assembly plant is wholly novel. But the methods of low inventory — or what’s known as “just in time” production — are hardly unique to Toyota; these have been emulated with great success by other automakers. The same goes for other processes at the San Antonio plant: the line stoppages and quality checks, the time spent by workers discussing hand and body movements in the hope of shaving a crucial half-second from their work. Over the years, Toyota has assisted competitors, especially G.M., in helping to adopt its system, believing it to be in its interest to share practices, especially in exchange for insights into a rival’s methods. Toyota’s true technological advances, however, are another matter. In San Antonio, for instance, recent innovations in the paint shop that significantly cut production time were considered proprietary and off-limits to journalists.
It is a challenge to convey the scale of the Camry plant in Georgetown, Ky., which comprises 7.5 million square feet, or the orchestral complexity of its shop floor, where 7,000 workers assemble some 5,000 parts into 2,000 cars a day. I couldn’t help wondering if a glitch in the flow of door handles, or a broken welding robot, would put a crimp in the entire enterprise. “But that’s what the Toyota Production System is,” Gary Convis, the head of the plant, countered. “You actually create the conditions where things have to work to make it work.” Convis, like most Toyota engineers, mostly wanted to talk to me about Georgetown’s ceaseless drive for improvement. When a plant changes over to a new car design, as Georgetown did for the 2006 Camry, production slows down as parts and systems are updated. The last time Georgetown overhauled the Camry, in 2001, 59 days were needed to fully convert the factory to new-car production; last year, the new model took 16 days. The extra cars probably meant additional revenue of about $100 million.
Improving efficiency in the factory, though, doesn’t necessarily lead to greater profits. Savings on the assembly line can mean a nicer dashboard without making the customer pay more for it. “If you’re efficient in the things the customer doesn’t see, then you can put it into the things the customer does see,” Ron Harbour, a consultant whose company rates the efficiency of auto plants, told me. A result is a car more popular with customers. Success on the assembly line, in this way, begets success in the showroom.
4. The Long Road From Rural Japan to California and Beyond
Over the past few years, in an effort to amass a physical record of its business experience in the United States, Toyota has been tracking down and collecting automobiles it has sold here since the late 1950s. The Toyota USA Automobile Museum, as it’s known, is located in an unmarked white-brick building on a side street in Torrance, Calif., a few blocks from Toyota’s corporate sales campus. When I visited in early December, I took a leisurely stroll through the museum’s main room, a spacious, high-ceilinged garage filled with Toyotas, Lexuses and Scions, all in immaculate condition, all parked aslant on a concrete floor. The museum is open only by appointment; there were no other visitors. Time was compressed into a few strides. I passed a Toyota Corona (1966), a Corolla built in California (the first Toyota made in the U.S., 1986), a Camry from Kentucky (1989), an early Prius (2000) and an early Tundra (2003). To walk along the rows undermines any notion that Toyota’s success has been sudden; the progression of cars — in styling, popularity and increasing Americanization — was methodical and incremental. “We don’t move in an unpredictable manner,” Jim Press told me a few weeks before my visit to the museum. “We move jojo, a Japanese term, meaning step by step.”
Toyota grew out of an entrepreneurial foray by the Toyoda family — which made a fortune building textile looms early in the last century — in the 1930s under the leadership of Kiichiro Toyoda. (That’s also when it was decided that the car company would be better served by replacing the family’s “d” with a “t,” in part because it was deemed easier to write and pronounce. The Toyoda loom works did not change its name.) Toyota’s success has often been attributed to a Japanese quality of persistence and ingenuity. One of the first Western academics to look deep inside the company, Michael Cusumano, now a professor of management at M.I.T., debunked that notion when he compared Toyota and Nissan in the early 1980s. “The founders and the managers created and refined Toyota company culture, which is far more powerful than Japanese culture,” he says. “It does build on many things that are Japanese — precision, quality, loyalty. But the Toyota culture dominates.” Cusumano adds that Toyota’s origins, in a rural prefecture, hours from the international influences of Tokyo, provided a beneficial insularity. The company began growing just after World War II, nurtured by government regulations that effectively shut out big American automakers. Still, the devastated postwar economy in Japan necessitated extraordinary resourcefulness: because there was a lack of materials and parts suppliers, for example, Toyota had to create them from scratch. Since the early 1930s, Toyota engineers have looked everywhere for inspiration while tearing apart American products to see how they work. Toyota’s systems and worldview derive from an economy of scarcity. In 1950, the company’s near-bankruptcy during a difficult year further defined its philosophy of frugality. Toyota soon began to focus obsessively on reducing muda — or waste — and building up a vast storehouse of cash for security.
If history teaches another lesson, it is that Toyota’s executives recognized early on that improving the process by which cars are designed and built is just as important as improving the vehicles themselves. In the 1950s and 1960s, this conviction was famously driven by Taiichi Ohno, an engineer who never earned a college degree but who revolutionized modern manufacturing. Ohno was in awe of Henry Ford, but he recognized that the market for cars in postwar Japan — the market for any modern consumer product, he later posited — required greater flexibility as much as the traditional means of mass production. For Toyota to compete with American companies, it had to make small batches of many models (think of those 31 Tundras) that could satisfy all kinds of customers. Ohno, who died in 1990, took an anthropomorphic view of raw materials: just as an employee shouldn’t wait around without a task, neither should sheet metal or molded plastic. And so, at his factories in Japan, parts were created only in response to demand. Every worker was to focus on improving his efficiency, too (along with that of his co-workers). There was no best way to do something, but there were always better ways. John Paul MacDuffie, a Wharton professor of management, points out that the system was a “cognitive reframing of what is possible.” It showed that quality and productivity were not mutually exclusive; Toyota could indeed produce a greater variety of more durable cars more quickly than anyone else. Some of Ohno’s and Toyota’s ideas also had a deeply subversive quality. It is human nature to cover up a problem rather than call attention to it. At a Toyota plant, the identification of a problem became imperative and exciting. Because then it could be addressed.
Toyota’s production system first gained wide notice in the U.S. in the early 1990s, after the publication of “The Machine That Changed the World,” which was written by James P. Womack, Daniel T. Jones and Daniel Roos and serialized in this magazine. According to Womack, whom I visited in his Cambridge office, creating a new product like the iPod or even the Prius is a far more modest achievement than developing a new process. The former are what we normally think of as inventions, of course. But the latter, at least in Toyota’s case, presents a novel way of thinking about work and the capabilities of human organizations.
Womack notes that Toyota’s managerial competence has extended well beyond Taiichi Ohno; the company has been fortunate that the Toyoda family’s descendants, especially the former chairman Eiji Toyoda, have demonstrated tremendous leadership abilities. “They got very lucky with genetics,” Womack says of Toyota. The company also benefited from the savvy of an early sales-and-marketing executive, Shotaro Kamiya. In the 1950s, when Toyota could barely sell its cars to the Japanese public, Kamiya decided Toyota could drive up demand by investing in Japanese driving schools. Kamiya also decided to send three employees to California in the summer of 1957 on a survey mission; a few months later, Toyota set up a small dealership in Hollywood to sell an austere, ugly and underpowered vehicle called the Toyopet Crown — “Toyopet is your pet!” its ads claimed. The car went on sale in 1958 for $1,995; only 288 were sold. That year, the Christmas party, held in the new company’s garage in Hollywood, consisted of about 30 people. The custodian’s wife cooked the food.
The first years in the U.S. were in fact a disaster. Toyota sold a few Land Cruisers but eventually withdrew the Toyopet from the market. Meanwhile its engineers in Japan tried to create a passenger car that American customers would actually want. The result was the 1965 Corona, an air-conditioned and modestly priced vehicle. After that, sales grew steadily. A variety of factors helped — currency differences often made Japanese car imports cheap (for consumers) and profitable (for Toyota). Labor costs in Japan were lower, too. But perhaps the most important factor was timing. A few years after Jim Press began working at Toyota Motor Sales in California, the gas crisis of the early 1970s brought legions of customers to Toyota’s more fuel-efficient cars. By the time the company began setting up factories in the U.S. in the mid-1980s (just over half of the Toyota cars sold in North America are now built here), it was gaining respect for the quality as well as the gas economy of its vehicles. Then came the success of Lexus in the early 1990s. “When they really went at the U.S. market seriously, in the late 1970s and 1980s, the product they brought out was far superior to what the Big Three were producing,” Ron Harbour, the efficiency expert, says. “They created this impression and reputation early on. And in the ensuing years, Ford and G.M. have made great strides to make it up. They’ve narrowed a lot of those gaps. But when you lose that reputation, it’s very hard to recover.” Catching up is even harder, moreover, when Toyota’s cars, like those from Honda and BMW, have consistently higher resale values.
Let’s go back in time and say you’ve got a guy who in 1985 bought a Camry, Harbour says. That Camry buyer was surprised to find he never had to get his car fixed at the dealership. “That guy never, ever looked back,” he adds. “G.M., Ford, Chrysler — they’ve basically lost a whole generation of Americans.”
You might figure that Toyota is elated at the way things have gone lately: its market share in the U.S. has risen in the past couple of years while American automakers like Ford (and to a lesser degree, G.M.) have been in a tailspin. But this assumption is probably only partly correct. “We want them to be strong,” Jim Press says, referring to Ford and G.M. “When you play a ball game, you don’t want to win by errors.” Jim Womack puts it more bluntly: “The last thing Toyota wants is for any of those guys to collapse.” For one thing, it could be politically disastrous for the Japanese company if it were considered responsible for the death of a grand American institution. “But it’s also completely worthless to Toyota in the market,” Womack adds. “They’re selling all the vehicles they can make already. What they actually want is just continuous, slow decline — decline at the same rate that they have the ability to organically expand. That’s the ideal world for them.”
5. Toyota Has It Made in America
McAllen, Tex., is a small city in the state’s southernmost tip, which has among the highest numbers of pickup-truck sales in any U.S. market, according to Toyota’s research. That made it an ideal location for focus groups and marketing research: What did these people need? What did they think of Toyota? And what would actually get them to drive a Tundra? Toyota ultimately decided to pursue customers it calls “true truckers.” True truckers aren’t ordinary pickup owners; rather, these men are the Platonic ideal of truck-driving authenticity. They might work on the ranch or the construction site; they might fish for bass every weekend. “They’re the taste makers, the influentials,” Ernest Bastien, a vice president of vehicle operations, told me in San Antonio. “I think all consumers are influenced by professionals. The professional uses a certain tool, and then they want it, too.” What Toyota needed was to find the true truckers, get them behind the wheel of a Tundra and then hope that Obu and Schrage’s engineering would take care of the rest. If the true truckers bought it, their followers would, too.
Toyota expects that some buyers will be moving up from its smaller truck, the Tacoma; others will be trading in their weaker, older Tundra for the new model. Still other buyers may be families that view pickup trucks with big back seats (so-called double cabs) as an alternative to an S.U.V.’s But building a new factory in the U.S. for the truck, locating the plant in the heart of Texas pickup country and then flying the Texas flag outside all speak to the company’s focus on severing truck owners’ blood ties to Ford and G.M. These loyal owners are the hardest to woo. Indeed, they may be beyond reach. Just as G.M. and Ford may have lost a generation of car buyers, Toyota may have put off a generation of full-size truck buyers with the T100 and the first Tundra.
The company doesn’t think so. In recent years, Toyota has successfully marketed cars like the Prius and brands like the Scion through grass-roots endeavors, which often meant showcasing the Prius to an audience of influentials. With Scion, the company wanted to get the cars in the hands of hipsters who would make them seem desirable and rare to young drivers, a strategy backed by limiting production this year to 150,000 vehicles, even as demand will probably exceed that amount. Some of these techniques seemed appropriate for the Tundra too. “There are so many of these buyers that probably will feel uncomfortable going into a Toyota dealer because they don’t see a Toyota on the construction site and never have and they don’t want to be the first one to show up with one,” Brian Smith, the head of Toyota’s truck operations, told me. So for the past year, the company’s marketers have tried to “soften” resistance to the brand. “Street teams” drive Tundras to big construction sites with water in the summer and coffee and doughnuts in the winter. “We say: ‘Hey guys, you ever been in a Toyota before? Just take a moment to sit in it and tell us what you think,’ ” Smith says. Already Toyota has sent its street teams on hundreds of runs.
Toyota focused the marketing of the Tundra on what Smith calls five “buckets”: 1) fishers and outdoorsmen; 2) home-improvement types; 3) Nascar fans; 4) motorcycle enthusiasts; and 5) country-music lovers. Anyone wondering why Toyota has become a major booster of Nascar or a sponsor of bass-fishing tournaments can see the logic. It’s also why Toyota is sponsoring Brooks and Dunn, the country-music duo. And dealers are taking new Tundra trucks to Nascar events, country-music concerts, fishing tournaments and the like. “Parking lots tend to be a long ways away from where the events are,” Smith explains, referring to motocross competitions, “so we have our dealers setting up shuttles.” The plan is to pull up in a Tundra, offer visitors a ride but have them drive to the event on a slightly indirect course (laid out by a Toyota dealer). “At the end,” Smith says, “we say, ‘Thank you, you’re guests of Toyota, here’s a bottle of water, take a lanyard.’ ”
Based on the company’s track record, it’s tempting to predict a resounding victory — if not a quick one, then a slow and steady one. But Toyota is by no means infallible. It failed in the large-truck market in the 1990s, and it faltered in the youth market until it came up with the Scion strategy. Its vehicles are sometimes outranked in Consumer Reports in safety and customer satisfaction by other automakers, especially Honda. The company’s growth has sparked tremendous internal concerns about quality-control problems.
And Toyota has worries abroad too. Many auto analysts wonder if Toyota has the ability to succeed in emerging markets. “Toyota is fairly weak in what we see as the second-largest growth market in the world, which we consider India,” Ashvin Chotai, a London-based auto analyst for Global Insight, told me. In China, the largest growth area, Toyota expects to have 10 percent of the market by 2010, but the company faces intense competition, from both its American and Asian rivals. Jim Press often says that Toyota is not doing as well as the headlines suggest. The trustworthiness of this claim is debatable — Press also says that G.M. is doing just fine — but it’s undeniable that the company will soon assume leadership in a market that’s both global and brutal.
However the Tundra does in the next few months, the company’s history suggests that it never relinquishes a goal before reaching it. And what’s striking is that if Toyota succeeds, it won’t necessarily be because the company has done anything different this time. Toyota has never really caught the Big Three by surprise. Its marketing strategists have been trying to establish an aura of American authenticity since the early 1970s, when Toyota’s TV ads featured four Dallas Cowboys squeezing into a Corolla. When I asked Takahiro Fujimoto, a management professor at the University of Tokyo and a longtime Toyota observer, whether the company’s victories — or the fact that it is now the world’s largest automaker — were hard to envision, he said no: “Since almost everything that happened to this company in the past several decades has been evolutionary rather than revolutionary, there have been few surprises.”
Toyota’s triumphs are often reduced to spare inventory and just-in-time productivity, but that’s too simplistic; there are many factors at work. Among management theorists, success derives from what they call the Toyota Way — the company’s culture of efficiency and problem-solving. Among historians, Toyota’s supremacy is a product of happenstance, specifically its early years in the rural precincts of ravaged, postwar Japan. For those in the marketing world, Toyota has triumphed in its packaging of brands like Lexus and Scion. On Wall Street, its success is defined by huge profits and driven by low retiree costs and close relationships with parts suppliers. Toyota’s prosperity also owes a large debt to its dealers, the true links to the consumer, who are very good at letting company executives know what customers like and don’t like. And to the fact that Toyota does not award huge stock-option grants or bonuses to its executives. Our culture of excessive compensation has never really caught on there.
All this doesn’t make Toyota virtuous. But it does make Toyota different — in some deep, cellular way — from many American companies. Nothing in its DNA, to borrow a fashionable term among business-school academics, is focused on short-term gains. What’s more, the long view as a business outlook seems to link so many aspects of the company’s success. The long view took Toyota to California, and to its most important market, in 1957 and kept it in the United States even after the Toyopet failed miserably. The long view allowed Toyota to understand the need for improvement and the potential rewards of meeting a higher standard. And when it met higher standards, the company looked ahead at the evolution of its American customers, marshaled its resources and tried to figure out what should come next.
6. Getting the Carbon Out of Cars
Toyota’s president, Katsuaki Watanabe, who like all of the company’s top executives is based in Japan, recently declared that his dream for Toyota is to build a car that does not hurt anyone and cleans the air when it’s running. This is not quite as fantastical as it sounds. Several automakers are developing cars with sensors that literally prevent them from crashing (though not from being crashed into). And in the heavy intersections in Tokyo where air quality is poor, Takahiro Fujimoto told me, part of Watanabe’s vision is already real: “The emission gas of some advanced cars is in fact cleaner than the intake air.” The most vexing challenge, though, is what fuel cars will run on in a future where oil is too scarce or tailpipe emissions too dangerous on account of global warming. About 10 percent of global carbon emissions come from cars, S.U.V.’s and pickup trucks. Many automakers, Toyota included, now trumpet their vehicles as “clean,” but this label, while by no means unimportant, refers to engine technology that reduces smog-forming emissions like nitrogen oxides or unburned hydrocarbons. But every gallon of gas burned still produces more than 19 pounds of CO2.
What I found within Toyota is that its engineers and executives all take environmental issues seriously, but on their own terms. For many consumers, of course, Toyota’s hybrid innovations established a green halo over the company. Yet the environmental community is more wary of the company’s lauded progressivism than you might expect. Many environmental advocates are dismayed by Toyota’s participation (as a member of the Alliance of Automobile Manufacturers) in a suit to block California’s new laws curtailing greenhouse-gas emissions. And some view Toyota’s strenuous efforts, especially in the U.S., to sell gas-guzzling trucks and S.U.V.’s as counterproductive. “I think the reality is that Toyota’s focus on the truck market has been to make them look as American as possible, rather than be the global environmental leaders they are on the car side,” Jason Mark, the former head of the vehicle program at the Union of Concerned Scientists, told me. As Mark sees it, Toyota’s activities matter more than any other automaker’s. “First, they’ll be the biggest car company very soon,” he says. “Second, they’ve demonstrated a knack for innovation with the Prius. And third, they’ve demonstrated a commitment for stewardship that I don’t think one could attribute to the domestic automakers.”
When I spoke with John DeCicco, an automotive specialist at Environmental Defense, a New York-based advocacy group, he said that in the near term, at least, it’s better not to count on a silver bullet — a drastic changeover to hydrogen-powered vehicles, for instance. There are many reasons that this will remain a long-term goal. One is that cars, especially ones of good quality, last a long time. Another is that automakers are profit-driven public corporations, and any new technology has to be competitive in the marketplace. To see just how long that can take, consider that Toyota began developing the Prius at a time, 1991, when gas was plentiful and cheap. Today, seven years after its introduction in the U.S., it has less than 1 percent of the car market. Higher gas prices or gas taxes may alter this. But for now, environmental advocates like DeCicco urge carmakers to focus on making modest changes to popular vehicles (making S.U.V.’s lighter, for example, thereby increasing fuel efficiency), which could have a more significant environmental impact than a sophisticated new technology. When DeCicco began analyzing total greenhouse-gas emissions from each car company’s American fleet, he noticed that in 2003, for instance, there was a significant change for the better in Toyota’s rate. This wasn’t because of its hybrids but because of its redesign of the Corolla. “When you make a small change in efficiency in a high-volume product like that,” DeCicco told me, “it can have a bigger net effect in your carbon than a major change in a small-volume seller.”
Still, more economical cars for the short term cannot solve the long-term problem. Toyota expects to be in business 100 years from now, one person in the company’s West Coast office told me, long after oil has been depleted or rendered unusable because of its carbon content, and for that reason it has placed all its bets on hybrid technologies. Indeed, Toyota created its hybrid systems not so much with the current era in mind, but because it views hybrids as more practical and energy-efficient. Whether the future is in biodiesel, ethanol or hydrogen doesn’t seem to matter; the hybrid system could be adapted to any of those fuels, says Bill Reinert, Toyota’s U.S. engineer in charge of advanced vehicle planning. Reinert also told me that the current Toyota system already has the ability to accommodate the larger battery capacity of a plug-in hybrid, which would use electric power for local trips and fuel only for longer excursions. But those large batteries don’t yet exist. Was that extra capacity put there on purpose? “Hell, yes,” he says. “This company is not stupid.”
Reinert adds that every Toyota engineer designing a new car gets an environmental-impact budget as well as a financial one. Designers must consider the total amount of carbon dioxide produced in the design, production and lifetime operation of a new vehicle. This sounds both encouraging and socially responsible. But you have to wonder too if it’s really an equation for sustainability. Right now, Reinert says, there are about three-quarters of a billion cars worldwide; by 2050, if market trends continue, “we could conceivably have 2 billion or even 2.5 billion cars.” Accommodating those cars will entail building new roads and new factories and spending vast amounts of energy to make shipments. All those activities will create enormous emissions on their own. So even with giant strides in clean-vehicle technology, just doubling the number of vehicles could increase the overall environmental effect by a factor of three.
To their credit, engineers at Toyota like Reinert do not soft-pedal the immensity of the challenge. And they argue, sometimes convincingly, that Toyota will be a large part of the solution. Jim Press does, too, but his is a different kind of optimism. A few days after the new Tundra made its debut, Press gave a speech to the Society of Automotive Analysts in Detroit in which he seemed confident that this would be Toyota’s century. New technologies are on the way, he promised. And the demographics of the American market look good: boomers are buying more cars. Americans are living longer. And the growth rate of the U.S. population is greater than China’s. Even in the face of what looks like a difficult year for car sales, the industry is on the verge of a golden era. “This is one of the few countries on earth where we have more cars per household than drivers,” he said. “Isn’t that great?”
At the beginning of his speech, Press joked to the audience that he was about to reveal the secret of Toyota’s success. He never really did, except to look ahead with relentlessly bright expectations.
Jon Gertner, a contributing writer, last wrote for the magazine about the economics of making comedy movies in Hollywood.
February 27, 2007 at 12:06 AM in Business Models | Permalink | Top of page | Blog Home
February 19, 2007
Young, mobile, but not yet online-News-Tech & Web-TimesOnline
A study of young phone users suggests that networks face an uphill battle in getting the MySpace generation to use the internet on their mobiles
Source: Young, mobile, but not yet online-News-Tech & Web-TimesOnline
Jonathan Richards
They are more competent and regular texters than their parents will ever be, and have started to use their phones for a whole range of functions — buying ringtones, downloading computer games, social networking — that older generations scarcely know exist, let alone want to try.
But young mobile phone customers are still relatively slow to embrace internet-based services, and networks will have to reduce the cost of such services significantly, and speed up their delivery, if this most impatient of generations is to be brought online while on the move.
That is the message from a large survey of young European phone users, and one that will resonate with operators who have been racing in recent months to announce "tie-ups" with internet brands such as Google and MySpace in an attempt to make "mobile internet" more relevant to web-savvy teenagers.
Of the more than 7,000 12 to 24-year-olds surveyed by Forrester Research, 84 per cent use a mobile phone — in line with the rate of 85 per cent for the general population.
The average young customer spends €25 (£17) a month on their bill — about 20 per cent more than the €21 (£14) spent by the wider population — and the majority of additional spending after the monthly contract goes on text messages, ringtones, picture messages and television voting.
The growth of mobile internet use, by comparison, remains sluggish. More than half of respondents said that they never browsed the internet, and only 8 per cent said that they used it once a week or more. When it came to daily use, the figure dropped to 1 per cent.
A separate study by Q Research suggested only 3 per cent of young people aged 11 to 25 had downloaded music directly to their mobile phone, with the high cost of doing so the main dissuading factor. By comparison, two thirds of those aged 20 to 24 spend up to £10 a month on music downloads to their computer, and nearly half of those under 16 spend a similar amount.
Analysts said that the figures could partly be explained by data costs, which remain relatively high for mobile phones, but its was equally important that networks have, until now, offered mobile internet services under their own names, such as Vodafone Live!, rather than pairing with companies that younger customers know from the fixed internet, such as MySpace.
Ben Wood, an analyst with CCS Insight, said: "Phone operators have gone from believing they can deliver everything themselves to realising that if a teenager wants to share photos, they're going to do it on Flickr, not via a Vodafone picture gallery."
Graham Brown, the chief executive of Wireless World Forum, which publishes mobileYouth, an annual survey of phone use among young people, said: "For the first time, networks are realising that their core competency is not in front-end services. They’ve understood that they should be focused on providing the platform, while leaving the fun stuff to the content industry."
Mr Brown said that usability issues, such as the slow rate of downloads and screen size, also remained a problem, and that it had been only recently that users have not had to enter "https://" before the name of website, which meant that finding the average URL involved 40 key pushes.
Michel de Lussanet, the vice-president of research at Forrester and one of the co-authors of the report, said: "Mobile phone companies have always been keen to offer internet services, but they’ve forgotten that people don't interact with their phones the same way that they do with their computers.
"Mobile TV, for instance, was a common offering early on — largely because it was technically possible — but operators didn't consider that the image wasn't like the one customers were used to in their lounge."
A Vodafone spokeswoman said that the results of the study “made sense”, and added that the company was “addressing the issue” by announcing deals with familiar internet brands. She said: “Our strategy is to encourage people who have used services such as MySpace on their computers to transfer that experience to their mobile."
The cost of accessing the internet on a mobile phone was coming down, analysts agreed, and with the advent of offerings such as 3's X-Series, which for £5 or £10 allows "unlimited" access to internet services such as Skype, as well as more tie-ups with brands that are familiar to teenagers, mobile internet use would grow.
The customer, however, remains to be convinced. Despite 61 per cent of young people surveyed saying that they had internet on their phone, only 34 per cent wanted it on their next phone — in comparison with 65 per cent who wanted an MP3 player and 44 per cent who wanted Bluetooth.
February 19, 2007 at 12:54 AM in | Permalink | Top of page | Blog Home
February 14, 2007
comScore Networks Releases Top Web Properties Worldwide for December; Reviews Biggest Gainers for 2006 | CDTV.net
Top Global Web Properties Total Unique Visitors (000), Age 15+ * December 2006 Total Worldwide - Home and Work Locations Source: comScore World Metrix
Total Unique Visitors
Web Properties (000) Dec-06
Worldwide Total (Age 15+) 740,984
Microsoft Sites 508,659
Google Sites 494,170
Yahoo! Sites 476,761
Time Warner Network 260,387
eBay 251,423
Wikipedia Sites 164,675
Amazon Sites 151,033
Fox Interactive Media 135,730
CNET Networks 114,940
Ask Network 113,881
Apple Computer, Inc. 111,131
Adobe Sites 100,421
Lycos, Inc. 83,724
Viacom Digital 76,171
New York Times Digital 68,010
February 14, 2007 at 11:56 PM in Internet evolution | Permalink | Top of page | Blog Home
February 06, 2007
Apple - Thoughts on Music
Steve Jobs February 6, 2007
With the stunning global success of Apples iPod music player and iTunes online music store, some have called for Apple to open the digital rights management (DRM) system that Apple uses to protect its music against theft, so that music purchased from iTunes can be played on digital devices purchased from other companies, and protected music purchased from other online music stores can play on iPods. Lets examine the current situation and how we got here, then look at three possible alternatives for the future.
To begin, it is useful to remember that all iPods play music that is free of any DRM and encoded in open licensable formats such as MP3 and AAC. iPod users can and do acquire their music from many sources, including CDs they own. Music on CDs can be easily imported into the freely-downloadable iTunes jukebox software which runs on both Macs and Windows PCs, and is automatically encoded into the open AAC or MP3 formats without any DRM. This music can be played on iPods or any other music players that play these open formats.
Source: Apple - Thoughts on Music
The rub comes from the music Apple sells on its online iTunes Store. Since Apple does not own or control any music itself, it must license the rights to distribute music from others, primarily the “big four” music companies: Universal, Sony BMG, Warner and EMI. These four companies control the distribution of over 70% of the world’s music. When Apple approached these companies to license their music to distribute legally over the Internet, they were extremely cautious and required Apple to protect their music from being illegally copied. The solution was to create a DRM system, which envelopes each song purchased from the iTunes store in special and secret software so that it cannot be played on unauthorized devices.
Apple was able to negotiate landmark usage rights at the time, which include allowing users to play their DRM protected music on up to 5 computers and on an unlimited number of iPods. Obtaining such rights from the music companies was unprecedented at the time, and even today is unmatched by most other digital music services. However, a key provision of our agreements with the music companies is that if our DRM system is compromised and their music becomes playable on unauthorized devices, we have only a small number of weeks to fix the problem or they can withdraw their entire music catalog from our iTunes store.
To prevent illegal copies, DRM systems must allow only authorized devices to play the protected music. If a copy of a DRM protected song is posted on the Internet, it should not be able to play on a downloader’s computer or portable music device. To achieve this, a DRM system employs secrets. There is no theory of protecting content other than keeping secrets. In other words, even if one uses the most sophisticated cryptographic locks to protect the actual music, one must still “hide” the keys which unlock the music on the user’s computer or portable music player. No one has ever implemented a DRM system that does not depend on such secrets for its operation.
The problem, of course, is that there are many smart people in the world, some with a lot of time on their hands, who love to discover such secrets and publish a way for everyone to get free (and stolen) music. They are often successful in doing just that, so any company trying to protect content using a DRM must frequently update it with new and harder to discover secrets. It is a cat-and-mouse game. Apple’s DRM system is called FairPlay. While we have had a few breaches in FairPlay, we have been able to successfully repair them through updating the iTunes store software, the iTunes jukebox software and software in the iPods themselves. So far we have met our commitments to the music companies to protect their music, and we have given users the most liberal usage rights available in the industry for legally downloaded music.
With this background, let’s now explore three different alternatives for the future.
The first alternative is to continue on the current course, with each manufacturer competing freely with their own “top to bottom” proprietary systems for selling, playing and protecting music. It is a very competitive market, with major global companies making large investments to develop new music players and online music stores. Apple, Microsoft and Sony all compete with proprietary systems. Music purchased from Microsoft’s Zune store will only play on Zune players; music purchased from Sony’s Connect store will only play on Sony’s players; and music purchased from Apple’s iTunes store will only play on iPods. This is the current state of affairs in the industry, and customers are being well served with a continuing stream of innovative products and a wide variety of choices.
Some have argued that once a consumer purchases a body of music from one of the proprietary music stores, they are forever locked into only using music players from that one company. Or, if they buy a specific player, they are locked into buying music only from that company’s music store. Is this true? Let’s look at the data for iPods and the iTunes store – they are the industry’s most popular products and we have accurate data for them. Through the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. On average, that’s 22 songs purchased from the iTunes store for each iPod ever sold.
Today’s most popular iPod holds 1000 songs, and research tells us that the average iPod is nearly full. This means that only 22 out of 1000 songs, or under 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM. The remaining 97% of the music is unprotected and playable on any player that can play the open formats. Its hard to believe that just 3% of the music on the average iPod is enough to lock users into buying only iPods in the future. And since 97% of the music on the average iPod was not purchased from the iTunes store, iPod users are clearly not locked into the iTunes store to acquire their music.
The second alternative is for Apple to license its FairPlay DRM technology to current and future competitors with the goal of achieving interoperability between different company’s players and music stores. On the surface, this seems like a good idea since it might offer customers increased choice now and in the future. And Apple might benefit by charging a small licensing fee for its FairPlay DRM. However, when we look a bit deeper, problems begin to emerge. The most serious problem is that licensing a DRM involves disclosing some of its secrets to many people in many companies, and history tells us that inevitably these secrets will leak. The Internet has made such leaks far more damaging, since a single leak can be spread worldwide in less than a minute. Such leaks can rapidly result in software programs available as free downloads on the Internet which will disable the DRM protection so that formerly protected songs can be played on unauthorized players.
An equally serious problem is how to quickly repair the damage caused by such a leak. A successful repair will likely involve enhancing the music store software, the music jukebox software, and the software in the players with new secrets, then transferring this updated software into the tens (or hundreds) of millions of Macs, Windows PCs and players already in use. This must all be done quickly and in a very coordinated way. Such an undertaking is very difficult when just one company controls all of the pieces. It is near impossible if multiple companies control separate pieces of the puzzle, and all of them must quickly act in concert to repair the damage from a leak.
Apple has concluded that if it licenses FairPlay to others, it can no longer guarantee to protect the music it licenses from the big four music companies. Perhaps this same conclusion contributed to Microsoft’s recent decision to switch their emphasis from an “open” model of licensing their DRM to others to a “closed” model of offering a proprietary music store, proprietary jukebox software and proprietary players.
The third alternative is to abolish DRMs entirely. Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music.
Why would the big four music companies agree to let Apple and others distribute their music without using DRM systems to protect it? The simplest answer is because DRMs haven’t worked, and may never work, to halt music piracy. Though the big four music companies require that all their music sold online be protected with DRMs, these same music companies continue to sell billions of CDs a year which contain completely unprotected music. That’s right! No DRM system was ever developed for the CD, so all the music distributed on CDs can be easily uploaded to the Internet, then (illegally) downloaded and played on any computer or player.
In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores, while over 20 billion songs were sold completely DRM-free and unprotected on CDs by the music companies themselves. The music companies sell the vast majority of their music DRM-free, and show no signs of changing this behavior, since the overwhelming majority of their revenues depend on selling CDs which must play in CD players that support no DRM system.
So if the music companies are selling over 90 percent of their music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appear to be none. If anything, the technical expertise and overhead required to create, operate and update a DRM system has limited the number of participants selling DRM protected music. If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players. This can only be seen as a positive by the music companies.
Much of the concern over DRM systems has arisen in European countries. Perhaps those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free. For Europeans, two and a half of the big four music companies are located right in their backyard. The largest, Universal, is 100% owned by Vivendi, a French company. EMI is a British company, and Sony BMG is 50% owned by Bertelsmann, a German company. Convincing them to license their music to Apple and others DRM-free will create a truly interoperable music marketplace. Apple will embrace this wholeheartedly.
February 6, 2007 at 06:58 PM in Business Models | Permalink | Top of page | Blog Home
February 04, 2007
Generation Y speaks: it’s all us, us, us
Robert Booth
http://www.timesonline.co.uk/article/0,,2087-2583063,00.html
AS Tony Blair prepares to leave No 10, he leaves behind a society that has become more selfish than when he took power a decade ago.
Research by the Henley Centre, a research consultancy, shows that for the first time in 10 years a majority now believes the quality of life in Britain is best improved by putting the individual first.
The latest generation of graduates — Generation Y — shows the most extreme traits of self-absorption. However, the trend is also being credited with the emergence of a sturdy self-reliance.
Michelle Harrison, director of HeadlightVision, part of the Henley Centre, said: “In 1997, when Tony Blair moved into No 10, almost 70% of our respondents opted for the ‘community-first’ approach.”
“This held steady for the first couple of Blair years but by 1999 individualism was on the rise. At face value, it seems that last year (when individualists outnumbered community-firsts) we formally fell out of love with the Blair project. Over the decade we have seen a fast-moving shift towards people feeling more individualistic.”
Today, 52% feel “looking after ourselves” will best improve the quality of life, according to the poll of more than 2,000 people.
Among poorer people in the social brackets C2, D and E, that rises to 60%. “Poorer people . . . gave up on the Blair project five years ago . . . Less affluent people . . . are focusing on making ends meet and avoiding hassle on the streets in their less ‘desirable’ neighbourhoods,” said Harrison.
Richer people, by contrast, are still more likely to hold on to a belief in community, although Harrison argues that it is a middle-class notion of community, held on their terms. “It is one of cafes and bookshops, busy, interesting people rushing around spending time with people just like them.”
In the City, soaring bonuses have become synonymous in the public mind with new levels of greed as bankers share an estimated bonus pot of £8.8 billion.
Even so, the Rev Peter Mullen, chaplain to the Stock Exchange, defended the behaviour of City workers, saying bonuses were not selfishness but the outcome of market forces. “You do see some crass acts of gluttony and selfishness,” he said. “But most people are well mannered and the idea of being a gentleman is still very strong in the City.
“A lot of young people are joining the livery companies because they like the fellowship and to have a socially responsible cause to which they can devote themselves.”
Harrison also sees signs of hope, noting the self-reliance of low-income families, “looking after your own household, being a responsible parent, and earning enough money to take care for yourself and your loved ones”.
Her formula echoes Margaret Thatcher’s famous declaration, in an interview in 1987: “There is no such thing as society. There are individual men and women, and there are families.”
According to the Institute for Public Policy Research, the left-leaning think tank, although voter turnout has declined sharply, other forms of activism have risen, with 50% of adults volunteering for some activity at least once a month in 2005. It also points out that 17% joined a consumer boycott in 2000, up from 6% in 1974.
Although Britain recycled approximately 23% of its waste in 2004-5, up from 10% in the previous five years, it remains one of the lowest rates in Europe. Tony Juniper, director of Friends of the Earth, says only 10% of the population take action voluntarily on environmental issues. “The rest won’t: they don’t see the point, they don’t understand it or they don’t care.”
There are signs that generation Y’s selfishness may be so extreme that it is hitting them in their pocket. The Association of Graduate Recruiters complained that many candidates are proving too self-centred to hire, and said that more than half its members would this year fail to fill vacancies.
“It’s all about what they can get away with so they can go out and have a good social life with their friends,” said Linsey Perry, vice-president of the AGR.
“Baby boomers and members of Generation X were like dogs — treat them right and they will be loyal. But members of this latest generation, Generation Y, are more like cats: they just go where the money is. At recruitment fairs candidates used to try to stress what they could offer to a company. Now it’s the other way round.”
February 4, 2007 at 12:18 PM in | Permalink | Top of page | Blog Home
