Adrian Lai's Blog

The NBA lockout has gone on for over 150 days. There has been many efforts to agree upon a new Collective Bargaining Agreement (CBA) for the past two years, but negotiations were officially broken down when the players union rejected the owner’s proposal and disbanded the union last week. This turn of event has moved the negotiations from the boardroom to courtroom, where both parties have filed lawsuits to sue for damages. Not only is this a great loss for the fans of the NBA, but this also has many negative economic implications for the league.

The NBA has gone through an unprecedented growth in both the domestic and international markets. The players, owners and the league have worked very hard for the past decade to gain international prominence and economic wellbeing. The lockout, however, will render all the hard work useless. The league will lose billions of dollars in ticket sales, TV rights, sponsorship fees and concession sales. The players would also lose millions in salary and bonuses. Once this lockout is resolved, it will take billions of dollars in marketing to gain back the lost fans of the NBA. All in all, the NBA lockout is a terrible business decision on the parts of the owners and players, and conditions will continue to deteriorate if this is not resolve.

This blog post takes a look at the up and coming online payment company called Dwolla. In an industry dominated by Paypal, Dwolla has managed to make a name for itself and is currently moving close to $50 million a month. What appeals to a lot of users of Dwolla is the fix charge of 25 cents per transaction as opposed to the percentage per transaction Paypal charges.

The blog provides an interesting analysis on how Dwolla can grow to such a scale in such a short period of time. Its ease of use certainly plays a huge role, and the incorporation of the ever popular social media definitely helps fuel its growth. The fix 25 cents change per transaction would also be popular with clients who have large online transactions. In addition to these two reasons, I believe there is another important factor to contributes to its growth. With Dwolla, payments are made directly from clients’ bank accounts. This differs from Paypal, which makes transactions through debit or credit cards.  And because they don’t exist in the system, fees don’t have to be brought into the system. It is because of this fundamental difference that Dwolla is able to keep transaction cost low.

For the first time since the beginning of the recession, people are excited about IPOs of companies. Among those companies that garnered attention for their IPO is Zynga, a social network game developer famous for games such as Farmville and CityVille. According to the embedded blog, Zynga is looking to begin trading on November 24. Like many internet startups, Zynga recruited many of the industry’s top talents to help develop the company. To motivate and retain these talents, CEO of startups often give out shares of the company to these talents. In Zynga’s case, however, CEO Mark Pincus is starting to develop the “giver’s remorse.”  Many of the early employees who received more shares contributed less than the ones employed who got less shares later on. Many of them are simply waiting to cash in on the IPO rather than helping the company. 

 I don’t agree with the actions of the early employees. Sure, they can argue that without them, the company would not be what it is today. But owning shares of a company means they are part of it and they are directly responsible for the growth and progress of the company. To simply give up after the initial effort is an irresponsible act and should not be condoned. CEO Pincus is now looking to take back some of the shares owned by those early employees, an act I cannot agree more with.

Many people have tried and failed in creating clones of successful internet companies such as Groupon and Facebook. Except the Samwer Brothers. These three German siblings have made a living from creating clones of internet companies from the US inEurope, and selling them to the original company. For instance, they started and sold Alando, a European clone of eBay, in 1999 to eBay for $50 million in shares. Their most recent venture MyCityDeal, a clone of Groupon, was sold to Groupon for nearly $100 million.

Many would argue their strategy to create clones is disdainful, but I believe this is an ingenius idea. After all, there can only be so many ideas as revolutionary as Facebook, Groupon, and eBay. It is incredibly difficult to come up with these great ideas that have such profound effect. From a pure business point of view, this is perhaps the easiest way to make a profit. All that needs to be done is to create a business from a proven business model, only in a different country. However disgusting this may seem to purist fans of innovation, I believe the Samwer brothers deserve all the credits in the world.

More about the Samwer brothers can be found here.

I agree with Alison’s blog. Despite skepticism about the company’s business model, Groupon Inc. had a very successful IPO last week. In fact, it was the largest IPO of a US Web company since Google. It also turned several people, including CEO Andrew Mason, into billionaires. Early investors in the company, such as New Enterprise Associates (NEA) who bought 87 million

shares for $14.8 billion, made a killer profit from this wildly successful IPO. NEA’s shares were valued at $2.27 billion at $26 per share, which amounts to a return of more than 153 times its investment.

Just last week, Apple unveiled the much anticipated new generation of its smartphone, the iPhone 4S. Though still an amazing phone in its own right, many were disappointed by the lack of a new hardware design and minimal improvements to its software. Sure, the iPhone 4S is two times faster, has a better camera than the iPhone 4S, and has the personal assistant application Siri, but many people were expecting yet another revolutionary device they have become so accustomed to from Apple. 

Despite general disappointed in the newest smartphone by Apple, there has been unprecedented interest in the iPhone 4S. AT&T sold over 200,000 units in the first twelve hours of pre-orders. As of now, all iPhone 4 pre-orders are sold out and people ordering now would see shipping estimates of one to two weeks.

I wasn’t at all surprised by how well iPhone 4S is selling. It has been four years since the original iPhone 3G and 3GS have come out, and most people’s three year contracts are coming to an end. As an iPhone user myself, I find it hard to switch to another phone once the iPhone has become so integrated in my life. With all the Apple die-hards and people with expiring contracts out there, this could just be the bestselling iPhone ever.

Eastman Kodak, once a dominant player in the digital photography market, is now rumoured to be filing for bankruptcy. It recently hired Jones Day, an advisor for bankruptcy, to restructure the business. Hoping to save the failing company, Kodak drew $160 million against its credit line, and entered into an agreement for a new credit facility of up to $400 million. After flailing in its printing business and losing momentum in its digital camera business, Kodak is also looking to sell its more than 1000 digital-imaging patents worth nearly $3 billion, more than the business itself. This would buy the company time to give its inkjet printer business a crucial boost. 

I agree with Kodak’s strategy to market and potentially sell their vast portfolio of patents. Given the company’s current condition and the unstable economy globally, it is necessary for them to have enough cash flow. Its patents include technologies used in a bulky 85 percent of all digital cameras and smartphones. Many companies like Microsoft could benefit from these invaluable patents. After selling their patents, Kodak should focus its resources on its printer business, which lately has picked up market share from HP and Canon with its printing features and less-expensive ink. If it is able to capture some of the printer business, then Kodak would be able to survive its current tough times.

More information can be found here.

The global economy has suffered for nearly two years, but it hasn’t stopped venture capitalists from investing. In fact, the amount of investments in green tech ventures increased in quarter 3 by 23% compare to the same quarter last year. Investors spent $2.23 billion on 189 companies worldwide this quarter, but only $1.81 billion on 179 companies last year. Of all the venture capital, North American companies drew 76% of the investments while Asia attracted 18% and Europe and Israel had the remaining 10%. Traditionally, solar and energy efficiency companies receive the most investments followedby energy storage companies. This year, however, investors have grown fond of energy efficiency technologies because they don’t require huge amounts of money for development and deployment, unlike solar equipment manufacturing and biofuel production.

I find it encouraging that venture capitalists are still willing to invest in companies despite this unstable economy. The green tech industry has been growing over the past few years and as the public becomes even more conscious about the environment, there is a tremendous opportunity in the green industry. Investments in green companies should continue to increase to satisfy the market’s growth.

When I think of large tech companies I would immediately think of Microsoft, Apple or Google. They have been the most talked about and the most successful businesses. None of them, however, was able to generate as much revenue as the quiet giant, IBM. In 2010, it generated 99.9 billion in revenue, more than Google and Apple combined. I never see any products with the IBM logo in stores, nor do I hear much news about the company. So where does it make all that money from?

IBM’s products are not seen on the market because they are not made to be seen. They are mostly softwares that run and power everyday products like GPS. IBM also only do business with businesses. Many companies choose to do business with consumers, but given our fickle personalities, it is hard to satisfy us all. By doing business with businesses only, IBM is able to secure business contracts that are much more stable and profitable. I have always thought that for a business to be successful, it must be well-known and appeal to the masses. IBM has shown that as long as it provides the necessary services and deals with the right customers, it can still generate enormous amount of revenue.

Widely regarded as the successor to Warren Buffet, CEO of Berkshire Hathaway, David Sokol shocked everyone when he resigned from the company in March 2011. Though it seemed like a normal resignation at first, it was later revealed that Sokol was involved with an insider trading scandal. Between January 5 and 7 this year, Sokol purchased 96060 stocks of the company Lubrizol at a limit price per share of $104. He would then convince Buffet and the Board to acquire the company for 9 billion at $135 per share, which resulted in approximately 3 million in profit for Sokol.

On April 26, 2011, an audit committee hired by Berkshire Hathaway reported that Sokol’s purchases of Lubrizol shares as a representative of Berkshire Hathaway violated several company policies including Berkshire Hathaway’s Code of Business Conduct and Ethics and its Insider Trading Policies and Procedures. His actions also violated the trust he owed to the company and delivered significant repetitional losses and other damages to Berkshire.