August 20, 2019

More Data on Privacy, but Picture Is Still Fuzzy

Now, one by one, the companies are putting out data intended to reassure their users that the government gets information on just a tiny number of people. Over the weekend, Facebook and Microsoft released reports about the overall number of data requests they had received from United States law enforcement agencies. On Monday, Apple and Yahoo joined the chorus.

But rather than provide clarity, some of the disclosures have left many questions unanswered.

Apple, for example, said that from Dec. 1, 2012, through May 31, 2013, it received between 4,000 and 5,000 requests for data, covering 9,000 to 10,000 accounts, from American law enforcement agencies. Facebook said it got 9,000 to 10,000 requests for information about its users, covering 18,000 to 19,000 user accounts, in the last six months of 2012.

How many of those requests were from investigators seeking to sniff out the next terrorist?

The companies said they were not allowed to say, although they noted that the requests were commonly related to things like local police investigations and searches for missing children. That continuing restriction prompted both Google and Twitter to say they would not publish similar data until they could separate national security requests from the rest.

“We still don’t know what is allowed and how these programs are being implemented,” said Amie Stepanovich, director of the Domestic Surveillance Project at the Electronic Privacy Information Center, a nonprofit group.

But the companies were under immense pressure to announce something. If customers do not trust that Facebook or Microsoft or Google will keep private data confidential, they could use those services far less, undermining the companies’ business model.

“They’ve got to say to the consuming public that we care about your data, we’re going to do everything we can to preserve your data, and absent a national security contingency, no one gets access to your data,” said Adonis Hoffman, an adjunct professor at Georgetown University, who has served as a legal adviser to both the government and the advertising industry.

Pressing on the companies from the other side are the country’s intelligence agencies, which prohibit companies from disclosing virtually anything about the requests for national security data without permission.

“The nature of these orders are that they themselves are secret,” said one frustrated executive at a company involved in discussions with the government over disclosure issues.

Despite a week of arduous negotiations since the first reports about the National Security Agency’s seeking private data from nine major technology companies, the firms still cannot say much. “The government will only authorize us to communicate about these numbers in aggregate, and as a range,” Facebook wrote when it posted its data late Friday night.

Still, for tech companies that had never before released a transparency report, like Facebook and Apple, the data shed some light on their practices.

Apple, for example, noted in its report that it never gives the government copies of electronic conversations that take place over iMessage and FaceTime because they are protected by encryption that even Apple cannot break. “Similarly, we do not store data related to customers’ location, Map searches or Siri requests in any identifiable form,” the company said.

Google and Twitter, which had previously released transparency reports, said that lumping all law enforcement requests together, like Apple and the others did over the weekend, would be even less transparent.

Microsoft, which put out its first transparency report in March, decided to disclose the aggregate numbers but said it was pressing for further disclosure. Google, which published its first transparency report in 2010, has been the most aggressive in pushing for more disclosure. In March, it began breaking out data on one type of government request — National Security Letters, which request information on Americans — saying it had received 0 to 999 requests.

Permission to disclose that came after more than a year of negotiations with the government, and Google had been seeking permission to publish data on the other major type of national security request — information on foreigners demanded under the Foreign Intelligence Surveillance Act — even before news of Prism, the government’s surveillance program, broke, according to a person briefed on those discussions. It is still in talks to try to publish more detailed data, the person said.

By pushing to be able to publish more data on national security requests, the companies were hoping to shift the debate from the data exchange between the tech companies and the government to how the government can be more transparent about it.

Still, even if the government gives permission to break out FISA requests as a separate data point, the numbers are unlikely to tell the whole story. For every formal FISA request the government makes, intelligence agents are able to add names and additional search queries to that request for up to a year afterward, so the amount of data requested could be much higher.

Also, when the government gave Google and Microsoft permission to publish the number of national security letters they receive, it required them to publish the numbers in increments of 1,000, instead of the exact number, and would most likely do the same for FISA requests.

Article source: http://www.nytimes.com/2013/06/18/technology/more-data-on-privacy-but-picture-is-no-clearer.html?partner=rss&emc=rss

2 Networks Hint at Leaving the Airwaves

While viewed largely as saber-rattling, the idea that the networks could be converted into cable channels gained attention in the television world because such a move would have wide-reaching implications for viewers and station owners.

The possibility had not been publicly broached by a major broadcaster until Chase Carey, the chief operating officer of Fox’s parent, News Corporation, spoke at a conference of broadcasters on Monday morning.

Later in the day, Haim Saban, the chairman of Univision, lined up with Fox, calling Aereo a pirate and saying, “To serve our community, we need to protect our product and revenue streams and therefore we, too, are considering all of our options — including converting to pay TV.”

One week ago, a federal appeals court rejected broadcasters’ attempts to shut down Aereo. The service uses an array of tiny antennas to pick up free signals from stations in New York, including two owned by News Corporation, and streams the stations to paying subscribers’ devices.

Aereo is promoted as an alternative to cable, with only a fraction of the channels but at a fraction of the cost, and it allows for easy viewing of live TV on phones and tablets.

Aereo says its service is legal because each viewer has an individually assigned antenna, not unlike viewers with rabbit ears hooked up to their TVs. But owners of local stations disagree. Aereo is backed by Barry Diller, who founded Fox with Rupert Murdoch nearly 30 years ago.

“Aereo is stealing our signal,” Mr. Carey said Monday, repeating what owners have said since a group of them sued the service a year ago. He said the stations would keep up their legal battle, though he did not specify how.

He said that although News Corporation is committed to the broadcasting business model for now, it could abandon the airwaves if Aereo remains intact.

The comments seemed aimed at lawmakers who might side with broadcasters in responding to the perceived threat posed by Aereo. The threat is specifically aimed at retransmission fees, which have become a crucial second source of revenue for stations as ad losses mount.

The appeals court ruling in favor of Aereo could lead cable and satellite operators to set up their own antenna arrays and use them to avoid retransmission fees, or at least threaten to do so.

Reacting to Mr. Carey’s comments, Aereo said in a statement, “It’s disappointing to hear that Fox believes that consumers should not be permitted to use an antenna to access free-to-air broadcast television.” Aereo invoked the origins of TV, when Congress handed over valuable public airwaves “with the promise that they would broadcast in the public interest and convenience, and that they would remain free-to-air.”

Article source: http://www.nytimes.com/2013/04/09/business/media/fox-hints-it-might-leave-the-airwaves.html?partner=rss&emc=rss

You’re the Boss Blog: The Risks of Expanding Into Australia, Part 2

Sustainable Profits

The challenges of a waste-recycling business.

In my last post, I wrote about our plans to open our 22nd foreign office in Australia. We have checked the very important first few boxes in our process to conduct a successful foreign-office opening with limited risk and investment — including finding a general manager, Anna Minns, who will start drawing a salary as soon as we start invoicing. Most important, we have a few partnership deals that are close to closing.

Our partnership deals rely on major brands to finance our ability to take their non-recyclable waste — cigarette butts, chip bags, etc. We have incorporated, and we have our Australian bank accounts set up. In anticipation of the deals closing, we have identified operational partners — a warehouse, manufacturers, etc. — to help us run our recycling operations. Pending commitments from our partners, we plan to introduce TerraCycle Australia this summer from a new office in Sydney.

The big question is not whether we will open but how successful we will be. This will depend primarily on the people we hire and how well we manage and support them. I’ve found that a business model that works in a few countries generally works well in similar markets, and Australia is a similar market to the United States. Australians speak English, and the economy functions under Western principles. Perhaps the country most comparable to Australia is Canada, and Canada is often the first foreign market that an expanding American company will enter, typically followed by Britain.

The role of a general manager evolves dramatically in the first few years; unfortunately, only about half of our G.M.’s survive the transition. In the beginning, Anna will have to manage everything from operations to client relations. We support this by having a team of global leaders, based in our headquarters in Trenton, N.J., who manage each department globally.

That means Anna will get support from Michael, our global head of client management; Kevin, our global head of operations; and 10 other leaders on a department-by-department basis. Doing this gives us global cohesiveness and allows us to have multiple people overseeing our people and operations. There can be instances where a local G.M. may think everything is going well but our department head thinks otherwise. This redundancy is critical, especially when we are asking an individual to take on such a wide range of responsibilities.

In addition, we ask each team to submit detailed monthly reports. The reports are sent to every staff member and reviewed by the senior team on a monthly basis. Those notes are then forwarded to every other employee to make sure everyone knows how we are doing. By maximizing oversight and transparency, we are able to offer the best possible support to our local G.M.’s, and we can also keep track of what is happening in our far-flung markets.

That’s especially important because the role of the G.M. will change quickly for Anna as her business unit grows. As she brings on more partners, her budget will grow and she will be permitted to hire more employees. When this happens, her role will evolve from doing every function herself to managing a team.

We opened our office in Mexico in 2009, for example, and today it has 14 people. As you can imagine, the role of our G.M. in Mexico has changed dramatically in the past few years as the office has grown. The growth of the office was not a smooth ride — in fact, we changed G.M.’s four times.

Our first Mexican G.M. was terrific when he was working in Trenton but he struggled in Mexico — not everyone is cut out to work remotely. We then hired a young entrepreneur I had met while giving a talk in Hermosillo. He was 20 at the time, but I generally don’t worry too much about age (I started TerraCycle at 21 and am 31 today). But it turned out that getting a business off the ground and running it was too much for him, and we agreed that a transition would be appropriate. We went through one more G.M., who resigned because of the pressure, before we landed our current G.M., Isaac, who has done a fantastic job the past few years.

Hiring can be tricky for any position, but it’s especially tricky for a position that will evolve in a market that you may not fully understand. For me, the biggest lesson I have learned opening offices in 22 other countries is that the success or failure of a foreign office will be determined almost entirely by the abilities of the talent that you deploy there.

Tom Szaky is the chief executive of TerraCycle, which is based in Trenton.

Article source: http://boss.blogs.nytimes.com/2013/03/21/the-risks-of-expanding-into-australia-part-2/?partner=rss&emc=rss

Advertising: ABC Works on an App for Live Streaming Shows to Mobile Devices

The app will live stream ABC programming to the phones and tablets of cable and satellite subscribers, allowing those subscribers to watch “Good Morning America” on a tablet while standing in line at Starbucks, for instance, or watch “Nashville” on a smartphone while riding a bus home from work. The app could become available to some subscribers this year, according to people briefed on the project, who insisted on anonymity because they were not authorized to speak about it publicly.

With the app, ABC, a subsidiary of Disney, will become the first of the American broadcasters to provide a live Internet stream of national and local programming to people who pay for cable or satellite. The subscriber-only arrangement, sometimes called TV Everywhere in industry circles, preserves the cable business model that is crucial to the bottom lines of broadcasters, while giving subscribers more of what they seem to want — mobile access to TV shows. The arrangement could extend the reach of ads that appear on ABC as well.

Disney already distributes similar live streaming and on-demand apps, known as “Watch” apps, for ESPN and the Disney Channel. Special hurdles exist, however, for the ABC app, in part because of contracts between the network and the companies that produce some of its shows that were written before mobile phone video streaming was even possible. Other complexities involve ABC’s local stations, which might — if not courted properly — feel threatened by an app.

But ABC, seeing shifts in consumer behavior, is pressing forward. It has started to talk with stations about how to include them in the live streaming app. Illustrating the difficult contractual issues, ABC offhandedly first mentioned a forthcoming Watch ABC app in a news release nine months ago, when it signed a deal with Comcast to make several Watch Disney apps available to Comcast subscribers.

But the network live streaming ability is inching closer to fruition, the people briefed on the project said. A spokesman for ABC declined to comment.

Executives at other networks who have heard about the ABC plan regard it with a mixture of awe and fear. No other broadcaster is believed to be as far along as ABC, which is also the first broadcaster to sell TV episodes through Apple’s iTunes store and the first to stream free episodes on its Web site.

Subscriber-only apps like Watch Disney and, eventually, Watch ABC stand in stark contrast to the free-to-all content available on Hulu, the online video site that is co-owned by Disney, Comcast and News Corporation. Comcast is a silent partner. The other two companies are debating what to do with the six-year-old Web site, which has lost most of its original executive backers at NBC and Fox and will soon lose its founding chief executive, Jason Kilar.

Last week, when Mr. Kilar, who is stepping down this month, named an acting chief executive, Andy Forssell, he wrote in a message to staff members that “Disney and News Corporation are currently finalizing their forward-looking plans with Hulu, and the senior team has been working closely with them in that process. Once the plans are finalized, a permanent decision will be made regarding the C.E.O. position.”

Hulu has been an innovator in both the Web streaming and the advertising arenas, forcing media companies to think about how their TV shows should be distributed online. But it has been marginalized as the companies seek out more lucrative revenue streams.

Under one plan discussed recently, according to several people with ties to Hulu, Disney would buy out the other co-owners’ stakes in the company. But the opposite could happen, too, with News Corporation as the buyer. Or the two companies may choose to sell Hulu to a third party, if one shows interest.

The companies could also retain their stakes in Hulu and change the business model. Disney is said to be more supportive of the free, ad-supported model that it is most closely associated with; News Corporation is more supportive of Hulu Plus, the monthly subscription service that is an add-on to the free Hulu site. Mr. Kilar, in his message last week, did not indicate when any change could take place.

Whatever happens, the owners appear more interested in maintaining their existing relationships with cable and satellite companies. That is what an app like Watch ABC would do. It would protect the cable model while providing a good example of how authentication — the idea that people log in to prove they have a subscription — works.

A few cable and satellite companies already have their own products that allow ABC and other broadcasters to be streamed on devices. But for most Americans, it remains difficult to place-shift a show — say, to watch a local nightly newscast live on an iPhone.

A start-up company that is being sued by Disney and several other major media companies, Aereo, has made that possible by installing an antenna farm in New York; some analysts have said Aereo might motivate broadcasters to make their own live streams more freely available on their own terms. But James L. McQuivey, a digital media analyst at Forrester and the author of the book “Digital Disruption,” said he thought ABC’s plan wasn’t a rebuttal to the start-up.

“This and Aereo are both a response to the fact that people are habitually connected to live viewing,” he said. “The Internet will gradually undo that,” he predicted, “but it’s being very gradual about that for the time being.”

Brooks Barnes contributed reporting.

Article source: http://www.nytimes.com/2013/03/19/business/media/abc-works-on-an-app-for-streaming-shows-to-mobile-devices.html?partner=rss&emc=rss

Mobile Revolution Buffets Taiwan PC Rivals

TAIPEI — Two computer-making neighbors in the technologically inclined economy of Taiwan seem headed in opposite directions.

Personal computer sales have slumped worldwide as smartphones and tablets have proliferated and gained in popularity. One Taiwan heavyweight, Acer, has shared in the suffering: It is expected to report a second straight annual loss in 2012 after losing 6.6 billion Taiwan dollars, or $223 million at the current exchange rate, in 2011.

But another Taiwan-based PC company, Asustek, which sells computers under the Asus name, grew 43 percent in the quarter that ended in September, to 6.7 billion dollars in net income. The company’s PC sales rose 6.4 percent even as industrywide PC shipments declined 4.9 percent in the last three months of 2012, according to the research firm Gartner.

The companies’ divergent fortunes expose both the mistakes and the opportunities for PC makers in an epic shift in the way consumers use technology.

For more than a decade, with no serious alternatives for consumers, Acer, Dell and Hewlett-Packard treated the PC as a commodity: All of their machines used the same Intel chips and Microsoft software and even looked similar, analysts said. In that environment, PC makers made money by focusing on marketing and by cutting costs.

For Acer, much of that strategy was driven by the former chief executive, Gianfranco Lanci, who led the company from 2004 to 2011. During his tenure, the company focused only on marketing and distribution, while gutting research and development and outsourcing design and production, analysts said.

The spread of smartphones and tablets has challenged that business model. Consumers have more choices and increasingly focus on how their devices look and feel, how mobile they are and what content they can provide access to.

“At the moment, the PC market is saturated,” said Tracy Tsai, an analyst at Gartner. “When most users have a PC already, they are not looking for just a cheaper notebook. They want something better.”

That has meant meager profits or none for global PC brands. H.P. reported a $12.7 billion loss in the business year that ended in September 2012, while Dell’s poor performance has resulted in an effort to take the company private.

It is a problem that has manifested itself on the street as well. Stam Chuang, a manager at a retail shop in the Guanghua Digital Plaza in Taipei, said notebook sales at his store had dropped 10 percent during the past year.

“There’s only a set amount of demand for computing out there,” Mr. Chuang said. “So if consumers decide they want a tablet or smartphone, that share will get taken out of PCs.”

Because of its research and development cuts, Acer has struggled to produce smartphones and tablets that can compete with the sleek products from mobile powerhouses like Amazon.com, Apple and Samsung, analysts said.

Asustek, however, followed a strategy that emphasized design and innovation. Its personal computer growth in 2012 was driven by the Zenbook, an ultrathin laptop with a metallic finish, stereo speakers and backlit keys.

Jonney Shih, the chairman of Asustek, said he had foreseen the mobile revolution and wanted his company to differentiate itself from the competition.

“Even 10 years ago, I knew I had to be prepared,” Mr. Shih said.

He added that with computer architecture and chips shrinking, he had recognized that “the ‘phone computer’ was going to happen.”

Mr. Shih has become a cheerleader for what he calls “design thinking,” pushing his employees to be creative about building products that enrich the experience for consumers. Asustek incorporated a design and artistry category into its employee evaluation system.

The two companies’ revenue numbers are similar: In the third quarter of 2012, Acer brought in 87.4 billion dollars in revenue, compared with 96 billion dollars for Asustek, according to Bloomberg data.

Article source: http://www.nytimes.com/2013/02/25/technology/mobile-revolution-buffets-taiwan-pc-rivals.html?partner=rss&emc=rss

DealBook Column: Martoma Insider Trading Case Puts Spotlight on ‘Expert Networks’

Toward the end of 2007, Silver Lake Partners, a well-respected investment firm, made what then seemed like a curious investment: it paid about $200 million to buy slightly less than a quarter of a fast-growing company called the Gerson Lehrman Group.

The investment was unusual because Gerson Lehrman, a so-called expert network firm that links hedge fund investors with experts in various fields, had been under scrutiny by regulators and the press for creating a business model that some said was tailor-made to foster insider trading on Wall Street.

A hedge fund manager could call up Gerson Lehrman, ask to speak with an expert — often a current or former employee of a company that the hedge fund was considering investing in — and, for prices as high as $1,000 an hour, the “expert” would, with luck, divulge what he knew. A front-page article in The Wall Street Journal in 2006 provided a series of anecdotes of questionable information being sought by Gerson Lehrman’s clients.

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Gerson Lehrman insisted that its business was honest, and it instituted a variety of compliance programs to prevent investors from seeking inside information from its experts. Soon after, all the regulatory investigations into the firm seemed to dry up.

Then came the investment from Silver Lake, a firm with a track record for investments in information technology and a group of founders with illustrious backgrounds in Washington, on Wall Street and in Silicon Valley. (Glenn Hutchins, one of the founders, worked as a special adviser to President Bill Clinton, for example.) So Silver Lake’s investment came across as a seal of approval. The firm, which had been a client of Gerson Lehrman, said it had done significant diligence on the firm and was more than satisfied.

And yet here we are: last week, federal prosecutors announced what they said was the largest insider trading case in its history, charging Mathew Martoma, an employee at the hedge fund SAC Capital Advisors, with using inside information about drug trials from one of these experts, Dr. Sidney Gilman, a neurology professor at the University of Michigan Medical School who had been hired by Elan and Wyeth to oversee the drug trials. The transfer of information was made possible by Gerson Lehrman, which had played matchmaker. If this expert network did not exist, it is not clear that Mr. Martoma and Dr. Gilman would ever have found each other. More on that in a moment.

The criminal case against Mr. Martoma suggests that he used Gerson Lehrman’s services repeatedly, paying a total of $108,000 to Dr. Gilman, who was paid about $1,000 an hour for his expert counsel — or his dispensing of inside information, as the government sees it. Dr. Gilman, 80, entered into a nonprosecution agreement in exchange for providing information on his discussions with Mr. Martoma to the government.

In fairness to Gerson Lehrman, the various complaints against Mr. Martoma make clear that the firm put Mr. Martoma and Dr. Gilman through a number of compliance programs and repeatedly provided them with notices — boilerplate e-mails — that Mr. Martoma was not to seek inside information and Dr. Gilman was not to provide it.

One e-mail explicitly instructed that the expert “will not reveal any information that the [expert] has a duty to keep confidential, including material nonpublic information.” The e-mail also said experts “participating in clinical trials may not discuss the patient experience or trial results not yet in the public domain.”

Based upon the complaints against him, Mr. Martoma appears to have tried to dupe Gerson Lehrman about the true intent of his requests to talk to Dr. Gilman by mischaracterizing the subjects he hoped to discuss.

And yet, the information appears to have been passed with tremendous efficiency. Each phone call between the two men was organized and documented by Gerson Lehrman, in part so that Dr. Gilman could be properly compensated for his expert advice. Gerson Lehrman, however, does not chaperon the calls.

Of about a million “consultations” the company has conducted between its clients and “experts,” this is the first time a criminal complaint has been filed against a client or expert of Gerson Lehrman. The Gerson Lehrman Group has not been charged or implicated in any way.

Still, the expert network business model is inherently perilous. Many expert network firms have gotten caught up in one insider trading case or another. Primary Global was featured in the Raj Rajaratnam case; it has since closed its doors. While Gerson Lehrman remains the leader in the business and might have the best compliance program in the industry, one of its experts was interviewed by the F.B.I. in 2010 after a client was raided. No charges were brought.

The original purpose of these firms was to provide primary information to investors looking for research after the old Wall Street research business model seemed to collapse under the weight of an industry settlement over conflicts of interest, led by Eliot Spitzer when he was the attorney general of New York. Gerson Lehrman became so popular that Goldman Sachs considered buying it, and other banks sought to copy its model.

Silver Lake declined to comment. Gerson Lehrman’s chief, Alexander Saint-Amand, said: “Professionals need to consult with other professionals to learn and make better decisions, especially as the business environment becomes more not less complex. That’s true for all of our clients — investors, corporations, law firms, nonprofits.”

So what to think of expert networks now?

On one side, there is a good argument that these firms help investors and others find one another — consider it a high-priced Facebook for consultants. Gerson Lehrman has expanded its business beyond simply working with investors; it now helps corporations looking for experts, or advertising agencies looking for help ahead of a big pitch.

There is clearly a market for matchmaking, and without a Gerson Lehrman, it is very possible that some interactions would take place over beers or expensive dinners — without the compliance efforts and audit trails that the firm provides. With the advent of LinkedIn and other social networks, there are increasingly new ways to find experts.

But investors don’t pay hundreds of thousands of dollars a year for information that isn’t material — at least, material to them. In the best of worlds, the expert network business model is about pushing clients as close to the “line” as possible without crossing it. That’s a tough thing to do consistently — and a precarious way to run an enterprise.

A version of this article appeared in print on 11/27/2012, on page B1 of the NewYork edition with the headline: Knowledge Is Money, But the Peril Is Obvious.

Article source: http://dealbook.nytimes.com/2012/11/26/knowledge-is-money-but-the-peril-is-obvious/?partner=rss&emc=rss

DealBook: Groupon Narrows Losses Ahead of Its Pitch to Investors

Groupon's chief executive, Andrew Mason.Asa Mathat/All Thing Digital, via ReutersAndrew Mason, Groupon’s chief executive.

6:14 p.m. | Updated

Groupon is entering the final leg of its long journey toward an initial public offering.

On Friday, the daily deals site disclosed that it had narrowed its third-quarter losses, to $1.7 million, and that its North American operations turned a profit.

The results are an important milestone for the company, which has been trying to quell concerns about its business model before going public.

Groupon, according to its revised prospectus, expects to sell 30 million shares and fetch $16 to $18 a share, valuing the company at as much as $11.4 billion. At the midpoint of that price range, the company could raise $510 million. Its underwriters could also sell an additional 4.5 million shares if demand exceeded expectations.

Friday’s revision was filed as Groupon and its cadre of bankers prepared for a two-week road show with potential investors, hoping to generate excitement over the company’s forthcoming I.P.O. The company had been especially keen to prove that it was at least close to profitable before it began its road show, according to people who were briefed on the matter but were not authorized to speak publicly.

Groupon expects to price its offering around Nov. 3.

Since its founding less than three years ago, Groupon has become one of the stars of the new generation of Internet start-ups. By pioneering the market for deep discounts at local restaurants and stores, the company has grown at a remarkable speed, attracting hundreds of millions of subscribers and posting sales at stunning rates.

The site now has 142.9 million subscribers, according to its latest filing, a sevenfold increase from last year. As of the third quarter, about 29.5 million of those people had purchased at least one deal.

Yet soon after the company filed its first prospectus, it attracted harsh scrutiny from skeptics of its business model and its accounting, which critics said gave a misleading impression of profitability. Groupon amended its prospectus several times, restating its revenue and removing a controversial financial metric.

It addressed apparent breaches of a mandatory “quiet period” for companies preparing to go public. The most widely known of these was a memorandum to employees written by the company’s chief executive, Andrew D. Mason, that was quickly leaked to the news media.

Though Groupon’s growth has slowed as it has grown larger and more diversified — its net revenue grew only 9.6 percent over last quarter, to $430.2 million — the company disclosed in its latest filing that it was still attracting new subscribers and converting them into paying customers.

Readying itself for potentially tough questioning from investors, Groupon’s highest priority has been to show that its business and growth are sustainable. In prospectus on Friday, the company said that the amount of coupons sold per customer had grown 27 percent year-over-year, to about 4.2. And the company’s average revenue per deal had grown about 31 percent over the same time last year, as well as about 7 percent over the second quarter.

But critics have worried that Groupon is doling out increasingly huge sums to attract new customers. In the first nine months of the year, Groupon spent $613 million on marketing, compared with less than $90 million in the same period of 2010.

The company is looking to reduce those expenses. Groupon trimmed its marketing budget in the third quarter, from the previous three months, according to a person with knowledge of the matter. Mr. Mason has promised a significant cutback in marketing expenses in the future.

Over the last year, Groupon has introduced new offerings that expand its business beyond daily deals, including travel packages and ticketed events. Those new products have diversified the company’s operations, although they often carry lower profit margins that have weighed on sales growth.

Revenue per subscriber fell 15 percent to $3.30 in the third quarter, from the previous quarter, and the company’s deal margin, or revenue divided by gross billings, shrank.

This trend is likely to continue in the near term as Groupon attracts a broader mix of consumers who may not be as engaged as the first wave of early adopters. But the company also expects deal margin to pick up again in the next quarter.

Though Groupon will spend most of its road show highlighting its growing profitability, it is also likely to trumpet one zero: the number of insiders selling shares. While earlier filings referred to “selling stockholders,” the company recently stripped that language from its prospectus, indicating that its shareholders would not sell any shares in its offering.

In recent months, the start-up has been harshly criticized for letting its founders and early investors profit, through hefty stock sales, well ahead of its I.P.O. In January, for example, Groupon raised $950 million. Of that, $810 million went straight to its shareholders.

Article source: http://feeds.nytimes.com/click.phdo?i=55ea8bbcd83ec2513d16e2aa64158241

DealBook: Groupon Seeks Offering Near $12 Billion Valuation

Groupon's founder, Andrew Mason. Enthusiasm for Groupon's I.P.O. has fallen, in part because of questions about accounting.Asa Mathat/All Thing Digital, via ReutersGroupon’s founder, Andrew Mason. Enthusiasm for Groupon’s I.P.O. has fallen, in part because of questions about accounting.

9:05 p.m. | Updated

Groupon, the daily deal site, is seeking to sell shares in an offering that would value the company at close to $12 billion, several people with knowledge of the situation said on Wednesday.

Such a valuation, which is being weighed as the company prepares for an investor road show next week to pitch its initial public offering, would be a steep comedown from earlier expectations that an I.P.O. of the Internet darling could value the company as much as $25 billion to $30 billion.

But shaky stock markets in recent months have prompted the company’s bankers to revise their calculations. Enthusiasm for Groupon has also been tempered amid sharp questions over its business model and accounting.

The stock offering, likely to take place next month, is expected to be less than 10 percent of the valuation and could be as small as $500 million, the people with knowledge of the situation said. The valuation is estimated to be more than $10 billion and will be significantly higher if markets improve.

The market challenges facing the Groupon I.P.O. are shared by other companies seeking to go public.

Prolonged market volatility and uncertainty over the global economy have put the market for offerings in a deep freeze since the middle of August. This week, Liberty Mutual and Glacier Water Services withdrew their I.P.O.’s. And Zeltiq Aesthetics, which was the second company to complete an initial offering since August, priced its stock sale below its expected range.

The chill has affected even hotly anticipated Internet offerings like Groupon’s. Less than three years old, the Chicago-based company has rocketed to stardom. The site, which features deeply discounted offers on local goods and services, has attracted more than 115 million subscribers. Its work force, meanwhile, has swelled to more than 9,600, spread across some 220 markets. Sales have also kept apace. In the first six months of this year, it recorded revenue of $688.1 million.

Yet, despite its swift rise, the company has stumbled at several turns on the way to the public markets.

Known for its unabashedly eccentric culture, Groupon has at times defied the norms expected of a company preparing to go public. It has been forced to amend its prospectus several times, in large part to revise accounting.

Among those revisions was eliminating a metric that subtracted Groupon’s online marketing expenses from its operating performance, which critics said gave a misleading impression of profitability. The company also restated its revenue by stripping out payouts to vendors, essentially halving what had once been eye-popping numbers.

Accounting questions were not Groupon’s only problem. The company was criticized for apparently violating a regulatory quiet period before its I.P.O. — a memorandum to employees from Andrew Mason, the chief executive, that extolled the company and was leaked to the media. Groupon settled the matter by incorporating it in a revised prospectus. And earlier this month, the company submitted yet another filing to release the full memo and to disclose additional details on its accounting methods.

The start-up, still the leader of the daily deal market, has also drawn the ire of critics and some small business owners, who strongly question whether its business model is sustainable in the long run. Several vendors, frustrated by low margins and the lack of repeat customers, have written scathing missives online. Meanwhile, analysts say its once eye-popping growth seems to be slowing, despite heavy marketing.

The company, which has pledged to pull back on advertising, spent $432 million on marketing in the first six months of this year.

The mounting criticism also comes at a somewhat vulnerable time for Groupon’s management team. Its chief operating officer, Margo Georgiadis, stepped down last month, after about five months at her post. A replacement has not been named.

Despite its hurdles, Groupon’s offering remains one of the most anticipated technology I.P.O.’s this year. The company, which will trade under the ticker GRPN, has hired Morgan Stanley, Goldman Sachs and Credit Suisse to serve as its lead underwriters.

Article source: http://feeds.nytimes.com/click.phdo?i=36171c0c4482b0d086c788dff78fd909

You’re the Boss Blog: Can an Applebee’s Franchisee Be a Real Entrepreneur?

Zane Tankel built the highest-grossing Applebee's in the world.Ruth Fremson/The New York TimesZane Tankel built the highest-grossing Applebee’s in the world.

Today’s Question

What small-business owners think.

We’ve just published a lively small-business conversation with Zane Tankel, who bought into the established Applebee’s business model but who has also challenged that model in many ways, including what his employees wear, how they are hired and rewarded, where he builds his restaurants, and what food those restaurants serve. Based on revenue numbers confirmed by Applebee’s, the results have been impressive. “Maybe this kind of thing isn’t for the average franchisee,” Mr. Tankel told Eilene Zimmerman, “but we pushed the envelope right from the start, took those protocols to the next level, and I think that’s entrepreneurship.”

Please take a look at the conversation and tell us what you think: Is Mr. Tankel an entrepreneur?

Article source: http://feeds.nytimes.com/click.phdo?i=12de1eb8e4045619c36f3ee3870ca5aa

Countrywide to Distribute Settlement to Its Clients

The number of consumers recovering money in the settlement is the biggest in the F.T.C.’s history and wound up being double what the commission had estimated. Most will get $500 or less, but 5 percent will receive $5,000 or more, the trade commission said.

“It is astonishing that one single company could be responsible for overcharging more than 450,000 homeowners, which is more than 1 percent of all the mortgages in the United States,” Jon Leibowitz, chairman of the trade commission, said in an interview. Countrywide’s “was a business model based on deceit and corruption, and the harm they caused to American consumers is absolutely massive and extraordinary.”

The excessive fees and improper charges were levied on borrowers whose loans were serviced by Countrywide. Most of those receiving money under the settlement — almost 350,000 customers — were routinely charged excessive amounts by Countrywide for default-related services.

To profit from property inspections, title searches and maintenance on homes going through foreclosure, Countrywide set up subsidiaries to do the work and marked up the cost of the services by more than 100 percent. The company’s strategy was aimed at increasing profits from default-related services during bad economic times, the trade commission said. Some troubled borrowers were charged $300 by Countrywide to mow their lawns, for example.

An additional 102,331 people will share in the settlement because Countrywide gave them incorrect figures about how much they owed on their mortgages or added fees and escrow charges without notice, the trade commission said. Because these borrowers had filed Chapter 13 bankruptcies to try to keep their homes, the erroneous amounts supplied by Countrywide were also filed with the courts. Of these borrowers, about 43,000 were charged improper fees that Countrywide levied after their bankruptcies had been concluded and they were no longer under court supervision.

The recipients under the settlement are borrowers whose loans were serviced by Countrywide between Jan. 1, 2005, and July 1, 2008. In addition to being the nation’s largest mortgage lender, Countrywide was the biggest loan servicer, administering $1.4 trillion in mortgages. Countrywide nearly collapsed under the weight of its subprime lending, however, and was acquired in a fire sale by Bank of America in 2008.

It took more than a year to identify all of the borrowers injured by Countrywide’s practices because the company’s records were completely disorganized and chaotic, according to people briefed on the investigation. After the deal was struck, Bank of America was given 30 days to provide the F.T.C. with a list of borrowers who had been overcharged. The company failed to meet the deadline and its later assessments of those who had been victimized were found to be incomplete.

Ultimately, Bank of America had to hire an accounting firm to determine that it had correctly identified all the borrowers who were owed money.

When Bank of America settled the F.T.C.’s charges last year, it said it was doing so “to avoid the expense and distraction associated with litigating the case.” The company did not admit wrongdoing but was barred from the conduct cited by the commission. It also agreed to use a “data integrity program” to ensure that the information it used in servicing loans in Chapter 13 cases was accurate.

Article source: http://feeds.nytimes.com/click.phdo?i=0f5a23d433a39949febd340f52e2c4e0