Business Blog: Hoover’s Business Insight Zone

I ranted about this the other day. But that’s fine by me, since the issue of airlines’ moronic treatment of passengers is worth ranting about.

Now Jeff Jarvis has ranted about this, too, at length and with much more eloquence. A choice tidbit:

Airlines: Imprisonment as a business model

Oh, yes, this shifts some of the logistical burden of air travel from taxi and air traffic control to the terminals — fine. It also shifts the pain in this relationship from the powerless customer to the people who are in a position to fix the situation. If the airlines want to imprison us, they still have the tool of the nonrefundable ticket, though the market will in the long-run dictate whether we choose to pay for this discount with the risk of captivity.

Give it a read. As I keep saying, someday somebody who runs an airline is going to crack this nut and make a lot of money while their competitors continue to operate the same ol’ stupid way.

Kara Swisher has a great run-down of today’s “all-day confab” of Yahoo execs.

Yahoo is a VP-heavy culture and so it is likely the event will be pretty packed, but also pretty dull. In fact, corporations have these kind of gatherings all the time, which are usually about as spontaneous as a Presidential debate. Wait, make that a Vice Presidential debate.

Wait, both of those are less scripted and more exciting than this meeting will be.

“I want to figure out a way to sneak out,” said one VP to me about it, sick as this exec is of Yahoo’s meeting-centric culture.

Her prediction: nothing big to emerge. For my money, Swisher’s most telling observation is this one:

I cannot tell you how many Yahoo execs at all levels complain about the inability to launch products and services easily, to make decisions without fear of getting a no from on high, to take the kind of crazy risks needed to succeed (and sometimes fail, which can also be a good thing).

Unhealthy levels of risk-aversion + inability to execute projects + hard-core competition = looming disaster.

Today’s Company of the Day is Dell Inc.

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By now Michael Dell’s meteoric rise in business is the stuff of legend: the early displays of entrepreneurial savvy, the PC-building operation set up in his dorm room, dropping out of the University of Texas to build his company, … and the eventual ascent of Dell Inc. as the world’s #1 maker of computers. Living here in Austin, we see the hallmarks of Dell’s success all over the place. The philanthropy of “Dellionaires” has transformed the city’s arts scene, you take in the games of the AAA Round Rock Express at the Dell Diamond, and everyone knows someone who works for Dell.

This kind of exposure also means that Austinites have heard plenty about Dell’s downside: intense pressure to perform, constant emphasis on hitting numbers, and the other human downsides of the company’s relentless focus on performance. The story of the company’s (relative) decline over the past couple of years has been similarly pervasive. We know all about Dell’s bad customer service reputation, its flaming laptop batteries, the accounting irregularities and financial restatements, and the return of Michael Dell to the CEO role after the departure of Kevin Rollins. Worst of all for the company was that this string of bad news came while the company’s prime rival, Hewlett-Packard, got its act together to reverse the tide of its previous market share losses.

Still, some perspective is in order: after all of its troubles, Dell still pulls in more than $50 billion in annual revenues, and it makes billions of dollars in profit every year. As bad as things have gone for the company in the past couple of years, it remains profitable across many lines of business, and the organization still has lots of talented people in it. As for the talent at the head of the org chart, Mr. Dell himself is still just 42 years old — so there’s still plenty of time for a second act, for both the man and his company.

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I make a habit — possibly too much of a habit — of checking oil prices throughout the day. It’s gotten to the point lately that I’m no longer surprised when the NYMEX futures price and the West Texas Intermediate spot price both sit at $80 or above. But every time they run up into this range, the prices seem to soften again — no doubt in part because price speculators are locking in gains.

But as of now (a few minutes before 5 p.m. CDT), the NYMEX future prices is $83.09. Eighty-three dollars! Yes, we went up into this territory last week, but it still surprises me to see it.

What’s driving the price? A number of the usual suspects: detailed refinery inventory numbers used by industry insiders, renewed unrest in the oil-producing southeastern region of Nigeria, and sustained high demand, even after the brunt of the summer has passed.

And then there’s the wild card: What will the US (or the UN) do about Iran’s nuclear program?

This AP story has useful background on oil prices.

Today’s Company of the Day is Vonage. Here’s a copy of the original article; an update, a correction, and amplifications follow.

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Internet phone company Vonage got yet another bad piece of news this week when a federal court ordered it to pay nearly $70 million in damages to Sprint Nextel for infringing that company’s patents. Vonage said that it would appeal the verdict, and reasserted that its VoIP (voice over Internet Protocol) technology does not actually infringe on Sprint’s patents. The ruling comes in the wake of a March finding by another federal judge that Vonage’s technology infringes on patents held by Verizon — a ruling (also under appeal)* that would force Vonage to pay nearly $60 million in damages and, more importantly, bar it from its principal business of using that technology to deliver Internet phone service. Vonage has talked about devising technical workarounds that don’t use the contested technology, but so far hasn’t announced any breakthroughs on that front.**

The adverse court rulings have been just one facet of the company’s problems. In the eyes of many market watchers, Vonage’s May 2006 IPO constituted a clinic in what not to do when taking a company public. After debuting at a price of just over $13, Vonage shares went directly into a steep slide. By the end of 2006, the share price was under $7.00; by the middle of this week, the price had fallen below $1.00. Some customers swear by the clarity and reliability of Vonage’s service, and sales have grown rapidly, from $80 million in 2004 to $270 million in 2005 and more than $600 million in 2006. Unfortunately, losses have also piled up quickly, and the balance sheet will get even worse if the company must pay the damages awarded to its much larger competitors. Maybe Vonage can navigate all these problems and become a serious player in the phone market. If not, the dial tone for Vonage may go silent.

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* UPDATE: Yesterday an appeals court overturned one count and upheld two counts in the patent infringement ruling against Vonage in the Verizon case. More details available here:

Vonage loses appeal in Verizon patent case

** CORRECTION: In the story just cited, Vonage says that it has completed workarounds that allow it to operate without the Verizon-infringing technology. My mistake.

More context: This BusinessWeek item

Vonage’s Prospects Dim

raises an interesting question that I was just discussing with a Hoover’s colleague this morning: If Vonage can’t keep going on its own, might a company like Sprint want to buy it? For all its troubles, Vonage has nearly 2.5 million customers to go along with last year’s revenue figure of $600 million. If the legal haze clears adequately, one of the bigger telcos might want to buy Vonage out and fold its service offerings into their own.

This Good Morning Silicon Valley item from the estimable John Murrell quotes a Mercury News story that quotes an Internet industry insider as saying this:

“There’s not a lot of a zero-sum games, but there’s only one home page. There’s only one thing that is the first thing you see.”

The context is the (presumed) contest between Microsoft and Google for the right to buy an expensive chunk of Facebook, which serves as the home page — and locus of online operations — for zillions of hip Web users.

But here’s my more-than-a-grain of salt: Just how important is a home page? Is it any more important than the channel that happens to be on when you turn on your t.v.? Possibly I’m just misguided about this because I often have nothing as my home page and because I routinely start my online day by opening a raft of preset links all at once in Firefox. So I start my day with Hoover’s (of course), plus three e-mail accounts, plus my RSS reader, plus . . . well, there’s a bunch of stuff. Yeah, I check Facebook every day, too, but that usually comes somewhat later in the day.

Am I that weird? Or is a home page still that meaningful? To me it just seems to be a very 1998 concern.

Mind you, none of this should keep Microsoft and Google from ponying up for Facebook, which looks like a heck of an investment/partner from where I sit. But is the home-page real-estate issue a good reason why they should pony up?

Corporate blogging has opened up all kinds of cans of worms in the past few years. I, for one, think this is all to the good, since it helps to surface issues that otherwise remain unspoken. Henry Blodget at Silicon Alley Insider points out that this is exactly what’s happening to AOL vice chairman Ted Leonsis — whether Leonsis likes it or not.

AOL’s Leonsis: AOL is Great. AOL Staff: No, We’re Not

Give it a read.

Just when you think you’re gonna have a long, juicy union strike . . . labor and management negotiate sensibly and approve a new contract. Bad for me and the rest of the journos who love to have juicy stories like that to carve into — but good for GM and the UAW.

Anyway, today’s Company of the Day is General Motors. More context for their new union contract here.

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There was a time when General Motors bestrode not just its own industry but all industry like a Colossus. GM took the automotive crown from the long-dominant Ford in the 1930s, after legendary CEO Alfred Sloan created the GM brand portfolio that we know today. The company’s dominance continued for decades, but GM became set in its ways and often competed using its bulk and brute marketing force rather than quality or innovation. For example, it responded to the oil shocks of the early 1970s by building the largest cars in its history. While the boatlike El Dorados and Impalas from the period are classics of design, they didn’t respond so well to the needs of US consumers, who turned increasingly to fuel-efficient models from foreign upstarts like Toyota and Honda.

Fast-forward 30 years, and today GM faces a starkly different market. Toyota has eclipsed it as the world’s top car maker, and Detroit’s Big Three must all cope with their recent record of underperformance. That malaise stems in part from Detroit’s long history of insularity: until last year, every Big Three CEO ever had come from within the American automotive business. Ford and Chrysler broke that streak by hiring top executives from Boeing and Home Depot. Meanwhile, GM is led by company veteran Rick Wagoner, who faces the challenge of remaking his company to compete with the apparently superior manufacturing and management techniques of Toyota and other foreign competitors.

Wagoner’s task is [i.e.] complicated by the [then-]current negotiations — and strike — over its contract with the United Auto Workers. No one knows how long the UAW strike will last, but many industry watchers are estimating weeks at least. Yet any resolution to the union’s complaints may turn out to be hollow. Yes, GM is playing hardball in this negotiation — but it is doing so in response to deep structural issues in the American auto market as a whole. The long travail of the Big Three is far from done.

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Hoover’s EVP Russell Secker has done it — he ran across Germany!

He offers the details here.  More context here.

Congratulations, Russell!  Expect a hero’s welcome when you return!

Maybe the major airlines are simply immune to customer needs because the demand for air travel is so very high. But this is ridiculous:

No Limit for Waits on Runways

. . . James May, president of the Air Transport Association, the airlines’ lobbying group, in testimony prepared for today’s hearing that was released by his office, reiterated his group’s opposition to any time limit for stranded fliers. “Imposing an arbitrary time frame to deplane passengers will have numerous unintended consequences that are likely to increase cancellations and cause even greater delays,” his testimony said.

This entire story is worth reading if you do much travel with the big air carriers, or if you just want to see an example of an industry failing at a basic level to come to grips with the wishes and needs of its customers.

Mind you, I disagree with the implication of the Aviation Consumer Action Project representative (quoted elsewhere in the story) who wants some sort of definition of airline passengers “rights.” The term is overused in contexts like these, and while I wish the Transportation Department inspector-general’s report were stronger, I’m not sure how wise it would be for the Federal government to impose a rule about how long is too long for a plane to sit on a runway without taking off.

I am sure that the folks within the airline industry are handling this in a deeply stupid way. Mr. May’s comment, quoted above, makes sense if we’re talking about a delay of 60 minutes, or 90 minutes, or maybe even three hours. You don’t want to force JetBlue or American or Delta or whoever to return to a gate and deplane passengers at Minute #120 if they would otherwise be taking off at Minute #122.

But as the article reminds us, we’re not just talking about two- and three-hour delays — but delays of six and even nine hours. Nine hours sitting on a runway!

You’re telling me that the airlines can’t agree that, say, five hours is too long for passengers to sit on a runway? That no upper limit is acceptable? If a plane has already been sitting on a runway for five hours, the possibility that it will miss the chance to take off half an hour later is much, much less important than keeping the passengers on that plane from becoming even more furious about the delay. A voluntary four-hour cap, or a five-hour cap, or any cap, might do something to assuage passengers who are so far pretty much certain that the airlines are willing to treat them like garbage.

Why the airlines can’t grasp this is a mystery.