Airbnb’s Co-Founder Dishes on Major Overhaul to How Customers Book Lodging

Airbnb co-founder Nathan Blecharczyk has big plans for its new Airbnb Plus program.

On Thursday, Airbnb CEO Brian Chesky announced the program at a media event in San Francisco, pitching it as a more reliable way for booking temporary lodgings that meet the company’s standards. Those homes, which are inspected by Airbnb to make sure they meet certain criteria like cleanliness, will be featured higher in the company’s search rankings, and therefore more visible to users.

In an interview with Fortune, Blecharczyk, the company’s chief strategy officer, characterized Airbnb Plus as the company’s most important new feature.

“Here’s a set of properties that we actually sent someone to inspect,” he said about the difference between the typical homes people see on Airbnb and the 2,000 homes now featured in the Plus program.

To be accepted into the Plus program, homeowners must pay a $149 fee and adhere to a 100-point checklist of criteria like home cleanliness, overall design, and attractiveness. Airbnb has not said whether it would reimburse people who submit their homes for the Plus program, but are rejected.

Blecharczyk said that who the inspectors are varies by market, but that many of them have previously worked for the company as photographers. Airbnb uses contract photographers to take professional images of houses for homeowners for a fee if they want more appealing pictures for their listings. Now, Airbnb is going to arm those freelance photographers with checklists to note whether homes meet certain standards, he explained.

Airbnb developed the checklist through “customer research” and from what it learned from buying high-end rental company Luxury Retreats a year ago in a deal reportedly worth $300 million. Luxury Retreats had its own criteria for choosing resort villas and expensive retreats, and Airbnb adopted some of that for its Airbnb Plus checklist, Blecharczyk explained.

Homeowners accepted into the Airbnb Plus program would receive “premium customer support” that Blecharczyk said would consist of a dedicated customer service team, primarily consisting of outsourced workers.

Blecharczyk aims to have 75,000 homes showcased on Airbnb Plus by the end of the year.

About Chesky’s comments during the day that Airbnb would eventually debut luxury travel packages, Blecharczyk said the company is still figuring it out. Airbnb could create an online service for choosing the packages like they do with homes, or it could use live staff.

While these options are “not something we have talked about or announced,” they’re “certainly within the scope of our longer term vision,” Blecharczyk said.

One thing Blecharczyk is adamant about, however, it that while Airbnb may debut features intended to help people create vacation plans, the company doesn’t intend to become an online travel agency.

“Our storefront is really about selling what we call ‘magical trips,’” Blecharczyk said. He acknowledged that using the term “magic” to describe Airbnb could sound “funny” to some, but he believes it’s the appropriate word for the kinds of “local, unique, and authentic” stays Airbnb aims to deliver.

Finding a place to stay through Airbnb is not simply choosing a temporary roof over one’s head, but involves friendly locals inviting people to their homes and learning about each region’s customs and cultures, he said.

As an example, he cites an Airbnb rental he booked in Hawaii, where he bonded with a musician host who knew the Dalai Lama and showed him “his favorite fishing spot in Maui.” Trips like this wouldn’t be possible in more conventional kinds of lodging.

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Not everyone is happy about Airbnb’s new Plus program. The American Hotel and Lodging Association sent Fortune a comment about the overhaul, accusing Airbnb of “trying to play in the hoteling space while evading industry regulations. “

The association’s complaint is similar to the taxi industry’s stance on Uber and Lyft operating transportation services without adhering to the same regulations they do.

Venezuela says launch of 'petro' cryptocurrency raised $735 million

CARACAS (Reuters) – President Nicolas Maduro said Tuesday that Venezuela had received $735 million in the first day of a pre-sale of the country’s “petro” cryptocurrency, aimed at pulling the country out of an economic tailspin.

Maduro is hoping the petro will allow the ailing OPEC member to skirt U.S. sanctions as the bolivar currency plunges to record lows and it struggles with hyperinflation and a collapsing socialist economy.

Blockchain experts have warned the petro is unlikely to attract significant investment. Opposition leaders have said the sale constitutes an illegal debt issuance that circumvents Venezuela’s majority-opposition legislature, and the U.S. Treasury Department has warned it may violate sanctions levied last year.

Maduro did not give details about the initial investors and there was no evidence presented for his figure. He added that tourism, some gasoline sales and some oil transactions could be made in petro.

“Today, a cryptocurrency is being born that can take on Superman,” said Maduro, using the comic character to refer to the United States, as he was flanked by mining rigs in a state television address.

The official website for the petro on Tuesday published a guide to setting up a virtual wallet to hold the cryptocurrency. The cryptocurrency goes public next month.

Venezuela’s President Nicolas Maduro examines a cryptocurrency mining computer during the event launching the new Venezuelan cryptocurrency “Petro” in Caracas, Venezuela February 20, 2018. REUTERS/Marco Bello

Venezuelan Cryptocurrency Superintendent Carlos Vargas last week said the government was expecting to draw investment from investors in Turkey, Qatar, the United States and Europe.

The value of the entire petro issuance of 100 million tokens would be just over $6 billion, according to details given by Maduro in recent months, though no new price information was provided on Tuesday.

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The tokens will each be valued at and backed by a barrel of Venezuelan crude oil, Maduro has said.

Advisers working for the government have in the past recommended that 38.4 percent of the petros should be sold in a private auction at a discount of 60 percent.

Maduro says his government is the victim of an “economic war” led by opposition politicians with the help of the government of U.S. President Donald Trump.

Sanctions levied last year by Washington block U.S. banks and investors from acquiring newly issued Venezuelan debt, effectively preventing the nation from borrowing abroad to bring in new hard currency or refinance existing debt.

The petro will not be a token on the Ethereum network, as was previously disclosed in a whitepaper provided by the government.

Reporting by Corina Pons and Girish Gupta; Editing by Meredith Mazzilli and Lisa Shumaker

You Won't Get Anywhere by Just Posting on Social Media

Why do so many business owners think that if you posting something on social media, people will flock to you, bang down your door, and buy everything you’re selling? Build it (or post it) and they will come is not accurate anymore, especially in 2018.

So why is all the focus put on what is being posted and nothing else? Because that’s what is easy to see. Everything else takes a little effort, but that’s the difference between treating your social media channels as billboards and using social media to actually socialize with potential customers and clients to generate leads. Whether it be Facebook, Instagram, or countless others social media channels–it’s time business owners pay attention to more. 

To provide customer service.

This is what gets a consumer to trust you. The time your manager takes to respond to questions and engage in conversation could (and should) drive sales.  

“Your social media is your storefront where customer relationships happen,” said Karla Campos, Founder of Social Media Sass, an influencer marketing company. “Sure you can have great graphics but if you are bad at customer service, it’s definitely going to have a negative effect on your business. We should pay attention to private messages, customer concerns, and customer sentiment.”

To time everything just right.

Strategy and timing are part of the full equation. Flexibility and going in a different direction while staying on point is a strong trait to have as a manager.

This means don’t schedule everything and call it a day. Be live. Be social in real time. When you’re watching your favorite show and see the hashtag to use on Twitter while watching means nothing if you’re watching the next day on DVR. You don’t want to be late to the party on social media when things are happening now.

To go beyond branding.

Basic brand knowledge, decent imagery, and good writing skills aren’t enough.

“Without the strategic pieces like targeting, creating profiles aligned with your ideal audience, regularly reading and responding to the analytics behind which posts engage (or don’t) and why (or why not), posting is not only a waste of time but a waste of money,” said Jamie Prince, founder of Flourish, an integrated communications agency. 

Facebook and Instagram offer great insights. There are also third-party resources you can use too, but why pay for them when the social media giants are telling you how people are reacting to your content for free? Seeing what people are liking, how they’re engaging with it, and when it’s all happening is vital for moving forward with your strategy.

To listen.

If you’re just pushing out content, you’re basically the social media equivalent of a person who won’t stop talking. (Who wants to listen to someone who only talks, and never listens or responds?)

Social media is not a billboard on the highway for people to drive by and look at. If someone posts a question, answer it. And don’t wait a week to do it. Answer it within 24 hours. Make it a point to log onto your accounts once a day to see what people are saying. They’re telling you what they like and don’t like by their interaction, or lack of, so listen.

To respond… and be social.

It is a two-way conversation with your audience, rather than a one-way conversation, that was owned in the past by traditional media.

“An effective and holistic social media strategy includes having a dialogue with your fans,” said Dian Oved, a marketing strategist behind Empower Digital who works to verify big names on social media. “Asking them questions, responding to comments, and paying attention to what is trending on social media is extremely important.”

To generate leads.

Remember when I said you can’t just post and think people will buy whatever you’re selling? That’s because people have been trying that for years. Now, you need to pay those platforms if you want to be seen, especially on Facebook.

Spending some money to create a good strategy with images or video and target your ideal customer or client online can bring in quality leads over time to nurture, then convert.

To work with others.

When you post on your platforms, you’re only reaching your audience. By teaming up with other brands who serve the same audience, you’re expanding your reach.

When you invite influencers or members of the media to post on their social media accounts about you by tagging you or promoting you in another way, it acts as a third-party endorsement. 

To look at data.

The great thing about social media, both organic use and paid, is the access to data. You can see what works, what doesn’t and modify your strategy.

“Even for the most creative brand needs to utilize data analysis tools, most of which are free,” said Monica Dimperio, Founder at Hashtag Lifestyle, an agency that connects luxury brands with influencers. 

Years ago, posting for the sake of posting may have worked. Today, social media is like a science and needs to be approached as the complex marketing giant it is.

How Augmented Reality is Transforming B2B Sales Process

The gap between someone’s expectations and reality is a persistent problem in the B2B sales world. Far too often, customers have a very different belief about what the product should be and what they receive. The result might be something that’s the wrong size, color, shape, or doesn’t function the way the customer expected. This unfortunate process leads to disappointment, inaccuracy, and painful revisions.

In other words, what the customer wants and what the company can do are often two incredibly different things. Buyers love endlessly customizable products and options, but salespeople often balk at this idea, believing that customization may interfere with inventory and cycle time metrics. Not every manufacturer can keep up with uniquely tailored goods for each customer. That’s why augmented reality and 3D visualization should play a vital role in the sales process.

Leveraging 3D & AR technologies are proving to be ideal for rapidly achieving customer confidence in the purchasing process. The more complex or spatially-oriented a product is, the riper it is to adopt a visual selling strategy. These applications offer customers a whole new world of immersive experience as they can see with their own eyes exactly what to expect. Allowing them to take part in the design means greater satisfaction, personalization, and loyalty.

The Power of Visual Configuration

Atlas Software, a cloud-based sales platform, says that visual configuration helps increase sales efficiency by 24%, boost conversation rates by 10%, and decrease the sales process by 30%. Furthermore, companies that have reached ‘digitally maturity’ yield 19% higher lead-conversion rates, 35% more quotes, 34% superior performance, and 105% larger deal size when compared to those who rely on outdated legacy systems and sales processes.

“Manufacturing is ripe for disruption from 3D and AR technology in the sale process because it allows customers to be immersed in a complex product without the time and expense that is tied to [a] physical product in brick and mortar environments,” said Atlas Software CEO, Marc Murphy.

Murphy believes that sales play an integral role in the Fourth Industrial Revolution (also called Industry 4.0) and it forces manufacturers to ask themselves how their investments are effectively changing the purchaser’s buying experience. 

Smartphone AR applications are quickly moving AR to the mainstream. Companies and sales teams will have to adapt to the market’s quickly changing demands and expectations as computer power and hardware is doing so to keep pace with visual platforms.

The next generation of manufacturing salespeople will need to leverage emerging technology–it’s the fuel for modern relevancy and growth. 

How To Track Elon Musk’s Roadster On Its Journey Towards Mars

The successful launch of the SpaceX Falcon Heavy earlier this month was a landmark technical achievement, but it has quickly come to be symbolized by something a bit sillier — the image of a red Tesla Roadster floating through space, with a dummy in a spacesuit behind the wheel.

The car and its passenger — known as Starman — were the test payload for the Falcon Heavy, and they’re now on a long journey out into the solar system. If you’re curious what that path looks like, an aerospace engineer and SpaceX admirer has put together a website that uses NASA data to track the Roadster’s course. It’s called Where Is Roadster?, and it’s fascinating, with both live data on the Roadster’s location and an interactive tool that shows its future course.

It’s often mentioned that the Roadster is “on its way to Mars,” which can give the impression that it’s making a beeline for the Red Planet. But the Roadster, like all things in the galaxy, is subject to the tug of gravity, so instead of a straight path, it’s tracing a long arc away from Earth and the sun.

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And the distances involved are truly vast. Right now, the Roadster is still much closer to Earth — 2.25 million miles away — than to Mars, 137.5 million miles away. Meanwhile, Mars is moving too, so when the Roadster first intersects its orbit this July, the planet itself will already be millions of miles away. After that, the Roadster will actually return to something close to Earth’s orbit, though again, Earth itself won’t be anywhere close.

According to the site’s data, which is taken from NASA’s Jet Propulsion Laboratory, the Roadster won’t actually be close to Mars until early October of 2020. And as far as we know, it doesn’t have any landing equipment or thrusters that would make it possible to actually get the car down to the surface.

Unless, of course, Elon Musk has another big secret up his sleeve.

Facebook faces big challenge to prevent future U.S. election meddling

SAN FRANCISCO/WASHINGTON (Reuters) – The Russian influence operation designed to tamper with the 2016 U.S. presidential election used a combination of old-school espionage tactics and 21st-century technologies that will not be easy to stop, even now that the methods have been exposed, experts said.

Social media companies, especially Facebook Inc and Twitter Inc, have been under heavy pressure to find ways of stopping what is often referred to as “information warfare” on their services.

The indictment of 13 Russian nationals on Friday, announced by U.S. Special Counsel Robert Mueller, made extensive use of records from Facebook and Instagram, according to people familiar with the matter.

Yet the combination of tactics revealed in the indictment, including the use of shell corporations and stolen IDs, deployment of virtual private networks to avoid online detection, and payments to unwitting Americans, suggests even a company as powerful as Facebook could struggle to stop such activities by itself as they happen.

U.S. spy agencies have said Russia would try to interfere in the 2018 midterm elections, again by using social media to spread propaganda.

“They can’t out of hand stop it, because it’s very difficult for them to trace those things,” said Ann Ravel, a former member of the U.S. Federal Election Commission. The clandestine purchase of advertising on the site through fake personas was particularly alarming, she said.

To know the identities of ad buyers, internet companies might need to duplicate the “know your customer” practices of banks and regularly share information with authorities, Ravel said.

Facebook has said it will start requiring thorough documentation from election-related advertisers to verify their identity and location, beginning with U.S. elections this year.

How extensive that vetting will be is unclear. “If you want to put up a theme page for a group, in the ordinary course you wouldn’t expect that a vendor like Facebook would require that sort of vetting,” said Dan Petalas, a former U.S. federal prosecutor.

“The indictment really details an elaborate scheme that would be difficult to identify,” he said.

Facebook said on Friday it was making “significant investments” to guard against future attacks and was working with the Federal Bureau of Investigation to deter election interference.

The Russians’ alleged campaign began with three weeks of reconnaissance in 2014, when two of them traveled to nine U.S. states, including Colorado and Michigan, according to the indictment. They were equipped with cameras, SIM cards, drop phones and, if needed, “evacuation scenarios,” the indictment says.

It describes the Kremlin-linked Internet Research Agency in St. Petersburg as an organized bureaucracy. It was backed by an annual budget of millions of dollars, employed hundreds of people and boasted several departments dedicated to specific projects, like search-engine optimization and graphics.

Even those who have demanded Facebook do more acknowledged on Friday it could do only so much.

“We each bear some responsibility for exercising good judgment and a healthy amount of skepticism when it comes to the things we read and share on social media,” Senator Mark Warner, the top Democrat on the Senate Intelligence Committee, said in a statement.

    The defendants are accused of stealing social security numbers of Americans to open up fraudulent accounts on digital payment system PayPal Holdings Inc. They purchased space on computer servers located within the United States to use virtual private networks to mask their identities and pose as Americans. 

Facebook could go further in monitoring its platform and adopt the process cryptocurrency firms use to verify bitcoin traders, said Jordan Lieberman, president of ad firm Audience Partners. But if Facebook raises the bar much higher, “It’s going to interrupt revenue flows and it’s absolutely going to cost them money.”

Reporting by David Ingram in San Francisco and Dustin Volz in Washington; Editing by Jonathan Weber and Lisa Shumaker

French start-up Sigfox faces 5G juggernaut in Internet of Things

PARIS (Reuters) – French start-up Sigfox, which builds networks to connect washing machines and other objects to the internet, says it is struggling to meet its growth targets due to high expectations for alternative, forthcoming 5G services.

The company, whose shareholders include French oil major Total and U.S. group Salesforce.com, missed its revenue target last year, CEO Ludovic Le Moan told Reuters on Wednesday, but it still sees good prospects for its technology and aims to break even in the fourth quarter of this year.

If it reaches that target, it could seek a stock market listing, Le Moan said in an interview.

Sigfox seeks to tap into the burgeoning so-called Internet of Things (IoT) sector where it faces competition from two other emerging networks: LoRa, backed by French telecom operator Orange and equipment maker Cisco Systems, and NB-IoT, which is backed by Japan’s Softbank.

These three companies’ wireless networks enable devices to transfer small volumes of data over a wide area while maintaining battery life over many years, whereas 5G services can carry much bigger volumes but cost a lot more.

“There’s a lot of noise around 5G these days,” Le Moan said.

Ludovic Le Moan, chief executive officer of French start-up Sigfox, poses before a news conference in Paris, France, February 14, 2018. REUTERS/Benoit Tessier

“But these technologies that are being put in place are much more costly,” he added. “For telecom players, this is all about generating new revenue.”

The first standards for 5G, the next generation of broadband mobile internet, were recently approved with first commercial offers expected in 2019 or 2020.

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The roll-out for 5G will cost billions of euros for each national market, compared with a few million for Sigfox’s IoT networks, Le Moan said.

Objects connected through Sigfox’s networks range from house alarms to public waste containers and water metres.

Set up in 2009, the Toulouse-based company generated revenues of 50 million euros in 2017, up from 32 million in 2016 but 10 million short of its initial target, Le Moan said.

Higher volume usage of IoT chips, such as those made by STMicroelectronics or Texas Instruments, will help drive down the cost of IoT chips to a few cents per unit, making the technology more attractive, he said.

Sigfox, which has raised more 270 million euros over the last seven years and has 380 staff, currently has 2.5 million connected objects on its networks, Le Moan said.

Reporting by Mathieu Rosemain; Editing by Susan Fenton

Who's Going to Buy the International Space Station?

For sale: orbiting space station. Room for eight. Fantastic views of Earth. Commercial opportunities for zero-g manufacturing, research lab, or floating hotel. Cost: $3 to 4 billion a year. Any takers?

President Trump’s new budget request, released Monday, directs NASA to leave behind the International Space Station and explore the moon as a first step toward reaching Mars. The spending plan ends funding of the International Space Station by 2025, replacing taxpayers’ money with revenue from private firms. It proposes $150 million to help get companies to transition to this brave new industrial park.

While NASA and space enthusiasts have been talking about privatizing the station for years, Monday’s announcement is the first time the idea has been officially endorsed by the White House. Advocates of a mission to Mars note that NASA is spending too much on keeping the ISS in orbit, and that it dilutes the mission of the space agency in terms of human space exploration. By putting an endpoint on US government involvement in the station, they argue, its new chapter can begin.

That means a lot to companies trying to attract customers who may want to take a gamble on setting up shop in orbit—using the space to develop new kinds of materials, test pharmaceuticals, or just provide a cool hideout for wealthy tourists.

“Not only is the administration saying, here’s our suggestion, let’s put in some budget money for companies to transition, but it also allows companies to raise money, and line up investors,” says Jeffrey Manber, CEO of Texas-based space logistics firm NanoRacks, which has sent more than 600 commercial and educational payloads to the station since 2009. Most are standardized mini-laboratories that plug directly into an existing equipment rack on the station. These small experiments rely on zero-gravity conditions on the ISS and are a testbed for a scaled-up manufacturing facility of the future.

Rather than selling the ISS to a big corporation (Boeing currently operates the station for NASA), Manber suggests splitting it up into pieces. There could be a space hotel in one orbital location, for example, with another one set up especially for manufacturing. “You could cannibalize the station,” he says. “If the goal is having a facility for manufacture of thin film silicon wafers, you don’t want a guy exercising on a bicycle next to it.”

NASA’s acting administrator Robert Lightfoot described the activity of these space-going ISS tenants during his budget announcement to employees at the Marshall Space Flight Center in Huntsville, Ala., on Monday. “While we head to the moon and ultimately to Mars, we need to be able to look back at low Earth orbit and see a vibrant economy, an economy that we have created and we’ve spurred with things like the International Space Station,” Lightfoot said. “This budget proposes to stimulate commercial industry opportunities in low Earth orbit by providing an off-ramp for government led operations on the space station.”

That might be a slow off-ramp. Many companies say they need time and money to shift from a government-run station to a new privately-operated one. That’s one reason why the new NASA budget proposal calls for $150 million in help to develop more access to the station.

“If they just flip the switch, it won’t work,” says Dylan Taylor, a space investor and founder of Space Angels, a venture capital firm that has invested in 50 space-related firms in the past few years. A five-year transition will help find a company that can keep things running, with the help of experienced NASA managers on call if something goes awry. “I would see one master logistics operator for resupply and scheduling,” Taylor says. “Then someone who is actually subdividing the volume of the space station to other operators who would use it for monetary purposes.”

Of course, there are two big problems with the above scenario. One, Congress likes the space station and has resisted calls to abandon it. Sen. Ted Cruz, Republican chair of the Senate Science Committee, said he hoped reports of ending station funding would “prove as unfounded as Bigfoot” and blamed it on “numbskulls” at the Office of Management and Budget.

“As a fiscal conservative, you know one of the dumbest things you can do is cancel programs after billions in investment when there is still serious usable life ahead,” Cruz said last week at the FAA Commercial Space Transportation Conference in Washington, DC.

Two, the ISS is actually a UN-style partnership. It was built and operated with help from Russia, Europe, Canada, and Japan, all of whom use the station to train their own astronauts, conduct biomedical research, and test new technology. Even though NASA has paid the lion’s share of the ISS costs over the past 20 years, those countries all pitched in money, astronauts, and rocket time—and it doesn’t appear that anyone at the White House or NASA asked them about this new privatization plan. Trump would have to shred (or renegotiate) multiple international agreements to privatize the ISS. So until both the foreign partners and Congress become convinced, the idea of a private space station will likely remain just that.

Watch Boston Dynamics’ SpotMini Robot Open a Door

You could argue that the door handle has had a disproportionate influence on modern robotics. It was the humanoids of the Darpa Robotics Challenge, after all, that were tasked with opening doors, and it was those machines that helped drive robots to where they are now.

Today Boston Dynamics posted a video of its SpotMini quadruped robot extending an arm out of its head to turn a handle. With the dexterity of a tray-carrying butler, it uses its foot to prop the door ajar, then elbows it all the way open for its (armless) SpotMini friend to walk through. At face value, it’s a pretty incredible feat. But it’s also an interesting twist in the quest to make robots that get along with a world built by and for humans. Maybe the Darpa Robotics Challenge had it wrong with humanoids after all, and the best robots for rescue operations will look nothing like humans—or any other animal, for that matter.

At the moment, humanoids are great at two things: Looking like humans and falling on their faces, as the Robotics Challenge showed so well. (Though one particular humanoid, Cassie, does much better in part because it doesn’t yet have an upper body to worry about yet.) Walking on two legs is a monumental challenge; that’s why Chimp, a vaguely humanoid machine that rolled on treads instead of lumbering on two legs, did so well.

And also why SpotMini has such promise. Humanoids should be inherently well-equipped to explore environments built for humans, what with all the stairs and such. But SpotMini has a leg up (sorry) here because four limbs are inherently more stable than two. Not to mention that it’s more energy efficient if you don’t have to constantly balance your machine to not fall on its face.

Plus, well, this bot technically has five limbs. This newest version of SpotMini marries the stability of a quadruped with the dexterity of a human. It’s a hybrid creature that shows the awesome power of robotics: Human engineers are inventing an incredible array of new species because they’re not bound by the rules of nature, just physics. Want to put an extra arm on a four-legged robot? Go ahead. And why not make Chimp roll instead of step, if that makes it more stable?

SpotMini is but one species in a robotic kingdom that is exploding with diversity. And it’s thanks in large part to door handles. Finally, a technology whose time has come.

Bananas Bots

  • Not to throw shade, but SpotMini has some competition for most impressive robotic feat. Just a few months ago, Boston Dynamics released this video of its two-legged Atlas robot doing … wait for it … a backflip.

  • Before that, the best it could do was bounce back after a solid kick from a mean-spirited human.

  • Guys, just in case it’s not clear: Please don’t kick the robots.

Used Cars Are Cheap, And That's Good For O'Reilly

In mid-January, when markets were still relatively calm, we published an article about O’Reilly and how it could benefit from the widening price gap between used and new cars that would lead to consumers keeping their cars a bit longer. We bought the stock, as we had mentioned, when it broke through a $260 resistance level. Since then, the stock has come back down to levels we think are once again a good buying opportunity. Below is the article in its entirety with an updated price chart below the original.

It’s a never ending battle of making your cars better and also trying to be better yourself. – Dale Earnhardt

Late last year, the lease on my car was expiring and I needed to make a decision on whether to lease another car, or exercise the option to buy my current car at the contractual residual value. At the time my car only had 27,000 miles, which, for a 2013 was quite low. Based on a back of the envelope valuation with the help of Kelley Blue Book, I decided to buy it.

Based on the surprisingly high value indicated by the Kelley Blue Book estimate, I wondered how the price/value of a used car compared to a new car and whether there might be periods when it was better to buy or lease new versus periods when it was better to buy a used car. It turns out there is.

The chart below shows the CPI Index for both new vehicles and used cars and trucks. As the two lines indicate, prices declined significantly during the recession, particularly for used vehicles. As we approached the end of the recession and jobs were being created, the price of both new and used vehicles started recovering. But used car pricing increased dramatically during this period. Partly because of a lack of financing options for new cars and partly because consumers were probably treading lightly after the worst recession since the early 1930s. From 2010 to mid-2014, price inflation for used cars remained above those of new cars – at least using 2008 as a base.

But the index for used car prices started trending downward and accelerated its downward trajectory in 2016, while new car pricing continued to creep higher. The result is that the cost of a new car today relative to a used car is at its widest spread in at least 10 years. Translation: used cars are cheap relative to new cars – and I’m assuming that leasing and buying is the same thing – after all, a lease is based on the sales price of the car.

So I started to think about investment ideas that would benefit from what I predict will be a slowdown in the purchases of new cars in favor of either keeping current cars longer or deciding to buy a used car instead. As I cross referenced our several equity screeners (Growth at Reasonable Price, Asymmetrical Return/Risk, and Dividend Growth), I came across O’Reilly Automotive Inc (ORLY)

Profile

O’Reilly Automotive, Inc. is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories. It primarily operates in the United States, with Texas and California as its largest markets with 670 and 530 stores in each. It operates a single business segment which involves supplying new and remanufactured automotive hard parts, maintenance items, and a complete line of automotive tools and professional service equipment. It offers its products to do-it-yourself (DIY) customers and Do-It-For-Me (DIFM) customers including professional mechanics, and service technicians.

Business Segment

O’Reilly operates in a single business segment supplying automotive aftermarket parts, tools, supplies, equipment and accessories to DIY and DIFM market segments in the United States. DIY customers are consumers who repair and work on their own cars. DIFM customers include commercial installers including auto repair shops, gas stations, fleet operators, parts resellers who provide installation and repair services, and car dealer service departments. In FY 2016, O’Reilly derived approximately 58% of its sales from DIY customers and 42% from the DIFM customer segment. The DIFM segment is expected to contribute a greater share of future growth because it is the least price-sensitive market.

When prices for parts rise, professional mechanics and service providers are less likely to change their demand and will pass along the added cost to the consumer. In the case of the DIY market, new cars are now too complicated for most owners to fix or maintain by themselves so they are more likely to take their car to the shop for needed repairs. Nonetheless, households and individuals remain the major market segment, contributing 61.5% of the industry’s revenue.

Source: IBISWorld

Strategy

O’Reilly operates through a “dual market strategy” which means that it serves both the DIY market and the DIFM market. Much of the company’s competitive edge is attributed to the successful execution of this dual market strategy. This strategy enables the company to target a larger customer base for automotive aftermarket parts, capitalize on existing retail and distribution infrastructure, and operate profitably in large markets and even in less dense areas that attract fewer competitors. Such a strategy also enhances the service levels offered to DIY customers because of its broad inventory and extensive product knowledge required by professional service providers whom O’Reilly also caters too.

Other sources of its competitive advantage include a strong distribution network and broad portfolio of widely known brands. It operates 27 regional distribution centers – 19 owned with a total of 10.6 million square feet. It also has five-night-a-week delivery via a company-owned fleet. As of June 30, 2017, the company had 4,934 stores in 47 states and over 75,000 employees. Its merchandise generally consists of nationally recognized, premium brands like AC Delco, Bosch, Armor All, Castrol, and many other high-quality brands.

In the coming years, O’Reilly intends to implement the following growth strategies: aggressively open new stores, grow sales in existing stores, pursue strategic acquisitions, enhance store design and location, and enhance its e-commerce website. The company is expanding its nationwide presence by opening new stores at a rapid rate. In 2017 alone, it opened 190 stores. The figure below illustrates O’Reilly’s aggressive nationwide expansion. As of December 2016, the company has also acquired 48 stores from Bond Auto Parts and plans to open 200 new stores in 2018.

Source: O’Reilly’s Investor Presentation

The company has also been investing heavily on technology. It is implementing a voice-picking technology in its distribution centers, rolling out routing software to improve logistic efficiencies, and making proven return-on-investment-based capital enhancement in material handling equipment such as conveyor systems, picking modules, and lift equipment.

In terms of marketing and sales, O’Reilly leverages television, radio, direct mail and newspaper advertisements, in-store and online promotions, and sporting event sponsorships. It also participates in cooperative advertising with its vendors. It sponsors nationally-televised races and more than 1,600 grassroots, local, and regional motorsport events in 47 states.

Recent Results

O’Reilly reported revenues of $8,5 billion in revenues for FY2016, an increase of 7.9% from FY2015. For the third quarter ended September 30, 2017, the company reported sales of $2.3 billion, operating income of $461M, and net income of $284M.

In nine months ended September 30, 2017, the company reported sales of $6,7 billion, operating income of $1,3 billion, and net income of $831K. It expects total revenue of $8.9 billion to $9.0 billion for FY2017.

For the past three years, O’Reilly has shown strong financial growth and the trend is expected to continue considering its aggressive expansion through additional stores and Bond Auto Parts stores acquisitions.

Source: Mergent Online

Analysis

O’Reilly doesn’t pay a dividend so it is probably not attractive for income-seeking investors. However, looking at the company’s financial progress over the years reveals some very attractive trends:

  • Margins across the board have increased. For example, gross margins increased from 44.5% to 52.6% over the last 10 years, while operating margins increased from 9% to 19.5%.
  • Return on equity has increased from 15% to over 83% on a trailing 12 month basis. The biggest driver of this increase was due to an increase in leverage, but asset turnover has also increased as has net profit margin.
  • Using supply chain financing, cash conversion cycle has been reduced to 5 days, better than all of its closest peers.

And some not so attractive trends:

  • Debt to Equity has increased from less than 1.5 in early 2017 to 4.7 as of September 30th, 2017. Times interest earned also decreased but is still at a very healthy 21x
  • Current ratio has steadily decreased from 1.25x to less than 1x
  • Cash from operations declined slightly from the year ago period.

Business Drivers

The key drivers of current and future demand of its products are number of miles driven, number of registered light vehicles, and unemployment rates. The primary business driver for the industry is total miles driven. With the lack of comprehensive mass transit in the U.S., the company expects modest improvements in total number of miles driven in the U.S. as supported by increasing number of registered vehicles and sustained employment levels. Moreover, declining gas prices since 2015 has contributed to the steep increase in the number of miles driven resulting in more vehicle wear and tear and rising demand for replacement and maintenance parts and tools. Likewise, the average age of vehicles increases due to constant scrappage rates (a rate of new car sales under the ten-year trend) and overall quality of vehicles. As the average age of vehicles increases, a larger percentage of the miles driven are outside of the manufacturer’s warranty period. These out-of-warrant older vehicles generate a stronger demand for aftermarket products especially in case of routine maintenance cycles and more frequent mechanical failures.

Given these demand drivers, the U.S. automotive aftermarket industry is expected to have strong growth in the coming years. According to industry estimates, the market is forecast to grow at a CAGR of 3% from 2016 to 2018, to reach a total value of $284 billion in 2018. O’Reilly should leverage this high growth in the market to generate revenues and profits.

Industry Analysis

The U.S. automobile parts retail industry has about 37,000 establishments (single-location and multiple-location companies) with combined annual revenue of $53 billion. With a CAGR of 3.4%, it is expected to grow at an estimated $273.4 billion according to Automotive Aftermarket Suppliers Association (AASA). O’Reilly claims that in this industry landscape, its addressable market amounts to $161 billion.

Source: IBISWorld

The U.S. industry is largely concentrated, with the ten largest companies accounting for about 50% of the market size. The 50 largest companies generate about 60% of the total industry revenue; four largest companies contributing about 45%.

Source: O’Reilly’s Investor Presentation

Outlook

Overall, O’Reilly is in a favorable position in light of the demand for used cars vs. new cars. The external key drivers (increased miles driven, favorable economic conditions, decreased price of gas, etc.) combined with its key strategies (dual market, aggressive expansion, selective acquisition) put the company in a strongly competitive position that will continue to boost its profitability.

Valuation

From a valuation perspective using a multiple analysis, ORLY looks attractive on a relative basis compared to peers as well as its own five-year average. As the chart below indicates, the current PE ratio of 22 is considerably lower than the high reached in late 2015 of 31.25, despite a steady increase in earnings per share.

We believe the stock is poised for additional earnings growth and multiple expansion and is well-positioned to benefit in the event of an economic downturn – one in which consumers may postpone their purchases of new vehicles.

Income Enhancement

There isn’t a very attractive option to use for enhancing income. However, for investors looking to generate some income from a position in ORLY who are willing to give up some upside, you may want to consider selling a call option expiring in January 2019, with a current bid of $22.70 and strike price of 280. Assuming a 100 share purchase to coincide with the sale of 1 contract (representing 100 shares), this would result in an estimated income yield from the option premium of around 1% – and if the stock is called, would result in an additional return of 10.6%.

There is also the possibility of the company buying back more shares, which has been the primary driver of a shareholder yield of 12% over the last 12 months.

Our Take

Despite our bullishness on the used car parts industry and ORLY’s improving financial performance, on a technical basis, the stock looks indecisive flirting with the $261 level and supported by $240. We would like to see some conviction to the upside before dipping a toe in and we are conscious of a possible pullback to the $240 level. We would be buyers on a breakthrough to the upside or a pullback to the $240 level. We bought when the price broke to the upside.

Today, the price of the stock is back down to $252 after once again testing the $240 level. We believe its another good entry point and this time, we expect the price to surpass the recent high of $280.

See, when you drive home today, you’ve got a big windshield on the front of your car. And you’ve got a little bitty rearview mirror. And the reason the windshield is so large and the rearview mirror so small is because what’s happened in your past is not near as important as what’s in your future. – Joel Osteen

End of Article

Disclaimer: Please note, this article is meant to identify an idea for further research and analysis and should not be taken as a recommendation to invest. It is intended only to provide information to interested parties. Readers should carefully consider their own investment objectives, risk tolerance, time horizon, tax situation, liquidity needs, and concentration levels, or contact their advisor to determine if any ideas presented here are appropriate for their unique circumstances.

  • Past performance is not an indicator of future performance.
  • Investing in any security has risks and readers should ensure they understand these risks before investing.
  • Real Estate Investment Trusts are subject to decreases in value, adverse economic conditions, overbuilding, competition, fluctuations in rental income, and fluctuations in property taxes and operating expenses.
  • This post is illustrative and educational and is not a specific offer of products or services.
  • Information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein, nor is the author compensated by any of the products mentioned.
  • Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the topics or subjects discussed.
  • Information presented is not believed to be exhaustive nor are all the risks associated with the topic of each article explicitly mentioned. Readers are cautioned to perform their own analysis or seek the advice of their financial advisor before making any investment decisions based on this information.
  • Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice and you are encouraged to consult your own lawyer, accountant, or other advisor before making any financial decision.
  • All expressions of opinion reflect the judgment of the author, which does not assume any duty to update any of the information
  • Any positive comments made by others should not be construed as an endorsement of the author’s abilities to act as an investment advisor.

Disclosure: I am/we are long ORLY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Salesforce investing $2 billion in Canada, as U.S. tech firms head north

SAN FRANCISCO (Reuters) – U.S. business software developer Salesforce.com Inc (CRM.N) will pump $2 billion into its Canadian business over the next five years, it said on Thursday, the latest major U.S. technology investment across the border since early 2017.

Toronto is a hub for artificial intelligence research and Canadian Prime Minister Justin Trudeau is visiting California this week in part to speak with U.S. technology chief executives. Canadian leaders have promoted their country’s immigration policies as an alternative to the Trump administration’s ban on travelers from some Muslim countries and restrictions on work permits for some foreigners.

A Canadian program allows businesses to get work permits for foreign workers in about two weeks.

Salesforce CEO Marc Benioff did not specify why the company chose Canada but he said, “Like you, we’re a city that values diversity, we value equality and we also value innovation. …We know we’ll be able to have a great business environment in Canada.”

The company did not respond to a question about whether the immigration policies in the two countries influenced the decision.

Salesforce said it would increase its Canadian office space, data center capacity and 1,000-strong workforce, without giving details.

“We know that being open to investment and highlighting our extraordinary diverse workforce that’s willing to work hard, innovate and create a future is what it’s all about,” said Trudeau on Thursday at Salesforce’s San Francisco offices.

Several other U.S. technology companies are expanding into their northern neighbor.

In May, Uber Technologies Inc [UBER.UL] said it would open a new artificial intelligence research hub in Toronto.

Alphabet Inc’s (GOOGL.O) DeepMind unit in July announced plans to open a research office in Edmonton, and Amazon.com Inc (AMZN.O) put Toronto on a short list of contenders for its $5 billion second headquarters.

Facebook Inc (FB.O) in September said it would expand its artificial intelligence research lab in Montreal, where Microsoft Corp (MSFT.O) also plans to double the size of its research lab.

Several tech entrepreneurs in Canada said the University of Toronto in particular was a draw, thanks to its research in machine learning and other artificial intelligence, and that businesses also could be certain they could hire anyone they wanted, given immigration policy.

“You want the best minds wherever they are,” said Mike McDerment, chief executive of FreshBooks, a Toronto firm that develops accounting software. “The fact that we have this open and inclusive culture, it’s a great advantage.”

Reporting by Salvador Rodriguez; Editing by Peter Henderson, Richard Chang and Lisa Shumaker

Canadian Prime Minister Justin Trudeau Really Wants Toronto to Get Amazon’s Second Headquarters

Canadian Prime Minister Justin Trudeau is pushing hard for Amazon to consider opening a second headquarters in Toronto.

Trudeau bragged on Thursday during a press event in San Francisco about what he considers are Toronto’s attractive qualities for the online retail and cloud computing giant’s planned new campus, a much coveted $5 billion prize that cities are trying to attract in what is an unusually public competition. Amazon previously said that its planned-second headquarters would eventually accommodate 50,000 workers.

“I think any investment into Canada would be a great thing, and obviously the Amazon (amzn) second headquarters would be a significant boom for any city that got it,” Trudeau said. “Toronto is a world-class city with an incredible workforce, tremendous diversity, all the kinds of advantages that Amazon has laid out that it’s looking for.”

“I certainly hope that we get that H2Q hub,” he added.

The prime minister’s comments come just hours before he is expected to meet with Amazon CEO Jeff Bezos as part of a mini-tour of several U.S. cities by the Canadian leader that includes San Francisco, Los Angeles, and Chicago. Trudeau is trying to garner support for the North American Free Trade Agreement and promote Canada as a country that welcomes U.S. tech companies setting up offices and hiring locals.

Amazon has narrowed down its search for second headquarters from 200 cities to 20 finalists, with the only non-U.S. city being Toronto. Other Canadian cities that have previously submitted bids include Montreal, Vancouver, and Calgary.

“I know that just as we supported all the different Canadian city bids, we are going to continue to demonstrate why we know Canada is such a great place to invest,” Trudeau said.

Trudeau’s stop in San Francisco also included meeting Salesforce (crm) CEO Marc Benioff to talk about diversity and equality issues, he said. Salesforce also said that it would spend $2 billion in Canada over a five-year period to hire Canadian workers and expand the company’s existing data centers in the country,

“That $2 billion is going to create a lot of great Canadian jobs, thousands of them,” Trudeau said.

Enterprise software startup AppDirect, which hosted Trudeau for the press event, also said that it would hire 300 Canadians and open a new Toronto office.

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Trudeau is heavily courting U.S. technology companies to open offices in Canada as a way to prevent home-grown tech workers from leaving the country for work in the U.S.

“Technology companies have been increasingly looking to Canada to lay down roots,” Trudeau said, referencing the recent openings of artificial intelligence research labs by companies like Google (goog), Microsoft (msft), and Facebook (fb) as examples.

Trudeau did not say what kinds of incentives the Canadian government is offering to U.S. technology companies to convince them to settle in the country, and instead pitched Canada’s “great talent” and the government’s investments in artificial intelligence.

“They’re not coming because of investments we offer, in most cases we haven’t,” said Trudeau.

Snapchat overhaul convinces investors it can fight Instagram

(Reuters) – Snapchat owner Snap Inc on Tuesday reported surging growth in users and revenue in its latest quarter, reviving hopes that it can survive competition with Facebook Inc’s Instagram and sending its shares up more than 20 percent.

Investor enthusiasm for the instant messaging application company faded after its initial public offering last year.

But the Venice, California-based firm said that customers were now staying longer on the Android version of its app, after software bugs were fixed, and advertisers were taking to an auction-based advertising system that made it cheaper and easier to buy ads.

Snapchat’s daily active users rose to 187 million in the quarter that ended Dec. 31 from 178 million in the third quarter, beating analysts’ average expectation of 184.2 million users, according to financial data and analytics firm FactSet.

Daily active users rose 18 percent from a year earlier, reversing a trend of slowing growth. The figure is closely watched by investors who hope user growth can be translated into advertising revenue.

Revenue rose 72 percent to $285.7 million, beating analysts’ expectations of $253.2 million as companies advertised more in the key holiday quarter.

Instagram, with more than twice the daily users of Snapchat and backed by Facebook’s large bank account, has threatened to stamp out its rival by copying features such as photo filters and disappearing slide shows.

Confidence that the two could coexist in the social media sector was shaken when Snapchat’s user growth stalled last year. Analysts, though, said that Snapchat appeared willing to look inward and try to fix problems rather than be distracted by Instagram.

“They are going to continue to be competitors, and Snap is doing a creditable job of competing for revenue,” analyst Michael Pachter of Wedbush Securities said.

Snapchat is courting advertisers in an internet ad market dominated by Facebook and Alphabet Inc’s Google, which together control half the market share, according to research firm eMarketer.

While Snapchat ads once were primarily bought by large brands with household names, revenue from smaller businesses more than doubled from the third quarter to the fourth, Chief Strategy Officer Imran Khan said on a conference call.

FILE PHOTO: A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange (NYSE) while waiting for Snap Inc. to post their IPO, in New York City, New York, U.S. on March 2, 2017. REUTERS/Lucas Jackson/File Photo

“We know that in order to truly scale our business, advertising on Snapchat has to be really easy,” Khan said.

Ad prices have fallen as Snapchat lets advertisers use self-serve software to buy, but the number of ad impressions was up more than 575 percent from a year earlier in the fourth quarter, Chief Financial Officer Drew Vollero said.

Vollero said more than 90 percent of ads were sold on Snapchat’s auction, which is capable of handling larger volume than a human sales staff, and the company tripled the number of advertisers buying there.

Shares traded at $17.09 after the bell, up 22 percent, and had traded even higher.

Amid concerns Snapchat would not be able to keep growing rapidly in the face of Instagram’s competition, Snap’s stock price had fallen by half from its $29.44 high after its initial public offering last year and not traded above the IPO price of $17 since July 10. Snap had not reported upbeat results since going public.

In addition to fixing bugs, the company is redesigning Snapchat to make it easier to use. Chief Executive Evan Spiegel said the new version had rolled out to 40 million users and would launch worldwide in the first quarter.

Acknowledging a perception that Snapchat is popular mainly among millennials, Spiegel said: “We believe that the redesign has also made our application simpler and easier to use, especially for older users.”

Snap posted a net loss of $350 million, or 28 cents per share, compared to a loss of $170 million, or 20 cents per share, a year earlier.

Excluding items, Snap reported a loss of 13 cents. Analysts on average expected a loss of 16 cents per share, according to Thomson Reuters I/B/E/S.

Revenue per user rose 46 percent from a year earlier to $1.53, while cost of revenue per user rose 5 percent to $1.02.

Still, the company expects its year-over-year revenue growth rate to moderate in the current quarter compared with the fourth quarter, Vollero said.

Reporting by David Ingram in San Francisco and Pushkala Aripaka in Bengaluru; Editing by Peter Henderson, Meredith Mazzilli, Anil D’Silva and Cynthia Osterman

Why Didn’t a Planned Safety System Stop Sunday’s Amtrak Crash?

In the wake of Sunday morning’s news about a fatal collision between Amtrak and CSX trains in South Carolina, you may have felt a sense of deja vu. That’s because the crash is the third Amtrak accident in as many months.

In late December, three people were killed when an Amtrak train derailed onto a highway in Seattle. Then in late January, a chartered Amtrak train carrying Republican lawmakers collided with a garbage truck and derailed, causing one fatality.

These recent accidents are part of a longer string of serious passenger train wrecks, the most dramatic of which was the 2015 derailment of a commuter train in Philadelphia, which killed eight. It’s important to point out that traveling by train is still far safer than driving in the U.S., but the rash of accidents demands the question — what’s going wrong?

There are at least two parts to that answer: human fallibility and systemic failures that reach all the way up to the federal government.

A common factor in many recent Amtrak accidents, including both the Seattle and Philadelphia derailments, has been trains exceeding posted speeds through curves or other low-speed areas, in some cases due to driver negligence. Way back in 2008, Congress mandated that passenger and freight railways reduce the risk of speeding by implementing a system called Positive Train Control, which would automatically intervene if trains were going too fast or at risk of collision.

The immediate cause of today’s accident, according to a National Transportation Safety Board press conference, was a switch that routed the Amtrak train onto a siding occupied by a CSX train, and an NTSB spokesperson made clear that a PTC system, if it were working as intended, should have prevented just this sort of crash. The status of PTC installation on the particular track in question isn’t yet clear, but according to the latest data CSX, which owns the track, has only installed PTC on 39% of its track.

Amtrak is actually doing a lot better than that, with PTC installed on 69% of its track. That’s despite the fact that the 2008 PTC mandate came with no funding for Amtrak, which relies on federal funds for system maintenance, to install the technology. Even highly profitable private freight lines argued that the original 2015 deadline was unrealistic, since the technology was still being developed when the original law passed. For its part, Amtrak has partly blamed the slowness of PTC implementation on difficulties obtaining wireless spectrum.

In 2015, Congress voted to extend the deadline for nationwide PTC implementation to the end of 2018, and some transit commentators are already blaming deadline waffling and failure to fund the system for the latest crash.

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The slow and inconsistent implementation of PTC is only one part of the infrastructure issues facing Amtrak, though. Its rails are also aging, and lack of maintenance has played a role in some recent derailments. Amtrak told the New York Times last December that it only realized the severity of track deterioration around New York’s Penn Station after a derailment in April of last year.

Amtrak’s infrastructure woes are part of a much broader decline in spending on airports, roads and rails across the U.S. since the early 1990s. President Donald Trump made major new infrastructure spending a plank of his 2016 campaign, but his newly unveiled plan has been criticized for being vague and underfunded.

Meanwhile, despite the administration’s rhetoric on infrastructure, Trump’s 2018 budget proposal cut federal Amtrak funding by 13%. And in December, the Trump administration pulled $13 billion in funding for Amtrak rail maintenance that had been earmarked by the Obama administration.

American investment in rail projects lags substantially compared to other developed nations. In recent years there has been hand-wringing that America is falling behind not only Japan and France, but even Turkey, China, and Russia in development of high-speed rail. Now, it seems we’re failing to even maintain our aging, inadequate rail systems to an acceptable level of safety.

​Open source is 20: How it changed programming and business forever

Every company in the world now uses open-source software. Microsoft, once its greatest enemy, is now an enthusiastic open supporter. Even Windows is now built using open-source techniques. And if you ever searched on Google, bought a book from Amazon, watched a movie on Netflix, or looked at your friend’s vacation pictures on Facebook, you’re an open-source user. Not bad for a technology approach that turns 20 on February 3.

Now, free software has been around since the first computers, but the philosophy of both free software and open source are both much newer. In the 1970s and 80s, companies rose up which sought to profit by making proprietary software. In the nascent PC world, no one even knew about free software. But, on the Internet, which was dominated by Unix and ITS systems, it was a different story.

In the late 70s, Richard M. Stallman, also known as RMS, then an MIT programmer, created a free printer utility based on its source code. But then a new laser printer arrived on the campus and he found he could no longer get the source code and so he couldn’t recreate the utility. The angry RMS created the concept of “Free Software.”

RMS’s goal was to create a free operating system, Hurd. To make this happen in September 1983, he announced the creation of the GNU project (GNU stands for GNU’s Not Unix — a recursive acronym). By January 1984, he was working full-time on the project. To help build it he created the grandfather of all free software/open-source compiler system GCC and other operating system utilities. Early in 1985, he published “The GNU Manifesto,” which was the founding charter of the free software movement and launched the Free Software Foundation (FSF).

This went well for a few years, but inevitably, RMS collided with proprietary companies. The company Unipress took the code to a variation of his EMACS programming editor and turned it into a proprietary program. RMS never wanted that to happen again so he created the GNU General Public License (GPL) in 1989. This was the first copyleft license. It gave users the right to use, copy, distribute, and modify a program’s source code. But if you make source code changes and distribute it to others, you must share the modified code. While there had been earlier free licenses, such as 1980’s four-clause BSD license, the GPL was the one that sparked the free-software, open-source revolution.

In 1997, Eric S. Raymond published his vital essay, “The Cathedral and the Bazaar.” In it, he showed the advantages of the free-software development methodologies using GCC, the Linux kernel, and his experiences with his own Fetchmail project as examples. This essay did more than show the advantages of free software. The programming principles he described led the way for both Agile development and DevOps. Twenty-first century programming owes a large debt to Raymond.

Like all revolutions, free software quickly divided its supporters. On one side, as John Mark Walker, open-source expert and Strategic Advisor at Glyptodon, recently wrote, “Free software is a social movement, with nary a hint of business interests — it exists in the realm of religion and philosophy. Free software is a way of life with a strong moral code.”

On the other were numerous people who wanted to bring “free software” to business. They would become the founders of “open source.” They argued that such phrases as “Free as in freedom” and “Free speech, not beer,” left most people confused about what that really meant for software.

The release of the Netscape web browser source code sparked a meeting of free software leaders and experts at a strategy session held on February 3rd, 1998 in Palo Alto, CA. There, Eric S. Raymond, Michael Tiemann, Todd Anderson, Jon “maddog” Hall, Larry Augustin, Sam Ockman, and Christine Peterson hammered out the first steps to open source.

Peterson created the “open-source term.” She remembered:

The introduction of the term “open source software” was a deliberate effort to make this field of endeavor more understandable to newcomers and to business, which was viewed as necessary to its spread to a broader community of users. The problem with the main earlier label, “free software,” was not its political connotations, but that — to newcomers — its seeming focus on price is distracting. A term was needed that focuses on the key issue of source code and that does not immediately confuse those new to the concept. The first term that came along at the right time and fulfilled these requirements was rapidly adopted: open source.

To help clarify what open source was, and wasn’t, Raymond and Bruce Perens founded the Open Source Initiative (OSI). Its purpose was, and still is, to define what are real open-source software licenses and what aren’t.

Stallman was enraged by open source. He wrote:

The two terms describe almost the same method/category of software, but they stand for

views based on fundamentally different values. Open source is a development methodology; free software is a social movement. For the free software movement, free software is an ethical imperative, essential respect for the users’ freedom. By contrast, the philosophy of open source considers issues in terms of how to make software ‘better’ — in a practical sense only. It says that non-free software is an inferior solution to the practical problem at hand. Most discussion of “open source” pays no attention to right and wrong, only to popularity and success.

He saw open source as kowtowing to business and taking the focus away from the personal freedom of being able to have free access to the code. Twenty years later, he’s still angry about it. In a recent e-mail to me, Stallman said, it is a “common error is connecting me or my work or free software in general with the term ‘Open Source.’ That is the slogan adopted in 1998 by people who reject the philosophy of the Free Software Movement.”

Philosophical conflicts aside, open source has indeed become the model for practical software development. Larry Augustin, CEO of SugarCRM, the open-source customer relationship management (CRM) Software-as-a-Service (SaaS), was one of the first to practice open-source in a commercial software business. Augustin showed that a successful business could be built on open-source software.

Other companies quickly embraced this model. Besides Linux companies such as Canonical, Red Hat and SUSE, technology businesses such as IBM and Oracle also adopted it. This, in turn, led to open source’s commercial success. More recently companies you would never think of for a moment as open-source businesses like Wal-Mart and Verizon, now rely on open-source programs and have their own open-source projects.

As Jim Zemlin, director of The Linux Foundation, observed in 2014:

A

new business model has emerged in which companies are joining together across industries to share development resources and build common open-source code bases on which they can differentiate their own products and services.

Today, Hall looked back and said “I look at ‘closed source’ as a blip in time.” Raymond is unsurprised at open-source’s success. In an e-mail interview, Raymond said, “Oh, yeah, it *has* been 20 years — and that’s not a big deal because we won most of the fights we needed to quite a while ago, like in the first decade after 1998.”

“Ever since,” he continued, “we’ve been mainly dealing with the problems of success rather than those of failure. And a whole new class of issues, like IoT devices without upgrade paths — doesn’t help so much for the software to be open if you can’t patch it.”

In other words, he concludes, “The reward of victory is often another set of battles.”

These are battles that open source is poised to win. Jim Whitehurst, Red Hat’s CEO and president told me:

The future of open source is bright. We are on the cusp of a new wave of innovation that will come about because information is being separated from physical objects thanks to the Internet of Things. Over the next decade, we will see entire industries based on open-source concepts, like the sharing of information and joint innovation, become mainstream. We’ll see this impact every sector, from non-profits, like healthcare, education and government, to global corporations who realize sharing information leads to better outcomes. Open and participative innovation will become a key part of increasing productivity around the world.

Others see open source extending beyond software development methods. Nick Hopman, Red Hat’s senior director of emerging technology practices, said:

Open-source is much more than just a process to develop and expose technology. Open-source is a catalyst to drive change in every facet of society — government, policy, medical diagnostics, process re-engineering, you name it — and can leverage open principles that have been perfected through the experiences of open-source software development to create communities that drive change and innovation. Looking forward, open-source will continue to drive technology innovation, but I am even more excited to see how it changes the world in ways we have yet to even consider.

Indeed. Open source has turned twenty, but its influence, and not just on software and business, will continue on for decades to come.

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Facebook Earnings Preview: What to Watch for on Wednesday

Facebook reports its fourth-quarter earnings on Wednesday afternoon and the social media giant is once again expected to post huge revenue growth.

The company’s mobile ad sales continue to ensure that Facebook’s financial performance is the picture of health even as other factors—including the spread of online misinformation, fake accounts, and concerns over the well-being of its own users—paint less of a rosy image of the company in the eyes of the world. In short, Facebook is making money hand-over-fist, but CEO Mark Zuckerberg still has plenty of concerns on his plate, including some that could be discussed on tomorrow’s earnings call.

Here are some things to look for when Facebook reports results from its most recent quarter on Wednesday.

Revenue growth, spending growth

Wall Street expects Facebook to report fourth-quarter revenue of roughly $12.55 billion, which would be up more than 42% over the same period in the previous year, while adjusted earnings per share are expected to jump by almost 38% to $1.94. While the social media giant’s primary financial lines are not expected to disappoint, one area that investors will be watching closely on Wednesday will be Facebook’s forecasted operating expenses for the rest of 2018. Last fall, the company’s announcement that it expected operating expenses to rise 45% to 60% in 2018—in part, due to increased spending on security measures, extra workers to police what’s posted on the service, and on original programmingcaused shares to drop briefly after the previous earnings report. Investors will undoubtedly be hoping to see Facebook lower that forecast.

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Algorithm changes

Facebook shares also took a hit earlier this month after the company announced its huge new changes to the service’s news feed, where Facebook will begin to show fewer posts from news organizations and marketers in favor of more content from users’ friends and family. The changes are sure to be a topic of discussion on Wednesday’s earnings call, as investors and analysts seek more detailed information about how the shift could affect Facebook’s bottom line, specifically with regard to its ad business. While some have reported that Facebook’s engagement rates have slipped of late, Zuckerberg said the recent moves are aimed at improving the quality of users’ experiences on the social network at a time when there are increasing concerns over social media’s effects on mental health.

And, speaking of news on Facebook, Zuckerberg also said recently that he wants to boost local news sources on users’ news feeds while also finding out about individuals’ most trusted news sources. So far, those in the news industry have been skeptical, including Fortune‘s Adam Lashinsky.

Progress on messaging and video

Zuckerberg said last year that he wants to move faster in monetizing messaging apps Facebook Messenger and WhatsApp, both of which have well over a billion monthly active users. Both apps have added a number of new features in the past year, including those aimed at getting users to engage with businesses online, so investors will be looking for some more optimism from Facebook on that front. Meanwhile, the company has invested a fair amount in its Watch online video platform, including landing original programming for the service, and Facebook may share some updates on how Watch is performing with users as part of its earnings report.

Most Americans wary of self-driving cars: Reuters/Ipsos poll

(Reuters) – Two-thirds of Americans are uncomfortable about the idea of riding in self-driving cars, according to a Reuters/Ipsos opinion poll, underscoring one of many challenges for companies spending billions of dollars on the development of autonomous vehicles.

While 27 percent of respondents said they would feel comfortable riding in a self-driving car, poll data indicated that most people were far more trusting of humans than robots and artificial intelligence under a variety of scenarios.

The Reuters/Ipsos poll found a wide disparity of opinion by gender and age, with men generally more comfortable than women about using self-driving vehicles and millennials more comfortable than baby boomers. (tmsnrt.rs/2DD4h4W)

Among men, 38 percent said they would feel comfortable riding in a self-driving car and 55 percent said they would not. Among women, only 16 percent said they would feel comfortable and 77 percent said they would not.

Among those skeptical of driverless cars was California resident Phoebe Barron. “I don’t want to be the first guinea pig,” she said in an interview.

Colorado resident Sonja Coy told Reuters she had a more positive view. Self-driving cars “are a great innovation and technology with a lot of potential,” she said.

“However, I‘m concerned with how liability will fall in the case of accidents, where there are both self-driving and regular cars on the road,” Coy said.

FILE PHOTO: Waymo unveils a self-driving Chrysler Pacifica minivan during the North American International Auto Show in Detroit, Michigan, U.S., January 8, 2017. REUTERS/Brendan McDermid/File Photo

Like most people, she said she had not yet ridden in a self-driving vehicle. Companies testing the vehicles in the United States and elsewhere have provided limited public access so far.

“We’re talking about abstract things that many people have not experienced firsthand,” said Jeremy Carlson, principal automotive analyst with IHS Markit.

Automotive and technology industry executives are pushing U.S. lawmakers to pass legislation that would loosen restrictions on testing and deploying self-driving cars. However, the legislation is currently stalled in the Senate.

In the meantime, companies from General Motors Co to Alphabet Inc’s Waymo are planning to deploy the first wave of self-driving vehicles over the next three years.

Industry officials and analysts have said providing convincing reassurances about safety is an urgent task for advocates of autonomous vehicle technology.

The Reuters/Ipsos poll was conducted in mid-January and collected responses from 2,592 adults.

Other recent surveys have also highlighted widespread doubts among U.S. consumers about self-driving cars, in the absence of any direct experience with them.

Reporting by Paul Lienert in Detroit; Additional reporting by Chris Kahn in New York; Editing by Tom Brown

Ford Paves a Path From Big Automaker to Big Operating System

In its 114-year history, Ford has been many kinds of automaker. A manufacturing innovator, a hawker of Mustang muscle, a pickup powerhouse. Now the company that helped put a car (or two) in every garage wants to be something else altogether: an operating system.

“With the power of AI and the rise of autonomous and connected vehicles, for the first time in a century, we have mobility technology that won’t just incrementally improve the old system but can completely disrupt it,” CEO Jim Hackett said in a keynote address at this year’s Consumer Electronics Show, trumpeting the pivot. “A total redesign of the surface transportation system with humans and community at the center.”

As Ford executives move to execute the plan, they unveiled yesterday a reorganization of the automaker’s young mobility business, with two acquisitions to help it along. It’s all in service of a new, very 21st century goal. Ford will put less effort into convincing people to plunk down their credit cards for personal cars (though that’s still important) and more into moving them from A to B, with a little Ford badge tacked onto whatever gets them there.

It’s a turbulent time for traditional automakers, which have to keep making money today while aggressively prepping for the market changes—carshare, ridehailing, self-driving—that will happen tomorrow. Ford’s news comes eight months after the company dismissed CEO Mark Fields in favor of Hackett, a former furniture exec who oversaw the formation of Ford’s mobility subsidiary—and promised a greater vision for the future. Earlier this week, the Detroit automaker posted disappointing quarterly profits. Ford blamed rising metal prices while CFO Bob Shanks said, “We have to be far fitter than we are.”

In lean times, every expenditure merits extra scrutiny. And while Ford Mobility President Marcy Klevorn did not disclose how much it spent on its new companies, she says they’re important steps on Ford’s path to becoming more than a big ol’ automaker. “We did an assessment of our strategy and what our gaps were and the speed we wanted to go,” she says. “We looked at where we thought we needed a really fast infusion of help.”

Still, it’s all a little woolly. The thing about being a platform that connects the world is that others have to agree to come aboard. So while Ford tries to woo partners—other carmakers, mobility companies like Uber or Lyft, carsharing companies, bikesharing providers, entire cities—the carmaking continues. Make money now, prep for tomorrow.

OK, let’s look at the details of this new arrangement for tomorrow. Acquisition A is Autonomic, a Palo Alto–based company with a cloud-based platform called … wait for it … the Transportation Mobility Cloud. Autonomic seeks to build a kind of iOS for cities, managing data and transactions between city-dwellers and agencies and companies that provide payment processing, route mapping, mass transit, and city infrastructure services. That sounds vague, because it is.

“By making all these different services available we have no idea what’s going to come so we’re super excited,” Autonomic CEO Sunny Madra told Fortune Thursday. Autonomic seeks to be the go-to platform for other car manufacturers, too, and Klevorn indicated Ford hopes to monetize its cloud service quickly. Somehow.

Acquisition B is TransLoc, a 14-year-old Durham, North Carolina–based company that makes software to help cities, corporate campuses, and universities manage their transportation systems, from traditional fixed-route service to on-demand ridehailing apps like Uber and Lyft. “Ford is interested in taking the streets back in the city, and getting more people out of single occupancy cars,” says CEO Doug Kaufman. “I think one of the reasons that we ended up with Ford and not some other suitor is because our missions are so aligned.” Ford’s execs said they would lean on TransLoc’s existing sales relationships with hundreds of cities and transit agencies to accelerate its platform plan.

Meanwhile, the company is restructuring its Ford Mobility subsidiary. Autonomic is moving into a new accelerator section called Ford X. The Mobility Business Group will handle microtranist service Chariot, car services app FordPass, and digital services. Mobility Platforms and Products will cover autonomous vehicle partnerships and transportation as a service. And a new mobility marketing group will sell it all to the world. (Argo AI, the autonomous vehicle developer that Ford plunked $1 billion into last year, is still technically an independent company.)

It’s close to a throw-it-all-see-what-sticks move, but it does show Ford is charting a different path into this new world than its great rival. General Motors, which acquired startup Cruise Automation in 2016, is all about the autonomous and electric vehicle, with self-driving Chevy Bolts testing on roads in Phoenix and San Francisco. It’s even starting to think about making actual, honest-to-goodness driverless vehicles, this month showing off a design for a steering wheel– and pedal-free EV, and touting plans to get the thing on the road by 2019. The company’s Maven service, which provides car rental and sharing in 11 American cities, could be a great, data-hoovering starting point for a delivery and ridesharing service. And GM employees in San Francisco are using Cruise Anywhere, an Uber-like platform, to catch rides in self-driving testing vehicles. But GM hasn’t as overtly attempted to partner with cities yet, and its broader mobility strategy is hazy. Will GM provide transportation services and not just an excellent autonomous, electric car? Can any American automaker do that?

Ford has been pretty consistent about its admittedly hazy vision for the future of mobility. (At least, consistent with its messaging.) “The bigger risk is doing nothing,” executive chairman Bill Ford told WIRED back in 2015, as he outlined a future where a single, digital ticket could buy you a ride on a car, taxi, subway, bus, or bicycle. “I am very confident that we can compete and morph into something quite different.” Now it’s time to deliver.


Pivot! Pivot!

iPhone software update spotlights Apple secrecy on battery health

(Reuters) – Apple Inc’s move on Wednesday to give iPhone owners information about the health of their batteries reverses the company’s longstanding refusal to make such information available directly on iPhones and iPads, even though battery health has long been easy to check on Apple’s Mac computers.

Apple said an update to its iOS operating system will show the phone’s battery health and recommend whether the battery needs to be replaced. It will also let users turn off a controversial piece of software that slows the phone’s performance in some situations when the battery is flagging.

Apple acknowledged in December that its software sometimes deliberately slows phones with weak batteries. Apple apologized and lowered the price of battery replacements in its stores from $79 to $29 for affected phones.

Critics say Apple has obfuscated the fact that a worn-out battery not only fails to hold a charge, it also degrades the phone’s performance. The company’s lack of transparency on the issue has pushed people to buy a new phone rather than a new battery, these people say.

“The battery wears out,” said Kyle Wiens, chief executive of iFixit, which publishes repair guides for iPhones and sells replacement parts. “They have been pretending like the battery doesn’t wear out. They’ve made billions of dollars on that pretense.”

Apple has always banned battery-health apps from the App Store for security reasons. While a few developers had found ways around the restrictions, their apps stopped showing a key piece of information – the “charge cycle count,” or how many times the battery has been drained and recharged – after a 2016 software update.

Rogerio Hirooka of Lirum Labs said his company’s app lost charge cycle counts in 2016 but can still provide information on charge capacity, which can be used to determine whether the battery is at the end of its life. He said a routine bug-fix for the app was rejected by Apple in December, just before Apple acknowledged the battery-slowing issue.

Apple rejected his app because it provides “potentially inaccurate diagnostic functionality” that could “mislead or confuse your users,” according to documents from the app review process seen by Reuters. Apple explains that “there is no publicly available infrastructure to support iOS diagnostic analysis,” according to the documents.

Apple declined to comment on why battery diagnosis is available on the Mac but not on the iPhone, or why it rejected the update to Hirooka’s app.

“That fact that they tell you (battery health) on the Mac but it’s a forbidden secret on the iPhone is crazy,” Wiens said.

All lithium ion batteries degrade over time. Until the software update announced Wednesday becomes available – and Apple has not given a specific date – the only way to check an iPhone battery is to take the device to an Apple Store or hook the phone up to a Mac computer running special third-party software.

Repair advocates have long criticized Apple and other technology companies for making batteries hard for users to access and replace. Apple has been lobbying against “right to repair” laws in several U.S. states that would require it to sell parts to independent repair shops.

Reporting by Stephen Nellis; Editing by Jonathan Weber and Leslie Adler

Alphabet unveils business unit devoted to cyber security

SAN FRANCISCO (Reuters) – Alphabet Inc launched a new business unit on Wednesday that will sell cyber security software to Fortune 500 companies, the latest move by the parent of Google to become a big player in corporate computing.

The new unit, dubbed Chronicle, is betting on the premise that machine learning software, a type of artificial intelligence, can sift and analyze massive stores of data to detect cyber threats more quickly and precisely than is possible with traditional methods.

Stephen Gillett, chief executive of Chronicle and a former top official at the cyber firm Symantec Corp, said access to Google’s expertise in automated data analysis would give the company an edge.

Alphabet’s big cash pile and existing customer relationships also make Chronicle a threat to security tools vendors such as Symantec, Palo Alto Networks Inc and Cylance Inc. The global cyber security market is worth nearly $100 billion, according to market researcher Gartner.

But analysts note that previous efforts by internet search and networking companies to get into the cyber security business have faltered.

“Being the heavy hitter and even having small teams spun out of that doesn’t translate to instant success,” said Avivah Litan, a vice president at Gartner.

Gillett, on a conference call, declined to specify how Chronicle’s technology works and would not give the exact number of companies testing the service. Chronicle also houses VirusTotal, a virus-scanning tool Google acquired in 2012 that charges for premium features.

The cyber security initiative reflects Alphabet’s desire to expand beyond its core online advertising business at Google and become a major player in enterprise computing technology. Google is a distant rival to Amazon.com Inc in cloud computing infrastructure and lags far behind Microsoft Corp in workplace productivity software.

Gillett, also a former Starbucks Corp chief information officer, said Chronicle aims to identify problems in seconds or minutes instead of hours or days.

The process would be aided by lowering customers’ data storage costs. Keeping years of logs can make the threat-detection process more effective, he said.

Gillett co-founded Chronicle in February 2016 with former Google cyber security leaders Shapor Naghibzadeh and Mike Wiacek. Gillett met them after becoming executive-in-residence at GV, Alphabet’s venture capital investment arm, in 2015.

Chronicle, based at Alphabet’s Mountain View, California, headquarters, becomes the third business spun out of the company’s “X” research lab and into the holding company – a process it calls “graduating.” It follows healthcare unit Verily and self-driving vehicle company Waymo. Alphabet has also acquired companies that operate under its umbrella, including thermostat maker Nest.

Astro Teller, the head of X known as the “captain of moonshoots,” said his team pursued cyber security technology after noticing that cyber attacks had become a “yeah, yeah” problem, as in, “Yeah, yeah, a lot of people have diabetes, there are things to manage it.”

“The real moonshot, which is still several years away, is predicting and deflecting cyber attacks before they infiltrate an organization’s network,” Teller said in a blog post.

Reporting by Paresh Dave; Editing by Jonathan Weber and Leslie Adler

Stay Safe from Killer Robots – In a Puddle

This article first appeared in Data Sheet, Fortune’s daily newsletter on the top tech news. Sign up here.

Artificial intelligence already is a top topic at this year’s World Economic Forum in Davos, Switzerland.

Monday night, amid a driving blizzard that snarled traffic around town, I hosted a small dinner featuring Carnegie Mellon University’s Justine Cassell. She is associate dean of technology, strategy, and impact at the university’s school of computer science, and an expert on the human role in artificial intelligence. Cassell let loose the best one-liner I’ve heard that combats Elon Musk’s fear that the robots will kill us all. “If you’re afraid of the android revolution,” she said, “just stand in a puddle. The robot will electrocute itself.” (She added: If you can’t find a puddle, just stand still for 40 minutes, the robot will run out of electricity.)

Tuesday morning I hosted another panel that featured the Stanford roboticist and machine-learning expert Fei-Fei Li. She is doing a stint at Google, working in its cloud business, and has admirably grasped the commercial aspects of her technical job quite well. She argues that “pre-data” companies can’t all of a sudden do AI themselves. The solution: Google Cloud, which would be happy to help.

***

Speaking of companies who want to come up to speed digitally and otherwise, I’m pleased to announce that later this year Fortune will launch its newest conference, Brainstorm Reinvent. Think of it as the mirror image of Brainstorm Tech in Aspen. Reinvent, which will be held Sept. 24-25 in Chicago, targets C-level executives in the industrial heartland, all of whom want to be on the right side of disruption. The founding sponsor of the event is McKinsey, the international consulting firm that’s keen to help non-tech-industry companies navigate these difficult straits. If you’d like to attend (or speak), drop me an email.

***

Monday I noted that the backlash against the tech giants would be a preoccupation of at least Silicon Valley executives in Davos. In that vein, I highly recommend an engaging, erudite, cleverly written, and amusing cover story in The Economist, “Silicon Valley, we have a problem.” Incidentally, of the three tech giants the article calls out the most for potential antitrust actions, Amazon (amzn), Facebook (fb) , and Google (googl), only the latter two are in Davos in force. In the magazine’s next tier, Microsoft (msft) has a Davos presence; Apple (aapl) and Netflix (nflx) do not.

***

Line of the day (so far) … Rachel Botsman, author of Who Can You Trust?: “Convenience is trumping trust.” This on a Davos panel with Google Chief Financial Officer Ruth Porat (whose company gives away a ton of information in return for its users’ data) and Dara Khosrowshahi (whose company’s trustworthiness has plummeted).

Netflix and Amazon Are Going Back to the Academy Awards This Year

Netflix scored its first-ever Academy Award nominations for a feature film on Tuesday morning, as the streaming giant’s push to compete against traditional Hollywood studios on the industry’s most glitzy stage picked up steam.

Netflix picked up four total Oscar nominations for its 2017 original film Mudbound, a drama set in the racially segregated U.S. South after World War II, including nods for the best adapted screenplay, cinematography, and original song (“Mighty River”) as well as a nomination for supporting actress Mary J. Blige. (And, one of those nominations even marked an Oscar-first: Rachel Morrison became the first female cinematographer ever nominated for an Academy Award in that category.) Netflix won its first Academy Award last year, for the documentary short White Helmets, but this marks the first time the streaming service has ever had one of its original feature films nominated for an Oscar.

The Academy of Motion Picture Arts and Sciences announced the latest batch of Oscar nominations early Tuesday morning. Netflix’s streaming rival, Amazon, received one Oscar nomination, for comedy The Big Sick‘s original screenplay, a year after the e-commerce giant won it’s first Academy Awards for the drama Manchester by the Sea.

Netflix also received three nominations in documentary film categories, including for Icarus and Strong Island in the Best Documentary Feature category, and for the documentary short Heroin(e). Meanwhile, Netflix acquired foreign language film nominee On Body And Soul, from Hungary, in November and the film will debut on the streaming service next month.

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Tuesday’s Oscar nominations are something of a culmination to what has already been a busy awards season for Netflix, which scored a dozen nominations at the 2018 Golden Globe Awards for Mudbound and multiple original TV series, including Stranger Things and The Crown.

However, in the end, Netflix walked away with only one Golden Globe win, for actor Aziz Ansari of the comedy series Master of None. So, while Mudbound has been a consistent nominee throughout Hollywood’s drawn-out awards season, the film has yet to take home any major hardware, which means Netflix may not actually get to hear the company’s name called on Oscars night.

The Oscar winners will be revealed at the 90th Academy Awards on March 4.

Beyond Crypto-Mania: Understanding The True Value of ​Blockchain

Given today’s blockchain bubble and stratospheric returns of many cyptocurrency ICOs, it is tempting to chase possible sky-high investments. Fear of missing out (FOMO) is real for most entrepreneurs. For many, it’s the late 1990s “dot com” boom all over again. There are scammers and charlatans all over the place during this Wild West phase and there is basically no regulation. Pump-and-dump schemes abound. In the crypto-markets, it is buyer beware.

But that is ok, because if you really want to profit from these technological innovations in the long run, your time may actually be better spent elsewhere. What is going on is the beginning of a critical change in how value is created and measured, made possible by the invention of blockchains, or perhaps more appropriately, distributed ledger technology (DLT).

I had an opportunity to speak with Jeremy Epstein, CEO of Never Stop Marketing and author of The CMO Primer for the Blockchain World. Some venture capital investors consider Epstein to be a “modern day unicorn” because of what he accomplished as the VP of Marketing during his time at Sprinklr. Specifically, during his tenure, the company grew from a Series A $23mm valuation with 30 employees to a Series E valuation of $1 Billion dollars with 700+ employees in 10 countries, serving 800+ enterprise brands.

Simply put, when a fellow marketer who helped grow a company to a valuation of over $1 Billion wants to talk about the future of technology, I listen … and I take really good notes.

A Quick Blockchain Primer

Epstein explained the core innovation of bitcoin, supported by the Bitcoin blockchain, is that it solves the “double spend” problem associated with digital technology.  When you get paid, you need to trust that the asset you are obtaining in return for your product or service will have value in the future. If the other person in the transaction can easily make a copy of the asset, then yours will not be unique. As such, its value will be less.

This is why it’s ok if we both have a picture of your dog or child, but it’s not ok if we both have the exact same $20 bill. So, by creating an immutable ledger, secured by a decentralized network, we all know who owns what at what time. This is what is called “consensus.”

In this world, when a transaction occurs and you send .002 Bitcoin or Ether or any crypto-token to another person, the entire network is made aware of the fact that an asset has changed hands, so it cannot be used or “spent” again.

There are some members of the network, called “miners,” who invest their time and money in the form of electricity and computing power, to verify that you have it in the first place and to ensure that, once you have signed the transaction with your private key, you no longer have it.

Once they have completed the process, there is a mathematically elegant way for them to secure the network and distribute the information to others.  For this work, they are rewarded with their own Bitcoins (or another token if they are using a different blockchain).

The key thing here is that each coin that is created (also called a “token”) is digitally unique, cannot be forged, and has a clear, indisputable owner.  If you have the private key, you own the coin.

Assets and Value, Secured by the Blockchain

The implication of all of this is that we now have a technology that can cost-effectively represent assets in a unique way. Since the assets are digital, they are fungible. You cannot own a fraction of a Picasso painting, but you can own .0000023 of the token that represents the Picasso painting. 

When you “tokenize” an asset and its uniqueness is undeniable, the asset has value. It may be large or small, but it is the only one of its kind in the world and that is worth something. Think about how many assets you currently have that are under-leveraged because the costs involved in buying, selling, or trading them are too high.  This could include unused hard-disk space on your computer, bandwidth at your home that lays dormant during the day, or the family heirloom painting that you do not want to sell but could provide some liquidity.  It’s possible that every asset will be “tokenized.”

The second implication is that asset control will stay with the creator until she decides to part with it. In the future, companies will have to pay you for the data they get for free today such as name, email address, phone numbers, and social media profiles. If you are the company, the same will be true of those you serve. If you want control of an asset, whether it is for a marketing campaign or a data feed to improve your crops, you will have to buy or rent it from the owner.

Finally, because these assets are digital, it means that they can be programmed, like a computer. The business and legal rules that currently surround an asset in the form of documents and contracts can be applied to the asset itself to govern its use.

The three things you need to understand in order to prepare for the transformative power of Blockchains are:

  1. Asset Tokenization in ever smaller increments
  2. Asset Ownership that is clear and indisputable
  3. Asset Programmability that can reduce transaction times

Amidst all of the hype of crypto, these are the implications of blockchain’s arrival that are really going to change things up.

It Won’t Be Here Tomorrow, But It Is Coming

Blockchains are in their infancy and there are plenty of issues ranging from stability to security to interoperability, among others. The cryptocurrency craze is just a signal that the genie is officially out of the bottle. Whether you buy Bitcoin, Ether, Zcash, ARK or other tokens, is up to you. It may well be worth some of your time to understand them. The real value for you is to start looking at how your business might change if every asset is tokenized, owned by its creator, and digitally programmable. These impacts are especially important if you are just starting out in 2018.

5 Hard Lessons I Learned My First Year As A Startup Founder

Almost a year ago, to date, I convinced one of my closest friends, Drew Reggie, to quit his job and join me on my entrepreneurship crusade. 

I had left my job in advertising just a few months prior, and was making a comfortable living as a freelance writer. He was about to finish getting his MBA, and verbally clear about his lack of excitement for what the future held: a high-paying cubicle job at a major company.

“I want to build something,” he said. “You know, with employees. And financials. I don’t want to freelance–I want to build a company.”

“Why won’t you take the leap with me, then?” I asked–dozens of times over. “With the money we’ve saved up, do you really think we won’t figure something out in a year?”

12 months later, and we’ve built a full-time team and successful company beyond our wildest dreams.

Digital Press, a name that came from one of many apartment-balcony-and-coffee conversations, was our attempt to empower more of the world’s smartest people to share what they know. We work exclusively with carefully selected CEOs, serial entrepreneurs, investors and venture capitalists (primarily at the helm of businesses doing $10M to $300M in revenue) to share their hard-earned insight with the Internet. None of that atrocious writing PR firms peddle as acumen. None of the ad-speak and jargon nobody finds helpful. Just the hard lessons learned–and the personal stories of how these successful people learned those lessons the hard way. 

So, as a founder, I’d like to share some of the hard lessons I’ve learned over the past year, building Digital Press from ground zero.  

Lesson #1: You know nothing (and that’s okay).

I was extremely, extremely fortunate to have had a mentor for years before taking the entrepreneurial leap. Friend and fellow Inc Columnist, Ron Gibori, taught me more about life and business than I could have ever asked to learn on my own. But even after 4 years of mentorship, I can still admit that what I “knew” was still just theory.

I hadn’t felt it yet.

Before I took the leap, he told me, “When everything turns to chaos, as the founder, you have to bring the calm.”

I didn’t understand what that meant until I started to feel the realities of building a company with other people’s livelihoods at stake.

Entrepreneurship has humbled me. And I find it humbles a lot of young founders, who set off to change the world, only to feel the weight of their aspirations and realize it doesn’t happen overnight. 

All that theory means nothing until you’ve been in the trenches. So, be passionate. Set out to do something big. But remember, you won’t truly know until you can say, “I’ve been there.” 

Lesson #2: Entrepreneurship without personal development is a disaster.

I’ll be completely honest: a year into real entrepreneurship and I am astounded at how little the business world talks about the value of personal development.

I have done a lot in my 27 young years of being on this earth. I was a professional gamer as a teenager. I was a bodybuilder in college. But nothing, and I mean nothing, has tested me like entrepreneurship. It wears on you in ways I imagine fatherhood wears on a man.

All throughout the year, I found myself in moments where I would hyper-focus on the business, lose sight of myself, and then things in my life would crumble. Personal relationships. Health. Emotional well-being. Everything took a toll, all because I felt like my business was my child–and I would go whatever distance to see it succeed.

This is unhealthy. And the moments you push too hard, you end up causing more damage than good.

I know I will be an entrepreneur for the rest of my life. There’s no going back now. I am forever changed. But if there’s one thing I really hope to do for the entrepreneurial community along my journey, it’s start larger dialogues about the importance of personal development while building a business.

If you lose yourself in the process, your company will suffer. 

Lesson #3: Cash is your gasoline.

I feel extremely fortunate to have other successful business leaders in my life that have passed along words of wisdom. But one of the most important (and you learn this real fast as a startup founder) is the value of cash.

I have always been frugal, but entrepreneurship made me see the money I had as so much more than just a “savings account.” Money started to have dozens of meanings: the ability to survive, the ability to innovate, the future of the company itself.

Without cash, your company dies. 

Before we came up with the idea for Digital Press, we ate into our savings accounts. We helped each other cover our expenses. And the moment things clicked and we began to build a profitable business, we both shared the exact same mindset: “Keep as much cash in the company as possible.”

I feel like this is one of those lessons you hear, and can even understand on a theoretical level, but it’s not until you start adding employees and see your monthly payroll go up and up, that you truly understand. 

Cash is your gasoline. And you don’t want to find yourself on the open road on an empty tank.

Lesson #4: The burden of opportunity is a real burden.

A good problem to have–but a problem nonetheless.

As an entrepreneur, one of the worst things you can do is chase too many rabbits at once. I have struggled with this through every aspect of my life, because when you’re curious about the world you want to explore it all.

Part of what allows a business to flourish, especially in record time, is simplicity. As another mentor of mine, Aaron Webber, would tell me: “Simplicity is velocity.”

The moments we tried to build in too many directions at once, we failed. We overworked ourselves. We got burned out, even discouraged. 

But the times we were able to focus on improving one or two things at a time, we flew. 

This is a lesson that fundamentally changed how I think about, not just business, but every pursuit in life. 

One thing at a time. 

Lesson #5: Entrepreneurship is lonely.

Since not very many other people seem to want to admit this, I guess I will.

Entrepreneurship is lonely. Nobody will ever know how hard you work at what you do. Nobody will give you the acknowledgment or the “pat on the back” you feel you deserve. Nobody will sit there, cheering you on, day in and day out. Nobody else will take the fall when you mess up. Nobody will be able to tell you which direction is right or wrong. 

Entrepreneurship is lonely because, by definition, entrepreneurship means choosing to go “your own way.” 

This took me a while to really accept, and also emotionally address within myself. Not only will your efforts go unacknowledged by the vast majority of people in your life (at least, to the degree you’re expecting to be acknowledged), but at every step you are going to feel like you’re letting someone down.

If you aren’t letting your significant other down because you’ve been working for 17 straight hours, then you’re letting your friend down for not calling them back, and you’re letting your co-founder down by not responding to an issue fast enough, and you’re letting your employees down by not getting them what they need that day–and you’re letting yourself down for not being able to do it all.

This is one of the hardest, most brutal truths about entrepreneurship:

In the process of trying to be great, you will fail at almost everything. 

And do you know what? That’s okay.

Because at the end of the day, all you can do is your best–and then wake up the next day and try again, and again, and again.

Facebook, Twitter Take New Steps to Combat Fake News and Manipulation

Facebook and Twitter both revealed on Friday more about how they plan to deal with the spread of fake news and propaganda on their services.

Facebook said that it would ask its users to tell it which news sources they read and trust to help it decide which ones should be featured more prominently. These responses will help “shift the balance of news you see towards sources that are determined to be trusted by the community,” CEO Mark Zuckerberg explained in a Facebook post.

Meanwhile, Twitter said in a blog post that it would email nearly 678,000 users that may have inadvertently interacted with now-suspended accounts believed to have been linked to a Russian propaganda outfit called the Internet Research Agency (IRA).

The announcements come amid intense scrutiny by U.S. lawmakers over both Facebook and Twitter’s role in letting Russians and others spread misinformation during the 2016 presidential election. The goal, according to U.S. intelligence agencies, was to divide Americans on politically charged issues like race, religion, and gun control.

Zuckerberg announced the Facebook news just days after his company said it would revamp its news feed to show users more family-friendly posts from friends or acquaintances that Facebook believes will spur more user interaction.

“There’s too much sensationalism, misinformation and polarization in the world today,” Zuckerberg said about the polling of users about the sites they have confidence in. “Social media enables people to spread information faster than ever before, and if we don’t specifically tackle these problems, then we end up amplifying them.”

He added: “This update will not change the amount of news you see on Facebook. It will only shift the balance of news you see towards sources that are determined to be trusted by the community.”

It’s unclear how Facebook’s shift will solve the problem of so-called filter bubbles, in which people only see information that aligns with their existing beliefs. Some raised the possibility that crowd sourcing the list of credible news outlets could be manipulated.

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For its part, Twitter minimized the impact of the Russian-linked accounts, saying that they merely represented “two one-hundredths of a percent (0.016%) of the total accounts on Twitter at the time.”

“However, any such activity represents a challenge to democratic societies everywhere, and we’re committed to continuing to work on this important issue,” Twitter said.

Twitter has said that it had discovered 3,814 IRA-connected accounts in total, including 1,062 accounts that it uncovered just recently. It said it had also identified 50,258 bot accounts linked to the Russian government that spread misinformation during the 2016 election, including 13,512 accounts found just recently.

Intel: Problem in patches for Spectre, Meltdown extends to newer chips

(Reuters) – Data center computers with Intel Corp’s (INTC.O) newer chips might reboot more often than normal because of problems with the patches issued to fix the so-called Spectre and Meltdown security flaws, the company said on Wednesday.

Intel confirmed that patches for the security flaws can cause higher-than-expected reboot rates in Ivy Bridge, Sandy Bridge, Skylake and Kaby Lake processors, said Navin Shenoy, general manager of the data center group, in a statement on Intel’s website.

The Kaby Lake chips are the company’s most recent offering.

Last week, Intel said it had received reports that its security patches were causing problems in systems with its older Broadwell and Haswell chips.

Shenoy said that Intel had issued patches for 90 percent of Intel chips released in the past five years but that the company had “more work to do.” He also said the company would send out initial versions of fixes for the buggy patches to customers by next week.

“We have reproduced these issues internally and are making progress toward identifying the root cause,” Shenoy wrote.

On Jan. 3 Intel confirmed that the Spectre and Meltdown flaws affected its chips, potentially letting hackers steal information believed to be very secure.

The Spectre flaw affected nearly every modern computing device, including those with chips from Intel, Advanced Micro Devices Inc (AMD.O) and ARM Holdings.

Intel on Wednesday also quantified how much of a performance hit the patches cause for data center customers. For common tasks such as running website servers, the patches caused a 2 percent slowdown, Intel said. Another test that simulated online transactions at a stock brokerage showed a 4 percent slowdown, the company said.

For some types for work involving servers that store large amounts of data and try to retrieve it quickly, the company said the slowdown could be as severe as 18 percent to 25 percent. However, it wasn’t immediately clear how common those situations were.

Reporting by Stephen Nellis; editing by Grant McCool

Tesla's Model 3: Unprecedented Price Performance Means Unprecedented Sales

Tesla’s (TSLA) all-electric Model 3 sedan is receiving glowing reviews. The Drive’s Alex Roy spent 50 hours with the car over four days and had this to say: “…it’s far more than a car. It’s a work of art, a concept car come to life, more revelatory than the Model S, and historically even more important. “

Jalopnik and Doug DeMuro echoed the view that the Model 3 is a unique car — futuristic and exciting. Road & Track called it an “unexpected delight” to drive. Motor Trend called it “magic.”

But here’s the kicker: the base model of the Model 3, priced at $35,000, is estimated to have an unsubsidized five-year total cost of ownership only $4,200, or 13% more than a base model Toyota (TM) Camry. For over a decade, the Camry has been the best-selling sedan in the United States. The Camry is generally regarded as a utilitarian vehicle rather than “magic” or a “work of art.”

Photo by Carl Quinn.

The Model 3’s unprecedentedly low total cost of ownership

In my somewhat subjective estimation — backed up by several impartial car reviewers — the Model 3 offers greater quality than an ordinary entry-level luxury car like the BMW (OTCPK:BMWYY) 3 Series at a total cost of ownership not far from a utilitarian, mass market car like the Toyota Camry. This is an unprecedented level of price performance.

Total cost of ownership includes the full costs of owning a vehicle, including energy costs (i.e. electricity or gasoline), service and maintenance, and insurance. It’s a better apples-to-apples comparison of the cost of an electric car vs. a gasoline car than sticker price due to the considerably lower costs of running an electric vehicle.

The comparison to the Toyota Camry comes from Loup Ventures partner Gene Munster, known for betting on Apple (AAPL) as an analyst at Piper Jaffray. Another comparison by YouTubers Two Bit da Vinci produces similar results. They compare the Model 3 to the Honda (HMC) Civic. They find that the unsubsidized five-year total cost of ownership for the Model 3 is only $3,400 or 14% higher than for the Honda Civic, a much more utilitarian car.

They also compare the Model 3 to the BMW 330i, a car with a similar level of luxury, at best equal driving performance, and inferior technology. They estimate the 330i’s total cost of ownership at $17,450 higher than the Model 3s. That’s 62% higher for a car that is about the same or worse.

Two Bit da Vinci notes that beyond their fifth year, the maintenance cost for gasoline cars increases significantly with several parts requiring replacement. Not so for electric cars. Over a seven-year or eight-year timeframe, the cost comparison is likely even more favorable to the Model 3.

A newer gasoline car can survive for 200,000 miles before it needs to be scrapped. Data from the Tesla Model S shows that an electric car can drive 150,000 miles with minimal battery degradation. One taxi driver drove 250,000 miles in his Model S and lost only 7% of his original battery life. Based on this data, electric cars are expected to have much longer lifetimes than gasoline cars, perhaps as much as 500,000 miles.

This makes the total cost of ownership comparison extremely favorable over a 15-year timeframe. After 15 years, a Model 3 may still be running smoothly while a gasoline car is long gone. The same goes for cases of high utilization such as taxis or ride-hailing services. Looking ahead to autonomous ride-hailing, self-driving electric cars will savagely outcompete self-driving gasoline cars.

Photo by Seungho Yang.

Low cost of ownership means high sales

The Model 3 offers a BMW-like experience for a Toyota Camry-like cost. For this reason, I believe that demand for the Model 3 will be like nothing the automotive industry has seen in recent decades. Research has shown that consumers are responsive to the total cost of ownership of vehicles, not just sticker price.

Venture capitalist Chamath Palihapitiya argues that BMW 3 Series sales will be decimated by the Model 3. Gene Munster speculates that Tesla could sell 2.75 million Model 3s per year by 2025. I don’t know if these predictions are correct, but they are certainly not unreasonable given the unprecedented level of price-performance the Model 3 offers. Many consumers will wonder why they would want to buy any other car.

Some analysts are gravely underestimating the level of consumer enthusiasm specifically for this car, and not for lackluster electric compliance cars like GM’s (GM) Chevy Bolt or future me-too offerings. Tesla has advantages in software, design, and battery pack economies of scale that competitors show no signs of overcoming.

Most recently, Tesla stores in San Francisco and LA were swarmed when the first Model 3s were put on display. Some waited over an hour in line just to see the car up-close for a few minutes. This did not occur for the Chevy Bolt, or any other car in memory for that matter.

The best advertising for the Model 3 will be knowing someone who drives one, especially someone as enthusiastic as the 455,000 people who held a reservation as of August 2. I expect that demand will greatly increase over time as more people learn about the car. Another factor driving increased demand will be the development of Enhanced Autopilot and more advanced autonomy features.

Photo by Andrew Wilder.

Revenue and market cap implications

If Gene Munster is correct in his speculation that Tesla will sell 2.75 million Model 3s per year by 2025, the company will generate $105 billion in annual revenue from that one vehicle alone. Assuming an equal amount of revenue from the Model Y crossover, that would be $210 billion between the two vehicles, plus $9 billion for the Model S and X.

At an auto industry average 0.52 price/sales ratio, $219 billion in revenue would yield a market cap of $114 billion, up 42% from September’s all-time high of $65.5 billion. At an S&P 500 historical average 1.47 price/sales ratio, Tesla’s market cap would be $322 billion. That’s an increase of over 490% from the all-time high. Remember, these calculations exclude revenue from all other vehicles and lines of business, including solar and energy storage.

I think the 2025 timeframe is too long for two reasons. First, by 2025 there is a good chance that autonomous ride-hailing will affect overall vehicle demand in a way that Munster is not accounting for. Second, it doesn’t help us to think about what sales will be like in the Model 3s first few years on the market. What factors prevent sales from reaching 2.75 million per year in three years, rather than in seven?

The bottom line is that although it is difficult to predict the future in much detail, I can say with high confidence that the Model 3 will break sales records as soon as the limiting factor is demand, not production. Once production ramps to meet demand, I would be surprised if it is not the best-selling sedan in the United States.

An alternative way to model future revenue and market cap is through the autonomous ride-hailing business. Suppose Tesla produces just 5 million cars with self-driving hardware over the seven years from 2018 to 2025, an average production of 714,000 cars per year. Suppose that each self-driving vehicle replaces five conventional vehicles. Given 1-2 billion passenger vehicles on the road globally (estimates vary widely), that means there is a need for a 200 million to 400 million self-driving vehicles. 5 million cars would be only a 1.25% to 2.5% share of the eventual install base.

Source: ARK Invest.

I’m assuming that each self-driving car will replace the driving of five people, putting average annual paid miles per vehicle at 82,750. Using ARK Invest’s estimated price of 35 cents per mile, that’s about $29,000 in revenue per vehicle per year. Assuming the same net margin on this revenue as the taxi and limousine industry’s 31%, that’s about $9,000 in net profit per car per year. Across 5 million cars, that comes to about $45 billion in annual net profit. The historical price/earnings ratio of the S&P 500 is 15.7. At this ratio, $45 billion in earnings would yield a market cap of $706 billion. That’s over 10x growth from Tesla’s all-time high.

Conclusion

The main obstacle to the Model 3 achieving a high sales volume is achieving a high production volume. Product risk is low and execution risk is moderate or high. In my view, Tesla is unlikely to run out of cash due to its large cash balance ($3.5 billion as of the end of Q3), improving cash flow from Model 3 production, and its proven historical ability to raise funds in a second offering when needed.

Motor Trend calls the Model 3 “the most important vehicle of the century.” Many observers fail to see what is new about the Model 3. It’s not just another electric car like the Chevy Bolt. It’s not just another entry-level luxury car like the BMW 330i. It’s a breakthrough in price-performance that will generate unprecedented consumer interest, and that breakthrough will be hard for competitors to replicate.

Disclosure: I am/we are long TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Spotify IPO: What You Need to Know About This Unusual Event

The initial public offering of Spotify, the music-streaming service, is almost here.

What is expected to be the largest tech IPO of 2018—it’s certainly the most anticipated—will likely take place in late March or April.

Spotify plans to list on the New York Stock Exchange—but there’s a catch. Instead of a traditional IPO that makes shares available to the general public, Stockholm-based Spotify will opt to directly list on the exchange, making its shares available only to institutional investors and eliminating the need for underwriters, a.k.a. the banks that set an initial price, connect sellers and buyers, and provide the cash necessary to stabilize the stock. Some people have already called it a “non-IPO.”

The move could shake up Wall Street. IPOs are usually a lucrative business for investment banks, but in the last few years revenues from equity capital market (ECM) fees have dropped.

Spotify paid just $30 million in ECM fees to three banks: Goldman Sachs Group Inc., Morgan Stanley and Allen & Co. Those institutions will perform some of the traditional tasks expected of them, but in a less prominent way.

Why the novel strategy? Spotify can buck tradition because, though it’s not yet turning a profit, it is earning cash, and it is not planning on raising more revenue from investors. Spotify, as measured by either its subscription service or its ad-supported free version, is the most popular music streaming service, according to the New York Times.

Commentators say it’s a good time for Spotify to go public. The company has 60 million paying subscribers, just renegotiated long-term licensing deals with three major record labels, and is valued at about $15 billion. (It is, however, facing a copyright suit from Wixen Music Publishing, filed in late December 2017.)

The Wall Street Journal says that due to other companies’ need for cash, “it is far from guaranteed” that more will follow Spotify’s lead. However, according to Bloomberg, Spotify “could create a new model for growth companies in which they raise all their money in private markets and do all their trading in public ones, with some small variations.”

Whatever the case, Wall Street will be watching.

Don't Stop at the Close: Selling Across the Full Customer Lifecycle

Recently, I went through the process of choosing a new SaaS product for my agency (out of respect for all involved, I’m keeping the name of the company and the kind of product they sell confidential).

I researched several providers and talked to sales reps from each – this was a big-ticket purchase, so I wanted to be sure I had as much information as possible. After a few weeks, I thought I’d made the right decision.

The problems started shortly after. My support tickets took an average of 3-5 days to get a response. I couldn’t get emails back from my “dedicated” account rep (who then bailed on one of our two hour-long onboarding calls and never responded to my requests for an update).

I felt let down. The product itself may have been the right solution for our needs, but the poor onboarding support I received left me with so much post-purchase regret that I wound up cancelling the contract and moving to a different provider.

The sale was lost, and it had nothing to do with the salespeople involved.

Why Selling Shouldn’t Stop at the Close

To be clear, I’m not talking about the trap of overselling – of continuing to pitch your product’s features and benefits after your prospect has agreed to buy. As Nick Kane of the Janek Performance Group notes on overselling:

“What this tells your customer is that you don’t ‘get’ them. Not only is this sales mentality out of date, it’s also one of the easiest ways to turn off your customer – and worse yet – risk losing any future sales opportunities.”

Instead, what I’m arguing is that, after the close, customer relationships shouldn’t be thought of as “done.” Closing a sale doesn’t guarantee a happy customer – let alone one who’s going to go on to refer your company to others.

A full lifecycle program of sales needs to take two factors into consideration: proper onboarding, and the conversion of customers into advocates.

Onboarding As Sales

I’d argue that onboarding – the activities taken after a purchase to get new customers up to speed – should be treated as part of the sales process.

Too many salespeople “pass the buck” after the deal is done, assuming that account reps, customer service or other pre-established funnels will help customers get from the point of purchase to the initial “aha moment.”

This ignores the fact that, during the post-purchase period, new customers are – consciously and subconsciously – evaluating whether or not they made the right choice. Research by Seung Hwan Lee and June Cotte of the University of Western Ontario, Canada, published by the Association for Consumer Research, suggests that there are actually four distinct types of post-purchase consumer regret:

  • Regret due to foregone alternatives (e.g. regret that one alternative was chosen over another)
  • Regret due to a change in significance (e.g. regret that the impact of the chosen solution isn’t as significant as expected)
  • Regret due to under-consideration (e.g. regret that too little time was invested in choosing between alternatives)
  • Regret due to over-consideration (e.g. regret that too much time was put into the decision-making process)

A poor onboarding experience can contribute to the first two types of post-purchase regret, which Lee and Cotte describe as “outcome regret” (versus “process regret”).

  • If customers aren’t trained appropriately or brought up to speed quickly, they may believe that a different alternative would have led to better results.
  • Similarly, if they aren’t shown how to quickly get value from their purchase, they may view its overall significance as being less than its actual potential.

If post-purchase regret is left unaddressed, both of these scenarios can lead to cancellations and refund requests (as in the case of the SaaS purchase I described earlier). Even if money isn’t lost as the result of poor onboarding, it’s missed indirectly when would-be happy customers aren’t converted into advocates for your company.

Selling the Referral

Brian Williams Ph.D. of The Brevet Group shares the following two statistics:

  • Salespeople who actively seek out and exploit referrals earn 4 to 5 times more than those who don’t.
  • 91% of customers say they’d give referrals. Only 11% of salespeople ask for referrals.

Basically, salespeople and the companies they work for benefit financially from referrals. But while most people are willing to give them, they’re rarely asked to. That’s an even bigger problem when you consider that Nielsen research has found that “people are 4 times more likely to buy when referred by a friend.”

“Referrals” can take a number of different forms, including everything from asking satisfied customers for referrals to others who would benefit, to a formally-structured peer-to-peer referral program like RewardStream or ReferralSaaSquatch.

The specifics of the program you put in place will vary based on your company’s needs, but at a minimum should include:

  • Sufficient onboarding to ensure new customers are happy with their purchases
  • A mechanism for separating out happy customers from those who aren’t likely to make referrals (this can be done with a simple NPS survey)
  • An incentive for customers to initiate a referral, which can be altruistic (as in, “If you know anybody else we could help…”) or benefits-driven (for example, “Refer a customer and save 20% off your next purchase…”) in nature
  • A process baked into sales to ensure referrals are asked for, and the specific elements of the referral process are evaluated often

Simply put, sales can’t be hands-off after the deal is done. Without attention paid to customers’ needs in the post-purchase phase of their lifecycle, the financial risk of returns, cancellations and missed referrals can be significant. Treating onboarding as part of the sales process and implementing a referral-driving workflow leads to happier customers and better results for your company.

Does your sales process stop at the close? If so, share your ideas for extending sales throughout the full customer lifecycle by leaving me a note below:

How the False Hawaii Missile Warning Could Have Happened

As the citizens of Hawaii came out of hiding in their bathtubs and basements Saturday morning, after learning that the emergency alert they had received, warning of an imminent nuclear missile attack, was a false alarm, their fear and panic transformed into rage.

“I’m extremely angry right now. People should lose their jobs if this was an error,” Hawaii State Representative Matt Lopresti told CNN.

Hawaii Senator Brian Schatz confirmed on Twitter that the alert, which said that a ballistic missile was inbound to Hawaii and urged people to seek shelter, was sent due to “human error.” The initial alert went out at 8:07 am, but it wasn’t until 8:43 am that the state sent a second alert, announcing it was a false alarm. Governor David Ige told CNN, “An employee pushed the wrong button.”

Could it really be that the emergency alert system is so simplistic, it only takes the twitch of a finger to send Hawaii into terror and chaos?

Photo courtesy Ashley Shaffer

Yes. During a press conference Saturday afternoon, the governor and officials at the Hawaii Emergency Management Agency confirmed that the blunder occurred during a twice-daily test that happens when staffers switch shifts. In this case, the staffer accidentally selected a live alert, instead of a test alert. After the alert went out, there was no way to automatically cancel or recall the message. Instead, they took to Twitter to tell the public the alert was a false alarm, but it took a full 38 minutes to manually generate and disseminate another corrective emergency alert that reached all Hawaiians. Officials said they’re now working on speeding up that feature.1

“We’ve already implemented some actions to speed up the process so the public would be notified faster,” Ige said.

The Integrated Public Alert and Warning System, or IPAWS, manages both the emergency alerts you get on your phone and the national emergency alert system, which broadcasts to television stations. According to Retired Admiral David Simpson, former chief of the FCC’s Public Safety and Homeland Security Bureau, the system uses a web interface with multiple servers that cache preloaded messages about different types of emergencies, from states across the country.

“It’s a regular PC interface. This person probably had a mouse and a dropdown menu of the kind of alert messages you can send,” and selected the wrong one, Simpson says.

In a statement to WIRED, the Federal Emergency Management Agency, which operates IPAWS, said it is working with local authorities and the FCC to gather “more details to understand how this occurred and how to prevent such occurrences in the future.” FCC chairman Ajit Pai tweeted that the commission is investigating as well.

Those pre-loaded emergency alerts, scary as they may seem, are necessary, says Thomas Karako, a senior fellow at the Center for Strategic and International Studies. “It’s critical we have this kind of early warning system.”

Simpson agrees: “You don’t want to be in the middle of a attack on the US and have someone fumbling around with the message.” It’s also natural to conduct exercises to ensure the system is functioning. The problem in this case, Simpson says, is any exercise message should begin with the words, “EXERCISE EXERCISE EXERCISE.”

“This was probably a state-run emergency exercise that doesn’t have the strong controls that DoD has learned the hard way from 50 years of screwing up,” Simpson says.

Where Were the Feds?

In the event of an actual attack, the first government agency to initiate an alert would be the North American Air Defense Command, or NORAD, which is located in a cave in the Rocky Mountains in Colorado Springs. Open 24 hours a day, seven days a week, its staffers—known as watch standers—monitor a global network of sensors that can detect a missile launch. If it detects a missile en route to Hawaii, NORAD would send a message to Pacific Command, which would in turn alert the state emergency management center.

That’s why, says Simpson, the biggest question of all may be what the federal government was doing after the alert went out. The Emergency Alert System, which predated Wireless Emergency Alerts, was created with the specific goal of letting the president communicate with the country in the event of a nuclear attack. The US has spent billions of dollars maintaining this system, and yet, 38 minutes went by before Hawaii sent a second message, acknowledging the false alarm. The president, or any of the federal agencies with access to the emergency alert system, could have corrected the record much sooner.

“We paid big bucks to the DoD and provide very good capabilities to the president to communicate directly to the nation. Where’s the accountability there for not piping up immediately?” Simpson says. “I think that’s going to wind up ultimately being the scandal. Where were they with all of this?”

In a statement Saturday afternoon, White House deputy press secretary Lindsay Walters put the blame on Hawaii. “The President has been briefed on the state of Hawaii’s emergency management exercise. This was purely a state exercise.”

While numerous questions remain about the federal government’s response, Hawaii’s excruciatingly long panic sends several clear messages about ways to improve IPAWS. Though all 50 states use it, not all local governments are part of the voluntary system, leaving some cities without a uniform way to alert their citizens of a local threat. And it’s possible not all emergency management centers are giving their staffers uniform, adequate training. In some cases, Simpson says, those emergency centers only staff up when a threat appears imminent.

“There’s nowhere near the professionalism there on the national security side of things,” Simpson says.

Perhaps the most critical issue this false alarm highlights is the need for a firewall between the test mode and live mode in the emergency response interface. In the DoD’s version of the system, Simpson says, that separation exists. It appears that was not the case in Hawaii. The Hawaii emergency management officials also noted the obvious need for a better way to recall accidental messages.

As terrifying as this false alarm may have been, experts say it’s critical for governments to continue to test these systems so that they’re adequately prepared if and when the time comes to use them. During the wildfires in California last year, several counties declined to send alerts for fear of sowing panic, and instead, left their citizens wholly unprepared for the fires’ spread.

“My big fear is this has been such a bad experience states will be afraid to use alerting now. But the opposite should occur. They should get in and conduct tests and exercises,” Simpson says. “But do so using the right controls.”

Louise Matsakis contributed reporting.

1Story updated at 18:45 ET on Saturday, January 13 to include information from the press conference.