Open Book Solutions

Nokia Revises Market Share Numbers

Nokia’s cell phone market share in 2009 wasn’t as big as the company previously announced. Nokia said its products accounted for 34% of the global market for cell phones, compared with 38% previously announced. The company blamed a flood of Chinese and fake phones -- devices often marketed under a brand close to Nokia's but manufactured by others.

The revision underscores the rising occurrence of so-called gray-market products, which are typically made by small Chinese start-ups and sold throughout Asia and Latin America. Knock-offs and small unlicensed suppliers' phones accounted for 13% of the global phone supply, or 145 million units, last year, consultant iSuppli said last November. In 2009, their sales rose 44% over 2008, according to iSuppli. On March 12, Nokia estimated that such suppliers sold 120,000 units last year.

Vote for Tech's Best Young Entreprenuers

Once again, the tech team at BusinessWeek is preparing our annual list of the best under-30 entrepreneurs. Who would you put on our list of the brightest young stars in the tech industry? Check out our online poll and nominate who you think are the most deserving start-up founders.

We've written about well-known entrepreneurs like Aaron Patzer, Bret Taylor, Christophe Bisciglia, and Max Ventilla in past reports, so we're looking for fresh faces. Tell us your nominees by March 19. We'll publish a report based on the results in late April.

Analyst: Google Still Censoring, Less Likely to Leave China

Google made plenty of noise with its January announcement that the company was “no longer willing to continue censoring” its Web search results in China at the behest of that country’s policies. But nearly two months later, the company has not followed through on the threat and is less likely to shut its Chinese site, according to a recent study by analysts at Piper Jaffray.

Searches done on ten “sensitive” keywords in the Mandarin language on Google.cn, the company’s Chinese search site, yielded 52% fewer results than searches for the same keywords on the uncensored, English-language site, the analysts said in a research report on March 5. That confirms the censors are still in effect. And there may actually be a higher level of filtering on Google.cn now than there was in January, when Piper Jaffray found 40% fewer search results on the censored search engine for the same ten keywords.

The likelihood that Google will shutter Google.cn has diminished to 50% from 70%, Piper Jaffray analyst Gene Munster writes in a research note.

The results of this study are line with reports that the company’s executives are in talks with Chinese officials, and are waiting to lift censorship in the country until the parties reach some resolution. Google employs hundreds of people in its Beijing offices, and some analysts take recent actions – such as looking to hire new workers there and introducing new mobile products – as signals that it intends to keep operating in the country to some capacity.

Still, it’s unclear how Google and China could reach a compromise, as the search giant remains resolute in its ultimatum. Google deputy general counsel Nicole Wong t Google vice president and deputy general counsel Nicole Wong told the US Senate Judiciary Committee on March 3 that the company is "firm in our decision that we will not censor our search results in China and we are working towards that end."

Google's Smart Captioning Move

Google’s captioning initiative has now expanded to all uploaded English-speaking videos, with more languages to be added later this year.

By Guest Blogger Suzanne Robitaille

Ah, video and search. Frank Sinatra said it best: Try, try, try to separate them – it’s an illusion. Here’s proof of that: Speech Technology. This week, Google sealed the deal on video search capabilities for its YouTube portal, saying it would provide auto-captions for all of its uploaded videos using proprietary Google's Speech Technology.

Google’s initiative, piloted in November, began with a handful of partner channels including PBS, Stanford University and National Geographic. It has now expanded to all uploaded English-speaking videos, with more languages to be added later this year.

With this news, Google establishes itself as a frontrunner in the Internet programming space. As a company built on search, search, and more search, Google is now able to capitalize on its investment in speech-to-text technology to index videos, target advertising and create an actual profit margin for YouTube. In fact, video search is likely why Google acquired YouTube in the first place.

The bigger news is that auto-captions will have clear benefits for the deaf and hearing-impaired population, who now will be able to better understand dialogue on uploaded videos. Up to now, this group had to rely on the goodwill of YouTube users to manually add captions to their videos. A time-consuming process, most users didn’t bother to do so.

At a press conference on Thursday, YouTube says accessibility is a key goal for the years to come. Even as Google touts a serious business purpose for auto-captions – search -- it’s not hard to also believe in their commitment to making their products and services more usable for more of their customers.

Furthermore, Google is now removed from any ill will associated with Internet programming issues – such as the ones plaguing network and cable broadcasters. On March 17, the Federal Communications Commission will unveil a proposed broadband plan that is designed to ensure, or at least improve, equal access to Web TV and movie programming for people with disabilities, which could including requiring captions.

Meanwhile, a House congressional committee is mulling the Twenty-first Century Communications and Video Accessibility Act of 2009 that would make captions for the deaf and audio descriptions for the blind into law for Internet broadcasters. The bill is backed by nearly 240 disability organizations known as the Coalition of Organizations for Accessible Technology.

TV broadcasters – unlike Google – already have transcripts available to them – either on paper or in the form of regular TV closed captions, which have been required for almost all programming since 1990. And ABC has publicly committed to captioning all long-form content – so the heat is on everyone else.

While YouTube videos are technically outside of the FCC’s realm, consumers don’t see it that way – and they shouldn’t. That makes Google’s auto-captioning move financially savvy, and buys them consumer altruism at a time when broadcasters are facing down a potentially ugly battle over access issues.

This post was written by guest blogger Suzanne Robitaille. Robitaille is the founder and publisher of abledbody.com, a website covering assistive technology issues. She is the author of The Illustrated Guide to Assistive Technology.

Q&A with Yelp CEO Jeremy Stoppelman

Ever since the Oakland-based East Bay Express published an explosive story called Yelp and the Business of Extortion 2.0 a year ago, Yelp Inc. CEO Jeremy Stoppelman has been dealing with charges that the company has a bad habit of shaking down small businesses. The scheme, say critics, is that Yelp salespeople call small businesses that have been reviewed on the hugely popular business review site, and offer to let them manipulate the reviews if they pay to advertise with Yelp. Some business owners say that when they refused to advertise, they soon began to notice good reviews disappearing or negative ones becoming easier to find.

Now, the grumbling has led to a class action lawsuit. Who knows if the suit has merit, but one thing is for sure: it has refocused attention on the controversy. If the suit goes to trial, Yelp will likely have to disclose more details of its inner workings. While the company has always insisted that advertisers have no control over the reviews that appear on the site (other than the ability to highlight one "sponsored" review they like at the very top of the queue), it has refused to say much about the secret algorithms that determine which reviews appear and in what order.

If Stoppelman is worried, he sure doesn’t show it. In the days after the lawsuit was filed on Feb. 23, he wrote two self-assured blog posts (here and here) in which he confidently explained why he says Yelp is innocent. I wanted to take a deeper dive, to find out what it’s like for the CEO of a company that’s accused of wrongly besmirching corporate reputations to find himself on the hot seat. Stoppelman got on the phone with me on March 2. Here are edited highlights of our conversation.

BW: The class action suit has again focused attention on allegations that Yelp shakes down businesses to get them to advertise. How much is riding on Yelp’s ability to deal with the controversy?

Stoppelman: This [class action] is a reminder of the challenge we have ahead of us, and which we’ve had for the last year. What we’ve built is a system that works really well for consumers. When you read reviews on Yelp, you get a good sense of what’s going to happen when you walk in the door of that business. The challenge is that there are fifteen million businesses in the U.S., and its very hard to communicate with all of them about how Yelp works, and why it works the way it does. That’s an incredible challenge.

BW: There was a time when many people had their doubts about the integrity of search results--about whether search rankings were bought and paid for. A major reason for Google’s success was that it managed to establish consumers’ trust that its search rankings were legit. Do you see any parallels to what's happening with Yelp?

Stoppelman: I see many parallels. When AdSense was introduced, there was a lot of fear and even belief that Google’s rankings would be affected by whether a site was using [this ad-serving system]. There were many articles written about that, too. Now we all love and trust Google. But when they first began wielding significant power, people got spooked.

BW: Did you?

Stoppelman: When Yelp first took off, our rankings on Google would fluctuate wildly. I remember thinking “we’ve got this [potentially competing] product that is taking off; are they on to us?” There’s just a human tendency to want to explain things as if everyone is paying attention to you, when in reality it was just an algorithm.

BW: But the suspicions about Yelp have been around for more than a year now, and don’t seem to be easing. In fact, they seem to be intensifying. Why was Google able to win that trust more quickly?

Stoppelman: Google mines links (to determine rankings) and we mine reviews. The difference is that Google doesn’t have to show which links it is counting. It can be kept hidden from view. But reviews are written by people (who may notice if their review disappears, reappears or is moved up or down in the rankings).

BW: So how do you get out of the penalty box?

Stoppelman: The biggest thing is to create a product that consumers find useful. As more and more people like something, it becomes harder and harder to have a conspiracy theory about it.

There’s been resistance to every new technology that’s ever been introduced. When books came out hundreds of years ago, there were complaints that it would destroy the oral tradition. Some of those fears were justified, but it didn’t stop the rise of the written word. And books have proven to be incredibly useful.

BW: But there’s no question that consumers find Yelp very useful. The question is whether you are serving the needs of the businesses you need to advertise.

Stoppelman: Our business is about connecting consumers with great local businesses. The world of the past, where businesses could completely control their image, was nice. But overall, are there tremendous advantages for businesses by having power in the hands of consumers? Absolutely. The other day there was a story in the New York Times about a place called Ike’s Sandwich Shop. Yelp made his business; now he has to take reservations because the lines are so long.

BW: So is all the controversy hurting your business? It must make it a lot harder for salespeople to do their jobs.

Stoppelman: No, we’ve been through this before. This is the same press cycle we had a year ago—but now we’re better prepared.

BW: The plaintiff in the class action suit (Long Beach, CA-based veterinarian Cats & Dogs Hospital Inc) says that a Yelp salesman named Kevin repeatedly promised to make negative reviews go away if he would advertise on Yelp. Have you disciplined Kevin for breaking the company’s sales policies, and how many times have you had to discipline or fire salespeople for such transgressions?

Stoppelman: We’ve never had to discipline a salesperson about the issue that was laid out in the lawsuit.

BW: Yelp is well-known for throwing fun, alcohol-drenched parties for top reviewers. Should you be doing more outreach to businesses, too?

Stoppelman: They don’t involve alcohol, but we have hosted ten forums in five cities in recent months. I’ve attended three of them so far. We invite ten to twenty small businesses in the area—some advertisers, some not--to talk about how Yelp works and give feedback. They’ve been surprisingly positive. Business owners realize we’re an important and a low-cost driver of business—especially if they’re paying us nothing (because they don’t advertise).

BW: So far, we've discussed what Yelp needs to do to clear up misunderstandings and conspiracy theories. But some people say they understand the business, but don’t like a business model by which you take money from the companies that are reviewed.

Stoppelman: We survey every advertiser that signs up, and one of the things we ask is whether they realize that advertising is not connected to content and reviews. If they say no, they get a call from a salesperson to make sure.

BW: Danny Sullivan, a respected search industry analyst, thinks the only solution is for Yelp to let companies opt-out entirely. That way, only basic information on the company would appear, but no reviews. What not do this? It would go a long way towards proving to businesses that you’re not interested in extorting them.

Stoppelman: Why doesn’t BusinessWeek let me opt-out of having a story written about me? It’s a new generation of people out there (that want to communicate and share opinioins). Some of the content that appears on Yelp might have been created by a newspaper in the past---say, a review by a restaurant critic. It’s a clear question of free speech. If someone said a reviewer couldn’t write about a particular restaurant, there would be an outcry—how dare he be silenced!

My Next Blog

You can find my next blog at

www.southmountaineconomics.com

I'm taking a hiatus from blogging for about a month. But I will be focusing on innovation and growth.

(If there's any problem with getting to the blog, let me know)

My whereabouts

To confirm the rumors: I was not offered a position by Bloomberg.

To my friends at BusinessWeek, both old and new: We had a fantastic run, and I loved working with you all. Sometimes we were good, sometimes we were great, but we always had integrity and soul (yes, that's the word I mean).

To Norm, Josh, and all my BusinessWeek friends who are going over to Bloomberg: Good luck! I know that you are going to build an exciting new magazine. It won't be the same as the old BusinessWeek, but times have changed, and it's time for BusinessWeek to change with them.

As for me? I've got definite plans that I'm not ready to post about yet. I will, however, put up a new email address before closing down shop here. I will continue blogging at a new location, with a hiatus of a month or two.

Service Sector Inflation Ticks Up

The headline number for this morning's PPI report was an 0.6% decline in the price of finished goods less food and energy ("core PPI"). In fact, core finished goods PPI has fallen for 4 out of the past 6 months. So if we just look at this number, inflation seems like it isn't a problem,

However, I prefer to look at a different statistic in the PPI report--the PPI for traditional service industries. Never heard of it? You are not alone. Starting a few years ago, the BLS aggressively broadened its coverage of the service sector. In particular, the "traditional service sector" includes everything from telecommunications and web search portals to health care to banking to management consulting to fitness centers.

So now the BLS publishes a PPI for these service sector industries (it's at the back of the report, pp 20-21). I wrote about the service sector PPI on my blog in February, in a post entitled "The PPI says: Service Sector Deflation is Almost Here."

Now, we have a really big divergence in the path of the core finished goods PPI and the service sector PPI. Core goods inflation is collapsing. But services PPI is slowly ticking up.

I think the service sector PPI is a better measure of the underlying inflation rate, because it covers a broader swathe of the economy. So this chart tells us that inflation is slowly starting to recover.

Innovation, Jobs, and Corporate Performance

Next week I'm looking forward to speaking at two important innovation-related conferences. On Thursday I will be in Chicago at "Innovating Our Way to Prosperity" put on by The Institute for Work and the Economy. It's obviously a critical topic these days, given the weak state of the job market, and I will be giving a talk on "Moving Beyond America's Innovation Shortfall."

Then on Friday I will be in Philadelpha at the Wharton School, at "Borderless Innovation: Management Practices, Promises and Pitfalls" presented by the Mack Center for Technological Innovation. This trend towards borderless innovation is central for today's global economy, and understanding how it works may be crucial for our future global growth, and our future standard of living. My talk is entitled "Global Innovation: The Big Experiment."

And yes, these two conferences are closely related to each other. In the first conference I will look at the innovation shortfall and its aftermath from the viewpoint of job creation in the U.S., and in the second conference I will focus on global innovation and corporate performance. It's my contention that these two perspectives, while very different, actually come down to the same issue: How can we assure that we get more genuine innovation in the years going forward?

I will likely post my presentations afterwards.

Advanced Technology Deficit Widens in 3rd Quarter

Here's more bad news for jobs.

According to this morning's trade report, the advanced technology trade deficit widened to $18.2 billion in the third quarter, up from $12.9 billion in the second quarter of 2009 (advanced technology products include 10 categories, such as information and communications, biotechnology, and aerospace).

The third quarter ATP deficit, at $18.2 billion, was just below the $18.9 billion of a year ago. I believe that was the record, though, I'm not 100% sure.

Nevertheless, the widening of the ATP trade deficit is not good news for U.S. production jobs, since it means that even as demand for innovative products recovers, the production benefits are primarily being felt overseas. Employment in the computer and electronic products industry, for example, fell at a 10% annual rate in the third quarter.

What about royalties and license fees to produce the new technology--doesn't the U.S. benefit from that? The total trade surplus in royalties and license fees was $14.4 billion in the third quarter, smaller in magnitude than the advanced trade deficit. Given that royalties and license fees include movies and tv shows as well, it's likely that the amount of revenue from licensing the overseas production of advanced technology products was actually substantially less.