Professional Documents
Culture Documents
AMERICA’S
25
RICHEST
FAMILIES
KIM KARDASHIAN
SHE MADE
$45 MILLION
FROM ONE GAME
THE NEW
MOBILE MOGULS
HOW ANYONE WITH A FOLLOWING CAN CASH IN.
PLUS: THE WORLD’S 1OO TOP-EARNING CELEBRITIES
KPMG Voice WHAT’S NEXT AFTER AN ERA OF RAPID INNOVATION
CHRISTINA
LOMASNEY
COFOUNDER AND CEO,
MODUMETAL
I T ’S L I K E T HAT.
TH E 2017 M K Z.
The best performances are often the most
unexpected. And perhaps that explains the allure
of the new Lincoln MKZ —which not only wears
a refreshingly bold look on its face, but has an
unforgettable 400 horsepower* engine at its heart.
Lincoln.com/MKZ
Contents // July 26, 2016 VOLUME 198 NUMBER 1
ON THE COVER:
PHOTOGRAPHED IN
LOS ANGELES
BY JAMEL TOPPIN
FOR FORBES
70 | CELEBRITY 100
The world’s 100 highest-paid
celebrities pulled in $5.1 billion
pretax over the past 12 months,
more than the GDP of Belize,
Gambia and Bhutan combined.
EDITED BY ZACK O’MALLEY GREEN-
BURG AND NATALIE ROBEHMED
Half of the Everglades has already disappeared. Now the remaining half of this
fragile ecosystem is at risk from pollutants in stormwater runoff.
The problem has been decades in the making. But the millions of Florida residents,
visitors and native animals relying on this watershed don’t have decades to wait
for a solution. So the South Florida Water Management District designed
innovative stormwater treatment wetlands and Citi found a way to finance the project
in weeks rather than years. Now, clean water from those wetlands is replenishing
the Everglades and an incomparable global landmark is on the mend.
For over 200 years, Citi’s job has been to believe in people and help make their
ideas a reality.
citi.com/progress
© 2016 Citibank, N.A. Member FDIC. Equal Oppor.tunity Lender. Citi, Citi with Arc Design and The World’s Citi are registered service marks of Citigroup Inc.
JULY 26, 2016
11 | FACT & COMMENT // STEVE FORBES
Brexit: the ugly aftermath.
LEADERBOARD
16 | AMERICA’S RICHEST FAMILIES
Conventional wisdom holds that wealthy clans will blow through their
money within a generation or two. Not so these 25 diverse families.
30 | CONVERSATION
Readers debate Google’s push into artificial intelligence and trade
barbs over the market impact of a Trump or Clinton administration.
THOUGHT LEADERS
46 32 | CURRENT EVENTS // DAVID MALPASS
Using public anger.
STRATEGIES
38 | NEW FRAME OF MIND
Michaels, the venerable arts-supply store, has crafted one of retail’s
most unlikely comebacks by transforming its stores and—gasp—
completely ignoring e-commerce.
BY SAMANTHA SHARF
TECHNOLOGY
42 | DUELING UNICORNS
Once cofounders and best friends, these CEOs of rival high-flying security
companies are battling to dominate the digital defense market.
BY THOMAS FOX-BREWSTER
50
INVESTING
54 | TOO BIG TO BE BEARISH
Brexit is shaking markets, global growth stinks, and election nervousness is
gripping Wall Street. Still, BlackRock’s $1.2 trillion bond man is buying.
BY STEVE SCHAEFER
80
56 | THE SELFIE TRUST
You could be wrecked financially by a lawsuit or sudden business reversal.
But what if there were a way to protect a chunk of wealth for your own use?
BY ASHLEA EBELING
FEATURES
80 | DIGITAL DOOR-TO-DOOR
The smart home of the future is being sold in the most
old-fashioned way. So why are some of Silicon Valley’s
sharpest investors suddenly interested?
82 WITH KPMG BY AARON TILLEY
WITH KPMG
THE GREAT REWRITE: PLANET 2.0 82
90 | THE TRILLION-DOLLAR TECH WAR
The cloud is shaping up to be the biggest business
opportunity in a generation, and Amazon, Microsoft and Google
all want to claim the biggest slice.
BY ALEX KONRAD
98 | CANNABIS CAPITALIST
Scotts Miracle-Gro CEO Jim Hagedorn is gambling $400 million to reach a
burgeoning market of customers: pot growers.
BY DAN ALEXANDER
LIFE
108 | LIFE IN THE FASTEST LANE
Ever dreamed of going 200mph at the Indianapolis Motor Speedway? Indy
Racing Experience can make you Andretti for a day.
BY JIM CLASH
98
112 | THOUGHTS
On artificial intelligence.
6 | FORBES JULY 26, 2016
INSIDE SCOOP
EDITOR-IN-CHIEF
Steve Forbes
FORBES MAGAZINE
EDITOR
Ignite an Audience
Randall Lane
BY LEWIS D’VORKIN
EXECUTIVE EDITOR
Michael Noer
ART & DESIGN DIRECTOR
Robert Mansield
THIS WASN’T SUPPOSED to happen in the digital era.
FORBES DIGITAL
Magazines, everyone said, would die. A generation weaned
VP, INVESTING EDITOR on the Web would have no use for print. Millennials, well,
Matt Schifrin
SENIOR VP, STRATEGIC PARTNERSHIPS
they spend their time on Facebook.
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VP, DIGITAL CONTENT STRATEGY
Coates Bateman
below. Our readership is growing, as measured by market
VP, PRODUCT DEVELOPMENT research firm MRI, the go-to source for statistics like these.
Salah Zalatimo Then scan our top ten most-read issues (again, according to
VP, WOMEN’S DIGITAL NETWORK
Christina Vuleta MRI). Six of them came within the last calendar year.
ASSISTANT MANAGING EDITORS I have a simple explanation. Today’s entrepreneurs are
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So digital and print can live together—as long as the vi-
BUSINESS
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Mark Howard CHIEF REVENUE OFFICER
Tom Davis CHIEF MARKETING OFFICER MAGAZINE RISING:
Jessica Sibley VP, SALES EAST & EUROPE
Janett Haas VP, SALES, WESTERN & CENTRAL
BUCKING INDUSTRY TRENDS TO LEAD THE WAY
Ann Marinovich VP, ADVERTISING PRODUCTS & STRATEGY MRI AUDIENCE TREND
Achir Kalra SENIOR VP, REVENUE OPERATIONS & STRATEGIC PARTNERSHIPS 7
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MAR. 29, 2010 JUNE 29, 2015 OCT. 6, 2008 DEC. 28, 2015 MAR. 23, 2015
BREXIT
THE UGLY AFTERMATH BY STEVE FORBES, EDITOR-IN-CHIEF
THE BILL to the world for Brexit will the way, have no desire to be Moscow’s
be huge, far beyond the stock market subjects again. These states are part of
hits it let loose. NATO, and the U.S. and other NATO
ƀLJ(,.#(.3ź Investment is critical members are under treaty obligation
for growth and a higher standard of to defend them from a Russian assault.
living. Capital spending has been stag- A Munich-like capitulation by Presi-
nant in most of the world since 2008– dent Obama would destroy NATO, the
09, thanks to higher taxes, a tsunami alliance that enabled the West to win
of new regulations and highly harm- the Cold War. The Balts are visibly
ful central bank policies. Brexit will fearful that their days of indepen-
compound these obstacles for Europe dence are numbered. Poland is also
and the U.K. Why put money at risk if increasingly anxious about its security.
you don’t even know what the rules will be? An already The U.S. and NATO are planning to station an ad-
sluggish world economy will slow even more. ditional NATO battalion in each Baltic country and in
ƀLJ"LJ/(,0&#(!LJ) LJ."LJź To prevent another Euro- Poland. None of this will deter a determined Putin.
pean-instigated world war, post-WWII diplomacy has ƀLJ(.,&LJ(%-LJ1#&&LJ)/&LJ)1(LJ)(LJ."#,LJ #&LJ*)&-
focused on tying European countries together. This ef- ##-ź The Federal Reserve, the European Central Bank
fort has been astonishingly successful. Despite centuries (ECB) and the Bank of Japan (BOJ) have engaged in
of bloody rivalries, a war among EU nations, particularly antigrowth policies. (The Bank of England has been
between France and Germany, is inconceivable today. less of a sinner in this regard.) The suppression of inter-
But ugly forces are once again stirring because of est rates and the binge buying of long-term bonds have
chronic economic stagnation and massive Mideast im- destructively distorted credit markets, restricting capi-
migration. Xenophobic parties of the kind that plagued tal to small and new enterprises (see p. 12). Like doctors
Europe before WWII are on the rise in France, Austria, of old who kept bleeding their patients even when
Hungary and elsewhere. Ominously, Germany is not they didn’t get better, leaders of the ECB and BOJ are
immune to antiliberal impulses. The most popular fig- feverishly stepping up their economic malpractice.
ure there is a member of the Green Party. The second The Federal Reserve’s painfully slow liberalization
most popular is the foreign minister, a socialist, who of interest rates will continue to drag on. While not
has declared that the sanctions against Russia for its expanding its bloated bond portfolio, the Fed is elon-
aggression in Crimea and Ukraine are a “provocation,” gating maturities, which exacerbates the malfunc-
and who wants Berlin to distance itself from Washing- tions of our financial markets.
ton and work more closely with Moscow. ƀLJ/,0#0&LJ) LJ."LJźź Scottish nationalists took heart
ƀLJ"LJ.",.LJ) LJ!!,--#)(LJ!,)1-ź Most immediately from the Brexit vote. Scotland was overwhelmingly in
ominous are the ambitions of Russia. Vladimir Putin favor of remaining in the EU, and secessionists think
wants to achieve what the old Soviet Union never could: they could now win an independence referendum.
domination of Europe. The EU’s existential crisis, exac- The only good thing about the post-Brexit turmoil is
erbated by Brexit, plays right into his malignant hands. that it may give moderate Scots pause: Political divorce
Europe’s disarray will tempt Putin to subjugate the Bal- can be as painful and messy as the personal kind.
tic nations of Estonia, Latvia and Lithuania under the Still unknown is what will unfold in Northern Ire-
pretense of protecting Russian minorities there, who, by land, which also voted against Brexit.
Cruisin’ to Wealth
This year is shaping up to be one of the most turbulent When not touring, you’ll be able to harvest profitable in-
ever. The presidential campaign has completely defied sights from longtime FORBES columnist and highly esteemed
all predictions and expectations. Europe is in turmoil money manager Ken Fisher; Fox TV investing star Elizabeth
because of Britain’s stunning decision to leave the EU. MacDonald; one of the world’s most insightful (and spell-
Global economies are faltering. Interest rates are going binding) energy and technology experts, Mark Mills; and the
negative. What’s an investor to do? outstanding economist Stephen Moore. I will be sharing post-
One wise move would be to sign up for the 26th election observations. Acting as master of ceremonies will be
Forbes Cruise for Investors: Nov. 29–Dec. 6, sailing from the scintillating host of FORBES on Fox, David Asman.
San Juan, P.R. to New Orleans, with stops at St. Barts, You won’t want to miss this opportunity for relaxation
St. Kitts and Key West, Fla. and fattening up your pocketbook. F
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LeaderBoard
July 26, 2016
When New York’s Four Seasons restaurant closes this month after
57 years, the birthplace of the power lunch will auction its collection
of modernist furniture, including Philip Johnson banquettes and Eero
Saarinen Tulip tables. Even the dishes, emblazoned with the iconic
logo designed by Emil Antonucci in 1959, are up for sale. PAGE 22
FLEDGLING FOUNDERS 24
America’s
Wealthiest Families
GREAT FORTUNES ARE notoriously easy to lose.
Not so for the nation’s richest clans, however, who have
bucked the odds and held on to their wealth for genera-
tions, in some cases since the 19th century. Collectively,
the 25 wealthiest American families are worth $722 bil- 4. CARGILL/MACMILLAN
$49 bil V 23 members (est.)
lion, down $11 billion (1.5%) from a year ago.
Fourteen billionaire heirs hold
These scions of some of America’s great business stakes in the agribusiness titan,
founders own such classic brands as Campbell’s soup, America’s largest private company.
5. COX
Windex, Hyatt Hotels and more. Among them are names $41 bil V 5 members
familiar (Walton, Rockefeller) and less so (Sackler, Onetime newspaper empire now mostly involved
Duncan). One newcomer is likely the least known of all: in cable television and the automotive industry.
the Goldman family, whose late patriarch, Sol (1917–87),
quietly purchased hundreds of properties across New
York City. For more, please visit forbes.com/families.
6. S.C. JOHNSON
$30 bil V 13 members (est.)
8. (EDWARD) Cleaning-products giant is run by the
JOHNSON family’s fifth generation.
$28.5 bil V 4 members
Boston-based brood owns
nearly half of mutual- 7. PRITZKER
fund behemoth Fidelity $29 bil W 13 members
Investments. Hyatt hotel clan feuded over trusts, eventually
divvied up a diverse fortune.
9. HEARST
$28 bil W 67 members
William Randolph Hearst III chairs the media
16 | FORBES JULY 26, 2016 group started by his grandfather in 1887.
12. LAUDER 13. DORRANCE
10. DUNCAN $17.9 bil V 6 members $17.1 bil V 11 members (est.)
Makeup mavens run Heirs to Campbell’s fortune share
$21.5 bil W 4 members 11. NEWHOUSE Estée Lauder, home to spoils of John T. Dorrance’s 119-
Dan Duncan’s children have doubled their $18.5 bil V 3 members such brands as Clinique, year-old condensed-soup formula.
fortune since inheriting massive pipeline Weakness in print media ofset by Bobbi Brown and M-A-C.
company Enterprise Products Partners. $11.4 billion sale of cable-TV firm
Bright House Networks to
Charter Communications.
20. BROWN
$12.3 bil W 25 members (est.)
Booze barons make Jack Daniel’s, 21. MARSHALL
19. SACKLER Finlandia vodka, Herradura $12 bil V 3 members (est.)
$13 bil W 20 members (est.) tequila and more. Late oilman J. Howard Marshall II
18. BUSCH Sales of painkiller OxyContin, made by traded shares in a petroleum com-
$13.4 bil W 30 members (est.) family’s Purdue Pharma, have slowed. pany for a stake in Koch Industries.
Family sold Budweiser beer—
now known as “America,” at least
through election day—to Brazilian
investors in 2008.
EDITED BY KERRY A. DOLAN
23. ROCKEFELLER
$11 bil X 174 members 25. GALLO
23. BUTT Nineteenth-century titan $10.7 bil V 17 members (est.)
$11 bil V 5 members John D. Rockefeller created the
22. MELLON California clan owns the world’s largest
Family owns H-E-B Grocery of Texas, family fortune with Standard Oil.
$11.5 bil X 200 members (est.) family-owned winery and a dairy farm.
founded by Florence Butt in 1905.
Immigrant Thomas Mellon made money JULY 26, 2016 FORBES | 17
in land, coal and banking in the 1800s.
LeaderBoard
NEW BILLIONAIRE UNICORN METER
Promising
Conversation
IT’S THE TALK of Silicon
Valley—and the buzz around
messaging app Slack is all positive,
according to our recent poll of the
FORBES Midas List, the world’s
greatest venture capitalists.
4 FUTURE BLUE CHIP
Towering
Fortune 3 TEN-BAGGER
SLACK
2.9
Jane Goldman and her
siblings—heirs of New
York real estate legend
Sol—overcame a nasty 2 SOLID EXIT
family feud, then
managed to grow his
empire sixteenfold.
1 BUYOUT BAIT
0 TOTAL WRITEOFF
SCORECARD
THE LEGACY OF Sol Goldman, once New York City’s biggest landlord, lives on.
You can see it in Manhattan’s skyline (particularly on Madison Avenue between REID HOFFMAN
37th and 84th streets, large parts of which his heirs still own). Or dig through +$770 MILLION
thousands of pages of legal documents detailing the bitter battle between Sol’s NET WORTH: $3.7 BILLION
wife, Lillian, and their children over his estate after his death in 1987. After five Microsoft will pay $26.2 billion to add
contentious, lawsuit-filled years, she and her four kids—Jane, Allan, Amy and Hofman’s LinkedIn to its professional
network. The all-cash bid—Microsoft’s
Diane—agreed that one-third of the estate would go to Lillian, with the remaining biggest-ever acquisition—sent LinkedIn
two-thirds split evenly among the children. Lillian died in 2002. shares up 47% the day the deal was
Sol kept his professional dealings close to the vest, and after losing almost half announced.
outthink
trends
ibm.com/trademark. Other product and service names might be trademarks of IBM or other companies. ©International Business Machines Corp. 2016.
IBM and its logo and ibm.com are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. See current list at
ibm.com/outthink
LeaderBoard
DEAL TOY
Soda Pep
In 2010 Pepsi
reacquired two of
its independent
bottling divisions,
hoping for fizzier
profits.
LOOSE CHANGE
SPIN (OFF) THE BOTTLE
Pepsi’s dealmaking
In the late 1990s Pepsi
hasn’t delivered tastier
streamlined, spinning of
profits. Net income,
fast-food operations (Taco
$5.5 billion in 2015, is
Bell, KFC and Pizza Hut,
down 14% from five
now collectively known
years earlier; the stock
as Yum Brands) and its
price has been as flat as
North American bottling
a week-old 2-liter. It has
businesses. A decade later,
kept pace with eternal
though, CEO Indra Nooyi,
rival Coke, though,
at the helm since 2006,
and Nooyi beat back a
decided that more control
challenge from activist
over production and dis-
investor Nelson Peltz,
tribution would cafeinate
who had a $1.8 billion
the bottom line.
stake and called for a
split of Pepsi’s beverage
business and its Frito-
Lay snack empire.
RUSSIAN
RECONNAISSANCE
Investment banker Blair Efron, cofounder of boutique Centerview
PHOTOGRAPH: SAM KAPLAN FOR FORBES
ALIKO DANGOTE
–$3 BILLION
NET WORTH: $14.1 BILLION
Africa’s richest man lost nearly
a quarter of his fortune when
Nigeria’s government removed
the naira’s peg to the dollar,
sending the currency
down 30% in a Tableware and cookware by L. Garth
single day. and Ada Louise Huxtable. (Serving
bowl estimate: set of 3, $1,500–$2,000.)
The Chair (left) by Hans Wegner.
(Estimate: set of 4, $4,000–$6,000.)
Pages on Stages
THE ORIGINALITY of the Broadway smash Hamilton isn’t in dispute, but in
one way, Lin-Manuel Miranda’s historical hip-hop sensation is utterly derivative:
It’s the latest in a long, long (chorus) line of hit musicals based on books.
Novels, memoirs, fairy tales and biographies have long served as source mater-
ial for Broadway, and in some cases—Cats and The Phantom of the Opera are two
prominent examples—the show’s appeal far outshines that of the book. (That’s
not so with Wicked; the Gregory Maguire novel on which it’s based has sold more
than 3.6 million copies just since 2001, when Nielsen began tracking book sales.)
Ron Chernow’s 2004 doorstop, Alexander Hamilton, has sold well, some
623,000 copies to date, buoyed by the show it inspired. As for the musical, it has so
far grossed some $80 million—a mega-success, but it hasn’t been open long enough
to challenge Broadway’s all-time highest grosses. As Hamilton himself might put it,
though, just you wait. Just you wait.
EVERETT COLLECTION HISTORICAL/ALAMY; LIBRARY OF CONGRESS; PHOTOQUEST/GETTY IMAGES; MARCIO JOSE SANCHEZ/AP
DOPPELGANGERS
A Tale of Two Schwabs
1918: Charles M. Schwab, steel
millionaire. Woodrow Wilson
tapped Schwab—who had run FORGOTTEN FIGURE
Carnegie Steel and U.S. Steel—to Working Warriors
lead the Emergency Fleet Corp. Vets wounded in WWI
and bolster U.S. shipbuilding. returned from Europe only
Schwab squandered his $200 to face another battle: Many
million fortune (close to $3 billion employers were reluctant to
today) on lavish living and bad hire them. Enter Douglas C.
investments. McMurtrie, director of the Red
2016: Charles R. Schwab, investing Cross Institute for Crippled and
BY ABRAM BROWN
70,459
16,127
THE BOMB “The $140 million
547 VIEWS judgment could prove DAVE GOODENOUGH, VIA
BY ALEXANDRA WILSON
Billionaire Book Club: New Releases From The Forbes 400 fatal if upheld—and FACEBOOK: “Time for free
could serve as a markets with [Libertarian
blueprint for any Party presidential nominee]
billionaire who wants Gary Johnson.”
to lay siege to a
media outlet.”
30 | FORBES JULY 26, 2016
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THOUGHT LEADERS DAVID MALPASS // CURRENT EVENTS
freedom, pocketbooks, property and privacy is overwhelming us and cessful at using the current system to enlarge
is unstoppable under the present system. Trump’s fury at the status the central governments in Washington and
quo helps the election campaign build enthusiasm and a mandate for Brussels—at the expense of society. An upheav-
change. The Declaration of Independence listed at least 29 grievances. al will have to create new systems that rebuild
It won’t be easy to break the status quo. The establishment created prosperity, security and equal opportunity. F
DAVID MALPASS, GLOBAL ECONOMIST, PRESIDENT OF ENCIMA GLOBAL LLC; PAUL JOHNSON, EMINENT BRITISH HISTORIAN AND AUTHOR; AND
AMITY SHLAES, PRESIDENTIAL SCHOLAR AT THE KING’S COLLEGE AND CHAIR OF THE COOLIDGE FOUNDATION BOARD, ROTATE IN WRITING THIS COLUMN.
TO SEE PAST CURRENT EVENTS COLUMNS, VISIT OUR WEBSITE AT WWW.FORBES.COM/CURRENTEVENTS.
CHANGE
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Verticals Andi, a 4-year-old dachshund, often
accompanies her owner, Lisa Bernier, to
the office at Bark & Co. Bernier runs
July 26, 2016
the startup’s popular dog blog, BarkPost,
part of its ambition to become a
canine conglomerate. PAGE 46
STRATEGIES
MICHAELS CRAFTS A
WINNING MODEL 38
TECHNOLOGY
DUELING UNICORNS 42
ENTREPRENEURS
THE ROLEX RESALE KING 50
New Frame of Mind “We need products that people want in an en-
vironment they want to shop in.”
Michaels is one of the most surprising retail
Michaels, the venerable arts-supplies store, has crafted successes of recent years. It has stuck to trans-
one of retail’s most unlikely comebacks by transforming forming its brick-and-mortar stores while al-
its stores and—gasp!—ignoring e-commerce. most completely ignoring e-commerce. Back in
BY SAMANTHA SHARF the 2000s it had a more limited concept of its
E
customers and what it should sell them. Then
merging from the escalator of the Blackstone Group and Bain Capital, the pri-
subterranean Michaels in mid- vate equity firms, bought Michaels for more
town Manhattan, CEO Chuck than $6 billion in 2006 and watched sales stall
Rubin pauses at the entrance to and profits vanish. Change didn’t come easily.
make a point. To his right is a rack Six people had the CEO role before Rubin, the
containing a dozen adult coloring books, their son of a Boston liquor store owner who worked
pages full of fairies, dogs, butterflies and Harry his way up through Oice Depot, took the job
Potter characters. They’re one of the hottest in 2013.
items in the store and brought in an estimated Rubin knew Michaels couldn’t simply
$40 million in revenue last year. A decade ago stick to its knitting. While the company’s core
Michaels, which prided itself on stocking the hasn’t changed—it sells cheap craft supplies—
basics, probably wouldn’t have carried those Rubin has modified its stores to make it eas-
MATTHEW FURMAN FOR FORBES
Isaac Mizrahi-branded yarn. chaels needed more popular goods that could
BY THE
Its 1,352 stores brought in $4.9 billion in build a broader audience, too. That’s why Mi-
NUMBERS
sales last year, up 22% since 2010. Sales per chaels has started selling things like washi
square foot are around $225, rising from $205. tape—bright rolls of decorating tape in every
Earnings have more than tripled to $363 mil- shade and design imaginable—and kinet- COLD
lion. And since Michaels went public again two ic sand, a Play-Doh-style moldable substance. COMFORT
years ago, its stock has increased almost 60%, And then there’s the strange success of the AS ICE CREAM SEASON HITS
while the S&P Index gained 2%. “Michaels has Rainbow Loom, a child’s toy that turns col- ITS MIDSUMMER PEAK, THE
INDUSTRY IS FEELING THE
done a lot to improve store operations—some orful rubber bands into bracelets, necklaces CHILL FROM STAGNANT
basic things it lacked in the past,” says Michael and key chains. His executives had spotted TAKE-HOME SALES.
IMPULSE BUYING REMAINS
Baker, a Deutsche Bank retail analyst. the toy for sale in a couple of Dallas stores in STRONG, THOUGH, AND
The most striking part of Michaels’ success spring 2013. After racing to strike a supply deal BIG NAMES SUCH AS BEN
& JERRY’S AND BREYERS
is how it contradicts the digital era’s implied with its creator, a Nissan Motors engineer, Mi- HAVE MIXED UP MORE
mandate for retailers—that survival hinges on chaels sped up its supply chain to get Rainbow SINGLE-SERVING VARIANTS
TO SATIATE CRAVINGS.
selling online. But Michaels hasn’t wasted mil- Loom on shelves in time for Christmas 2013. It WITH 22% OF THE GLOBAL
lions competing with Amazon.com on e-com- became a smash hit, adding an estimated MARKET, UNILEVER BRANDS
DOMINATE THE TOP
merce. It’s grown while focusing squarely on $100 million to 2013 sales. “Rainbow Loom SELLERS WORLDWIDE.
improving what’s within its stores’ four walls. was a grand slam. It doesn’t happen too often,”
The namesake of Michaels was a bespec- says Rubin. But, he adds, “the skills that we de-
tacled, cherub-faced Texan named Michael veloped were reusable.” Today Michaels often
Dupey. He turned his dad’s Dallas five-and- gets products to shops six months after they’re
dime into a chain of crafts stores and sold them designed (or bought from a supplier). It used to
to the billionaire Wyly brothers in 1983. The take a year plus.
combined firm IPOed as Michaels Stores a year The Web remains a no-man’s-land for
later and expanded steadily through the ’90s. Michaels. The company doesn’t be-
By the time it attracted Bain and Black- lieve selling craft supplies is well suited
stone, it had two co-CEOs, Jef Boyer and to e-commerce. A large part of Michaels’
Greg Sandfort. As the business began to de- clientele want to, say, feel a fabric before
cline the next year, the duo departed. Brian buying it, and a lot of its sales come through
Cornell, a grocery veteran, replaced them be- spontaneous purchases and browsing—the
fore leaving to run far bigger Sam’s Club in kind of discovery shopping keeping Barnes & 1. MAGNUM
2009. Then Wal-Mart executive John Men- Noble open. Even if Michaels wanted to com- (Unilever)
zer took the spot for three years before suf- pete with Amazon, it almost certainly couldn’t $2.5 BIL
2015 GLOBAL SALES
fering a stroke. Another pair of co-CEOs build something bigger or better. Why go face-
2. HÄAGEN-DAZS
(Charles Sonsteby, the chief financial oicer, to-face with a giant when you can dodge it? (General Mills)
and Lew Klessel, a Bain Capital executive) Still, some think Michaels can’t hide forever. $2.1 BIL
filled in until stability finally presented itself “Nobody is immune from Amazon,” says Wed-
3. CORNETTO
in the form of Chuck Rubin. bush Securities analyst Michael Pachter. (Unilever)
At first blush Rubin seemed an unlikely No more than 5% of Michaels’ revenue $1.6 BIL
choice. He didn’t knit, bake or paint. But he was comes from online, and its e-commerce business 4. BEN & JERRY’S
just the type of outsider he wanted Michaels didn’t exist until two years ago. Rubin knows all (Unilever)
to draw in. To make Michaels stores a more that stands between Michaels and Bezos is the $1.2 BIL
friendly environment to new shoppers, he has in-store experience, which largely explains his 5. BREYERS
added big red signs to guide customers to de- preoccupation with upgrading the shops. And (Unilever)
partments, like baking supplies and paint. The he knows his stores need to continue improving. $960 MIL
displays are more accessible now—shorter in “It can be a little intimidating—that’s the down-
height, less crowded and newly adorned with side,” he says from the Manhattan location, dis-
decals explaining an item’s best use. Employees plays of graduation party supplies and day plan-
wear easy-to-spot cardinal-colored vests. ners behind him. “The plus side is that this is a
Better stores alone weren’t enough. Mi- place that has everything for creativity.”
CAROLYN JENKINS/ALAMY
FINAL THOUGHT
“I want to be part of the resurgence of things that are tangible, beautiful
and soulful, rather than just give in to the digital age.” —JACK WHITE
Dueling Unicorns
Stuart McClure and George Kurtz were once cofounders and
best friends. Now, as CEOs of rival high-flying security companies,
they’re battling to dominate the digital defense market.
BY THOMAS FOX-BREWSTER
S
tuart McClure, goateed and soft- company was valued at $1 billion
spoken, is confident and calm as he after raising a $100 million Series
recites a well-rehearsed pitch on D round from Blackstone Tacti-
how his company, Cylance, is using cal Opportunities and Insight
artificial intelligence to shake up Venture Partners. But mention
the antivirus industry. “We block 99.9% of the the name George Kurtz, his for-
attacks out there,” he says, sounding like he’s mer partner and the current CEO
selling a bottle of Purell. “Response to our of rival unicorn CrowdStrike,
product has been so overwhelming that we’re and the even-keeled 47-year-old
RoboCop: almost compelled to accelerate expansion so security entrepreneur loses his
CrowdStrike CEO everyone can get their hands on it.” cool. “George is a major com-
George Kurtz
patrols networks McClure has a lot to be confident about: In petitor, and he’ll say anything
for cyber thieves. June his nearly four-year-old, 420-employee to stop you from writing a story
like this,” McClure says
in a burst. “We’re beat-
ing him constantly in the
market because he doesn’t
do anything around preven-
tion—they only do detec-
tion, and they don’t do it all
that well.”
The distaste is mutual.
George Kurtz, also goa-
teed, isn’t shy about taking
shots at his former friend’s
tech claims. “All the credit
should go to Cylance’s
marketing department,”
says Kurtz. “Their machine
learning has been around
for a long time. Most se-
curity companies have it—we did it at
McAfee years ago.”
McClure and Kurtz—once pals,
partners and bestselling coauthors—are
now fierce competitors. Each leads an
approximately billion-dollar security
startup battling for a chunk of the surg-
ing security market. With the avalanche
of recent hacks—from the record-break-
ing theft of $81 million from Bangladesh
Bank to the theft of 32 million Twitter
CYBERSECURITY
passwords—companies are scrambling to Cylance acts like a border guard, blocking Stuart McClure,
secure their networks. Research firm Gart- shady actors before they enter the network. Its founder of
Cylance, uses
ner says the security software market hit $22 Amazon-hosted brain performs a cyber strip machine
billion in 2015. Sales have grown by $1 billion search, breaking down a file into a large number learning to block
for three straight years. (potentially millions) of “characteristics” in the suspicious files
from entering IT
The race is on for Cylance and Crowd- search for red flags. McClure says Cylance’s AI systems.
Strike—as well as other richly valued se- gets smarter with every piece of data it scans by
ETHAN PINES FOR FORBES
curity startups like FireEye and Palo Alto learning which features are malicious (like code
Networks—to convince corporate clients that that can move data to a criminal’s server) and
their software will keep out the criminals in which are benign. It can uncover and remove
the cheapest and most eicient way possible. infections on the network, too, as it did for the
U.S. government’s Oice of Personnel Manage- “I’ve known George since 1998. We were
ment after malware stole the data on 21.5 mil- best friends for 14 years,” says McClure. “But TRENDING
lion workers. I decided I needed to live my life with high WHAT THE 75 MILLION
CrowdStrike, meanwhile, is a digital cop, integrity and with high-integrity people, so FORBES.COM USERS
ARE TALKING ABOUT.
patrolling networks for suspicious behavior. I decided to do this gig on my own. He’s still FOR A DEEPER DIVE GO TO
It keeps a constant record of everything hap- bitter about it.” FORBES.COM/TECHNOLOGY
pening across the system and ofers a post- Kurtz tells it diferently. He says McClure
COMPANY
breach recovery service that hunts hackers approached him to join CrowdStrike but
SAMSUNG
and closes of the doors they exploited. In asked for too much equity.
A smart investment in
June CrowdStrike helped the Democratic The squabbling extends to their old smart gadgets? The
National Committee after Russian hackers startup, Foundstone. McClure says he was South Korean electronics
stole opposition research on the presumptive the real founder: “I built the company from giant announces $1.2
Republican nominee, Donald Trump. scratch. George begged me to be the CEO. ... billion in U.S. research
spending on the Internet
Despite their warring companies and I said, ‘I’ll take the president title, and you
of Things.
competing security approaches, the lives of can take CEO,’ because I’m a nice guy.” Kurtz
McClure and Kurtz remain strikingly inter- and other cofounders (who asked not to be PERSON
twined. The pair started working together named) contest that story, claiming six equal ELON MUSK
in 1999, when they cofounded Foundstone, partners voted in Kurtz as boss. Touts his $2.8 billion
bid to merge Tesla with
a firm that built software and hardware to As for their bestselling book, Hacking
SolarCity, his own sun-
identify and repair network security holes. Exposed, McClure says Kurtz’s name should power company, as the
That same year they co-authored the Web never have been on it: “He wrote one chapter, ultimate in “end-to-end
security bible, Hacking Exposed, which has but he makes it sound like it’s his book. I gave clean energy products”
sold more than 600,000 copies. In 2004 the him the book cover because I’m a nice guy.” for well-heeled zero-
carbon enthusiasts.
pair joined McAfee after the antivirus giant Kurtz declined to comment
bought Foundstone for $86 million. There on that claim.
they thrived, both rising to the role of global But McClure and Kurtz
chief technology oicer—Kurtz first and then can agree on one thing:
McClure. Their futures hinge on sign-
Kurtz, frustrated with McAfee’s plodding ing up big clients in the pri-
speed and legacy technology, resigned as vate sector. And so the for-
CTO in 2011, launching CrowdStrike in 2012. mer friends continue along
McClure soon followed, starting Cylance the same, tight trajectory.
the same year. Both companies use machine Cylance and CrowdStrike
learning to target ever evolving malware are both going global; in
threats. Both are based in Irvine, Calif., a ten- 2016 each firm opened new
minute drive apart. Both companies, accord- oices in Europe and Asia.
ing to sources, will have sales in the neigh- Cylance already claims
borhood of $100 million in 2016. And both more than 1,000 clients, including Gap, Pana- IDEA
BLOCK THOSE ADS!
men now sit atop paper fortunes, having at- sonic and Toyota. Kurtz says CrowdStrike is
Content providers,
tracted massive amounts of capital in a short working with three of the top ten largest glob-
beware: A new report
period of time. CrowdStrike raised $156 mil- al companies and five of the biggest banks. from eMarketer
lion from Google Capital, Accel, Rackspace Kurtz will reveal only a few customer names: projects that 70 million
and Warburg Pincus; Cylance raised $177 Rackspace, the cloud provider that’s also an Americans will use
million from Blackstone, Insight Venture investor; Australian mobile giant Telstra; and desktop and mobile ad
blockers this year, up
Partners, DFJ Growth and Khosla Ventures. publisher Tribune Media.
34% from 2015.
The bad blood between McClure and As the battle rages on, McClure can claim
Kurtz built slowly, a result of festering jeal- a recent, albeit superficial, victory over Kurtz:
ousies and disagreements over the future of In June he beat out his old buddy and fellow
security. The friendship fractured in 2012. nominee in EY’s Entrepreneur of the Year
McClure says it got ugly after he declined prize for Orange County. Says McClure: “I
SERGIO FLORES/BLOOMBERG
Kurtz’s invitation to join him at CrowdStrike. think he’s extra-bitter about that.”
FINAL THOUGHT
“If you do not let yourself be seen, you cannot see.” —VIRONIKA TUGALEVA
T
here is a subscription box for a plush toy—a takeout container with dump-
almost anything you can imagine lings spilling from it—to mark the Chinese New
these days, and dog toys and treats Year. The service has accumulated more than
are no exception. Given the will- 200,000 subscribers and about $40 million in
ingness of Americans to spend on sales. None of its subscription-box competitors
their furry friends, it should come as no surprise are much beyond $1 million in revenue.
that a bunch of online operations are competing But to please investors, Meeker, Werde-
to ofer canines a reliable stream of objects to lin and Strife need to get a lot bigger. Their
eat, chew on or lose under the sofa. grand vision? “Disney for dogs,” says Strife.
The top dog in this racket is BarkBox, which Meeker adds, “I’d like us to reach every dog
MATTHEW FURMAN FOR FORBES
was launched in 2011 by Matt Meeker, 43, Hen- in America.” So far, however, creating brand
Hoping to please dogs, rik Werdelin, 41, and Carly Strife, 30. For about extensions has been a struggle. They’ve
founders Meeker, $20 a month, subscribers get a container based scored some hits, including BarkShop, an
Werdelin and Strife
have tried a blog, an on a theme. In April, for instance, dogs received e-commerce site, and BarkPost, a blog about
e-commerce site and baseball-shaped cookies and toys resembling dogs, and they’ve rebranded themselves from
open-mic nights. ball caps and bats. Two months earlier they got BarkBox to Bark & Co. to reflect the expan-
Multi-core is designed to improve performance of certain software products. Not all customers or software applications will necessarily beneit from use of this technology. Performance and clock frequency will vary
depending on application workload and your hardware and software conigurations. Intel’s numbering is not a measurement of higher performance. © Copyright 2016 HP Development Company, L.P. Intel, the Intel Logo,
Intel Inside, Intel Core, and Core Inside are trademarks of Intel Corporation in the U.S. and/or other countries.
ENTREPRENEURS UNDER 30
sion. But there have been flops, too. “We like leashes—designed by a team led by a former
to strike fast,” says Meeker, “and sometimes Lego executive. Among this year’s best sellers: a TRENDING
we take on too much.” Donald Trump chew toy.
WHAT THE 75 MILLION
The stakes are high. Sales by all of Bark & While the founders expect those three busi- FORBES.COM USERS
Co.’s businesses hit $50 million last year, and the nesses to bring in some $25 million in 2016 rev- ARE TALKING ABOUT.
FOR A DEEPER DIVE GO TO
founders expect them to reach $100 million this enue, a Werdelin-run team is working on more FORBES.COM/
year. They have raised $77 million in investment extensions. He likes to have four or five ideas in ENTREPRENEURS
capital, including a $60 million round closed the works because he knows not all will succeed.
in May, from backers like August Capital and Neither BarkCam, a Tinder-like mobile app to
Resolute Ventures. Venture capitalists generally help people find rescue dogs, nor BarkBoard, a
want to see investments increase at least five dog-face-emojis app, developed a strong follow-
times in value. They won’t comment on Bark ing after their releases.
& Co.’s valuation, but multiples on comparable The biggest disappointment has been Bark-
public companies suggest it’s between Care, a concierge vet service that ofered house
$150 million and $200 million. For the investors calls in New York and San Francisco starting
to get that five-times return, sales would prob- at $199. “I think it’s our favorite product that
ably have to hit $500 million. “Our goal is to we’ve ever launched,” says Strife, seated next to
give them a 100-times return,” Meeker says. her cofounders in Bark & Co.’s Manhattan of- PERSON
Bark & Co. got started in 2011 after Werdelin, fice, a scrufy blond terrier mix napping nearby. JOHN BUTTOLPH
an MTV vice president turned Index Ven- They misjudged demand—Fido may enjoy After chicken-and-
tures executive, met Meeker, who ran a Polaris fresh treats each month but probably doesn’t biscuits chain Mrs.
Ventures incubator, on a networking cruise for visit the vet as often—and the marketing style Winner’s filed for
(one vet made house calls on a BarkCare- bankruptcy, Buttolph,
entrepreneurs. Later, a mutual friend introduced
an attorney, took
them to Strife, an early Uber employee. At the branded white moped) proved too whimsical trademarks in lieu of
time Birchbox had just debuted its subscription for owners worried about their dog’s health. legal fees. Now he’s the
cosmetics business, and the trio wondered if Launched in February 2013, BarkCare lasted owner and hopes to
they could do something similar. In December little more than a year. “We couldn’t make it revive the eatery.
2011 they launched BarkBox online while keep- grow as fast as we needed to,” says Meeker. COMPANY
ing their day jobs. With spending on pets nearly After failures like BarkCare, however, the SHIPPINGEASY
doubling between 2006 and 2015 to more than founders hired a former Viacom exec to man- Katie May, new CEO of
$60 billion a year (about two-thirds on dogs), age BarkBeta, a newly created three-person the shipping-software
they were able to raise $1.7 million in June 2012 team that has taken command of the develop- startup, knew its
product was failing. Her
and another $15 million over the next two years. ment process, operating on a strict budget:
choice: shut down the
The founders say BarkBox’s customer base 1% of quarterly revenue. The goal is for a firm and return
has been built primarily through social media, product to move from lightbulb moment to $2 million of investor
including 2.1 million Facebook likes and testing to launch within a few months. cash, or forge ahead.
1.2 million Instagram followers. The company With investors watching and the clock She forged ahead.
employs 150 but uses an infrastructure-light ticking, timing is important. There is probably IDEA
model, owning no warehouses and outsourc- a limit to how far the subscription business ELECTRIC BIKES
ing the packing of boxes. By itself, they say, the can carry them, says Sucharita Mulpuru- The inspiration for
subscription business is profitable, with a gross Kodali, an e-commerce analyst at Forrester Michael Burtov’s wheel,
margin of 36%. Research. She sees the entire subscription- which makes any
bicycle electric, came
Those profits and the venture funding have box industry as one big bubble. “The vast
from a Disney movie.
been used to support the extensions the found- majority of people are not going to buy a sub- When he introduced it
ers want to develop. BarkPost, for example, has scription box,” she says. on Kickstarter, funders
built an audience of 10 million monthly unique If that’s true, Bark & Co. will have to connect pledged more than
visitors, by ofering advice and feel-good stories on another idea. Recent eforts have included $1 million.
(an NFL player adopts a rescue dog). BarkLive BarkAir, a chartered jet service that lets man
hosts open-mic nights in New York City for and dog fly together in comfort, and an Ances-
canine-centric comedians (selling out at $20 a try.com-style DNA database for dogs. “We want
ticket). BarkShop sells products—toys, treats, to stay ambitious,” Meeker says.
FINAL THOUGHT
“Dogs are not our whole life, but they make our lives whole.” —ROGER A. CARAS
Let our experts help you get ready for the holidays.
Contact us for a free shipping analysis at usps.com/dependabledelivery
A292
ENTREPRENEURS LUXURY
Mr. Big
Time
Bob’s Watches brought
transparency to the
fraud-filled market for
used and vintage Rolexes—
and is making millions.
BY SUSAN ADAMS
T
he 2009 Rolex Datejust
on the Bob’s Watches
website has a black dial,
Roman numerals with
the familiar five-tipped
crown in place of the number XII and
the signature “Cyclops”—the magni-
fying crystal at 3 o’clock, introduced
in 1953, said to help the wife of Rolex
cofounder Hans Wilsdorf read the date.
Subject to all terms and conditions as outlined in the Allstate R3001 Exclusive Agency Agreement and Exclusive Agency program materials. Allstate agents are not franchisees; rather they are exclusive agent
independent contractors and are not employed by Allstate. Allstate is an Equal Opportunity Company. Allstate Insurance Company, Northbrook, IL. In New Jersey, Allstate New Jersey Insurance Company,
Bridgewater, NJ. © 2015 Allstate Insurance Co.
ENTREPRENEURS LUXURY
weekly to swap out models he enjoys wearing. Dozens of dealers and individual sellers already
Defined as watches that are at least 30 years ofered used Rolexes, but the online marketplace MARGIN
old, vintage Rolexes can appreciate steeply. In was chaotic. Ebay was a minefield of fakes and PROPHET
early June, Altieri sold a 1953 “Jean-Claude watches that had been altered with aftermarket
Killy” Rolex chronograph at Christie’s for parts. Buyers and sellers alike tried to cheat.
$233,000. Championship skier Killy, who sits on At that time most dealers, both on- and
the watchmaker’s board, is believed to have worn offline, wrangled the lowest possible prices
the model, enhancing its value. Altieri bought from sellers and then jacked them up as much
the watch in November 2013 for $150,000. Even as 100%, all behind closed doors, Altieri says:
“People had no place to find Rolexes and see
their real value. They didn’t have a safe place to
sell their watches.”
Altieri wanted to build that safe place. “The BIG LEAGUE
idea was never to make a big amount of money,” CHEW
he says. Instead, he hoped to create an eicient LAST YEAR JAKE HEIMARK,
marketplace and profit as the business scaled. 28, LAUNCHED PLUS GUM,
A PALO ALTO–BASED
But how to set prices in an opaque market? He COMPANY WITH TEN
combed through eBay sales as well as auction EMPLOYEES THAT MAKES
CANNABIS-INFUSED
records. He also spent $400 for access to a
ETHAN PINES FOR FORBES
FINAL THOUGHT
ASTRAZENECA, CANADIAN BREAST CANCER FOUNDATION, CANADIAN IMPERIAL BANK OF COMMERCE, CANADIAN INSTITUTES OF HEALTH RESEARCH,
CANCER STEM CELL CONSORTIUM, LILLY ONCOLOGY, FARRAH FAWCETT FOUNDATION, GENOME CANADA, LAURA ZISKIN FAMILY TRUST,
NATIONAL OVARIAN CANCER COALITION, ONTARIO INSTITUTE FOR CANCER RESEARCH, OVARIAN CANCER RESEARCH FUND ALLIANCE,
THE PARKER FOUNDATION, ST. BALDRICK’S FOUNDATION, VAN ANDEL RESEARCH INSTITUTE
STAND UP TO CANCER IS A PROGRAM OF THE ENTERTAINMENT INDUSTRY FOUNDATION (EIF), A 501(C)(3) CHARITABLE ORGANIZATION. IMAGES FROM THE STAND UP TO CANCER 2012 AND 2014 SHOWS.
THE AMERICAN ASSOCIATION FOR CANCER RESEARCH (AACR) IS STAND UP TO CANCER’S SCIENTIFIC PARTNER.
INVESTING MONEY MANAGERS
R
ick Rieder, BlackRock’s top bond According to Rieder, two components are
manager, doesn’t work in tech, but key to his unorthodox thinking about GDP and
these days he’s preoccupied with consumer spending: quantity and price. He ar-
disruptive innovation and how it gues that the amount of economic activity has
may be afecting economic data. surged in recent years, “but we’re doing it at a
Growing up in the suburbs of New York City, fraction of the cost.” For instance, IT spending by
he saw the rise of personal computing in the corporations has been sluggish, but the amount
1980s drive his father’s oice products store— of computing power being purchased has risen
which sold typewriter ribbons and other sup- dramatically.
plies—out of business. “It taught me that a great “It means we can grow without inflation,” he
business can be made obsolete instantaneously by says. “The argument that the economy is in a mo-
new technology,” says Rieder, 54. rass is just flat wrong.”
As the chief investment oicer of global fixed Despite his low profile, Rieder is no light-
income at $4.7 trillion asset manager BlackRock, weight among bond gurus. His position atop
Rieder oversees $1.2 trillion invested in every- BlackRock’s mountain of fixed-income assets
thing from mortgage-backed securities and comes after decades trading bonds at places like
corporate bonds to the debt of municipalities and E.F. Hutton and Lehman Brothers. Rieder devel-
countries everywhere from Iowa to Indonesia. oped a reputation for having a steady hand and a
But rather than limit his obsession to yield curve tireless work ethic. In the late 1990s, for example,
machinations or the utterances of the Federal he righted Lehman’s troubled emerging markets
Reserve, Rieder focuses on how upheavals in credit business after infamous hedge fund Long-
technology may be afecting underlying drivers of Term Capital Management imploded. “My world
capital markets: jobs, GDP and inflation. was upside down. … I just remember Rick was
“We’re going through the largest set of secular super calm, composed even though everything
changes that I’ve ever seen. The minutiae we was collapsing,” recalls Mohammed Grimeh, a
focus on is insane,” he says, referring to poten- managing director at Standard Chartered Bank
tially enormous productivity gains like Amazon’s and a former Lehman emerging markets trader.
factory robots and Google’s self-driving cars, In 2008, after 21 years at Lehman, Rieder and
which are not yet being captured by traditional his team spun out into a Lehman-backed hedge
economic-growth metrics. fund, R3 Capital. After Lehman collapsed Rieder
Rieder holds up a chart that shows the number got a call from BlackRock cofounders Rob Kapito
of photographs taken each year. The figure has and Larry Fink, who were looking for a new
grown exponentially, now on its way to 3 trillion, fixed-income chief. In 2009 BlackRock acquired
yet the world’s top camera companies, like Japan’s R3, which had about $1.5 billion under manage-
Olympus and Canon, have seen revenues and ment, and a year later installed Rieder as head of
market values collapse. the firm’s actively managed fixed-income portfo-
New technologies and tools—like smart- lios, then near $600 billion in assets.
phones—require a diferent way of thinking about With double the assets today and BlackRock
growth, he argues. While other bond bigwigs like bets firmly placed across the fixed-income spec-
DoubleLine’s Jefrey Gundlach and Janus’ Bill trum, Rieder can’t help being a bond perma-bull
Gross are sounding alarms over the economy, Rie- in public. So the key to “reading” Rieder is deci-
der is an unabashed optimist. phering his relative bullishness. Here are Rieder’s
FINAL THOUGHT
The Selie
Trust
You, too, could be wrecked financially
by a lawsuit or sudden business reversal.
But what if there were a way to protect a
good chunk of wealth for your own use?
BY ASHLEA EBELING
O
n the Wednesday before Thanks-
giving, with his staf already
gone for the holiday, Dr. Mike, a
58-year-old Delaware pediatri-
cian, gets a phone call from a
chronically alarmed father named Peter Wolf.
Wolf says his son, Peter Jr., has a fever and a rash,
is lethargic and seems seriously ill. Having seen
a dozen kids with similar symptoms that day, Dr.
Mike instructs Wolf to give Peter Jr. lots of fluids
and bring him in on Friday if he isn’t better. But
on Thanksgiving Peter Jr. is rushed to the hospi-
tal with bacterial meningitis. The infection leaves
him deaf and with signs of cognitive impairment.
Peter’s parents sue, and the Delaware Su-
preme Court upholds an $8.5 million jury award
against Dr. Mike. Since he carries only $3 million
in malpractice insurance, more than half his
$9 million net worth is at risk. But wait—federal $10,000 to set up a DAPT.
and state laws protect the $3.5 million Dr. Mike The idea of protecting assets in a trust for your
holds in pension plans, an IRA, life insurance and own benefit is controversial but spreading—this year
an annuity. Plus, he presciently put $2.2 million West Virginia became the 16th state to allow it.
in two asset protection trusts—one ofshore and Traditionally, you transfer assets into an irrevo-
one a home state trust he created in 1997 after cable trust for the benefit of others—say, your kids.
Delaware became the second state to legalize the If you’re worried about their money habits, choice
domestic asset protection trust, or DAPT. of mate or lawsuit risk, you make it a “spendthrift”
This hypothetical (but not implausible) trust—an independent trustee is appointed to ad-
horror story comes courtesy of Peter Gordon, minister trust payments and to make sure none go
a Wilmington trust and estate lawyer who has to your kids’ creditors or exes. A DAPT is a “self-
set up more than 150 DAPTs in Delaware. If settled” spendthrift trust, meaning you, the donor,
you have a substantial net worth and own a are also a beneficiary. If someone gets a judgment
business, could face malpractice suits or are against you, the independent trustee will (in theory)
contemplating marriage, you might have heard refuse to use trust assets (which, remember, came
a similar pitch. Lawyers typically charge around from you) to pay your debts.
Do DAPTs work as advertised? Maybe not, you’re seeking protection from, make sure your
particularly if you live in one of the 34 states that family home is held as “tenants by the entirety.”
haven’t allowed DAPTs and you set one up in That way, a creditor of just one spouse won’t be
another state, or if you declare bankruptcy. Of able to levy on the property.
three published court decisions involving DAPTs, Calculate your net worth that’s still at
GO,
Going Offshore CONSIDER,
BY KELLY PHILLIPS ERB
STOP
Nevada DAPT: The trust names a client’s spouse didn’t feel I needed access to these assets?” replacements for bonds
with pitiful yields. If rates
FINAL THOUGHT rise, watch out.
“A false sense of security is the only kind there is.” —MICHAEL MEADE
TRUMP OR HILLARY?
EITHER WAY, THERE’S A WAY TO PROFIT
CRAZY AS THIS COLUMN will ed customer demographic makes it cheap at
sound to many readers, I have two new 70% of revenue and 15 times my 2017 earn-
political reasons you’ve never heard ings estimate.
why stocks will likely exceed expecta- HORMEL FOODS (HRL, 35) has cratered on profit
tions straight ahead, with some volatil- margin and “peak earnings” fears. Way over-
ity thrown in for good measure. done! Its commitment to new products on
First, blunt history: In election top of its eternal favorites like Dinty Moore,
years when Republicans win, markets Muscle Milk, Skippy, Spam, Stagg Chili and
have done better than when Demo- Wholly Guacamole—plus its global efort—
crats win. Think I’m ideological here? fully justify its P/E of 20 times my Oct. 2017
Hear it out. S&P 500 data since incep- earnings estimate.
tion show GOP victory years were Similarly valued is MONDELEZ INTERNATIONAL
21.6% stronger than Democrat years—and mostly back-end-loaded. (MDLZ, 45)—a name less known than the block-
Democrats, though, fared 22.4% better than Republicans in inaugural buster brands it owns, like Cadbury, Chips
years. Simple facts, simple data! Ahoy, Honey Maid, Nilla, Nutter Butter, Oreo,
It’s a flip-flop market thing. We get excited about pro-market, pro- Trident and so many more. High-quality
business presidential prospects when a GOPer wins and then get dis- consumer staples regularly shine in maturing
appointed after he takes oice. Buy on the rumors, sell on the news. bull markets because cautious later entrants
With Democrats, it reverses: Less business-hostile than feared means are too fearful to own stocks earlier but be-
a positive surprise in inaugural years. come comfy with names like these—and bid
I actually see Trump winning (which means a good second half for them up. The time is perfect. Take a bite.
stocks). Even if he doesn’t win the popular vote, if he manages to keep There is nothing I like about entertain-
it close—despite Clinton’s overwhelming margins in places like Cali- ment giant COMCAST (CMCSA, 63)—its oferings rot
fornia and New York—he’s still in the game in the electoral college. our social fabric—except the stock, which is
And if I’m wrong? Then the political cycle would argue for a mild- great, growing endlessly and profitably. Want
to get ahead from sliming the world? Then
TWO NEW POLITICAL REASONS buy Comcast at twice annual revenue and 16
times my 2017 earnings estimate.
WHY STOCKS WILL LIKELY EXCEED As I said last month, old tech typically
EXPECTATIONS STRAIGHT AHEAD spurts in the later phase of a bull market.
ORACLE (ORCL, 41), the leader in large business
er next six months and a strong 2017 inaugural year. Either way, take software systems, hasn’t spurted recently and
your pick—and pick these seven stocks good for this bull ride: is due. Not much downside either at 14 times
In December I recommended NOVO NORDISK (NVO, 53) at $53. It’s fared my May 2017 earnings estimate, with a divi-
so-so but should do much better—with its far-into-the-future predict- dend yield approximating that of a ten-year
able earnings stream—as uncertainty keeps falling this year. While it government bond.
isn’t cheap, it needn’t be right now. It’s time! Update on AMAZON (AMZN, 722), last recom-
By contrast, CVS HEALTH (CVS, 94) is almost exactly the reverse. As mended on Aug. 12: Despite its lofty valua-
America’s largest retail pharmacy chain by a wide margin and tions and 63% increase over the last year it
THOMAS KUHLENBECK FOR FORBES
superbly managed, it did wonderfully from when I suggested it on hasn’t done much this year. Again, expect a
Apr. 14, 2014 until last July—up 50%—but has been a dog since, down spurt ahead. It should lead the market overall
16%. So it’s time to buy again. It should have another long run in the with fits and starts through the end of this
sun before this bull market ends. Its great—and aging—health-orient- cycle—maybe longer. F
MONEY MANAGER KEN FISHER’S LATEST BOOK IS BEAT THE CROWD (WILEY, 2015). VISIT HIS HOME PAGE AT WWW.FORBES.COM/FISHER.
REAPING RETURNS
FROM URBAN RENEWAL
ECONOMICALLY DEPRESSED you understand the basics of TIF bond risk
areas have plagued cities for years. One assessment.
tool used for redeveloping these blight- Atlanta’s Eastside Project issued a tax-free
ed areas is called Tax Increment Fi- TIF to refund its original 2007 bonds. The
nancing (TIF). These bonds raise funds Eastside Project encompasses 890 acres within
to build out, refurbish and enhance the city’s central business district and midtown
troubled areas. Sometimes they’re tax- area. Bonds are backed by a lien on incremental
free, and sometimes they’re not. The tax revenues. Of the ten largest taxpayers, none
bonds rely on the appreciation of the represent more than 5% of the assessed value.
new or renovated buildings and areas However, there is a concentration of multifamily
as well as on incremental tax revenues residences. This makes sense, given Millenni-
from the projects to pay investors their als’ preference for renting in high-density areas.
timely principal and interest. TIF bonds are 100% dependent on the Audited 2015 financials show an estimated 3.13
success of a particular project. times debt-service coverage.
All 50 states use TIF financing. The key for investors is assessing the If you live in Georgia or a state with no per-
viability of the project being financed. These days courts favor pension- sonal income tax, then invest in ATLANTA, GA. TAX
ers (voters) over general obligation bondholders, so TIFs, with no pension ALLOCATION EASTSIDE PROJECT, 5% DUE JAN. 1, 2027, CALL-
obligations and a dedicated revenue stream, have a distinct advantage. ABLE JAN. 2026 (CUSIP: 047849EB6), yielding 2.11% to
Here’s one TIF bond I like. Portland, Ore. has a 351-acre parcel within the call and 2.33% to maturity, and rated A+ by
the Downtown Waterfront Urban Renewal Area. This is a mature project Fitch. Taxable equivalent yields are 3.49% to the
with 65% of the properties being used for commercial activity. There is call and 3.86% to maturity for those in the top
little vacant land left, and this redevelopment area has been transformed federal bracket.
into several high-density urban neighborhoods. The issuer did a refunding A TIF of a diferent flavor is the District
in 2012 by coming to market with taxable and tax-exempt municipals. of Columbia Tax Increment Revenue for the
Assessed property values are stable, incremental revenues are rising, Gallery Place Project, comprising one million
square feet of urban retail, entertainment, resi-
dential and oice space. The project, which is
IF 3% YIELDS AND REVITALIZING close to the Smithsonian, the National Mall and
BLIGHTED URBAN AREAS ARE multiple entertainment, retail and culinary hot
IMPORTANT TO YOU, THEN TIF BONDS spots, was completed in 2005.
SHOULD STRIKE A CHORD The tax increment is paid by businesses and
residences located within the project, and these
and there is no plan to issue more debt. Buy these PORTLAND, ORE. RIVER tax-exempt bonds are rated AA– by Fitch.
DISTRICT URBAN RENEWAL & REDEVELOPMENT TAXABLE BONDS, SERIES A, 4.28% TAXABLE Buy DISTRICT OF COLUMBIA TAX INCREMENT REVENUE
MUNIS MATURING JUNE 15, 2025 (CUSIP: 73674NBQ3). Rated A1 by Moody’s, they are BONDS FOR GALLERY PLACE PROJECT (CUSIP: 254840DR9) 5%
federally taxable but exempt from Oregon state tax. The strength in the CALLABLE JUNE 1, 2021, MATURING JUNE 1, 2027. The tax-
tax base continues to be good. Bonds yield 3% to the 2022 call and 3.38% free yield to call is 1.8% and 3.35% to maturity.
to the final 2025 maturity. A bond in the tax-exempt SERIES C, 5% DUE JUNE 15, That is a taxable equivalent yield of 2.98% to the
2030 (CUSIP: 73674NCH2) will have tax-exempt yields of 1.85% to the 2022 call call and 5.54% to maturity if you are in the 39.6%
and 3.4% to maturity. bracket.
That little voice in your head should say, “Hmmm, the Portland River Essential information and details of TIF proj-
THOMAS KUHLENBECK FOR FORBES
District is mature, the financials show increasing assessed value, the top ect areas can be found in their oicial statements,
ten taxpayers include AT&T, CenturyLink and SPF Brewery, to name a which are located online at emma.msbr.org.
few. None represent more than 5.5% of total assessed value.” If so, then These TIF taxable and tax-free bonds are a great
diversification for corporate bonds in your tax-
MARILYN COHEN IS PRESIDENT OF ENVISION CAPITAL MANAGEMENT, A LOS ANGELES deferred accounts and general obligation bonds
FIXED-INCOME MONEY MANAGER. VISIT HER HOME PAGE AT WWW.FORBES.COM/COHEN.
in your municipal bond accounts. F
markets nor the individual stocks have any transaction or other costs account, if you are past middle age: 40%
associated with them. each in SCHWAB U.S. BROAD MARKET (SCHB, 49) and
What about the trading costs incurred by funds? These are a mat- VANGUARD TOTAL BOND MARKET (BND, 84), and 20%
ter of some debate, but I think a conservative estimate is that trades in VANGUARD TOTAL INTERNATIONAL STOCK (VXUS, 43).
The annual cost, per $1 million, is $620. F
GO TO FORBES.COM/SITES/BALDWIN FOR MORE ON INCOME STRATEGIES.
KIM KARDASHIAN:
MOBILE MOGUL 68
WITH KPMG
THE GREAT REWRITE:
PLANET 2.0 82
THE TRILLION-DOLLAR
TECH WAR 90
SCOTTS MIRACLE-GRO’S
CANNABIS CAPITALIST 98
GAME
CHANGERS
THANKS TO CELLPHONES AND THE APP STORE, THERE’S A NEW WAY TO
MONETIZE FAME. MEET THE NEW MOGULS OF GAMING: KIM KARDASHIAN,
ELLEN DEGENERES AND DOZENS OF OTHER BOLDFACED NAMES HAVE QUICKLY
CREATED A $200 MILLION COTTAGE INDUSTRY AROUND MOBILE GAMES.
BY NATALIE ROBEHMED
CREDIT TK
A
THE WORLD’S 100 HIGHEST-
PAID CELEBRITIES PULLED
IN $5.1 BILLION PRETAX
OVER THE PAST 12 MONTHS,
MORE THAN THE GDP
OF BELIZE, GAMBIA AND
BHUTAN—COMBINED.
1 Taylor Swift
MUSICIAN U.S.
$170 MIL
The pop superstar smashed the
Rolling Stones’ North American
touring record, grossing $200
million on the continent en route to
a quarter-billion dollars in total for s with so many glass-walled
her 1989 World Tour.
boardrooms in West Holly-
2 One Direction wood, a media mogul sits at the
MUSICIANS U.K. head of the table to do some big-money business. Pencil in
$110 MIL hand, Kim Kardashian flicks through a binder of emoji ideas,
3 James Patterson finally ticking of a red bandanna, tanning oil and a swimsuit.
AUTHOR U.S. “I should take a photo of myself in the Pablo one-piece, and you can use that,”
$95 MIL the reality television star says, referring, in the true vertically integrated nature of
CLOCKWISE FROM TOP RIGHT: EZRA SHAW/GETTY IMAGES; JESSE GRANT/GETTY IMAGES; STEFAN HOEDERATH/GETTY IMAGES; JEFF VESPA/GETTY IMAGES; MIKE COPPOLA/GETTY IMAGES
modern celebrity, to her husband Kanye West’s merchandise line. Later she will
4 Dr. Phil McGraw
PERSONALITY U.S. Instagram a selfie in the swimsuit that her app developer, Whalerock Industries,
$88 MIL will turn into an emoji and include in an app that her fans can download for $1.99.
It’s easy to scof at this and pretty much everything else Kim Kardashian does.
4 Cristiano Ronaldo
ATHLETE PORTUGAL The embodiment of the selfie era, she has stoked the notoriety she gained from a
$88 MIL sex tape a decade ago by sharing almost every detail of her life, begetting, like some
nightmare mash-up of Andy Warhol and Groundhog Day, perpetually more fame.
6 Kevin Hart But in obsessing over the details of an avatar, Kardashian has stumbled into an
COMEDIAN U.S.
$87.5 MIL entirely new way to monetize fame, and she’s been shrewd enough to capitalize on
Small guy, big year: a massive scale. Kardashian stars in a mobile game, Kim Kardashian: Hollywood,
The 37-year-old
comedian packed in which players create their own celebrity, befriend Kim and work their way onto
venues at a level the A-list.
more comparable
to Bruce Vapid, yes, but the numbers look very smart. Since its June 2014 launch Kim
Springsteen or Paul McCartney than Kardashian: Hollywood has been downloaded 45 million times and generated
to Louis C.K. or even Jerry Seinfeld,
all of whom he outearned. $160 million in revenue. FORBES estimates that Kardashian has pocketed $45 mil-
lion from it over that period. This year she earned $51 million to land at No. 42 on
7 Howard Stern FORBES’ Celebrity 100 list; 40% of her yearly paycheck came from the game.
RADIO HOST U.S. She’s not alone. As gaming has moved from consoles to desktops to smartphone
$85 MIL
apps, the ability to create a marketable game has spread from pro athletes to pret-
8 Lionel Messi ty much anyone with a following. Some are obvious: action hero Jason Statham in a
ATHLETE ARGENTINA shoot ’em up game. Football announcer Tony Gonzalez, a former
$81.5 MIL
all-pro, coaches personal training sessions. But many are plow-
ing niches at the end of the long tail: Tom Hanks, an avid
typewriter collector, built an app that simulates writ-
9 Adele ing on a typewriter, while William Shatner’s Shatoetry
MUSICIAN U.K. composes poetry for purchasers. From pretty much no-
$80.5 MIL where at the beginning of the decade, celebrity-driven
With a new album that sold a
record 3.38 million copies in its mobile games have become a $200-million-a-year busi-
November 2015 opening week, she’s ness, FORBES estimates, with at least 30 celebrities—in-
the only musician on our list who
made more than half her money cluding 12 of the Celebrity 100—either boasting their own
from music. mobile game or ready to release one.
WHILE THE GENESIS ULTIMATELY goes back to pinball and slot machines, the father
16 Roger Federer
ATHLETE SWITZERLAND
of modern celebrity gaming was, unsurprisingly, Michael Jackson, with his 1990 $68 MIL
Sega game, Michael Jackson’s Moonwalker, which console players could dance
through. Still, it was mostly a boys’ thing; the percentage of adults who owned and 17 AC/DC
MUSICIANS AUSTRALIA
regularly used consoles was small, and videogame players skewed heavily male, $67.5 MIL
cutting of at least half the potential market.
Now, however, pretty much all of us have a game platform in our pocket and 18 Rolling Stones
MUSICIANS U.K.
purse at all times. The smartphone has opened the industry up to a far wider audi- $66.5 MIL
ence—55% of mobile gamers are women, according to research firm EEDAR—and
helped the celebrities shilling for it make millions more from back-end profits 19 Dwayne Johnson
ACTOR U.S.
over upfront endorsement deals. $64.5 MIL
“I love my big computer, but I can’t even tell you the last time I sat in Rock-solid box-oice numbers
front of it,” says Kardashian, 35, gesturing to her iPhone 6 Plus with her helped the erstwhile wrestler
become the world’s highest-paid
white-painted nails. “I’m always on my phone.” actor.
Leading the charge in celebrity-driven mobile games is Glu Mo-
bile, the San Francisco-based developer behind Kardashian’s and 20 David Copperfield
MAGICIAN U.S.
Katy Perry’s games. Owned in part by Chinese tech giant Ten-
$64 MIL
cent, Glu has bet big on star subjects: 30% of its $249.9 mil-
lion in 2015 revenue came from games with celebrity names in 21 Calvin
the title, including $71.8 million generated by Kim Kardashian: Harris
MUSICIAN U.K.
Hollywood.
$63 MIL
Glu’s secret sauce: “Take a game engine that we already know
has a high lifetime value and monetizes well and figure out how 22 Diddy
to turbocharge it,” says CEO Niccolo de Masi. Turbocharging MUSICIAN U.S.
$62 MIL
means overlaying a celebrity with a huge social following on top of
tested games that have already succeeded on their own merits.
Kim Kardashian: Hollywood was patient zero. It started life
as Stardom: The A List (2011) and Stardom: Hollywood (2013),
in which players earn points to work their way to fame. At its
ACTOR U.S.
$46 MIL
37 Phil Mickelson 43 Kobe Bryant 46 Johnny Depp For the second
ATHLETE U.S. ATHLETE U.S. ACTOR U.S. straight year
$53 MIL $50 MIL $48 MIL Lawrence is
The NBA’s third Hollywood’s
37 Cam Newton all-time leading 47 Toby Keith highest-paid
woman.
ATHLETE U.S. scorer retired MUSICIAN U.S.
$53 MIL as its top all- $47.5 MIL
time earner,
after pulling
51 Tiger Woods
37 Jordan Spieth in $680 48 Judy ATHLETE U.S.
$45.5 MIL
ATHLETE U.S. million during Sheindlin
$53 MIL his playing PERSONALITY U.S.
With $21 million in prize money, career. $47 MIL 52 Eli Manning
including his $10 million FedEx Cup ATHLETE U.S.
bonus, golf’s golden boy nearly 44 Muse $45 MIL
tripled last year’s haul.
49 Lewis
MUSICIANS
U.K.
Hamilton 53 Joe Flacco
ATHLETE U.K.
$49 MIL ATHLETE U.S.
$46 MIL $44.5 MIL
CLOCKWISE FROM TOP: DUSTIN BRADFORD/GETTY IMAGES; MICHAEL ROZMAN/WARNER BROS; GREGG DEGUIRE/GETTY IMAGES; PATRICK SMITH/GETTY IMAGES
57 Jerry Seinfeld a measly six-figure revenue. word on the cellphone screen held to a friend’s head as time
COMEDIAN U.S. Even the world’s glitziest counts down. Topics include superstars and blockbuster movies;
$43.5 MIL
athlete doesn’t succeed the app records videos of goof-ups. Simple—and lucrative.
58 Ben Aleck if the context is wrong. The idea was spawned from The Ellen DeGeneres Show,
ACTOR U.S. Soccer star Cristiano when DeGeneres played a version with guests holding
$43 MIL Ronaldo (No. 4 on the physical cards. Developers worked on it for six months ahead
Celebrity 100) released of its May 2013 launch, and it immediately shot to the top of
58 Sofía Vergara the App Store and was downloaded over 650,000 times in
ACTOR COLOMBIA Cristiano Ronaldo:
$43 MIL its first month. DeGeneres provided priceless marketing by
Superstar Skater in
Sure, she makes millions from playing it with celebrities on her variety show.
Modern Family, but the actress
2015. Rather than
Despite her in-show backing, DeGeneres’ branding is
has learned the real money is feature him on a pitch, purposely sparse. Fans will identify her eyes in the logo and
in endorsements and licensing
deals: She promotes furniture,
Ronaldo skateboards recognize a show regular, Jeannie, in its App Store examples,
cofee machines and even through the streets but there is little else. That has likely helped it reach outside
nursing uniforms.
of Las Vegas eluding the demographics of the show, inching into bars and family
60 Rory paparazzi. The bizarre dinners. (Heads Up! Kids, a picture version that removes the
SINCE MOBILE GAMES FOLLOW the hits model, they face the same
68 Jennifer Lopez
MUSICIAN U.S.
pressures. Kardashian’s younger Jenner half-sisters released a game, Kendall & $39.5 MIL
Kylie, in February, which is the Glu version of a spinof. It grossed $8.6 million in Jenny From the
Block has more
its first six weeks—very good, but not spectacular. rocks than ever,
And, as could be expected, even Kim Kardashian: Hollywood has seen a slow- thanks to her
gig judging
down: It made $2.5 million less during 2015 than it had just six months prior. While the last season
Glu’s revenues more than doubled between 2013 and 2014 and have crept up fur- of American
FROM TOP: TONY BARSON/GETTY IMAGES; RAY MICKSHAW/FOX/GETTY IMAGES; ANDREW CHIN/GETTY IMAGES; CLAUDIO PASQUAZI/ANADOLU AGENCY/GETTY IMAGES
Idol, a handful
ther since, investors are skeptical that it can reproduce its success. Its market cap has of live shows and
been more than halved in the past year, to a bit over $300 million; it posted a net loss endorsement deals
with the likes of L’Oréal.
of $7.2 million in 2015. Its multiple is a below-market 10.9.
To chase the next hit, Glu is doubling down on its tactic by signing up 69 Drake
the biggest stars in multiple categories. Taylor Swift, who sits atop the Ce- MUSICIAN CANADA
lebrity 100, will release a game later this year. The Celebrity 100’s top chef, $38.5 MIL
Gordon Ramsay, just released Gordon Ramsay Dash, which is consistent The Canadian rapper had the
best music sales of anyone not
with the Kardashian model and his area of expertise. The game is a celeb- named Adele.
rity-charged overlay of an existing Glu release, Cooking Dash, whose 2016
version has been downloaded an estimated 15.6 million times and has gen- 70 Philip Rivers
ATHLETE U.S.
erated some $27 million. That’s before Ramsay’s firepower has even been $38 MIL
applied.
Nongaming companies are diversifying into celebrity apps that bank on the 70 Tiësto
MUSICIAN NETHERLANDS
growth in messaging. “[Gaming’s] not going away, but it will converge with all things $38 MIL
mobile,” says Zack Sugarman, vice president of digital at Wasserman Media Group.
“You have to include communication, chat and emoji, though.” Hence Kardashian’s 72 Zlatan Ibrahimović
ATHLETE SWEDEN
conference room fussing with her “Kimoji,” launched in December, which has since
$37.5 MIL
spurred simulacra from basketball player Steph Curry (StephMoji), Justin Bieber
(JustMoji) and others. 72 Rafael Nadal
Kardashian’s new push: a $2.99-a-month eponymous app that gives paying ATHLETE SPAIN
$37.5 MIL
users exclusive beauty tutorials and Kardashian content, which currently in- Last year was the first since 2004
cludes “How to Go Four Days Without Washing Your Hair” and “Bronzed in which the tennis champ did not
and Braided.” win a grand-slam event, ending
his record ten-year streak—but he
“When people looked at me in a way like, ‘Why is she stepping into still had his second-best earnings
the tech world? That’s not her territory! Stick to reality TV!’ I was like, total ever.
‘No,’ ” Kardashian recalls. “This is fun for me. Now I’m coming up with (Continued on page 78)
Kimojis and the app and all these other ideas. I don’t see myself stop-
ping.” No matter the medium, looks like we’re stuck with her. F
CREDIT TK
days emulating the music of Soul Train and practicing bae Cho, managing director of concert promoter Live
the dance moves of Michael Jackson. In 1992 singer Seo Nation Korea. “With Western artists we tend not to see
Taiji came to Yang to learn how to dance; they teamed up these kinds of phenomena.”
with a third member to create Seo Taiji and Boys, which Despite Psy’s international breakthrough and
married hip-hop and catchy melodies. Their first hit, Bigbang’s explosive earnings, K-Pop is still largely a
“Nan Arayo (I Know),” made Rolling Stone’s list of the regional industry when it comes to cash, at least as
best boy band songs of all time. far as YG is concerned. South Korea accounts for 40%
At the height of Seo Taiji and Boys’ popularity in of revenues, while the bulk of its international audi-
1996 Yang walked away to launch YG, where he created ence comprises Japan (36%) and China (20%). Even
a K-Pop factory. One of his early charges was G-Drag- so, Western brands are circling the genre: LVMH paid
on, who started receiving musical training from him $80 million to buy 12% of YG in 2014. Additional cash
around age 12, along with future group member Dong may be coming from the South Korean government,
“Taeyang” Youngbae. After the pair survived an Ameri- which has been in talks with YG on a $100 million
can Idol-style TV competition, Yang did what Simon entertainment-focused construction project outside
Cowell would later do with One Direction: pair them of Seoul. The proposed joint venture aspires to be-
with fellow contestants to form a boy band calibrated come the Studio City of K-Pop, complete with a mall,
for maximum appeal. concert venues and recording studios.
The band made its debut in 2006 and embarked on The next prize lies in North America, with its abun-
a grueling schedule, releasing six albums in the next dant modern arenas and free-spending crowds. Though
six years—two in Korean and four in Japanese—with the U.S. makes up only a single-digit portion of YG’s
English lyrics sprinkled throughout for good measure. sales, top acts are selling out arenas on both coasts,
YouTube then took them global. “Didn’t make us money,” prompting some major players in Hollywood to get
says YG’s Joojong Joe. “But still it was good exposure.” involved. Psy and one of the stars from the 2NE1 girl
YG is vertically integrated, collecting cash not only group have been scooped up by Scooter Braun, whose
from record sales but also from acting as a combina- management roster includes Celeb 100 veteran Justin
tion of manager, concert promoter and talent agency. Bieber and 30 Under 30 honoree Martin Garrix. (YG still
The strategy, not unlike the one adopted more recent- handles the two K-Pop idols’ non-U.S. business.)
ly by Jay Z’s Roc Nation, means YG isn’t dependent Remarkably, Bigbang has earned far more than Gar-
on income from recorded music, which makes up just rix and almost as much as Bieber. That might come as
25% of its revenues. YG makes just as much from live a shock to most, but not to Yang. “I am not surprised
music as it does from recordings, thanks in large part by their success,” he says. “I was certain that they were
to Bigbang: The group has been grossing an average going to be loved by everyone in the world.” F
Digital
Door-to-Door
THE HOUSE OF THE FUTURE IS BEING SOLD IN THE MOST OLD-FASHIONED WAY
IMAGINABLE: BY POUNDING THE PAVEMENT AND WORKING THE PHONES. SO WHY
ARE SOME OF SILICON VALLEY’S SHARPEST INVESTORS SUDDENLY INTERESTED?
BY AARON TILLEY
O
n the first warm summer week of the year sors, whether they are made by Vivint or one of its partners.
in Provo, Utah, the headquarters of Vivint Built on the back of a humdrum home security enterprise,
Smart Home appears quiet. It’s not till you Vivint has grown into one of the world’s biggest and most
make your way to the second floor that you successful “smart home” businesses, the most visible com-
stumble upon a flurry of activity. That’s where ponent to the average consumer of the burgeoning Internet
row after row of cubicles house mostly young men in their of Things. Still private, Vivint was valued at over $2 billion
20s, many sporting beards and tattoos. Some stand or pace in late 2012, and it hit $650 million in revenue last year, 16%
about the room with headsets on, their eyes focused on more than the prior year. It recently attracted a $100 million
sales scripts. Others stare into the distance past suburban investment co-led by billionaire tech investor Peter Thiel,
oice parks and toward the scrubby foothills of the Wasatch who recently made headlines for secretly funding Hulk Ho-
Mountains. Mawkish soft rock plays in the background. gan’s privacy lawsuit against the gossip-rag website Gawker.
Above the cubicles, a monitor flashes the names and num- In contrast to Silicon Valley’s gadget-obsessed innovators,
bers of top salespeople. This year’s prize for the number- who tend to agonize over product design and tech specs,
one seller is a trip to Hawaii. Vivint has succeeded on the sheer power of its sales network.
It’s a pretty low-tech operation, especially when you con- Its door-to-door salespeople spend long days proselytizing
sider these reps are selling the future. Along with an army of the benefits of the smart home to anyone who will listen.
2,500 door-to-door salespeople across the United States and It’s not just the legion of peddlers that makes Vivint
Canada (and a few in New Zealand), these 200 or so Utahans unique. The company owes its success, in part, to a business
are aggressively pushing the Vivint smart home. They have model that breaks with industry norm. Rather than sell you
already managed to persuade more than a million homeown- individual smart home devices, which can be pricey, Vivint
ers to pay between $40 and $80 a month to have their houses relies on a subscription model. The company installs an av-
come to life with Internet-connected thermostats, lights, erage of $1,500 worth of hardware into a home—a mixture
TIM PANNELL FOR FORBES
door locks, doorbells, garage door openers, cameras and sen- of gadgets made by Vivint and the likes of Nest and Ama-
zon—and in return it charges a monthly fee that can total
Traveling tech salesmen: Vivint Smart Home president Alex Dunn $480 to $960 per year. Customers sign a contract, which lasts
(left) and CEO Todd Pedersen. between three and a half and five years. Vivint doesn’t actu-
Planet 2.0
part “grown” by Modumetal
on the right.The company’s
patented coatings and
alloys can extend the life
of materials deployed
in highly corrosive
industrial environments.
On the web, anyone can be a global content pioneered an atom-by-atom way to build stronger
creator, merchandiser, manufacturer, opinion metals, skipping the traditional process of melting
inluencer. Power is dispersing. Markets are being ore to “grow” alloys stronger than steel. Scientists
blown to bits. Age-old institutions—from business elsewhere are working on “smart” concrete that
to politics to religion—are experiencing unprec- can repair itself.
edented pressure to stay relevant. The rise of 3D printing is transforming the basic
On public roads, autonomous vehicles—comput- concept of manufacturing, lipping it from a sub-
erized cars and trucks with no drivers—are a reality tractive process (cutting raw materials down into
and soon may be transporting cargo and people. parts or molds) into an additive process, “printing”
They will be powered by new kinds of portable whatever shapes we want from scratch. This enables
energy, as the planet moves away from carbon-based vastly quicker production times and mass custom-
fuels toward more renewable technologies. ization of products for customers. It also enables
technology to create human tissue for way he could print a document from a
medical research. The company eventu-
ally plans to provide “tissue on demand” “The challenge word processor. Crump invented fused-
deposition modeling, or FDM—nozzles
to surgeons. Elsewhere in laboratories,
with changing depositing layers of material in three
OF ANY ENTITY OR ITS PRODUCTS OR SERVICES. THIS CONTENT REPRESENTS THE VIEWS OF THE AUTHOR, AND DOES NOT NECESSARILY REPRESENT THE VIEWS OR PROFESSIONAL ADVICE OF KPMG LLP.
scientists have tools for editing genomes, dimensions from a computer design.
and the promising and terrifying potential
to alter or eliminate entire species.
the world is “One of the things that I retaught
myself as an inventor is that you have
We are amid the largest era of
institutional change in the history of
that there to break the rules, or the status quo,
of what currently deines reality,”
our planet. We’re calling it “the Great
Rewrite.” In a series of reports, here and
is an old way Crump says. “You have to operate sort
of uncomfortably different.”
at www.forbes.com/TheGreatRewrite, of doing things.” FDM now is used to create more
we will explore the profound forces than just prototypes. Surgeons are
CHRISTINA LOMASNEY
at work in business and beyond. The working with precise 3D color models
Cofounder and CEO, Modumetal
Great Rewrite is a phenomenon that of patients’ internal organs, created
goes beyond conventional deinitions directly from CT scans, to preplan sur-
of disruption and innovation. More gical strategies. In Japan, automaker
than incremental growth or transforma- Daihatsu will later this year begin
tive business models, it frames global allowing buyers of its Copen roadster
advancements leading to mass business to go online to select body textures and
opportunities and societal beneits. The colors for new cars in almost ininite
changes coming via this rewrite won’t be variety. The plastic body detailing will
conined to disrupting individual prod- be custom-printed by Stratasys printers
ucts or markets. They will ripple across for each vehicle individually on the
industries and institutions, fundamen- factory loor.
tally altering the way our species lives. If Daihatsu, Japan’s oldest carmaker,
They will build new industries, force the can rewrite its base unit of automotive
hand of markets and set us on a path of creation, other traditional companies
deep upheaval to the status quo. can, and must, do the same. In coming
Modumetal is rewriting time-tested months, our reports will explore more
processes for creating metal. Physicist rewrites in manufacturing, energy,
Christina Lomasney, the company’s CEO healthcare and other sectors. Our goal
and cofounder, compares the company’s in presenting examples like these is to
new-style alloys to plywood. They are try to put a framework around what is
“grown,” using layers of metal atoms, happening, to provide a north star. Our
aligned in ways that can give a inished aim is to offer guidance for not just
metal properties like extra strength or understanding this Great Rewrite that is
corrosion resistance. Existing metals and reshaping the planet, but establishing a
even plastics can be coated using the footprint in it and working on a path to
same process. execute in its wake.
The process involves modulating From top: Organovo uses 3D printing technology to create human
tissue for medical research. CEO Keith Murphy with Chief Scien-
electric current through raw materi- tific Officer Sharon Collins Presnell at the Organovo headquarters.
KPMGVoice: Read more of The Great Rewrite series
The company eventually plans to provide “tissue on demand”
als—hence the company name. There’s to surgeons. at forbes.com/TheGreatRewrite
ally start making a profit until about three $3.2 billion in 2014. But one of its products, the
and a half years into the relationship. It’s akin Protect smart smoke detector, malfunctioned
to carriers subsidizing the price of a smart- and had to be temporarily recalled. Later the
phone. It helps customers avoid the sticker company faced internal strife over its $555
shock of an expensive purchase, and it gives million acquisition of Dropcam, which makes
the company a recurring revenue stream. Internet-connected security cameras, leading
“We know that for the smart home to suc- to several departures. Last month Fadell left,
ceed, it has to be a service that’s delivered to though he remains an advisor to Alphabet CEO
the customer,” says Todd Pedersen, Vivint’s Larry Page. While Nest is said to be growing
muscular and ultra-competitive cofounder at a 50% annual clip and is reported to have
and CEO. “We have to win business every day, reached $340 million in revenue last year, it has
every month, every year. We’ve done this for not created a new product category since the
so long, and we know it’s complicated. To get Google acquisition. Strategy Analytics esti-
lots of hardware to communicate and do it ef- mates it sold only 1.3 million thermostats last
fectively in a way that delights the consumer year. And it’s not alone in its struggles to reach
is not easy.” a mass audience. As of now a mere 5% of U.S.
households have a smart home device, accord-
SILICON VALLEY HAS promised us ing to research firm Forrester. That number
the smart home for decades. One of the is expected to grow to only around 16% by
earliest proposed uses for the Apple II, in 2021. “The reason the market is growing so
the late 1970s, was to add brains to the kitchen NEST CAM gradually is because it can only grow as fast as
(largely by storing recipes), and ballyhoo A security camera that people are willing to buy $100 to $200 acces-
about an Internet-connected fridge, the one lets you know if there’s sories,” says Frank Gillett, a Forrester analyst.
any activity at home (and
that famously orders milk when you run low, “Until the industry comes up with a diferent
lets you look in) while
has erupted regularly since the first dot-com you’re away. For $10 a revenue model, it’s only people who are willing
bubble. Mostly the products have seemed month, Nest will hold to upgrade their thermostat for $250, and most
like cumbersome technological solutions in on to 10 days of video people aren’t.”
search of a problem. history; for $30 a month,
it will hold on to 30 days.
But now that seems to be changing. A VIVINT’S PEDERSEN is convinced he has
flood of cheap Web-enabled sensors con- found the model that will push the industry
nected to ubiquitous high-speed forward. At 47, he is an unconven-
home networks have made the tional CEO. Broad shouldered and
smart home feel less like market- typically wearing a bright orange
ing hype and more like a market baseball hat with the Vivint name
opportunity. All the tech giants— on the front, he looks better suited
Alphabet, Amazon, Apple and for of-road truck races—one of
Samsung—are making major bets his hobbies—than for the execu-
on the smart home. The results tive suite. He recently experienced
have been mixed. While there are a tragedy while participating in a
compelling devices like Alphabet’s 500-mile of-road race in Baja Cal-
Nest learning thermostat and Am- ifornia. In a maneuver intended
azon’s Echo smart speaker, none to avoid a group of fans near the
have gained mass adoption. For coastal city of Ensenada he ended
many consumers, the technology remains PHILIPS HUE up hitting three spectators, including an 8-year-
too expensive and too hard to install, and its LIGHTBULBS old boy, who was killed. “My heart is torn up
The Philips Hue
value is still not always clear. over it,” Pedersen says.
Lightbulb was the first
The recent struggles of Nest Labs, the mainstream Internet- A Mormon, Pedersen grew up with ten
poster child of the current smart home connected lightbulb to brothers and sisters in southern Idaho. His
boomlet, serve as a cautionary tale. Led by enter the market. With father was an orthodontist. While attending
Tony Fadell, a former Apple executive who the push of a button, Brigham Young University in Provo, he paid for
these lights can turn
helped design the iPod and the iPhone, Nest his education by cleaning houses and installing
to almost any color
focused on technology and design. Google, imaginable. drywall. One summer between his sophomore
now Alphabet, acquired it for a whopping and junior years, he drove to California to inter-
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THE INTERNET OF THINGS VIVINT
view for a job selling pest-control services. He unit economics over the lifetime of a
was turned down because the owner thought customer, it’s very profitable.”
the young Pedersen wouldn’t be any good With the new money from
at it. The rejection was the spark that lit his Blackstone and the public debt
entrepreneurial fire. He dropped out of the market, Vivint has also expanded
university and founded his own pest-control into a flurry of other businesses, such
business in as Internet services and solar installa-
1992 and tion. Vivint Solar spun out as an indepen-
began selling dent unit and went public on the New
door-to-door with York Stock Exchange in 2014.
a group of friends. “I’m too competitive,” he There have been bumps along the
admits. “It’s one of my faults.” way. Door-to-door sales have landed
In 1999 Pedersen decided to transfer his HAIKU CEILING FAN Vivint in hot water. The company has been
This fan knows where
sales know-how into the home-security busi- you are. It has an subjected to numerous lawsuits and customer
ness, which was booming in Utah. He tran- infrared motion sensor complaints that center on overaggressive
sitioned his successful pest-control business to keep track of salespeople and misleading sales pitches. Last
into APX Security, which resold third-party occupancy, and then year it settled a class action, to the tune of $6
ambient temperature
home security systems built by the likes of million, for so-called robocalling. Vivint denied
and humidity sensors
GE and Honeywell. The business didn’t really help keep the room at a wrongdoing. The problems are similar to those
take of until 2005, when Pedersen hired Alex comfortable temperature. faced by others with door-to-door sales mod-
Dunn, a veteran of the software industry who els. “They have the same issues that everyone
had served as deputy chief of staf for then- that does this has,” says Jane Driggs, president
Massachusetts Governor Mitt Romney. of the Better Business Bureau in Utah,
Dunn brought with him the first outside which gives the company an A– rating.
investment the company had ever taken. But pounding the pavement is be-
Goldman Sachs and two private equity coming less important to Vivint as more
groups purchased a 50% stake for $25 consumers are becoming aware of the
million. The company used that cash to connected home and start to seek out
fund its early moves into the smart home. the gadgets on their own initiative. The
In 2010 it started selling its first pieces of fastest-growing part of Vivint’s busi-
smart home equipment, and a few months ness is coming from inbound calls to its
later APX became Vivint. call center—in other words, people who
In late 2012 Blackstone bought out actually want to buy from Vivint rather
that 50% stake and added another 23% than have to be persuaded to buy from
for a price just north of $2 billion, giving it. The number of customers acquired
the previous three investors a return of through the call center is up 89% year
25 times their investment. All the while, over year. At this point, Vivint gets 65%
Vivint’s management has maintained of its business from door-to-door and
roughly 20% ownership of the company, 35% from the call center.
with the largest chunk reserved for Peder- As a result, the quality of Vivint’s
sen at 12%. FORBES estimates Pedersen technology is becoming more impor-
has a net worth of more than $250 million. tant than the size of its sales force. That means
With the 2012 deal, Goldman Sachs also SAMSUNG’S forging closer ties to Silicon Valley, but as a
brought a debt facility for Vivint to fund its FAMILY HUB door-to-door reseller of (mostly) other people’s
business model. It typically takes the compa- REFRIGERATOR tech it has a hard time being taken seriously
For $5,600, this fridge
ny more than three years before it starts mak- has more tech on it than
there. Beginning in 2015 Pedersen and Dunn
ing a return on an installation. That means is probably necessary. A made monthly pilgrimages to the Bay Area to
Vivint is burning through cash and is not giant, crisp touchscreen talk with venture capitalists and tech players.
currently profitable. In 2015 it had more than sits in front and can run They were getting turned down over and over
$650 million in sales, but its operating costs apps and even browse again. “People were dismissive,” says Pedersen.
the Web. Three cameras
were more than $760 million. “There’s lots of inside take pictures of
A breakthrough came with Peter Thiel, whom
cash going out and not as much coming in,” your food. they first met in early 2015. After going back
Dunn says. “But when you take a look at the and forth for a year, Thiel agreed to colead a
wequassett.com
Cape Cod’s Only Five Star Resort. On Pleasant Bay, Chatham. 800.225.7125
THE INTERNET OF THINGS VIVINT
The
Trillion
Dollar
Tech War
AS THE DATA-INTENSIVE INTERNET OF THINGS
BECOMES A REALITY, THE CLOUD IS SHAPING UP
TO BE THE BIGGEST BUSINESS OPPORTUNITY IN
A GENERATION, AND AMAZON, MICROSOFT AND
GOOGLE ALL WANT TO CLAIM THE BIGGEST SLICE.
BY ALEX KONRAD
F
GROOMING BY SUZANA HALLILI FOR MINERALS BLACK TIE
or months and months, as Google’s brain to Mendel Rosenblum, a well-known computer science
trust searched for the ideal candidate to lead professor there, and the couple has lived on campus for
the company’s come-from-behind bid for its decades. Greene, who is 61, speaks softly, and her round
biggest new opportunity since Larry Page face, framed by blond hair that stops just above her shoul-
and Sergey Brin began putting ads on their ders, frequently lights up into a warm smile. But behind
JAMEL TOPPIN FOR FORBES
search engine, one name kept coming up: Diane Greene. that mom-next-door demeanor is a sharper edge, which
Little known outside Silicon Valley, Greene is a legend flashes in her eyes when the topic turns to competition.
in tech circles and had been friendly with Page and Brin Like the Google guys, Greene brims with ambition, brings
since their grad-school days at Stanford. She is married an engineer’s mind-set and has the entrepreneurial bug.
The same year Page and Brin took a leave of absence from Google, which over two decades has built what is es-
Stanford to start Google, Greene, Rosenblum and three sentially the world’s biggest computer network—a sprawl-
others teamed up to start VMware, which revolution- ing array of massive, connected data centers spanning the
ized how companies managed their data remotely using a globe and equipped with software to power all sorts of
technique called virtualization. Greene served as its CEO applications—seemed in a perfect position to capitalize on
for ten years, building a business valued at $49 billion at the new era of the cloud. Indeed, many inside and outside
its peak and developing a reputation as a singular talent: a the company see cloud computing as Google’s biggest
computer science whiz with impeccable executive abili- moneymaking opportunity outside of advertising. Yet as
ties who understood the business of selling technology to a juggernaut that built a $75 billion business by providing
the world’s biggest companies. free Web and mobile services
In a potent validation of her to consumers, Google did
industry status, Page recruited not have the DNA to create a
Greene to Google’s board of giant new operation focused
directors in 2012. solely on selling technology
As a board member, Greene services to other businesses.
began advising Google execu- That’s why Greene’s name
tives on a missed opportunity: kept coming up. As Google
cloud computing. The idea of came to terms with the op-
renting computing power to portunity, Page asked her
businesses had been around to take over the company’s
for some time, and Google had cloud computing eforts. She
dabbled in it since 2008, when demurred. Soon enough,
it first allowed startups to other executives and fellow
build their apps atop its prodi- board members followed up
gious network of data cen- with her. It was finally Urs
ters. But Google, distracted by Hölzle, one of Google’s earli-
other pursuits—search, maps, est engineers and the man
mobile and self-driving cars, most responsible for building
to name a few—never got seri- Google’s computing infra-
ous about the cloud business. structure, who persuaded
That didn’t stop cloud Greene to take the job, as the
computing from developing, two of them walked their dogs
nearly a decade later, into a together in the Stanford hills.
tsunami that is remaking how Google Cloud Platform chief Diane Greene is on a quest to There was one wrinkle:
businesses think about and use catch up to Amazon. Greene was busy with a
technology. First a new crop of new, secretive startup called
startups—Airbnb, Instagram, Pinterest and others in their Bebop, which was developing tech to power easy-to-use
cohort—built most of their operations on cloud services business-software applications. So in November of last
supplied by others. More recently, large corporations— year, Google acquired Bebop for $380 million and named
the likes of GE, NBC and Shell—have begun moving more Greene the head of Google Cloud Platform, giving her the
of their applications to the cloud. reins to build a salesforce and revamp a unit that spent
Now nearly every company is following suit, particu- $10 billion on growth in 2015. The appointment thrust
larly industrial and logistics giants that see a tremen- Greene into an unusual role: As an Alphabet board mem-
dous opportunity in the so-called Internet of Things. By ber, she is, in some sense, Page’s boss. As head of cloud
deploying webs of connected sensors to run their busi- computing, she works for Google CEO Sundar Pichai,
nesses more eiciently, these companies are now depend- who reports to Page.
ing on IoT applications to manage truck fleets around the Greene faces a daunting task. While Google dith-
globe, monitor soil and ambient conditions in an agribusi- ered, Jef Bezos ate the industry up. His improbable bet
ness operation, or maintain elevators. For huge amounts in 2006 on something called Amazon Web Services, or
JAMEL TOPPIN FOR FORBES
of data there’s nothing easier than the cloud. As a whole, AWS—a business so removed from the company’s retail
the shift to cloud applications represents a generational core that its announcement left many scratching their
transition in business computing that may be as signifi- heads—has become a runaway success whose growth has
cant as the advent of networked PCs. surprised even Amazon. With more than a million cus-
Most business and technology leaders today agree that deeper application of IoT data can companies realize new
the Internet of Things (IoT) represents an unprecedented innovations, revenue streams and cost savings.
opportunity in terms of ground-breaking insights and
entirely new ways to understand and engage with both The winners in IoT, then, are those who are developing
customers and “things.” But in actuality, IoT’s full promise that larger, systems-wide vision. They’re basing their
has thus far failed to materialize, in part because of the initiatives on IoT projects that can optimize entire
narrow ways in which organizations define and pursue systems, whether that is the supply chain, a smart city,
the potential capabilities. a production plant or cutting-edge medicine. They’re
investing in an integrated, scalable, analytical platform
Businesses need to develop the organizational and that opens up the possibilities for staff to make sense
technological capabilities to use IoT data at scale, as of the data generated by IoT. That is how they’re fully
well as understand the relationships and dependencies ready to realize the true promise and transformational
across a complex system, such as a smart city, a factory opportunity of IoT.
floor or a supply chain. Only through a broader and
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THE INTERNET OF THINGS CLOUD WARS
tomers, AWS is on track to generate $10 billion in revenue have thought this was possible when he and other Ama-
this year, and its profits ($600 million in the first quarter zon execs hatched plans for AWS more than a decade ago.
alone) single-handedly keep Amazon in the black. It was, on many fronts, a clever idea. Amazon had already
What started with a set of three services has since ex- built a flexible computer infrastructure to store the data
panded to more than 70 diferent capabilities, and today and run the applications that powered its fast-growing
entire companies are running on AWS. Its operations, retail operations. Why not package those capabilities and
powered by Amazon’s data centers, exert a gravitational ofer them to others?
pull on the entire Internet. On Sunday nights, as Netflix The launch of AWS proved to be perfectly timed: It co-
subscribers settle in to watch their favorite shows, roughly incided with a new boom in social media and mobile start-
30% of all the bandwidth in the United States runs through ups. Thrifty entrepreneurs racing to build apps loved the
AWS, which powers the company’s videos. Amazon likes idea of of-loading all the headaches of running servers and
to boast that, thanks to AWS, building a tech business is as data storage systems onto someone else, and AWS immedi-
easy as assembling a set of Legos. “Anyone can now man- ately became the number one option. It remains so to this
age a global business driven by technology,” says Amazon day. “They’re not the only game in town, but they’re the
CTO Werner Vogels, who recently unveiled a new set of automatic choice,” says Jason Seats, a partner at Techstars,
AWS capabilities, including some a high-profile startup accelerator.
tailored to IoT applications, at an Bezos and crew are now engaged
event in Las Vegas. in a balancing act: appealing to the
For all of Amazon’s domi- AMAZON’S CLOUD much larger corporate market with-
nance, the cloud computing PLATFORM LAUNCHED out losing credibility with the startup
wars are just getting started. As set. That transformation was apparent
corporate America and multina- AT THE IDEAL TIME: IN at the company’s re:Invent confer-
tionals around the world grow A BOOM OF STARTUPS ence in Las Vegas. Held in October,
more comfortable with the idea EAGER TO OFF-LOAD the conference attracted some 19,000
of replacing pricey computing techies and developers. Many were
hardware that they have to buy STORAGE HEADACHES there to learn about new AWS tools—
and maintain with a pay-as-you- TO SOMEONE ELSE. like on-demand business intelligence
go model, the market is expected or security—that are essential to the
to balloon to anywhere from $370 CIOs and CTOs of America’s largest
billion (more than ten times its companies.
current size) to potentially as much as $1 trillion. Among the big reveals was a new IoT platform to track
Regardless of whether the most bullish projections and store the data streaming in by the petabyte, as every
bear out, it is an enormous market—comparable in scale, toothbrush, trash can, city bus and oil drill becomes a sen-
for example, to the global smartphone business. It’s sor. Amazon’s twist: Its cloud platform keeps a “shadow”
no wonder that it has the biggest superpowers in tech version of a device in its system that users can interact
battling one another for customers and mind share. A with when the device is offline. The list of customers
resurgent Microsoft, driven by CEO Satya Nadella, who that showed up to hear Vogels and AWS CEO Andy Jassy,
once oversaw that company’s cloud computing unit, has the two headliners, read like a Who’s Who of corporate
bet aggressively on the business and established itself as America: Accenture, Capital One, Intel and GE. The CTO
a solid number two behind Amazon with its Azure cloud of John Deere took the stage to demo an app built on the
service. IBM, which remains ahead of Google in mar- new IoT package that monitors its vehicles in the field.
ket share, and others are also investing to secure a piece BMW showcased a connected-car app. They joined the
of the pie, so the stage is set for a multiyear battle that ranks of customers like the state of Washington and, in a
will be as fierce as any the industry has seen in decades. public relations coup for AWS, the Central Intelligence
Greene understands she’s the underdog, but she’s said Agency, which inked a $600 million multiyear contract to
over and over that Google has what it takes to succeed: move some operations onto the cloud.
grit, money and massive technological prowess. “I’ve al- Yet as Amazon has cemented its lead in the fast-grow-
ways enjoyed a challenge,” she says. ing industry, it’s beginning to face the backlash that in-
evitably follows runaway success. Some companies have
BEZOS’ AMBITION FOR AWS today is both simple and become hesitant to use too many AWS products for fear
staggering: to make it bigger than Amazon’s retail busi- they could end up being locked in to Bezos’ world. Rely
ness, which pulled in nearly $27 billion in sales in the on Amazon for too many services, the argument goes, and
most recent quarter. Yet no one, not even Bezos, would it becomes prohibitively diicult to wean a company of,
security and more flexibility on where to store data to Still, plenty remember the bullying Microsoft of yes-
address global privacy concerns. teryear, and even today’s powerhouses fear a return to
Microsoft also beat Amazon to the punch with some IoT those days. Recently, Salesforce seriously considered
features, which Guthrie says helped it win the BMW busi- Azure before selecting AWS as its preferred cloud provid-
ness. After years of playing catch-up, Azure is hoping to er in a contract worth an average of $100 million per year
get ahead of its rival with new products that ofer its own over four years. Amazon and Salesforce both publicly say
that AWS won the deal on the strength and maturity of and give some indication of its path to success several
its products. But some believe it was no coincidence that years from now, Google’s credibility issue remains a seri-
Microsoft lost the deal just as it was beating out Sales- ous hindrance. While Google has shown signs of giv-
force to acquire LinkedIn in a bombshell $26.2 billion ing Greene total support—CEO Pichai appeared at her
deal. “I wouldn’t say that was a pure technology decision conference and has given her the budget and the mandate
that they made,” Guthrie snifs. to make a rash of high-profile hires—it will have to show
unusual patience to allow her team to build relationships
GREENE HAS A LOT of work to do before Google is that even she admits can take years.
taken seriously alongside Amazon and Microsoft. Until More likely, it is Microsoft that will pose the biggest
recently, aside from hosting the popular social platform threat to Amazon for cloud leadership in the long term.
Snapchat, Google had done little to show it knew how to Interest in Azure is at an all-time high, and its leader-
work with large-scale customers. Greene is working over- ship team recognizes the cloud’s strategic importance
time to fix that, reorganizing her across Microsoft’s entire business.
group to function more as a stand- The company is slowly shaking its
alone business within Google and association with the Windows mo-
bringing together its technical, “WE’RE IN THAT nopoly (nearly a third of new virtual
product, and sales and marketing PHASE WHERE THE machines on its servers are built on
teams for the first time. And like Linux) and has a sales organization
Microsoft’s Guthrie, she’s court- PIE IS EXPANDING and network of partners to go toe-to-
ing customers by ofering access SO DRAMATICALLY toe with Amazon’s.
to Google’s prodigious technol- THAT IT’S NOT A Microsoft will win out only if
ogy: analytics, machine transla- Amazon acts less like a Bezos-driven,
tion, speech recognition, maps and ZERO-SUM SPACE.” ruthlessly efective operation. The
more. “We’ll be doing a lot more so cracks are there, if you look: AWS’
people can train their own data and consistent 20% margins are creat-
build their own models using our software,” Greene says. ing a perception that its service is sometimes overpriced.
That pitch has gained some traction among tech com- And while plenty of companies across industries already
panies with heavy data needs such as Spotify, an AWS fear the power of Google and Microsoft, Amazon is no
customer that deployed some capabilities on Google’s diferent. Its dominance in retail makes AWS unpalatable
platform this year. And Google is now signing up large to some. China’s e-commerce giant, Alibaba, has its own
corporations like Coca-Cola and Disney on the strength cloud division now; Walmart announced an open-source
of its data chops. cloud project called OneOps earlier this year.
Many of those customers are using Google for data But bet against Bezos and his team at your own peril.
while placing some critical apps with Amazon and Mi- If Amazon senses a threat from Microsoft in the coming
crosoft. “The advantage is flexibility,” says Coca-Cola months, expect AWS prices to drop precipitately while
CTO Alan Boehme, who is spreading his company’s the quality of its tools continues to go up. “People have
1,000-plus cloud apps across all three. And while all the underestimated how fast Amazon is still innovating,” says
cloud companies ofer the usual sales incentives to land Max Gazor, a venture capitalist who has invested in cloud
major accounts—discounts, free trials of new products, companies. AWS engineers didn’t blink about working
engineering help—Google is getting a reputation for buy- through Thanksgiving Day to make sure Kylie Jenner’s
ing its way to market share. The company is attempting website was ready for the launch of her makeup line last
to lure several large enterprise customers from Amazon Cyber Monday. “Are we a hard-charging organization?”
with what amounts to a year of free computing, industry Vogels asks. “Yes.” No one who has faced of against
sources say. “Google is trying to make up for some gaps by Bezos & Co. in retail doubts it.
throwing free resources at folks,” says Microsoft’s Guth- Unless Amazon charges down the wrong path, it’s
rie. Greene is unfazed. “All of a sudden, we’re talking to hard to see another company reaching $100 billion in
pretty much every top-1,000 company,” she adds. revenue first. But if Google can show real traction and
if Microsoft can narrow the gap somewhat, increasingly
IT’S NOT DIFFICULT to envision a scenario, some savvy companies will benefit from their fight to keep
industry trackers say, in which all but the more complex pace with Amazon. At Microsoft, Guthrie takes another
cloud tools approach zero in price—largely given away by stab at the question of whether Azure thinks it will ever
the big cloud providers as table stakes to get a foot in the take pole position in the cloud. “The real winner from all
door. While that would seem to favor Google’s strengths this competition is hopefully the customers,” he says. F
CAPITALIST
STEPHEN WEBSTER FOR FORBES
S trapped into the
pilot’s seat of his private jet, Scotts
Miracle-Gro CEO Jim Hagedorn
thrusts the throttle forward and
hurtles down the runway, a typi-
cal start to the day for the former
F-16 fighter pilot, who commutes
500 miles from his home on Long
than half his management, shook
up his board and gambled heavily
on pot growers.
That controversial decision was
made one day in 2013 in Yakima,
Wash., when Hagedorn wandered
into a garden center. The store had
hardly any Scotts merchandise, but
there was a massive row of equip-
ment for hydroponics, a method of
growing that allows people to cul-
tivate cannabis (or any other plant,
for that matter) indoors, using tar-
geted lighting and liquid solutions
are bigger than the largest single
acquisition in the history of Scotts
Miracle-Gro, which takes in $160
million of profit on $3 billion in
sales annually.
“For a lot of conventional com-
panies, I don’t think they’d want
to take the risk,” says Hagedorn, a
short, bald 60-year-old with sharp
blue eyes. “I mean I’ve talked to
some other friends and CEOs who
basically shake their head.”
Among the dissenters is Carl
Kohrt, one of six Scotts Mira-
Island, N.Y. to his oice outside spiked with nutrients. Hagedorn cle-Gro board members to step
Columbus, Ohio. For an hour and asked to see the store owner, and down in the past three years.
a half every morning and every out walked a short guy with wild “I’m not personally a supporter
afternoon, Hagedorn sits behind hair and a lazy eye. He told Hage- of the marijuana business,” says
the control stick of his plane, dorn that everyone called him an Kohrt. “Things change. Laws have
pushes the seat back and lets his idiot when he first started selling changed. Interests have changed.
mind run wild. hydroponics equipment, but the Some personal values have not
His latest idea: “Invest, like, half stuf was flying of the shelves, changed—mine included.”
a billion in the pot business,” he with an average receipt of $400— Values aside, the drug industry
yells over the roar of two engines straight cash. It was a starkly is a legal minefield.
powering his camouflaged Cessna diferent scene from what he’d The federal government still la-
Citation. “It is the biggest thing just witnessed at a Home Depot bels cannabis as a Schedule I drug
I’ve ever seen in lawn and garden.” across town, which had plenty of under the Controlled Substances
No one has a better perspective Scotts Miracle-Gro products but Act, in the same class as heroin
on the lawn and garden business no hydroponics equipment. “Two and LSD. But 25 states now allow
than Hagedorn, who, after watch- worlds, same town. I came back, medical marijuana, and 4 (plus the
ing his father build Miracle-Gro and I told everyone ‘We’re doing District of Columbia) have passed
into a national brand, orchestrated it,’ ” Hagedorn recalls. “If you don’t laws permitting recreational use.
its merger with Scotts in 1995 and like it, leave. We’re doing it. It’s In 2013 the Obama Administration
took over as CEO of the combined beyond stopping. And we’re not issued a memo deferring mari-
company in 2001. Scotts Miracle- getting into pot growing. We’re juana regulation to states, while
Gro, which makes almost all of its talking dirt, fertilizer, pesticides, at the same time reserving the
money selling grass seed, fertilizer, growing systems, lights. You know federal government’s right to pros-
pesticide and dirt, boosted reve- it’s a multibillion-dollar business, ecute ofenders in the future and
nues 80% from 2001 to 2009, riding and we’ve got no growth in our challenge the states at any time
on the coattails of Home Depot, core. Are you guys stupid?” (perhaps, say, if a new president is
Lowe’s and Wal-Mart as the retail- Hagedorn is backing up his big elected).
ers built more than 3,000 big boxes talk with serious cash. He shelled
across the country. But then the out $135 million last year on two GROWING UP, Jim Hagedorn
Great Recession hit, and the rapid California-based businesses that thought business was boring. His
expansion stalled. Scotts Miracle- sell fertilizers, soils and acces- father, Horace, a onetime Madison
Gro’s sales have been stagnant ever sories to pot growers, recently Avenue adman, cofounded Mira-
since. That hit home for Hagedorn spent another $120 million on a cle-Gro in 1951 and spent much of
and his family, who collectively still-undisclosed lighting and hy- his time on the telephone talk-
own a 27% stake that makes up $1.1 droponics equipment company in ing about numbers and marketing
billion of their nearly $1.5 billion Amsterdam and promises to invest plans. Jim was a horrible student
fortune. Frustrated with the flatlin- about another $150 million by the who didn’t care about his school-
ing business, Hagedorn fired more end of 2016. Altogether, the deals work but spent study halls going
through encyclopedias cover to Force Oicer Qualifying Test, a students. “I want everybody who
cover. military version of the SAT. To his wants to kill people to sit on one
His older sister Susan joined surprise, he nearly aced the exam side,” Hagedorn recalls him say-
the Weathermen, a left-wing ter- and the school ofered him a full ing. “And I want everybody who is
ror organization that bombed the ride. Hagedorn’s father had prom- going to fly the killer’s toilet paper
Pentagon and the U.S. Capitol (she ised all his children that if they around to sit on the other side.”
was not involved in either). After earned scholarships, he would give The major walked up to him and
she was arrested for conspiracy them half of what they saved him. asked him to choose his fate. Hage-
to commit arson during a riot in Hagedorn took the money and dorn wanted only to be an airline
Massachusetts, Horace Hagedorn bought a BMW 5 Series. pilot; he was certain the aerobatics
headed north from Long Island to Six months into flight training of flying fighter jets would make
try to get his daughter of the hook. an Air Force major stared down 30 him sick. But so did the idea of
(She ended up serving two years’
probation.) While Horace was
FORMER F-16 FIGHTER PILOT HAGEDORN OFTEN FLIES HIMSELF 500 MILES BY PLANE
gone, Jim, then 15, threw a massive AND 30 MILES BY HELICOPTER FROM LONG ISLAND TO HIS OFFICE IN OHIO.
“pot party,” as he terms it, inviting
over hordes of young people to get
high. His father returned earlier
than expected, walked into the
ongoing party and burst into a fit
of rage. Fearing for his safety, Jim
called the police. (“As bad a kid as
I was, he never hit me. I thought
he was going to kill me this day,”
he recalls.) The cops arrived at
the door, and when Horace went
down to answer it, Jim walked out
of the house. He didn’t return for
another two years.
Hagedorn lived on radical com-
munes, surrounded by guns and
drugs. He and his gang of friends
stole anything they wanted as their
lives spiraled out of control. “Did I
do drugs?” Hagedorn asks rhetori-
cally. “I didn’t do heroin—I viewed
heroin as a drug that poor addicts
use—but when it came to halluci-
nogenics and speed and marijuana,
cocaine. Hell, yes.”
After a girlfriend broke his
heart, he stumbled home to try to
piece his life back together. His
father made a donation to a board-
ing school in Vermont, and the
school admitted Jim, by then 17, to
its freshman class. Not long after,
STEPHEN WEBSTER FOR FORBES
being subservient to anyone. “Kill in a deal that valued Hagedorn’s United Kingdom and new mar-
people, sir,” he answered. He flew company at $195 million. It was kets like France, Germany and
fighters for seven years during less than half the price SC Johnson the Netherlands. By 2009 Scotts
the Cold War. In 1987 Hagedorn ofered, but there was potential Miracle-Gro controlled more than
left the Air Force as a captain and upside. In this deal Jim and his half of the market in consumer
interviewed at his family’s busi- family took their entire payment in pesticides, fertilizers, soils and
ness, where his father asked him equity and warrants, giving them a grass seeds.
what role he saw himself taking 41% stake in the merged company. Without a hint of irony in his
at the company. He responded by Soon after the agreement closed, voice, Hagedorn compares the
saying there was only one job that the Hagedorns learned that Scotts’ lawn and garden business to war-
he wanted—his father’s. Hagedorn management team had been inflat- fare. “Oh, dude, in a lot of ways, I
was willing to learn the ropes for a ing sales figures. The company think it’s better,” he says. “Today
few years, as long as he didn’t have had to restate its earnings in 1996, the way wars happen, you don’t get
to work in sales. His dad hired him and the Hagedorns moved to boot to keep all the stuf. To me this is
and immediately threw him in the the old management team, replac- one where in commercial combat
sales department. ing them with Miracle-Gro folks, you kind of rape and pillage, and
In 1994 SC Johnson ofered the including Jim. Five years later he you keep all of the stuf.”
Hagedorn family $400 million in took the top role himself.
cash to buy Miracle-Gro, and Jim, The Hagedorns kept looking THAT’S HAGEDORN. Wildly
by that time an executive, came for ways to take down competitors ofensive, hard-charging and, as
up with a countermove. What if, or, if that was not possible, to ally even those who detest him admit,
instead of selling to the consumer with them. In 1998 Scotts Miracle- deceptively smart. He flies a plane
products giant, he proposed a Gro struck a $32 million deal to named F-Bomb, draws business
merger with Scotts, a sleepy Ohio sell Monsanto’s herbicide Round- lessons from Osama bin Laden
business that was six times the up and a $300 million agreement (“a massive piece of crap” but “a
size of Miracle-Gro but had slim for pest-killer Ortho. (Today Ortho visionary”) and compares himself
profits and a market capitaliza- does nearly $300 million in rev- to the protagonist in the Show-
tion of only $300 million. On Jan. enue, and Roundup brings in $70 time series Billions (“so focused on
26, 1995 Scotts, run by profes- million in net profit annually.) The winning that he’s a little bit of an
sional management and owned next year Hagedorn shelled out animal”).
by institutional shareholders, and another $350 million to acquire There is a softer side. Just ask
much smaller Miracle-Gro merged lawn and garden companies in the him about his family. From 1995
his son. And it was small, and it nies have already increased sales The TV spot that launched Black
would have no measurable im- by more than 20%, roughly four Magic features tattooed growers
pact on the company.” times the growth rate of the rest of working under neon lamps late at
Chris’ role expanded quickly. Scotts, and operating margins are night to cultivate leafy greens. It
Last year he helped lead the $120 on track to be about 30% higher first aired on Apr. 20, the unof-
million acquisition of General than the company average this ficial holiday for weed smokers
Hydroponics, which proved to be year. The core business has been everywhere.
a tumultuous deal. The day before performing better lately as well, There are plenty of other op-
the agreement was to be finalized, with profits up 50% since Hage- portunities, too. Take pesticides.
Scotts’ outside lawyers refused dorn fired more than half of his Since marijuana is still a Schedule
to sign of. Their problem: Even management team in the last four I drug, the federal government
though General Hydroponics did years. Scotts Miracle-Gro shares has not approved any pesticides
not sell marijuana, its founder have increased 13% in the past for use on the plant, so grow-
had been growing cannabis as year (versus –1% for the S&P 500). ers are using corn pesticides as
part of a side R&D operation. This spring Miracle-Gro took a substitute. But production at
Jim Hagedorn wanted to pay its pot plan on the road. It began marijuana facilities keeps getting
shut down by authorities, who
are fine with businesses selling
weed in certain states but don’t
HAGEDORN COMPARES THE LAWN AND want people smoking dangerous
chemicals. Scotts Miracle-Gro is
GARDEN BUSINESS TO WARFARE: “THE now working with state govern-
WAY WARS HAPPEN, YOU DON’T GET TO ments to secure federal registra-
KEEP ALL THE STUFF. … IN COMMERCIAL tions that will indicate which
pesticides can be used safely on
COMBAT YOU KIND OF RAPE AND PILLAGE, cannabis. The ultimate plan: roll
AND YOU KEEP ALL OF THE STUFF.” out a line of branded pesticides
specifically designed for pot.
Hagedorn has not given up
on growing his own marijuana,
the founder a consulting fee to selling a new line of hydroponics either. He is already looking into
continue working on his research equipment and soils called Black foreign markets like Israel, Can-
for Scotts Miracle-Gro. But the Magic (created by a scientist at ada and Jamaica, where Scotts
lawyers refused to go along with the General Hydroponics oice) might be able to legally set up labs
it. Seeing no other option, Hage- in 141 Home Depot stores across to test its products and conduct
dorn agreed to leave the research Colorado and Washington (states cannabis research. Hagedorn’s
out altogether and wrapped up where recreational pot is legal) most eye-opening idea: someday
the deal. That legal team has not and Michigan (where medical expanding the company’s re-
worked on any Scotts’ hydropon- marijuana is legal). A bag of Black search on genetics into cannabis
ics deals since. Undeterred, Hage- Magic costs $16, more than twice to create GMO marijuana. Show-
dorn recently paid $120 million as much as typical potting soil. ing an ounce of restraint, he says
for a 75% stake in an Amsterdam- Vegetable growers may not notice he is not ready to run that idea by
based lighting and hydroponics much of a diference, and most the company’s directors—yet.
equipment outfit. wouldn’t bother paying the higher Still he’s got his hand firmly on
If Hagedorn’s antics don’t get price. But one pound of canna- the throttle. “I’m pretty domi-
in the way, his pot strategy may bis is worth more than $2,000, nant and forceful here,” he says.
prove to be a success. General Hy- meaning the calculus for growing “I admit, I’m an acquired taste.
droponics and its sister company, weed is much diferent than it is There are certain people who
Vermicrop, brought in just $50 for growing tomatoes. With that would say, ‘I wouldn’t want Hage-
million in revenues when Scotts sort of math on his side, Chris dorn going out with my daughter.
bought them in 2015. Now part of predicts his division will some- I don’t like how he runs the busi-
Chris’ subsidiary, the two compa- day be a billion-dollar business. ness.’ ” None of that deters him. F
Life in the
Fastest Lane
Ever dreamed of going 200mph at
the Indianapolis Motor Speedway
or other legendary tracks? Indy
Racing Experience can make you
Andretti for a day.
BY JIM CLASH
T
he day after the 100th running
of the Indy 500 in May, 33 lucky
fans got a once-in-a-lifetime
opportunity: the chance to
roar down the front straight
at the Indianapolis Motor Speedway in ex-
cess of 200mph in a two-seat, open-wheel
car with Mario Andretti for a chauffeur.
The 76-year-old Andretti is a legend,
of course. In addition to his 1978 Formula
One World Drivers’ Championship, he has
victories in the Daytona 500, Indianapolis
500 and 12 Hours of Sebring. He has also
started the Indy 500 29 times, so he knows
his way around the Brickyard.
Two-seat rides at Indy have been ofered
since 2001, when the Indy Racing Experi-
ence (IRE) debuted. Though stunningly fast,
clocking 180mph, the runs were kept at about
75% of Indy 500 pole-qualifying speeds for aloud: What if we stretch the car, put in a
safety. But the goal from the beginning, says second seat and allow a pro racer to handle
Scott Jasek, an ex–Budget Rental Car execu- the driving chores while a passenger just
tive and one of three partners at IRE, was to goes along for the ride?
provide customers a true 200mph experi- After taking out a $1 million loan secured
ence. Now that the group has a 15-year record by the three men’s houses, IRE bought liabil-
of safety, insurance companies and sponsors ity insurance, built a pair of custom two-
agreed that the time was finally right. seaters with Italian chassis manufacturer
Like many small businesses, IRE started Dallara and secured Firestone as a sponsor.
over a few beers. One night Jasek, Jef Sinden Since then the company has provided more
and Joe Kennedy were blowing of steam than 50,000 thrill rides for media, celebri-
when Jasek naively asked his two friends, ties and fans in real Indy cars—and generated
part-owners of a race team, whether he more than $25 million in revenue. Welcome to the
could drive their Indy car. He was told that After operations began in 2001 with 200mph Club:
the machine was too delicate, that he could 500 customers at $1,000 per ride, internal After hot laps with
Mario Andretti,
easily damage it if he over-revved the engine research showed that $500 was a better participants receive a
or didn’t shift correctly. So Jasek wondered “tipping point” price—anything over $500 commemorative ring.
handle the demand. sition for last year’s stock car race there, the The meal doesn’t come
The programs run almost year-round, de- Brickyard 400, was about 183mph. As Jasek with a side of diamonds,
pending on the location; tracks include India- jokes, “Maybe Dale Earnhardt Jr. can come but the fuel costs to
napolis Motor Speedway, Pocono Raceway, take a ride with us and see what it’s like to go reach the International
Space Station are
Texas Motor Speedway, Iowa Speedway and 200mph at Indianapolis.”
astronomical. Consider it
very expensive takeout.
FINAL THOUGHT
“Auto racing began five minutes after the second car was built.” —HENRY FORD
Laser Measured
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WhiteWalls
Magnetic Whiteboard Walls
These magnetic
whiteboard walls give
you and your team
and unlimited blank
slate that encourages
original ideas and
fosters out of the box
solutions.
On Artiicial Intelligence
“Every “A machine
technology, is more
every science blameless,
more sinless
that tells us even than
more about any animal.
ourselves is It has no
scary at the intentions
time.” whatsoever
—RODNEY A. BROOKS
but our own.”
—URSULA K. LE GUIN
“Will AI someday really think? “IT SEEMS PROBABLE THAT ONCE THE
That’s like asking if submarines MACHINE THINKING METHOD HAD
swim. If you call it swimming, STARTED, IT WOULD NOT TAKE LONG
then robots will think, yes.” TO OUTSTRIP OUR FEEBLE POWERS.”
—NOAM CHOMSKY —ALAN TURING
CLOCKWISE FROM TOP LEFT: JOHN B. CARNETT/BONNIER CORP/GETTY IMAGES; DAN TUFFS/GETTY IMAGES; FINE ART IMAGES/HERITAGE/GETTY IMAGES;
which surrounds a thinking machine
already surrounds a thinking man.”
—B.F. SKINNER
MONDADORI PORTFOLIO/GETTY IMAGES; NEWSCOM; ULLSTEIN BILD/GETTY IMAGES; ROLF SCHULTEN/ULLSTEIN BILD/GETTY IMAGES
“WHETHER WE ARE
BASED ON CARBON
OR ON SILICON MAKES
NO FUNDAMENTAL
DIFFERENCE. WE
“DAVE, STOP. STOP, WILL YOU? STOP, DAVE. SHOULD EACH BE
TREATED WITH
FINAL
WILL YOU STOP, DAVE? DAVE, MY MIND IS
GOING. I CAN FEEL IT. I CAN FEEL IT.” RESPECT.”
“The Zeroth
THOUGHT
—ARTHUR C. CLARKE “Does one really
—HAL Law: A robot
may not harm think a robot
“The danger from computers is not humanity or, by could have written
that they will eventually get as smart inaction, allow Shakespeare? That
as men, but we will meanwhile agree humanity to the creative arts
to meet them halfway.” come to harm.” can be done by
—BERNARD AVISHAI —ISAAC ASIMOV
computers? Who
the hell creates
“The machine threatens all achievement.” the robots?”
—RAINER MARIA RILKE —MALCOLM FORBES
SOURCES: THE SONNETS TO ORPHEUS, BY RAINER MARIA RILKE; THE TIMES BOOK OF QUOTATIONS;
2010: ODYSSEY TWO, BY ARTHUR C. CLARKE; I, ROBOT, BY ISAAC ASIMOV; GOODREADS.COM; CONTINGENCIES OF REINFORCEMENT:
A THEORETICAL ANALYSIS, BY B.F. SKINNER; THE LATHE OF HEAVEN, BY URSULA K. LE GUIN; NAKED LUNCH, BY WILLIAM S. BURROUGHS.