March 20 March 26, 2017 | bloomberg.

com

Turns out people like their pizza

served with a topping of tech
p42
 IF THEY KNEW
THE PIZZA
WAS DOMINOS,

THEY
ACTUALLY
LIKED
IT LESS
p42

Dominos
TARO YAMASAKI/THE LIFE IMAGES COLLECTION/GETTY IMAGES

founder
Tom Monaghan
in 1965

Thats not This is like the Swiss Weve got blood and
patent office suing
the way the Einstein for inventing guts. Its something
leader of the free the theory of relativity we try not to use.
world flies while he worked there But we have it
p48 p54 p28
 Cover
Trail
March 20 March 26, 2017
How the cover gets made

Domestic
Opening Remarks Theres a reason South Koreas scandals seem so familiar 8

Bloomberg View Health-care tax incentives will fall short Dont gut the weather service 10 The covers on Dominos. We go
into how it got to be the leader
Movers Under Armours March Madness exposure Bill Ackmans fortune 13 in the pizza business.

Global Economics Im going to go ahead and

proclaim this to be the most
When Trump needed a hand, Soviet migrs bought apartments 14 important business story of the year.
Southern Indias diminishing water supply leads to a standoff with Coke and Pepsi 15 As a research assignment, Im going
to order the art department
In the U.K.s divorce from the EU, the advantage goes to Europe 16 20 pizzasin order to
Behind the Feds rate hike: Jobs, jobs, and how many workers are available to take them 17 understand the thesis of
the story firsthand.
Companies/Industries Maybe you should photograph
A Kentucky training program brings blue-collar workers up to speed 18 one of the pizzas?
Russian exports are soaringon EBay, at least 19
I like the way you think.
Disney films had a stellar year, but merchandise sales slipped. Bring on the Beauty and the Beast tie-ins 20
Deal Snapshot: Intel buys Mobileye for $15 billion to get in on the rise of autonomous vehicles 21

Politics/Policy
As a special adviser to the president, Carl Icahn finds himself in a dubious sweet spot 23
Jones Day has 14 lawyers slated to join the Trump administration, which is an honor and a brain drain 25
Do Angela Merkel and French presidential candidate Emmanuel Macron have chemistry? 26
A major Kushner family real estate deal involving a Chinese insurer draws attentionand criticism 27

Technology
4 A virtual-reality treatment for post-traumatic stress disorder 28
In a crowded delivery-app market, Instacart creates some breathing room 29
Mouse maker Logitech roars into the smart-home space 30
SXSW is putting an Uber-less Austin to the test 31
DOMESTIC COVER AND COVER TRAIL: PHOTOGRAPH BY DAVID BRANDON GEETING FOR BLOOMBERG BUSINESSWEEK; PROP STYLIST: PRISCILLA JEONG;

One mans shipping container is another mans castle 31

Innovation: The WindTree packs 54 small turbines into one compact 30-foot-tall package 32

Markets/Finance
Betting that the mall will go belly-up 34
After eight years in the sports-gambling business, a Wall Street legend is ready to throw in the towel 35 International
Bankers at JPMorgan will soon get instantaneous performance reviews 36

Fresh finds may not be enough to revive Alaskas oil industry 36 Storys about the legal battle
between Google and Uber over
Focus On/Data self-driving technology.
To bolster its AI efforts, Baidu throws thousands of translators at the problem 38
Will this self-driving
An easier way to measure glucose is helping diabetics stay on track 40 technology increase the speed
Can datarather than drugsdetermine who wins the Tour de France? 41 of pizza deliveries?

Features Its time to move on.

A Bigger Slice Dominos secret ingredient for gobbling market share: Technology 42

Trump Force One The presidential plane and copter are getting long-overdue upgrades 48

Give Me the Keys Did a Googler steal the driverless future and hand it to Uber? 54

Etc.
INTERNATIONAL COVER: ILLUSTRATION BY 731

Fanatics makes commemorative T-shirts at internet speed 59

Drinks: Bartles & Jaymes gets some 21st century competition 62
Workplace: Take your job on the roadjust dont expect to sleep 63
Music: If you overdid it on eyeliner in the 90s, Emo Night BK may be the party for you 64
The Critic: The Seasteading Institutes new treatise envisions a floating, technocratic paradise 66
What I Wear to Work: Astrologer Tali Edut uses jewelry to help maintain her sense of humor 67
How Did I Get Here? Glenn Kelman went from unpublished novelist to CEO of Redfin 68
 Index
People/Companies

ABC Droz, Pierre-Yves

Dyson
54
13
Abbott Laboratories(ABT) 40 EBay(EBAY) 19, 60
Adidas(ADS:GR) 60 Edut, Tali 67
Adler, Steve
Advanced Micro
31 EMarketer(SPR:GR)
Eurasia Group
19, 38
16
18
Retraining
Devices(AMD) 28 Euromonitor International 15
Kentuckians
AgustaWestland(LDO:IM) 50 Evdakov, Kirill 31
Air Methods 13 Exxon Mobil(XOM) 36
Airbnb 31 Facebook(FB) 13, 38, 44
Alder Hill Management 34 Fallon, Jimmy 44
Alibaba Group(BABA) 19, 38 Fanatics 60
Alphabet(GOOG) 38, 54 Fasten 31
Amaitis, Lee 35 Federal-Mogul(IEP) 23
Amazon.com(AMZN) 19, 29, Fillon, Franois 26
30, 38, 44 Ford(F) 13, 18, 54
American Airlines(AAL) 13 Ford, Bill 13
American International Group Francisco, Noel 25
(AIG) 23 Friedman, Patri 66
American Securities 13 Frontier Airlines 13
Anbang Insurance Group 27 Frost & Sullivan 21
Apollo Global
Management(APO)
Apple(AAPL)
36
30, 44, 54 G
Armstrong, Lance 41 Gapstow Capital Partners 34
AstroTwins 67 Garden Party Botanical 62
Atlas Copco 18 Gartner(IT) 21
Axonic Capital 34 Gerke, Bejarano 63
Badanes, Alex 64 Ginsberg, Benjamin 25
Baidu(BIDU) 38 Giuliani, Rudolph 14
Bain Capital 44 Goldman Sachs(GS) 25
Bare Foods 29 Google(GOOG) 30, 44, 66
Barnier, Michel 16 Grasse, Steven 62
Basinski, Paul 36 GrubHub(GRUB) 44
Boeing(BA) 50 GSI 60
Bostic, Raphael 13 King, Gayle 44 Modi, Narendra 15 Salcito, Jordan 62 Trump, Donald Jr. 14
Boxouse
BP(BP)
31
36 H Kirsanova Realty
Kislin, Sam
14
14
Monaghan, Thomas
Moon Jae-in
44
8
Salygin, Vasily
Samsung Group
14
8
Twitter(TWTR)
Uber
13, 44
31, 54
Brady, Tom 60 Hacker Paradise 63 Krafcik, John 54 Muilenburg, Dennis 50 Schulz, Martin 26 Under Armour(UA) 60
6 Brand Keys 44 Hasbro(HAS) 20 Kroll Bond Rating Agency 34 Musk, Elon 54 Sears(SHLD) 34 Universal(CMCSA) 20
Brandon, David 44 Herbalife(HLF) 23 Kushner, Jared 27 Musselman, Jim 36 Shungite.Club 19 Urmson, Chris 54
Branstad, Terry 23 Hess(HES) 36 Larian, Isaac 16 Sikorsky Aircraft(LMT) 50 Valve 28
Brin, Sergey
Brock, Sean
54
62
Hindustan Coca-Cola
Beverages 15
Lawson, Nigel
Le Creuset
20
20
NOP Silver Airways
Sorin Capital Management 34
13 Velodyne Lidar
Venetian Las Vegas
54
35
Burgundy Xploration 36 Hollande, Franois 26 Le Pen, Marine 26 Neutrogena(JNJ) 20 Sothebys International Vinci Construction(DG:FP) 32
Bush, George W. 25, 50 Hot Topic 20 Lee Jae-yong 8 New Era Cap 20 Realty 14 Volkswagen(VOW:GR) 13, 25
Caelus Energy 36 HSBC (HSBC) 38 Levandowski, Anthony 54 Nike(NKE) 60 Southern(SO) 25

PHOTOGRAPH BY JOSH ANDERSON FOR BLOOMBERG BUSINESSWEEK; ICAHN: VICTOR J. BLUE/BLOOMBERG; MAY: SIMON DAWSON/ BLOOMBERG
Cantor Fitzgerald
Caplan, Greg
35
63
Li, Robin
Logitech
38 Nokia(NOK)
Northern Trust Securities
54
21
Starbucks(SBUX)
Stewart, Heather
25, 44
31 WYZ
Cardinal Aluminum 18 International(LOGN:SW) 30 NXP Semiconductors(NXPI) 21 Wal-Mart Stores(WMT) 60
CG Technology
Cheniere Energy(LNG)
35
23
Luckey, Palmer
Lutnick, Howard
28
35
Oakley(LUX)
Obama, Barack
60
25, 50 TUV Walker, Bill
Walt Disney(DIS)
36
20
Chevron(CVX) 25 Lyft 31 Oculus VR (FB) 28 Target(TGT) 60 Wang Yi 8
China International Maccoby, Ethan 64 Ohanian, Alexis 31 Technomic 44 Warner Bros.(TWX) 20
Capital(3908:HK) 38 Macron, Emmanuel 26 Page, Larry 54 Telefnica (TEF) 41 We Roam 63
China Renaissance Securities Macys(M) 34 Park Geun-hye 8 Tepper, David 34 Web Retailer 19
Maloney, Dennis 44 Weiner, Russell 44
23
(Hong Kong ) 38 PayPal(PYPL) 66 Tesla(TSLA) 54
Chipotle Mexican Grill (CMG) Manafort, Paul 14 Peele, Jordan 13 Thiel, Peter 66 Wells Fargo(WFC) 34
44 Manic Panic 13 PepsiCo(PEP) 15, 44 33 Zen Lane 63 Whole Foods Market(WFM) 29
Carl
Coca-Cola(KO) 15 Icahn Manning, Peyton 60 PepsiCo India 15 Thrun, Sebastian 54 WiFi Tribe 63
Cohen, Michael 14 Markit(INFO) 34 Pershing Square Capital Toyota(TM) 25 Williams-Sonoma(WSM) 20
Coker, Ryan 62 May, Theresa 16 Management 13 Tristano, Darren 44 Y Combinator 31
Colbert, Michael
Colbert, Stephen
35
44 I McDonalds(MCD)
McGahn, Donald II
13, 44
25
Pitaro, James
Pizza Hut (YUM)
20
44
Trump Organization 14
Trump, Donald 10, 14, 18, 23,
Yahoo!(YHOO)
YouTube(GOOG)
13
44
Comey, James 50 IBM(IBM) 38 McGinley, Bill 25 Pruitt, Scott 23 25, 26, 50, 54 Zhang Ya-Qin 38
Comma.ai 54 Icahn, Carl 23 McNie, Micki 63 Putin, Vladimir 14
ConocoPhillips(COP) 36 IDC 30 Mehta, Apoorva 29
Conway, Kellyanne 14 Instacart 29 Merkel, Angela 26
Credit Suisse Group(CS) 34
Crispin Porter + Bogusky 44
Intel(INTC) 21, 28
Invicta Watch Co. of America
MGA Entertainment
Michaud-Larivire, Jrme
20
QRS How to Contact
Ctrip.com(CTRP) 38 20 32 Qi Lu 38
Cuban, Mark 31 Iseman, Luke 31 Microsoft(MSFT) 30, 38, 54 Quaker City Malting 62 Bloomberg Businessweek
Cufflinks 20 Qualcomm(QCOM) 21
Curry, Stephen
CVR Energy(CVI)
60
23
J Quintana, Nairo
Quirk, Joe
41
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Darrell, Bracken 30 Juicy Couture 20 RBC Capital Markets 21
Dedrick, Fred 18 Redfin 68
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Deloitte
28
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Denton, Nick 31
Depository Trust & Clearing 34
Kalanick, Travis
Kane, Christopher
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Revelry Brewing
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 Opening Soon after I arrived in Seoul in 1996 as
a young correspondent, a colleague
brought me to a tiny restaurant buried
a new era at Samsung by updating its
archaic corporate culture. Instead,
both got embroiled in an old-fashioned

Remarks deep in a warren of alleyways in the

capitals centerthe kind of place only
a local could find. Tucked into a tradi-
corruption scandal thats an outgrowth
of the government-business complex
introduced in the 1960s by Parks
tional Korean house was a restaurant father, who ruled as autocrat in Seoul

The
where customers on wooden stools and for 18 years.
floor mats were huddled over steaming The scandal leaves South Korea
crocks of soojaebi, a hearty soup with leaderless and adrift at a critical
thick, hand-torn noodles. Even back momentwhen the regions ultimate

South
then, the eatery was a glimpse into a anachronism, North Korea, is once
fast-fading past in a city relentlessly on again spewing fury. There, too, the
the move, and it quickly became one of leader, Kim Jong-un, was expected to

Korean
my favorites. drag the Stalinist monarchy into the
More than two decades have passed, 21st century. But this Kim has proved
and large swaths of Seoul are wealthier no more enlightened than his father
and practically unrecognizable, includ- or grandfather who reigned before

Mirage
ing sections around those alleyways, him. Recent ballistic missile tests and
now unfortunately refurbished into a the February spy-novel assassination
Disneyfied version of what old Korean of Kims half-brother in Malaysia have
streets might look like. But that restau- refocused security experts worldwide
By Michael Schuman rant has somehow survived, as difficult on just how destabilizing North Korea
to locate as ever, with the same wooden continues to be. Although concerns are
stools and pots of soojaebi. South Korea rising that Pyongyang may be devel-
is like that: The more things change, the oping the ability to strike the U.S., its
more they just dont. Seoul, only a short distance from the
Sadly, thats true in ways a lot less border, that remains squarely on the
satisfying than a bowl of soojaebi. The front line. A policy review on options
scandals roiling Seoul these days are a for North Korea undertaken by a
throwback to the countrys dark and worried White House even has military
8 corrupt past. On March 10, President action on the table.
Park Geun-hye was officially ousted Youd think that this drama would
from office by the Constitutional Court, spur change on both sides of the
following a December vote by the leg- Demilitarized Zone. But dont bet your
islature to impeach her. Shes accused kimchi on it. Sure, South Koreans are
of conspiring with a close confidant to ready and waiting for reform. Hundreds
extort tens of millions of dollars from of thousands of protesters marched to
Korean businessmen. The day before, demand that Park step down, while
another court began hearings in the anger toward the countrys big busi-
trial of Lee Jae-yong, the leading scion ness groups, the chaebol, runs high.
of the family behind the Samsung But Seoul has repeatedly suffered such
Group conglomerate, the countrys political upheavals only to stumble into
most important. Lee has been indicted yet another. In 1996, two former South
for bribery and other charges over his Korean presidents were found guilty
alleged participation in the plot. Hes of corruption, while one chaebol chief
denied wrongdoing. after another has been paraded into
The traumas reveal just how much court for bribery, embezzlement, and
the nation of 50 million still needs worse. As the Park scandal shows, the
to reform to prepare itself for a chal- corrupt collusion between the state and
lenging future. On the one hand, few the chaebol remains all too central to
societies anywhere have witnessed as South Korean politics.
dramatic a transformation over the The reasons for that are compli-
past half- centuryfrom a war-ravaged, cated. In a society where personal rela-
impoverished, agrarian dictatorship tionships form the basis of business
to a rich, hyperconnected, raucously and politics, old patterns of behavior
democratic member of the Group have proved surprisingly resistant to
of 20. Both Park and Lee were meant change. Then theres the fact that the
ILLUSTRATION BY CAROLINE DAVID

to be part of that continued modern- chaebol play an indispensable role in

In spite of prosperity, Seouls ization. Park, the countrys first female the national economy. The revenues
president, was supposed to lead Korean of the five largest were equivalent to
latest scandals prove that
women toward the greater participa- 58 percent of gross domestic product
the country has yet to tion in politics and business the aging in 2015, up from 37 percent in 2008.
shake off its bad old habits society badly needs. Lee was to herald Thats rendered politicians wary of
destabilizing the business groupsand Now, though, indications are that Meanwhile, Pyongyangs
explains why president after president Chinas attitude toward North Korea saber rattling is raising
pardons convicted tycoons. Lees father may be changing. The threat posed by
was indicted on a charge of tax evasion Pyongyang is, like a boomerang, spin- concerns, even for its
and resigned as Samsung chairman in ning back on China. Beijing is apoplectic ally China
2008, only to reclaim a management over Seouls deployment of an American
post two years later after receiving a missile defense system. Although its
presidential pardon. We cant assume meant to protect the country from an
Lee wont follow in his dads footsteps. erratic Kim, the Chinese see it as a
Up north, the regime in Pyongyang challenge to their own national
has defied predictions of its impending security. Beijing has been crit-
demise since the fall of the Berlin Wall. ical of Kims recent missile
The Kims have outlasted famines, ever- tests, and in February the
tightening sanctions, and almost total Chinese government
suspended
coal

imports from North

Koreaa big blow to its feeble economy. a top priority. He also favors measures
On March 8, Chinas foreign minister, that would strengthen corporate gover-
Wang Yi, even suggested Pyongyang nance and weaken the hold that families
economic isolation. Attempts since the suspend its nuclear and missile activi- such as the Lees have over the chaebol
Clinton years to persuade Pyongyang ties in exchange for a halt to joint mil- and the economy overall.
to give up its nuclear weapons program itary exercises by the U.S. and South How events unfold will reverber-
have failed. Say what you will about Korea. Both sides, he said, should sit ate far beyond the Korean Peninsula.
those Kims, they sure know how to and talk. If these steps signal a true Some settlement with Pyongyang
sweep aside the dustbin of history. change of Chinas stance on North would defuse one of the worlds most
The sole road to change in North Korea, Beijing might be more willing to dangerous security threats and pos-
Korea runs through China. While prod Pyongyang into better behavior, or sibly reshape the geopolitics of East
the rest of the region has frozen out possibly negotiations with Washington. Asia. A concerted program to reform
Pyongyang, Beijings leaders have stood Fresh winds may be blowing in South Koreas business groups could
by their communist comrades, provid- Seoul, too. The front-runner to replace make its economy stronger and better
ing North Korea with its only substan- Park as president, the Democratic able to contend with the challenge of a
tial economic lifeline. The Chinese Partys Moon Jae-in, is from the liberal rising China rapidly gaining in wealth
have resisted perennial calls from end of South Korean politics, and he and technology. But all this remains
Washington to bring their partner to advocates a softer approach to North in the realm of ifs. Change has been
heel. Beijing has been only too happy Korea and a harder one toward the thwarted, and opportunities missed,
to let the Kims rankle Americas close chaebol. The former civil rights activ- many times before. So manage your
allies, Japan and South Korea. ist has pledged to make chaebol reform expectations, and pass the soojaebi. <BW>
 Bloomberg To read Noah Feldman
on why Preet Bharara

View should have resigned

and Mohamed El-Erian
on the markets
shift, go to
Bloombergview.com

and healthy people in the market as the individual mandate

Health Care Needs the does. With an older, less healthy pool, prices will rise. Health
insurance works only if the costs are spread widely.
Individual Mandate In arguing for their system, Trump and congressional
Substituting tax incentives for insurance Republicans continue to claim that Obamacare hasnt worked.
requirements wont protect Americans In truth, while the Affordable Care Act could use a tuneup,
its delivered decent insurance to millions of people and is on
course to cover millions more. It seems to have even convinced
some Republicansnone of whom voted to pass Obamacareof
the wisdom of greater government involvement in the health-
care system. But effective health care requires a mechanism
to ensure costs are widely shared. The GOP plan fails to do
this. If this is the best they can offer, it would be better to
change nothing at all.

Dont Gut the U.S.

Weather Service
Trumps plans for the research agency are
shortsighted and show his disregard for science
To understand why the Republicans alternative to Obamacare
10 wont be an improvement, it may be helpful to step back and ask
about the purpose of this or any other health-care plan. America The National Oceanic and Atmospheric Administration is only
has already decided as a society that people shouldnt be allowed one of the agencies marked for drastic funding reductions to
to die in the street for lack of health care. Donald Trump himself enable a boost in military spending. But the cuts reveal alarming
has said so, and federal law requires that almost all emergency pitfalls in the presidents approach to budgeting: a reluctance
rooms treat all patients regardless of their ability to pay. to invest in the future, a disregard for science, and a willing-
When patients lack the resources to pay a bill, or the insur- ness to damage a well-functioning operation for minimal payoff.
ance to cover it, their fellow citizens pick it up through federal According to an outline recently obtained by the Washington
or state and local income taxes. Whether they like it or not, Post, NOAAs budget is set to lose almost $1 billion, a crippling
Americans already bear the responsibility for this expense. 17 percent hit. The cuts would be especially deep to divisions
Under Obamacare, the collective responsibility is managed that work on climate modeling, so they might seem unsurprising
through insurance rather than taxes: All Americans are targets for a president who doubts the reality of climate change.
required to have health insurance or pay a penaltythe But even those who question the human contribution to climate
so-called individual mandate. The cost is still shared, but via change should recognize the need to carefully monitor climate
insurance, which is systematically tailored to fund medical patterns and carbon levels in the air and oceans. Data that go
expenses. You pay into the insurance pool but draw from it uncollected today cant be retroactively gathered tomorrow.
only when you find yourself in need of medical care. NOAA also works on weather models and forecasts, which
Under the Republicans American Health Care Act, there protect all Americans and many businesses from storms and
would be no such requirement to have health insurance. That floodinga service worth an estimated $100 annually to every
wont bring an end to shared medical expenses, however. It household in the country. TV weather reports and forecast
only means returning to a system in which many peoples apps depend on data collected and processed by NOAA, as do
health costs are paid with tax dollars. the insurance and aviation industries.
Republicans have argued that the government shouldnt be The satellite program needs consistent funding to maintain
able to force people to purchase something they dont want. a well-operating and up-to-date fleet. Jeopardizing the next
That may be true for many things people might buy, but health generation of satellites puts at risk the ability to manage accu-
insurance is different, because the costs incurred by people rate forecasts two decades from now.
without it will be borne by everyone else. Keep in mind, the Arguing against budget cuts is a time-honored Washington
U.S. has a history of requiring all citizens to fund many essen- tradition, and almost every department can say that its spend-
ILLUSTRATION BY TOMI UM

tial services, such as education and security. ing is but a tiny fraction of the Pentagons $600 billion budget.
Republicans would prefer to encourage people to buy insur- What makes the proposed cuts at NOAA especially pointless,
ance by offering them a modest tax credit and allowing insurers however, is their shortsightedness. Accurate weather forecasts
to hike premiums on those who fail to maintain continuous cov- will remain a daily necessity. And NOAAs role in assessing the
erage. But those incentives are unlikely to keep as many young existential threat of climate change is vital. <BW>
 Movers
By Kyle Stock
In this years NCAA basketball tournament, Under Armour
has its logo on the jerseys of 12 teams, including underdog
Northwestern Universitydouble the number it sponsored in
2015. Nike still leads with 40 schools.
Dutch Prime Minister
Mark Ruttes Liberal
Party defeated the Iceland finally
anti-Islam Freedom
Party of Geert Wilders lifted capital
Jordan Peele has
in an election seen as controls, nine
an indicator of populist made U.S. box-office
history as the first years after
sentiment in Europe.
Ruttes party, helped by black writer/director the credit
to break the
higher-than-expected crisis
voter turnout, must form a
coalition with other parties. $100m
threshold with a
shuttered three
of its banks
debut feature, horror and swamped
movie Get Out. Peele
Medical helicopter its currency.
made the film for
company Air Last year
$4.5 million.
Methods was
bought by American
its economy
Securities, a private expanded
equity company, for 7.2 percent.
$2.5b The International Beauty Show, celebrating 100 years, welcomed 65,000
attendees to New Yorks Javits Center. More than 500 vendors showed off
their wares, from Manic Panics hair colors to appliances such as Dysons
The Federal $400 blow dryer, which runs on the same technology as its popular vacuum
Reserve raised its cleaners. The U.S. beauty market totals $50 billion.
benchmark lending
rate a quarter
point, to a range
of 0.75 percent
They had better be
A financial and
to 1 percent, and
projects two more autonomous. Most investment consulting
firm is recommending that

people cant drive

increases this McDonalds franchisees
RUTTE: YVES HERMAN/REUTERS; INTERNATIONAL BEAUTY SHOW: EDUARDO MUNOZ/REUTERS; GET OUT: COURTESY UNIVERSAL PICTURES; FRONTIER: BURNINGHAM NEWS/ALAMY;

year. Raphael Bostic, get a new kind of preferred

More p17 an economist and stock that lets them elect
housing policy
expert, was chosentwo dimensions,
as president of the
a member of the board,
arguing that the restaurant
13
operators
let alone three.
Federal Reserve Bank
of Atlanta. Hes the
represent the
bulk of the
Ups first black leader of Ford Executive Chairman Bill Ford weighing in on the companys
one of the Feds 12 prospect of flying cars. value.
regional banks.

Bill Ackmans Pershing Square Ruby Tuesday Frontier Airlines

Capital Management sold its entire is putting itself on
Downs and Silver Airways
stake in Valeant Pharmaceuticals the block, as sales
in restaurants open said they would stop
International. The firm lost more than a year flying from the
$4 billion on the investment, fell 4 percent in
U.S. to Cuba, German
as the shares dropped the quarter ended
prosecutors raided
on Feb. 28 from a because the
more than 90 percent since the offices of
year earlier. It owns market failed to Volkswagens Audi
August 2015. 90 percent of its
President Trump 613 locations.
prove as lucrative unit on March 15, as
POLAR BEAR: PETER STEINER/ALAMY; ILLUSTRATIONS BY OSCAR BOLTON GREEN

wants to cut as expected investigations into

the EPAs A German VWs manipulation
budget
when it opened of emissions tests

24m
government minister
31 percent has threatened last summer. on its diesel engines
and the State Facebook, Twitter, American Airlines continue to weigh on
Department and other social the carmaker. The
and related
has already cut raids mark a fresh
media companies
agencies with fines of as daily service by a blow to VWs efforts
29 percent, much as $53 million quarter. to overcome the
according to unless they do more scandal.
a blueprint to block hate speech
released on on their platforms.
March 16. Its not
all cuts: The budget
paves the way for
eventual over-land The number of Americans who will go without health
commercial insurance by 2026, according to an estimate by the The U.S. Department of Justice indicted
supersonic Congressional Budget Office in evaluating the plan three Russians, including two intelligence
flightsa put forth by House Speaker Paul Ryan to replace the agency employees, and a Canadian for their
billionaires Affordable Care Act. alleged roles in the 2014 data breach of Yahoo!
dream. that affected 500 million accounts.
 Global
Economics
March 20 March 26, 2017

The Rich Refugees

14

Who Saved Trump

Down on his luck, the mogul found help from migrs from the old Soviet empire
I gave him 30 days, and in exactly 30 days he paid me back
On the 78th floor: a Russian who once resorts, and the tower was built on involved more than two dozen inter-
was accused of mob ties and extortion a mountain of debt owed to German views and a review of hundreds of
by an oligarch. On the 79th, an Uzbek banks. As Trump wrote in The Art of public records filed in New York.
jeweler investigated for money laun- the Comeback, It crushed my ego, my The 1990s were a sobering period
dering who was eventually executed pride, to go hat in hand to the bankers. for Trump, and its noteworthy that
on the street in Manhattan. And four Trumps soft spot for Russia is an among those who helped him exit
floors higher, a pro-Moscow Ukrainian ongoing mystery, and the large number the decade are people to whom hes
politician whose party hired a Donald of condominium sales he made to shown deep loyalty. Presidential coun-
Trump adviser. people with ties to former Soviet selor Kellyanne Conway and Michael
When Trump World Tower at republics may offer clues. We had big Cohen, his personal lawyer, bought
845 United Nations Plaza began con- buyers from Russia and Ukraine and units. Cohen got his Ukrainian in-laws
struction two decades ago as the tallest Kazakhstan, says Debra Stotts, a sales to buy, too. Most of the units were
residential building in the country agent who filled up the tower. The very bought before the tower was built, and
(90 stories), its most expensive floors top floors went unsold for years, but a prices werent disclosed. Trump World
attracted wealthy people getting their third of units sold on floors 76 through Tower ended up as a model for future
ILLUSTRATION BY 731

money out of what had been the Soviet 83 by 2004 involved people or limited developmentswith money drawn
Union. Trump needed the big spend- liability companies connected to Russia from sales in Moscow.
ers. He was renegotiating $1.8 billion and neighboring states, a Bloomberg Two months before Trump broke
in junk bonds for his Atlantic City investigation shows. The reporting ground in October 1998, Russia
 EUs demands on the
U.K. prove breaking up
is hard to do 16

Here comes the Fed

rate hike 17

defaulted on $40 billion in domestic Vladimir Putin, to buy an 83rd-floor job was filling Cohens apartment after
debt, the ruble plummeted, and some apartment. Salygins time in office over- he moved to 502 Park Ave., another
of the biggest banks started to col- lapped with Paul Manaforts tenure as Trump building. Three months after
lapse. Millionaires scrambled to get an adviser to the party. Manafort later the New York Post reported that
their money out and into New York. served as Trumps campaign manager Cohen and his Ukrainian in-laws had
Real estate provides a safe haven for before his Russian links led to growing bought units in World Tower, Trump
overseas investors. It has few report- criticism and his resignation. hired him.
ing requirements and is a preferred The push to sell units in Trump In 2008, his oldest son, Donald Jr.,
way to move cash of questionable World Tower to Russians expanded in said, We see a lot of money pouring
provenance. Amid the turmoil, buyers 2002, when Sothebys International in from Russia. What he was refer-
found a dearth of available projects. Realty teamed up with Kirsanova ring to has never been clarified, nor has
Trump World Tower, opened in 2001, Realty, a Russian company. One recep- its significance in explaining Trumps
became a prominent depository of tion at Moscows swank Hotel Baltschug friendly attitude toward Moscow. But
Russian money. Kempinski pitched the tower along- part of the answer may lie in the hun-
Sam Kislin, a Ukrainian immi- side Trumps West Side condos and his dreds of millions of dollars that salvaged
grant, issued mortgages to buyers of building on Columbus Circle. Trumps apartment buildings at a time
multimillion-dollar apartments in World Eduard Nektalov, an Uzbekistan- of financial vulnerability. Caleb Melby
Tower. Its highly unusual for individ- born diamond dealer, purchased a and Keri Geiger, with Michael Smith,
uals to issue formal mortgages for U.S. 79th-floor unit directly below Conways Alexander Sazonov, and Polly Mosendz
luxury real estate, and the tower loans for $1.6 million in July 2003. He was
The bottom line Trump was heavily leveraged
are the only ones Kislin ever made in being investigated by federal agents when he built World Tower in Manhattan, which
New York, public records show. for a money-laundering scheme, Russians flocked to.
Almost two decades earlier, Kislin which involved smelting gold to make
had sold Trump about 200 televisions it appear like everyday objects that
on credit. I gave him 30 days, and were then hauled to drug cartels in 15
in exactly 30 days he paid me back, Colombia. Nektalov sold his unit a
says Kislin, now 82. He never gave month after he bought it for a $500,000 Sustainability
me any trouble. He says the televi- profit. Less than a year later, Nektalov,
sions were for the Commodore Hotel, rumored to have been cooperating
Indias War Over
which Trump had bought in 1976 with with authorities, was gunned down on Waterand Soft Drinks
Hyatt Corp. Manhattans Sixth Avenue.
Trump purchased the sets from an Simultaneous with when the tower
Coke and Pepsi find themselves
electronics store that Kislin had opened was going up, developer Gil Dezer
boycotted in Kerala and Tamil Nadu
in New York with Tamir Sapir, an immi- and his father, Michael, were build-
grant from Georgia. It was famous ing a Trump-backed condo project in Shopkeepers are making a
among Soviets who would buy VHS Sunny Isles Beach, Fla. Russians love politically correct stance
players and tape recorders to take back the Trump brand, he says, adding
home. Sapir later grew rich trading that Russians and Russian Americans A potent blend of pride, economic
Russian oil. He invested the proceeds in bought some 200 of 2,000 units in nationalism, and mounting concerns
New York real estate, eventually becom- Trump buildings he built. They flooded over water security has the worlds
ing one of Trumps development part- into Trump projects from 2001 to 2007, two biggest cola brands in a bind in
ners in Trump SoHo, a frequent focal helping Trump weather the real estate southern India. On March 15 shop-
point in inquiries about Trumps finan- collapse, he says. keepers in drought-hit Kerala state
cial ties to Russia and questionable The Trump Organization is a said they will join their counterparts in
Russian money. Sapir died in 2014. global brand and much like every neighboring Tamil Nadu in boycotting
Kislin became a fundraiser for other real estate company has likely locally made beverages from Coca-
Rudolph Giulianis mayoral campaign, had purchasers from people of differ- Cola Co. and PepsiCo Inc.
bringing in millions for the future ent backgrounds buy units within their Retail associations blame the com-
Trump surrogate. Investigated by the properties, Amanda Miller, vice presi- panies for siphoning off groundwater
FBI in the 1990s for allegations includ- dent for marketing at the organization, and selling products tainted with pes-
ing mob ties and laundering money said in an email. The press continued ticides. Beyond the rhetoric, academ-
from Russia, Kislin was never charged, fascination with creating a narrative ics and analysts say the U.S. soda giants
and he maintains his innocence. that is simply not there is both mislead- have become caught up in Indias com-
At Trump World Tower, Kislin pro- ing and fabricated. plicated battle over diminishing water
vided a mortgage to Vasily Salygin, a Sales agent Stotts helped rent out resources, one thats getting more
future official of the Ukrainian Party apartments owned by those who politically fraught.
of Regions linked to Russian President invested in World Tower. Her very first India has a chronic water problem,
 Global Economics

Turning Water Into Cola Hindustan Coca-Cola Beverages

Soda makers have built factories Pvt. and PepsiCo India are compli-
in some of Indias most water- ant with all applicable regulations
stressed regions
Line of and that their products are safe. That
Areas where more than
control all-clear wont help end the boycott,
40 percent of the available though. Shopkeepers are making a
surface water is consumed politically correct stance by boycot-
each year
ting multinational beverages, says
Coca-Cola bottling facility Ramu Manivannan, a political
Pepsi bottling facility* analyst and head of the poli-
tics department at University
of Madras in the Tamil Nadu
capital, Chennai.
India accounts for 18 percent of the
INDIA worlds population, but it possesses
only 4 percent of the planets fresh
water. Farms use most of it, leaving
Water is most scarce industrial users to fight with munic-
in the northwestern ipal suppliers over the rest. Some
states of Punjab and
75 percent of Indias surface water

54%
Haryana, where rice
and wheat are grown (primarily rivers) is contaminated by
human and agricultural waste and
*PEPSI HAS 38 BOTTLING PLANTS IN INDIA
of Indias surface area industrial effluent.
BUT HAS NOT DISCLOSED ALL OF THEIR is subject to high or No noticeable changes to the pro-
LOCATIONS
extremely high water
DATA: WORLD RESOURCES INSTITUTE, stress tection of freshwater sources are yet
HINDUSTAN COCA-COLA BEVERAGES,
PEPSICO INDIA Tamil featuring on the Indian governments
Nadu agenda, says Jenny Gronwall, program
Kerala
manager for water governance at
16 the Stockholm International Water
Institute. It seems as if the situation
one of the worst in the world, and their agenda to the street more strongly must get worse and the general public
fights over the resource have erupted than they have in the past instances, unite in loud protests before a reduce
between states and users periodically Beena says. reuserecycle paradigm takes hold.
for decades. The failure of monsoon The latest action means soda from P R Sanjai and Archana Chaudhary
rains to produce expected amounts the Coca-Cola and Pepsi, which together
The bottom line Pepsi and Coca-Cola sell almost
past two yearsand, in the southern have a 96 percent hold on Indias all of Indias soft drinks, making them easy targets
states, three yearshas left rivers and $4.9 billion market, will be kept off for protests.
reservoirs parched, forcing farmers, the shelves of more than 1 million
manufacturers, and municipal water shops. Vendors would rather lose busi-
suppliers to rely more on wells to meet ness than sell the products, says A.M.
their needs. Those wells are drying up, Vikrama Raja, president of a retailers
too, and thats hurting farmers, Indias association in Tamil Nadu with about Diplomacy
economic mainstay. 1.5 million members. The boycott
The root cause for the boycott began on March 1, the day before the
Theresa May and the EU
isnt the multinational companies but Madras High Court dismissed a petition Square Off Over Brexit
the enduring fight between indus- by a consumer activist to ban the soda
trial users and farmers, especially in makers from drawing water from the
The British leader will face tough
several drought-hit states, says P.L. local Thamirabarani River. A boycott
demands in divorce negotiations
FROM LEFT: ILLUSTRATION BY 731; ADEM ALTAN/AFP/GETTY IMAGES

Beena, an associate professor with the from farmers could result in Coca-Cola
Centre for Development Studies in and Pepsi losing a big part of their Brexit will mean less cooperation
Thiruvananthapuram, Kerala. As U.S. consumer base in the rural areas, says and economic integration
multinationals, Pepsi and Coke are Oru Mohiuddin, an analyst for market
easier to target than Indian companies. researcher Euromonitor International With a stroke of the queens pen this
Prime Minister Narendra Modis in London. month, a new act of Parliament will
call to companies to make in India Pepsi, based in Purchase, N.Y., and be signed into law empowering Prime
has given rise to a pro-India push. His Atlanta-based Coca-Cola have declined Minister Theresa May to set in motion
recent electoral success in several state to comment on the allegations of the formal legal mechanism for exiting
assemblies makes it likely hell press the water exploitation and contamina- the European Union.
nationalist agenda more aggressively. tion. They are referring questions May appears to be in a commanding
With Modi at the center, many activist to the Indian Beverage Association, position. Her main Labour opponents
groups and political parties are taking which said in a March 1 statement that are in disarray, her Conservative Party
 Global Economics

Monetary Policy Monthly U.S. payroll growth

Fed Chair Janet Yellen
has said the longer-

Why the Fed Hiked Job growth exceeded estimated long-term

labor force growth in 60 of the past 72 months
run trend in labor
force growth is 75k to
125k jobs per month 400k
The Federal Reserve raised its target
federal funds rate a quarter of a
percentage point on March 15, to a 300k

range of 0.75 percent to 1 percent.

The gain of 235,000 jobs in February 200k

sealed the case for the increase.

When payrolls grow faster than the 100k

labor force, the pool of available

workers shrinks, which can lead to 0

higher wages and thus contribute to 3/2011 2/2017

increased inflation. Peter Coy Yellens estimated range
of long-term growth
DATA: U.S. BUREAU OF LABOR STATISTICS

is as many as 19 percentage points take as long as 15 years. Even traditional extent of that level of money will be
ahead in the opinion polls, and, barring ally Ireland sided with its EU partners in determined, Kenny told reporters.
the occasional blip, shes meeting little pushing Britain to pay an exit fee. Barnier is insisting May agree to
resistance in her pursuit of a hard, A foretaste of what May is up pay before hell even discuss whether
clean Brexit. Her goal remains, she said against comes in a memo circulat- to give her a free-trade agreement
after leaving an EU meeting in Brussels ing within the German government with the EUs single market. Germany
earlier this month, to build the inde- and obtained by Bloomberg. It urged has sided with Barnier in saying the
pendent, self-governing global Britain EU governments to not let our- divorce should be arranged before a
the British have called for. selves be divided, because the fore- new trading relationship is discussed.
Mays confident outlook may not most priority must be to protect the Britain would prefer to hold the talks
last. When she triggers the exit mech- blocs cohesion. It also stressed that in parallel. May said at the meeting
anism by invoking Article 50 of the EU Britain should be made to feel the dif- in Brussels that shes still aiming for a 17
Treatyprobably before the end of the ference between life inside the bloc good and comprehensive accord and
monthshe starts the clock ticking on a and outside it. Brexit will mean less working toward the two-year deadline.
maximum of two years of negotiations cooperation and economic integra- She hinted, though, that she wasnt
on Britains departure terms and future tion compared to EU membership, necessarily talking about the trade deal
trade arrangements. The U.K. will be and the U.K. will be treated as a third being fully concluded by then, only
cast out of the EU at the end of the country, the document said. Brexit its framework.
period, even if no deal can be reached. thus becomes a step backward which If the negotiations collapse, May
To end up with no agreement with our will have an effect on Britain. says, shell walk away without a new
EU partners would be a very risky place Even before the talks begin, the commercial framework in place rather
to be, says Dominic Grieve, former British government has squared off than accept a bad deal. All this makes
U.K. attorney general. against the EU and its chief Brexit the likelihood of a disruptive breakup
Yet the longer talks go on without an negotiator, Michel Barnier, over his worryingly high, says Malcolm Barr,
agreement, the more pressure will build suggestion that the U.K. pay as much an economist at JPMorgan Chase & Co.
on May to accept any terms that shes as 60 billion ($64 billion) to cover May will also need to handle
offered. That risks economic chaos, what it owes the rest of the EU. The growing threats within the U.K.
says Charles Grant of the Centre for liabilities on Barniers list are said Scotlands government is demand-
European Reform. So if Britain wants to include pensions for EU officials, ing a new independence referendum,
a half-decent deal, it needs the goodwill commitments on infrastructure proj- which it wants to hold before Britain
of its partners. ects, and financial policies such as leaves the EU, while the power-sharing
Goodwill is in short supply. the Irish bailout. One of Mays senior administration in Northern Ireland is
Interviews and leaked documents ministers described Barniers bill as also in peril. This is about as good as
have shown EU leaders from Berlin to absurd, while former Chancellor of it gets for May, says Mujtaba Rahman,
Brussels vowing to unite in the talks and the Exchequer Nigel Lawson called it a managing director at political con-
ensure the U.K. loses more than ransom demand. sultant Eurasia Group. Politics are
it gains from quitting the bloc. Irish Prime Minister Enda about to get decisively more difficult.
Germany said the EU wont Kenny warned that May will Tim Ross and Ian Wishart
splinter or grant too many need to face up to paying for
The bottom line By seeking an early start to Brexit
concessions to the British, Britains previous commit- talks, May risks handing over the advantage to the
while Denmark warned ments to the EU. When you negotiating team for the EU.
that Mays hopes for a new sign on for contracts, you
comprehensive free-trade commit yourself to participa- Edited by Christopher Power
agreement with the EU could tion, and obviously the Bloomberg.com
 Companies/
Industries
March 20 March 26, 2017

James Michael Logsdon, a Louisville

auto mechanic, hadnt been in a
classroom in 40 years when his
company went out of business in
2015, but he was keen to learn some-

Training Day
thing new. He enrolled in a free
program for blue-collar workers at
KentuckianaWorks, a regional job-
services group that offers education and
training courses and connects students
with prospective employers. In five
weeks, he got certified production tech-
nician (CPT) training and was hired
weeks later at Atlas Copco AB, the
Swedish tool-and-equipment maker.
I had a long interview, but it wasnt
until I talked about the courses Id
taken and showed my grades that they
wanted me, says Logsdon, 59, who
now repairs tools used by automakers
and equipment manufacturers.
Donald Trump promises to bring
factory jobs back to the U.S. from over-
seas, but many blue-collar workers are
18 hurt more by a lack of skills than by
globalization. Unskilled assembly-line
work has been replaced by so-called
advanced manufacturing jobs that
require some computer, information
technology, or other technical knowl-
edge. In Detroit, Louisville, Grand
Rapids, Mich., and other manufactur-
ing hubs, many employers cant find
workers with those skills.
Manufacturing jobs are here and
growing in numbers, but you cant
just show up at a plant after high
school and get hired any longer.
You need some specialized training
and certifications, says Chauncy
Lennon, head of Workforce Initiatives
at JPMorgan Chase & Co., which
helps fund KentuckianaWorks as
part of a $250 million commitment to
support training for manufacturing,
health-care, and other middle-
income jobs. KentuckianaWorks
other funders include the Louisville
KentuckianaWorks Redevelopment Authority, the
deputy director
Cindy Read during a National Fund for Workforce
recent class Solutions, and several foundations.
Over the next decade, 3.4 million
manufacturing jobs are expected to
A jobs program helps Americans get back into manufacturing become available as baby boomers
retire and economic growth spurs work
Once theyre hired we can expand their knowledge opportunities, according to a 2015 study
by the Manufacturing Institute, a
 Disney gears up for
grown-ups 20

Intel self-drives into

the fast lane 21

Washington-based think tank, and credentials, and then you stick it out he says, solve our own problems.
Deloitte LLC. But a skills gap could on a job and are willing to learn, you In November, Logsdon was offered a
result in 2 million of those jobs staying can move up quickly. permanent job with benefits. He plans
unfilled. Workers are most lacking in Thats the case at KCC Cos., a metal to keep working as long as he can. I
computing and technical skills, as well fabricator with 350 employees that put in 10-hour days here, starting at
as basic math and problem-solving, the makes commercial roof products 5 a.m., he says, and Ive never been
study found. More and heating, ventilation, and air- happier in a job. Carol Hymowitz
than 80 percent conditioning units. The company has

88
The bottom line Over the next decade, as
% of 450 U.S. exec-
utives surveyed
hired 10 KentuckianaWorks graduates
in the past year. The basic training
3.4 million manufacturing jobs become available, a
skills gap could result in 2 million staying unfilled.
said the gap will they get sets them apart from other
affect their ability entry-level candidates, and once
to meet customer theyre hired we can expand their
Share of U.S.
manufacturing jobs demand, and knowledge, says Michael Kopp, a
lost to increased 78 percent said it KCC recruiter. He attends at least Retailing
productivity will make it more one session of every course to meet
and automation,
difficult for them trainees and talk about the company.
Now on EBay: Russian
2000 to 2010
to use new tech- Kopp also keeps in touch with instruc- Micro-Multinationals
nologies and increase productivity. tors. Not everyone weve hired has
If youre wrapping 300 Hershey worked out, he says, but our reten-
The online marketplace makes
chocolate kisses a minute, you need to tion success rate with these trainees
cross-border sales easier
know how to use a robot, and if youre is higher than with other hires.
making tiny instruments for medical Logsdon, the former auto mechanic Emerging markets are an
equipment, you need to understand who works at Atlas Copco, says he important growth opportunity
mechatronics, says Fred Dedrick, was as green as you can be when he 19
president and chief executive officer started the training, after losing his job When Dmitrii Dvornikov first started
of the National Fund for Workforce with a small family-run repair shop. selling jewelry and table clocks made
Solutions, a nonprofit that works with Hed never worked on a computer from semiprecious Russian stones
PHOTOGRAPHS BY JOSH ANDERSON FOR BLOOMBERG BUSINESSWEEK; DATA: BALL STATE UNIVERSITY CENTER FOR BUSINESS AND ECONOMIC RESEARCH

32 job-training programs across the and had to learn Windows and Excel such as burgundy-colored eudialyte
country. Some big companies have quickly, because the curriculum was or lilaceous charoit, he had a hard
closed and left devastation, but its online. Classes ran from 8 a.m. to time expanding beyond local indus-
inaccurate to say there arent opportu- 5 p.m., and there were tests every trial fairs and exhibitions. Then in 2013
nities in manufacturing, he says. Friday. I got more than the CPT certif- Shungite.Club, his St. Petersburg-
To ensure that its curriculum meets icate. I got confidence, mentoring, and based company, began listing its wares
employers needs, KentuckianaWorks, help writing a rsum, he says. on EBay, and the online marketplace
which has an annual budget of about Initially, Atlas Copco, which found soon turned the tiny outfit into a multi-
$700,000, enlisted local manufacturers, Logsdons rsum online, offered him national of sorts. In the second half
including Cardinal Aluminum, Ford a temporary job repairing tools for of last year, EBay let us automatically
Motor, and Kellogg, to help design two $17.50 an hour, 30 percent less than show our goods in French, Italian,
training programs: the five-week CPT what hed earned as a mechanic. Still, Spanish, German, and other lan-
course and a basic two-week version. he jumped at the chance to work for a guages, without separately registering
Both programs are intensive and growing company where workers are in those countries, says Dvornikov.
have trained people age 18-60. Only encouraged to make decisions and, The result: a sales boost of as much as
56 percent of those who start 30 percent. This became a sustainable
one stick with it to the end, business with stable revenue.
but those who do usually The big cross-border gains logged
find jobs quickly. Since by sellers such as Dvornikov high-
2014, when the training was light the success of a strategy put
launched, 973 graduates have in place by Ilya Kretov, who over-
been hired at partner com- sees EBay Inc.s Russian operations.
panies at an average salary After Kretov last year introduced soft-
of about $13 an hour. Cindy ware aimed at making it easier to sell
Read, deputy director of abroad, the company says exports of
KentuckianaWorks, says everything from hand-painted scarves
most are entry-level produc- to fishing lures and collectible $30 tin
tion jobs, but if youve had soldiers listed by Russians on EBay
the discipline to train and get rose 50 percent. That jump caught
An instructor demonstrates how to use an
ohmmeter, which measures electrical resistance
 Companies/Industries

the eye of top managers back in markets because its business model Top Toy Licenses
California, who recently gave Kretov connects small merchants to buyers, Disney brands
responsibility for about 120 coun- and it doesnt need to build ware-
tries across Africa, the Middle East, houses or shipping centers. Mickey & Friends $4b
and less-developed parts of Europe, Fedor Virin, an analyst at researcher Hello Kitty $3.8b

with orders to boost cross-border Data Insight, says EBays push to help Star Wars $2.8b

sales in those markets, too. We are Russians export came after it failed to Winnie the Pooh $2.7b
basically the only market- Emerging markets become a popular domestic Disney Princess $2.6b
place that enables merchants are an important marketplace there. EBay has Frozen $1.6b
from emerging markets to sell growth opportunity only about 3 million monthly Spider-Man $1.5b
for EBay. If they can
globally, Kretov says. build and leverage a users out of the 80 million
Peanuts $1.3b
In recent years, EBay buyer base in these people online in Russia, 2015 GLOBAL RETAIL SALES. DATA: THE LICENSING LETTER
has expanded more slowly countries, then I according to researcher
would expect there
than industry leaders will also be a ready Mediascope. By contrast, licensing operation in the world, has
Amazon.com Inc. and market of sellers. Alibabas AliExpress has been on a tear in recent years, thanks
Alibaba Group Holding Ltd. Colin Sebastian, more than 11 million monthly to the billion-dollar bonanzas Frozen
Robert Baird analyst
The company says cross- active users in Russia. And in and Star Wars. Sales of products tied
border e-commerce can many other global markets to those films, though, have cooled
take off in developing nations just Kretov is targeting, EBay barely has recently; and last quarter, which
as it has in China, where shop- a footprint, Virin says. By focusing included the crucial Christmas season,
pers lead the world in ordering on cross-border sales, he says, EBay the companys merchandise revenue
goods directly from merchants can squeeze growth from markets fell 23 percent, to $1.5 billion.
abroad. Chinese consumers are like Russia. Ilya Khrennikov and Disney consumer-products chief
projected to spend $158 billion Spencer Soper James Pitaros strategy for getting the
online on imported goods in 2020, division back in growth mode is to
The bottom line Exports by Russians using EBay
up 84 percent from 2016, accord- grew 50 percent in 2016, thanks to software that broaden the audience for merchandise.
ing to researcher EMarketer Inc. makes it easier to sell to foreign buyers. In particular he wants to peddle gear
Cross-border sellers could help to millennials who grew up watching
20 EBay turn in better revenue growth Disney films and now want to relive
than the sub-5 percent it delivered their childhood or share the stories
last yearone-sixth of Amazons with their own kids. This is probably
27 percent increase. Emerging Media priority No.1 for us, Pitaro says. This
markets are an important growth idea we call the generational pull.
opportunity for EBay, says Colin
Beauty and the Theres already plenty of the more
Sebastian, an analyst at Robert W. Bakeware Set predictable kid-focused merchandise
Baird & Co. If they can build and on store shelves: $23 sparkly yellow
leverage a buyer base in these coun- dresses, posable $26 dolls, $9 Belle
The new Disney film targets
tries, then I would expect there will water bottles. And this fall, Hasbro Inc.
millennials for merchandise sales
also be a ready market of sellers. will roll out a $120 programmable Belle
Unlike Amazon, which gets most of This is probably priority No. 1 for doll that dances and sings after kids
its sales in North America, EBay relies us. Its the generational pull type a code into a related mobile app.
on international markets for about Launching a slew of tie-ins aimed at
57 percent of its revenue. As of mid- Its half past noon on a Saturday, and a goods that would actually suit millen-
2016, 38 percent of EBays 1,000 most- couple of dozen kids and their parents nial moms required some new thinking.
active sellers were cross-border are gathered at the Disney Store in Step 1, Pitaro says, was to target higher-
traders, according to researcher Sherman Oaks, Calif., for a Beauty and end labels that create a halo around
Web Retailer. In many places, though, the Beast event. Music from the film the Beauty and the Beast brand. These
EBay means domestic listings: plays, and kids are handed pieces of include Juicy Couture, which is
Americans mostly sell to Americans, paper they can fold into the Chip Potts making $700 track jackets, and Invicta,
Britons mostly to U.K. customers, etc. character. Let me hear you roar like with $500 watches. Disney also signed
Last year, Kretov rolled out soft- the Beast, a Disney staffer urges. The up prominent London-based runway
ware dubbed EBayMag that lets sellers audience roars along. designer Christopher Kanewho a
offer their goods in as many as nine Walt Disney Co. needs to get decade ago caused a stir with his
countries and automatically translates everyones buy-in for the mer- tight bandage dressesto put
listings into local languagesfree for a chandising push planned together a line that includes
trial period, though the company even- around the March 17 release $245 Beast T-shirts and a
tually plans to charge extra. Previously of the live-action Beauty $6,000 womens silk jacket
merchants could readily sell only on and the Beast redo. Disneys with a blue bow. Kane sees
their local site or the global EBay.com consumer-products a natural flow between girls
site. Kretov says its easier for the division, the largest dressing up in twirly yellow
company to expand into untapped entertainment New Era, $26 dresses and women in fancier
 Companies/Industries

duds. Theres always a mix of fantasy

in fashion, he says.
For non-fashionistas, Disney has lined
up more practical Beast tie-ins includ-
Deal Snapshot By Ian King and Gabrielle Coppola

ing Twinings tea bags, Neutrogena

sunblock, and a $280 Le Creuset
soup pot sold exclusively at Williams-
Sonoma. It appeals to those who
Intel + Mobileye
grew up watching the original film,
All cash
says Janet Hayes, brand president at
Williams-Sonoma Inc. I think the The Basics Growth Market
finishing touch on the handle of the lid Buyer: Intel Corp. Digital mobility services for the auto
saying be our guest is a great touch. Target: Mobileye NV industry will reach about $2 trillion
In a first for a Disney Princess line, Price: in 2025, up from $916 billion

$15b
Pitaros team is also aggressively in 2016, says Sarwant Singh, a
targeting male customers. Licensee senior partner at market researcher
Cufflinks Inc. is selling rose-patterned Frost & Sullivan.
ties, teen retailer Hot Topic Inc. is
offering mens blazers inspired by the Playing Catch-Up
film, and New Era Cap Co., an almost Premium: 34 percent above closing Intels purchase is a shot at catching
100-year-old millinery outfit, has made share price of $47.27 on March 10 rival Qualcomm Inc., which is set to
Beast-themed baseball caps for guys. become the worlds largest producer
Last year, Disneys consumer- Autonomous-vehicle of chips used by automakers through
products division, which includes its sales projections 100% its pending $47 billion acquisition
own stores, earned almost $2 billion of NXP Semiconductors NV. Intel is
on sales of $5.5 billion. But the market e so far behind in this space, the only
imat
for movie-related merchandise has r est 50% way they could catch up was via
Uppe
gotten much more competitive lately. an acquisition, says Neil Campling,
ate
At least 23 kid-focused films will r estim head of technology research 21
Lowe
feature toy tie-ins this year, according 0% at Northern Trust Securities.
to the International Licensing Industry 2020s 2050s

Merchandisers Association. Many Pay to Play

come from studios, such as Warner Chasing the Next Big Thing Intel is intent on staying in this race,
Bros. Entertainment Inc. and Intel is accelerating its push into the so its paying about 29.5 times
Universal Studios, that have hired chip industrys latest megagrowth Mobileyes projected revenue
former Disney executives to run their opportunity: self-driving cars and for this year, according to Amit
licensing businesses. the data they generate. Israel- Daryanani, an analyst at RBC
Theres also the risk of film character based Mobileye will let Intel offer Capital Markets. Theyre paying a
merchandise fatigue. Every seven automakers a larger package of huge premium in order to catch up,
years, entertainment toys peak and the components theyll need as to get into the front of the line rather
decline, says toy entrepreneur Isaac vehicles become more autonomous. than attempt to build from scratch,
Larian, whose MGA Entertainment Inc. says Mike Ramsey, an analyst with
owns brands including Little Tikes and technology researcher Gartner.
Bratz. Consumers get fed up. Timeline of
Pitaro, naturally, disagrees. He Intels Top
says the success of Disneys film Acquisitions
operation, which produced 5 of the After two decades
of acquisitions
10 highest-grossing movies in the U.S. to move beyond its
last year, gives him plenty to work with. PC chip origins, Intel
The biggest lever that we can pull here $1b
will use Mobileye
to become a force in
is this idea of audience expansion, he $5b driverless cars
says. New regions, new countries, and Altera Corp.
into new demographics. Christopher
Wireless Solutions NY
Palmeri and Matthew Townsend DSP Communications
Level One Communications
The bottom line Disney, whose merchandise McAfee Axxia Mobileye
revenue fell 23 percent last quarter, hopes Beauty Giga Wind River Inc. Networking
and the Beast gear for millennials will revive sales. Systems
Dialogic

1999 2010 2015 2017

Edited by James E. Ellis, Dimitra Kessenides,
and David Rocks DATA: VICTORIA TRANSPORT POLICY INSTITUTE; COMPILED BY BLOOMBERG
Bloomberg.com
 Politics/
The White House is Down the street
crammed with Jones from Trump Tower, a
Day lawyers 25 Kushner gold mine 27

Policy Who can make

costly regulations
disappear?
Merkels new BFF in
French politics 26

March 20 March 26, 2017

Carl I can
How Trumps confidant became a one-man lobbying shop
This is the purest definition of a conflict of interest that you can get
Late in the day on Feb. 27, Michael due in part to his stake in two oil refin- of the RFA, to Icahns office in New
McAdamss phone lit up with a flurry eries, but mostly its because of his York. As he later explained in an inter-
of calls and messages. McAdams runs a relationship with President Donald view with an agriculture radio show,
biofuels trade group, and in the arcane Trump. Icahn has known Trump for Dinneen concluded Icahn was driving 23
world of fuel policy, the news couldnt more than two decades and was an U.S. policy on the issue and couldnt
have been bigger: The White House early supporter during the campaign. be stopped. So Dinneen cut a deal with
was considering a radical change to Trump rewarded Icahn in December Icahn that included an item on RFAs
the U.S. renewable fuel mandate, by making him special adviser to wish list. Icahn took the joint proposal
which governs the amount of ethanol the president on regulatory reform, to the president.
blended into the countrys gasoline giving Icahn the perfect platform to When news of the deal broke, corn
supply. To the surprise of many, the influence federal policies that affect and gasoline prices went haywire, while
Renewable Fuels Association (RFA), his $20 billion business empire. shares of CVR Energy Inc., Icahns
a major trade group that represents As his first agenda item, Icahn refinery company, surged. Although
ethanol producers, was dropping its has chosen to go to war over a U.S. the White House and EPA have yet to
opposition to the proposal, which Environmental Protection Agency act on the proposal, the market likes
would shift the responsibility for program that he says costs his refin- its chances; since Trumps election,
meeting biofuel quotas away from eries hundreds of millions of dollars CVR has climbed more than 58 percent,
refineries. I nearly fell out of my by forcing them to buy renewable fuel boosting the value of Icahns majority
chair, says McAdams. credits, generated when biofuel is stake by more than $500 million.
By the time he got to the office the blended into gasoline. He doesnt want This looks more like what youd
next morning, McAdams had mes- to scrap the mandatehe just wants the see in a banana republic, says Tyson
sages from most of his 33 members, obligation for meeting it to move from Slocum of Public Citizen, a liberal
who were worried the proposal would refiners to other participants in the watchdog group. Youve got a strong-
upend the biofuel market and dry up energy market. Ethanol producers fear man who surrounds himself with bil-
demand for their products. It took him a big change might unravel the whole lionaires or wealthy advisers who
HEIDI GUTMAN/CNBC/NBCU PHOTO BANK/GETTY IMAGES

almost two days to get back to them all system, which is why it was such a sur- conduct the business of government to
and try to explain what was happen- prise that the RFA caved. benefit their business.
ing, to the degree that he even knew The switch came after a Feb. 23 visit Icahn makes no apologies for this.
himself. Were in an information by Bob Dinneen, chief executive officer Sipping a glass of pineapple juice in his
void, he says. Theres a vacuum here 47th floor corner office on March 9, the
on who the hell is running what. 81-year-old investor says hes surprised
The answer is, Carl Icahn is running As Trumps special by all the controversy, which he sees as
things. Since Election Day, the billion- a fake issue generated by well-funded
aire New York investor has emerged
adviser, Icahn has power opponents. I have a right to talk to
as the most powerful person in the to influence policies that the president like any other citizen,
$24 billion ethanol industry. Thats affect his businesses he says. Especially if I think he
 Trump and Icahn at

Politics/Policy Trump Tower the

night of the New York
primary in April 2016

respects me, why the hell shouldnt I portfolio in the admin-

call him?. It may sound corny to you, istration, the sena-
but I think doing certain things helps tors wrote, Icahns
the country a lot. And yeah, it helps role presents an unac-
me. Im not apologizing for that. ceptable risk of further
Icahn would seem to inhabit an real or potential con-
extraordinary position of privilege flicts. As of March 14,
in the Trump administration. Except they hadnt gotten a
that hes not technically a part of the response.
administration. As a special adviser, One of the original
hes not a government employee corporate raiders of the 1980s, Icahn is for a brief chat in early January, on the
and receives no compensation. That still in the business of shaking up com- same day Claytons selection by Trump
means he doesnt have to relinquish panies he sees as poorly managed, was made public. Icahn insists he hasnt
any of his vast financial holdings, nor although he now prefers the gentler talked to the administration about any
is he subject to federal ethics rules term shareholder activist. A self- other regulatory issues outside those
that typically apply to people who described workaholic, with a pair of pertaining to the SEC and EPA.
work for the president. dueling pistols on his desk, he bagged Icahn and Trump go way back, and
Every part of Icahns portfolio is his latest quarry this month, forcing not surprisingly the nature of their rela-
touched by government regulation. out the CEO of AIG. tionship is mostly business. In the early
Theres American International Icahn says the EPA rule is just one 1990s, as a creditor of the Taj Mahal,
Group Inc., subject to strict federal of innumerable regulations stran- Icahn helped Trump keep control of his
oversight under a 2010 law Trump says gulating the economy. Pressed for troubled Atlantic City casino. At cam-
hell revise; Federal-Mogul Holdings examples, he mentions those gov- paign rallies, Trump bragged about
Corp., an auto parts maker with plants erning liquefied natural gas, key to Icahns endorsement, calling him one
in China and Mexico; and Herbalife his billion-dollar stake in Cheniere of the greatest businesspeople in the
Ltd., a multilevel marketer facing a Energy Inc., and the Federal Railroad world. For a president surrounded by
May deadline to comply with a Federal Administration, which hes battling in captains of industry, Icahn is by far the
Trade Commission settlement. Says federal court over the safety of tank wealthiest, worth about $20 billion,
24 Slocum: This is the purest definition of cars one of his companies built. according to the Bloomberg Billionaires

PHOTOS FROM TOP: VICTOR J. BLUE/BLOOMBERG; TOM WILLIAMS/CQ ROLL CALL/GETTY IMAGES; ROLODEX: PHOTO ILLUSTRATION BY 731; PHOTO: WINSTON LINK/ALAMY
a conflict of interest that you can get. As a major player in the stock and Index, more than the rest of Trumps
Last month, seven Democratic sen- bond markets, Icahn has an interest appointees combined.
ators wrote the White House asking in the direction of the Securities and Within days of his victory, the
for information about Icahns role in Exchange Commission. He says Jay president-elect ended a Trump Tower
EPA policy. With a sprawling busi- Clayton, the lawyer Trump picked to interview with Scott Pruitt, his future
ness empire and potentially unlimited lead the agency, stopped by his office EPA chief, by directing him two blocks

Icahns Not-So-Invisible Hand Feb. 27 News breaks

Dec. 7 Scott Pruitt
CVR Energy, an oil refiner owned by Carl Icahn that Icahn and a
is selected to lead
Dec. 21 White House leading biofuels group
the EPA. Icahn, in
names Icahn a special submitted a joint
a Bloomberg TV
adviser for regulations. proposal to the White
interview, says he
House to change the
believes Pruitt will
EPA regulation.
change the regulations
hurting CVR's refineries.
Nov. 9 Market reacts to
Donald Trump's victory
in the presidential race.
3m

$20.84
2m

CVR
stock
price 1m
$15.15

Trade
volume
0
9/15/16 3/15/17

DATA: COMPILED BY BLOOMBERG

 Politics/Policy

uptown to meet with Icahn. He has EPA rule. But he allows that the contro- chief advocate at the Supreme Court.
some questions for you, Trump told versy generated by his involvement may Franciscos post requires Senate
Pruitt, according to a person with have hurt his cause. He regrets taking confirmation. Other Jones Day attor-
knowledge of the meeting. The Icahn the special adviser title because he says neys have been appointed at the
interview hadnt been on Pruitts sched- its become a PR distraction. I gotta tell Commerce and Agriculture depart-
ule, according to the person. So Pruitt you, he says, I didnt count on all of ments and the Federal Energy
and an aide scanned the internet for this opprobrium. Zachary Mider and Regulatory Commission.
information about Icahns pet ethanol Jennifer A. Dlouhy Despite some of its attorneys enthu-
issue as they headed up Fifth Avenue. siasm for serving in the Trump adminis-
The bottom line As special adviser to Trump, Icahn
Icahns trouble with the biofuel can influence regulatory policies that affect his tration, Jones Days lawyers contributed
mandate is that importers and refiner- $20 billion portfolio without violating ethics rules. only $7,422 to his campaign, according
ies are forced either to blend ethanol to the nonprofit Center for Responsive
into their gasoline or buy renewable- Politics. That compares with $267,899
fuel credits from others that do. Icahns given to Hillary Clinton.
refineries in Oklahoma and Kansas A behemoth with more than 2,500
mostly rely on buying credits, which Governing attorneys in 44 offices in 19 coun-
was fine until the price of the credits tries, Jones Day has raised its profile
soared. Under the current system,
Donald Trumps as a Washington powerhouse over the
Icahn says, independent refiners Favorite Law Firm past dozen years. In a closely watched
like his are handing windfall profits measure of status in legal circles, it
to those who sell credits, including employs more than 40 former Supreme
Jones Day attorneys fill key posts
big gas station chains such as Royal Court clerks, including Francisco, who
in the new administration
Dutch Shell Plc. Its an outrage, says clerked for Justice Antonin Scalia.
Icahn. Its a deal that in a Third World It is a little like a sports team Jones Days revenue of $1.94 billion
country would make a dictator blush. losing major players in 2015 ranked sixth among the top
Over the course of two meetings and 100firms in the American Lawyers most
more phone calls with Pruitt, Icahn When prominent lawyers take top recent rankings. Partner compensation
says Pruitt seemed supportive. At his jobs at the White House or the U.S. at Jones Day varies widely; the average
Jan. 18 confirmation hearing, Pruitt Department of Justice, they often take-home pay of just over $1million 25
testified that he hadnt taken a posi- bring along several attorneys from earned a ranking of only 72nd.
tion on the issue. But a few days after their firms. With the Trump adminis- The firms roots can be traced to the
Pruitt took office last month, Icahn tration, one firmJones Dayis taking late 19th century in Cleveland, where
was working on a plan to force the EPA that to an extreme. I dont know it represented railroads, utilities,
chief s hand. Armed with the support of a precedent, says Theodore and Standard Oil mogul John
of the RFA, Icahn called the president Olson, a solicitor general in D. Rockefeller. More recently
with the joint proposal, finally con- the George W. Bush adminis- its stable of clients has
necting one evening while Icahn was tration and a partner in the reached beyond Midwestern
out walking his dog. Trump seemed Washington office of Gibson, industrial and financial com-
receptive, Icahn says, adding that its Dunn & Crutcher. panies to include Chevron,
the only time theyve discussed the So far, at least 14 Jones Day attorneys Goldman Sachs, Reynolds
issue since the inauguration. Trump have joined the Trump team, although American, Southern, Starbucks,
told Icahn to call Gary Cohn, direc- some are awaiting Senate confirma- Toyota, and Volkswagen. It also rep-
tor of the National Economic Council. tion. Donald McGahn II, the White resents Bloomberg LP, the owner of
Cohn, in turn, handed him off to an House counsel and a former Jones Day Bloomberg Businessweek.
aide, who spent more than an hour on partner, has hired at least six attor- Rivals say Jones Day will benefit from
the phone with him. neys from the firm to work with him its prominence in the administration.
The following week, when news of advising the president on ethics, exec- Firms such as Jones Day generally get
Icahns gambit leaked out, the backlash utive orders, and judicial nominations. their lawyers back having had high-level
was swift. This is not going to happen, McGahn, a former chairman of the government experience and boosted
said Iowa Governor Terry Branstad, a Federal Election Commission and the their name recognition, Karen Dunn,
Trump ally. Alarmed farm state sena- main bridge between Jones Day and a partner in the Washington office
tors started questioning Trump aides. the administration, has represented of Boies Schiller Flexner who served
Before long, the White House issued Trump since 2015, when the president as an associate counsel to President
a statement saying no executive order was a long-shot candidate. Obama, said in an email. William Burck,
was in the works. (The EPA didnt At Justice, at least four Jones Day a former deputy counsel to President
respond to requests for comment.) lawyers have been named to presti- George W. Bush and a partner in the
Back at the General Motors Building gious posts, led by Noel Francisco, Washington office of Quinn Emanuel
on March 9, stretching his 6-foot-3-inch another former partner at the firm, Urquhart & Sullivan, said in an email
frame and folding his hands behind his who the White House announced that Jones Day gave up some of its top
head, Icahn says he still hopes Trump on March 7 would be nominated as talent to the administration: Noel
and Pruitt will take his side over the solicitor general, the administrations Francisco is one of the best appellate
 Politics/Policy
This could be a new
chance to re-trigger
the French-German
lawyers in the country, and Greg in early February and allow a relationship. charged with misuse of
Katsas, the deputy White House career Justice Department lawyer Matthias Ruffert, public funds on March 14.
Humboldt University
counsel, is a brilliant legal thinker. to defend the presidents order Recent polls suggest Fillon
That could be a problem, Victor barring U.S. entry to people will be eliminated in the
Schwartz, the head of Shook, Hardy traveling from seven Muslim- first round of voting on
& Bacons public policy practice in majority countries. The recusal became April 23, with Macron then defeating
Washington, said in an email: If too necessary when Jones Day lawyers back Le Pen in a May 7 runoff.
many key lawyers leave the firm at at the firm filed a brief on behalf of legal For Germany, a Macron victory
the same time, it is a little like a sports scholars who argued against the admin- could offer far more than a firewall
team losing major players. Jones Day istrations expansive claim of authority against Le Pen. The Franco-German
probably has a deep enough bench to to bar certain aliens from the country. partnership that formed the European
weather the temporary departures. The administration ultimately lost Unions historic core has been strained
While McGahn and Bill McGinley, before the U.S. Court of Appeals for the in recent years, as President Franois
cabinet secretary in the Trump White Ninth Circuit in San Francisco. Trump Hollande balked at Merkels austerity-
House, were two of Jones Days top elec- has since issued an altered immigra- based management of the European
tion law experts, Benjamin Ginsberg, tion order thats been challenged in the debt crisis and irked Berlin with
the Republican minence grise of the courtsand could force more recusals. slow deficit cutting and tepid eco-
field, remains at the firm. Jones Days Paul M. Barrett nomic reforms that fell far short of
managing partner, Stephen Brogan, and those enacted by Germany. Macron
The bottom line Jones Day, a haven for
a spokesman didnt respond to phone conservative attorneys in Washington, so far has impressed the Germans by pushing for
messages and emails seeking comment. sent 14 lawyers into the Trump administration. reforms during his stint as Hollandes
Political scandal poses another poten- economy minister and by pledging to
tial danger for law firm transplants. meet the 3 percent deficit ceiling set by
There is always a risk that applies to euro currency rulessomething none
any administration and any firm that of his rivals has promised. Macron
controversy will taint members of the Elections makes proposals that sound so
administration, says Olson. In just its normal to German ears, says Matthias
first two months, the Trump White
Does Macron Hold the Ruffert, a professor of European law at
26 House has gotten enmeshed in poten- Key to Merkels Heart? Humboldt University in Berlin. This
tially explosive controversies concern- could be a new chance to re-trigger the
ing contacts between Trump associates French-German relationship.
Franco-German ties need to
and Russia and the presidents unsup- Europe needs that relationship
strengthen for the EU to survive
ported allegation that Obama tapped more than ever. Britain is exiting
his phone in New York. Macron makes proposals that the EU, a NATO skeptic occupies the
A less extreme but far more common sound so normal to German ears White House, and theres an increas-
hazard facing government attorneys ingly assertive Russia to the east. Those
with private firm backgrounds is the A snowstorm on the East Coast of the factors, along with resurgent populism,

FROM LEFT: CHEVRON: ALAMY; MACRON: VINCENT ISORE/IP3/GETTY IMAGES; 666 FIFTH AVENUE: DANIEL ACKER/BLOOMBERG
obligation to recuse oneself because U.S. upended Angela Merkels travel have created a sense of alarm about
of conflicts with the firms work. This plans, delaying until March 17 her the European project, says Christian
occurred in the Trump administrations scheduled Washington meeting with Bluth, an economist at the Bertelsmann
biggest court case so far: the defense President Donald Trump. One appoint- Stiftung think tank in Gtersloh. The
of the presidents first travel ban. ment that stayed on the chancellors idea of Europe needs to be reinvigo-
Francisco, then the acting solicitor calendar, though, was a March 16 tte- rated and made more attractive. That
general, and Chad Readler, another -tte in Berlin with French presidential can only be done if it is done together
Jones Day migr and acting assis- candidate Emmanuel Macron. with the French.
tant attorney general, had to step aside Merkel has good reason to reach out Macron has taken pains to reassure
to Macron. The 39-year-old indepen- Germans that hes ready to enforce dis-
dent centrist now looks to be in position cipline at home. There is a French
Jones Day law firm to defeat the far-right National Fronts responsibility to fix the situation, he
Marine Le Pen, whose anti-Europe said at Humboldt University on
Founded 1893, as Clients include views are anathema to Merkel. Only Jan. 10. We have to restore trust
Blandin & Rice
two months ago, Merkel hosted then- with Germany by enacting strong
Number of lawyers
2,500+
front-runner Franois Fillon, whose reforms to realign our economy
2015 revenue $1.94b
center-right Republican party with the German success. In cam-
Average partner
is the traditional ally of her paign speeches he argues that
profits $1.01m per year Christian Democratic Union. France should work within
Revenue per lawyer But Fillons support crum- European structuresrather
$755,000 bled over allegations that he than erecting trade barriers
Number of offices hired his wife and children or quitting the euro cur-
44 (in 19 countries)
for no-show parliamen- rency, as Le Pen wants to
Macron
tary jobs. He was formally doto protect working
 Politics/Policy

Real Estate The Most Expensive Building in NYC

The company owned by the family of Jared Kushner, President Donald Trumps son-in-law and senior adviser,
stands to receive more than $400 million from a prominent Chinese insurance company thats considering
investing in the Kushners marquee Manhattan office tower at 666 Fifth Ave. The proposed $4 billion transaction
includes terms that some real estate experts consider unusually favorable for the Kushners. The partnership is
seeking additional participants through a federal program known as EB-5, which is intended for economically
distressed neighborhoods and provides visas to major foreign investors. David Kocieniewski and Caleb Melby

$4b
666
Fifth Ave.
Total value of transaction

1.4m $2.85b
Total value of the building,
sq. ft. .of office, making it the priciest
at $1.1k/sq. ft. ever sold in NYC

38.8k sq. ft. of retail,

$1.15b
at $32k/sq. ft. Debt refinanced

$400m
Payments from Anbang Insurance
Group Co. to the Kushner family

27

DATA: FINANCIAL DISCLOSURES FILED BY THE BUILDINGS LENDERS

people from the ravages of globaliza- workweek, Macron would simply make economy expanding at its fastest rate
tion. To Germanys relief, hes taken a it harder for public employees to retire since 2011. Annual growth from 2017-19
tougher stance on Russia than Le Pen or early and give companies more flexi- could trend towards 3 percent,
Fillon, both of whom want to lift sanc- bility to negotiate schedules with their double the pace during Hollandes
tions on Moscow. And while Le Pen workers. Fillon wants to cut public term, says Martin Malone, an invest-
and Fillon dont want France to take spending by 100 billion ($106 billion) ment adviser at London brokerage Mint
more refugees, Macron has called for an over five years. However, he wouldnt Partners Ltd. Macron may or may not
immigration policy that would be effi- immediately lower Frances budget deliver, but the positive tailwinds are
cient, clear, and carried out with our deficit below the 3 percent limit, since very likely to make his traction better.
European partners. hes proposed deep tax cuts that would While Germany still expects its
In exchange for such moves, Macron shrink revenue. Macron has promised European neighbors to live within their
has said he wants Germany to loosen only modest tax cuts. means, there will be more leeway,
its purse strings and pursue a much France and Germany have not been says Bluth. Austerity wont be as
more growth-friendly policy. Merkel seeing eye to eye for a long time, says important as it was during the years of
is unlikely to grant that wish quickly. Roland Freudenstein, policy direc- the debt crisis. That, he says, could help
Backtracking on long-standing aus- tor at the Wilfried Martens Centre for the French-German engine get back
terity positions could alienate her European Studies in Brussels. The stra- to work, being a constructive force in
center-right base as she faces a tough tegic differences on economics, and propelling Europe forward. Carol
reelection challenge this year from the the role of the state in the economy Matlack and Mark Deen
Social Democrats Martin Schulz. And and international trade, are so deep
The bottom line Germany is betting on Emmanuel
Macrons reforms and budget cuts may and widespread, one French president Macron to keep the anti-European Marine Le Pen
disappoint the Germans. Unlike the cannot change that. out of the Elyse Palace.
neo-Thatcherite Fillon, whos prom- Still, the timing could work in
ised to raise the retirement age from Macrons favor. Euro zone growth Edited by Matthew Philips
62 to 65 and eliminate the 35-hour is ticking upward, with the French Bloomberg.com
 Braveminds VR retains
a video game style to
protect patients from
further distress

March 20 March 26, 2017

Real Trauma,

28 Virtual Therapy
Braveminds VR system is designed to help veterans deal with traumatic memories
I got it off my chest, and now I can work on it
Is there blood and guts, as well? one roadside bombs, surprise attacks, the details like smoke, fire, and violence.
of the four psych clinicians asks during guilt of taking a life or failing to save one. Unlike those in some high-end VR,
the virtual-reality demo, as a simulated Its a group plagued by post-traumatic the scenes arent quite photorealistic.
explosion on an Iraqi street wreathes stress disorder (PTSD), often hidden Thats by design: The software is lifelike
his convoy in dust and flames. because it still carries a stigma in the enough to force patients to relive and
Weve got blood and guts, confirms militarys macho culture. VR is becom- come to terms with troubling moments,
Albert Skip Rizzo, swiveling his head ing a lifeline for some of the veterans but it retains enough of a video game-
around, a graying ponytail yo-yoing struggling to readjust to civilian life. style look to protect them from further
behind him. Its something we try not Bravemind uses computer-generated trauma. Your mind fills in the details
to use. But we have it. imagery accompanied by realistic for you, says Chris Merkle, a former
The VR images on Rizzos proprietary sensory stimulisounds, vibrations, Marine and Bravemind patient. Think
headsets arent meant for the Call of even smells provided by a machine about the worst day of your life. Every
Duty crowd. Rizzo runs Bravemind, an loaded with vials of scentsto approx- time you describe it, it normalizes it.
academia-Pentagon venture that makes imate the circumstances of a veterans Merkle spent 14 years overseas on
VR hardware and software for veterans traumatic memories. The softwares seven tours and says hed go back today
of Iraq and Afghanistan. Its about con- 14 environments, ranging from remote if he hadnt aged out of service. Once
fronting your past and moving past it, Afghan villages to crowded Baghdad home, he was angry, explosive, even-
says the 62-year-old, motorcycle-riding, markets, include attackers, bombs, tually desperate. His Department of
Uggs-wearing Ph.D. A medical VR and innocent bystanders. Theyre Veterans Affairs therapist suggested he
version of prolonged exposure therapy. filled with so much stimuli that its apply for the Bravemind program. Its
Rizzos subjects are soldiers whom tra- difficult to avoid engagement, Rizzo almost like a confessional, says Merkle,
ditional therapy has failed. About 1 in 5 says, and the exposure helps force now working in mental health outreach
of the 2.7 million veterans of Operations patients to confront and deal with at the VA while studying to become a
YOUTUBE (4)

Iraqi Freedom and Enduring Freedom their trauma. Clinicians can tweak therapist. I got it off my chest, and now
remain psychologically scarred by theintensity of a scene by toggling I can work on it.
 Logitech moves up the A big-box solution for
food chain 30 housing shortages 31

A South by Snafu for Innovation: Wind

Austins ride-hailing farms for your office
startups 31 32

Braveminds synthesis of clinical tech companies, too. In December, Valley venture firms, took a much
psychology and VR dates to the early Advanced Micro Devices, Dell, Valve closer look than usual at the compa-
days of the Iraq War in 2003. At the Corp., and Intel paid to donate 10sets nys finances, seeking more evidence
University of Southern California, of Rizzos gear to 10 VAs in need. That that it can rise above the pile of on-
Rizzo had built a fledgling VR lab to kind of help may cushion the USC lab if demand startups that have bled VCs
treat brain injuries and attention- its targeted by the Trump administra- for years. One of the things weve
deficit hyperactivity disorder, and he tion, which has signaled plans to slash had as a result of this round is a lot of
pitched the PTSD applications to USCs federal science research. Rizzo says hes scrutiny, Mehta says. Instacart passed
Institute for Creative Technologies. pursuing other sponsorships. the test: The cash infusion increased
The institute, funded by the U.S. Army Hes also interested in trying to the companys valuation from
Research Laboratory, is home to Light broaden the medical uses of VR, which $2billion to $3.4 billion, despite the
Stage, a setup used to create the visual some hospitals are testing to help down market for similar businesses.
effects for Avatar. patients manage pain. Braveminds Instacart still loses money but cut
The government committed about model is also being used to treat mili- its losses by more than half in the past
$5 million to initial development, with tary victims of sexual trauma, and Rizzo year, Mehta says. Monthly sales are
which Rizzos team finished a proto- has experimented with fear reduction nine times what they were when its
type in 2007. They built a second model for phobias and therapies for addic- last funding round closed two years
in 2013, around the time Oculus VR tion, autism, Parkinsons, and more. ago, he says, though he wouldnt give
LLC founder Palmer Luckey interned Theres something about immersion specific numbers. The company short-
at Bravemind. (He duct-taped an early that matters, he says. Adam Popescu ened delivery times by filming its most
Oculus Rift together there.) About efficient shoppersthe contractors
The bottom line Braveminds veteran-focused
100 U.S. military facilities now use VR hardware and software are used at more than who buy and deliver the groceries
Braveminds equipment, making it one 100military bases, hospitals, and other sites. and teaching others their tricks.
of the widest-ranging programs in the Other changes angered workers.
nascent field of VR health care, used to InOctober, Instacart said it was ditch- 29
treat thousands of vets. We teach them ing the apps tip option for a default
coping skills, says Rizzo. service fee of 10 percent, to be
The process isnt easy, says Todd Startups divided evenly among shoppers. Some
Abramson, Braveminds lead therapist shoppers, many of whom made about
at the Long Beach, Calif., VA. You have
$400 Million Richer half their income from tips, accused
to build rapport and trust fast, because By Pinching Pennies the company of trying to siphon that
we get into exposure in Session 3, he money for itself. Instacart ultimately
says. Those first two meetings, Ive added the service fee and kept a sup-
Online grocery deliverer Instacart
got to do my best to connect with this plementary tipping option, but made
vows to stretch its new funding
person. I have to be real and honest. it harder to get to in the app.
A typical course of treatment runs Many workers think a new service Longtime Instacart workers still
for 10 weekly sessions, with a follow- fee is a way to steal our tips think that the service fee is a way to
up three months later. A more intense steal our tips, says One of the things
version runs twice a week for five Apoorva Mehta has been thinking a Simon Kwok, a shopper weve had as a
weeks. Either way, the results suggest lot about bottle deposits. Recycling in Seattle who blogs result of this round
is a lot of scrutiny.
that participants stress symptoms, fees vary by state and size, but until about on-demand work. Apoorva Mehta,
including depression, decrease by as recently his online grocery delivery Mehta concedes that CEO, Instacart
much as 80 percent. In cases where startup, Instacart Inc., hadnt paid Instacart collects the
it doesnt work, veterans are referred much attention to what it charged cus- fees, but says they help
back to conventional therapy. tomers buying beer or soda. Then, the cover labor costs, and
The Pentagon has committed company says, it did the math and dis- some shoppers now make more.
$12 million to a six-year clinical study covered this cost it an average 35 on Back-office staffers are focused on
comparing Braveminds effectiveness each delivery. Instacart now charges fee revenue from grocery chains like
with other treatments, a key hurdle to the right amount for deposits. Last Whole Foods Market Inc.already
wider adoption. The Canadian military year it also adjusted how it accounts their biggest source of incomeand
recently bought a handful of Bravemind for local sales taxes, saving another ad revenue from consumer brands,
systems with Canada-customized soft- 20 per delivery. still a newish endeavor. Kimberly-
ware for about $400,000, and Rizzo On March 8, Instacart said it had Clark Corp., which makes Kleenex
says hes in talks with the Danish mili- raised a fresh $400 million in venture and Kotex, has tried a few kinds of
tary to buy the U.S.-standard systems capital, and its recent penny-pinching Instacart ads. Last year it paid about
for about $5,000 each. had a lot to do with that. Mehta says $20,000 for a four-week banner ad in
Bravemind has found favor among his backers, a whos who of Silicon the app that pitched Cottonelle to
 Technology
Darrell

people browsing for paper goods, The big hitters have a massive advan-
says Francisco Silva of Kimberly-Clark. tage over Logitech, which has histor-
Silva says he had better luck with cam- ically been better at commercializing
paigns in which the company covered others inventions than developing
delivery fees for customers buying, its own. The company, with revenue
say, $25 worth of Huggies diapers. forecast to reach $2.2 billion this year,
Instacart is still experimenting. In devotes less than $150 million annually
January it started offering promoted to research and development. Microsoft
search results, like those on Google. last year spent about $12 billion; Google,
Companies pay when a customer clicks $14 billion; and Amazon, $16 billion.
on an ad or puts its products in their That could make it tough for Logitech
shopping cart. For small businesses its to build products sophisticated enough
an attractive option, but costs can add to command premium prices, says
up fast, says Emily Hsiao, senior brand Torsten Sauter, head of Swiss research
manager for Bare Snacks, which makes plots his next move, those heavyweights at broker Kepler Cheuvreux. They
chips out of apples, bananas, and coco- are starting to look more like rivals. have no software, no ecosystem, he
nuts. At $1 a click, Hsiao ran through her His goaltying together TVs, appli- says. Logitech is much more a design
budget in no time. ances, and voice-controlled devices for company than a tech company.
Like any e-commerce business, Insta- the homeis something many of the Darrell joined Logitech after four
cart has to worry about Amazon.com biggest tech companies are also trying years at Whirlpool Corp. and stints
Inc., which is pushing into fresh food to crack. Logitech wants to be at the at General Electric Co. and Procter
delivery. Mehta is trying to lock in cus- center of connected homes, but youve & Gamble Co., where he ran Braun,
tomers with Instacart Express, a sub- got to sleep with one eye open, says the German maker of high-design
scription service akin to Amazon Prime. IDC analyst Jonathan Gaw, because erst- shavers and clocks. His predecessor at
Members pay $149 a year and get free while allies may well become foes. Logitech was ousted in 2011 following
delivery on orders of more than $35. Darrell says the push into smart lower profit forecasts and a $34 million
About half of Instacart orders are from homes wont be a dramatic change. writedown for the Revue, a key-
Express members, who average $450 a Logitechs keyboards, wireless mice, board for Google TV. Darrell says the
30 month, Mehta says. and neighborhood-rattling speakers company had lost its focus on design
Despite the emphasis on belt- always fit into the larger PC market; and was just making black plastic.
tightening, the Instacart chief exec- in newer, faster-growing categories, While revenue was largely flat in
utive officer cant help talking Darrell has sought compatibility with Darrells first three years, as he cut costs
expansion. Mehta says the service the tech giants. Logitechs UE Boom and shut down or sold less-profitable
will add at least 24 markets by the end speakers understand Apples Siri and businesses, retail sales this year are
of the year. We want to blanket the Google Now, its remotes use Amazons expected to grow at least 12 percent
country with Instacart. Ellen Huet Alexa to control everything from TVs from 2016, excluding currency fluc-
to heating, and its accessories can turn tuations. Profit has more than tripled
The bottom line Instacart is working to increase
ad revenue as it tries to prove its the exception in an iPad into a mini laptop. Theres during his tenure. Darrell says he can
a field of delivery-app failures. no way these big players are going to succeed by stressing design and market-
want to be in every little puddle around ing to create hits such as the UE Boom
their operating systems, says Darrell, speakers, as well as novelties such as a
55, in a Logitech office in Lausanne, quieter, clickless mouse and a wire-
Switzerland. Weve always been in cat- less dock for phones that lets users
Hardware egories where the big players are. toggle between typing on their PC
To fund his strategy, Darrell aims screen and smartphone.
A Mouse (Maker) Roars to wring maximum profits from mice Darrell says projects in the works
At the Industrys Giants and keyboards, which bring in sales include cloud services tied to Logitech
of almost $1 billion a year at a gross products, such as storing video from
margin approaching 50 percent. home-surveillance cameras. Spotlight,
Logitech is preparing to fight its
That will let him enter areas such as a $130 remote for presentations, is an
way into the smart home
voice control, video collaboration, example of the hardware and software
FROM LEFT: BLOOMBERG (1); COURTESY BOXOUSE (2)

The company wants to do more and augmented-reality games. Tavis integration and higher-quality manu-
than just making black plastic McCourt, an analyst at Raymond James facturing Logitech is shooting for. Its
Financial Inc. in Nashville, praises weighty aluminum feel and simple
Since Bracken Darrell took over mouse Darrell for turning around a company three-button design are reminiscent of
maker Logitech International S.A. that was really struggling to define Apple products, and it works with both
four years ago, the companys stock has what it was. McCourt says he expects Windows computers and Macs to high-
quadrupled, thanks to robust sales of Logitech to develop keyboards for light specific areas of a screen.
PC accessories that complement prod- internet TVs and a device that takes Logitech is also researching how
ucts by the likes of Apple, Microsoft, voice commands for home automation, gestures may replace computer mice
Amazon.com, and Google. As Darrell like Amazons Echo and Googles Home. and looking into devices to use in
 Technology

self-driving cars, says Alastair Curtis, several ride-hailing startups have thatboth Fasten
a veteran of Nokia Corp. who Darrell triedto replace them. Their success and RideAustin
hired in 2013 as design chief. When I
first joined, Logitech was not in a good
place, Curtis says. I gave a brutal
would show that approaches besides
Ubers and Lyfts can work in a major
U.S. city. The model is facing its
108 thousand
were offline for
an hour or two,
just as party-
assessment. Now he says hes happy biggest test yet. goers were moving
with the companys direction and Starting on March 10, hundreds from one place to
Licensed ride-hailing
position vis--vis techs agenda-setters. of thousands of people descended trips a week in another on a rainy
Were closer to Apple than ever on Austin for the annual South by Austin in January, an evening. Some
before. Aaron Ricadela Southwest festival, a nine-day event estimated 13 percent complained of
less than Uber and Lyft
that could be accurately described as a had handled high surge prices
The bottom line Logitech has spent decades in
partnership with tech giants, but its push into smart tech conference, a music and film fes- and of being
homes could put them in direct competition. tival, and a huge mess. In tech circles, charged for cars that never arrived.
its credited with propelling apps such It wasnt the greatest page in our
as Twitter to prominence. This years history, says Fasten Chief Executive
speakers include billionaire inves- Officer Kirill Evdakov. Hopefully we
tor Mark Cuban, Gawker Media LLC can regain the trust. He says Fasten has
Ride Hailing founder Nick Denton, and Reddit Inc. added server capacity and shut off non-
co-founder Alexis Ohanian. essential parts of the app to improve
Keep AustinTough Seven ride-hailing companies operate service. RideAustin issued a statement
To Get Around? in Austin, none of which have names apologizing to customers.
that will sound familiar to most SXSW Fasten, which paid an undisclosed
attendees. RideAustin and Fasten amount to be an official SXSW sponsor,
South by Southwest tests a wave
have been the early leaders. Together, had been hoping to attract more pos-
of homegrown Uber replacements
Austins licensed ride-hailing companies itive attention. The company raised
It wasnt the greatest page in completed about 108,000 trips a week $10 million in funding last year, and
our history in January, the last month for which Evdakov says hes seeking an additional
data are available. Thats an estimated $20 million to expand beyond Austin
Austin has spent the past 10 months 13 percent less than what Uber and Lyft and Boston. Not many people know 31
engaged in a grand experiment in were handling before they pulled out. about what we do, he says.
transportation. Uber Technologies SXSWs logistical challenges have RideAustin, which is funded largely
Inc. and Lyft Inc. stopped operat- strained the capacity of these start- by donations from the local business
ing there in May, protesting a law that ups. Fasten says demand on March 11 community, doesnt plan to expand
requires drivers to be fingerprinted was 12times that of a typical Saturday elsewhere. Still, it worked feverishly
for background checks. Since then, night. Drivers and passengers said to mobilize drivers for the festival.

Silicon Valley The Very Mobile Home

Startup Boxouse sells portable, affordable, beautiful smart homes made from
shipping containers (the deluxe edition costs $49,000 and includes shipping).
Chief Executive Officer Luke Iseman, a Wharton graduate who previously ran Y
Combinators hardware program, concedes that container houses arent perfect
but says they can help ease housing shortages. He shares one with co-founder
Heather Stewart thats set up in an Oakland warehouse. Theyre partly financing
the business by renting out two others on Airbnb. Max Chafkin

Shipping container.
Iseman buys them
used for about $2,000
each and retrofits
them with the help of
a half-dozen part-time
workers.

Solar panels.
Boxouses are designed Extras. Business model.
for off-the-grid living, An app can control At Y Combinators
with a 1.5-kilowatt solar smart windows March20-22 pitch
system that heats and and lights, as can a event, Boxouse plans
powers the unit and its complimentary Alexa. to announce it will ship
kitchenette. In the works: alerts to a free container to
port-a-potty vendors customers who agree to
when the wastewater run it as an Airbnb and
tank needs emptying. split the income.
 Technology

The roughly 30-employee nonprofit

Innovation placed Craigslist ads in San Antonio

and Houston, encouraging Uber drivers
to come to town temporarily. Joe
Deshotel, RideAustins director for com-

WindTree munity engagement, says drivers from

those cities periodically travel to Austin
for dayslong work tripsa national
Form and function Innovator Jrme
trend thats raised concerns elsewhere
NewWorldWinds 30-foot-tall metal structure Michaud-Larivire about ride-hailing drivers quality of
houses 54 small turbines for localized wind- Age 58 life. Theyre not making enough in
power production. The WindTree is meant General manager of Houston, so theyre coming here,
to help urban businesses and governments
supplement their conventional energy supplies.
NewWorldWind, a subsidiary Deshotel says. I talked to some other
of a French industrial group
drivers from San Antonio who stay at
friends houses, or they just drive back.
Origin In 2011, Uber and Lyft arent giving up on
shaken by the
1. nuclear disaster in
Austin. Theyre working with state law-
Fukushima, Japan, makers on a proposal that would over-
Use With vertical turbines Michaud-Larivire, Help Michaud- ride the citys fingerprinting rule. In
a former novelist, Larivire initially drew
working at wind speeds from
script doctor, and TV on the engineering 2016, Uber had 21 lobbyists registered
roughly 4 mph to 36 mph,
one WindTree can produce producer, launched expertise of in the state; Lyft had 13. Hearings on
1,000 kilowatts to 3,500kw a startup called his uncle, Henri the first of four different state-level
NewWind. Perrier, considered
a yeara decent chunk of a
the father of the bills with widespread support began
homes annual power needs.
Concorde jet. on March 14.
RideAustin says its funding has
slowed substantially as those bills
have progressed. Yet both Fasten and
RideAustin say they can fend off the
32 giants. They say theyve improved
life for drivers by letting them keep
a larger proportion of fares; theyre
sharing more data with the city; and,
of course, theyre giving city voters
what they asked for by fingerprinting
2. drivers. In their view, the decline in
overall ridership during the past year
merely reflects growing pains.
Trevor Theunissen, a local spokes-
man for Uber, paints a different picture.
He cites a recent report from a TV
station highlighting a thriving illegal
cab industry downtown, where drivers
Price Each WindTree
trawl the bar district offering rides for
costs 49,500 cash. He also says the citys ride-hailing
Deal The startup was
Tweaks The 3-foot-long acquired earlier this
($52,500). Taxes, rules are toothless because they rely on
shipping, and
turbines, called Aeroleaves, month, hence the installation can bring
companies to self-report data.
look a bit like big ears of name change, says the total to about Steve Adler, Austins mayor, doesnt
corn. Their microprocessors Michaud-Larivire.
adjust turbine rotation to get (He declined to
70,000. dispute this. But he says the home-
the most out of the winds name the acquirer grown ride-hailing industry has proved
kinetic energy. pending an official successful enough that state legislators
announcement.)
should leave the city alone. To him, the
Next Steps bills are the latest pull in a long tug of
Wind is one of the cheapest renewable energy sources, with power from new war. Austin, the rest of the state says,
farms averaging 2 per kilowatt hour, according to the U.S. Department of is weird, Adler says. I hear that, and
Energy. (Obstructions from nearby buildings are likely to reduce efficiency were proud of that. Joshua Brustein
COURTESY NEWWORLDWIND (3)

in cities.) Seven WindTree prototypes are in use in cities and on corporate

The bottom line Austins local ride-hailing services
campuses in France, Germany, and Switzerland. Michaud-Larivire says his first are better-behaved than Uber or Lyft but may soon
23 commercial trees will be delivered to customers such as Aroports de Paris have to face the industry giants head-on.
and Frances Vinci Construction starting in June, and he aims to lower the price
by the time North American sales begin in the fall. Nick Leiber Edited by Jeff Muskus and David Rocks
Bloomberg.com
 March 20 March 26, 2017

34

Short the Food Court

The struggles of retailers such as Macys could lead to shopping center mortgage defaults
These malls are dying, and we see very limited prospect of a turnaround
Its no secret that many shopping malls securities (CMBS)and so far their return, buyers pay monthly premiums PHOTO ILLUSTRATION BY KURT WOERPEL; PHOTOS: ALAMY (2); GETTY IMAGES (28)

have been struggling as Americans buy prices havent fallen as much as the to the sellerusually a bankfor as long
more stuff online. Now some malls are stocks of beaten-down retailers. as they hold the position. So far this
catching the eye of Wall Street specula- The speculators think this will year, traders bought a net $985 million
tors who think theyve found a way to change. By one measure, bets against of contracts that target risky portions
profit from such woes. some of the most vulnerable CMBS of CMBS, according to the Depository
In a strategy reminiscent of Michael surged to $5.3 billion last month, a Trust & Clearing Corp. Thats more
Burry and Steve Eismans famous Big jump of more than 50 percent from a than five times the purchases in the
Short wager, which made money on year earlier. Among the firms lining prior three months.
the collapse of the housing market up against mall debt is Alder Hill Nobody is suggesting theres a
before the financial crisis, a small but Management, started by protgs of bubble in retail-backed mortgages
growing group of investment firms hedge fund billionaire David Tepper. thats anywhere as big as the one in
is betting against loans taken out by The investors are buying credit pro- home loans in the 2000s or that the
U.S. mall and shopping center oper- tection contracts, which pay for CMBS potential fallout is comparable. The
ators. The loans were packaged into losses that occur when shopping bearish bets are just a tiny fraction of
bondscommercial mortgage-backed centers fall behind on their loans. In the $365 billion CMBS market. Theyre
 If your annual review
stresses you out, try a
daily one 36

Theyve found more

oil in Alaska, but
theres a catch 37

costly to maintain and may not pay off. Axonic Capital, a hedge fund. If these gambling operation, CG Technology
Many malls could limp along, earning defaults start happening soon, the short LP. But Vegas is a tough town. Even a
just enough from tenants to stay will work. And if they dont? Because player as skilled as Lutnickhe rebuilt
current on their loans. of the way the contracts are con- the investment bank and brokerage
Still, bears are convinced that the structed, the first big investor to back Cantor Fitzgerald LP after it lost
trouble in brick-and-mortar retail out of the bearish trade could trigger most of its New York employees in the
will lead to a pileup of loan defaults. losses for those who move more slowly. Sept. 11 attacks
After a poor Christmas season, It costs about 3 percent a year of can run into obsta-
J.C. Penney Co. said in February
that it plans to shutter as many as
140 stores out of 1,000. That echoed
the amount invested to short securi-
ties rated BBB and 5 percent to bet
against BB notes, plus an upfront fee to
$4.5 billion
cles. Now, he may
be folding his
hand.
Macys Inc.s decision last year to put on the trade. The wager is more Lutnick is
close some 100 outlets and Sears speculative than the short on housing shopping the busi-
Holdings Corp.s move to shut about was, according to Sorin Capital ness around in
Amount spent on
150 locations. Delinquencies on retail Managements Tom Digan. sports betting in
what is described
loans are at 6.5 percent, a percentage Hudson Valley Mall in Kingston, N.Y., Nevada in 2016 as an informal
point higher than those for CMBS as a offers a glimpse of the grim prospects process to gauge
whole, according to Wells Fargo & Co. for some shopping centers. It used to interest, accord-
The extent of losses on mall loans has house a J.C. Penney and a Macys, but ing to a person familiar with the
been meaningfully higher than other both left. In January the mall was sold move. Cantors internal mergers-
areas, says Michael Yannell, head of for less than 20 percent of its original and-acquisitions team is handling the
research at Gapstow Capital Partners, $50 million loan. When a mall starts to possible sale. Even though CG is losing
which invests in hedge funds that spe- falter, the end result is typically binary money, the person says, it may fetch
cialize in trading complex debt-based in nature, says Matt Tortorello, a senior $50 million.
securities. Investors are focused on analyst at Kroll Bond Rating Agency Inc. Revenue at the company has stalled. 35
bonds sold in 2012 that are backed by a Its either the mall is going to survive Its chief executive officer, a longtime
lot of loans to regional malls and shop- or its going take a substantial loss. Lutnick confidant, left last year as part
ping centers. These malls are dying, Rachel Evans and Matt Scully of a settlement with regulators over
and we see very limited prospect of a miscalculated bet payouts and hasnt
The bottom line Speculators are buying contracts
turnaround in performance, said a that will pay off when malls cant pay back their been replaced. Another former CG
January report from Alder Hill. We loans. But the trade has risks. executive pleaded guilty to schem-
expect 2017 to be a tipping point. And ing with illegal bookies; the company
they favor the portions of CMBS rated in October agreed to pay $16.5 million
BBB and BB, which suffer losses first to avoid prosecution in the case.
when the underlying loans default. Lutnick declined to comment for this
Prices on portions of CMBS rated Gambling story through a spokeswoman, Karen
BBB slumped to 87.1 on the dollar Laureano-Rikardsen.
in mid-March, from about 96 in late
A Wall Street Legend Lutnick bought odds-making
January, index data compiled by Markit Flops in Sports Betting company Las Vegas Sports
show. Many of the malls are anchored Consultants Inc. in 2008, merging it
by the same struggling chains, and with an existing company then called
Howard Lutnick is shopping
a wave of closures could be disas- Cantor Gaming, and put at least
around CG Technology
trous for mortgage-backed securities, $150 million into the business, accord-
according to Alder Hill. In the worst- If Im going to bet $50 to $100 ing to Bloomberg Markets magazine in
case scenario, the money manager Im at least going to want a beer 2012. It opened its first sports betting
says, the bonds rated BBB could incur parlora sportsbook in Vegas lingoin
losses of as much as 50 percent, while March Madness, the biggest 2009 and now has operations in eight
the BB portion might lose 70 percent. championship tournament in U.S. Nevada locations, including some of
Some think its the mall bond bears college basketball, hits Las Vegas each the citys highest-end casino venues,
that are headed for a bath. Credit Suisse year like a tomahawk jam. Hundreds such as the Venetian Las Vegas.
Group AG said last month that non- of millions of dollars course through Lutnick wanted to inject a bit of
CMBS specialists are helping to drive the citys sports betting parlors, far Wall Street into Vegas. CG sought
the recent runup in demand for credit exceeding the wagers placed on the to distinguish itself with sophis-
protection. That raises concern that one-day Super Bowl event. ticated software and devices that
too many people are chasing the same Howard Lutnick has spent much of allowed gamblers to bet anywhere
trade. The short feels crowded to us, the past decade trying to get a piece in the casino or hotel. Its computer
says Matthew Weinstein, principal at of that action by building a sports servers were driven by the type
 Bankers Your Review Is Now. And Now. And Now
JPMorgan Chase & Co. will soon use a mobile tool to give
employees instant feedback on their performance. Moments after
a meeting or project is completed, a manager can ping participants
for reactions on how a specific person did, according to
Michael DAusilio, a managing director at the bank. Hugh Son

of software that fuels derivatives than 20,000 bets from 2011 to 2015. at other properties. Im a little old-
trading, spewing out odds on events The regulators agreed to a settle- school, says Tommy Lorenzo, creator
at the fastest rate ever in Las Vegas, ment in which CEO Lee Amaitis left of TheVegasParlay.com, a website
CG said. That allows gamblers to place CG and it paid a $1.5 million fine. devoted to the business. If Im going
bets during contests on dozens of sit- Amaitis didnt respond to messages to bet $50 to $100 on a game, Im
uations. Competitors followed with left on his answering machine. While at least going to want a beer for it.
similar mobile technology. denying that CG intended to profit Brian Louis and Christopher Palmeri
Another strategy adopted by the from the errors, the company said it
The bottom line The chief of Cantor Fitzgerald
company was to offer higher betting had provided refunds to most of the saw an opportunity in sports betting, but a Nevada
limits than competitors. That led to affected gamblers. company he owns became mired in legal issues.
CGs most serious stumble, accord- CG remains a small and not partic-
ing to federal prosecutors. Michael ularly fast-growing business. It was
Colbert, the companys head of risk projected to generate revenue of
management, oversaw an opera- $33 million in 2016, according to docu-
tion that took in millions of dollars in ments filed in January in a suit against Energy
illegal bets, including wagers from an the company by a patent holder. That
East Coast betting outfit known as the was up from $30.7 million three years
Theres Oil Up There,
36
Jersey Boys that operated from 2009 earlier, the documents show. But Is It Worth Getting?
to 2012, Nevada regulators and the CG had hoped growth would come
Department of Justice said. Some of from legal sports betting spread-
Getting it from Jim Musselmans
the outside bets were needed to offset ing across the country. In Nevada,
rigs to the pipeline wont be easy
large ones CG was taking from gam- sports gamblers bet $4.5 billion in
blers on the other side, prosecutors 2016, according to the Nevada Gaming Its a lower-for-longer world, and
said in 2016. Control Board. Thats a fraction of the weve got to find a way to adapt
Nevada gaming regulators in 2014 estimated $149 billion that Americans
hit the company with its biggest fine wagered illegally on sports in 2015, On the Alaska North Slope, its hard
ever$5.5 millionand last October according to the American Gaming to tell where the world ends. In the
it settled with U.S. authorities for an Association, a casino-industry group. subzero February twilight, snow
additional $22.5 million after being But efforts to legalize sports betting and cloud stretch to every horizon
accused of illegal gambling and money beyond the four states permitted in a seamless vault of spectral white.
laundering. CG admitted wrongdoing by federal lawNevada, Delaware, Beyond the tundra, five miles out on
on the federal charges and some of Montana, and Oregonhave been the frozen sea, oil workers from a
the state allegations. Colbert, who is blocked by sports leagues that fear tiny outfit called Caelus Energy LLC
no longer with the company, pleaded gambling may lead to game-fixing. have welded a rig shut against polar
guilty to a single charge of conspiracy The casinos that work with CG bears. Spooky, one of the workers
in 2013. Murray Richman, an attorney remain committed to the company. says into the whiteness.
for Colbert, declined to comment. One reason is the lucrative rents CG In a shallow estuary called Smith
Cantor Gaming announced it was pays for space, according to a person Bay, Caelus, founded by Texas oilman
changing its name to CG Technology familiar with the financial terms. Jim Musselman, plans to extract as
the same day Nevada regulators Red Rock Resorts Inc. has long oper- much as 6 billion barrels of crude. The
FROM TOP: 731; DANIEL ACKER/BLOOMBERG (2)

charged it with violations related ated its own sports betting business nearby tundra, Caelus says, could yield
to the Jersey Boys case. Lutnick but kept CG as the provider for the 4 billion more. A lot of people in Alaska
and a family trust own almost all of Palms Casino Resort after acquiring hope Musselman can make it happen.
the company, according to Nevada it last year. Everyone in the state knows the
gaming records. Theres one other downside for CGs fracking revolution in the Lower 48
CGs problems didnt end with those operations. Because it operates the has crushed Alaskas oil industry. Four
legal troubles. Last May, the Nevada sportsbooks and not bars for its casino decades after the Trans-Alaska Pipeline
Gaming Control Board accused it clients, the company rarely offers System went live, many Alaskans fear
of underpaying customers on more free drinks to customers, a big draw the best days have passed. Jobs have
vanished, and the state oil wealth fund, $3.2 billion. In 2007 he hit a big one an independent elected in 2014, has
which issues a dividend to every resi- again, off the coast of Ghana. Exxon suspended $430 million of tax breaks.
dent, is paying out less. The budget in Mobil Corp. offered Musselman For Caelus, $100 million of tax breaks
Juneau is a disaster. $4 billion for the stake owned by have been delayed.
With an oil pipeline that is three- another of his companies, Kosmos Walker promises to help drillers
quarters empty, this is good news, Energy Ltd., but Ghana blocked the in other ways, such as supporting
Governor Bill Walker said when word buyout in a dispute over royalties. expanded North Slope processing and
came of the Smith Bay find. But the Kosmos also became embroiled in a building roads to open more of the
discovery also presents a monu- local bribery scandal. Investigators area to development. Still, the politi-
mental challenge. The closest pipe- found no wrongdoing, but Musselman cal fight over taxes is scaring off some
line is 125 frozen miles away. Linking was forced out, four months shy of would-be investors in Alaskan oil just
up would cost about $800 million, an initial public offering. He left with
Musselman says, and thats the cheap shares worth tens of millions of dollars.
part. The full cost of development Then Musselman established
could run $10 billion over a decade. Caelus, named for the Roman sky god.
David Houseknecht, a senior research Private equity firm Apollo Global
geologist at the U.S. Geological Survey, Management agreed to invest as
says the Smith Bay discovery seems much as $1 billion. Jims a visionary
to have incredible potential. Then he whos had rare, repeated successes in
adds: But its the last one youd want discovering billions of barrels of oil in
to bet your retirement money on. some of the worlds most challenging
Musselman, 69, dreams of turning environments, says Greg Beard, an
Smith Bay into a rival to Prudhoe Bay, Apollo senior partner. A Caelus pipeline
150 miles to the east, where the Trans- To get the Smith Bay oil over to
Alaska starts its 800-mile journey south. the Trans-Alaska Pipeline, the short- as new discoveries are being made,
Global oil giant BP Plc rules Prudhoe est route runs through the pristine says Paul Basinski, CEO of Houston-
Bay and has 1,800 employees in Alaska. wilderness near Teshekpuk Lake, based Burgundy Xploration LLC,
Caelus, by comparison, has 100. home to caribou and polar bears. another explorer prospecting in the
But no one searches for oil in Alaska One tricky alternative would be an north. Every one of them is con- 37
unless hes prepared to be lucky. In undersea pipeline along the coastline, cerned, Basinski says of investors
Musselmans Dallas office, maps of all which is eroding because of climate hes approached.
sorts, depicting things like the Roman change. Another would be to snake Even for behemoths Exxon, BP,
Empire and the Viking sea routes, dot the pipeline away from the lake. and ConocoPhillips Co., the North
the cherry paneling. Ive always been Whichever way he goes, Musselman Slopes top producers, Alaskan oil is
fascinated by the early maps, by the needs money first. He says he could a tough call. The industry estimates
spirit of people that didnt know what take Caelus public, find a merger that it costs almost $50 on average to
was there and would just strike out partner, or turn the keys over produce a barrel of North Slope oil
across the ocean, he says. to a bigger company. All of those and move it to market. Thats about
Musselman made his first big oil find would have been easier a few years what oil is selling for today. And with
in 1999 off the coast of West Africa; ago, when oil prices were high and U.S. shale producers still pumping out
he eventually sold his company, Alaska was handing out generous a healthy supply, many analysts see
Triton Energy Ltd., to Hess Corp. for tax breaks to the industry. Walker, prices staying low for years. People
are worried about the future, says
A Caelus Janet Weiss, president of BPs Alaska
development project
in Harrison Bay,
division. Its a lower-for-longer
east of Smith Bay world, and weve got to find a way to
adapt to that.
Back at Smith Bay, Caelus plans to
drill a test well to help determine how
much oil it can pump. I dont think
Im any smarter than a lot of people in
this business, Musselman says. I just
have enough stupid confidence where
I think that I can find things that no
one else can. Alex Nussbaum
The bottom line Alaska has been hit hard by
the oil slump, and investors are cautious about
putting money into new finds there.

Edited by Pat Regnier

Bloomberg.com
 Focus On/
Big Data
March 20 March 26, 2017

innovat

Profit

38

AI With Chinese
Characteristics
Baidu has a labor-intensive approach to deep learning
We literally dubbed it the Tchaikovsky Problem
On Dec. 6, 2016, thousands of translation, got something potentially described as the Google of Chinato
translators filed into office buildings more valuable: millions of English- lead a new AI lab, signaling that Beijing
across mainland China to pore over Mandarin word pairs with which to believes the company has the makings
ILLUSTRATION BY SIMON ABRANOWICZ; COURTESY BAIDU

brochures, letters, and technical train its online translation engine. of a national champion in this sphere.
manuals, all in foreign languages, China is infamous for its knockoffs, Of the more than 20 billion yuan
painstakingly rendering their texts whether luxury handbags or web ($2.9 billion) Baidu has spent on
in Chinese characters. This mara- startups. But the countrys leader- research and development over the
thon carried on for 15 hours a day ship seems to understand that when it past two and a half years, most has
for an entire month. Clients that comes to artificial intelligence, cheap been on AI, according to comments co-
supplied the material received imitations just wont donot when its founder and Chief Executive Officer
professional-grade Chinese versions rivals include Alphabet, Facebook, Robin Li made at the labs launch last
of the originals at a bargain price. IBM, and Microsoft. In February the month. But Chinas national inter-
But Baidu Inc., the Beijing-based National Development and Reform est isnt his main motivation: Baidus
company that organized the mass Commission appointed Baiduoften revenue growth fell to about 6 percent
 Compulsive behavior
can help diabetics 40

Software to make
bicycle dreams
come true 41

last year, from an average of more than people in both countries, we see the 500 million, according to a 2016 article
30 percent over the prior three years. latest trends. in Science magazine that featured
The search ad business, which contrib- On the day in May 2014 that the one of the U.S. companys research
uted the lions share of its 70.5 billion Sunnyvale research center opened, Ng scientists, Quoc V. Le.
yuan in sales in the fiscal year ended on and his top lieutenant, Adam Coates, To help close the gap, Baidu has
Dec. 31, is under siege from local rivals. sat down in front of a blank whiteboard resorted to an age-old tactic: throw
A September report from EMarketer to identify their first project. After lots of people at the problem. The
Inc. noted that Alibaba Group drawing up a list of possibilities (and company now facilitates manual
Holding Ltd. had overtaken Baidu to challenges), they settled on speech rec- translations year-round and stages
become the leader in Chinas digital ognition as a foundation on which they marathon events such as the one in
ad market. Baidu hopes AI can help could build a series of other offerings. December at regular intervals, in
it reclaim share in search, as well as By mid-2015, the 50-person team which it offers clients prizes such as
ensure success in newer ventures. had a product called Deep Speech smartphones and water purifiers.
Thats key as the 17-year-old that could decipher much of what was The data collected help enhance the
companys attempts at diversifica- said in English. Rather than picking performance of its Baidu Translate
tion have produced mixed results. apart phrases word by word, the engine as well as further the
The number of daily visitors to its software parsed through vast reams development of Deep Speech.
group buying site, Nuomi, dropped of language data and then extrap- The software created by the
59 percent in the 12 months through olated patterns, a process known Sunnyvale team had its commercial
February 2017; its Waimai food deliv- as deep learning. The system could debut in July 2016 with the release of
ery service lags in third place, accord- transcribe speech more accurately TalkType, a keyboard app with a talk-to-
ing to Natalie Wu, an analyst with than traditional engines that rely on text feature. The technology has since
China International Capital Corp. The vocabulary lists and phonetic diction- been incorporated into other products,
Netflix-like streaming video service aries, Ng says, because it took into including a Siri-like personal assistant
iQiyi.com is hugely popular, but it will account a words context to determine named DuMi in China and DuEr every- 39
take 12 billion yuan to keep it stocked its meaning. where else. (DuMi is a fusion of du
with content this year, estimates One thing that consistently tripped from Baidu and mi, which means
analyst Ella Ji with China Renaissance it up, though, were words and names secretary in Mandarin; DuEr sounds
Securities (Hong Kong ) Ltd. that had over time crept into the like doer.) The machine learning
Those faltering efforts mean Baidus English lexicon from other languages. Baidu has inculcated into Deep Speech
push into AI is taking on greater If you want to say Play music by is helping it animate other products
importance. The era of mobile Tchaikovsky, the software would with intelligence. For instance, its the
internet has ended, said Li in a return answers like Play music and secret sauce in Xiaoyu Zaijia (Little
March 10 interview. Were going to try cough ski, says Coates, whom Ng Fish), a voice-controlled robot, la
aggressively invest in AI, and I think recruited from Stanford. We literally Amazon Echo, that Baidu showed off at
its going to benefit a lot of people and dubbed it the Tchaikovsky Problem. the CES show in Las Vegas in January.
transform industry after industry. Instead of simply adding Baidus portfolio of web properties
In January the company named Tchaikovsky to the systems vocab- gives it access to one of the largest
former Microsoft Corp. executive Qi ulary list, Baidus programmers had and most detailed sets of consumer
Lu as its chief operating officer, with to help Deep Speech teach itself to data ever produced in China, which
a mandate to reshape the company understand the word. That involved in theory at leastshould give it an
around such technologies as deep pumping in even more data to help the edge in building AI-infused products
learning, augmented reality, and image system put things in context. and services for the mainland. Thanks
recognition. He joins Chief Scientist Shiqi Zhao, the Beijing-based to Nuomi and Waimai, the company
Andrew Ng, a Stanford academic who associate director of Baidus natural knows what Chinese households
worked on Alphabet Inc.s deep learn- language processing department, buy and eat, while Ctrip.com, the
ing group before decamping to Baidu recalls that as a computer worlds second-largest online
in 2014. Under Ngs watch, the compa- science student at Chinas travel agent, reveals where
nys AI team, which is scattered across Harbin Institute of they want to holiday. Every
research labs in Beijing, Shenzhen, Technology he had only month 665 million smart-
Shanghai, and Sunnyvale, Calif., has 2 million word pairs of phone users surf its mobile
grown to 1,300 and is expected to English-to-Chinese terms portal and apps, while
increase by several hundred more to play with while working 341 million use Baidu Maps
hires this year. A ton of stuff is on computer-based to reach their destination.
invented in China, and a ton of stuff is translation; Baidu has about Its a mistake to think of AI
invented in the U.S., says Ng, whos 100 million. However, thats as a productit underpins and
based in Silicon Valley. By having still far fewer than Alphabets enables product, says HSBC
Baidu showed off Little Fish, a
voice-activated robot, at CES
 Focus On/Big Data

Holdings Plc analyst Chi Tsang. The Libre is a waterproof button the it did, says Joel Goldsmith, senior
Think of all the use cases. size of a quarter that sits on the outside director of digital platforms for the
The new AI products arent contrib- of the upper arm. It houses a tiny diabetes division. The specifics for
uting much to Baidus bottom line yet. needle-shaped sensor that rests just each patient, including age and gender,
But the companys nascent expertise under the skin, continuously measuring were removed from the files, and the
in this area could help it achieve glucose levels in the interstitial fluid medical information was aggregated
dominance in segments where its that bathes the cells. Users hold a before it was analyzed. The only
already present and propel it into new companion device, or an Android way you get a large volume of data is
ones, such as cloud computing and phone, above the sensor to get an making the process effortless for the
self-driving cars. In the next three immediate reading; an arrow indicates user, he says. The act requires very
to five years all those areas have the if levels are rising or falling. The infor- little of them, and they are willing to
potential to become another Baidu, mation can be uploaded to Abbott. do it frequently. Its a virtuous circle.
company President Zhang Ya-Qin The company didnt anticipate how One of the greatest pitfalls for any
says, referring to Baidus $60.2 billion addictive getting information would monitoring device is collecting data
market capitalization. Right now its be. FreeStyle Libre users scanned their that goes unused, says Jared Watkin,
time to make some bets. sensors an average 16 times a day; some Abbotts senior vice president for
David Ramli and Alex Webb exceeded 45. The results blew past tra- diabetes care. Its not just getting the
ditional testing with blood taken from information; you have to do something
The bottom line Baidus 1,300-person AI team
is writing software to improve everything from a fingertip, which for Type 1 diabetics with it, he says. Thats playing out.
translation to food ordering. is recommended four to eight times a We give data to people, and they can
daya regimen that some find taxing. immediately act on it.
The Abbott analysis found those who It was the FreeStyle Libres
tested the most had the best glucose minimalist design that first attracted
control. Thats a key goal for treating Larissa Zimberoff, a 45-year-old
Health diabetes, a chronic condition in almost freelance journalist who writes
30 million Americans. Its marked by a about food and technology. A Type 1
For Diabetics, the deficiency of insulin, a hormone that diabetic, she learned about the device
Power of Knowing converts blood glucose into energy. If two years ago while researching a
40 glucose climbs too high, it can damage piece for Wired magazine. Its not on
organs such as the kidneys, and also the my stomach, its not this pager-looking
hands and feet, leading to amputations; thing, she says. Its elegant. Its
if it dips too low, it can cause a diabetic small. Its unobtrusive. I wanted it.
comaor death. There was a problem. Zimberoff is an
Adrian Long, a 59-year-old American living in New York City, and
semiretired teacher from Lancashire, the FreeStyle Libre isnt approved for
200 miles northwest of London, admits use in the U.S. She started importing
he let his blood sugar run a bit high for it from Italy, thanks to an accommo-
years. He wanted to avoid the compli- dating friend. Shes been paying $400
cations of going too low, which even at every three months for the past year
A new type of glucose reader
nondeadly levels can cause shakiness, for the sensors, which are expected to
gets users addicted to data
confusion, headaches, and fatigue. get U.S. Food and Drug Administration
Its elegant. Its small. Its Long says the FreeStyle Libre lets approval later this year.
unobtrusive. I wanted it him micromanage his condition. The repeated checks arent always
An avid gardener, he says he mea- helpful, and some users have reported
When Abbott Laboratories rolled out sures his glucose about 20 times a day,
a device in Europe to help diabetics sometimes more when hes physi-
measure their glucose levels without cally active, such as when hes plant- More Data, More Control
having to prick a finger, it included ing vegetables. With the Libre, there FreeStyle Libre users who monitored A1C
a novel ask for patients: Would they is no limit to the number of scans you themselves more frequently achieved level*
lower glucose levels
allow the company to collect their can do, says Long, who pays about 8.2

data to help guide care? The company 100 pounds a month ($123) for the
7 or below is a
never imagined it would be sparking sensor, which must be replaced every common treatment
7.8

an information obsession. two weeks and isnt yet covered by target for diabetics
More than 50,000 people who used the National Health Service. Over the 7.4

the FreeStyle Libre from 2014 to 2016 two years Ive been using it, there has
granted the company access, yield- been a significant reduction in my A1C 7.0

ing 409 million data points. The results reading, he says, referring to a widely
provide an unparalleled glimpse into used glucose gauge. 6.6

the ebb and flow of testing in a group of Simplicity is a key feature of the 0 scans per day 50
people whose livesand limbsdepend device, and one of the main reasons
on their efforts. Abbott was able to gather the data
*A MEASURE OF HOW MUCH HEMOGLOBIN IS COATED WITH SUGAR;
DATA: ABBOTT LABORATORIES
 Quintana

being overwhelmed by the data. Those understanding the

who log in to the system on their com- flood of informa-
puters can access seven different tion teams gather on
reports on their blood sugar, tracking riders during train-
readings and patterns over time. ing and throughout
Zimberoff says diabetics need better the grueling three-
insight into their health than a static week competitions
data point created by a traditional known as the grand
finger stick. The beauty of using this tours. The data can
flash meter is that I know my trends, help coaches more
she says. Diabetes isnt something accurately assess the impact of exer- Telefnica started studying Quintana
you can turn off. Its not something cise, diet, and climate, much like the and seven other top Movistar riders
that you cannot pay attention to. Oakland Athletics did in 2002 (as chron- last season and this year expanded
Michelle Cortez icled in the 2011 movie Moneyball), the system to include all 28 members
according to Pedro de Alarcn, one of of the team, using data collected by
The bottom line Diabetics using a new meter took
readings more frequentlyabout 16 times a day two Telefnica employees working on heart monitors, GPS location track-
and did better at lowering glucose levels. the project. The trainer can see after ers, and a host of other devices. Mikel
the race if the rider followed instruc- Zabala, a Movistar coach and profes-
tions, de Alarcn says. Whether he sor of sports science at the University
held back, sped up, how tired he was. of Granada, began analyzing rider data
Ultimately the software might allow in 2013 using a pair of off-the-shelf pro-
Sports Business coaches to alter their strategy in real grams aimed at shaping the training
time during competitions, much as the regimens of endurance athletes such
Injecting Data, Not Williams team does in Formula One as cyclists and marathoners. He com-
Drugs, to Win the Tour auto racing, he says. Currently, the plemented them with Excel spread-
coach simply asks the racer how he sheets, in which he did complex
feels and how he did, and the rider calculations to track racers perfor-
Telefnica says deep analysis can
gives his impressions. mance and the level of physical stress
give cyclists an edge in big races
The data push is being led by Luca, they face while riding. When the Luca 41
In this sport, whoever has the a Telefnica unit that helps compa- researchers signed on, Zabala asked
best legs wins nies find ways to profit from data they them for software to analyze a riders
collect in the normal course of busi- energy output and reactions to differ-
The Spanish city of Granada lies more ness. Telefnicas chief data officer, ent terrain, which had been impos-
than 1,000 miles from Paris and Milan, Chema Alonso, a big cycling fan, and sible in his spreadsheets given the
but for Nairo Quintana, the road to members of Luca decided to try using number of variables and the difficulty
both could well pass through a small data to give the team an edgeand give of the math. The new data helps you
computer lab on the outskirts of Movistar a publicity boost by highlight- know you are going in the right direc-
town. The 12-year-old facility is where ing its doping-free reputation in a sport tion, Zabala says.
phone company Telefnica SA is ana- tarnished by the cheating of Lance Even if Quintana, ranked No.4 in
lyzing hundreds of millions of data Armstrong and dozens of others. the world, manages to win both races
samples with an eye toward helping Its not easy to bring everyone around this summer, data collection will play
the Colombian rider win cyclings two to the idea that data can make a dif- only a tangential role. The team used
biggest races in a single season. ference. Eusebio Unzu, the teams the software last September in the
Coming out on top in the same manager for 32 years, says hes better Vuelta, but the coaches havent fully
year in the Giro dItalia, which ends off following his gut when it comes to developed it for preseason training.
FROM LEFT: COURTESY ABBOTT LABORATORIES; TIM DE WAELE/CORBIS/GETTY IMAGES

in Milan on May 28, and the Tour de advising his riders, a strategy thats They say the system might be ready
France, which wraps up with a 65-mile helped him build Movistar into the for the Tour but not the Giro, which
ride to the Champs Elyse on July 23, is worlds top-ranked team for the last starts in less than two months. When
notoriously difficult, because cyclists four years. In this sport, whoever has it is, Zabala predicts, the software
must reach peak performance twice in the best legs wins the race, he says. could help Quintana and his team top
three months. Only a half-dozen riders De Alarcn says Unzus resistance is the podium in both races. With the
have done so, and none in the past two similar to what he encounters at compa- tools Telefnica is offering us, we can
decades. Quintana, 27, has never fin- nies where veteran managers trust their do deeper analysis, Zabala says. We
ished the Tour in the yellow jersey of instincts more than technology, but he are learning and confirming a lot of
the leader, but he won the Giro in 2014 predicts even old-timers such as Unzu things. Rodrigo Orihuela
and, two years later, the No.3 event on will eventually conclude that its never
The bottom line The Movistar team is testing data-
the calendar, Spains Vuelta a Espaa. bad to have more information even if crunching software that it says could help its riders
Telefnica, a Madrid-based company you rely on years of experience. Unzu win cyclings most prestigious races.
that sponsors Quintanas team under grudgingly agrees. Technology is more
the name of its retail unit, Movistar, and more important and improving in Edited by Cristina Lindblad and David Rocks
says the challenge can be met by better certain aspects of preparation, he says. Bloomberg.com
Frances P. Bianca T.
Jersey City, N.J. Boston
2015 2014

DELIVERING A $9

PHOTOGRAPH ILLUSTRATION BY CREDIT TK

Customer
photos from
Yelp

Steve S. Marco V.
Allston, Mass. Maple Shade, N.J.
2017 2016
 Danie C. DeLanie C.
West Orange, N.J. Columbus, Ohio
2016 2016

BILLION EMPIRE

TURNS OUT PEOPLE BUY MORE

DOMINOS PIZZA WHEN SERVED WITH
AN EXTRA TOPPING OF TECH

BY SUSAN BERFIELD
PHOTOGRAPH ILLUSTRATION BY CREDIT TK

Kaitlyn C. Darnah M.
Vancouver, Wash. Bellevue, Wash.
2016 2016
 Y
ou may not be surprised to learn that pizza $10.9 billion; revenue for Dominos itself was $2.5 billion.
production at Dominos hasnt changed Given how the companys technological prowess and finan-
much in the 57 years since the company cial fortunes have improved in step, you could be fooled into
was founded. Its still essentially hands on believing the former is entirely responsible for the latter. But
the dough and in the cheese. Theres been the truth is, most customers dont use a voice-activated app or
only one important advance: the spoodle, a emojis to order pizza, and most pizza is still delivered by humans
ladle with a flat bottom that allows workers in cars or on scooters or bikes. And although Dominos offers
to spread the sauce evenly and quickly. A 27 toppings and sauces, most people still order just pepperoni.
franchisee came up with the idea in 1985, and its become a As much as tech, what buoyed Dominos was a once-in-an-
restaurant industry essential. industry strategy: In 2009 it admitted that its foundational
But whereas pizzamaking remains high-touch and product wasbad. Most chains that encounter trouble cop to
traditional, pizza marketing is anything but. There, Dominos some failing: Starbucks Corp. once said it built too many stores.
Pizza Inc. has decided that modern works better than authen- McDonalds Corp. tried to sell healthier food. Chipotle Mexican
tic, and fun is best of all. For the past five years, the company Grill Inc. promised patrons they wouldnt get sick. But Dominos
has been emphasizing all the ways you can order pizza with has outdone them all.
minimal human and maximal digital contact. Its introduced
more ordering methodsFacebook, Twitter, Twitter with A white picket fence marks the boundary of Dominos Farms,
emojis, Apple Watch, voice-activated, zero click, wedding a 270-acre spread of pastoral land outside Ann Arbor, Mich.,
registrythan new items on its menu. Customers can track where 800 employees and a small herd
their pizzas online, starting as theyre being made, and in San of buffalo roam. The employees work Online
ordering
The chain offers more
DXP fleet than a dozen ways to
Dominos has 154 place an order without
modified Chevy human contact.
Sparks on the road
in the U.S. Each
includes a warming
oven with space for
80 pizzas.

DRU robot
A self-driving
delivery bot, only in
44 New Zealand for
now, keeps drinks cold
and pizza hot.

Diego (for now; likely nationwide soon) in a series of almost half-mile-long,

they can track their drivers. If an Australian three-story red-brick buildings with blue
wants to pick up her order, a GPS system can copper tile roofs, designed in the Prairie style
monitor her approach so the pizza is hot on arrival. of Frank Lloyd Wright. The buffalo wander free.
Dominos has spent millions to trick out a fleet featuring The campus is the idiosyncratic vision of Dominos
the ultimate pizza delivery vehiclethe DXP, a Chevrolet founder, Thomas Monaghan, and an inadvertent tribute to the
Spark subcompact with special side doors and warming ovens. marketing power of verisimilitude. In 1960, Monaghan began
An independent franchisee in New Zealand is testing deliv- delivering pizza to college students in hopes of earning enough to

OPENING SPREAD: COURTESY YELP (8); THIS SPREAD, FROM LEFT: COURTESY DOMINOS (4); YOUTUBE (2)
ery by drone and robot. In 2015, for the first time, more than attend himself. He did earn enough, but by then hed lost inter-
half of Dominos orders were placed online, and half of those est. By 1985, Dominos was the fastest-growing pizza company in
came via mobile. the U.S., with more than 2,800 restaurants, and it had expanded
As the company has built up its tech cred, its financial into four countries. (It now has 5,371 U.S. outlets and 8,440 more
fortunes have been rising. Since the end of 2008, when in 85 other countries.) Dominos 30-minutes-or-free guarantee
Dominos was threatened by declining sales and distressed set the cultural expectation of convenience and the standard for
franchisees, its share price has increased 60-fold. The speed. In Neal Stephensons 1992 techno-dystopian best-seller,
company is now worth $9 billion. The second-biggest U.S. Snow Crash, when the protagonist said of America, Theres
chain has also been stealing customers from rivals, notably only four things we do better than anyone else: music, movies,
from the biggest, Pizza Hut Inc. Dominos went from having microcode (software), high-speed pizza delivery, readers knew
a 9 percent share of the pizza restaurant market in 2009 to who he was talking about.
15 percent in 2016, according to research firm NPD Crest. Monaghan, who was raised in a Catholic orphanage, enjoyed
Sales at established locations in the U.S. increased every year a midlife conversion to materialism. Among his purchases were
during that time, last year rising 10.5 percent, the fastest the Detroit Tigers, more than 200 classic cars, and a resort on a
growth rate among the top 10 quick-service chains. Customer Lake Huron island. When he tired of his possessions, Dominos
loyalty is also the highest among pizza chains, according to included, he sold them and set out to create a Catholic commu-
consultancy Brand Keys. Dominos makes money from the nity in Florida named Ave Maria. Bain Capital LP, then run by
royalties paid by its franchisees, who own about 97 percent Mitt Romney, paid him more than $1 billion for 93 percent of
of the restaurants, and from the ingredients it sells them. In the pizza chain in 1998.
2016 global sales for the chain, including franchisees, were Bain brought in David Brandon, an executive with sales and
 WE HAD SOMEHOW CREATED A SITUATION
WHERE PEOPLE LIKED OUR PIZZA
LESS IF THEY KNEW IT WAS FROM US.
SO YEAH, THAT WAS A PROBLEM
marketing experience, to run Dominos, and in 2004 it went Brandon in the midst of the relaunch, making the planned
public. Two years later the company reported its first full- transition seem like a game of hot potato. I used to joke that
year sales declines in the U.S. Dominos went down before the if it didnt work, I would probably be the shortest-tenured CEO
economy did, and it stayed there awhile. The pizza remained in the history of American business, he says. When the spots
cheap, but the recipes and ingredients hadnt kept up with appeared, starting in late December 2009, they were funny
the foodie movement. And the company had abandoned a and Stephen Colbert-like in their knowing irony: apologies
key marketing toolits 30-minute guaranteein the wake of wrapped in self- deprecation, explaining everything except
several accidents, one fatal, which had led to two lawsuit why it had taken so long for executives to take the problem
verdicts that cost the company millions of dollars. seriously in the first place.
Then, in the spring of 2009, came the moment dreaded This is the part of the comeback story that Doyle and the
by every fast-food chain of the YouTube era: a video of four other Dominos executives I spoke with love to tell: Within
workers doing something gross or illegal. Or in this case, a week or so, morning talk show hosts were discussing the
both: A Dominos employee at a store in North Carolina filmed campaign, local television anchors were conducting taste
another putting cheese up his nose and adding snot to a sand- tests, and Gayle King was taking calls on her radio show from
wich. The video went viral, leading the health department satisfied customers. Then came delicious, double-edged praise
to shut down the restaurant temporarily. Dominos had the
two employees arrested for tampering with food (the orders

Apology
commercial
A corporate mea
culpa addressed the 45
foundational product Food-styling
of the company commercial
and helped save it. After showing how
fake pizza is in
most ads, Dominos
promised to use
only pies made by
employees.
from Colbert himself: He bit into a slice
on air and said, Is that pizza, or did an
never left the store and both workers received probation). angel just give birth in my mouth?
J. Patrick Doyle, the president of U.S. operations, recorded a By February, Dominos was selling so much pizza it was three
two-minute apology. That video didnt go viral. days away from running out of pepperoni. Same-store sales
At Dominos Farms, executives had already admitted to rose more than 14 percent in the first three months of 2010
themselves a more persistent long-term threat: The pizza and the number would have been higher had restaurants been
wasnt very good. When we did consumer tests, if they knew equipped to handle the rush. Most orders still came in by phone,
the pizza was Dominos, they actually liked it less than if they so when workers were slammed, they just didnt pick up. Over
just thought it was a random unbranded pizza, Doyle says. the next two years, Dominos revamped about 85 percent of its
We had somehow created a situation where people liked menu: The chicken wings became tastier, the cheesy bread got
our pizza less if they knew it was from us. So yeah, that was cheesier, and artisan pizzas were added (and dropped after
a problem. Some of the more memorable comments: The they didnt catch on).
crust tastes like cardboard. The sauce tastes like ketchup. Russell Weiner, whod come from PepsiCo Inc. in 2008 to be
And: This is an imitation of pizza. Dominos chief marketing officer and is now president of U.S.
So company chefs began experimenting. They enhanced operations, picks up the story from there. Wiry from losing
the quality of the mozzarella and the flour, added garlic butter 50 pounds on the Pritikin diet, he talks fast and keeps a giant
to the crust, and infused the marinara with flavor and sweet- bowl of clementines in his office. Flush with success from their
ness. Some 18 months later, Dominos had a new and improved first honesty offensive, Weiner and his team started discuss-
(and more expensive to make) pizza. ing fresh ways for Dominos to ridicule itself. We asked: What
Doyle53 years old, tall and fit, with a full head of hair else in our industry isnt transparent? he says. One obvious
and groomed for the job of chief executive officerwent back answer: the photos used for menus and marketing. During the
on air, this time as part of an ad campaign. We decided we shoots, they put extra melted cheese in the cracks after cutting
were really going to roll around in it, he says. Were going the pizza and blow it dry, he says. We call it cheese porn. The
to make sure people understand that we heard them, we companys next TV spot showed what really happens on a
get it. The pizza wasnt good enough. Hed taken over from photo shoot, along with Dominos promise, henceforth, to
 use only photos of pizza that its employees had actually made. loudspeaker-computer gadget. Im still enamored, he says.
As part of the campaign, Dominos solicited photos from But its not for everybody. (Dominos also lets customers
its customers. The company received almost 40,000, some buy pizza from Google Home, the main competitor to Alexa,
lovely and appetizing, others a hot mess. We deliver a million but thats not for everybody, either.) At some point, Maloney
pizzas a day, so theres always going to be some problems, and Garcia say, customers should be able to give their order
Weiner says. At a franchisee meeting, Doyle showed a photo to a device as normally as they would to a person, with all the
of a particularly mangled pizza that had been delivered to pauses, ums, contractions, and accents. Were working really
a guy in Minnesota named Bryce. Executives in attendance hard to re-create the original experience, Maloney says. Or,
from Dominos ad agency, Crispin Porter + Bogusky LLC, had as Jimmy Fallon joked in a bit about the voice-activated app:
found their next ad. You speak your order into the phone, or, as thats called
Then came the digital ordering and tricked-out DXP (Delivery now, ordering a pizza!
Experts) cars. As the initiatives proceeded, Weiner realized that Were coming full circle, Garcia says. We want it to be
Dominos didnt need new food to entice customers, as most as if you were therewithout having to be there. Dominos
chains do. It could advertise products that were mostly virtual has always understood the importance of not having to go
or unconsumable. Weve launched very few new items in the anywhere. Although you can still walk into a restaurant if you
past year, he says. Just two, in fact: salads and cookie brown- must, there are at least a dozen ways to order a Dominos pizza
ies, and only the salads were featured in an ad campaign. We in absentia. Some are self-explanatory: mobile apps, Apple
put the car on TV instead, he says. We ran a spot for four Watch, Facebook Messenger. Others need some explanation.
months for a car that 90 percent of the country wont see, he To order via Twitter, you must create an online account, save
says, referring to the limited number, 154, that are on the road. a pizza as your favorite (known as your Easy Order), and
The cars dont need to be everywhere. Customers give us credit connect it to your Twitter account. Then tweet a pizza emoji
for trying. to @dominos. Well know who you are, what pizza you want,
your default location and payment, Maloney says. We send
Reindeer We kind of like it when we dont get a Sounds awesome, are you sure? You send a thumbs up.
delivery in something right, says Kelly Garcia, But if you want to order something other than your favorite,
Japan youre out of luck.
A brief experiment
ended as you would
Maloney clears away the remains of
expect. our lunch (Pacific
Veggie, thin crust) to
Hatsune show me option 12
Miku on his phone: zero-
augmented- click ordering. This
46 reality will freak you out,
app he says. Whats
Ever try Pokmon GO?
This was sort of
the easiest way to
like that, but in Japan order? When you
only and with pizza.

WE WANT IT TO BE AS IF YOU WERE THERE

WITHOUT HAVING TO BE THERE, GARCIA SAYS.
DOMINOS HAS ALWAYS UNDERSTOOD THE
IMPORTANCE OF NOT HAVING TO GO ANYWHERE
whos in charge of e-commerce at Dominos. We went out with dont have to do anything. One day Maloney and Garcia
our voice-ordering system, Dom, in beta. That was in June 2014, were in the car with their ad guys, dreaming of how to one-up
when Dom would have been the first such assistant capable of Amazons one-click ordering. Three months later they had
helping with a purchase. A CNBC reporter tested the beta on their zero-click app, which does require one click to start.
air, on the floor of the New York Stock Exchange, but it didnt Tap the Dominos icon to open it and find my Easy Order,
work because of the surrounding noise. That was one of our Maloney says. Thats it. I have 10 seconds before it automat-
most public learnings, Garcia says. Across the table from him ically places the order. A big countdown clock appears on
in a conference room at Dominos Farms is Dennis Maloney, the Maloneys screen. If he does nothing, his Easy Order, a 12-inch
FROM LEFT: YOUTUBE: (3); COURTESY DOMINOS (2)

companys chief digital officer. With voice, it was 50-50 that we hand-tossed pizza, will be on its way to his home.
could even get it working, he says. My Bloomberg Businessweek colleagues and I tried out
Maloney and Garcia oversee parts of a tech team that Dominos various ordering methods. The smartphone and
numbers about 400, the biggest division at headquarters. Apple Watch apps were easy. Facebook Messenger and Twitter
When I meet them in mid-January, theyve just returned from required first placing an Easy Order with the basic app, which
CES, the electronics show in Las Vegas. They seem giddy with took a few minutes to figure out. Our zero-click tester didnt
the commercial possibilities of artificial intelligence. Maloney know where to find the app, but that could have been just
recounts with delight standing in his living room recently and him. As for Dom, that app had a hard time understanding that
ordering pizza with Alexa, Amazon.com Inc.s voice-controlled I wanted two large veggie pizzas, even though the newsroom
wasnt very loud. Ordering the old-fashioned wayby phone its when, Garcia says. Were thinking about the disruption
still works well. of a nearly 60-year-old business model. If another company
Maloney and Garcia are more careful when talking about the were to get out ahead of Dominos by providing quick, reli-
flip side of pizza ordering: delivery. Its a sensitive topic. Of the able delivery without having to manage a staff of drivers and
260,000 people working in the Dominos system globally, more coordinate routes, Dominos would lose some of its compet-
than half are drivers. Technological advances have improved itive advantage. Were delivery experts, Maloney says. If
the accuracy of the orders and increased business, but they everyone becomes an expert, wed have to figure out other
havent diminished the need for driversyet. A Dominos master ways to differentiate ourselves.
franchisee in Australia that owns some 2,000 restaurants Other on-demand delivery services pose a threat, too. When
around the world is using drones to deliver pizza from a store you look at UberEATS or GrubHub, pizza has the most to lose,
in the New Zealand town of Whangaparaoa. They can travel says Darren Tristano, president of research firm Technomic
about a mile from the store, and the customers need a backyard Inc. If you can order pizza and wings and burgers and salads,
so they can land safely. When I ask about testing drone deliv- then people who are looking for better quality and dont mind
ery in the U.S., Garcia replies, Theres a lot of regulations. But paying more will use those services. Delivery straight from a
never say never. Last June the Federal Aviation Administration restaurant will be for the lower- and middle-income customers.
said drones have to remain within the operators line of sight Dominos figured out mobile ordering before Starbucks and
at all times, dashing hopes for the time being of a drone fleet delivery before McDonalds. So it seems fair to ask, with the
landing on far-off lawns and sidewalks. company faring so well: Isnt this the part where complacency
Maloney is just as guarded about the potential for Dominos sets in and some avoidable decline begins? Maybe it starts
robots developed in Australia and tested in New Zealand. Local where Dominos began, with high-speed delivery. Technology
reports describe difficulties navigating helped save the company, and its possible technology may
one day undercut it.
Extremely
In late February, I visited a new
niche
Dominos in the Bronx, designed so
marketing Canoe
Publicity stunt. delivery
Dominos targeted In Maidstone,
pizza holdouts who an English river town,
hadnt tried the residents for a time
new pizza; it jokingly could get their pizza
created ads aimed by land or by sea.
solely at them.

47

Pizza
engagement
ring
Designed for customers can see their pizza being made, then eat it in a
Valentines Day, clean, bright seating area. Its a marked contrast from the
a 22-karat gold
ring with pepperoni-
companys traditional restaurantsdim, inhospitable places
shaped diamonds where customers came and left quickly. Now we care about
is given to one ambience, says Bob Machin, the head of corporate opera-
randomly selected
customer in the U.K. tions in New York and a former driver who can make a large
pepperoni pizza in 45 seconds. Employees are expected to
make one in less than a minute.
uneven sidewalks (robots arent allowed on roads). Its a great In the Bronx, you can see the companys classic technique
start, Maloney says. It was great for the brand globally. So at work, so straightforward you could almost try it at home. No
are robots coming to America soon? Im not saying yes or no. need for plastic gloves, since everything is cooked at a high tem-
But there wont be any reindeer, says Jenny Fouracre- peratureworkers touch the food with their bare hands. Start
Petko, the public-relations executive whos having lunch with a mound of dough. Cross your index and third fingers to
with us. Shes referring to a delivery-experiment-slash-stunt dock the pizza, stretching the dough from the center to create
conducted by a master franchisee in Japan this past winter. a circle that seems almost the size of a large pizza. Adjust. Spread
It ended predictably: The reindeer balked, the pizzas were the tomato sauce, preferably with a spoodle, and sprinkle two
crushed, and animal-rights activists complained. handfuls of cheese from higher than you think wise. Make it
Were not copying Japan on the reindeer, Garcia says. rain, Machin says. Then evenly place 40 pepperoni slices around
Were all agreed on that. the pizza so theyre next to each other but not overlapping.
That was crazy, Fouracre-Petko says. (No one in Japan Youll have to learn to eyeball it; counting slows down the pace.
answered an email request for comment.) By the end of the year, almost all Dominos will be more
The company also wont be expanding its DXP fleet. Since open and welcoming, and the carryout business, if all goes
Dominos originally built the vehicles, spending five years and according to plan, will increase. The human touch might
millions of dollars to get them on the road, Chevy has length- be worth something, after all. When I ask Machin about
ened the wheelbase and lowered the roof of the Spark, which all the nifty ways customers can order pizza, he smiles,
means Dominos would have to re-adapt its original modifica- acknowledging that in the kitchen, the bells and whistles
tions. Executives decided 154 of them was enough for now, dont affect the product. On the screen, he says, all the
in part because autonomous vehicles are coming. Its not if, workers see is that an order came in on the internet. <BW>
Af r
th

er
e p pg
t

es an o
u

rg y o
ra i d e f spendi
de nt s heli ng an
By sun c o p ter and d y
Ga less the je ea
r r et t M p a s s en t ar rs of delay,
. G ra f f ge e g et t i n
r-i g c o st - e f f i c i e n t
n-chi
ef i nt e r fe r e s
49
 onald Trump has long had a thing military-industrial complex, American vanity, internecine
about Air Force One. He deni- Pentagon politics, the Great Recession, and the Global War
grated the presidential jet on on Terrorismall bound by Newtons laws of motion. Obama,
the campaign trail, calling it too, made a high-profile attempt to scale back expenditures at
a step downin every way the outset of his administration. In his case, the aircraft in ques-
from his own plane, a gilded tion were the Marine One helicoptersand his efforts turned
Boeing 757. He mocked Air into a cautionary lesson on the hazards of trying to reboot a
Force Ones fuel-guzzling government procurement program mid-project. Today, almost
engines and blasted President two decades after the first efforts to upgrade Marine One and
Obama for taking it to campaign Air Force One began, both are at least momentarily ready for
rallies and on vacation. Then, one takeoff. Theres no telling yet whether the new president, who
Tuesday in December, after Trump won has a keen interest in aviation, will let the programs proceed
the presidency but before he had a chance to ride on the air- or send them back to the gate.
craft, he picked up his Android phone and tweeted about a
nascent project to replace the presidential jet with an even hat all parties seem to agree on is that the
more powerful and capable craft. Costs are out of control, president needs new equipment. The two
more than $4 billion, he wrote at 8:52 a.m. Cancel order! 747-200s that serve as Air Force One (the call
At Boeing Co.s offices in Washington, D.C., executives hastily sign applies to any airplane carrying the com-
canceled their routine morning strategy meeting. The Air mander-in-chief ) will reach the end of their
Force One project, known blandly as the Presidential Aircraft intended 30-year life spans this year, having first taken to
Recapitalization program, hadnt been the topic of any recent the air in 1987, with interiors designed by First Lady Nancy
news coverage, but within minutes it was leading every cable Reagan. The oldest Marine One helicopters are a generation
news channel. When the stock market opened, Boeing shares older. Certain components have been upgraded over the
dipped a little more than 1 percent. years, but the airframe remains effectively as it was in 1974,
Trumps criticisms were a bit off. For one thing, Air Force when President Richard Nixon waved goodbye from the heli-
One is larger and faster, and equipped with incompa rably copters steps. Its scheduled to carry Trump for most of the
more sophisticated technology, than Trumps 757, which next four years. There are serious safety issues with the
he bought used. (One previous owner: a budget Mexican current fleet, but theyre having to live with it, says John
airline.) And nobody involved in the program knew what Young, who was a senior Pentagon official during the course
more than $4 billion referred to. Boeing executives noted of the Marine One project. Some of the aircraft will be 50
that the only public expenditure so far was a $172 million con- years old by the time theyre retired.
50 tract to study the new machines capabilities. Although build- Presidents werent even allowed in helicopters until 1956.
ing a new Air Force One has undeniable publicity value for the After a Camp David evacuation drill, during which President
company, in monetary terms it barely registers at a company Dwight Eisenhowers limousine got stuck behind a truck on a
with $95billion in annual revenue. Executives grumble pri- winding road, the Secret Service relented on its long-standing
vately that Boeing actually lost money the last time it deliv- safety objection to single-engine helicopters. The next year the
ered new presidential planes. But the company has larger Air Force procured two small, bubble-nosed Bells, similar to
business opportunities that could wither if relations with the those seen in the opening sequence of M*A*S*H. Eisenhower
president go bad. Its hoping to gain the administrations per- took precisely one flight. It was another evacuation drill, this
mission for a $16 billion deal to build airplanes for Iran, a con- time in July, and he baked as the cramped cockpits canopy
tract made possible by the nuclear deal Trump has savaged. absorbed the full power of the Washington sun. When it came
After the tweet, Chief Executive Officer Dennis Muilenburg time that fall to take another helicopter, Eisenhower asked
made pilgrimages to various Trump properties to meet with for a large Marine transport aircraftand the tradition of the
the president-elect and hear his concerns. Eventually he Marines flying the commander-in-chief was born. One of the
announced vague plans to reduce the planes cost, while first things they did was install an air conditioner.
heaping praise on Trumps business acumen. Today the presidential helicopter squadron, known as
That was enough for Trump to declare mission accomplished. HMX-1, contains 23 primary aircraft. There are 11 distinctively
By February he was relying on Air Force One for regular trips to brawny Sea Kings, which have been in operation since 1974;
Mar-a-Lago and using it as the backdrop for a visit to Boeings eight more streamlined White Hawks, which date to 1989;
South Carolina facility. That plane, as beautiful as it looks, four other helicopters reserved for testing and training; and a
is 30 years old, he said, gesturing proudly. What can look number of Super Stallions and Sea Knights that White House
so beautiful at 30?! At a rally in Melbourne, Fla., he boasted personnel use. The U.S. is the only country that provides its
about renegotiating with Boeing. They were close to signing chief executive with helicopters around the world. That is,
a $4.2 billion deal to have a new Air Force One, Trump said. when heads of state of other countries go abroad and need a
Can you believe this? I said, No way. I said, I refuse to fly in vertical lift, they often rely on the hosts equipment. When the
a $4.2 billion airplane. I refuse. He added, We got that price U.S. president goes overseas, he brings his own helicopters
down by over $1 billion, and I probably havent spoken, to be often in flights of three, to serve as backups, fly staff, and func-
honest with you, for more than an hour on the project. Four tion as decoys for would-be assassins.
days later, a U.S. Air Force spokesman said he had no idea what The helicopters complement a presidential airplane
billion-dollar savings Trump was referring to. To my knowledge fleet that includes Air Force One; cargo aircraft that move
I have not been told that we have that information, Colonel people, motorcade vehicles, and the helicopters; smaller
Patrick Ryder told reporters. I refer you to the White House. Gulfstream jets that carry the president on special missions;
Presidential aircraft procurement represents something and older 757s that usually fly the vice president. The com-
like peak Washington entanglement, encompassing the bined fleet ensures that the president can go anywhere he
 wants, at any time, with perfect connectivity, so he can order an Anglo-Italian manufacturer, pushing
a nuclear retaliatory strike at a moments notice. And after a larger EH-101 airframe with three
that happens, the military has access to yet more specialized engines. Both bidders saw the presiden-
planes: Four hardened Doomsday 747s, whose crews refer tial helicopter program as a way to get
to them as Air Force One When It Counts, sit ready at Offutt a leg up in another, larger contract to
Air Force Base in Nebraska. replace the U.S. militarys aging combat
Disaster figures largely in presidential aviation planning. On search-and-rescue helicopters. There were bragging rights at
Sept. 11, aboard Air Force One, President George W. Bush was stake, too. When the Pentagon awarded the Marine One job
repeatedly frustrated by antiquated communications systems. to Lockheed and AgustaWestland in 2005, the Washington
At times he was less informed than the average CNN viewer, Post observed that Sikorsky had lost its parking spot on the
as the plane then had no access to satellite TV. Afterward, his White House lawn.
administration undertook a wide-ranging effort to upgrade
the presidents in-flight capabilities. he Navy dubbed the new aircraft the VH-71
Marine One helicopters got new communications and secu- Kestrel. Unusually for such a prominent project
rity componentsboxes, in aviation-speakbut their added with such a high patriotism factor, much of
weight cut the aircrafts range and number of passengers. In the construction was to occur overseas, at
2002 the Navy, which oversees Marine aviation programs, AgustaWestlands facilities in England and Italy.
began a formal effort to develop an all-new Marine One. The Pentagon said the cost savings were worth any dent in
The White House considered various alternativesincluding public perception of nationalist loyalty. Militaries in those
whether the White Hawk could succeed the Sea King as the countries were already flying versions of the EH-101 that cost
Marine One flagship, a natural enough choice because White about $60 million each; adapting it for the president, the
Hawks already carried out half the presidents helicopter Pentagon estimated, would only triple the pricea bargain
flights. Yet the Bush White House objected because they fell by executive-branch procurement standards.
short in one key area: White Hawks dont have a tall enough That $180-million-a-pop projection would turn out to be
door. A commander-in-chief s confident stride across the wildly low. My experience is that procurement programs
South Lawn would have to conclude in an unpresidential dont get into troublethey start out in trouble, says Charles
stoop. The White House also considered the massive tilt- McQueary, who helped run the Pentagons test and evalua-
rotor V-22 Osprey and CH-53 Super Stallion, both of which tion programs in the Kestrels early days. And from the outset,
met the desired speed and range requirements, but eventu- the Marine One reboot had a master flaw. The White House
ally decided the downwash from the powerful rotors would Military Office, known as Whammo to D.C. insiders, is the
wreak havoc on the residences manicured gardens. immensely powerful entity that administers anything the
The Navy planned to unveil a new helicopter by president touches that has to do with the militarywhether 51
2007astonishingly fast by Washington standards. For a the Navy mess or the nuclear football. When WHMO sets an
project of such importance and pace, there were only two operational requirement, it doesnt have to pay out of its own
serious bids. Sikorsky Aircraft Corp. in Stratford, Conn., which budget; it essentially spends other agencies money. With the
since Eisenhowers day had manufactured every helicop- Kestrel, WHMO and the Secret Service began souping up the
ter in the Marine One squadron, proposed a chopper based specs, seemingly without regard for cost.
on its two-engine S-92 model. The second bid came from As dreamed up, the new Marine One could fly more people
Lockheed Martin, in partnership with AgustaWestland S.p.A, farther, faster, and at a higher level of performance than any other
executive helicopter on the
PREVIOUS SPREAD: PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (2); THIS SPREAD: COURTESY LOCKHEED/SIKORSKY

of the next-generat planet. The idea was to create

A rendering io
a true Oval Office in the sky, with
n
Ma

videoconferencing, a galley,
and a flushing toilet, as well as
r i n e O n e h e l i c o pt e r

heavy armor and protection

from nuclear, biological, and
chemical weapons. Eisenhower
would have approved of the
climate control: The cabin had
to remain between 68F and 76F,
whether the outside tempera-
ture was -5 or 100. WHMO and
the Secret Service insisted on a
300-mile range, which would let
it fly from the White House as
far as Charlotte or Albany, N.Y.
Almost from the start, critics
within the Pentagon and on
Capitol Hill questioned whether
the Kestrel was too much heli-
copterafter all, the presi-
dents flights were measured
in minutes, not hours.
They wanted it to have
 the same capability as Air Force Onethat in and of itself was Criticizing Pentagon bloat was popular, but the fact remained
nearly impossible, the Pentagons Young says. Its hard for the that the president was flying around on equipment built when
public to understand how atypical this helicopter is, compared Barbra Streisands The Way We Were topped the charts. And
to a commercial helicopter, when you decide to put the president once the price of prolonging the life of the current fleet was fac-
aboard, he adds. WHMO believed naively that theyd buy a tored in, starting a Marine One reboot from scratch was going
commercial helicopter, put some boxes inside, and fly away. to cost almost as much as seeing the Lockheed-AgustaWestland
Thats not the way the leader of the free world flies. project through to completion. The Kestrel had been relatively
Complicating the problem, WHMO was separated from the far along in production. Nine fully built models existed and had
people actually building the helicopters by layers of bureau- undergone testing. Lockheed executives had even been taken
cracy: Its wish list went to the Navy, which created specs for for test rides, including James Comey, who years before he
Lockheed, which passed them along to AgustaWestland. The con- became FBI director served as the defense contractors general
tractors received as many as 40 changes to the aircraft a month, counsel. Its capabilities astounded those who flew on it. The
and each one required rethinking the physics and engineering range and speed requirements were extreme for a helicopter,
of the airframe. The additional weight from a certain armor, Young says. But none ever landed on the White House lawn.
for example, required sturdier rotors. All nine had their top-secret commu-
The engines had to be upgraded. nications systemsknown by the
The Navy insisted on reimagin- code name Yankee White
ing and reworking much of the torn out. In 2011 the chop-
basic blueprints of the off-the- pers, along with 848,720
shelf airframe to meet not Now, let me tell you spare parts, were sold
only the Federal Aviation something. If the United for scrap to Canada for
Administrations commer- $164 millionrecouping
cial standards but also its
States of America is about 5 percent of the
more rigorous military under nuclear attack, the last Kestrel expenditure.
ones. For instance, while the thing on my mind will be Obama reopened the
FAA required that a helicopter Marine One program in
transmission be secured to the whipping up a snack November 2012. This time,
fuselage by four boltssufficient there was essentially only one
for the hundreds of other aircraft bidder: Sikorsky. The company
flying passengers safely around the again proposed its S-92 airframe,
worldthe Navy insisted on six. The issue which was good enough for 10 other
52 is making up the minds of those who make the decisions heads of state, mostly in the Middle East and
upfrontand having them stick to it, McQueary says. There was Asia. WHMO, the Secret Service, and the Pentagon cut their
a continuing concern that the requirements continued to evolve specs for passenger capacity, range, airspeed, hover perfor-
even as construction began. Thats always a danger signal. mance, operational availability, and transportability. Also:
Even the number of helicopters fluctuated, jumping at one no kitchen and no toilet. In April 2013 the U.S. Government
point from 23 to 36 and then down again. The projects orig- Accountability Office praised the Navys rational balance
inal budget of $6.5 billion, set in January 2005, increased to between requirements, costs, and schedule. The following
$11.5 billion by January 2008, with the Navy under pressure May, Sikorsky won an initial $1.2 billion contract to start the
to deliver the aircraft before Bush left office so he could cele- project. The Navy has since described the aircraft, VH-92, as an
brate its inaugural flight. He didnt get the chance. By the time art of the possible helicopter, based on a model thats already
Obama was sworn in, the program had an estimated total cost of in production, with communication and avionics systems that
$13 billion, or about $500 million per helicopter, and the deliv- have already been tested.
ery schedule had slid to 2012. In an all-but-unprecedented oversight move, the Pentagon
appointed an executive steering committee, co-chaired by a
he helicopter I have seems perfectly adequate Navy one-star admiral and a Marine Corps one-star general.
to me, Obama said early in his presidency, at It includes representatives from the HMX-1 squadron, the
a White House Fiscal Responsibility Summit. White House, and the Office of the Secretary of Defense,
Of course, he joked, Ive never had a helicop- among others. The group has to sign off on any design or
ter before, you know? Maybe Ive been deprived, requirement change, no matter how small. Anyone who
and I didnt know it. His audience laughed. Obama contin- wanted to do anything other than what was awarded would
ued, seriously, I think it is an example of the procurement have to come talk to us. We didnt approve anything, says
process gone amok, and we are going to have to fix it. In retired Rear Admiral CJ Jaynes, who co-chaired the commit-
May 2009 the Pentagon terminated the Marine One program. tee until last year. There was a lot of nickel-and-dime stuff:
The Post called Obamas decision a shot across the bow of We prefer to have this antenna on that side of the aircraft
large defense contractors. The project had plowed through instead of the other onewell, no. Once we said no two or
$3.3 billion. With two active wars in Iraq and Afghanistan and three times, people began to think hard about bringing any-
the mortgage crisis still sending tremors through the economy, thing forward. As for those six bolts on the transmission
Obama found the Kestrel overruns to be a satisfying punch- the new managers have deemed that four will function just
ing bag. Among its other capabilities, it would let me cook fine. (Lockheed ended up in charge of Marine One after all.
a meal while under nuclear attack, he joked at a Veterans of It purchased Sikorsky for $9billion in 2015.)
Foreign Wars convention that August. Now, let me tell you Two helicopters have been built and are undergoing
something. If the United States of America is under nuclear on-the-ground testing; the first is expected to take to the air
attack, the last thing on my mind will be whipping up a snack. this summer. If everything stays on track, the debut presidential
 A History of flight could come as soon as 2020, with the full fleet arriving by
2023, at a total cost of about $5 billion, if not less. The cost is
Presidents Aloft coming down as we speak, says Colonel Robert Pridgen, head
of the Marine One program. Still, the VH-92 is going to be a less
capable helicopter than the junked Kestrel. The president is
going to get significantly less helicopter for that money, Young
says. The Marine One reboot is a lesson for the new commander-
in-chief: Obamas attention-grabbing effort to cut waste deliv-
ered only marginal results, at a significant delay.

he Pentagon says it hasnt yet briefed President

Trump on the new helicopter fleet. We dont
have any plans on the books right now, Pridgen
says. Im confident that theyll be pleased with
Lyndon Johnson is sworn in on Air Force
the progress and design of this aircraft. He declines
One after John Kennedys assassination to speculate on what would happen if Trump demands
changes to the design. Were building this with a mind not
just to the current commander-in-chief but future ones as
well, Pridgen says. Its not tailored to any one individual.
Unless Trump reopens the project, the VH-92 is largely off
the drawing board. The president has a much greater ability
to influence the next Air Force One, which is still in the plan-
ning phase. When the Air Force announced in January 2016
that it would work with Boeing to design the next generation
of presidential plane, a 747-8, it had the Marine One cost over-
runs very much in mind and repeatedly emphasized the pro-
grams affordability and reasonable package of features. The
Richard Nixon leaves Washington in
disgrace aboard Marine One company, the Pentagon, and the White House agreed to design
the jets on paper first, discussing each requirement in turn and
reaching a consensus before construction. The Pentagon says
it intends to formally award the contract for the two planes in
FROM TOP: COURTESY CECIL STOUGHTON/WHITE HOUSE PHOTOGRAPHS/JOHN F. KENNEDY PRESIDENTIAL LIBRARY AND MUSEUM; COURTESY THE RICHARD NIXON PRESIDENTIAL

the next four monthsa timeline that could be scrambled if 53

Trump decides to introduce new demands, whether in terms
of greater capability or lower cost. White House Deputy Chief of
Staff Joe Hagin will be overseeing both the Marine One and Air
LIBRARY AND MUSEUM; WALLY McNAMEE/CORBIS/GETTY IMAGES; BETTMANN/CORBIS/GETTY IMAGES; YIN BOGU/XINHUA NEWS AGENCY/EYEVINE/REDUX

Force One projects; he held the same role in George W. Bushs

administration. Whether hes learned from that eras mistakes
remains to be seen.
Gerald Fords image never quite recovered The oddity of Trumps December tweet is that the program
after he tripped down the planes stairs itself is really too new to be over budget. The outlines of the
project are still forming. Although most features of the plane
havent yet been decided, a few things are known: Boeing
says it will be able to fly almost 1,000 nautical miles farther
and produce 16 tons less carbon dioxide on a typical flight,
despite being about 154,000 pounds heavier. In terms of
design, Trump will presumably have final say. In his private
life, Trumps personal aircraft is famously flashywith gold-
plated seat belts and bathroom faucets, a silk-lined master
bedroom, a 57-inch TV, and the Trump family crest liberally
emblazoned on seats and pillows. When he was given the
Ronald Reagan aboard the 747-200s that
chance to select drapes for the Oval Office, he pored over
still fly the commander-in-chief today 17 options (eventually choosing gold).
Depending on the fixtures and finishing touches, the
new presidential planes themselves will likely cost about
$380 million apiece, all part of about $2.8 billion the
Pentagon plans to spend on the Presidential Aircraft
Recapitalization program by 2021. That means the U.S. will
have spent more than $11billion on new presidential aircraft
in two decadesnot counting the expense of maintaining the
original fleet. Both of these systems cost an absurd amount
of money, but thats what we choose to do for the president
of the United States to have increased safety and security,
Donald Trump is scheduled to fly on Young says. There arent magic lessons thats going to make
1974-era choppers for the next four years it cost half as much. <BW>
 BY MAX CHAFKIN

T
ravis few weeks in 2015, Kalanick poached 40 researchers from the
Kalanick, Carnegie Mellon University robotics lab, one of the countrys
the chief top autonomous vehicle research centers. Then, last summer,
executive Uber became the first company to operate a fleet of autono-
officer mous taxis, in downtown Pittsburgh. On the day it announced
of Uber that service, Uber also said it had acquired Otto, a self-driv-
Technologies Inc., says he needs ing truck startup founded in January 2016 by a former Google
leadership help. He recently dis- employee, Anthony Levandowski. The 37-year-old engineer
patched former U.S. Attorney was an original member of Googles car team and a protg of
General Eric Holder to investigate its creator, Sebastian Thrun.
sexual harassment claims against the At Google, Levandowski had been both a brilliant engineer
company. His security team is review- and a divisive manager, with a reputation for flouting corporate
ing a practice known as Greyballing. norms and skirting rules to get cars on the road as quickly as
And hes no longer going to any more possible. He was so controversial, according to several former
meetings with President Trump. and current employees, that when he was being considered
These damage-control initiativesin to lead the car team, a group of engineers revolted, causing
response, respectively, to a leaked video in Alphabet CEO Larry Page to rethink the choice and install a
which Kalanick was rude to an Uber driver, different leader, Chris Urmson.
a blog post by a former engineer, an admission According to the legal complaint filed on behalf of Googles
that the company had been deliberately misleading driverless car divisionas almost everyone at Waymo still
police, and a customer boycottwere the result of a months refers to itthe company began investigating Levandowski last
worth of public-relations disasters. Taken alone, any of these summer after learning that Uber had paid about $700 million for
would have been enough to slow down the famously fast-moving his months-old company. Googles suit, filed in a San Francisco
ride-hailing company. Taken together, theyve caused some to federal court, says its investigators uncovered a trove of digital
question Ubers viability and Kalanicks staying power. evidence that hint at an unprecedented theft. According to the
But none of these scandals has the potential financial suit, Levandowski used his company laptop to download 14,000
impact of the one Uber has said the least about: a lawsuit from design files from Googles car project. He plugged a memory
Alphabet Inc.the parent of Google and Googles self-driving car card reader into the laptop and, shortly afterward, wiped all
division, now called Waymoover driverless cars. Waymo says the data from the laptop. The suit also alleges that two other
Uber is in possession of, and is basing the future of its business Otto employees took files on their way out the door.
on, technology that was stolen by a former employee. Google seemed content to sit on that information until
Self-driving technology has become a fixation for Kalanick. Dec. 13, when a Google employee received an email from a
Developing a driverless car, hes often said, is existential to supplier that was working on components for the lidar sensor
Uber. If a competitor managed to get there first, it could easily in the companys first production car. Lidara portmanteau of
replicate Ubers core service (shuttling passengers) without light and radaris the key component that allows an auton-
its single largest cost (paying drivers). Over the course of a omous vehicle to, essentially, see its surroundings. (Its also
 AND MARK BERGEN
used to build maps.) Off-the-shelf sensors cost up to $80,000 Whatever
and contain several individual lenses. Under Levandowski, Google may say
whod led the lidar team, Google developed a much cheaper about him stealing
version that used a single lens. lidar trade secrets,
Strangely, though, the emails subject lineOtto Files made he was the lidar team
reference to Levandowskis company. According to Googles suit, at Google, says someone who
the contents of the email, which seemed to have been intended for worked at the companys driverless
Uber rather than Google, included a machine drawing of a lidar car program. This is like the Swiss
circuit board that had Ottos name on it but looked almost identical patent office suing Einstein for
to Googles. Two months later, Waymo sued Uber for trade secret inventing the theory of relativity
theft and patent infringement, seeking damages and an injunc- while he worked there.
tion that could seriously impede Ubers self-driving car program. The comparison to Einstein
At issue is a business that both companies believe will be is obviously hyperbolic, but it
worth hundreds of billions or even trillions of dollars a year. also captures the foundational role
And though both companies like to portray driverless cars as Levandowski played in the develop-
ILLUSTRATION BY SALLY THURER; HEADS: PAGE: SETH WENIG/AP IMAGES; KALANICK: BRENT LEWIN/BLOOMBERG

some near-term inevitability, this dispute shows just how messy ment of self-driving cars. Levandowski,
the race to get there could prove to be. 6-foot-6 and relentlessly intense, is as

D
much an entrepreneur as he is an engi-
uring new-hire orientation, engineers at Google are fre- neer. At 16 he started a web design firm that a
quently told that the company will never sue a former former colleague says made him a millionaire by the end of
employee for patent infringement. The implication is high school. (Levandowski didnt respond to repeated requests
twofold: first, that Google doesnt stoop to fighting over for comment.) As a University of California at Berkeley under-
patents, though it may employ them to protect itself from graduate, he won a national competition sponsored by Lego
people who arent in the business of changing the world. he built a toy robot that could sort monopoly money.
(These patent wars are death, Executive Chairman Eric Schmidt Levandowski was 22 and working toward an MBA and an
said at an event in 2012, calling patent litigation bad for inno- industrial engineering masters at Berkeley when he first heard
vation.) And, as an extension of that, if Google sues you over a about the Darpa Grand Challenge. (His mother read about it
patent issue, you must have really pissed them off. and mentioned it to him.) The 2004 competition, organized
After the lawsuit was filed, Uber released a statement charac- by the U.S. Department of Defense, involved a race for robotic
terizing it as a baseless attempt to slow down a competitor. At cars on a 150-mile course in the Mojave Desert. It drew teams
an all-hands meeting at the companys Pittsburgh research center, from Carnegie Mellon, the California Institute of Technology, a
Levandowski defended Ubers lidar technology as cleanthat is, number of defense contractors, and most of the other big names
not the product of stolen design documentsand told the compa- in robotics. Levandowski led a ragtag team of Berkeley gradu-
nys engineers that hed downloaded the files to work from home. ate students and research assistants.
Some former colleagues seem to think that even if Levandowski If there was hubris in entering, there was even more
did what Google alleges, he doesnt deserve to be punished. in his chosen design. Ghostrider, his self-balancing,
 self-driving motorcycle, was the only two-wheel vehicle in the parking and highway autopilot) or all at once (for instance, a fleet
contest. I was assuming the driving part would be easy to solve, of fully autonomous cars operating in a city center)? Urmson, a
he said last summer, speaking to Bloomberg Businessweek in a former Carnegie Mellon professor, preferred the latter approach,
joint interview with Kalanick shortly before Uber announced its arguing that incremental innovations might, paradoxically, make
acquisition of Otto. I wanted to make something actually dif- cars less safe. Levandowski believed otherwise and argued that
ficult. Although it failed to stay upright on race daya grainy Google should sell self-driving kits that could be retrofitted on
YouTube video documenting Ghostriders run is six seconds cars, former colleagues say.
longthe bike was still seen as an achievement by Levandowskis Urmson won out, and according to two former employees,
peers, partly because no team finished. (Ghostrider eventually Levandowski sulked openly. After one dispute between the
became part of the Smithsonians permanent collection.) For two, Levandowski stopped coming to work for months, devot-
the next competition, in 2005, Levandowski served as the team ing his time to his side projects. This didnt stop Page and Brin
leader for Ghostrider while also working on lidar sensors for the from discreetly acquiring 510 Systems and Anthonys Robots
winning team from Stanford, which was managed by Thrun. for roughly $50 million in 2011.
Levandowski and two Berkeley friends adapted the tech- As Googles driverless car program matured, Levandowski
nology from Ghostrider, which had used GPS and cheap seemed to become impatient. Creating a fully functioning
digital cameras, into a commercial product. Their company, driverless car means training a complicated hardware and
510 Systems LLC, sold camera systems, and eventually lidar, software system to identify lane lines and red lights and to
to mapping companies, including Nokia Corp. and Microsoft control the cars movements. It also means writing software that
Corp. Levandowski also sold kits to automate agricultural and anticipates thousands of unlikely edge caseshairpin turns,
construction equipment. drivers who use hand signals, covered bridges, recumbent
In 2007, Google hired Thruns team from Stanford to work bikes, and so on. That work seemed to bore Levandowski. He
on a new product, Street View, formally making Levandowski became increasingly frustrated at Googles inability to operate
a full-time employee of the search company even as he con- its cars on city streets and decided to take matters into his own
tinued to run 510. The initial plan was to supplement Googles hands. Engineers were like, We are totally ready to go, and
maps, which at the time used data licensed from the mapping Im like, Lets go then. Lets see whether its real or a demo,
giant Navteq Corp., with pictures of city streets. Levandowski Levandowski said in the summer interview.
suggested that Thruns mapping technology could allow Google Without formally telling Google, which considered its cars
to replace Navteqs data altogether. His mapping initiative not yet ready for open-road tests, he hired a lobbyist in Nevada
was seen as an enormous success, allowing Google to offer on and wrote a law that allowed companies to test autonomous
phones turn-by-turn driving directions that were as good as cars with so-called safety drivers. (Self-driving car companies
those offered by standalone GPS device makers. use the term to describe an engineer who sits in the drivers seat
In 2008, while doing double-duty at Google and 510, he took with her hands on the wheel in case the car malfunctions.) The
56 a call from a producer at the Discovery Channel who wanted to law passed at the end of 2011, though Google hasnt conducted
borrow Ghostrider for an episode of Prototype This!, a short-lived large-scale tests in the state. Googles government relations
documentary series. Levandowski suggested instead that he use department learned about Levandowskis Nevada efforts when
a different vehicle. He asked Google for permission to embark the lobbyist, David Goldwater, sent the company an invoice.

L
on the stunt using sensors similar to those on Googles mapping
cars. It was granted on the condition that Levandowski, and not evandowski first met Kalanick in 2011 at a TED confer-
Google, would be responsible if something went wrong. The ence, but the two didnt become close until early 2016,
lawyers said, Absolutely, but please dont put Google on the after Levandowski pitched Kalanick on an investment in
side, Levandowski told Bloomberg Businessweek in the inter- Otto. Kalanick didnt investbut he did begin meeting with
view last summer. So we started this thing called Anthonys Levandowski in secret. In the interview with Bloomberg
Robots to be very clear it wasnt Google-related. A few weeks Businessweek at the time of the acquisition, Kalanick
later, under a police escort and with cameras rolling, the Pribot, described these rendezvous in detail: The two would go to the
as Levandowski named his converted Toyota Prius, successfully San Francisco Ferry Building after sunset, entering separately and
crossed the San Francisco Bay Bridge. each picking up takeout food. Theyd begin walking west toward
Googles self-driving car project began the following year with the Golden Gate Bridge, where theyd eventually join up and begin
a modified Prius that used software created by Thrun at Stanford talking. Kalanick recalled that he and Levandowski went on five
and hardware supplied by Anthonys Robots. Like 510 Systems, or so of these walks, each one lasting several hours.
Anthonys Robots was operated as an independent company. Kalanick, now 40, was taken by the younger mans hustle and
The arrangementwhereby Levandowski was at once a founding sense of purpose, describing him as a brother from another
member of the Google self-driving car team and a vendor who mother. To get self-driving cars to production, Kalanick said in
was also selling technology to other companieswas well-known the interview, it cant just be about science. It has to be about
to Google executives, though it was never publicly disclosed. engineering and entrepreneurialism that takes us into the real
Anthony is a rogue force of nature, says a former Google self- world. Thats where Anthony and I connect, right?
driving car executive. Each phase of his Google career he had Levandowski, who was sitting next to him, nodded. We think
a separate company doing exactly the same work. According very similarly in terms of how do we get things out onto the world
to two former Google employees, founders Page and Sergey fastest, he said. How do we make a difference, how do we make
Brin tolerated Levandowskis freelancing because they saw it as impact, how do we get people using our technology. Levandowski
the fastest way to make progress. Googles car team embraced hinted that hed decided to break with Google and start Otto in
Levandowskis nature, too. The attitude, says a former colleague, part out of frustration at the slow pace of innovation at Google.
was hes an asshole, but hes our asshole. That might not have been the whole story. On March 10,
As Googles car project grew, a debate raged inside the Google, which is seeking a preliminary injunction to stop Uber
company, reflecting a broader dispute about the direction of from using its technology, filed written testimony from Pierre-
autonomous vehicles: Should the tech come gradually and be Yves Droz, Levandowskis co-founder at 510 Systems and the
added to cars with drivers (through features like automatic technical lead on Googles lidar program. Droz wrote that in
 the summer of 2015 Levandowski said Uber might be interested That said, this isnt a typical patent dispute, and Uber isnt a
in buying the team and that in January 2016 he told Droz he typical company. If it fights, it could argue, as Levandowski did
would replicate the companys lidar. When Levandowski quit at the all-hands meeting in Pittsburgh, that the alleged document
to start Otto, he was escorted out by Google security. A handful dump was simply part of an effort on his part to work from home.
of Google employees soon followed him to the new company. It could also cite how Google seemed to encourage Levandowskis
Soon after, Levandowski began making trips to Ubers self- freelance excursions. And while many of his former colleagues
driving car research center in Pittsburgh, where a staff that had assume that Google wouldnt sue Levandowski if the foren-
grown to 500 was scrambling to launch the pilot taxi service. sic evidence wasnt incontrovertiblethat is, if it didnt have
Levandowski wasnt widely introduced; senior managers believed him dead to rightsother former colleagues
he was a consultant. As far as the team knew, says a former and some industry insiders see the lawsuit as
employee, Levandowski was some guy who would come around evidence that Google is struggling to make
and be annoying. up for its failure to bring a product to
At Ottos San Francisco headquarters, the startup, which had market quickly.
Levandowsk
90 or so employees, prepared for its product launch in May. i. At
a running joke Otto,
Down a stretch of Nevada highway, the company ran a self-driving Safety third s
wa
.
big-rig truck kitted out with sensors and computer controllers.
Documents uncovered by the tech publication Backchannel
showed that Levandowksi had sought the approval of state reg-
ulators to film the demo. When they denied his request to do
the run, he went through with it anyway. (Goldwater, again
serving as Levandowskis lobbyist, argued in an email to
the Nevada Department of Motor Vehicles that it had no
jurisdiction in the matter. A senior DMV administrator
called the test illegal in an internal email but declined
to rebuke Otto publicly.)
In August, Uber acquired Otto for roughly $700 million Google is
in company stock. The plan, Kalanick said, was to con- the Xerox Parc of self-driving cars,
tinue building Ottos trucking business and to use the start- says George Hotz, the founder of Comma.
ups homegrown lidar to beef up Ubers own self-driving cars, ai, another autonomous car startup. Its a
all under Levandowskis supervision. Ubers Pittsburgh team backhanded compliment: Although Xeroxs Palo Alto Research
learned of the acquisition, and the fact that they had a new boss, Center invented the modern computer operating system, it
the day it was announced. The team was super unhappy, says didnt bring the invention to market; Apple Inc. did. The real
a former employee. It turned out that Ottos lidar was a work question is, why hasnt Google shipped? Hotz asks. He regards 57
in progressthe companys prototype trucks were still using Googles lawsuit as a deliberate conflation of two different beefs.
sensors manufactured by Velodyne Lidar Inc. We thought we The firstthe accusation that Levandowski stole documents
were getting some supersecret sauce by joining them, says the is serious. The second, Hotz says, just signals weakness on
employee. But they did smoke and mirrors and got a huge acqui- Googles part. In Silicon Valley, and at the Googleplex, litiga-
sition offer. Over the next six months, about 15 of the original tion is looked upon as the last refuge of the undisruptive.
40 Carnegie Mellon engineers left. At least three have subse- Whatever Levandowski did with Googles files, hes not
quently founded competing self-driving car companies, one of wrong that Google has struggled to commercialize technology
which recently received a $1 billion investment over five years thats widely regarded as the best in the automotive industry.
from Ford Motor Co. Before Google worked on its current prototype, a two-seater
Levandowski seemed to struggle in other ways as well. In that has a top speed of 20 miles per hour and vaguely resem-
December, Uber dispatched 16 self-driving cars, with safety drivers, bles a koala bear, the company pitched Elon Musk on outfit-
in San Francisco without seeking a permit from the California ting his electric Tesla vehicles with Google tech, according to
DMV. The test went poorlyon the first day, a self-driving car ran two people familiar with the deal. Musk passed and a few years
a red light, and the DMV ordered Uber to halt its program in the later launched Tesla Inc.s highway autopilot service on his own.
state. The company suffered further embarrassment when a New A former Google executive says John Krafcik, who joined the
York Times article, citing leaked documents, suggested that Ubers car project as CEO in 2015, would sometimes appear rattled by
explanation for the traffic violationthat it had been caused by the competitive moves of Tesla and Uber, wondering aloud if
human errorwasnt complete. The car malfunctioned, and the Google may have already been leapfrogged. He would grow
driver failed to stop it. particularly irritable every time Elon would post something
ILLUSTRATION BY SALLY THURER; LEVANDOWSKI: TONY AVELAR/AP IMAGES

The misdirection came as no surprise to the Uber employ- on Twitter, the executive says.
ees whod spent time at Ottos San Francisco headquarters. Levandowski hasnt shown any sign of being rattled or con-
Someone there had distributed stickersin OSHA orangewith trite. Three days after the lawsuit hit, he appeared onstage in
a tongue-in-cheek slogan: Safety third. Barcelona as a marquee speaker at the Mobile World Congress.

U
The lawsuit never came up. As a final question, the moder-
ber has yet to file a legal response to Googles com- ator, the chief marketing officer of a cell phone industry trade
plainta spokeswoman says it plans to do so later this group, simply asked, Do you drive? Levandowski smiled.
monthbut the company essentially has two options: Sometimes I drive, and sometimes Im driven, he said. Thats
It can settle with Waymo and license its sensors, or it the beauty of being able to work on this projectyou get to see
can fight. What Waymo probably wants is to license its the technology evolve and get better over time.
patents to Uber, says Robert Gomulkiewicz, a former Absolutely fascinating stuff, the moderator replied. Please,
Microsoft intellectual-property lawyer whos now a professor everyone: a round of applause for Anthony. The crowd, stacked
at the University of Washington School of Law. In this kind of with top executives from the worlds biggest companies, com-
litigation, thats the typical sequence of events. plied enthusiastically. <BW> With Dana Hull and Ashlee Vance
UTOPIA
ON THE HIGH SEAS FEELIN IT AT EMO NIGHT WORK
WHEREVER YOU WANT
WINE COOLERS WITH
CLASS
 Etc. Sports

t 6:03 p.m. on Sunday, March 12, Northwestern Uni- relationship with the program, or take agonizing minutes
versitys mens basketball team officially earned with a school caught unawaresthe shirt is listed on the
its first NCAA Tournament berth in the schools Fanatics website. The whole process can take less than
history. At 6:07, Fanatics Inc., the worlds largest 15 minutes from final shot to first sale.
sports apparel retailer, posted its newest product, Peck is the architect of this part of Fanatics business; prior
a purple Northwestern T-shirt that reads Chicago to his arrival, the company was almost entirely a retail outlet
Is Dancin: The Road to the Final Four. for other manufacturers merchandise. The shift occurred
Thats the speed at which licensed sports merchandise under the leadership of billionaire Michael Rubin, who bought
moves now: minutes and seconds, not hours and days. If Fanatics in 2011 and merged it with his e-commerce technology
youve gone online to buy a shirt, hat, or jersey for your favor- company, GSI Inc., which, among other things, handled online
ite team, youve likely bought it from Fanaticswhether you sales for the major U.S. sports leagues. Rubin sold GSI to EBay
knew it or not. In the past five years, Fanatics has crept into Inc. later that year but hung onto his league relationships,
every facet of the sports apparel industry. This is the biggest which he transferred to Fanatics, and then used proceeds
change to a single marketplace that weve seen in a decade from the sale to acquire Plantation, Fla.-based sports retailer
or two, says Marty Brochstein, a senior vice president at the Dreams Inc. The combined enterprise quickly grew into a mer-
International Licensing Industry Merchandisers Association. chandise juggernaut, with products ranging from apparel and
That Northwestern shirt was an easy layup for the jerseys to branded bobbleheads, lawn chairs, mugs, and grills.
Fanatics teamthe Wildcats were Fanatics wont discuss financials, but
almost guaranteed a berth in it was valued at $3.1 billion when
this years tournament, it raised capital in 2015.
and the design was Peck joined
approved on Fanatics in 2013
March 7but from Oakley Inc.,
what happens where hed been in
when Nowhere charge of its global
U. beats Duke apparel and foot-
University in the wear business. Spend
opening round? a few minutes talking
60 Those are the to him, and its clear he loves
moments Fanatics speed: Ferrari team is a term of
really lives for. endearment; he sometimes calls
The company has roughly them the Lamborghini team or the
a dozen rapid responders Porsche team, depending on how
camped in its Jacksonville, Fla., hes feeling.
and San Mateo, Calif., offices To fully show off its flexibility
during tournament games. and speed, Fanatics needs narra-
Thats my Ferrari team, says tives, and the three-week, 68-team
Raphael Peck, president of NCAA basket ball tournament is
Fanatics branded apparel divi- the autobahn of sporting events.
sion. They only go fast. The It occurs at an otherwise slow time
war rooms look like man caves on the sports calendar, between
that have just hosted all-night the end of the NFL season and the
hackathons: laptops litter beginning of the NBA playoffs, and
tables, while pinboards lining its invariably full of unpredictable
the walls are full of layouts, (i.e., highly marketable) moments.
notes, and templates. At one Just ask the folks at Georgia State
end of each room are a few University. In 2015 the No. 14-seed
flatscreen TVs, which on a Panthers pulled off a memora-
normal day are used mostly ble upset, posting a 57-56 win over
for videoconferencing. During a major sports event, however, No. 3-seed Baylor University in the first round. The game-
each will be tuned to a game and monitored intently. When winning three-pointer was made by the coachs son. Dad, who
the clock expires, its go time. had torn his Achilles tendon celebrating their tournament
As an official NCAA partner, Fanatics has design books berth, fell off his seat in shock as the shot sunk into the net.
for each college that list approved logos, colors, and type- The win stunned Georgia States athletic department
faces. Using those raw ingredients, it takes the rapid respond- almost as much as it did the rest of the country. Until that
ers all of a few minutes to whip up a T-shirt reflecting the moment, merchandise was an afterthought and, in ret-
storyline, whether its a come-from-behind victory by an rospect, a missed opportunity. Brian Kelly, who oversees
acclaimed powerhouse or a moment in the sun for an also- the Panthers external affairs, calls it the Baylor whiff.
ran. From there, the design goes to the schools licensing or Dont get me wrong, we made a lot of money, and it had
athletic department for approval. Once thats receivedwhich an impact, but we could have had something much better
can be almost immediately, if Fanatics has a long-standing if we were more prepared, Kelly says. It was an important
 Etc.

lesson. Fanatics helped their autographs

compensate for and collectibles.
some of that unpre- Most important,
paredness. Within under Pecks guid-
15 minutes, a shirt a n c e , Fa n at i c s
with the David- has begun taking
vs.-Goliath-esque on the exclusive
slogan This Was rights to manufac-
No Upset, spelled ture licensed gear,
out in Georgia which allows the
States approved company to put
fonts and colors, its own brand on
had been approved its goods (instead
and posted for sale on of, say, Nikes),
the Fanatics website. The Ferrari team printing T-shirts during the 2016 tourney and hence in the
Psychologically, that public eye. When
15 minutes is critical. In the New England Patriots won the Super Bowl this year, quar-
todays on-demand society, terback Tom Brady and his teammates celebrated in the locker
fleeting attention spans room with Fanatics-branded shirts. Starting next season, the
require instantaneous satis- company will make all the replica jerseys for the NHL, plus
faction. A students, parents, or on-ice Stanley Cup merchandise.
alums passion peaks right at the end of a big game. To fully Of course, Fanatics is far from the only one in this space.
monetize that opportunity, you want to be up and running Major sporting goods companies such as Nike, Adidas, and
as close as possible to that highest level of passion, Peck Under Armour remain major licensees, and retailers such as
says. Speed is absolutely critical. As quick as that passion Wal-Mart, Target, and Dicks Sporting Goods sell a lot of sports
grows is as quick as it dissipates. Fanatics licensing deals apparel. But no company is combining those two functions
differ by school, but in general, colleges get 10 percent to like Fanatics, let alone matching its speed.
18 percent of the $20 to $30 retail price. To stay ahead, Fanatics is doubling down on manufactur-
OPENER: PHOTOGRAPH BY CAROLINE TOMPKINS FOR BLOOMBERG BUSINESSWEEK; THIS PAGE FROM LEFT: TIMOTHY A. CLARY/GETTY IMAGES; FACTORY: COURTESY FANATICS

Not that long ago, the supply chain for sports gear took ing. Its investing more than $100 million in technology and 61
days. For events such as the Super Bowl, a lot of material production, including a new platform for all its sites; apparel
had to be printed in advance, creating upfront risk for man- personalization capabilities; and communication between
ufacturers and a lot of wasted product. Items surrounding its main warehouses in Jacksonville and Frazeysburg, Ohio,
less-predictable events were much harder to manage: Set and the one being built in Las Vegas. Also new this year is a
the whole design, approval, print, package, and shipping special printing process, somewhere between slower, one-off
process in motion, and the moment had likely passed by the digital printing and faster bulk screen printing. The middle
time the product was available. That was most ground will allow the company to meet produc-
true in the NCAA Tournament, where a tion requirements for items with more
team can go from Cinderella to elim- than niche but less than wide inter-
inated in 48 hours. (Again, see est. (Fanatics uses its own algo-
Georgia State, which lost Tom Brady wearing a rithms to determine likely
in the second round to Fanatics-branded T-shirt demand.) It tested the
after the Patriots latest
sixth-seeded Xavier Super Bowl win
system during the
University, 75-67.) Super B owl and
Fanatics U.S.-based World Series and will
manufacturing process implement it fully during
is nimble enough to keep the NCAA Tournament.
up. If only 10 people want Theres at least one area
a shirt to commemorate that where Fanatics is deliberately
crazy upset, Fanatics will sell, and slowing itself down. For major champi-
print, only 10. onships such as the Super Bowl, when
Lately, the company has begun to there are two possible winners and
expand and diversify its operations. It lots of possible designs for each team
runs the online shops for MLB, Nascar, that can be prepared ahead of time,
the NBA, NFL, and NHL, as well as for the company doesnt list all its prod-
dozens of individual franchises and uni- ucts at once; it rolls them out in waves.
versity athletic departments. Fanatics The aim is to give fans a reason to check
also runs the NBAs flagship store in New back and buy something new. Less than
York and has a rapidly growing memo- a minute after explaining that, though,
rabilia offshoot, signing stars including Peck gets back on message. We want
Stephen Curry, Ronda Rousey, and to be at internet speed, he says. You
Peyton Manning for exclusive rights to can never be too fast. <BW>
 Etc. Drinks

A Cooler
Wine
Cooler
Not even Bartles &
Jaymes could escape
the handcrafted craze.
Here are three old
favorites, reinvented.
By Adam Erace
MALT LIQUOR
The Classic: Colt 45

The Upgrade: Amber Waves, $10 for a

22-oz. bottle, available in limited release at
Charleston, S.C.s Revelry Brewing Co.

While malt liquor may be lowbrow (it must

contain 50 percent adjunct, any additive

62 WINE COOLER other than barley), this one has an impressive

pedigree, as its made with Geechie Boy Mill
The Classic: Bartles & Jaymes Jimmy Red dent corn and Anson Mills Caro-
lina gold rice. The result is a slightly sweet,
The Upgrade: Ramona wine coolers, thoroughly local take on the style. We like to
$19.99 for a four-pack of 250-milliliter poke fun at ourselves, and its fun to have dis-
cans; franklywines.com cerning drinkers drinking malt liquor made
by a craft brewer and a two-time James Beard
For a lot of people in their 30s, wine Award-winning chef, says brewmaster Ryan
coolers have legit emotional resonance, Coker, who created Amber Waves with Sean
says Jordan Salcito, beverage director Brock, the renowned restaurateur behind
at the Momofuku Group and Ramonas Charlestons Husk.

PHOTOGRAPH BY JESSICA PETTWAY FOR BLOOMBERG BUSINESSWEEK

creator. That was the first time I
thought, Oh, this alcohol thing is pretty Also try: Minhas Craft Brewerys Axehead
tasty. Made from organic zibibbo grapes malt liquor has a mellow hoppiness
(a Sicilian strain of muscat), natural and 11 percent ABV ($2.29 for a 16-oz. can;
grapefruit flavor, and cane sugar, Ramo- Woodmans Markets in Wisconsin).
nas first creation has the fizzy, subdued
sweetness to complement a cookout.

Also try: Garden Party Botanical hard

sodas, whose whimsical floral messaging
(debut flavors are violet and ruby) belies
a serious punch: Their 8 percent alcohol
by volume is about the same as an impe-
rial India pale ale ($9.99 for a four-pack
of 12-ounce cans; Target and Whole
Foods locations in Indiana).

HARD LEMONADE
The Classic: Zima My idea was to take recipes from Americas historical
past and then art direct them in an industrial style.
The Upgrade: Quaker City Malting Co. lemon shrub, Grasse started small last fall, testing lemon shrub and
$10.99 for a six-pack of 12-oz. cans at Philadelphia-area its sibling, Old Dutch, a hard root beer variant, in the
Whole Foods stores Philly and Denver markets. Thanks to a partnership
with Diageo Plc, distribution will expand this year.
A shrub is a Colonial-era beverage made by blend-
ing fruit syrup with vinegar, which Quaker City mixes Also try: Austins Mighty Swell, which makes its spar-
with beer to create its tart, toasty hard soda. Im kling lemonade with fruit juice and eschews high-
a history nerd, says Quaker City founder Steven fructose corn syrup ($8-$10 for a four-pack of 12-oz.
Grasse, the man behind Sailor Jerry and Hendricks. cans; Whole Foods and H-E-B stores in select states).
 Workplace Etc.

workers are one key component, then

the broadening of broadband access is
another. Over the past five years, the
soaring infrastructure around the world
has made remote work more common
and more feasible, says Hacker Paradise
founder Casey Rosengren. While many
companies limit their nomads to wired
cities such as Prague, Hong Kong, Tokyo,
and Madrid, part of the allure to travelers
lies in going farther afield. WiFi Tribe Co.
co-founder Bejarano Gerke says he warns
clients headed to less reliable locales: It
wont be perfect, it wont be like at home,
but were setting up fail-safe systems
i.e., mobile 4G hotspotsso your work
doesnt need to be affected.
One irony of the remote-work concept
is that constant connectivity winds up
throwing barriers between you and
the places youve traveled so far to
inhabit. Some remote workers have to
be online at the same time as colleagues
in San Francisco, Austin, and New York,
meaning theyre often working and
sleeping when locals are socializing and
going about their days. Sleep depriva-

HAVE LAPTOP
tion makes it that much harder to adjust
to a new culture. Amid the onslaught 63
of scooters, stray dogs, and seemingly

WILL TRAVEL
orderless traffic in Southeast Asia, small
tasks like buying contact solution had
become near-Olympian feats, said
Mashable writer Stephanie Walden in a
post about her experience as a part of
Remote-work programs help you see the world Remote Years first beta-testing cohort.
but not actually live in it. By Linda Kinstler Others are unfazed, saying they
increased their productivity and
enriched their professional lives. I feel

O
ne recent evening, real estate role, or to walk away, says McNie, who like I talk to my team more now that Im
executive Micki McNie stayed sought out Hacker Paradise on the advice away, says Thomas Dempsey, 26, whos
late at the office to close a deal of a business coach. These days, shes traveling in Brazil with We Roam while
with a new client looking to buy closing deals from Jvea, across from serving as chief operating officer of a
a home. Business was booming Ibiza on the coast of Spain. New Orleans venture capital firm. Since
at the Denver-area company Should you desire a similar experi- he deals mostly with out-of-state clients,
she runs, 33 Zen Lane, but she ence, itll cost you. A handful of com- moving abroad wasnt too hard of a sell
still couldnt afford to push the panies will set you up with shared to my bosses, he says.
contract to the morningthat would workspaces in far-flung locales for about Most programs focus on recruiting
ruin the tour planned for Cambodias $2,000 a month, which may or may not groups of like-minded young profes-
Angkor Wat. include living quarters. Trips last any- sionals, which isnt great for expanding
McNie has spent the past six months where from a few weeks to the rest of your horizons but does lead to some excel-
coordinating the team of brokers at her your life. The patriarch of the roving lent networking. People ended up hiring
extremely brick-and-mortar business office clan is two-year-old Remote Year, each other, people ended up dating each
from abroadfirst from the island of Jeju whose co-founder, Greg Caplan, attri- other, Rosengren says of his companys
in South Korea, then from Chiang Mai, butes its sudden popularity to the bal- early trips. While it was initially open only
ILLUSTRATION BY SARAH MAZZETTI

Thailandcourtesy of Hacker Paradise, a looning of the odyssey years between to engineers and programmers, Hacker
traveling community for creative types. college graduation and settling down. Paradise has since become more toler-
Some unfortunately timed phone calls That period of time used to be about ant. If youre an accountant, you cant
aside, its been healthy for her three- three to six months, but now it can be come, he says. But if youre an accoun-
year-old company. Going abroad was 10 to 15 years, he says. tant and you want to work on the next
a choice to step into a more managerial If hordes of wanderlusty young great novel, absolutely. <BW>
 Etc. Music

ALL THE FEELS

At Emo Night BK, partiers of a certain age revisit
the tunes of their youth. By Ariana Igneri

O
ne evening in January, just
before midnight, more than
300 peoplemost in old band
T-shirts and ripped, black jeans
stood in line outside a bar in
Manhattans SoHo neighborhood.
Empty Bud Light cans littered
the sidewalk, and The Anthem
by Good Charlotte thumped softly
from speakers inside. Whats every-
one waiting for? a passerby asked.
Hamilton! a girl with purple lipstick
shouted back, snickering. She moved
ahead in line and swept her bangs
under her hat, which read, in big, bold
letters, Make Emo Great Again.
64 They were actually waiting to get
into Emo Night BK, a semiregular series
of DJ nights. Its held mostly in Brooklyn
but occasionally goes on tour to cities
such as Denver, Detroit, and Las Vegas.
Emoshort for emotive hardcore
musicis a loosely defined subgenre of
rock characterized by pop-punk hooks
and sentimentally fraught lyrics. In
other words, its hardly the soundtrack
of a Trump rally. This is for everyone
who wants to relive their high school
years specifically the late 90s and
early 2000s, emos peakwhen they
didnt have a care in the world, says venue. Sacks learned about Emo Night
Ethan Maccoby, 26, one of Emo Night BK from a friend who attended one
BKs founders. He and Alex Badanes, of the early events in 2015, at a small
27, who host the parties, started throw- basement bar in Brooklyns Williams-
ing them while undergraduates at Tufts burg neighborhood. They had to turn
University and Berklee College of Music, people away within 30 minutes, he
respectively. Their original goal was says. As soon as I heard that, my
simply to chill with friends and listen promoter brain kicked in.
to great music, but since they graduated and moved to New York, the shindig Other cities have their own, unre-
has evolved into the largest emo night lated events; theres Emo Night
on the East Coast, with as many as a Nashville and Emo Nite LA, which
dozen parties a month. celebrated its two-year anniversary
Emo Night BK routinely sells out in December with a birthday bash
midsize concert spaces, including that featured 20 guest acts, including
New Yorks Irving Plaza and Brooklyn the All-American Rejects and an emo-
Bowl, whose talent buyer, Lucas playing marching band. A livestream of
Sacks, was one of the first to approach the event reached 100,000 people. Last
Maccoby and Badanes for a major year, Emo Nite LA spun off Emo Nite
 Etc.

Bawltimore, its first regional offshoot. 4 a.m.and return often, accord-

Tickets to most emo nights are just ing to Maccoby, whos started to
$10, allowing fans to reexperience old recognize familiar faces. Friends
bands, songs, and youthful emotions Emanuel Natera, a construction
for cheap. People like the nostalgia project coordinator, and Tess Smith,
appeal, says Andrew Mumm, a talent a hairstylist, both 31, met at an Emo
buyer at the Bell House in Brooklyn, Night BK and have missed only a
which often hosts the Sons & Heirs, a man the tables and draw the crowds. few shows since 2015. You meet
popular tribute band to 80s alt rockers We dont want to admit were getting people from all walks of life, Natera
the Smiths, considered emo prede- older, but we are, says Key, 37. After two says, from fresh undergrads all the
cessors by some. We get a lot of 25- decades, Yellowcard is playing its last way down to couples with kids.
to 40-year-olds coming out, he says. concert on March 25. I dont know if Ill For Smith, the events are a way to
These shows give them a shared inter- be looking for a record deal or touring revisit her youthful freedom. Some-
est and a way to express themselves. again, he says, but this has been a times I meet people my own age with 65
Maccoby and Badanes always DJ the way to connect with fans like I never kids, she says. I could be a mom,
opening set of Emo Night BK, but they have before. but at emo night, I get to listen to
also frequently invite emo celebrities At Emo Night BK, the partygoers music and drink beer instead. Thats
like Yellowcard frontman Ryan Key to t ypic ally st ay late usu ally past the dream. <BW>

THE LATE
90S ARE
BACK, AND
THEY
PHOTOGRAPHS BY ZAK KREVITT FOR BLOOMBERG BUSINESSWEEK

SOUND
GREAT Ethan Maccoby and Alex Badanes at Emo Night BK
 Etc. The Critic

us with bluetopian proposals from

marine biologists, nautical engineers,

AHOY, CITIZENS!
a feminist shesteader, and Titanic co-
discoverer Robert Ballard, who recounts
the time he went mano a mano with
Buzz Aldrin over space vs. sea coloni-
In a new book, the Seasteading Institute attempts to zation during a National Geographic TV
special. (I really took off the gloves and
plant its flag in the high seas. By Laurence Lowe told the astronauts that populating Mars
was a crock of shit.)
Every summer, the institute hosts a

I
n 2008, PayPal co-founder Peter rich, proponents contend that mobile, BYOB (Bring Your Own Boat) floating
Thiel gave half a million dollars modular colonies represent human- festival on the Sacramento Delta called
to a Google engineer named Patri itys last best hopebe it for testing new Ephemerisle, during which several
Friedman, the grandson of econo- modes of governance or combating the hundred seatizens self-organize and
mist Milton Friedman. The money rising tide of climate change. self-govern, much like an aquatic version
was to establish the Seasteading Seasteading goes to great lengths of Burning Man. In January the institute
Institute, which aims to spearhead to convince us that free-floating cities received permission from the govern-
the development of politically auton- arent as far-fetched as they sound, and ment of French Polynesia to pilot an
omous, floating seasteads in unregu- in some respects, it succeeds. What are autonomous Floating Island Project off
lated international waters. This was to cruise ships, Quirk and Friedman ask, its shorebuilding in deep international
be the beginning of a long experiment in if not prototypical seasteads? They tout waters has thus far proved too logisti-
civilization building. It also turned out to the brawniness of a liquefied natural gas cally complicatedthe first step toward
be the origin of many, many puns. platform built by Shell to withstand a creating a permanent colony.
Nearly a decade in, this experiment Category 5 typhoon. They salivate over Meanwhile, this years Ephemerisle
has yielded more theory than practice. the idea of a carbon-neutral skyscraper is set for July. A reality-TV production
Nevertheless, the institute has pub- made of magnesium harvested from sea- company once expressed interest in
lished a wildly optimistic book called water (aka seament or seacrete). But doing a series on the gathering, but
66 Seasteading: How Floating Nations Will if youre expecting Seasteading to pay Quirk and Friedman proudly report
Restore the Environment, Enrich the Poor, more than scant attention to, say, the there just wasnt enough conflict to
Cure the Sick, and Liberate Humanity cruise industrys checkered record on make it work. This, of course, proves
From Politicians. Written by staff aqua- workers rights, it will disappoint you. their point. If you want people to
preneur Joe Quirk, with an assist from Quirk and Friedmans techno-libertarian fight, they write, condemn them to
Friedman, Seasteadings principal argu- self-certainty runs deep. a crowded space where they cant take
ment is that the world needs a Silicon Along the way, the writers regale their land and go elsewhere. <BW>
Valley of the sea, where those who
wish to experiment with building new
societies can go to demonstrate their
ideas in practice.
The dream of oceanic colonization
is at least as old as science fiction, but
the institute is both contemporary and
sincere. The book begins by heralding
2050 as a deadly deadline: an approach-
ing pinch point in the supply of several
key commodities that humanity needs to
survive. By then, Quirk and Friedman
warn, more than half the worlds popula-
tion will lack fresh water, and well have
reached peak phosphorous, when we
no longer have enough of the mineral,
which is key to agricultural production,
to feed ourselves.
For every problem the book raises,
ILLUSTRATION BY AART-JAN VENEMA

seasteading is the solution. Imagine

lots of sentences begin with that word
if we didnt have to wait for the caprice
of political history to create Hong Kongs
and Singapores. (Hong Kong counts as
a pre-stead.) While critics envision
seasteads as glorified tax havens for the
 What I Wear to Work Etc.

What do you do
for work?
My twin sister
and I own an
BING BANG TALI EDUT
42, co-founder and co-owner,
astrology-themed AstroTwins, Seattle
lifestyle brand.
We write daily POUND JEWELRY
horoscopes for
our website, and
weve published a Is there a story behind your
few books, too. necklace?
Its a divination tool. You ask
it a yes/no question and
swing it, and depending on how
it swings, thats your answer.

How did you land on

that career path?
It was an accident! My
sister and I published our
own womens magazine
in college, and we talked BING BANG
about astrology a lot.
One of our colleagues 67
later worked at Teen
People, and they needed
an astrologer. We landed
the column, and that
was that. It looks like one of your bracelets
has writing on it.
It says abracadabra, which I thought
was kind of cheeky and fun.
You need a sense of humor to do this.

ILANA KOHN

How would you

describe your style? Is that an elephant
Pretty cosmic. Im a
back there?
PHOTOGRAPH BY CHRISTOPHER LEAMAN FOR BLOOMBERG BUSINESSWEEK

Sagittarius, so I like to
be a little Thats a little sculpture
Like your jumpsuit.
Yes. Its got Seventies different. my friend got for
bell-bottoms and is
supercomfortable.
me when she went
I can just sit and write to India. Elephants
or put on a heel and
go out at night. represent wisdom
and abundance, so
its nice to remember
that while I write.
NO. 6
Do you always wear it with
those clogs?
Not always, but I love them.
Interview by Jason Chen
 Etc. How Did I Get Here?

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GLENN KELMAN
Chief executive officer, Redfin A site for online
real estate listings
designed to make
homebuying easier
Education

With his twin

Everyone thought
brother, Wesley I would go to medical
(right), and their
mother, Linda,
Interlake High School,
Bellevue, Wash.,
school. I got into
1989 class of 1989 Columbia and didnt
University of California at end up going.
Berkeley, class of 1993

I played soccer and was chess team Youre alone in

captain. I was determined not to go a room all day,
into business. I just thought it was the Work your girlfriend gets
definition of evil. Experience really tired of your
novel, and then
youre broke and
We were just a handful of 199394 you hate yourself.
people, so I did product, Unpublished novelist

68 marketing, sales, and worked 199597

Product manager,
with engineering. It was Stanford Technology
entrepreneur boot camp. Group Inc.

19972004 Caption
Co-founder, vice here for
president for product many lines
and marketing, ipsum dolor
Plumtree Software Inc. seclorum est
et tu kle
2005
Present With Wesley (right) at Denali National Park
CEO, Redfin Corp. and Preserve, 2004

A business has to have a mission beyond making money. It has to do good.

With Visa executive Chris
Hughes (center) and Atlassian
President Jay Simons after
We created the first portal
completing a Seattle-to- software for businesses to see
Portland bike ride, 2004
documents and data from
I reapplied to medical school in 2005 dozens of different systems.
and deferred to 2007. Id been taking I worked 90-hour weeks in
care of an ill family member and felt every job except sales. We
it was a higher calling. But medicine
is not creative at all. Its formulaic and
went public in 2002.
prescriptiveI just couldnt.

With Wesley
We launched Redfin Mortgage in
(right) and January for lending money to
their father, our homebuying customers. The
Lloyd, in
long-term goal is to make the whole
Courtesy subject (5). Bloomberg (1).

Hilton Head,
S.C., 2015 process so fast that our borrowers
can compete with cash buyers.
Life Lessons
Getty Images (3)
3.

do
.

1. A human beings most important trait is the quality of his or her energy. 2. Even if its a good idea in the abstract, it might not be what youre born to