The price game

When Ron Johnson took over as CEO of J. C. Penney, one of his most sweeping changes was to move away from the constant sales and coupons to a more straightforward pricing model. Not surprising considering he came from Apple where they hold one sale a year, on Black Friday, and not even a great one at that.

But J. C. Penney is not Apple, and the price game each is playing is different.

Mr. Johnson explained a similar logic when he moved the chain toward simplified pricing. In January 2012, while introducing his new plan to investors, the press and vendors, Mr. Johnson said that in the previous year, the company held 590 sales events; almost three-quarters of the stuff it sold was marked down 50 percent or more.

But here’s the thing: customers weren’t actually paying less. The chain just kept raising the prices that customers saw on the racks, and then discounted those prices during promotions. Why keep playing a game that is expensive and troublesome for the seller and a mirage for the consumer?

J. C. Penney was not the first retailer to be astonished by the brilliance of this realization. In 2006, Macy’s had a similar idea after acquiring the coupon-happy May department stores. It decided to “retrain” those customers, as its chief financial officer put it at the time, by drastically cutting coupons. By 2007, it had abandoned that strategy. Its chief executive acknowledged that pulling back on coupons was Macy’s biggest mistake in its acquisition.

Even Walmart, which actually does pull off the trick of “everyday low prices” in its domestic stores, is finding it hard to convert consumers to a single-price model in countries like Brazil and China, where retailers give deep discounts on a few main products, then mark up the rest, said Mark Wiltamuth, an analyst at Morgan Stanley.

The problem, economists and marketing experts say, is that consumers are conditioned to wait for deals and sales, partly because they do not have a good sense of how much an item should be worth to them and need cues to figure that out.

Just having a generically fair or low price, as Penney did, said Alexander Chernev, a marketing professor at the Kellogg School of Management at Northwestern University, assumes that consumers have some context for how much items should cost. But they don’t.

Price strategy has to be supported throughout the organization. For Apple to have one price for its items means they must enforce that price through all of its distribution partners, and it must also create advertising that reinforces the premium quality of the goods. And of course, the products must be good enough to justify a no discount policy.

One thing is for certain: once you go sale, it's tough to go back (once you go red, it's hard to go black?). Companies that consider a sale or discount strategy should do so carefully. Once customers expect a regular cadence of sales or discounts (e.g. Restoration Hardware's bi-annual bath sales, or Bed Bath and Beyond's ubiquitous 20% off coupons) they orient their entire behavior around that pattern and won't easily be persuaded to buy at full price ever again.

A surprising corporate giant

What company, according to Fortune, is the eighth largest employer in the world, with over 549,000 employees globally?

The answer shocked me: Volkswagen. That's just the tip of the iceberg in terms of fascinating tidbits from this mini profile.

Efficiency experts will tell you that on an employee-per-vehicle basis, Volkswagen looks hopelessly inefficient. Financial analysts will tell you that the company woefully trails its competitors on a revenue-per-employee basis. But VW will tell you that it makes more money than any other automaker – by far.

While VW's stated goal is to become the world's largest car company by 2018, it's already there if you measure it by revenue and profits. Its revenue of $200 billion is greater than every other OEM. Last year's operating profit of $14 billion is the kind of performance you expect from Big Oil companies, not automakers.

Last year's operating profit of $14 billion is the kind of performance you expect from Big Oil companies, not automakers.

How can this be possible? How can VW look so uncompetitive from a productivity standpoint, yet out-earn all of its competitors?

Ah, that's the magic of VW's corporate structure. While business schools teach future MBAs that centralized operations can cut cost by eliminating overlapping work and duplication, VW maintains strongly decentralized operations with lots of overlap. While business schools preach the benefits of outsourcing to cut cost, VW is very vertically integrated.

Anytime a car company buys a component from a supplier, that supplier has to charge a profit. If an automaker can make those components in-house, it gets to keep that profit. VW is building a lot of components in-house.

To dominate you need multiple brands, and VW has more than anyone else.

If an automaker truly wants to dominate the market, it has to accept a certain amount of overlap and duplication. It just goes with the territory. To dominate you need multiple brands, and VW has more than anyone else, which admittedly overlap at the edges. But to VW they are more than just brands.

All of VW's brands (VW, Audi, Seat, Skoda, Bentley, Lamborghini, Ducati, Porsche, Bugatti, MAN, Scania, and VW Commercial) are treated as stand-alone companies. They have their own boards of directors, their own profit & loss statements, and their own annual reports. They even have their own separate design, engineering and manufacturing facilities. Yes, they do share some platforms and powertrains and purchasing, but other than that they're on their own.

Anyone who works in technology will hear an echo in much of this strategy. Volkswagen's model of of running all its brands as independent companies is an example how the biggest tech companies try to push decision-making to the edges, to the teams running a variety of product lines, as a way of trying to remain entrepreneurial, innovative, and nimble. 

The way Volkswagen has vertically integrated is reminiscent of the way Apple has, over time, taken over more and more of the computing value chain, down to opening their own retail stores. Given how Samsung is also vertically integrating and competing head on with Apple in the mobile computing market, it would be surprising if Apple didn't stop sourcing chips from Samsung and take their business elsewhere, to a partner less vertically integrated, like Taiwan Semiconductor.

Volkswagen, by dint of its vertical integration, can capture value wherever it occurs in the value chain, and as the sources of value shift as it often does over the life cycle of technology products, Volkswagen retains its cut. On a related note, look at the last chart on this post at Asymco. Stunningly, Samsung makes more operating income from Android than Google is! In this mobile computing war, Samsung is making money off of both Google and Apple. After Apple, it's difficult to name another company that has profited more from the mobile computing revolution.

Volkswagen is the answer to the subject of this post, but Samsung is nearly as shocking a dark horse of a corporate behemoth.

Amazon, Apple, and the beauty of low margins

[As always, I preface any discussion of Amazon and Apple by noting that I own some stock in both companies, and that I worked at Amazon from 1997 to 2004]

A lot of folks, especially Apple supporters, like to characterize Amazon as irrational, even crazy, for its willingness to live with low margins. It must be frustrating to compete with a company like that. But to call their strategy irrational or to believe they want to be a non-profit is a dangerous misreading of what they're all about.

It's been years since I worked there, so this is largely speculation on my part, but I believe Amazon is anything but irrational when it comes to how they think about margins. I believe it's a calculated strategy on their part, and anyone competing with them had best understand it.

As with people, I think companies can be more comfortable playing certain styles, much like certain players are more suited for a particular style of offense, like Mike D'Antoni's in the NBA or Chip Kelly's in football. Amazon's low margin strategy is one they are comfortable with because it sprung from the company's very origin. Amazon began in the bookselling business, and some of its earliest and most crucial advantages against incumbents like Barnes and Noble were best expressed with thinner margins.

One of online retail's main advantage was, of course, being able to forego expensive physical storefronts. With one and then two distribution centers total in the early years, Amazon essentially just had two "storefronts" to stock with book SKU's, whereas Barnes and Noble had to guess how to allocate SKU's across hundreds of stores all over the country, all necessitating long leases. A few Amazon editors could recommend books to all Amazon customers, whereas Barnes and Noble had to staff each of their individual stores with sales clerks. 

More importantly, Amazon's inventory flow was drastically more efficient than that of Barnes and Noble. Amazon didn't have to carry inventory on really slow-selling SKU's, they could wait until a customer had ordered it and then drop-ship it from the distributor. If Amazon wanted to ship one of those SKU's themselves, customers generally had the patience to wait longer for them since those slow-turning SKU's didn't earn shelf space at the local Barnes and Noble anyway.

Almost all customers paid by credit card, so Amazon would receive payment in a day. But they didn't pay the average distributor or publisher for 90 days for books they purchased. This gave Amazon a magical financial quality called a negative operating cycle. With every book sale, Amazon got cash it could hang on to for up weeks on end (in practice it wasn't actually 89 days of float since Amazon did purchase some high velocity selling books ahead of time). The more Amazon grew, the more cash it banked. Amazon was turning its inventory 30, 40 times a year, whereas companies like Barnes and Noble were sweating to turn their inventory twice a year. Most people just look at a company's margins and judge the quality of the business model based on that, but the cash flow characteristics of the business can make one company a far more valuable company than another with the exact same operating margin. Amazon could have had a margin of zero and still made money.

At Amazon we were ruthlessly focused on squeezing inefficiency out of every part of the business, especially the variable ones that affected every purchase. How could we get a book from the shelf into the hands of the customer more cheaply? How could we reduce the number of customer contacts per order for our customer service team? Could we offload some human customer service contact to cheaper online self-service methods while improving customer satisfaction? How could we negotiate steeper discounts on the books themselves? For each book SKU, was it more economical to purchase ahead of sales in bulk for steeper discounts and faster shipping or to purchase only when a customer placed an order and risk a longer delay in shipping? How could we allocate inventory among our distribution centers to increase the likelihood that all items in an order shipped from the same distribution center, minimizing our shipping costs? How could we organize all the Amazon shipments ready for delivery in a way that made lives easier on our shipping partners like the USPS and UPS, and then how could we use that to negotiate cheaper shipping rates? Did we need so many human editors reviewing books, or were customer reviews sufficient?

The type of operational efficiency Amazon rose to in those days is not something another company can duplicate overnight. It came on top of the inherent cost advantages of online commerce over physical commerce. So much of Amazon's competitive advantage in those days came from operational efficiency. You can choose to leverage that strength in two ways. One is you match your competitor on pricing and just earn higher margins. But the other, the way Amazon has always tended to favor, is to lower prices, to thin the oxygen for your competitors.

If you have bigger lungs than your competitor, all things being equal, force them to compete in a contest where oxygen is the crucial limiter. If your opponent can't swim, you make them compete in water. If they dislike the cold, set the contest in the winter, on a tundra. You can romanticize all of this by quoting Sun Tzu, but it's just common sense.

I worked on the launch of the Amazon Video store, Amazon's third product after books and music. At the time of the launch, DVDs had just launched as a product category a short while earlier, so the store carried both VHS tapes and DVDs. The day Amazon launched its video store, the top DVD store on the web at the time, I think it was DVD Empire, lowered its prices across the board, raising its average discount from 30% off to 50% off DVDs.

This forced our hand immediately. Selling DVDs at 50% off would mean selling those titles at a loss. We had planned to match their 30% discount, and now we were being out-priced by the market leader on our first day of operation, and just before the heart of the holiday sales season to boot (it was November, 1998).

We convened a quick emergency huddle, but it didn't take long to come to a decision. We'd match the 50% off. We had to. Our leading opponent had challenged us to a game of who can hold your breath longer. We were confident in our lung capacity. They only sold DVDs whereas we had the security of a giant books and music business buttressing our revenues.

After a few weeks, DVD Empire blinked. They had to. Sometime later, I can't remember how long it was, DVD Empire rebranded, tried expanding to sell adult DVDs, then went out of business. There were other DVD-only retailers online at the time, but none from that period survived. I doubt any online retailer selling only DVDs still exists.

Attacking the market with a low margin strategy has other benefits, though, ones often overlooked or undervalued. For one thing, it strongly deters others from entering your market. Study disruption in most businesses and it almost always comes from the low end. Some competitor grabs a foothold on the bottom rung of the ladder and pulls itself upstream. But if you're already sitting on that lowest rung as the incumbent, it's tough for a disruptor to cling to anything to gain traction.

An incumbent with high margins, especially in technology, is like a deer that wears a bullseye on its flank. Assuming a company doesn't have a monopoly, its high margin structure screams for a competitor to come in and compete on price, if nothing else, and it also hints at potential complacency. If the company is public, how willing will they be to lower their own margins and take a beating on their public valuation?

Because technology, both hardware and software, tends to operate on an annual update cycle, every year you have to worry about a competitor leapfrogging you in that cycle. One mistake and you can see a huge shift in customers to a competitor.

Not having to sweat a constant onslaught of new competitors is really underrated. You can allocate your best employees to explore new lines of business, you can count on a consistent flow of cash from your more mature product or service lines, and you can focus your management team on offense. In contrast, most technology companies live in constant fear that they'll be disrupted with every product or service refresh. The slightest misstep can turn a stock market darling into a company struggling for its very existence.

Amazon's core retail business is, I'd argue, still very secure. I can't think of a tech retail competitor that is a legitimate threat to Amazon in selling most physical goods. Where Amazon is most vulnerable in retail is those areas where the game shifted on them, and that's in the media lines where physical books, CDs, and DVDs are being digitized. Since no physical product must be transported through a distribution system, Amazon's operational efficiency advantages there are less effective against competition. But in the arena of buying something online and having a box delivered to your doorstep, who really scares Amazon?

Another advantage to low margin models is increased customer loyalty. Most of the products Amazon sells are commodity items. It's not like buying one brand of car versus another, where you a variety of subjective judgements affect the consumer's choice. The Avengers Blu-ray disc you buy from Amazon is the same one you'll find at Wal-Mart or Best Buy. In that world, the lowest price tends to win. In the early years, Amazon routinely lowered either product pricing or shipping pricing. Very few companies lower their prices permanently as time goes by except on depreciating goods, like computers whose value decreases as newer, faster models hit the market.

If you're the low-cost leader, customers will forgive a lot of sins. That margin of error, like the competitive moat, buys you peace of mind. I could spend time price-shopping every item on Amazon, but these days, I don't really bother. Amazon's website design is not going to win any design awards, it's a bit of a Frankensteinian assemblage thanks to distributed design decisions, but it's fast, the shipping is cheap or free, the customer service is fantastic, and oh, did I mention, their prices are great! There is value in being the site of first and last resort for customers.

If you want to jump into competition with Amazon, you can't just match Amazon, you have to leapfrog them. But they've left almost no price umbrella for you to sneak under, so you have to both match them in price and then blow them away on the user experience side to even get customers to think about switching. Who has the capital and wherewithal to play that exceedingly unpleasant, unprofitable game? You can only win that game at scale, and Amazon already achieved it.

Smart companies compete first by playing to their strengths, but Amazon also cleaves to a low margin strategy, I believe, because it's demonstrated the advantages noted above. Amazon could try to build a high margin tablet to compete with Apple, but why would they? How have companies that have tried to challenge Apple with design and build quality fared these past few years? Why would you try to challenge Apple in the areas it is strongest at?

In a recent interview, Reed Hastings claimed Amazon was spending $1 billion a year on licensing streaming video for Amazon Instant Video. Hastings is negotiating for much of the same content, I know he knows what that content costs, and since I used to work at Hulu, I can vouch for how easy it would be to burn through a billion dollars building up a substantial streaming video library. I do think Amazon may have overpaid as a consequence of wanting to come in strong and make a big play without as much pricing information as Netflix and Hulu have accumulated over the years, but it strikes me as a classic tactic out of the Amazon low end disruption playbook.

[In this world of digital video, this strategy is much more difficult to execute because there is no fixed price on licensing episodes of TV shows and libraries of movies. The information asymmetry works in favor of the content providers. Netflix had a great advantage when First Sale Doctrine permitted them to buy DVDs at the same wholesale price as any retailer since it capped their costs. But in the TV/movie licensing world, the content owner can constantly adjust their price to squeeze almost every last drop of margin from the distributor as you can't find perfect substitutes for the goods being offered. Ask TV networks if they make any money licensing NFL, NBA, and MLB games for broadcast. Hint: the answer is no. Ask companies like Apple and Spotify if they're making healthy margins selling digital music. Ask Netflix or Amazon if licensing TV shows and movies for digital streaming is more or less profitable than the days of selling or renting physical media. In the digital world, transfer pricing can be even more of a cruel mistress. 

Most companies building profitable ecosystems in the digital world are making their profits elsewhere using the digital media as a loss leader. Apple on its hardware, for example, or TV networks trying to use sports contests to cross-promote their other TV programs.]

Apple took some grief last quarter for seeing some margin depression, but in and of itself, I don't see that as a bad sign. In fact, I was disappointed that Apple didn't price the iPad Mini lower out of the gate. Of course, they're largely sold out through the holidays, so pricing it lower means leaving money on the table in the conventional microeconomic analysis.

But in the long run, if you look at every iPad purchaser as a new subscriber to the Apple ecosystem of hardware and software services, there's value in fighting for every additional user versus Google or Amazon in the low end tablet market. Most customers who buy a low end tablet will stay in that producer's ecosystem for a while, at least a year. Graph the low end market and you see it trending towards zero, to that day when an Amazon or a Google will likely offer you a low end tablet for free, perhaps as part of your Amazon Prime subscription or if you agree to pay for Google Drive.

That's a world in which the switching costs are set by the software ecosystem of each of those companies, not the hardware. It's why Apple lovers are right to fret about iCloud and its underwhelming mail, storage, and calendaring services and substandard reliability, why Amazon might spend a billion dollars licensing videos, why Google tried so hard to switch people over to Google+. They're all looking for a path to software lockin, a more defensible moat.

Apple still is the margin king among those competitors in the mobile phone and tablet spaces in which they compete. But if they decided to start using their low-end priced SKU's in mobile phones and tablets to press down on Google and Amazon, and if their margins declined as a result, I, as a shareholder, wouldn't necessarily find that to be a negative. I would love to find the sales mix data on their different SKU's in the iPhone and iPad verticals, though I have yet to see that data shared publicly anywhere. The shape of that curve will tell us a lot about where those markets are in their lifecycle, but Apple has some control over their shape as well.

Some might say that Apple doesn't have the right mindset to play low-margin offense, that it's against their nature. But they've effectively dominated and wrung every last drop of money from the iPod market using pieces of this strategy, and they have the operational expertise and vertical integration to achieve it. In fact, Apple now turns its inventory more times a year than Amazon, by a healthy margin, a staggering fact.

I haven't mentioned Google much, but like Amazon they will continue to attack Apple at the low end with their strategy of subsidizing businesses with their core ad revenue. For the forseeable future, Apple will have these two giants snatching at their feet. It's a high pressure, high stakes game. Wouldn't it be nice to trade some margin for higher castle walls, just for peace of mind? 

Most people don't appreciate them, but low margins have their own particular brand of beauty.

How to get 15% off of everything in iTunes

I interrupt my regular content flow for this commercial tip.

Every so often, Best Buy runs a sale on iTunes gift cards. Right now, they're selling all their iTunes gift cards for 15% off. No strings attached, no sales tax, nothing. I'm not sure how Best Buy can do this, if they buy the cards at a discount, or if they're using this as a loss leader (which doesn't seem smart in an age when online shoppers can just spearfish loss leaders without ever setting foot in a store) or if they receive any subsidy from Apple for this promotion (also seems unlikely).

Whatever the reason, it's a good deal for consumers like me who buy lots of apps for my iPhone and iPad or who occasionally rent movies through iTunes to watch on my iPad or AppleTV. Make sure to purchase the iTunes gift cards, not the App Store gift cards, as I think the iTunes gift cards can be spent on a wider range of products, not just all media but apps and books from the iBookstore (I'm not certain about that, but it's implied by the fine print).

15% off is nothing to sneeze at in these tough economic times. Best Buy doesn't run these sales often, but every time they do, I load up my iTunes balance.

In-between UI's

Someone at the office I'm working from received a Microsoft Surface yesterday. I looked over his shoulder as he set it up, and then we played with it for a few minutes.

In the beginning, we were fully in the Metro interface. By now, even if you haven't used a device sporting the interface, you may have seen it in product demo videos or commercials. I haven't used Metro interfaces enough to decide if I love it, but it's undeniably a more interesting, modern approach than anyone would have thought Microsoft would try.

But at some point, as he was testing random gestures on the Surface, we ended up on a screen that looks like Windows on the desktop. A bit of Googling revealed this to be something called Desktop Mode, accessible from within Windows RT. I haven't used Windows in over a decade now, but the lower left Start button and bottom nav bar were familiar to me. You can run a few Microsoft apps from within this mode, most notably Microsoft Office and Internet Explorer, and you can even summon a command prompt.

Some might find this UI flexibility to be a positive. But I'm not a fan. I don't love operating system interface design that tries to stand on the border between app-centric and document-centric models, with one foot in each world. The context switch between the two is drastic, and  for the average user, it's far better to reduce their options and simplify their life.

It's understandable to want to ease user groups across these transitional periods for fear of losing converts, but the shift to a new device form factor and primary interaction mode (touch screen versus keyboard/mouse) is the perfect excuse to make a clean break. Recall when Apple launched the iPhone or iPad, it didn't look like it was running Mac OS X. The document-centric model of traditional desktop operating systems was masked from the user entirely, and the new app-centric model hit the mainstream in a massive way. Apple rarely flinches from breaking from the past, whether it's in replacing connectors on their most popular devices with the Lightning and Thunderbolt ports or deprecating spinning disk/disc drives. 

That's not to say Apple's hands are completely clean on this issue. In their latest version of Mac OS X, 10.8, Apple tries to get away with the same thing as Microsoft. They push in the direction of abstracting away the underlying file system, but rather than go all the way, they ended up with a Frankensteinian hybrid that I've mostly found to be frustrating. They have a Launchpad UI for launching apps that feels like an iPhone or iPad app listing UI bolted onto OS X. They've shifted some apps to the Mac App Store, but I still install others through files downloaded from the web, though Apple makes you jump through some more hoops to open some of those downloads now. In programs like those in Apple's iWork suite, they've tried to simplify document versioning with by removing options like Save As and replacing them with options like Duplicate and Rename.

Apple's problem is trickier since they're trying to shift people from one UI paradigm to another on the same device, with the same input methods. It would be one thing if our Macbook Airs and Macbook Pros and iMacs had touch screens, but we still use our mice and keyboards and keypads to interface with them.

At some point, will Apple end up with two versions of Mac OS X, one that is app-centric and another that is, like the current one, more of a hybrid? Given how high the stakes are with Mac OS X, it's possible.

But it doesn't seem likely given how they've handled their product lines in recent years. From the way they made a clean and irrevocable transition from Final Cut Pro 7 to Final Cut X to the way they've shunned the Mac Pro in favor of the Macbook and iMac lines, it seems clear Apple is focused on the mass market, the average consumer, and not the high end power user who wants full visibility into the file system in their operating system, or to install third party RAM in their laptops, or to handle audio/video sync issues in their video editing timeline by hand.

This is a shift from the paradigm of trickle down brand aspiration. I think Apple believes that model either doesn't generate enough revenue or isn't needed, or both. Once upon a time, It was cool to edit your movie on the same software used by Walter Murch (editor of The Godfather!), but Final Cut Pro doesn't generates revenue like iPods, iPhones, and iPads. Of the two reasons people used to prefer Apple products (A: it's more reliable and easier to use B: it's the choice of creative, tasteful elites) the one the new Apple is built on is A, and they haven't lost too many of the people from B though they've alienated some of them just by ignoring their desires. Many editors I knew who had shifted to using Final Cut Pro to edit have slowly migrated away again, either to Adobe Premiere or back to Avid. My Mac Pro feels like an antique, one of a dying breed.

Looking at Apple's revenues in the past decade, it's hard to argue with their focus. They've managed to infiltrate the mass market with products that still sell at a slight price premium, generating unprecedented margins in the consumer software and hardware market.

It's this market that Microsoft probably wants to (and should) target. So with the Surface, why not just take the plunge?

It's a bit of a shame, really, as in my few minutes playing with the Surface, it has potential. Rather than emulate the iPad, like some of the Google products I've played with seem to do, the Surface tries some different ideas. Without long-term use, it's hard for me to judge how comfortable the device would be to use after a protracted period, but the industrial design was solid, a cover with a built-in keyboard is useful, and some of the gestures that bring in frequently-used menus show a willingness to push the boundaries of touch-screen UI.

Fortune favors the bold, but especially for the underdog. And in the tablet space, that's exactly what Microsoft is.

Apple stock as a hedge

Many people seem upset when Apple prices its products too high, or too low. Others are upset at the relentless pace of Apple product releases because they either make previous generations of  products seem obsolete too quickly or inspire such gadget lust that people find themselves spending hundreds or even thousands of dollars on Apple gear regularly.

Here's my tip: buy some shares of Apple stock.* I've spent a healthy chunk of change with Apple every year now for years and years, but my guilt is assuaged by Apple's consistently strong stock price performance (I've owned Apple stock for that same period of time). The stock feels like a hedge of sorts against my personal spending on their products.

* I'm being facetious, of course, and won't give out serious stock purchase advice here, but I'm serious about their share appreciation offsetting some of my Apple spending guilt. Every time Apple holds a keynote event I can feel my credit card in my wallet heating up, like the Sankara stones from Indiana Jones and the Temple of Doom.

Miscellaneous

• This is an old one. I don't think Apple should be able to patent much of what they do patent, but that doesn't mean this isn't a nifty touch: the pulsing LED light on Apple laptop covers is designed to fade in and out at the rate of human breathing, a rate "which is psychologically appealing."
• Camera heavyweights Leica and Red have both announced digital cameras that will only shoot black and white. Why build digital sensors that only shoot black and white when color frames can be transformed into black and white? A typical CMOS sensor has a pattern of red, green, and blue filters that sit on top of the sensor, and each pixel is assigned one of those filters. Thus each pixel only records one color, and an algorithm (debayer) must be applied after the fact to interpolate the full color for that pixel. If you remove the Bayer filter, each pixel sees more light, and without having to debayer, the image is sharper and the tonal curve more smoothly rendered.
• Are there cracks in China's march economic growth march? George Magnus of UBS thinks so, and a recent note he published drew lots of attention across the web. As this article summarizes, Magnus believes that "China’s innovation and technology shortcomings are rooted in a socio-cultural system and an incentive system that emphasizes incremental over radical change, and quantity over quality and uniqueness." This may leave China ever lagging other global leaders in innovation.
• After reading The Secret Race: Inside the Hidden World of the Tour de France: Dping, Cover-ups, and Winning at All Costs, Tyler Hamilton's confession of the doping he did as Lance Armstrong's teammate and then competitor, I wasn't surprised at the revelations of the extent of the doping in professional cycling. Oddly enough, having visited the Tour de France in person several times, you'd hear ex-professionals, whether riders or soigneurs or mechanics, drop not-so-subtle hints that doping was common and expected. However, I was curious how Sally Jenkins would cover it. She wrote Lance Armstrong's two biographies (It's Not About the Bike and Every Second Counts), both great reads but, given Armstrong's participation, largely hagiographic, so I was curious if she'd have it in her to join those who've condemned him given his recent decision to give up the fight against the USADA. It appears that nothing short of a confession from Lance Armstrong will sway her. Her last column on Armstrong starts: "First of all, Lance Armstrong is a good man. There’s nothing that I can learn about him short of murder that would alter my opinion on that. Second, I don’t know if he’s telling the truth when he insists he didn’t use performance-enhancing drugs in the Tour de France — never have known." She goes on to condemn the USADA's methods, and she raises good questions about whether athletes can get a fair shake from them. Also, given our economy, the amount of money the USADA spends is of questionable value. Still, I was hoping Jenkins would address the Lance issue head on. It seems she'll simply pass.
• I concur with Andy Greenwald about Boardwalk Empire: the lead role is miscast, and the dozens of storylines sprawl like so many strands of spaghetti. I've never warmed to the show. Has a show ever broken out in its third season the way wide receivers are rumored to in the NFL?

American modernism, Silicon Valley style

Jobs went further, however, he managed to create products that were designed like Porsches and made them available to everyone, via High Tech that transcended stylistic elements. An Apple product really was high technology and its form followed function, it went beyond the Porsche analogy by being truly fit for purpose in a way that a Porsche couldn’t, being a car designed for a speed that you weren’t allowed to drive. Silicon Valley capitalism had arguably delivered what the Soviets had dreamed of and failed, modernism for the masses. An iPhone really is the best phone you can buy at any price. To paraphrase Andy Warhol: Lady Gaga uses an iPhone, and just think, you can have an iPhone too. An iPhone is an iPhone and no amount of money can get you a better phone. This was what American modernism was about.

David Galbraith sees Steve Jobs and Donald Norman as kindred design spirirts. Norman has been commisioned to design Apple's new headquarters.

In a broader sense, Silicon Valley has minimized the value of scarcity, and in such a world, elevated the value of curation the retention of such curation. The web and services like YouTube, Spotify, and Google Books have unlocked previously rare and inaccessible content for everyone with an internet connection. It's an overwhelming mountain of content, and that's why microblogs like Twitter or Tumblr do such great business as ways to point a telescope at things we should pay attention to.