What a Difference a Year Makes: 10 Companies
Some of these businesses came from nowhere to dominate a category; others came crashing down from high places.
Groupon was not a small business at the beginning of 2010, but it wasn't the online company everyone and your dental hygienist was talking about either. At this moment, it's the "darling" of institutional investors looking for a sure pre-IPO thing.
The company, which sells click-to-print coupons for local businesses -- deals are "tipped" when enough people buy in -- was launched in 2008. It was started by Andrew Mason, then 28 years old, a graduate of Northwestern University who had studied music and found his way into computer programming by accident. In 2007, Mason created a website called The Point, which harnessed the power of collective action for social change. He added Groupon to his property after the fact. Both sites were launched in Chicago, but Groupon and its quirky email messages spread to other major cities in little time and has now gone global: these days the company sends daily Groupon messages to 40 million people in 150 cities around the world. Common offerings include 50% off teeth-whitening services, yoga lessons, facials, sky-diving trips or restaurant meals, all from small businesses in a subscriber's district or city. The businesses and Groupon share the profits earned from the rush of sales (say, 1,800 coupons might be sold at one time), the buying customers feel like they're getting a bargain, and everyone's happy. It's a model that shrewdly taps into a $100 billion local advertising market in the U.S. alone.
As Groupon took off, especially during the past year, larger sites paid attention. Last fall, Yahoo (YHOO) made a failed takeover offer for a reported $3 to $4 billion. In December, Groupon's owners famously turned down a $6 billion takeover bid from Google (GOOG). It's now reported that the company has secured $950 million in financing contracts --"Groupon Raises 'Like, A Billion Dollars' " said the company memo -- with major institutional investors such as Fidelity Investments, T. Rowe Price and Morgan Stanley. This is said to be the largest amount ever raised by a start-up. An IPO is expected in late 2011.
Recently, Groupon hit a novel -- some might say, depressing -- milestone: it hosted its first wedding proposal coupon. In this case the business (the groom) required only one person to make a buy for the deal to be "on." The asking price: $1.
If ABC aired a spin-off of its popular remodel show called Extreme Makeover: Corporate Edition, Domino's Pizza (DPZ) would have been the grand prize winner of 2010. After suffering the PR nightmare of a viral video showing mischievous Domino's employees making snot pies, being voted the worst tasting franchise pizza in a national survey and then enduring a massive sales plunge, the ugly duckling of pizza delivery company went under the knife, completely revamped its recipe as well as its image, and emerged a beautiful swan. (See Stephen Colbert's take on the turnaround, here.)
Domino's reparations for delivering their inferior pre-op product was cleverly packaged in an advertising campaign called "Making It Right." In one such stunt, er, commercial, Domino's chef Sam Frauser personally visited the home of a dissatisfied customer in Byron, Minnesota with a new pizza, $500 in store coupons and a handwritten apology from CEO Patrick Doyle.
Both critics and consumers responded favorably. "Making It Right" earned the number five Advertising Campaign of the Year spot from the 2010 Zeta Buzz Awards. Stock in the pizza delivery giant is bullish, trading near 52-week highs, and has been given a five-star rating from the S&P 500 as a strong buy.
Rovio and its Angry Birds
In December 2009, Apple offered a puzzle game for its iOS that required players to kill pigs using flightless birds shot out of a sling. One year later, Apple's App Store (AAPL) was 12 million copies of "Angry Birds" lighter.
"Part of the game's appeal stems from the fact that it is essentially a tactical war game, populated with charming characters and created with a good deal of humor," the Wall Street Journal said in May when it took notice of the little app that could.
The game's creator Rovio Mobile is a privately-held Finnish game developer that had been quietly chugging along since 2003, starting with "Mole War", and amassing more than two dozen mostly action, adventure and strategy games, as well as puzzle games like "Totomi", before it struck a nerve -- and millions of pigs -- with Angry Birds.
So far, the game has been downloaded more than 50 million times, prompting The Christian Science Monitor to dub it "one of the great runaway hits of 2010." Angry Birds is now available for all operating systems, including Windows (MSFT), and on smartphones and PlayStation.
Rovio's strategy is to continually release updates of the game, including seasonal versions, to keep it fresh in the minds of app purchasers. It also merchandises the game, with character-decorated iPhone cases, stuffed animal characters and a Mattel board game, "Angry Birds: Knock on Wood," that will be out in May. The company itself is also growing; Casual Gaming reported in November that Rovio hoped to expand its staff from 31 to 100.
Imagine a Mario game where every level was based on the first stage. Think of an entry in the Zelda franchise where Link never left Kakariko Village. And picture Mike Tyson's Punch-Out!! where Little Mac repeatedly fought Glass Joe during every round.
Not very enticing, right? Just the same thing over and over with no variety, improvement, or excitement. Sure, you may have a winning combination that'll provide entertainment in the beginning, but it quickly grows boring and what's left in the end? A good idea that never went to the next level.
In other words, a clear-cut representation of the current state of the Nintendo Wii.
Thanks to a system with revolutionary controls but featured compelling games only once in a while, sales of the Wii in 2010 fell 24% from the same ten-month period in 2009. Meanwhile, sales of Sony's PlayStation 3 rose 14% and -- thanks to the Kinect -- Microsoft's Xbox 360 was up 34%. Nintendo's complacency and subsequent drop in performance caused it to topple from a towering first place to a meager third place behind gaming systems which never gave up on great games by third party developers.
While it's making strides to release an update to its portable DS device, Nintendo never thought it needed to improve upon its once-wildly successful Wii console.
It was wrong.
Some companies mark off the year in weeks or quarters. Facebook marked off 2010 in staggering milestones.
In July the company counted its 500 millionth user. Just before that, it opened its first office in Asia, where growth had previously lagged. (Indeed, the company is still relatively friendless in Japan, says a new New York Times report.)
By September, the movie The Social Network was in wide release, chronicling -- with fictionalized details --Facebook's early days and launch from Harvard campus, where CEO Mark Zuckerberg had been a student. The film, made without the company's cooperation, went on to receive six Golden Globe nominations and was named Best Picture of the Year by dozens of media outlets, raising the company's profile to even higher levels, when few would imagine it possible.
Along comes December. Time magazine names 26-year-old Zuckerberg Person of the Year and dedicates a major chunk of the magazine to him, as the New Yorker had done for a profile in a September issue. According to Time, "One out of every dozen people on the planet has a Facebook account. They speak 75 languages and collectively lavish more than 700 billion minutes on Facebook every month. Last month the site accounted for 1 out of 4 American page views."
Facebook's year of amazing feats continued right up until last week when Goldman Sachs and a Russian firm called Digital Sky Technologies raised $500 million from investors wanting a piece of the company. The deal valued the firm at $50 billion. "But the only people who could invest were the wealthiest private clients of Goldman Sachs. Instead of offering shares to the public, Facebook chose a private version of a public offering," writes L. Gordon Crovitz in a recent Wall Street Journal column.
Facing increased pressure from the SEC, Facebook is bound to announce an actual IPO soon, say the pundits. But what remains to be seen is whether the company can continue to pull off years like this one, or whether retail investors will be left with overvalued paper if and when a public offering finally happens.
In 2010, Netflix (NFLX), the movie delivery system that thrilled stay-at-home film buffs while driving the final nails into Blockbuster Video's coffin, began to transform itself into a full-on cable replacement -- or cablekiller, as some of its most enthusiastic hypists called it.
Innovative and aggressive, Netflix and its CEO/co-founder Reed Hastings have been key players in the shift to an all-digital, all-streaming entertainment world. DVD rentals will peak in 2012, say industry analysts like Credit Suisse's John Blackledge, and the winner of this next stage of entertainment distribution will be whoever manages to make the largest amount of content available to the largest amount of consumers, via systems like Netflix's Watch Instantly.
Watch Instantly has the buzz at the moment, but Netflix is an independent player on a battlefield that's increasingly crowded. There's deep-pocketed competition coming from heavy hitters including Apple, Amazon (AMZN), Google's Youtube and Hulu, all frantically setting up distribution deals with cautious content providers. In December, Netflix took another step to further its own momentum, penning a deal with Disney/ABC that will allow Netflix to offer shows 14 days after their first broadcast. The arrangement also gave Netflix access to a large back catalogue of hit programs, fattened the company's library and made it look even more viable as a cable replacement for recession-struck, entertainment-hungry consumers.
But can it continue to strike those deals in such a cut-throat environment? Last year also saw a stealth war break out between Netflix and cable behemoth Comcast, when Comcast began demanding a fee for transmitting movies and other content via Level 3, Netflix's distribution partner. Comcast, poised to takeover NBC Universal – if the FCC approves the deal – in effect owns the pipes that Netflix uses to deliver its product. This could get ugly, and for industry observers, it will be essential viewing.
By the time de facto Polaroid owner Thomas Petters was convicted of running a $3.5 million Ponzi scheme at the end of 2009, Polaroid, the brand, was ready for its transformation from dinosaur to dynamo.
Cue Lady Gaga, who last year was named creative director of the current (re-organized) Polaroid company. The celebrity's new position was announced at the January 2010 Consumer Electronics Show, where Polaroid also introduced a new instant-film camera, the PIC 1000. At the time, president Scott Hardy even mumbled something about an initial public offering on the strength of the firm's revenue figures: $500 million in 2009. He expected that number to increase by 50% in 2010.
The IPO never materialized, but Polaroid continues to win fans with gadgets that just might help the brand make up for lost time and market share. The original company and its cameras first became extinct in 2007, due to declining sales. Polaroid, it was assumed, would become roadkill on the highway to an all-digital life. The closure prompted a group of former employees to spring into action, save a former film production plant and launch The Impossible Project in 2009. The "project" makes and sells old-school Polaroid film to customers who want to use their classic Polaroid cameras.
Meanwhile, this new version of the Polaroid company is trying to hook a new generation on all-new instant technology. At this month's CES, Gaga showed off her newest designs: camera glasses that block UV rays as they shoot and display photos and videos on the outer lenses; a hand-held printer for Bluetooth-enabled smartphone photos; and an "instant-film" digital camera that, like its analog look-alike, prints out photos on the spot.
After the novelty of a rubbery, lightweight, colorful, land-and-water clog faded, Crocs (CROX) lost its quirk appeal and consumers just found them, well, sort of ugly. The Colorado-based footwear company, founded in 2002 with its patented closed-cell resin "Croslite" technology that give the shoes their comfort -- and serves as the shoemaker's namesake -- was a hit with kids and adults alike. But once Crocs fell out of lockstep with fashion, its growth and profit margins followed suit.
The company had to figure out how to eschew the shoe while still remaining faithful to its concept. Last spring, a more sophisticated line of options became available -- including leather-lined high heels, loafers, platform wedges and stylish synthetic suede boots -- along with a new advertising campaign from agency Cramer-Krasselt aimed at turning the "fad brand" into "an enduring, growing brand for the ages, versus a brand for the moment." Dubbed "Feel the Love," the campaign reaffirmed the Crocs comfort image but with a fashion-forward focus.
By September, SmarTrend had issued an Uptrend alert for Crocs and by the end of the year, it was named one of the hottest stocks. Since the Uptrend alert, shares have since risen 28 percent. The beginning of 2011 is proving even more receptive to the reinvention of Crocs with the shoemaker having recently made the top five of all companies in the footwear industry.
Phusion Projects' Four Loko |
It doesn't take a genius to know that an alcohol and caffeine concoction isn't the world's smartest course of action for your body. That's why beverage manufacturers have been so thankful for the relatively bad judgment of America's teenagers and college students. Phusion Products, which makes the caffeinated fruit-flavored malt liquor drink Four Loko, the poor man's speedball in a colorful aluminum can, saw a huge surge in popularity among the youth set a few years after entering the market in 2005.
So-named for its "crazy" quadruplet of alcohol, caffeine, taurine, and guarana, Four Loko became so widespread, in fact, that it replaced Cristal as the drink of choice among hip hop stars and was the go-to reference in their raps. See the Village Voice's blog article "The Top Ten Rap Songs About Four Loko" for the irritating examples.
But like its pre-mixed liquor energy drink predecessors, Four Loko began getting implicated in health-related incidents, like cardiac arrests among otherwise healthy young people. In 2009, the FDA announced it would investigate safety claims and by the end of 2010, caffeinated alcohol drinks were deemed a public health concern. College campuses across the country swiftly banned the sale of Four Loko, followed by retail chains and then entire states.
Such was the tragic end of Four Loko as the world would come to know it. It's still sold today, but as a misnomer, missing its most defining ingredient: caffeine. Four Loko is neither four nor loko. Discuss.
When Russian high school student Andrey Ternovskiy launched Chatroulette in November 2009, he had two things going for him: an interesting idea and a media-ready persona.
The idea came to him as a way to randomize the Skype video-phone experience, and he named it after the one-bullet, six-chambers parlor game. Essentially, anyone could sign on and be paired with a video conversation partner selected by the software. If a user didn't enjoy the conversation, he or she could hit "next" and be moved to the next stranger.
Ternovskiy's persona earned him the debutante's rush from the media, especially when the site went from 50,000 daily visitors in December to 1.5 million users in early March.
Venture capitalist Fred Wilson intervened with the State Department to get Ternovskiy a visa so he could visit the U.S. The 17-year-old told the New York Times in March he was fielding million-dollar offers to buy the site from VCs in New York and Silicon Valley. In April, the site even got a shout-out on an episode of "South Park."
But the persona seemed to lose steam at about the time the site lost heat. The media moved on, and so did investors. One major problem: An RJMetrics study of Chatroulette found that 1 out of 8 "nexts" would bring up a naked person. Many tech-watchers believe investors lost interest because of the site's pervasive X-rating, its lack of revenue and the high number of knockoff sites popping up elsewhere. Chatroulette went offline briefly in August, re-emerging as the medium for a viral marketing campaign used to advertise The Last Exorcism, a "mockumentary" horror film. The real site also came back to life, but it has never regained the traction it once had.
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