Tuesday, February 18, 2020

New INC. Magazine Blog Post by Howard Tullman

Which of the FAANG's Will Get Broken Up?
Not all of them. And not Amazon. And don't forget to include Microsoft in this bunch of dominant, powerful tech companies. But the idea that they're all going to get trustbusted is silly.

General managing partner, G2T3V and Chicago High Tech Investors

I'm surprised at how many smart people don't understand the very different long-term prospects of the members of the FAANG 5. As things begin to heat up and the FTC starts specifically looking at this cast of characters , it's too simplistic to paint them all with the same brush.  Because, while their predatory behaviors may be similar on the surface, there are substantive differences in their businesses and business models. This suggests that the government's likelihood of success in attacking their alleged anti-competitive actions will vary widely.

I spoke last week at a financial conference and one of the other presenters cautioned the audience about how quickly tech-centric businesses can vanish. He noted that only Intel remained today as a major player from a select group of the early semiconductor pioneers.  And he suggested that we'd see a similar turnover among some former tech leaders in the next few years. While he didn't name names, it was clear that his short list included IBM, GE, HP, Xerox, etc. That's astonishing, when you think about it. These companies were once the bluest of blue chips.

I'd say that he will be about half right (two out of five) regarding the FAANG 5.  But to even understand the proper landscape, we probably need to start by changing FAANG to FAAMG. That's because Microsoft will be a major player for a lot longer than Netflix, which is looking more and more like a first-moving, one-trick pony and under tremendous competitive cost, price and content pressures. Meanwhile, unfashionable Microsoft, which still owns the desktop, is just hitting its stride in multiple adjacent verticals, like the Azure cloud. In the end, highly diversified lines of business and multiple material revenue streams will actually aid Apple, Amazon and Microsoft in making their antitrust arguments.

Say what you will about the FTC's light and late responses, at least the agency figured out that taking another look at Microsoft is a lot more relevant than worrying about Netflix. That's especially true if the primary investigative focus is going to be around systemic acquisition patterns that target young, innovative startups before they get big enough to disrupt the industry status quo. Netflix is certainly acquiring and creating content as fast as humanly possible, but so are half a dozen other major media and entertainment players with equally deep pockets and other advantages.  In addition, I'd say that Microsoft's past antitrust traumas along with its new, hyper-low-key leadership, is going to be a pretty effective deterrent and largely inoculate it from much of the saber-rattling.

But unlike Apple and Amazon, you can bet that Facebook and Google are both going to come under repeated fire not simply from federal regulators, but also from every greedy and cash-poor states attorney general, every class action lawyer, and every country in Europe as well. Facebook's $500 million settlement in Illinois for misusing bio-metric data is just an early indicator of the flood of claims and litigation that are coming. These are rich firms, easy targets who haven't handled repeated PR blowups in any effective fashion, and are especially vulnerable around privacy, targeting and data security issues-- which are, of course, at the very heart of their business models.

On the other hand, Apple and Amazon have a much easier path to avoid prosecution and Microsoft also seems to have skirted the whole set of issues in these two areas. In the last year at least, no one I know has Binged anything. And it seems to me that no one ever fretted for a moment about Microsoft's super-sized acquisitions of Skype, LinkedIn and GitHub in terms of stifling young competitors. If anything, given how poor a job Microsoft has done in terms of integrating Skype into its product suite, the concern is almost the complete opposite - that Microsoft will end up ruining Skype and LinkedIn rather than building successfully on them. On the other hand, it's interesting to watch the Teams team from Redmond attack Slack, which feels a lot like Internet Explorer crushing Netscape in the old days. We'll have to see how that plays out; it's unlikely to end in an anti-competitive acquisition anyway.

Product-first businesses like Apple connect to consumers in far different and more personal/emotional ways. Moreover, Tim Cook has gone way out of his way to make privacy a very clear crusade for Apple as well as a sharp stick in the eyes of Apple's big tech competitors. We'll need to watch closely (no pun intended) as the Apple watch becomes more and more of a wearable medical device - although I'd have to say that's not much of a risk yet as the stupid thing keeps telling me I've fallen down and tries to call 911. Note to Apple: I'm still vertical.  

But, all kidding aside, this is another important and differentiating factor.  The Apple watch arguably--and with my express consent-- uses data to improve my life, my training and physical activities, and my health in relatively non-invasive and additive ways. This is miles away from Facebook and Google selling small slices of my mind-share and attention to every advertiser and marketer extant to serve up an unending flood of ads--product and political-- that do next to nothing except enrage me and waste what little time I have left in my life. It's hard to argue that the ad business has ever been a worthwhile enterprise --JUUL for kids, anyone? Every consumer and regulator knows that any claims by advertisers and marketers of doing any good for society are bogus. They are in it to make billions on their ad sales.

An interesting aside is Google's recent earnings report, which makes it very clear that search--the core and largely worthwhile business until corrupted by Google's strategy of selling the top search result spots to the highest bidders-- was slowing.  Only ad sales associated with YouTube are growing and keeping the ship moving forward. Just to show you how difficult it is to compete with the Big 4, remember that even Google couldn't make a successful social network out of Google+ and had to shut the thing down. Here again, you could argue that it would be a piece of cake for the government to simply slice off YouTube from the Googleplex and turn the video service into a free-standing and viable enterprise. Easy peasy.

If you do the same separation math and pull Instagram out of Facebook, you see a pretty clear indication that the Facebook core is stagnant while Instagram (and especially ad and commerce sales connected with it) continues to grow rapidly. Much like Microsoft needs to be careful around Slack, it's going to be fun to watch the claims and the ultimate litigation when Snap finally shuts the doors and points a nasty finger at Facebook for stealing every single thing that Snap ever did. Of course, the guys at Snap probably deserve every bit of bad news they get.

Amazon is equally well insulated for a couple of important reasons as long as Jeff B can control himself in terms of his private life, his politics, and doesn't get lost in space. First and foremost, a "forced" spin-off of Amazon Web Services (AWS) would be accretive to all the current shareholders and probably quickly add to their respective portfolio values once people learned just how lucrative the cloud business really is and how broadly distributed and entrenched Amazon's customer base is. This may end up resembling the old Uncle Remus story where Br'er Rabbit begged Br'er Fox not to fling him in the briar patch where he could promptly escape the fox's clutches. Let's just say that helping Amazon create a trillion-dollar AWS business wouldn't be the worst thing the government could do to them.

But even more to the point, Amazon actually does use our data to make products and services more relevant and attractive to us. One simple example is that, while Facebook and Google re-target the crap out of us based on our search and traffic activities, Amazon knows what we have actually bought and doesn't waste our time or advertisers' money offering us the same pair of shoes we just bought yesterday.

Another powerful and locked-in incentive - especially for seniors - is automated replenishment, in which refills and new supplies magically appear on time on your doorstep. More than 70% of what we buy every week at the supermarket is the same stuff. Why bother to make that trip and do all that heavy lifting if Amazon will deliver it free to your door?  Amazon Prime with more than 150 million members worldwide and growing is an unstoppable force and so attractive and compelling to people that any politician with a brain is going to steer as far away as possible from interfering with that love affair. And, whether President Trump knows this or not, AWS runs a huge amount of the government's own web services and that area of involvement is also rapidly expanding. Finally, there's no question that we all love a good deal and we're all convinced that Amazon really does offer us the best pricing, service, support and delivery system in the country. Hard to look a gift horse in the mouth.

If you thought the old "I want my MTV campaign" was effective, just imagine the heat and screaming that our super-sensitive politicians and regulators would face from an enraged public if they got in Amazon's way.


Friday, February 14, 2020

Who’s Profiting From Your Outrageous Medical Bills?

Who’s Profiting From Your Outrageous Medical Bills?
The same people who should be fixing them.

Ms. Rosenthal, a journalist and physician, is a contributing opinion writer.

·         Feb. 14, 2020, 5:00 a.m. ET

Every politician condemns the phenomenon of “surprise” medical bills. This week, two committees in the House are marking up new surprise billing legislation. One of the few policy proposals President Trump brought up in this week’s State of the Union address was his 2019 executive order targeting them. In the Democratic debates, candidates have railed against such medical bills, and during commercial breaks, back-to-back ads from groups representing doctors and insurers proclaimed how much the health care sector also abhors this uniquely American form of patient extortion.

Patients, of course, hate surprise bills most of all. Here’s a typical scenario: A patient having a heart attack is taken by ambulance to the nearest hospital, and gets hit with a bill of over $100,000 because that hospital wasn’t in his insurance network. A patient selects an in-network provider for a minor procedure, like a colonoscopy, only to be billed thousands for the out-of-network anesthesiologist and pathologist who participated.

And yet, no one with authority in Washington has done much of anything about it.
Here’s why: Major sectors of the health industry have helped to invent this toxic phenomenon, and none of them want to solve it if means their particular income stream takes a hit. And they have allies in the capital.

That’s explains why President Trump’s executive order, issued last year, hasn’t resulted in real change. Why bipartisan congressional legislation supported by both the House Energy and Commerce Committee and the Senate Health Committee to shield Americans from surprise medical bills, has gone nowhere. And why surprise billing provisions were left out of the end-of-year spending bill in December, which did include major tax relief for many parts of the health care industry.

Surprise bills are just the latest weapons in a decades-long war between the players in the health care industry over who gets to keep the fortunes generated each year from patient illness — $3.6 trillion in 2018.

Here’s how they came to be:

Forty years ago, when many insurers were nonprofit entities, and being a doctor wasn’t seen as a particularly good entree into the 1 percent, billed rates were far lower than they are today, and insurers mostly just paid them. Premiums were low or paid by an employer. Patients paid little or nothing in co-payments or deductibles.

That’s when a more entrepreneurial streak kicked in. Think about the opportunities: If someone is paying you whatever you ask, why not ask for more?

Commercial insurers as well as Blue Cross Blue Shield Plans, some of which had converted to for-profit status by 2000, began to push back on escalating fees from providers, demanding discounts.

Hospitals and doctors argued about who got to keep different streams of revenue they were paid. Doctors began to form their own companies and built their own outpatient surgery centers to capture payments for themselves.

So today your hospital and doctor and insurer — all claiming to coordinate care for your health — are often in a three-way competition for your money.

As the battle for revenue has heated up, each side has added new weapons to capture more: Hospitals added facility fees and infusion charges. Insurers levied ever-rising copayments and deductibles. Most important they limited the networks of providers to those that would accept the rates they were willing to pay.

Surprise bills are the latest tactic: When providers decided that an insurer’s contracted payment offerings were too meager, they stopped participating in the insurer’s network; either they walked away or the insurer left them out. In some cases, physicians decided not to participate in any networks at all. That way, they could charge whatever they wanted when they got involved in patient care and bill the patient directly. For their part, insurers didn’t really care if those practitioners demanding more money left.

And, for a time, all sides were basically fine with this arrangement.

But as the scope and the scale of surprise bills has grown in the past five years, more people have experienced these costly, unpleasant surprises. With accumulating bad publicity, they have became impossible to ignore. It was hard to defend a patient stuck with over $500,000 in surprise bills for 14 weeks of dialysis. Or the $10,000 bill from the out-of-network pediatrician who tends to newborns in intensive care. How about the counties where no ambulance companies participated in insurance, so every ambulance ride costs hundreds, or even thousands of dollars?

These practices are an obvious outrage. But no one in the health care sector wants to unilaterally make the type of big concessions that would change them. Insurers want to pay a fixed rate. Doctors and hospitals prefer what they call “baseball- style arbitration,” where a reasonable charge is determined by mediation. Both camps have lined up sympathetic politicians for their point of view.

So, nothing has changed at the federal level, even though it’s hard to imagine another issue for which there is such widespread consensus. Two-thirds of Americans say they are worried about being able to afford an unexpected medical bill — more than any other household expense. Nearly eight in 10 Americans say they want federal legislation to protect patients against surprise bills.

States are passing their own surprise billing laws, though they lack power since much of insurance is regulated at a national level.

Now, members of Congress have yet another chance to tackle this obvious injustice. Will they listen to hospitals, doctors, insurers? Or, in this election year, will they finally heed their voter-patients?

Elisabeth Rosenthal, a former New York Times correspondent, is the editor in chief of Kaiser Health News, the author of “An American Sickness: How Healthcare Became Big Business and How You Can Take It Back” and a contributing opinion writer.

Tuesday, February 11, 2020

Vornado's theMART: Still Relevant at 90

Vornado's theMART: Still Relevant at 90

At nearly 90 years old, Vornado’s  theMART in Chicago is as relevant and culturally significant as ever. 
REIT magazine: January/February 2020

The $8 million Art on theMART installation, privately funded by Vornado, features 2.6 acres of the river-facing façade of theMART for the world’s largest video projection art installation.
“Everyone knows theMART, this mammoth Art Deco structure facing the river,” says Mark Kelly, commissioner of the City of Chicago’s department of cultural affairs and special events. “It’s a muscular building—a working building—that’s always played with the imagination of the city.”
One of the largest office buildings in the United States, theMART stands tall along two blocks adjacent to the Chicago River in the heart of River North, one of the city’s most dynamic submarkets. Completed in 1930 and purchased by Vornado Realty Trust (NYSE: VNO) in 1998, theMART’s history has been intertwined with Chicago’s retail, business, media, and cultural landscape for nearly 90 years.
“theMART is one of the most iconic buildings in the country and since its inception it’s been continually reinventing itself,” says David Greenbaum, vice chairman of Vornado. 
The Merchandise Mart, as the building was known until recent years, was designed by Alfred P. Shaw of the architectural firm Graham, Anderson, Probst & White, and features decorative chevrons and distinctive towers. Built by Marshall Field as a wholesale warehouse with rentable space for other wholesalers, the Merchandise Mart functioned as the “Midwest Pentagon” during World War II, says Greenbaum. The building was acquired by Joseph Kennedy in 1946. The Kennedy family sold it to Vornado more than 50 years later.
“When Joe Kennedy bought it in 1946, he anticipated the post-war growth in suburbia and in retail,” says Myron Maurer, chief operating officer of theMART. “He started the convention business in Chicago that’s still going strong today.”
From the 1950s through the 1970s, the Merchandise Mart mostly sold furniture and home decorating items, eventually adding apparel and gifts. 
“NBC radio and TV were also based in theMART and the first all-color TV studio in the country was here,” Maurer says. “A building of that size could never be entirely wholesale/showroom tenants and the location appealed to many other businesses. Quaker Oats, Bankers Life and Casualty, and Canteen Corp. were all headquartered here at one time, among many other companies.”

Into the Next Generation

theMART’s massive floor plates are approximately 4.5 acres each.

In 1998, Vornado saw the opportunity in acquiring the large-scale property with its mix of office, interior design showrooms, and tradeshow spaces.
“Most important to us was the fact that we were able to acquire a totally unique and iconic asset,” Greenbaum says.
While theMART was always the anchor of the River North area, Maurer says the neighborhood transitioned from industrial brick buildings into a dynamic community with art galleries and street-level retail beginning in the late 1990s. Vornado, and theMART, were central to that transition.
“We’ve been the beneficiary of gentrification and we’ve significantly accelerated it because we’ve shepherded theMART into the next generation with great food offerings and abundant communal spaces,” Maurer says.  
Vornado undertook a major, $40 million renovation and rebranding of theMART, which was completed in 2017. This work included the creation of a new lobby and the Grand Stair, a 50-foot wide marble staircase and special event venue featuring a massive projection screen. Meanwhile, the debut of Marshall’s Landing, a lounge with river views at the top of the Grand Stair, has contributed to theMART and River North functioning like an “urban Silicon Valley,” Greenbaum says. 
theMART now includes 23 food offerings, a bar overlooking the Chicago River, a fitness center, a hair and nail salon, a post office, and Amazon package lockers. A 12,000- square-foot park that runs between the river and theMART is under construction and will contain a variety of outdoor furnishings and accommodate food trucks.  
“The area has evolved over the past 20 years to become the hottest place to live in Chicago, with high-rise, high-end residential buildings, and some of the city’s best restaurants,” Greenbaum says.

Neighborhood Anchor and Economic Catalyst

Throughout its existence, theMART has played an outsized role in Chicago, the River North neighborhood, and in many Chicagoans’ lives. “I literally grew up riding motorized carts up and down the hallways in the Mart,” says Howard Tullman, a serial entrepreneur and former CEO of 1871, a Chicago tech incubator. “My father had a showroom there.”
As an adult, Tullman chose theMART as headquarters for one of his first businesses, a database business called CCC Information Services, and later he was instrumental in helping to develop theMART’s reputation—and Chicago’s—as a tech hub.
“When we opened 1871 in 2012, technology was 2% to 3% of Chicago’s economy and now it’s 12% to 13% or more of the city’s economy,” Tullman says. “What was important to us about locating in theMART was that when we took our 160,000 square feet, we became an anchor for all the other tech companies and big businesses that wanted to be close to digital workers, tech workers, and creative workers.”
Entire floors that were formerly showroom spaces have transitioned into space for tech companies, Tullman says, including Google’s Motorola Mobility unit, which leased 600,000 square feet of office space in 2012.
“The prototypical pattern has been that a company like Allstate will work out of the 1871 space for a while and then decide to take its own space in theMART,” Tullman says. “We’re seeing a migration of companies that need tech workers and can’t find them or can’t convince them to commute to the suburbs, so they’ll establish an outpost or even headquarters in theMART.”
Companies like Braintree, a division of PayPal, started with 60,000 square feet in theMART and now occupies 148,000 square feet, says Paul Heinen, a senior vice president for leasing with Vornado. Others that have increased their space include Yelp, which went from 50,000 square feet to 132,000 square feet, and Allstate, which expanded from 45,000 square feet to 120,000 square feet, Heinen says. theMart’s uniquely large 200,000 square foot floorplates attract companies across industry sectors who want to use their real estate to foster collaboration among employees and create a sense of community.
theMART’s central urban location and easy access from the suburbs is also part of its attraction for many major corporations, such as ConAgra Foods.
“Our headquarters had been in Omaha for 100 years, but about four years ago we decided to move about 500 to 600 employees to a new headquarters in Chicago,” says Jon Harris, chief communications officer for ConAgra Foods. “It makes sense for us to be in a food-centric city. We also knew we could find and attract the talent we needed, especially in sales and marketing, in Chicago.”
Harris says theMART is the premier building in the premier location for their company headquarters as well as numerous other companies.

The entrance to the Merchandise Mart in the 1950s.

“It’s like 30 Rock for Chicago, with the history and the heritage of the building acting like a lightning rod to attract talent,” he says. “The neighborhood itself is also a huge draw.”
Harris credits Vornado’s efforts to enhance theMART’s presence with adding to the vitality of the River North neighborhood, where he says the restaurants, hotels and nightlife within walking distance add to the draw of working there.
“An address in theMART helps put you on the map,” Harris says. “Everything you need is inside the building or in the surrounding area. You can entertain clients, attract talent, and have a front seat to innovation in the food industry. We like to keep our mouths to the fork of what’s trending in food to keep us competitive.” 
Among other companies with a substantial presence in theMART are Kellogg’s, Conde Nast, Bosch, and ANGI Home Services. 

Showroom Powerhouse

theMART’s continued importance to America’s retail economy is demonstrated by 40% of the building continuing to be devoted to wholesale showrooms and tradeshows.
“We have luxury kitchen and bathroom businesses, commercial office furniture, luxury residential furnishings for designers and casual outdoor furniture spaces,” says Maurer. NeoCon, the largest commercial design event in the country, attracts about 58,000 people to theMART each year. 
 “People love the bones of this building, the loft look of the building, the high ceilings, the history, and the patina,” says Greenbaum. “It’s just built better than buildings from the 1950s and the 1960s. At the same time, we’ve been careful to keep current with the tech needs of our tenants with lots of fiber feeds. We’ve worked on the elevators, upgraded the HVAC systems, and we’ve been LEED certified three times now.”
With stewardship like that, theMART will likely continue its history as a resilient Chicago landmark leading the way into the city’s future. 

Marshall’s Landing is theMART’s center of gravity for socializing, eating, drinking, and working.

Tech Company Magnet

The architecture of theMART, which functions so well for retailers who need large showrooms and for tradeshows, offers a big benefit to collaborative workspaces that are particularly popular with tech companies.
“Tech companies were able to take advantage of the huge floor plans so they could have common spaces instead of being on multiple floors,” Howard Tullman, former CEO of 1871, a Chicago tech incubator, says. “This meant you could have serendipitous meetings, which is great for start-ups, tech workers, and venture capitalists.”
Vornado’s transformation of theMART into a tech company magnet began nearly a decade ago.
“From 2010 to today, theMART went from being a white elephant with non-economic space to a transformative tech hub,” Tullman says. 
In 2011, Google, which was acquiring Motorola Mobility at the time, was looking for 600,000 square feet in downtown Chicago, Myron Maurer, chief operating officer of theMART, says.
“theMART’s office space was substantially full, but some of the showrooms were underperforming,” he says, due to a contraction in the furniture business in 2008-2009 which resulted in some tenants being scattered on numerous floors. “We wanted to lease the top four floors to Motorola Mobility, so over 11 months we worked with 142 tenants to either move their showrooms or terminate their leases. Some were ready to vacate, and some wanted to downsize, so it was a win-win because they were able to reinvigorate their businesses and we got the space we needed.”
Relocating showrooms so they are contiguous helped revitalize the businesses while making the space more efficient. 
Tullman also credits Vornado with being willing to keep the building open 24 hours a day, which is well-suited to tech workers.
“When J.B. Pritzker [founder of 1871 and now Illinois governor] had the idea for the tech incubator, no one had heard of 24/7 offices, flex space, or co-working,” David Greenbaum, vice chairman of Vornado, says. “They were visionaries and saw how important it was to have space to congregate and to think of new ways to grow the economy and create jobs. theMART and 1871 became an example of what an urban area like Chicago could do to attract business to the city.”

Cultural Icon

Since its earliest days as a wholesale warehouse, furniture center, and tradeshow center, theMART has been connected with art and design. In September 2018, Art on theMART introduced a new element of culture to the building and the neighborhood: the world’s largest video projection art installation.
“In a city filled with great art, this has captured the imagination of the city,” says Mark Kelly, commissioner of the City of Chicago’s department of cultural affairs and special events. “Former mayor Rahm Emanuel and Vornado started talking about lighting the front of the building and then I brought in more specific ideas about turning it into public art in the form of video mapping.”
Kelly credits Vornado with recognizing the value of the project.
“They jumped on the idea and immediately said it couldn’t be about branding or marketing, it had to be pure art,” Kelly says. “Vornado and the City of Chicago made a 30-year commitment to the project and we needed agreement to build space for the projectors above River Walk, which is city-owned property.”
2019 was the first full year of nightly projections, which include a variety of installations from Andy Warhol images to a lifelike safari in which giraffes appeared to walk across the building, says Greenbaum. About 32,000 people attended the opening night of Art on theMART and an average of 500 people are there nightly.
Thirty-four projectors are housed on the opposite side of the Chicago River and the images are a mix of new art and digitized existing art, says Maurer. 
“theMART looks like the most alluring, attractive building in the city even though it’s been around since 1930,” Kelly says. “This new public art installation makes the river come to life. It’s just spectacular at night and now everyone wants to be on the river in this new vital urban space.”

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