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The Future of Reproduction: The Birth Business

Mon, 27 Apr 2009 04:00:00 GMT

The future of the birth business may in fact lie in the past: a low-tech birth that focuses on the needs of the mother and the natural physiological process. At The New Space, a birth center slated to open in Manhattan in 2012, laboring mothers will give birth in rooms with amenities like Jacuzzi tubs and queen-sized beds.

It sounds like an expensive luxury, but there is a growing realization that it could not only improve the health of mothers and newborns, but also save the U.S. health-care system millions of dollars. A series of systematic and scientific reports and reviews, funded by the Milbank Foundation, has just been released. It proves, statistically, what alternative practitioners have been saying for years: that the birth-industrial complex has gotten out of hand.

In the past, financial incentives have steadily worked to push the birth process into operating rooms and surgical centers. Currently, only 1 percent of births in the U.S. occur with midwives at home or at birth centers, and childbirth is the leading reason for hospitalization.

It all adds up to a huge proportion of the ballooning national health-care budget: Six of the 15 most frequent hospital procedures billed to private insurers and Medicaid are birth-related, bringing the nation's maternity bill to nearly $86 billion in 2006, according to the 2008 Milbank Report.

Because insurance companies pay hospitals by the procedure, and because malpractice insurance is so high, most hospitals don't employ midwives and instead lean on high-tech procedures in order to bill more and prevent less risk.

The typical scenario: Hospitals want to get women in and out quickly, so doctors often induce labor with drugs, which causes contractions to happen so quickly that they become unbearable and require an anesthesiologist to come in with an epidural, or the surgeon to move straight to a C-section, explains Jennifer Block, the author of Pushed: The Painful Truth About Childbirth and Modern Maternity Care.

"We've pushed every woman in the hospital and almost every delivery is by a surgeon," she says. According to the Milbank numbers, she's not exaggerating. In 1965, the national C-section rate was 4.5 percent, and in 2008, an estimated one in three of the 4.3 million births that year was by C-section. The average hospital birth now costs between $7,000 for a vaginal birth and $16,000 for a C-section.

The Milbank report's most significant finding, however, is hard scientific evidence that high-tech does not necessarily translate into the highest-quality care and the best outcome. For example, the report shows that fetal monitoring, the most commonly used billable procedure, has no clear benefit for a low-risk pregnancy because it keeps the mother confined to bed, which is not always the best labor position.

And while C-sections can be a life-saving procedure, they are also overused and can lead to health problems in the newborn. So birth facility that doesn't speed up the process or rely too heavily on surgery actually helps laboring mothers experience less pain and lowers the chances for complications, says Maureen Corry, the executive director of The Childbirth Connection and one of the report's authors.

By proving that natural childbirth is safer than medicalized delivery, the Milbrook report gives cover to hospital administrators who would change the system because it improves their bottom line. Rebecca Benghiat, the executive director of The New Space, compares the new birth-center model with other specialized medical centers: cardiac-care centers, for example.

"From a business perspective, [specialization] lowers the overhead and lets us break even based on a facility fee instead of both a facility fee and a provider's fee," she explains. In other words, the patient pays for the space instead of the procedure.

"From the patient's perspective, it will be all about what she and her family needs," Benghiat continues. But it also gives the provider what it wants: more room for profit. Doctors and midwives do pre-natal care offsite, lowering the actual cost of a birth by about $1,600. Additionally, the center does not have to pay as much for the malpractice insurance.

Will the new birth-center model catch on? Dr. Lisa Latts, vice president of The Program for Clinical Excellence at WellPoint, which owns 14 Blue Cross Blue Shield plans, says that so far "there is just not a lot of demand for the more leading-edge models."

The problem, she explains, is that moms don't know about them. And the ones that do may be put off by the pain involved in natural childbirth. The solution, she suggests, could be as easy as creating natural-birth centers with higher-tech backup—just in case.

Latts sees the birth-center model as the rare win-win situation: When women have more choices, she says, the rates for C-sections and other expensive procedures decrease, resulting in a potential saving of billions of dollars.Related Links
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The Future of Reproduction: Male Pregnancy

Mon, 27 Apr 2009 04:00:00 GMT

Two men sit in the waiting room of a fertility clinic, holding hands. One of them is six months pregnant. In his distended uterus beats the heart of a healthy boy. But the nervous parents don't know that yet. They've come in for an ultrasound and some genetic tests that will reveal whether their son is developing normally. Since he has two dads, the child has an abnormally high risk of genetic defects.

Male pregnancy? It sounds like the setup for Junior, the 1994 comedy starting Arnold Schwarzenegger as a scientist who impregnates himself. When it was in theaters, it seemed like science fiction. Now, the technology to create a child with DNA from two dads is just around the corner: Already, Shinya Yamanaka, one of the world's leading regenerative-medicine scientists, has sketched out how stem-cell technology could allow two men to have a baby. A skilled biologist could take a skin cell from one of the dads, reprogram it with a virus, and then turn it into an egg. The other dad would then supply sperm via the usual process. Put egg and sperm in a test tube, and voila—your embryo has two daddies.

The next step is keeping the embryo healthy. According to Rudolf Jaenisch, the co-founder of the pioneering stem-cell company Fate Therapeutics, a child made with the DNA from two males will not develop properly. He explains that with normal eggs and sperm, some genes are switched off through a natural process called imprinting. Men imprint their sperm, and women imprint their eggs—but differently. Even if scientists can coax an egg out of a man, it would be imprinted as if it were a sperm, giving any resulting embryo a deadly double dose of some genes that control growth. Jaenisch says, "With our present knowledge, there is no strategy to overcome this problem."

However, people are actively trying to solve the imprinting problem in order to help infertile heterosexual couples who want to have children that are biologically their own. Yet the technique itself does not discriminate between heterosexual and homosexual. "Making usable gametes [sperm and eggs] from these sources is still some way off, but it looks increasingly likely that this will one day be possible," says Richard Anderson, a fertility expert at the University of Edinburgh. But, he explains, "It still needs a uterus to turn into a baby."

A lesbian couple has a uterus to spare, and already, a precedent. Consider Kaguya, the first mammal made by two mommies (and a whole lab of researchers in Japan.) The mouse was created with eggs from her two mothers at the Tokyo University of Agriculture in 2004. As it turns out, male-male reproduction is much harder, but researchers are optimistic.

For a gay male couple, the simplest source of a uterus would be a surrogate mother. Implantation after in vitro fertilization and surrogacy are well-established medical practices, but what if our hypothetical gay dad wanted to actually be pregnant in order to carry his own baby to term—a la Schwarzenegger in Junior? Well, scientists are nibbling away at that problem too.

"This would require very significant advances in tissue engineering, relevant surgery, immunology (to prevent rejection), and understanding of human development in utero from implantation through to the control of the onset of labor," writes Richard Anderson, a fertility expert at the University of Edinburgh. Conceptually, there are two ways to get a male uterus: You could build one from scratch, or import one from a willing womb donor. No one is currently working on tissue-engineering a womb, but regenerative-medicine researchers feel confident that we will have one sooner than later.

Anthony Atala, a researcher at Wake Forest University, has already grown several bladders in his lab and implanted them in children who were born with urinary defects. Structurally speaking, a womb and a bladder are quite similar organs. A womb transplant, on the other hand, has already been tried—once. It wasn't successful, but Edwin Ramirez, a reproductive surgeon in California, is actively developing a procedure to transplant a healthy uterus from one woman to another. He thinks that it would be possible to give men a uterus transplant too.

Ramirez, Jaenisch, and Anderson—indeed, all of the experts we spoke to—were unanimous: They would never allow these experiments to happen on their watch. All of them have serious ethical concerns. But they can't hold the technology back. "I would not be surprised if an enterprising and reckless person or group of persons would attempt such an endeavor if not only to prove it can be done but also to garner headlines," says Gary Piquette, the technical director of an in vitro fertilization clinic.

When that happens, a scientific question will be answered, and a battle for same-sex reproduction rights will begin.Related Links
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J.P. Morgan Is No. 1

Fri, 24 Apr 2009 04:00:00 GMT

Up until about 2006 or so, to work at J.P. Morgan Chase was to experience the feeling that you were part of the blanding of banking.

In Wall Street's testosterone-fueled pecking order, the company's name might have evoked prestige of the past, but it lost that after it merged with Chase Manhattan in 2000. The esprit de corps of the place was all but obliterated, even if the pay was still pretty good.

In other words, it certainly was no Goldman Sachs. I worked at Goldman for two years after college. Despite perhaps being the most unenthusiastic investment banker in history—I'd had my Jack Kerouac moment around the time I was offered the job, and accepted it only because I had student loans to repay—I actually liked working there. Why? Not because I liked what I did. Rather, it was because I had a job that I knew so many other people would kill for.

Even after the downturn started, the media was still awash in stories about how Goldman Sachs was a modern-day version of the Illuminati, all but secretly controlling the government, and, through its foresight and power, crushing its competition with apparent nonchalance. Goldman employees were different than the rest of us.

In a word, they were, well, better.

But something has changed, at least in the status perceptions of Wall Streeters. Goldman Sachs is no longer the Goldman Sachs of the financial world. J.P. Morgan Chase is.

Sure, Goldman reported blockbuster results in April and followed them with an in-your-face equity offering of $5 billion that was intended to help pay back TARP funds from the government.

But pay no heed. This is not the Goldman of times past. That's because J.P. Morgan chief Jamie Dimon has navigated the shoals of the economic and financial crisis so adeptly that it is his bank, and not Goldman, against which all others are now compared. Let us count the ways.

In the first quarter of 2009, J.P. Morgan's investment bank led the industry's much-watched "league tables" in the most important capital-raising categories. More companies raised debt and equity through J.P. Morgan than anyone else.

While Goldman Sachs claimed to have won the mergers and acquisitions footrace, they had to perform a sleight of hand to get there, changing the criteria from deals that were announced during the quarter to deals that were actually completed. Most Wall Street firms play with the inputs to try and find a way to claim they're No. 1. Goldman never used to, but they're doing it now.

When Goldman Sachs and Morgan Stanley decided—while fearing for their own existence—to transform themselves into bank holding companies in September (bringing with it the ability to access the Federal Reserve's discount window), they essentially brought to an end the era of the standalone investment bank.

Goldman used to be special. Now, Goldman is merely a far smaller bank than J.P. Morgan. Sure, their results beat analyst expectations by nearly double in April. But their revenues only rose 13 percent. J.P. Morgan's top-line gain? A cool 48 percent. More to the point, J.P. Morgan's investment bank brought in $1.4 billion in revenue in the quarter, tops on Wall Street.

Goldman had, for a time, the most badass leader on Wall Street in Hank Paulson. But Paulson is long gone.

Beyond generally seeming mealy-mouthed, the company's current CEO, Lloyd Blankfein, has of late been styling himself a little like Jamie Dimon, in particular in his late-to-the-game calls for compensation reform among the country's most overpaid paper-pushers.

But Dimon actually exudes real confidence instead of merely putting it on as a public-relations costume. Goldman's co-president, Jon Winkelried, recently resigned in the wake of a bailout by his company because he was somehow—and this is really just extraordinary—insolvent. This despite being paid more than $100 million over the past decade.

Goldman Sachs is no longer the Goldman Sachs of the financial world.
J.P. Morgan Chase is.
But most tellingly, it used to be that at the scene of every Wall Street hit-and-run, people would whisper that Goldman had been seen driving away from the wreckage. When talking of the fall of the giant hedge fund Long-Term Capital Management, Wall Streeters always talked about how Goldman pretended to want to save them only to end up trading against all of LTCM's positions.

But last fall, when Lehman Brothers failed and Merrill Lynch jumped into the arms of Bank of America, there was no talk of Goldman. Instead, everyone whispered about how J.P. Morgan and Jamie Dimon had been ruthless with both in terms of collateral calls, pushing both to the brink—actually, pushing Lehman over the brink—of insolvency. (J.P. Morgan, of course, denies that it was the proximate cause of any of this.)

"The way he is conducting himself while all these companies are in distress is shocking," one Wall Streeter told me at the time. "And he can't hide behind layers of management. At a time like that, there's no way, if you're going to do something that severe, that it comes from somebody other than him."

That Wall Streeter, mind you, was a partner at Goldman Sachs. Need I say more?Related Links
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Spring Cleanup

Thu, 23 Apr 2009 04:00:00 GMT

With retailers still suffering from excessive inventories, the spring cleaning has begun.

Coming off the nightmare of fall's early and aggressive markdowns, the first spring price cuts are already budding, particularly in the luxury tier and women's categories where the cadence of deliveries is quicker than menswear. Last week alone, Bergdorf Goodman advertised up to 40 percent off on its contemporary floor, and Yves Saint Laurent sent an email invitation to customers to receive an "exclusive one-time discount" at any boutique in the U.S. and 50 percent off ready-to-wear and 30 percent off accessories Wednesday.

Sample sales are on the rise, too, with stores pushing back goods to vendors. And some retailers are utilizing sales tactics usually reserved for holidays and pre-Christmas. Last week, for example, J.C. Penney Co. Inc. ran two days of doorbusters including dresses, Arizona, and other private-label products, and a buy-one-get-one-for-88 cents deal on a host of items. Neiman Marcus Inc. has offered various incentives this season to members of its InCircle reward program, such as free lunch at restaurants in the store and $50 gift cards. The website has also been promoting free shipping through today. Macy's Inc. ran a three-day fine jewelry sale with 30 to 50 percent off much of the assortment.

So-called "private" friends and family sales have taken a high profile. Saks Fifth Avenue staged one last week, and promoted it on the homepage of its website.

Nordstrom followed with a friends and family sale of its own, and this week, it's Bloomingdales' turn, offering 20 percent off almost all regular- and sale-priced purchases in apparel and home.

"People are going deeper, earlier," said Brendan Hoffman, president and chief executive officer of Lord & Taylor, characterizing the state of markdowns this season so far.

The situation has fueled speculation over when the major spring clearances will break and who will be the first out of the gate. Typically, department stores roll out spring clearances around Memorial Day, while higher-priced specialty chains pull the trigger around mid-May to make space for June's pre-fall deliveries.

At Nordstrom, which clears a lot of merchandise through its extensive network of Rack outlets, a spokeswoman suggested the inventory situation was under control. "We continue to feel that we are appropriately managing our inventory and are getting ready for the women's half-yearly sale, which is in May," she said.

Analysts and retailers expect clearances to surface before Mother's Day, with stores currently grappling with spring orders written last year—before consumers really clamped down on spending—and trying to whittle inventories down in line with demand. "Historically, I would not have considered markdowns before the beginning of June," said Diane Levbarg, executive vice president of Missoni. "However, this year, while it's still too early, I may reevaluate my strategy based on market conditions."

Aside from the rising unemployment rate and uncertainties about the economy, the late Easter and the late arrival of springlike temperatures to most of the country have contributed to disappointing apparel sales this season. In addition, push backs to vendors have sparked many more sample sales.

However, retailers and analysts contacted Monday emphasized that discounting hasn't reached clearance proportions yet, and that when the clearances do break, they shouldn't be anywhere as epic as the fall's avalanche of price cuts.

"I don't think that it's anywhere close to the degree and depth of what was experienced in the fall," observed Arnold Aronson, marketing director of retail strategies for Kurt Salmon Associates. "There's more of a gradual realignment of inventories to sales levels."

Spring markdowns and clearance tactics will include more retailer-vendor discussions than in the past, Aronson suggested. "There won't be huge surprises, or unilateral kinds of decisions," he said. "At this point, it's primarily first markdowns happening earlier than normal. Stores are not into clearance mode yet."

Jeffrey Kalinsky, founder of Jeffrey designer stores in New York and Atlanta, said he hasn't taken "a single markdown" or run any promotions. Competitors have been taking markdowns since January, he said, adding, "A lot of people do promotions under the guise of 'friends and family.' No one has broken sale yet, to my knowledge."

"Normally, in a good year, you wouldn't even be having this conversation" about markdowns, said one specialty store retailer. "It's too early. It's much, much, much too early. Nobody wants to be the first [to break price] because they're terrified of what happened with Saks [last holiday]. There's such a backlash because of markdowns taken last November that people don't want to go on sale. Business is challenging and I'm waiting to see if it gets more challenging.

"Would I love to go on sale now?" asked the retailer. "Yes. Everybody has too much inventory. Nothing's selling right now."
Store executives differed on whether a "friends and family" event should be considered a sale. "I don't see friends and family as a markdown," said a luxury retailer. "Saks' friends and family offer is for 20 percent off. A sale is 40 percent off. To me, 20 percent is an hors d'oeuvre. It's maybe an incentive. Everybody's giving some type of incentive. They're all doing something out the back door."

"Nobody is experiencing great business," said an owner of a fashion boutique. "What am I going to do if a huge retailer like Saks or Barneys [New York] does a major markdown again? It's not easy out there. We're not set up to do anything like promotions."

Stanley Korshak hopes to stick to its same schedule as last year by marking down resort and some spring the first week of May, and the remainder in June.

"If Neiman's and Saks pull the plug and we are forced into reacting, then we'll do what we have to do, but we do not have inventory issues," said owner Crawford Brock. "We are barely missing our plan, which is about 30 percent down from last year. But we made money in the first quarter and in February and March, and we did it by cutting expenses—not by selling more."

All things being relative, the best businesses have been contemporary, young designer, bridal, men's shoes and belts, and private label goods, Brock said. Gowns, handbags, shoes, and denim are weak. "Shoes and bags are tough, and I think it's a price point issue," said Rose Clark, general merchandise manager. "Louboutin is still our No. 1 vendor, but it's expensive, as are Jimmy Choo and Valentino."

"The knee-jerk constant promotions that everyone had to deal with last fall were very detrimental, so we made a strong effort not to do that again this year," said Mickey Rosmarin, owner of Tootsies, which has stores in Houston, Dallas, and Atlanta. "We will mark down resort and some spring the last weekend in April."

Rosmarin said Bogner and Ralph Lauren have done well but, in general, sales trends have been inscrutable.

"Gowns are not selling, but prom dresses and other dresses are doing great," he said. "Some Italian sportswear is blowing out and some is dead as a doornail. It's almost no rhyme or reason."

Due to students on Easter vacations, traffic in malls has recently risen, according to Amy Wilcox Noblin, research analyst at Pali Capital. "This week kicks off new early summer product arrivals in stores and this is a transition period for some retailers in terms of promotions. But overall, retailers have either increased or sustained the heightened level of promotions to capitalize on the traffic," Noblin wrote in a report issued Monday. "Some store associates have theorized that traffic will drop post-spring break and we can detect a sense of nervousness about what the back third of April will bring."

Noblin observed American Eagle Outfitters Inc. is already displaying some early summer goods at full price and, therefore, experienced some slower traffic with fewer promotions. However, the store is running an all-shorts-under-$25 promotion, which is 30 to 40 percent off on average, and the new summer goods reflect "progress" in fashion, Noblin stated.

Tourists and teens off from school flocked to the Abercrombie & Fitch flagship on Fifth Avenue, though A&F branch stores did not show such traffic surges, Noblin wrote. Some early summer product has arrived, "but the majority still lacks enough fashion innovation necessary to entice customers to pay full price."

Pacific Sunwear, on the other hand, saw an uptick in traffic last week that's been sustained this week. "Significant promotions remain this week," touching up to 75 to 80 percent of the assortment, Noblin noted.

In the Air

Wed, 22 Apr 2009 04:00:00 GMT

The first celebration of Earth Day, on April 22, 1970, was a raucously exuberant affair. In New York, Fifth Avenue was closed to traffic. People picnicked on the sidewalk; dead fish were dragged through midtown; and Governor Nelson Rockefeller rode a bicycle across Prospect Park. Students in Richmond, Virginia, handed out bags of dirt (to represent the "good earth"); demonstrators in Washington poured oil onto the sidewalk in front of the Interior Department (to protest recent oil spills); and in Bloomington, Indiana, women dressed as witches threw birth-control pills into the crowd (no one was quite sure why). All told, some 20 million Americans took part—far more than the man who thought up the occasion, Senator Gaylord Nelson, Democrat of Wisconsin, had expected. "That was the remarkable thing about Earth Day," Nelson later said. "It organized itself."

Among those who seemed unmoved was President Richard Nixon. He avoided the festivities and made no public comment on them. (One of his aides, John Whitaker, later acknowledged that the administration had been "totally unprepared" for the wave of environmental activism "that was about to engulf us.") Nevertheless, even Nixon seems to have got the message. Three months afterward, he created the Environmental Protection Agency and the National Oceanic and Atmospheric Administration, and five months after that he signed the Clean Air Act. The Clean Water Act, the Pesticide Control Act, the Endangered Species Act, and the Safe Drinking Water Act all became law by the end of 1974.

Since the mid-1970s, the nation's environmental agenda—to the extent that it has had one—has consisted mainly of trying to defend these early achievements. This is all the more notable because of what has happened in the intervening years. At the time of the first Earth Day, the term "global warming" was barely in circulation—the relatively small group of scientists concerned about the consequences of rising CO₂ levels used the phrase "inadvertent climate modification"—and actual warming had yet to be clearly detected.

Today, of course, there are thousands of scientists studying global warming, and new effects are constantly being observed. Just a few weeks ago, researchers reported that Antarctica's Wilkins Ice Shelf had "begun to collapse because of rapid climate change." The ice shelf was larger than the state of Connecticut; it now seems destined to disappear. "We've come to the Wilkins Ice Shelf to see its final death throes," a glaciologist with the British Antarctic Survey, who made a farewell trip there, told Reuters.

To do something meaningful about global warming will require legislation even more far-reaching than the Clean Water Act and the Endangered Species Act, and recently there have been encouraging signs that Congress and the White House understand this. Late last year, Henry Waxman, of California, an outspoken advocate of action on climate change, wrested control of the House's Energy and Commerce Committee from John Dingell, of Michigan, an outspoken advocate of delay. A few weeks ago, Waxman introduced a comprehensive energy bill, which, while flawed, at least represents a starting point.

President Barack Obama, for his part, has been clear about the urgency of the problem; shortly after taking office, he observed that global warming, "if left unchecked," could result in "irreversible catastrophe." To guide him, he has assembled some of the most knowledgeable and thoughtful people in the nation. What has been called Obama's "green dream team" includes Energy Secretary Steven Chu, a Nobel Prize winner; the White House science adviser, John Holdren, a physicist on leave from Harvard; and the NOAA administrator, Jane Lubchenco, a highly regarded marine ecologist. In a move that has been widely interpreted as a prod to Congress, the EPA last week designated carbon dioxide and five other greenhouse gases as pollutants. This is an important step forward, which the Bush administration spent two years and millions of dollars of taxpayer money dithering about. The designation initiates the regulation of CO₂ under the Clean Air Act, a process that could eventually affect most major industries in the United States.

Still, there are plenty of reasons to wonder whether serious steps to reduce carbon emissions will be taken this year or, indeed, ever. Regulating CO₂ using existing laws will be a laborious, and potentially litigious, exercise. Meanwhile, the administration has been strangely passive about trying to shape climate legislation—one reason that the Waxman bill is likely to be further watered down. Then there's the question of whether even an inadequate bill has the votes to pass.

Three and a half decades ago, when the nation's key environmental laws were approved, politicians were responding to the mood of the country. Today, the situation is largely reversed. Polls show that voters regard the environment in general, and climate change in particular, as, at best, a middling concern. In a recent survey, the Pew Research Center asked Americans about their priorities for Congress and the new president. "Dealing with global warming" ranked at the bottom of a list of 20 choices, far below "strengthening the nation's economy" and "reducing health-care costs," and even below dealing with unspecified "global trade issues."

The recession seems to have dampened the nation's enthusiasm for any measure that could affect—or, perhaps just as important, be portrayed as affecting—people's pocketbooks. Last month, when Gallup asked Americans whether "protection of the environment should be given priority, even at the risk of curbing economic growth," only 42 percent said yes. This was the lowest proportion in the 25 years since the firm started asking the question. Results like these do not make action on climate change any less imperative. But—especially since opponents can be counted on to spend tens of millions of dollars on lobbying—they do make it that much less likely.

This week, when Earth Day turns 39, the New York City Department of Parks and Recreation will plant trees. The Interior Department will host a fair in Washington's Rawlins Park, and in Bloomington, volunteers will teach sixth-graders about karsts and creeks. As perhaps befits a middle-aged celebration, these are all eminently reasonable activities. But Earth Day has lost its edge and, with that, the sense that a different world is possible. Even more than in 1970, what's needed now is an outpouring that organizes itself—with millions of people and, for good measure, some stinky dead fish in the streets.

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Buying at the Bottom

Tue, 21 Apr 2009 04:00:00 GMT

Davis Nguyen thought long and hard about investing in foreclosed homes, but plunging interest rates convinced him that it was time to dive into the housing market.

So the San Jose, California, man bought not one, but two investment properties.

"I decided to jump in because the sales price is reasonable to make a long-term investment," Nguyen said. "I'm looking for something that is easy to rent because I need to make a little bit of profit."

Since last fall, Nguyen began looking for three-bedroom, two-bath homes ranging in price from $290,000 to $350,000 in three zip codes: 95121, 95148, and 95112.

With the help of Paul Conti, a residential broker with Altera Real Estate Services, Nguyen became one of dozens of investors who have decided that bottom or not, 5-percent interest rates are too good to pass up.

"I think it's a great idea," said Quincy Virgilio, president of the Santa Clara County Association of Realtors. "You need investors in our residential marketplace to help move that inventory. The amount of people looking for rentals has been displaced, and you couldn't pick a better time for buying."

As with any investment, performing due diligence on the property is key.

Marylou Wathen, an agent with Key Realty and Lending of San Jose, advised investors to "go through each home with a fine-tooth comb."

"You have to do your homework. A lot of homes are not in livable condition," she said. "Sometimes people are so angry, they destroy their homes by taking the sinks and the appliances."

Wathen said she recently handled a sale in Willow Glen where the owners gutted the house, walking away with the fixtures and air-conditioning unit.

She also advised investors to check public records to ensure the square footage is accurate, determine whether the price is low compared with other sales in the neighborhood, and find out how much work will be required on the house before it can be rented.

"A good investor will know the answers to these questions," Wathen said. "And they will know where the rental market is going. I think it's a good investment opportunity if you buy a fixer-upper and hold onto it," she said. "This is not a flipping market."

Conti said bargains seem to be everywhere because prices have fallen several hundred thousand dollars below what they sold for just two years ago, but it's still wise to be cautious.

"It's definitely a good investment opportunity, but if you invest in areas hit hard with foreclosures, the appreciation historically is not really good," he said. "The question is: What's the appreciation? When you see appreciation, you will see equity grow."

The Future of the Phone: The End of the Cell

Mon, 20 Apr 2009 20:00:00 GMT

ost Americans now have mobile phones, and a Nielsen Mobile report last year found that nearly one in five of us have cut the cord, abandoning our landline service entirely. Danny Kessler of Tempe, Arizona, is one of those people, except he has gone the next step: He recently gave up his cell-phone contract too. Kessler's no hermit: He's a 27-year-old personal-safety instructor who has to be in touch with his clients. He just does all his telephoning via the internet. Today Kessler is an anomaly, but internet telephony (a.k.a. voice-over-internet-protocol, or VoIP) is in a position to dominate the phone business of the future just as mobile usurped the throne of the hard-wired handset.

It may seem outlandish to imagine the phone networks being supplanted by VoIP, which is currently hobbled by spotty internet access and mobile carriers protecting their interests. But only a few years ago it would have seemed equally unlikely that Americans would jilt stable old Ma Bell in favor of their bulky, glitchy, expensive mobile phones. Yet VoIP has one huge factor in its favor: It is very, very cheap. Kessler pays $18 per month for his phone service, a figure that, in his words, "is a lot less expensive than a traditional phone." In the middle of this economic crunch he's not alone in his thinking, and already VoIP is starting to turn some $40 landlines and even mobile contracts into unnecessary luxuries: According to a recent Yankee Group report, 5.2 percent of Americans already use VoIP as their primary home phone.

What allowed mobiles to decimate the traditional phone market was comprehensive, reliable portability—the assurance that you could make and receive calls basically anywhere you went. Before it can replace them, VoIP will have to be a lot more portable too. At the moment, internet telephony generally works best over wired or WiFi internet connections. Recently, however, VoIP became available for the phone-contract-free iPod Touch, making it functionally as much a phone as the regular iPhone, except without the two-year AT&T contract.

The catch, however, is that to use VoIP from a mobile device like the iPod Touch (or, for that matter, an iPhone) there must be a wireless hotspot handy. Yet, there are a couple of reasons to think that WiFi may become as ubiquitous in the next few years as cell-phone coverage is now. One possibility is that omnipresent wireless internet access may come to be considered a basic public utility—something any modern city provides as part of its infrastructure. Philadelphia, for instance, has been struggling for a few years to set up a citywide WiFi network; Mountain View, California, has cracked the problem by having Google take care of it.

Another possibility is that mobile networks that already exist will open up to VoIP companies like Vonage, Skype, and Google Voice. That's a scary prospect for them, because it effectively redefines them from "the company you pay for mobile-phone service (and maybe get some data over your phone too)" to "the company you pay for your handheld computer to be connected to the internet." In other words, wireless carriers will have to lower their drawbridges and allow two-cent-or-less-a-minute VoIP calls (for which they're not getting paid at all) to compete with their current, much higher rates. Those rates would have to fall, because if one can make calls via VoIP over an internet-enabled handset, there would be no reason to pay a premium for cell-phone minutes. The mobile networks might have to get used to the new financial reality pretty soon, though: the WiMAX data carrier Clearwire is already testing VoIP phones for its network in Portland, Oregon.

In the meantime, Kessler has discovered that today's limited WiFi access already lets him be as mobile as he needs to be. "A lot of places now have free WiFi," he says. "I operate in an office affiliated with Arizona State—it's got a big WiFi hotspot. Any place there's a computer, I can log into Skype and plug in my headphones." So far, he claims, he hasn't run into any situations where he's needed to make a call but hasn't been able to get online. "It hasn't been much of an issue. I respond pretty fast to most communication, but I find after having a cell phone for 10 years I like to shut everything down and have time for reflection."

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The Future of the Phone: Dialing for Dollars

Mon, 20 Apr 2009 20:00:00 GMT

Since the advent of the first, achingly slow-cell phone Web browsers a decade ago, smart-phone evangelists have predicted an impending golden age of the mobile internet. Your phone would serve as a mini laptop, the story went, not only enabling you to communicate through voice, text, and email, but also harnessing the Web to let you conduct business, decipher facts about your location, and entertain you along the way. To enable that dream, mobile carriers sunk billions into high-speed networks, while handset makers fashioned fancier displays, longer battery lives, and ever-deeper wells of storage.

There was only one problem: mobile-phone software, in a word, sucked. Just a few years ago, says Morgan Gillis, the executive director of the LiMo Foundation, a consortium developing an open-source mobile operating system, “the mobile industry had reached crisis point.” The devices themselves were “mired in software stagnation,” he says. “The consumer, expected to be enthralled by expensive plastic, was becoming increasingly frustrated with their inability to access the mobile internet.”

Enter the iPhone application store. When Apple enabled outside programmers to design—and customers to buy or download gratis—programs, games, and widgets for their phones, the company unleashed an avalanche of creativity and entrepreneurship that is beginning to reshape the industry. Earlier this year, the number of application downloads from the iPhone and iPod Touch store surpassed 500 million. More significantly, copycat application stores are popping up all over the block. Google opened its Android Market, a software store for its open-source handset operating system, at the end of last year. Research in Motion followed suit with a BlackBerry store in April. Palm, Microsoft, and Nokia are all rushing to launch their software bazaars in the coming months.

Most of the companies who will actually stock the shelves of these mobile storefronts don’t even exist yet. And very little of what they’ll make will have anything to do with actually talking on the phone. It’s already almost a quaint misnomer to refer to the plastic computer in your pocket as a “telephone” at all.

Before the golden age, however, has come the gold rush, a Wild West reminiscent of the early days of the Web itself. Driven by tales of programmers trading their day jobs for iPhone riches—and the persistent fame of programs like the 99-cent iFart, which regularly rakes in north of $10,000 a day as one of the iPhone’s top applications—developers and startups are prospecting for quick cash. Established brands, meanwhile, are desperate to build something, anything, to stake a claim in the mobile world. “I’ve had meetings with people who are saying ‘We think we need an iPhone app!’ But there isn’t a business strategy, there’s no research, no logic,” says Jason Grigsby, vice president of the mobile software company Cloud Four and one of the developers behind the wildly successful Obama campaign iPhone application. “It’s almost heresy to suggest that if you put something in the apps store, you are not necessarily going to make a lot of money.”

Just as on the Web, though, the initial land grab will peter out, and developers will instead focus on building more and more complexity into mobile software. Within five years, predicts Gillis, easy-to-use design programs will emerge that allow almost anyone to develop applications, much as blogging software has done for publishing online. “If you have an idea, you can design and distribute an application, whether you’re motivated by financial reasons or social reasons,” he says. “We are just scratching the surface of the potential of the human race to innovate on a mobile device.”

For now, the mobile industry stands at that alluring juncture where the creative potential seems virtually limitless and the best ideas still remain to be discovered. Mobile phones, points out Grigsby, “are the largest technology basis on the planet: 4 billion devices. There is really nothing like that, unless you are talking about shovels.”

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Crichton's Last Thriller

Mon, 20 Apr 2009 04:00:00 GMT

The publishing world is abuzz with news that Michael Crichton, the bestselling author of science fiction thrillers such as Jurassic Park and The Andromeda Strain, left behind at least one finished novel and part of a second when he died of cancer last November.

HarperCollins plans to publish both novels over the next year and a half as part of a $30 million book deal Crichton signed in 2001.

But the prolific Crichton, who was married five times and also created the hit TV series ER, which ended a 15-year run this month, left behind another, even bigger piece of unfinished business: the fate of a son born three months after the author died.

The son, John Michael Todd Crichton, isn't mentioned in Crichton's will, but as an "omitted child" in legal theory, he may nonetheless be entitled to one-third of the writer's estate. The amount at stake is not known, but may well reach into nine figures: By one account, Crichton earned $100 million a year in his prime.

In a dramatic twist worthy of Crichton himself, his widow—Sherri Alexander Crichton, who signed a prenuptial agreement limiting her share of the estate—is seeking to be named guardian of her son's property. Success would essentially let her circumvent the prenuptial pact.

Crichton had only one other child, a daughter named Taylor Anne Crichton, whom he had with his fourth wife, the actress and screenwriter Anne-Marie Martin. Taylor is named in Crichton's will, which was filed in probate petition in Los Angeles on January 26—coincidentally, the day Taylor turned 20.

The will leaves Crichton's estate plan mostly a mystery: Like many celebrities and wealthy people, he put the "residue" of his estate—legal jargon for everything, essentially—into a family trust. (Documents for the John Michael Crichton Trust, unfortunately, are not public.)

Crichton's will consists largely of standard boilerplate language, but there are also some pointed instructions aimed squarely at his legion of ex-spouses. The first paragraph, for instance, makes clear: "I have intentionally omitted to provide for Anne-Marie and my other former spouses under the terms of this will."

Later on, there is a reminder of the prenuptial agreement he signed with Sherri in April 2005, and Crichton instructs his executor "to be bound by the terms" of that deal. So that, apparently, took care of the wives.

But what of the children? Taylor, named in the will, is also listed as one of the beneficiaries of the private trust. What she will get is anybody's guess. But as an "omitted child," two-month-old John stands to collect one-third of his famous father's fortune.

Crichton's family said the author, who was 66, died "unexpectedly" on November 4 after "a courageous and private battle against cancer." A long-time smoker, Crichton reportedly died of throat cancer, but the length of his battle with that disease—and whether he knew of his wife's pregnancy—are a mystery.

It is entirely possible that Crichton never got around to changing his will—which was last amended in October 2007—to address his second child. The law in California and many other states provides for this circumstance, leaving a way for a child born after the signing of a will to claim his or her inheritance as if the parent had died without an estate plan.

"In order to leave your kid out, you have to consciously make that decision," says Kenneth S. Wolf of Hoffman Sabban & Watanmaker of Los Angeles, a firm that specializes in estate planning. Rules for "omitted" or "pretermitted" children "go back to the Middle Ages," he says.

But Crichton's will contains a bit of 20th-century lawyering that may complicate matters. In a provision under the heading, "incontestability," the will states: "I have intentionally made no provision in this will for any of my heirs or relatives who are not herein mentioned or designated, and I hereby generally and specifically disinherit every person claiming to be or who may be determined to be my heir-at-law, except as otherwise mentioned in this will."

Given Crichton's prolific romantic life, this language would seem to block surprise offspring from coming out of the woodwork. After all, another clause states emphatically that Crichton would disinherit any person making a claim under "common-law marriage" or the theory in Marvin v. Marvin, the 1979 case brought by actor Lee Marvin's live-in girlfriend, seeking rights to his property.

To make her case for control of her son's share of the estate, Sherri Crichton has retained Adam Streisand of the Los Angeles office of Loeb & Loeb, a trial lawyer renowned for courtroom victories regarding the estates of celebrities, including Ray Charles and Marlon Brando.

That she has turned to a high-profile litigator may suggest she is gearing up for a courtroom battle to contest the will's language on unmentioned heirs. Streisand did not return several calls for comment, but other lawyers said Sherri appears to have a good case.

Wolf, for one, described the "incontestability" clause as "a pretty standard clause," and one drafted in 2007, long before the infant was born and thus not obviously intended to exclude the boy.

Alan Yoshitake, head of the trusts and estates group at Los Angeles' Seyfarth Shaw, called it a "beefed-up no-contest clause," but added that his "strong belief" is that the omitted-child statute would let the infant share his father's fortune.

At any rate, the child has nothing to lose by contesting away, because he's not a named beneficiary. "The no-contest clause is only useful if you are threatening to take something away," says Susan House of Hahn & Hahn in Pasadena, California. "Here we have someone who was not even alive at the time the will was executed, and that is in fact the whole point."

Ironically, had Streisand, Sherri's lawyer, drafted the will in question, he might have rendered the infant out of luck: In a November 2007 article for The Hollywood Reporter, called "Nine Things Entertainment Lawyers Should Know About Probate," Streisand observed: "Celebrities tend to be prolific in all things, including having children out of wedlock."

To avoid heirs claiming their share as omitted children, Streisand wrote, a will or trust should "very specifically" indicate a "clear intention" not to provide for any child not named, "no matter when that child may be born (before or after the execution of the document.)"

Lucky for young John, Crichton's estate lawyer was not Streisand but Burton A. Mitchell of Jeffer Mangels Butler & Marmaro in Los Angeles. Mitchell did not return repeated calls for comment.Related Links
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Memorable Marketing

Fri, 17 Apr 2009 04:00:00 GMT

Surprise marketing is Target previewing Alexander McQueen at a pop-up store on Manhattan’s far West Side. It’s a phone number on customized Levi’s jeans that leads to the brand’s concierge service.

It’s not simply offering excellent service or quality products.

Although many marketers are hitting notes considered comfortable and familiar because of the recession, sounding chords of surprise has merits, marketing consultant Andy Nulman said. This form of marketing creates a sense of “pow,” versus those moments of “wow,” he explained. It’s the difference between “total shock” (pow) and “exceeding expectations” (wow), like the difference between a “major upset” in sports (pow) and a “great game” (wow), or a “new hair color” (pow) and a “haircut” (wow).

“It can make it more palatable, more bearable to take something on” in a weak economy, said Nulman, the author of Pow! Right Between the Eyes (John Wiley & Sons; $22.95). “It can give you a jolt. You may not buy, but you’ll get a lift from it.”

Surprise is stumbling upon Target’s McQ Market, which was so far over on lower Manhattan’s West Side it was practically in the water. Surprise marketing is finding the gift of a commemorative Citi Field key fob on opening day on a table at Blue Smoke, a Danny Meyers restaurant in the FlatIron District with an outpost at the Mets’ new home. It’s viewing a silent, 30-second TV commercial for Carmel Car and Limousine Service on ESPN, CNN and MSNBC in which the nationwide firm promises in words crawling across the screen: “In times of economic turmoil, we want to give you a moment of peace and quiet…on us.”

Surprise marketing offers “quality that fascinates,” such as Nulman experienced in a visit to Japan, where he rode in taxi cabs with “lace-covered seats,” was offered umbrella covers at stores so the umbrellas didn’t drip while he shopped, and was provided with “sparkling clean” shirts and shorts to wear for his workout at a gym.

Nulman said surprise marketing moves beyond “quality that is expected,” beyond the quality that would characterize, say, enjoying a good meal from Whole Foods or discovering cutting-edge designer fashions from Barneys New York.

Taking things out of context is one way to stir surprise, like playing classical music in a locker room before a big game, serving Coca-Cola in Champagne flutes, or as Nulman put it in “Pow!”: “Anything that switches two norms into one abnorm.”

This tactic was used in February at Target’s McQ Market, one of 10 pop-ups it has staged since its first temporary shop in 2002. The pop-up provided a sneak peak for shoppers and potential buzz for Target: McQueen’s apparel and outerwear, priced from $19.99 to $129.99, wasn’t being sold at the chain until 18 days later.

By the second afternoon—Feb. 15—of a two-day, limited engagement, more than 1,000 fashion aficionados and others had found their way into the Target McQ Market, which housed Alexander McQueen’s new McQ collection that drew a total of about 4,800 visitors, including guests at a preview for celebrities and media, said Joshua Thomas, a Target spokesman. The dates were chosen to coincide with New York Fashion Week.

(For more of Philip Gaedicke's photos of the Target McQ Market, click here to be taken to the site HighSnobiety.com.)

Sitting across West Street from the Hudson River, with traffic zipping by at high speed, the shop could have been easy to miss. It temporarily occupied the ground floor of an empty warehouse, the entrance marked by split plastic drapes (think car wash), metal pins “piercing” the facade, arrow-in-Target-bull’s-eye stencils, and the spray painted graffiti: “Target McQ Market.”

The element of surprise continued inside. Dim lighting, androgynous poster models in klieg spotlights (“Rebel looks. Civil prices.”), and DJ Mel DeBarge spinning dance tunes like “December 1963 (Oh What a Night)” and “Could You Be Loved” set the scene for the McQ collection’s unisex styles.

The works of 10 New York City-based artists, such as paper sculptures with gesso and enamel by Chris Caccamise and computer screen savers by Trisha Baga, sprung from the shop’s clubby atmosphere. Curators roamed and engaged visitors in conversation. The pieces were chance finds amid apparel displays set in front of chain-link fences and rough-hewn, painted plywood.

“I like to present work in a different context for people who aren’t the usual art people,” said Caccamise, who didn’t expect to be sought by fashion production house OBO to create two sculptures for Target’s pop-up. A sense of the unlikely also inspired his “Fashion Designer ’09” and “Pat Benatar 1980,” pieces bringing the artist a $1,000 commission. An Alexander McQueen quote in The New York Times about the designer’s new venture with Target—“I’m bringing my culture to them”—struck Caccamise as “funny” and a show of “hubris,” and it became a type element in the “Fashion Designer ’09” sculpture.

Another surprise tactic was exemplified in a huge Domino’s Pizza giveaway that resulted from a computer snafu. It qualified for what Nulman, president of marketing agency Airborne Mobile, calls time-bombing, or “secrecy up front, explosiveness down the road.”

On the last day of March, Domino’s was scrambling to shut an inadvertent freebie: It mistakenly gave away $90,000 worth of pizzas, with one topping, at shops nationwide, many of them in Cincinnati and Salt Lake City. Playing around with key words in Domino’s online search engine, someone entered the word “bailout,” which still appears in the Web site’s Big Taste Bailout promotion. This triggered credit for a free medium pie at their local shop’s electronic cash register, even though the deal hadn’t been green-lighted at corporate headquarters.

When the dust cleared, 11,000 pizzas had been given away, as the password spread quickly online. In a show good faith (and humor) to people disappointed when it nixed the giveaway, Domino’s offered a free dessert order of Cinna Stix via blogs that had spread the “bailout” password and in cell-phone text messages to customers in its opt-in marketing program, said Tim McIntyre, vice president of communications at Domino’s Pizza Inc.

Marc Gobé, chief executive officer of Emotional Branding, believes people need change—and when faced with too much similarity they will disconnect.

Brands that surprise people can communicate with them, Gobé has said.

On Election Day, Oren’s Daily Roast, a New York City chain of coffee shops, introduced and gave away “Blend 44” coffee consisting of beans symbolizing and chuckling over Barack Obama’s Kenyan and Hawaiian (Kona beans) roots, his days at Harvard Law School (Ethiopian Harrar) and his two years at Occidental College in Los Angeles (L-a Minita Costa Rica.) The joke also references the 44th U.S. president’s junior and senior years at Columbia University and his family’s new District of Columbia address, with two kinds of Colombian beans.

Upon spotting a phone number on the right thigh of his customized Levi’s jeans, Nulman himself had a time-bombing moment. Nulman dialed the number and discovered the brand’s concierge service, which offered him and three guests a “Champagne-fueled, one-hour shopping experience” at Levi’s San Francisco flagship.

Another pow for Nulman was the discovery of his new, favorite, $9 pajamas at Wal-Mart that have supplanted his Paul Smith pajamas as his top pair. Stranded without lost luggage for two days during a recent ski trip in Idaho, he outfitted himself and his sons for just $279 at Wal-Mart. “Did you know you can get Levi’s for $25 at Wal-Mart?” said Nulman, who nonetheless was wearing a Dubuc-designed, Sgt. Pepper-esque navy jacket as a shirt and still prefers his denimwear premium and custom.