P2JW024000-2-B00100-1--------XA
CMYK
Composite
CL,CN,CX,DL,DM,DX,EE,EU,FL,HO,KC,MW,NC,NE,NY,PH,PN,RM,SA,SC,SL,SW,TU,WB,WE
BGN,BMT,BRX,CCA,CHR,CKP,CPD,CXT,DNV,DRG,HAW,HLD,KCS,LAG,LAT,LKD,MIA,MLJ,NMX,PAL,PHI,PVN,SEA,TDM,TUS,UTA,WOK
EARNINGS B4 | MEDIA & MARKETING B6 | SMALL BUSINESS B9 | BUSINESS TECHNOLOGY B11 | WEATHER B12
Junk Mail Gets Personal
Big Data Tells Direct Marketers All
© 2013 Dow Jones & Company. All Rights Reserved.
Rivals Give
Coach a Race
EARNINGS B6
BUSINESS TECHNOLOGY B11
THE WALL STREET JOURNAL.
**
Thursday, January 24, 2013 | B1
Déjà Vu for
Sears CEO:
Fix Kmart
Full Stream Ahead
Netflix segment contribution to
profit, in millions
$200
150
BY DANA MATTIOLI
Domestic DVD
100
As Eddie Lampert settles into
the corner office of Sears Holdings Corp., the new chief executive is likely to again come face
to face with Kmart, the retailer
he bought out of bankruptcy.
The chain, which sells everything from apparel and home
goods to consumer electronics,
has stumbled in recent quarters
because of increased competition, missteps in its grocery
business and turf battles in the
urban areas where it has traditionally been strongest.
Sears Holdings faces challenges
across its operations, with sales in
decline and credit analysts concerned about its ability to generate cash. But the namesake Sears
chain’s domestic losses have narrowed, and it has defensible positions in such categories as appliances and fitness equipment.
Meanwhile, Kmart, which accounted for about 37% of the
holding company’s 2011 revenue
and is the asset upon which Mr.
Lampert built his departmentstore empire over the past decade, is watching its sales move
in the wrong direction.
In November and December,
Kmart’s same-store sales fell
3.8%, while Sears’s domestic
same-store sales rose 0.5%.
Gary Balter, a retail analyst at
Credit Suisse, described Kmart
as “terminally challenged” in a
recent research report. “What’s
Kmart’s strength?” he said in an
interview. “There isn’t one to
speak of.”
On a recent trip to a Manhattan Kmart, unfolded pajama sets
were sprawled across a table and
abandoned carts full of merchandise were visible on both floors
of the store. The tile floors
looked as though they hadn’t
been mopped in some time, and
clothes were piled in the corners
of the dressing rooms.
Lori Berger visited the Manhattan store recently to grab a
pair of stockings. “I normally
don’t shop here,” said the 57year-old mother of three who
normally goes to Kohl’s, Gap and
Ann Taylor Loft. “The store
doesn’t look that great. It could
be cleaner.”
The company has been working on getting customers into its
stores more frequently. It introduced a loyalty program that
gives Kmart and Sears shoppers
points that can be applied to future purchases. It has also
launched services like bill payment and check cashing on site,
and it has set up clothing partnerships with pop stars Nicki
Minaj and Adam Levine that will
launch later this year.
“Just two short years ago,
Kmart reported a full year of
positive same-store sales,”
Kmart spokesman Howard Riefs
said in an email. “We’ve done it
before, and we will do it again.”
He also noted that “with our
strong geographic footprint, 75%
of the country lives within 15
miles of a Kmart.”
In early January, Mr. Lampert
Please turn to page B10
50
Domestic
streaming
0
International
streaming
–50
–100
Polio Vaccine:
An injectable vaccine
(1955) began eradication
of the disease, later
superseded by an oral
vaccine (1961) that
prevented transmission.
Smartphone:
Nokia’s first
smartphone in 1996,
the Communicator,
could email, fax and
Web surf but was too
thick and heavy for
mass adoption.
Color TV:
The picture in early
color TVs was blurry
and artificial looking.
Air Bags:
When first introduced,
they were too powerful
and resulted in some
fatalities of children.
Newton:
Apple’s first prototablet (1993-1998)
was panned for its
poor handwriting
recognition and
short battery life.
Red M&Ms:
The candies were
discontinued in 1976
because of concerns
over the red dye; they
returned 11 years later.
Bruno Mallart
Innovation Is Messy Business
Boeing’s Dreamliner Shows How Problems Often Mar Technological Advances
BY DANIEL MICHAELS
Nine years ago, Boeing Co.
executives decided to take the
biggest leap in airliner technology in a generation and develop
the 787 Dreamliner. They promised it would burn less fuel
while flying farther and offering
more passenger comfort than
existing models.
The plane would be “a true
game-changer for the industry
and traveling public,” said Boeing’s then-chief executive, Harry
Stonecipher. The 787 also
showed Boeing’s “commitment
to innovation.”
Airlines, eager to save money
and woo fliers, ordered a record
numbers of Dreamliners, now
totaling 848 planes. Rival Airbus remade its product line in
response.
Today, Boeing is struggling
to master its innovations. The
Dreamliner’s body and wings,
made of plastic reinforced with
carbon fiber, have proven unexpectedly hard to produce and
attach. Power-distribution panels running the plane’s advanced electrical systems have
overheated and ignited in flight.
Most recently, lithium-ion
batteries that provide auxiliary
power—and were themselves a
first in commercial aviation—
have caught fire, prompting
regulators
world-wide
to
ground all 50 Dreamliners in
service.
Companies, governments and
academics have made “innovation” a buzzword for competing
in the global economy. Boeing’s
experience offers a reminder
that innovation—for all its
value—doesn’t come as easily as
a catchphrase. It can get messy.
Boeing has reshaped travel
over the past half-century with
bold technological leaps such as
the 747. The original jumbo jet
in 1970 opened air travel to the
masses and connected cities as
distant as Seattle and Tokyo.
The plane cemented Boeing’s
position as the world’s premier
jetliner producer for three decades. But it first nearly bankrupted the company due to
technical problems and slow orders.
Boeing’s backers say the
Dreamliner will prove just as
revolutionary. But its problems
again show the traumas that innovation can bring. The Airbus
unit of European Aeronautic
Defence & Space Co. and
smaller plane makers have also
recently faced similar, if less
dramatic, crises with some of
their most promising advances.
“As a CEO of a high-tech
company, you have mixed feelings about innovation,” said
EADS Chief Executive Tom
Enders last spring, as the company grappled with cracks inside the wings of its newest
plane in the skies, the A380 superjumbo.
Mr. Enders, who then ran
Airbus, noted that every innovation carries risk. “But if you’re
too risk-averse, the competition
will kill you,” he added. “Either
way, you’re walking a tightrope.”
Boeing declined to comment
for this article.
The history of innovation, of
course, is littered with failures.
Even Thomas Edison bet badly,
as in his development of directcurrent electricity that proved
inferior to alternating current.
Aviation innovation is especially risky because the stakes
are so high. A crashed laptop
might lose data, but a crashed
Please turn to the next page
More on Boeing
 Latest news on the U.S.,
Japanese investigations into
the 787’s batteries ............. B2
 Michael Dell wants his own
Dreamliner................................. B2
Site Unseen: More ‘Angels’ Invest Via Internet
Risks Abound, but Investors Search for Promising Startups
Jason Henry for The Wall Street Journal
BY SARAH E. NEEDLEMAN
AND LORA KOLODNY
After Adam Winter read about
a roving teleconferencing robot,
he got a hunch that the $2,000
gadget might become the next
big thing.
So the 38-year-old from Columbus, Ohio, sat down at his
computer earlier this month,
clicked a button and committed
to plunk $10,000
SMALL
from his bank acBUSINESS count into the Silicon Valley startup
that developed the robot.
Mr. Winter used an investment website called AngelList
and its new “Invest” button.
“You say how much, hit ‘go,’ and
you’re committed,” he said. “It’s
almost as easy as the Amazon
one-click checkout.”
“It’s a totally new way of raising startup capital,” says David
Cann, co-founder of Double Robotics, the Sunnyvale, Calif., firm
in which Mr. Winter invested.
About 50 “angels,” or individ-
ual investors in small businesses
and startups, put money into
Double Robotics with the Invest
button.
Neither the 31-year-old Mr.
Cann, nor his 28-year-old partner, Marc DeVidts, have met any
of those investors. “Money is
money,” Mr. Cann says. “We’re
happy to take it from whomever.”
AngelList (Angel.co), a networking site for entrepreneurs
and investors, has been around a
couple of years but previously
offered users only the opportunity to create a profile and share
information, hoping to raise
money in the process.
Some critics say it is foolhardy to rely heavily on online
research and tools to make
startup-investment decisions,
without ever meeting or even
talking to the entrepreneurs involved.
“You’re adding a whole layer
of risk to an already very risky
investment class,” says Jeffrey
Sohl, director of the Center for
Venture Research at the University of New Hampshire. “With
most of these investments,
you’re going to lose money.”
The AngelList site prominently posts stern caveats, stating bluntly, “Startups are very
risky investments. Expect to lose
your money.” AngelList also
warns that it doesn’t verify the
information posted by startups.
It is more than a Wild West,
though. The Invest tool on AngelList is powered by New Yorkbased SecondMarket, an investment platform that is licensed as
a broker-dealer by the Financial
Industry Regulatory Authority
and Securities and Exchange
Commission. It allows up to 95
accredited investors—individuals
with a net worth of more than $1
million, or with annual income
exceeding $200,000 for more
than two consecutive years—to
commit as little as $1,000 each in
a startup. Forming something
called a single security fund for
each deal, SecondMarket alleviPlease turn to page B9
P2JW024000-2-B00100-1--------XA
David Cann, CEO
and co-founder of
Double Robotics,
which has found
‘angel’ investors
through the
Internet.
4Q
1Q
Source: 2011
the company
The Wall Street Journal
Source: the company
The Wall Street Journal
2Q 3Q
2012
4Q
Netflix
Shares
Surge 35%
On Profit
BY GREG BENSINGER
Netflix Inc. capped a turbulent year by posting a surprise
fourth-quarter profit and adding
more Internet subscribers than
expected, news that sent its
stock rocketing about 35% in after-hours trading.
As the movie-subscription
company expanded internationally and paid handsomely for
more video content, Wall Street
had been braced for a loss of
about 13 cents a share. But Netflix reported a profit of $8 million, or 13 cents a share. In the
year-earlier quarter, profit totaled $35 million, or 64 cents a
share.
“Our holiday season was particularly strong, driven by consumers buying new electronic
devices, including tablets and
smart TVs,” said Netflix Chief
Executive Reed Hastings in a letter to investors Wednesday.
Fourth-quarter revenue rose
to $945 million from $876 million a year earlier.
Shares of Netflix soared to
$139, up $35.74, in after-hours
trading. The shares still are far
off their high of roughly $300 in
2011, although the stock rallied
49% last year.
The results follow a tempestuous 2012 for Netflix. Competition from streaming-content rivals such as Amazon.com Inc.
stiffened, and Mr. Hastings had
to deal with regulatory scrutiny
for a post he made on Facebook,
in which he boasted that Netflix
had exceeded 1 billion hours of
video streaming in a month.
In addition, investor Carl
Icahn bought a nearly 10% stake
in Netflix in October, aiming to
boost the stock price and maybe
find a buyer for the company.
Mr. Icahn, who has more than
doubled his investment, couldn’t
be reached for comment.
Overall, Netflix finished the
quarter with 27.15 million U.S.
streaming subscribers, a gain of
2.05 million, and 6.12 million
outside its home market, an increase of 1.81 million.
While those numbers beat its
expectations, Netflix failed to
reach a goal set early in 2012 to
add 7 million U.S. streaming subscriptions by year end. It finished the year with 5.48 million
new $8-per-month streaming accounts.
Expansion in Europe and
South America has come at a
cost: Netflix reported a $105 million loss on its international operations.
On Wednesday, the Los Gatos,
Calif., company said it wouldn’t
expand into any new international markets in the current
quarter, slowing what has been a
rapid march overseas.
The more profitable DVD-bymail service continued to shed
customers, a trend Netflix has
said it expects will endure for
the foreseeable future.
In last year’s final three
months, Netflix lost 380,000
DVD customers, about half as
many as in the third quarter, and
it forecast another as many as
620,000 losses in this year’s first
quarter.
Corporate Intel>>
Scan this image
to access
coverage and
analysis of
breaking business
at WSJ.com.
Composite
MAGENTA
BLACK
CYAN
YELLOW