.ues, iere a: ible. w>w::; ons. z w '".our w x"j -c > '"z alth 0 ~ 'o·~ a:... '" OUt ~ . ~ent~·~ ...:::on for volatility 36 i? The dangers of Faecbook 37 > Video for the small screen-and any other sized screen, too 38U I~~~octor on your wrist 38 "·Innovator: Todd Rider has a kill switch for viruses 40 QJ Edited by Barrett W. Sheridan . e h ology Apple's Supply-Chain Secret? Hoard Lasers ~ The iPhone maker spends lavishly on all stages of the manufacturing process ••."Operations expertise is as big an asset for Apple as grQduct innovation": --'--' -- ...-,~.--.---~- --- > <;. About five years ago, Apple '~-'toa massive competitive advantage for design gurujony lve Apple: Operations. This is the world of decided he wanted a new manufacturing, procurement, and 10- feature for the next MacBook: gisticsin which the new chief executive a small dot of green light above officer,Tim Cook, excelled, earning him the screen, shining through the trust of Stevejobs. Accordingto more '~~!!!IJII•••.the computer's aluminum than a dozen interviews with former.-> •.. casing to indicate when employees, executiyes.at-snpplfers,' -- )!~,'<:C!I!ler5!was on. J'he._. _._and.managemerif~'perts-familiarwit:lr' problem? It's physically the company's operations, Apple has __»< impossible.to shine light built a dosed ecosystem wh~jt--¢Xerts are.often in the single digits, is "exactly 'through metal. control over nearly every-pieceof the what people said when Applegot into lve called in a team supply chain, from-designto retail store. cell phones," says Munster. of manufacturing and Because o£it:SVolume~andits occasional Apple began innovating on the nitty- materials experts to figure ruthlessness-Apple gets big discounts on gritty details of supply-chain manage- out how to make the irn- __ -parts, manufacturing capacity, and air ment almost immediately upon Steve possible possible, accord- freight. "Operations expertise is as big jobs's return in 1997. At the time, most ing to a former employ- an asset for Ayple as product innovation computer manufacturers transported ~" ee familiar with or marketing," says MikeFawkes,the products by sea, a far cheaper option the development former-supply-chainchief at Hewlett- than air freight. To ensure that the com- who requested Packard and now a venture capitalist pany's new, translucent blue iMacs anonymity to avoid with VantagePoint Capital Partners. would be widely available at Christmas irking Apple. The ."They've taken operational excellenceto the followingyear, jobs paid $50 mil- team discovered It- a level never seen before." lion to buy up all the available holiday could use a customized This operational edge is what enables air freight space, saysjohn Martin, a laser to poke holes in the Apple to handle massiveproduct launch- logistics executive who worked with aluminum small enough to be es without having to maintainlarge",prof- Jobs to arrange the flights. The move ..~/~ nearly invisible to the human ey ...

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e h ology
Apple's Supply-Chain
Secret? Hoard Lasers

2. ~ The iPhone maker spends lavishly on all stages of the
manufacturing process
••."Operations expertise is as big an asset for Apple as grQduct
innovation": --'--'
-- ...-,~.--.---~- --- > <;.
About five years ago, Apple '~-'toa massive competitive
advantage for
design gurujony lve Apple: Operations. This is the world of
decided he wanted a new manufacturing, procurement, and 10-
feature for the next MacBook: gisticsin which the new chief
executive
a small dot of green light above officer,Tim Cook, excelled,
earning him
the screen, shining through the trust of Stevejobs. Accordingto
more
'~~!!!IJII•••.the computer's aluminum than a dozen interviews
with former.->
•.. casing to indicate when employees, executiyes.at-snpplfers,'
--
)!~,'<:C!I!ler5!was on. J'he._. _._and.managemerif~'perts-
familiarwit:lr'
problem? It's physically the company's operations, Apple has
__»<
impossible.to shine light built a dosed ecosystem wh~jt--¢Xerts
are.often in the single digits, is "exactly
'through metal. control over nearly every-pieceof the what
people said when Applegot into
lve called in a team supply chain, from-designto retail store.
cell phones," says Munster.

3. of manufacturing and Because o£it:SVolume~andits occasional
Apple began innovating on the nitty-
materials experts to figure ruthlessness-Apple gets big discounts
on gritty details of supply-chain manage-
out how to make the irn- __ -parts, manufacturing capacity, and
air ment almost immediately upon Steve
possible possible, accord- freight. "Operations expertise is as
big jobs's return in 1997. At the time, most
ing to a former employ- an asset for Ayple as product
innovation computer manufacturers transported
~" ee familiar with or marketing," says MikeFawkes,the
products by sea, a far cheaper option
the development former-supply-chainchief at Hewlett- than air
freight. To ensure that the com-
who requested Packard and now a venture capitalist pany's new,
translucent blue iMacs
anonymity to avoid with VantagePoint Capital Partners. would
be widely available at Christmas
irking Apple. The ."They've taken operational excellenceto the
followingyear, jobs paid $50 mil-
team discovered It- a level never seen before." lion to buy up all
the available holiday
could use a customized This operational edge is what enables
air freight space, saysjohn Martin, a
laser to poke holes in the Apple to handle massiveproduct
launch- logistics executive who worked with
aluminum small enough to be es without having to
maintainlarge",prof- Jobs to arrange the flights. The move ..~/~
nearly invisible to the human eye but it-sappinginventories. It's
allowed a com- handicapped rivals such as Compaq.that

4. big enough to let light through. pany often criticized for high
prices to later wanted to book air transporpshm-
.Applyingthat solution at massive sell its iPad at a price that
very few rivals larly, when iPod sales took off-if 2001,
volume was'a-different-matter.-Apple_can.beat"
whtle.stlll.eaminga.zspercent- . - Apple.realized.it.could.packso
mauy_ ,--,
needed lasers, and lots of them. The, __ margin on the device,
according to the of the diminutive music pilly-" -
team of experts found a U.S.company" estimates of Piper jaffray
analyst Gene ers on planes that itbecame
that made laser equipment for micro-
Munster.AndItfheiatestI1J!.Ilors are to economical to shiP them
di-
chip manufacturing which, after some. be believed, Apple's
operatiorl3J.-~er::.._' rectly from Chinese facto-
tweaking, could do the job. Each ma- tise is likelypart of what
givesthe com- "ries to consum-
chine typicallygoes for about $250,000. pany enough confidence
to enter the ers' doors. Wl1err:;'/"""
Apple convinced the seller to sign an ex- notoriously cutthroat
television market an HP staffer
clusivityagreement and has since bought by 2013 with a TVset
that would tightly bought one and
hundreds of them to make holes for the integrate with
existingApple software received it a few days
green lights that now shine on the com- likeiTunes. The
widespread skepticism later, tracking its progress
pany's MacB~okAirs,Trackpads, and over Apple's ability to
compete in.sy.ch around the world through Ap-
wireless keyboards. a price-sensitive market, wher:,e111argins
pie's website, "It was an 'Oh s-'
Mostof Apple'Scus- .- moment," recalls Fawkes.
tamers have probably never That mentality-spend exorbitantly

5. given that green light a second wherever necessary, and reap the
.'-,"?-,
thought, but its creation speaks benefits from greater volume in
the ~'J
It ; 2
I
i November 7 - November 13, 2011
Bloomberg Businessweek
I ----------------------------------------------I Technology
I .
I long run-is institutionalized throughout
, Apple's supply chain, and begins at the
design stage. Ive and his engineers some-
times spend months living out of hotel
rooms in order to be close to suppliers
and manufacturers, helping to tweak
the industrial processes that translate
prototypes into mass-produced devices.
For new designs such as the MacBook's
unibody shell, cut from a single piece of
aluminum, Apple's designers work with
suppliers to create new tooling equip-
ment. The decision to focus on a few
product lines, and to do little in the way
of customization, is a huge advantage.
"They have a very unified strategy, and
every part of their business is aligned
around that strategy," says Matthew

6. 1
Davis, a supply-chain analyst with Gart-
ner who has ranked Apple as the world's
I
best supply chain for the last four years.
When it's time to go into production,
Apple wields a big weapon: More than
$80 billion in cash and investments. The
company says it plans to nearly double
capital expenditures on its supply chain
in the next year, to $7.1billion, while
committing another _$2.4billion in pre-
payments to key suppliers. The tactic
ensures availability and low prices for
Apple-and sometimes limits the options
for everyone else. Before the release of
the iPhone 4 in Iune 2010, rivals such
as HTCcouldn't buy as many screens
as they needed because manufacturers
were busy filling Apple orders, according
to a former manager at HTC.To manu-
facture the iPad 2, Apple bought so many
high-end drills to.make the device's in-
ternal casing that other companies' wait
time for the machines stretched from six
weeks to six months, according to a man-
ager at the drillmaker.
Life as an Apple supplier is lucrative
because of the high volumes but painful
because of the strings attached. When
Apple asks for a price quote for parts

7. such as touchscreens, it demands a de-
tailed accounting of how the manufactur-
er arrived at the quote, including its es-
timates for material and labor costs, and
its own projected profit. Apple requires
many key suppliers to keep two weeks of
inventory within a mile of Apple'S assem-
bly plants in Asia, and sometimes doesn't
IPOs
Groupon's Roller Coaster
As of press time, the daily-deal site planned to go public on
Nov. 4
at a valuation as high as $11.4billion. It's been a rocky two
years for
the startup. +Douglas MacMillan
$25b
3/2011
Bankers discuss an IPO
valuing Groupon at
as much as $25 billion
Market valuation
:1 ~IIJ 11/2009,I Groupon is valued at
'1 $250 million, after a
II venture capital round,
$1 2.5b by Accel
II 2007Andrew Mason starts
1

8. 1
1,1, ( Grouponwith a
$1 million check from
Ii Eric Lefkofsky
II: $0 I
''i''""1''''1'''I'''''I'~'I''''!''''!''"~~...,..'!''''!''''!'''9'''''I'~'I'''I''''1''''''r''T'''
'!''''i_r DATA, BLOOMBERGfill " Ii ,,111"111111"11"1"1111
2008 2009 2010 2011
!
-.-~ -- -------------------
11/2011
After questions about
its finances,
Groupon 'settles on
a lower IPO range
12/2010
The board narrowly
. rejects a $6 billion ~
offer from Google ~
pay until as long as 90 days after it use"
part, according to an executive who ha
consulted for Apple and would not spe
on the record for fear of compromising
the relationship.
Not every supplier gives in. An ex-
ecutive who works with a major parts

9. manufacturer says that Apple's bargaiJ
ing tactics tend to exert downward pre
sure on prices, leading to lower profits
and margins. After months of negotia-
tions, the company declined a $1billio
payment from Apple that would have
required the supplier to commit much
of its manufacturing capacity to Cuper
tino's products. The executive familiar
/
' with these talks, who asked not to be
named because the discussions were
not public, says that while deals featur
ing $1billion in cash up front are basic
ly unheard of, his company didn't war
to be too dependent on Apple-and
didn't want to help it deflate 'prices.
Apple's control reaches its crescend
in the leadup to one ofits famed produ
unveilings, a tightly orchestrated pro-
cess that has been refined over years of
Mac, iPod, iPhone, and iPad debuts. Fo
weeks in advance of the announcemern
factories work overtime to build hun-
.dreds of thousands of devices. To track
efficiency and ensure pre-launch secre-
cy, Apple places electronic monitors in
some boxes of parts that allow observ-
ers in Cupertino to track them through
Chinese factories, an effort meant to dir
courage leaks. At least once, the compa
ny shipped products in tomato boxes tc
avoid detection, says the consultant wh
has worked with Apple. When the iPad

10. 2 debuted, the finished devices were
packed in plain boxes and Apple emplo
ees monitored every handoff point-loa
ing dock, airport, truck depot, and dis-
tribution center-to make sure each uni
was accounted for.
Apple'S retail stores give it a final op-
erational advantage. Once a product go
on sale, the company can track demanc
by the store and by the hour, and adjust
production forecasts daily. If it become
clear a given part will run out, teams an
deployed and given approval to spend
millions of dollars on extra equipmen :
get around the bottleneck.
Apple's enormous profits-its gross
margins were 40 percent last quar-
ter, compared with 10 to 20 percent for
most other hardware companies-are
in large part due to this focus on opera-
November 7 - November 13, 2011
Bloomberg Businessweek
CJ
c:
w
(XI
::;
os
(XI
;n-

11. o;
c:
o
::;
tions, which is sure to remain a prior-
ity under Cook. The new CEOis known
to give colleagues copies of Competing
Against Time, a book about using supply
chains as a strategic weapon in business.
According to Martin, the logistics execu-
tive, Cook uses a catchphrase to hammer
home the need for efficiency: "Nobody
wants to buy sour mille"
-Adam Satariano and Peter Burrows
The bottom line Apple plans to double spending on
its supply chain. to $7.1 billion, continuing its focus on
streamlining and controlling manufacturing.
Domain Names
Friend Me
On Faecbook
~ Scammy websites capitalizing on
misspellings are on the rise
~ Top sites contend with "more than
a thousand typosquatting domains"
Any company that achieves a sizable
online presence faces the threat of
typosquatters. They're the ones who
buy up domain names spelled simi-
larly to those of real companies and

12. take advantage off at-fingered users.
In October, the National Arbitration
Forum dismissed a complaint filed
by Google seeking control of three
typosquatting sites, goggle.com,
goggle.net, and goggle.org. The arbitra-
tion panel said it lacked jurisdiction.
The sites, registered to a Barbados-
based businessman
named David Csumrik-
that's not a typo-divert
users to a visitor survey
that promises a chance
to win prizes such as iPads. According
to several watchdog groups, it's a scam:
Victims don't win any prizes, and their
e-mail addresses are blitzed with spam.
Csumrik did not respond to repeated
requests for comment.
.Small typing errors are causing out-
size problems for companies. A 2010
study conducted by FairWinds Part-
ners, a Washington (D.C.)-based In-
ternet consulting firm, estimates that
typosquatting costs the 250 most-traf-
ficked websites $285 million annually in
lost sales and other expenses. "Typo-
squatting is rampant," says Benjamin
faeebeok
I
G. Edelman, an assistant professor at
Harvard Business School who has re-
searched the topic. "It's not unusual for a

13. top website to be targeted by more th
a thousand typosquatting domains."
Typosquatting has been around
since the dawn of the Internet, bu del-
man says the practice has increa d
with the proliferation of online a net-
works, which make it easier fi~qUat-
ters to earn money off their ill otten
traffic. Companies can defen against
attacks by registering anyav . able typo
domains themselves or by ta . g legal
action, but tracking down th owners
of typo domains is difficult a d time-
consuming. Sites can also su mit a com-
plaint to lCANN,the nonpro t that over-
sees domain names, but hav to prove
that squatters are using their ame in
"bad faith."
In recent months, Google fi d com-
plaints with ICANNagainst two ites
in the Philippines that took adv
tage of YouTube's popularity to
play the same type of
survey scam used by
the Goggle sites. In Iuly,
Facebook filed a law-
suit in California against
more than 100 alleged
typosquatters that the social network
site contends are infringing on the com-
pany's trademarks, using domain names
such as facebobk.com, facemook.com,
and faecbook.com.

14. Weather Underground, an Ann
Arbor, Mich., online weather forecast-
ing service, is litigating against four
companies that registered more than
three dozen domain
names that are close
misspellings ofits
wunderground.com
URL. "Typosquatting
harms trademark owners by confus-
ing consumers, and that's especial-
ly important to businesses that exist
mostly online like ourselves;' says Chris
Schwerzler, director of Weather: Un-
derground. The potential damage goes
beyond mere confusion. Researchers at
San Diego-based secu-
rity firm Websense re-
ported that more than
62 percent of the active
domain names based on
common misspellings of Facebook (and
not owned by Facebook) led to scams or
malicious sites.
824850
Unique U.S. visitors , " .•
to Goggle.com in Sept. 2011
7205
Unique visitors to ,
newyorker.com in Sept. 2011
Typosquatting is a cheap way to

15. get a lot of traffic. According to Com-
pete.com, Goggle.com received 824,850
unique U.S.visitors in September-more
than many top blogs, including Lifehack-
er, Boingboing, and DailyKos.
Google is in the unusual position
of being both a victim and a benefi-
ciary of typosquatting. Through its
AdSense program, the search com-
pany splits the revenue
from ads with third-par-
ty sites that agree to dis-
play them. Harvard's
Edelman, who served as
co-counsel in an unsuc-
cessful class action seeking to hold
Google liable for benefiting from typo-
squatting, estimates that the search
giant brings in $500 million annually
from advertisements on typosquatters'
sites. Google declined to comment, but
the company does offer what its official
policy calls "a limited investigation of
reasonable complaints."
Typosquatting also potentially puts
corporate secrets at risk. When a squat-
ter registers a domain name, he can
easily harvest any e-mails erroneously
sent to that name. If an advertiser
trying to reach his sales contact at
Google mistypes and fires off a message
to someone "@goggle.com," for in-

16. stance, the Goggle site's owner receives
the message. Godai Group, a San Fran-
cisco-based information security firm,
recently conducted a test to see what
kind of informa-
tion typo-squat-
ters can access.
The researchers set
up phony domains
based on the names of the 500 larg-
est U.S. companies by revenue, "'~~~-
but omitting the period between