"You make a lot of money off the piracy [of music], don't you?" -- Appeals Court Judge John Roberts to a lawyer for Verizon, which is challenging subpoenas to divulge customers' names It's not just corporate America that's shipping jobs overseas. Faced with the need to slash spending and modernize computer systems, state agencies from New Jersey to New Mexico are funneling programming and call-center work to contractors that use overseas labor. Of the $3.8 billion in tech spending states will outsource this year, nearly 5% will go offshore, says Gartner Dataquest (IT) analyst Rishi Sood. That will double by 2006.
To halt the flow of public jobs overseas, at least six states are considering legislation to stop the use of foreign labor. "State governments should not be exporting jobs when we have skyrocketing unemployment," says Shirley Turner, a Democratic state senator in New Jersey. Lawmakers say outsourcing also erodes states' tax bases.
Still, offshore workers are a bargain, and they're able to work with states' aging mainframe computers, says Martin Clague, CEO of consulting firm Covansys (CVNS). "Mainframe skills have been atrophying in the U.S.," he says. Covansys has 40% of its 4,800 workers in India.
State officials say that they are simply providing taxpayers with services at the lowest cost. "Unless the laws are changed to restrict it, you're going to see more of this," says Allen Larson, South Carolina's unemployment insurance director. If so, even more U.S. jobs will flow overseas. With the downturn pinching college budgets, one New Jersey school is getting unusually proactive about bringing in the cash. On Sept. 16, William Paterson University sued E*Trade Financial, claiming the firm reneged on a $5 million pledge.
Former E*Trade CEO and Paterson alum Christos Cotsakos pledged a $10 million gift in 2001 -- $5 million from his personal piggy bank and $5 million from E*Trade's coffers. The school named its business school after Cotsakos and built the E*Trade Financial Learning Center, with a simulated trading floor. Another condition: The school was to hold the money in an E*Trade account.
But the school only received half of E*Trade's gift, and was told in May that there would be no more money coming, the suit says. Paul Rowe, the school's lawyer, says Cotsakos hasn't paid his full $5 million, either. Rowe isn't sure Cotsakos' share is due yet. E*Trade and the school declined comment. Attempts to reach Cotsakos were unsuccessful.
Cotsakos left E*Trade in January after a flap over an $77 million pay package. He still holds 3.9 million shares, worth almost $40 million. That's worth a few more B-schools. The tech wreck humbled its share of twentysomething execs, but it has wreaked havoc on seasoned hands, too. The latest victim: Jerome B. York, the former chief financial officer of Chrysler (DCX) and IBM (IBM), who cut billions of dollars in costs to help turn around those corporate icons.
In February, 2000, York, along with the Los Angeles buyout firm Freeman, Spogli, and a group of private investors including Michael Ovitz and former Northwest Airlines (NWAC) Chairman Gary Wilson, paid $725 million to take Micro Warehouse private.
But this past Sept. 11, Micro Warehouse filed for bankruptcy protection -- just three days after York unloaded most of it to rival CDW (CDWC) for a paltry $22 million. What went wrong? The leveraged buyout left Micro Warehouse with a crushing debt -- more than $100 million at the time of bankruptcy. "They loaded the company with debt just in time for the worst cycle in the history of the industry," says Roy Vallee, CEO of electronics distributor Avnet (AVT)
Also left holding the bag were unsecured creditors, including Ingram Micro (IM) $17.9 million; Hewlett-Packard (HPQ) $8.6 million; and Toshiba, $3.1 million. Distributor Ingram says it's considering legal action because Micro Warehouse did not divulge its problems in negotiations. Micro Warehouse didn't pay York's former employer either. It owes IBM $2 million. York declined to comment. In contrast to the recording industry's litigious stance on downloading music, Apple Computer (AAPL) promotes its iTunes Music Store as free from legal hassles. "It's your music," declares its Web site.
If so, you should be able to give it away or sell it, right? A section of copyright law called first sale gives the owner such rights. Businesses -- from used bookstores to Blockbuster (BBI) -- exist because of it.
But consider the experience of George Hotelling. He wanted to sell a song he bought on iTunes for 99 cents to test the law. On Sept. 3, he put the song on eBay (EBAY) but the auction was canceled. EBay doesn't allow the resale of digital products delivered online. Besides, Apple's anti-piracy software prevented Hotelling from transferring ownership. So he had to give his account to a friend, who paid 50 cents for the song. "You have less control than over a physical CD," Hotelling says. Apple declined to comment.
As customers buy more digital works, resale rights will become a bigger issue. "If [Apple] prevented him from selling, then it wasn't right to say he owned a copy," says Jessica Litman, a Wayne State University law professor. Then what did Hotelling pay for? Left for dead in the dot-com crash, Web sites that compare prices are staging a surprise comeback. Traffic to Dealtime, BizRate, and PriceGrabber.com has surged up to 133% from a year ago, according to market researcher Nielsen/NetRatings. "It feels like 1999, but with real results," says Nirav Tolia, chief operating officer at Dealtime.
Credit more savvy consumers -- and retailers, who know that shoppers directed their way through price-comparison sites are primed to buy. The fees that retailers pay for these leads have made each company profitable. Now, the comparison sites are gearing up for the holidays by adding new items such as home products. And later this month, Dealtime will be relaunched as Shopping.com, a name that's easier to recall.
Yet their success may be short-lived. Google, Yahoo! (YHOO), and others are building their own comparison services. "Portals and search engines could siphon off this traffic," warns Forrester Research (FORR) analyst Carrie Johnson. The result: Only one independent is likely to survive. Darwin, it seems, still rules the Net. Just how many books on the AOL Time Warner (AOL) merger do we really need? Three will be out by January, when HarperCollins offers Fools Rush In, following publication of Stealing Time (Simon & Schuster) and There Must Be a Pony In Here Somewhere (Crown). By late fall, there will be six journalistic chronicles on Enron (ENRNQ) and two new portraits of Oracle (ORCL) Larry Ellison -- to add to four earlier ones.
Editors' headline-chasing -- helped by some sorry developments in the business-book biz -- is largely to blame. Since 2000, sales have dropped by 9%, to $834 million in 2002. That's due in part to cutbacks in corporate-training programs, which buy management and self-help books. And the economy's woes dampened enthusiasm for personal finance. That leaves business narratives as a primary focus for publishers.
Does it make sense to release so many similar books at the same time? "If book buyers have to pick from among five books, they're probably not going to pick anything," says Simon & Schuster editor Fred Hills. It sounds like yet another case of fools rushing in.